UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended December 31, 2004
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ______________ to ________________
Commission file number 0-14112
JACK HENRY & ASSOCIATES, INC.
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(Exact name of registrant as specified in its charter)
Delaware 43-1128385
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(State or Other Jurisdiction I.R.S. Employer
of Incorporation) Identification No.)
663 Highway 60, P.O. Box 807, Monett, MO 65708
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Address of Principle Executive Offices
(Zip Code)
417-235-6652
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(Registrant's Telephone number, including area code)
N/A
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(Former name, former address and former fiscal year, if changed since
last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes X No
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Exchange Act Rule 12b-2 of the Exchange Act.) Yes X No
APPLICABLE ONLY TO CORPORATE ISSUERS
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
As of January 27, 2004, Registrant has 91,163,321 shares of common stock
outstanding ($.01 par value)
JACK HENRY & ASSOCIATES, INC.
CONTENTS
Page
PART I FINANCIAL INFORMATION Reference
ITEM 1 Financial Statements
Condensed Consolidated Balance Sheets
December 31, 2004 and June 30, 2004 (Unaudited) 3
Condensed Consolidated Statements of Income
for the Three and Six Months Ended
December 31, 2004 and 2003 (Unaudited) 4
Condensed Consolidated Statements of Cash Flows
for the Six Months Ended December 31, 2004
and 2003 (Unaudited) 5
Notes to Condensed Consolidated Financial
Statements (Unaudited) 6
ITEM 2 Management's Discussion and Analysis of Financial
Condition and Results of Operations 10
ITEM 3 Quantitative and Qualitative Disclosures about
Market Risk 17
ITEM 4 Controls and Procedures 17
PART II OTHER INFORMATION
ITEM 6 Exhibits 18
PART 1. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
JACK HENRY & ASSOCIATES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In Thousands, Except Share and Per Share Data)
(Unaudited)
December 31, June 30,
2004 2004
----------- -----------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 22,515 $ 53,758
Investments, at amortized cost 997 998
Trade receivables 87,921 169,873
Prepaid expenses and other 13,933 14,023
Prepaid cost of product 17,516 19,086
Deferred income taxes 1,870 1,320
----------- -----------
Total 144,752 259,058
PROPERTY AND EQUIPMENT, net 224,071 215,100
OTHER ASSETS:
Prepaid cost of product 8,063 6,758
Computer software, net of amortization 25,890 18,382
Other non-current assets 6,638 5,791
Customer relationships, net of amortization 71,567 61,368
Trade names 4,033 4,029
Goodwill 176,574 83,128
----------- -----------
Total 292,765 179,456
----------- -----------
Total assets $ 661,588 $ 653,614
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 8,531 $ 9,171
Accrued expenses 20,052 21,509
Accrued income taxes 946 6,258
Note payable 10,000 -
Deferred revenues 99,339 136,302
----------- -----------
Total 138,868 173,240
DEFERRED REVENUES 10,403 8,694
DEFERRED INCOME TAXES 29,955 28,762
----------- -----------
Total liabilities 179,226 210,696
STOCKHOLDERS' EQUITY
Preferred stock - $1 par value; 500,000
shares authorized, none issued - -
Common stock - $0.01 par value:
250,000,000 shares authorized;
Shares issued at 12/31/04 were 90,865,984
Shares issued at 06/30/04 were 90,519,856 909 905
Additional paid-in capital 184,063 175,706
Retained earnings 297,390 271,433
Less treasury stock at cost
315,651 shares at 06/30/04 - (5,126)
----------- -----------
Total stockholders' equity 482,362 442,918
----------- -----------
Total liabilities and stockholders' equity $ 661,588 $ 653,614
=========== ===========
See notes to condensed consolidated financial statements
JACK HENRY & ASSOCIATES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(In Thousands, Except Per Share Data)
(Unaudited)
Three Months Ended Six Months Ended
December 31, December 31,
-------------------- --------------------
2004 2003 2004 2003
------- ------- ------- -------
REVENUE
License $ 22,148 $ 12,400 $ 41,699 $ 25,360
Support and service 87,726 76,717 171,374 149,241
Hardware 26,086 23,613 46,983 47,069
------- ------- ------- -------
Total 135,960 112,730 260,056 221,670
COST OF SALES
Cost of license 1,734 252 3,343 1,165
Cost of support and service 60,946 51,696 116,976 100,745
Cost of hardware 18,531 16,073 34,426 32,394
------- ------- ------- -------
Total 81,211 68,021 154,745 134,304
------- ------- ------- -------
GROSS PROFIT 54,749 44,709 105,311 87,366
OPERATING EXPENSES
Selling and marketing 11,920 8,531 22,652 17,303
Research and development 6,741 5,912 12,883 11,231
General and administrative 8,127 7,673 15,592 14,678
------- ------- ------- -------
Total 26,788 22,116 51,127 43,212
------- ------- ------- -------
OPERATING INCOME 27,961 22,593 54,184 44,154
INTEREST INCOME (EXPENSE)
Interest income 359 281 818 568
Interest expense (14) (3) (17) (29)
------- ------- ------- -------
Total 345 278 801 539
------- ------- ------- -------
INCOME BEFORE INCOME TAXES 28,306 22,871 54,985 44,693
PROVISION FOR INCOME TAXES 10,614 8,348 20,619 16,313
------- ------- ------- -------
NET INCOME $ 17,692 $ 14,523 $ 34,366 $ 28,380
======= ======= ======= =======
Diluted net income per share $ 0.19 $ 0.16 $ 0.37 $ 0.31
======= ======= ======= =======
Diluted weighted average
shares outstanding 92,957 92,000 92,721 91,534
======= ======= ======= =======
Basic net income per share $ 0.20 $ 0.16 $ 0.38 $ 0.32
======= ======= ======= =======
Basic weighted average
shares outstanding 90,650 89,231 90,468 88,873
======= ======= ======= =======
See notes to condensed consolidated financial statements
JACK HENRY & ASSOCIATES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
(Unaudited)
Six Months Ended
December 31,
-----------------------
2004 2003
-------- --------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 34,366 $ 28,380
Adjustments to reconcile net income from
operations to cash from operating activities:
Depreciation 14,563 13,362
Amortization 4,254 3,164
Deferred income taxes 2,930 3,920
Loss on disposal of property and equipment 1,061 229
Other, net - (66)
Changes in operating assets and liabilities,
net of acquisitions:
Trade receivables 88,210 83,118
Prepaid expenses, prepaid cost of product,
and other 113 1,752
Accounts payable (2,098) (3,914)
Accrued expenses (1,457) (6,872)
Income taxes (including tax benefit
of $1,730 and $4,413 from exercise
of stock options, respectively) (3,582) 3,380
Deferred revenues (44,150) (34,343)
-------- --------
Net cash from operating activities 94,210 92,110
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (23,570) (24,926)
Purchase of investments (1,992) (1,995)
Proceeds from sale of property and equipment 3 960
Proceeds from investments 2,000 2,633
Computer software developed (3,162) (1,143)
Payment for acquisitions, net of cash acquired (109,910) -
Other, net 70 96
-------- --------
Net cash from investing activities (136,561) (24,375)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock upon
exercise of stock options 7,987 14,665
Proceeds from sale of common stock, net 360 352
Notes payable 10,000 -
Dividends paid (7,239) (6,230)
-------- --------
Net cash from financing activities 11,108 8,787
-------- --------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS $ (31,243) $ 76,522
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD $ 53,758 $ 32,014
-------- --------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 22,515 $ 108,536
======== ========
Net cash paid for income taxes was $21,284 and $8,513 for the six months
ended December 31, 2004 and 2003, respectively. The Company paid interest
of $4 and $29 for the six months ended December 31, 2004 and 2003,
respectively.
See notes to condensed consolidated financial statements
JACK HENRY & ASSOCIATES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Amounts In Thousands, Except Per Share Amounts)
(Unaudited)
NOTE 1. NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
DESCRIPTION OF THE COMPANY
Jack Henry & Associates, Inc. and Subsidiaries ("JHA" or the "Company") is a
leading provider of integrated computer systems that has developed and
acquired a number of banking and credit union software systems. The
Company's revenues are predominately earned by marketing those systems
to financial institutions nationwide together with computer equipment
(hardware) and by providing the conversion and software installation
services for a financial institution to utilize a JHA software system. JHA
also provides continuing support and services to customers using the systems
either in-house or outsourced.
CONSOLIDATION
The consolidated financial statements include the accounts of JHA and all of
its subsidiaries, which are wholly- owned, and all significant intercompany
accounts and transactions have been eliminated.
STOCK OPTIONS
As permitted under Statement of Financial Accounting Standards ("SFAS") No.
123, Accounting for Stock-Based Compensation, the Company has elected to
follow Accounting Principles Board Opinion ("APB") No. 25, Accounting
for Stock Issued to Employees, in accounting for stock-based awards
to employees. Under APB No. 25, the Company generally recognizes no
compensation expense with respect to such awards, since the exercise price
of the stock options awarded are equal to the fair market value of the
underlying security on the grant date.
The following table illustrates the effect on net income and net income per
share as if the Company had accounted for its stock-based awards to
employees under the fair value method of SFAS No. 123. The fair value of the
Company's stock-based awards to employees was estimated as of the date of
the grant using a Black-Scholes option pricing model. The Company's pro
forma information is as follows:
Three Months Ended Six Months Ended
December 31, December 31,
------------------ ------------------
2004 2003 2004 2003
------- ------- ------- -------
Net income, as reported $ 17,692 $ 14,523 $ 34,366 $ 28,380
Deduct: Total stock-based employee
compensation expense determined
under fair value based method
for all awards, net of related
tax effects 338 308 605 6,808
------- ------- ------- -------
Pro forma net income $ 17,354 $ 14,215 $ 33,761 $ 21,572
======= ======= ======= =======
Diluted net income per share
As reported $ 0.19 $ 0.16 $ 0.37 $ 0.31
Pro forma $ 0.19 $ 0.15 $ 0.36 $ 0.24
Basic net income per share
As reported $ 0.20 $ 0.16 $ 0.38 $ 0.32
Pro forma $ 0.19 $ 0.16 $ 0.37 $ 0.24
COMPREHENSIVE INCOME
Comprehensive income for the three and six-month periods ended December 31,
2004 and 2003 equals the Company's net income.
INTERIM FINANCIAL STATEMENTS
The accompanying condensed consolidated financial statements have been
prepared in accordance with the instructions to Form 10-Q of the Securities
and Exchange Commission and in accordance with accounting principles
generally accepted in the United States of America applicable to interim
condensed consolidated financial statements, and do not include all of the
information and footnotes required by accounting principles generally
accepted in the United States of America for complete consolidated financial
statements. The condensed consolidated financial statements should be read
in conjunction with the Company's audited consolidated financial statements
and accompanying notes, which are included in its Annual Report on Form 10-K
("Form 10-K") for the year ended June 30, 2004. The accounting policies
followed by the Company are set forth in Note 1 to the Company's
consolidated financial statements included in its Form 10-K for the fiscal
year ended June 30, 2004.
In the opinion of management of the Company, the accompanying condensed
consolidated financial statements reflect all adjustments necessary
(consisting solely of normal recurring adjustments) to present fairly the
financial position of the Company as of December 31, 2004, and the results
of its operations and its cash flows for the three and six-month periods
ended December 31, 2004 and 2003.
The results of operations for the three and six-month periods ended December
31, 2004 are not necessarily indicative of the results to be expected for
the entire year.
ADDITIONAL INTERIM FOOTNOTE INFORMATION
The following additional information is provided to update the notes to the
Company's annual consolidated financial statements for the developments
during the three and six months ended December 31, 2004.
Acquisitions:
On December 17, 2004, the Company acquired certain assets of SERSynergy[TM]
("Synergy"), a division of SER Solutions, Inc. Synergy is a market leader
for intelligent document management for financial institutions. The
preliminary purchase price for Synergy, $35,001 paid in cash, was allocated
to the assets and liabilities acquired based on then estimated fair values
at the acquisition date, resulting in an allocation of $2,541 to capitalized
software, $6,145 to customer relationships, and $28,204 to goodwill. The
acquired goodwill has been allocated to the bank segment and is deductible
for federal income tax.
Effective December 1, 2004, the Company acquired the capital stock of TWS
Systems, Inc. and three affiliated corporations (collectively "TWS"). TWS
is a leading provider of image-based item processing solutions for credit
unions. The purchase price for TWS, $10,885 paid in cash, was allocated to
the assets and liabilities acquired, based on then estimated fair values at
the acquisition date, resulting in an allocation of $2,110 to capitalized
software, $2,645 to customer relationships, and $5,917 to goodwill. The
acquired goodwill has been allocated to the credit union segment and is non-
deductible for federal income tax.
On November 23, 2004, the Company acquired the capital stock of Optinfo,
Inc. ("Optinfo"). Optinfo is a leading provider of enterprise exception
management software and services. The purchase price for Optinfo, $12,927
paid in cash and $2,240 of vested options to acquire common stock, was
allocated to the assets and liabilities acquired based on then estimated
fair values at the acquisition date, resulting in an allocation of $421 to
capitalized software, and $12,650 to goodwill. The acquired goodwill has
been allocated to the bank segment and is non-deductible for federal income
tax.
Effective October 1, 2004, the Company acquired the capital stock of Verinex
Technologies, Inc. ("Verinex"). Verinex is a leading developer and
integrator of biometric security solutions. The purchase price for Verinex,
$35,000 paid in cash, was allocated to the assets and liabilities acquired
based on then estimated fair values at the acquisition date, resulting
in an allocation of $464 to capitalized software, $4,208 to customer
relationships, and $29,729 to goodwill. The acquired goodwill has been
allocated to the bank segment and is non-deductible for federal income tax.
On October 5, 2004, the Company announced it had completed the acquisition
by merger of Select Payment Processing, Inc. ("SPP") effective October 1,
2004. SPP is a provider of an innovative electronic payment processing
solution for financial institutions. The purchase price for SPP, $12,000
paid in cash, was allocated to the assets and liabilities acquired based on
then estimated fair values at the acquisition date, resulting in an
allocation of $467 to capitalized software and $10,397 to goodwill. The
acquired goodwill has been allocated to the bank segment and is non-
deductible for federal income tax.
On September 1, 2004, the Company acquired Banc Insurance Services, Inc.
("BIS") in Massachusetts. BIS is a leading provider of turnkey outsourced
insurance agency solutions for financial institutions. The purchase price
for BIS, $6,665 paid in cash, was allocated to the assets and liabilities
acquired based on then estimated fair values at the acquisition date,
resulting in a net allocation of $6,549 to goodwill. Contingent purchase
consideration may be paid over the next five years based upon BIS gross
revenues which could result in additional allocations to goodwill of up to
$13,400. The acquired goodwill has been allocated to the bank segment and is
non-deductible for federal income tax.
The accompanying condensed statements of income for the three and six-month
periods ended December 31, 2004 and 2003 do not include any revenues and
expenses related to these acquisitions prior to the respective closing dates
of each acquisition. The following unaudited pro forma consolidated
financial information is presented as if these acquisitions had occurred
at the beginning of the periods presented. In addition, this unaudited pro
forma financial information is provided for illustrative purposes only and
should not be relied upon as necessarily being indicative of the historical
results that would have been obtained if these acquisitions had actually
occurred during those periods, or the results that may be obtained in the
future as a result of these acquisitions.
Pro Forma Three Months Ended Six Months Ended
December 31, December 31,
-------------------- --------------------
2004 2003 2004 2003
------- ------- ------- -------
Revenue $142,133 $122,672 $276,403 $240,165
Gross profit 57,255 48,282 112,503 94,440
------- ------- ------- -------
Net Income $ 18,436 $ 15,677 $ 37,003 $ 30,929
======= ======= ======= =======
Earnings per share - diluted $ 0.20 $ 0.17 $ 0.40 $ 0.34
======= ======= ======= =======
Diluted Shares 92,957 92,000 92,271 91,534
======= ======= ======= =======
Earnings per share - basic $ 0.20 $ 0.18 $ 0.41 $ 0.35
======= ======= ======= =======
Basic Shares 90,650 89,231 90,468 88,873
======= ======= ======= =======
RECLASSIFICATION
Where appropriate, prior period financial information has been reclassified
to conform to the current period's presentation.
NOTE 2. RECENT ACCOUNTING PRONOUNCEMENTS
In December 2004, the Financial Accounting Standard Board ("FASB") issued
Statement No. 123 ("FAS 123R"), Share-Based Payment. The statement requires
all entities to recognize compensation expense in an amount equal to the
fair value of stock options and restricted stock granted to employees. The
Company will apply this standard beginning July 1, 2005; however the Company
has not completed the process of evaluating the methodology to be used to
implement the requirements of this standard.
NOTE 3. SHARES USED IN COMPUTING NET INCOME PER SHARE
Three Months Ended Six Months Ended
December 31, December 31,
--------------- ---------------
2004 2003 2004 2003
------ ------ ------ ------
Weighted average number of common
shares outstanding - basic 90,650 89,231 90,468 88,873
Common stock equivalents 2,307 2,769 2,253 2,661
------ ------ ------ ------
Weighted average number of common
and common equivalent shares
outstanding - diluted 92,957 92,000 92,721 91,534
====== ====== ====== ======
Per share information is based on the weighted average number of common
shares outstanding for the periods ended December 31, 2004 and 2003. Stock
options have been included in the calculation of income per share to
the extent they are dilutive. Non-dilutive stock options to purchase
approximately 1,723 and 1,720 shares and 1,780 and 6,173 shares for the
three and six-month periods ended December 31, 2004 and 2003, respectively,
were not included in the computation of diluted income per common share.
NOTE 4. BUSINESS SEGMENT INFORMATION
The Company is a leading provider of integrated computer systems that
perform data processing (both in-house and outsourced) for banks and credit
unions. The Company's operations are classified into two business segments:
bank systems and services and credit union systems and services. The
Company evaluates the performance of its segments and allocates resources to
them based on various factors, including prospects for growth, return on
investment, and return on revenue.
Three Months Ended Three Months Ended
December 31, 2004 December 31, 2003
---------------------------- ----------------------------
Bank Credit Union Total Bank Credit Union Total
------- ------------ ------- ------- ------------ -------
REVENUE
License $ 16,864 $ 5,284 $ 22,148 $ 8,657 $ 3,743 $ 12,400
Support and service 73,926 13,800 87,726 65,901 10,816 76,717
Hardware 20,514 5,572 26,086 19,668 3,945 23,613
------- ------- ------- ------- ------- -------
Total 111,304 24,656 135,960 94,226 18,504 112,730
------- ------- ------- ------- ------- -------
COST OF SALES
Cost of license 1,117 617 1,734 165 87 252
Cost of support and service 48,451 12,495 60,946 42,661 9,035 51,696
Cost of hardware 14,166 4,365 18,531 13,377 2,696 16,073
------- ------- ------- ------- ------- -------
Total 63,734 17,477 81,211 56,203 11,818 68,021
------- ------- ------- ------- ------- -------
GROSS PROFIT $ 47,570 $ 7,179 $ 54,749 $ 38,023 $ 6,686 $ 44,709
======= ======= ======= ======= ======= =======
Six Months Ended
December 31, 2004 December 31, 2003
---------------------------- ----------------------------
Bank Credit Union Total Bank Credit Union Total
------- ------------ ------- ------- ------------ -------
REVENUE
License $ 29,382 $ 12,317 $ 41,699 $ 17,488 $ 7,872 $ 25,360
Support and service 145,166 26,208 171,374 129,048 20,193 149,241
Hardware 36,572 10,411 46,983 39,254 7,815 47,069
------- ------- ------- ------- ------- -------
Total 211,120 48,936 260,056 185,790 35,880 221,670
------- ------- ------- ------- ------- -------
COST OF SALES
Cost of license 1,535 1,808 3,343 640 525 1,165
Cost of support and service 94,152 22,824 116,976 83,477 17,268 100,745
Cost of hardware 26,282 8,144 34,426 27,084 5,310 32,394
------- ------- ------- ------- ------- -------
Total 121,969 32,776 154,745 111,201 23,103 134,304
------- ------- ------- ------- ------- -------
GROSS PROFIT $ 89,151 $ 16,160 $105,311 $ 74,589 $ 12,777 $ 87,366
======= ======= ======= ======= ======= =======
December 31, June 30,
----------- -----------
2004 2004
----------- -----------
Property and equipment, net
Bank systems and services $ 190,001 $ 187,242
Credit Union systems and services 34,070 27,858
----------- -----------
Total $ 224,071 $ 215,100
=========== ===========
Identified intangible assets, net
Bank systems and services $ 237,537 $ 125,650
Credit Union systems and services 40,527 41,257
----------- -----------
Total $ 278,064 $ 166,907
=========== ===========
NOTE 5. SUBSEQUENT EVENTS
Effective January 1, 2005, the Company acquired all of the membership
interests in RPM Intelligence, LLC, doing business as Stratika ("Stratika").
Stratika provides customer and product profitability solutions for financial
institutions. The initial purchase price for Stratika, $6,000 paid in
cash, was preliminarily allocated to the assets and liabilities acquired
based on then estimated fair values at the acquisition date. Contingent
purchase consideration of up to $10,000 may be paid over the next three
years based upon the net operating income of Stratika.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Background and Overview
We provide integrated computer systems for in-house and outsourced
data processing to commercial banks, credit unions and other financial
institutions. We have developed and acquired banking and credit union
application software systems that we market, together with compatible
computer hardware, to these financial institutions. We also perform data
conversion and software installation for the implementation of our systems
and provide continuing customer support services after the systems are
installed. For our customers who prefer not to make an up-front capital
investment in software and hardware, we provide our full range of products
and services on an outsourced basis through our six data centers and 20
item-processing centers located throughout the United States.
Fiscal year 2005 second quarter results reflect a 21% increase in revenue,
resulting in a 22% increase in gross profit and net income over the second
quarter of fiscal year 2004. For the first six months of fiscal 2005,
revenue increased 17%, with an increase of 21% in gross profit and net
income over the same six months in fiscal 2004.
A detailed discussion of the major components of the results of operations
for the three and six-month periods ended December 31, 2004 follows. All
amounts are in thousands and discussions compare the current three and six-
month periods ended December 31 2004, to the prior three and six-month
periods ended December 31, 2003.
REVENUE
License Revenue Three Months Ended Six Months Ended
December 31, December 31,
------------------ ------------------
2004 2003 2004 2003
------- ------- ------- -------
License $ 22,148 $ 12,400 $ 41,699 $ 25,360
Percentage of total revenue 16% 11% 16% 11%
Change from prior year +79% +64%
License revenue represents the delivery and acceptance of application
software systems contracted with us by the customer. We license our
proprietary software products under standard license agreements that
typically provide the customer with a non-exclusive, non-transferable right
to use the software on a single computer and for a single financial
institution location.
License revenue increased mainly due to growth in delivery and acceptance
within both segments with the bank segment experiencing the largest increase
for the quarter and the first six months in fiscal 2005. The Check 21
legislation, which facilitates the clearing of image checks electronically
by financial institutions, has continued to generate strong interest in
sales of our complementary image products, especially our 4|sight and
Check Image Exchange solutions. ARGO (a customer relationship management
solution), Episys (our credit union software solution for larger credit
unions), and Detective (our anti-fraud and anti-money laundering software
solution) were all leading elements in the license increase for the second
quarter and the first six months of fiscal 2005.
Support and Service Revenue Three Months Ended Six Months Ended
December 31, December 31,
------------------ ------------------
2004 2003 2004 2003
------- ------- ------- -------
Support and service $ 87,726 $ 76,717 $171,374 $149,241
Percentage of total revenue 65% 68% 66% 67%
Change from prior year +14% +15%
Support and service revenues are generated from implementation services,
annual support services to assist the customer in operating their systems
and to enhance and update the software, outsourced data processing services
and ATM and debit card processing services.
There was strong growth in most of the support and service revenue
components for the second quarter and first half of fiscal 2005, with the
exception of implementation services. Implementation services decreased 1%,
mainly due to timing and number of installations performed during the first
six months of fiscal 2005 compared to the same period last year.
Q2 Fiscal 2005 Compared to Q2 Fiscal 2004
-----------------------------------------
Support and Service Revenue $ Change % Change
-------- --------
In-House Support & Other Services $ 4,023 11%
EFT Support 4,161 46%
Outsourcing Services 2,250 11%
Implementation Services 575 6%
--------
Total Increase $ 11,009 14%
========
YTD Fiscal 2005 Compared to YTD Fiscal 2004
-------------------------------------------
Support and Service Revenue $ Change % Change
-------- --------
In-House Support & Other Serv $ 9,426 13%
EFT Support 7,911 46%
Outsourcing Services 5,063 13%
Implementation Services (267) -1%
--------
Total Increase $ 22,133 15%
========
In-house support increased primarily from software installations performed
during the previous twelve months. We expect this trend to continue as we
add services from recent acquisitions to our existing and new customers.
EFT support, representing ATM and debit card transaction processing
services, together with outsourcing services for banks and credit unions
continue to drive revenue growth at a strong pace as we leverage our
resources effectively and expand our customer base.
Hardware Revenue Three Months Ended Six Months Ended
December 31, December 31,
------------------ ------------------
2004 2003 2004 2003
------- ------- ------- -------
Hardware $ 26,086 $ 23,613 $ 46,983 $ 47,069
Percentage of total revenue 19% 21% 18% 21%
Change from prior year +10% 0%
The Company has entered into remarketing agreements with several hardware
manufacturers under which we sell computer hardware, hardware maintenance
and related services to our customers. Revenue related to hardware sales is
recognized when the hardware is shipped to our customers.
Hardware revenue increased for the second quarter due to an increase in the
number of hardware systems delivered, mainly due to timing of shipments.
Hardware revenue was 21% of total revenue in the second quarter of the prior
year and the first six months of fiscal 2004, while in the current second
quarter it is 19% of total revenue and 18% of total revenue for the first
six months of fiscal 2005. We expect this decrease as a percentage of total
revenue to continue as the entire industry is experiencing the impact of
rising equipment processing power and decreasing equipment prices.
BACKLOG
Backlog increased 7% from year-ago levels and increased 5% from the
September 2004 quarter to $194.5 million ($68.4 million in-house and $126.1
million outsourcing) at December 31, 2004. Backlog at September 30, 2004,
was $185.1 million ($63.0 million in-house and $122.1 million outsourcing).
At December 31, 2003, backlog was $182.5 million ($60.0 million in-house and
$122.5 million outsourcing).
COST OF SALES AND GROSS PROFIT
Cost of license represents the cost of software from third party vendors
through remarketing agreements. These costs are recognized when license
revenue is recognized. Cost of support and service represents costs
associated with conversion and implementation efforts, ongoing support for
our in-house customers, operation of our data and item centers providing
services for our outsourced customers, ATM and debit card processing
services and direct operation costs. These costs are recognized as they are
incurred. Cost of hardware consists of the direct and related costs of
purchasing the equipment from the manufacturers and delivery to our
customers plus the ongoing operation costs to provide support to our
customers. These costs are recognized at the same time as the related
hardware revenue is recognized.
Cost of Sales and Gross Profit Three Months Ended Six Months Ended
December 31, December 31,
------------------ ------------------
2004 2003 2004 2003
------- ------- ------- -------
Cost of License $ 1,734 $ 252 $ 3,343 $ 1,165
Percentage of total revenue 1% 0% 1% 1%
Change from prior year >100% >100%
License Gross Profit $ 20,414 $ 12,148 $ 38,356 $ 24,195
Gross Profit Margin 92% 98% 92% 95%
Change from prior year +68% +59%
------------------ ------------------
Cost of support and service $ 60,946 $ 51,696 $116,976 $100,745
Percentage of total revenue 45% 46% 45% 45%
Change from prior year +18% +16%
Support and Service Gross $ 26,780 $ 25,021 $ 54,398 $ 48,496
Gross Profit Margin 31% 33% 32% 32%
Change from prior year +7% +12%
------------------ ------------------
Cost of hardware $ 18,531 $ 16,073 $ 34,426 $ 32,394
Percentage of total revenue 14% 14% 13% 15%
Change from prior year +15% +6%
Hardware Gross Profit $ 7,555 $ 7,540 $ 12,557 $ 14,675
Gross Profit Margin 29% 32% 27% 31%
Change from prior year 0% -14%
------------------ ------------------
TOTAL COST OF SALES $ 81,211 $ 68,021 $154,745 $134,304
Percentage of total revenue 60% 60% 60% 61%
Change from prior year +19% +15%
TOTAL GROSS PROFIT $ 54,749 $ 44,709 $105,311 $ 87,366
Gross Profit Margin 40% 40% 40% 39%
Change from prior year +22% +21%
Cost of license increased for the second quarter and the first six months of
fiscal 2005 due to increased third party reseller agreement software vendor
costs. Cost of support and service increased for the second quarter and the
first six months of fiscal 2005 due to increased headcount, travel and
depreciation expense as compared to the same periods last year. Cost of
hardware also increased for the current second quarter and the first half of
fiscal 2005, due to product and sales mix with lower vendor incentives in
the current year. Incentives and rebates received from vendors fluctuate
quarterly and annually due to changing thresholds established by the
vendors.
GROSS PROFIT - Gross profit margin on license revenue decreased in the
current second quarter and the first half of fiscal 2005 due to increased
license revenue through reseller agreements. The gross profit margin
decreased slightly in support and service for the current second quarter
primarily due to increased headcount relating to support and service,
facility costs related to new acquisitions, travel related expenses and
depreciation expense of new equipment. For the first six months of fiscal
2005, the support and service gross margin remained even when compared to
the first six months of fiscal 2004. Hardware gross margin in the second
quarter and the first half of fiscal 2005 decreased primarily due to
decreases in incentives and rebates earned from vendors which fluctuate
quarterly and annually, plus the timing of hardware shipments and sales mix.
OPERATING EXPENSES
Selling and Marketing Three Months Ended Six Months Ended
December 31, December 31,
------------------ ------------------
2004 2003 2004 2003
------- ------- ------- -------
Selling and marketing $ 11,920 $ 8,531 $ 22,652 $ 17,303
Percentage of total revenue 9% 8% 9% 8%
Change from prior year +40% +31%
Dedicated sales forces, inside sales teams, and technical sales support
teams conduct our sales efforts for our two market segments, and are
overseen by regional sales managers. Our sales executives are responsible
for pursuing lead generation activities for new core customers. Our account
executives nurture long-term relationships with our client base and cross
sell our many complementary products and services. Our inside sales force
markets specific complementary products and services to our existing
customers.
For the three months and six months ended December 31, 2004, selling and
marketing expenses increased due to larger commission and related expenses
due to increased revenue.
Research and Development Three Months Ended Six Months Ended
December 31, December 31,
------------------ ------------------
2004 2003 2004 2003
------- ------- ------- -------
Research and development $ 6,741 $ 5,912 $ 12,883 $ 11,231
Percentage of total revenue 5% 5% 5% 5%
Change from prior year +14% +15%
We devote significant effort and expense to develop new software, service
products and continually upgrade and enhance our existing offerings.
Typically, we upgrade all of our core and complementary software
applications annually. We believe our research and development efforts are
highly efficient because of the extensive experience of our research and
development staff and because our product development is highly customer-
driven.
Research and development expenses increased primarily due to employee
related costs in relation to increased headcount for ongoing development of
new products and enhancements to existing products, plus depreciation
and maintenance expense for upgrading technology equipment. Research and
development expenses increased for the second quarter and year to date but
still remained at 5% of total revenue for both years.
General and Administrative Three Months Ended Six Months Ended
December 31, December 31,
------------------ ------------------
2004 2003 2004 2003
------- ------- ------- -------
General and administrative $ 8,127 $ 7,673 $ 15,592 $ 14,678
Percentage of total revenue 6% 7% 6% 7%
Change from prior year +6% +6%
General and administrative expense increased for the second quarter and
year-to-date in fiscal 2005, primarily due to increased employee cost
related to both acquisitions and internal headcount growth as compared to
the same period last year. Although general and administrative expenses
increased for both the second quarter and year to date, they remained even
at 6% of total revenue for the current year, and 7% of total revenue for the
same periods in the prior year.
INTEREST INCOME (EXPENSE) - Net interest income for the three and six-months
ended December 31, 2004 reflects an increase of $67 and $262, respectively,
when compared to the same period last year due to higher interest and
dividends on investments.
PROVISION FOR INCOME TAXES - The provision for income taxes was $10,614 and
$20,619 for the three and six months ended December 31, 2004 compared with
$8,348 and $16,313 for the same three and six-month periods in fiscal 2004.
For the current fiscal year, the rate of income taxes is estimated at 37.5%
of income before income taxes compared to 36.5% for the periods in fiscal
2004. The change reflects an overall increase in the effective state income
tax rate.
NET INCOME - Net income increased 22% to $17,692 or $0.19 per diluted share
for the three months ended December 31, 2004 compared to $14,523 or $0.16
per diluted share for the three months ended December 31, 2003. Net income
increased 21% to $34,366 or $0.37 per diluted share for the first six months
of fiscal 2005 compared to $28,380 or $0.31 per diluted share for the six
month period ended December 31, 2003.
BUSINESS SEGMENT DISCUSSION
The Company is a leading provider of integrated computer systems that
perform data processing (available for in-house or outsourced installations)
for banks and credit unions. The Company's operations are classified into
two business segments: bank systems and services ("Bank") and credit union
systems and services ("Credit Union"). The Company evaluates the performance
of its segments and allocates resources to them based on various factors,
including prospects for growth, return on investment, and return on revenue.
Bank Three Months Ended % Six Months Ended %
December 31, Change December 31, Change
------------------------- ------------------------
2004 2003 2004 2003
------- ------- ------- -------
Revenue $111,304 $ 94,226 18% $211,120 $185,790 14%
Gross Profit $ 47,570 $ 38,023 25% $ 89,151 $ 74,589 20%
Gross Profit Margin 43% 40% 42% 40%
Revenue growth in the bank segment for the second quarter and the first half
of fiscal 2005 is attributable to the significant increase in license
revenue related to new core customers, migrations from legacy systems, and
complimentary products, together with the steady increase in support and
services relating to maintenance for in-house and outsourced customers. ATM
and debit card processing activity continues to experience strong increases
while expanding the customer base.
This bank segment increased gross profit for the second quarter and the
first half of 2005 due to our revenue growth and continued leveraging of
resources and infrastructure combined with cost controls.
Credit Union Three Months Ended % Six Months Ended %
December 31, Change December 31, Change
------------------------- ------------------------
2004 2003 2004 2003
------- ------- ------- -------
Revenue $ 24,656 $ 18,504 33% $ 48,936 $ 35,880 36%
Gross Profit $ 7,179 6,686 7% $ 16,160 $ 12,777 26%
Gross Profit Margin 29% 36% 33% 36%
Revenue growth in the credit union segment for the second quarter and the
first half of fiscal 2005 is attributable to the growth in license revenue
together with the steady increase in support and services relating to
maintenance for in-house and outsourced customers, and ATM and debit card
processing activity, which is growing rapidly in our credit union segment.
Headcount increased in the segment due to the significant increase in
implementation backlog from the same period last year.
The credit union gross profit decreased for the second quarter and the first
half of 2005 due to the increased amount of third party software delivered,
causing a decrease in gross profit margin on license revenue. There was
also a decrease in support and service margin primarily due to increased
headcount and increased depreciation expense related to the new office
facility in San Diego, which did not exist last year for the same period.
The decrease in the hardware margin is mainly due to sales mix and reduced
rebates compared to the prior year.
FINANCIAL CONDITION
Liquidity
The Company's cash and cash equivalents decreased to $22,515 at December 31,
2004, from $53,758 million at June 30, 2004 and $108,536 at December 31,
2003. The decrease is primarily due to payment for acquisitions of
$109,910. Cash provided by operations increased $2,100 to $94,210 for the
six months ended December 31, 2004 as compared to $92,110 for the same
period last year. The increase in net cash from operating activities
consists of an increase in net income of $5,986, and an increase in
depreciation and amortization of $2,291, plus changes in trade receivables
of $5,092, prepaid expenses of ($1,639), accounts payable and accrued
expenses of $7,231, income taxes of ($6,962) and deferred revenues of
($9,807).
Cash used in investing activities for the current period totaled $136,561.
The largest use of cash was for payment of acquisitions in the amount of
$109,910. Capital expenditures totaled $23,570, and purchase of internal
software used $3,162.
Financing activities netted cash of $11,108 during the six months ended
December 31, 2004 and included proceeds from the issuance of stock for stock
options exercised and the sale of treasury and common stock to the employee
stock purchase plan of $7,987 and $360, respectively. A line of credit note
payable was opened in the amount of $10,000, and dividends were paid to the
stockholders of $7,239.
The Company renewed a bank credit line in October 2004 that provides for
funding up to $25,000 and bears interest at a variable LIBOR-based rate. At
December 31, 2004, there was a 30 day note outstanding for $10,000. The
note was renewed and is due February 14, 2005.
Capital Requirements and Resources
The Company generally uses existing resources and funds generated from
operations to meet its capital requirements. Capital expenditures totaling
$23,570 and $24,926 for the six-month periods ended December 31, 2004 and
2003, respectively, which were made for expansion of facilities and
additional equipment. These additions were funded from cash generated by
operations. Total consolidated capital expenditures for the Company are not
expected to exceed $45,000 for fiscal year 2005.
On September 21, 2001, the Company's Board of Directors approved a stock
buyback of the Company's common stock of up to 3.0 million shares, and
approved an increase to 6.0 million shares on October 4, 2002. The buyback
was funded with cash from operations. At June 30, 2004, there were 315,651
shares remaining in treasury stock. During the six months ended December
31, 2004, treasury shares of 306,027 were reissued for the shares exercised
in the employee stock option plan and 9,624 were reissued for the shares
exercised in the employee stock purchase plan. At December 31, 2004, there
were no shares remaining in treasury stock.
Subsequent to December 31, 2004, the Company's Board of Directors declared a
cash dividend of $.045 per share, a 13% increase per share, on its common
stock payable on March 1, 2005, to stockholders of record on February 14,
2005. Current funds from operations are adequate for this purpose. The
Board has indicated that it plans to continue paying dividends as long as
the Company's financial outlook continues to be favorable.
Critical Accounting Policies
The Company regularly reviews its selection and application of significant
accounting policies and related financial disclosures. The application of
these accounting policies requires that management make estimates and
judgments. The estimates that affect the application of our most critical
accounting policies and require our most significant judgments are outlined
in Management's Discussion and Analysis of Financial Condition and Results
of Operations - "Critical Accounting Policies" - contained in our annual
report on Form 10-K for the year ended June 30, 2004.
Forward Looking Statements
The Management's Discussion and Analysis of Results of Operations and
Financial Condition and other portions of this report contain forward-
looking statements within the meaning of federal securities laws. Actual
results are subject to risks and uncertainties, including both those
specific to the Company and those specific to the industry, which could
cause results to differ materially from those contemplated. The risks and
uncertainties include, but are not limited to, the matters detailed at Risk
Factors in its Annual Report on Form 10-K for the fiscal year ended June 30,
2004. Undue reliance should not be placed on the forward-looking statements.
The Company does not undertake any obligation to publicly update any
forward-looking statements.
CONCLUSION
The Company's results of operations and its financial position continue to
be strong with increased earnings, increased gross margin growth, and
sustained growth in cash flow from operations for the three and six
months ended December 31, 2004. This reflects the continuing attitude of
cooperation and commitment by each employee, management's ongoing cost
control efforts and our commitment to deliver top quality products and
services to the markets we serve.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Market risk refers to the risk that a change in the level of one or more
market prices, interest rates, indices, volatilities, correlations or other
market factors such as liquidity, will result in losses for a certain
financial instrument or group of financial instruments. We are currently
exposed to credit risk on credit extended to customers and interest risk on
investments in U.S. government securities. We actively monitor these risks
through a variety of controlled procedures involving senior management. We
do not currently use any derivative financial instruments. Based on the
controls in place, credit worthiness of the customer base and the relative
size of these financial instruments, we believe the risk associated with
these exposures will not have a material adverse effect on our consolidated
financial position or results of operations.
ITEM 4. CONTROLS AND PROCEDURES
An evaluation was carried out under the supervision and with the
participation of our management, including our Company's Chief Executive
Officer (CEO) and Chief Financial Officer (CFO), of the effectiveness of the
design and operations of our disclosure controls and procedures pursuant to
Exchange Act Rules 13a-15 and 15d-15. Based upon that evaluation as of the
end of the period covered by this report, the CEO and CFO concluded that
our disclosure controls and procedures are effective in timely alerting
them to material information relating to us (including our consolidated
subsidiaries) required to be included in our periodic SEC filings. There
have not been any significant changes in our internal controls or in other
factors that could significantly affect these controls subsequent to the
date of evaluation.
ITEM 6. EXHIBITS
10.19 Asset Purchase Agreement between the Company, SER Systems, Inc. and
SER Solutions, Inc., dated December 17, 2004.
31.1 Certification of the Chief Executive Officer dated February 9, 2005.
31.2 Certification of the Chief Financial Officer dated February 9, 2005.
32.1 Written Statement of the Chief Executive Officer dated February 9,
2005.
32.2 Written Statement of the Chief Financial Officer dated February 9,
2005.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this quarterly report on Form 10-Q to be signed
on its behalf by the undersigned thereunto duly authorized.
JACK HENRY & ASSOCIATES, INC.
Date: February 9, 2005 /s/ John F. Prim
---------------------
John F. Prim
Chief Executive Officer
Date: February 9, 2005 /s/ Kevin D. Williams
---------------------
Kevin D. Williams
Chief Financial Officer and Treasurer
EXHIBIT 10.19
EXECUTION COPY
ASSET PURCHASE AGREEMENT
BY AND BETWEEN
SER SYSTEMS, INC,
SER SOLUTIONS, INC.,
AND
JACK HENRY & ASSOCIATES, INC., AND
JHA SYNERGY, INC.
December 17, 2004
TABLE OF CONTENTS
-----------------
ARTICLE I DEFINITIONS ...................................... 1
Section 1.1 Accounting Principles............................. 1
Section 1.2 Accounts.......................................... 1
Section 1.3 Accounts Payable.................................. 1
Section 1.4 Affiliate......................................... 1
Section 1.5 Agreement......................................... 1
Section 1.6 Assets............................................ 2
Section 1.7 Assignment and Assumption Agreement............... 2
Section 1.8 Assignment of Lease Agreement..................... 2
Section 1.9 Assumed Liabilities............................... 2
Section 1.10 Bill of Sale...................................... 2
Section 1.11 Brainware Engine License.......................... 2
Section 1.12 Business Day...................................... 3
Section 1.13 Buyer............................................. 3
Section 1.14 Buyer's Consents.................................. 3
Section 1.15 Closing........................................... 3
Section 1.16 Closing Date...................................... 3
Section 1.17 Code.............................................. 3
Section 1.18 Commercially Reasonable Efforts................... 3
Section 1.19 Continuing Employee............................... 3
Section 1.20 Contracts......................................... 3
Section 1.21 Copyrights........................................ 3
Section 1.22 Deferred Maintenance.............................. 3
Section 1.23 Effective Time of the Closing..................... 3
Section 1.24 Equipment......................................... 3
Section 1.25 ERISA............................................. 3
Section 1.26 Excluded Assets................................... 3
Section 1.27 Final Working Capital Calculation................. 4
Section 1.28 Final Working Capital............................. 4
Section 1.29 Final Purchase Price.............................. 4
Section 1.30 Financial Statement............................... 4
Section 1.31 General Intangibles............................... 4
Section 1.32 Governmental Authority............................ 4
Section 1.33 IDM Business...................................... 4
Section 1.34 IDM Contract...................................... 4
Section 1.35 IDM Employee...................................... 4
Section 1.36 Initial Working Capital........................... 4
Section 1.37 Initial Working Capital Calculation............... 5
Section 1.38 Initial Purchase Price............................ 5
Section 1.39 Intangibles....................................... 5
Section 1.40 Inventory......................................... 5
Section 1.41 Knowledge......................................... 5
Section 1.42 Law............................................... 5
Section 1.43 Losses............................................ 5
Section 1.44 Material Adverse Effect........................... 5
Section 1.45 Opinion of Seller's Counsel....................... 5
Section 1.46 Permits........................................... 5
Section 1.47 Permitted Liens................................... 5
Section 1.48 Person............................................ 6
Section 1.49 Representatives................................... 6
Section 1.50 Rochester Hills Facility.......................... 6
Section 1.51 Rochester Hills Lease............................. 6
Section 1.52 Seller............................................ 6
Section 1.53 Seller's Consents................................. 6
Section 1.54 Tax or Taxes...................................... 6
Section 1.55 Tax Return........................................ 6
Section 1.56 Transition Services Agreement..................... 7
Section 1.57 Working Capital Calculation....................... 6
ARTICLE II PURCHASE AND SALE ................................... 6
Section 2.1 Purchase and Sale; Assignment and Assumption...... 6
Section 2.2 Payment of the Initial Purchase Price; Deliveries
at Closing...................................... 7
Section 2.3 Working Capital Calculation; Settlement of Final
Purchase Price.................................. 7
ARTICLE III REPRESENTATIONS AND WARRANTIES OF SELLER ............ 9
Section 3.1 Organization Seller............................... 9
Section 3.2 Authorization; Enforceability..................... 9
Section 3.3 No Violation or Conflict by Seller................ 9
Section 3.4 Financial Statements.............................. 9
Section 3.5 Title to and Sufficiency of Assets................ 9
Section 3.6 No Litigation..................................... 10
Section 3.7 Inventory......................................... 10
Section 3.8 Contracts......................................... 10
Section 3.9 Accounts.......................................... 10
Section 3.10 Condition of Equipment............................ 11
Section 3.11 Compliance with Law............................... 11
Section 3.12 Taxes............................................. 11
Section 3.13 Employment Agreements and Benefits................ 11
Section 3.14 Intangibles....................................... 11
Section 3.15 Fees and Expenses of Brokers and Others........... 12
Section 3.16 No Material Adverse Change........................ 12
Section 3.17 Environmental Conditions.......................... 12
Section 3.18 Lease............................................. 13
Section 3.19 Disclosure........................................ 13
Section 3.20 No Knowledge of Breach............................ 13
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF Buyer.............. 13
Section 4.1 Organization of Buyer............................. 13
Section 4.2 Authorization; Enforceability..................... 13
Section 4.3 No Violation or Conflict by Buyer................. 13
Section 4.4 No Litigation..................................... 14
Section 4.5 Fees and Expenses of Brokers and Others........... 14
Section 4.6 Availability of Consideration..................... 14
Section 4.7 No Knowledge of Breach............................ 14
ARTICLE V CERTAIN MATTERS PENDING THE CLOSING ................. 14
Section 5.1 Carry on in Regular Course........................ 14
Section 5.2 Compensation...................................... 14
Section 5.3 Compliance with Law............................... 14
Section 5.4 Cooperation; Conditions to Closing................ 15
Section 5.5 Publicity......................................... 15
ARTICLE VI CONDITIONS PRECEDENT TO THE OBLIGATIONS OF BUYER .... 15
Section 6.1 Compliance with Agreement......................... 15
Section 6.2 Proceedings and Instruments Satisfactory.......... 15
Section 6.3 No Litigation..................................... 15
Section 6.4 Representations and Warranties.................... 15
Section 6.5 Seller's Consents................................. 16
Section 6.6 Deliveries at Closing............................. 16
ARTICLE VII CONDITIONS PRECEDENT TO THE OBLIGATIONS OF SELLER.... 16
Section 7.1 Compliance with Agreement......................... 16
Section 7.2 Proceedings and Instruments Satisfactory.......... 16
Section 7.3 No Litigation..................................... 16
Section 7.4 Representations and Warranties.................... 16
Section 7.5 Buyer's Consents.................................. 17
Section 7.6 Deliveries at Closing............................. 17
ARTICLE VIII INDEMNITIES AND ADDITIONAL COVENANTS ............... 17
Section 8.1 Seller's Indemnity................................ 17
Section 8.2 Buyer's Indemnity................................. 18
Section 8.3 Bulk Sales Compliance............................. 19
Section 8.4 Additional Instruments; Regulatory Matters........ 19
Section 8.5 Employment Matters................................ 20
Section 8.6 Allocation of Purchase Price...................... 20
Section 8.7 Access to Books and Records....................... 20
Section 8.8 Non-Competition................................... 20
Section 8.9 Collection of Accounts............................ 21
Section 8.10 Confidentiality................................... 21
Section 8.11 Non-Solicitation; Non-Disparagement............... 23
ARTICLE IX TERMINATION ......................................... 24
Section 9.1 Termination....................................... 24
Section 9.2 Rights on Termination; Waiver..................... 24
ARTICLE X MISCELLANEOUS ....................................... 24
Section 10.1 Transfer Taxes and Fees........................... 24
Section 10.2 Entire Agreement; Amendment....................... 24
Section 10.3 Expenses.......................................... 25
Section 10.4 Governing Law..................................... 25
Section 10.5 Assignment........................................ 25
Section 10.6 Notices........................................... 25
Section 10.7 Counterparts; Headings............................ 26
Section 10.8 Interpretation.................................... 26
Section 10.9 Severability...................................... 26
Section 10.10 No Reliance....................................... 26
Section 10.11 Specific Performance.............................. 26
SCHEDULES
---------
Schedule 1.1 Accounting Principles
Schedule 1.2 Accounts
Schedule 1.3 Accounts Payable
Schedule 1.9 Assumed Liabilities
Schedule 1.24 Equipment
Schedule 1.35 IDM Employees
Schedule 1.37 Initial Working Capital Calculation
Schedule 1.40 Inventory
Schedule 1.46 Permits
Schedule 1.47 Permitted Liens
Schedule 3.3 Seller's Consents
Schedule 3.4 Accounting Principles
Schedule 3.5 Exception to Title
Schedule 3.6 Exceptions to Litigation
Schedule 3.8 Exceptions to Contracts
Schedule 3.9 Exceptions to Accounts
Schedule 3.11 Compliance with Law
Schedule 3.13 Employment and Benefits Agreements
Schedule 3.14 Intangibles
Schedule 3.16 Material Adverse Change
Schedule 5.1 Exception to Regular Course
Schedule 8.6 Allocation of Purchase Price
EXHIBITS
--------
Exhibit 1.7 Form of Assignment and Assumption Agreement
Exhibit 1.8 Form of Assignment of Lease Agreement
Exhibit 1.10 Form of Bill of Sale
Exhibit 1.11 Form of Brainware Engine License
Exhibit 1.45 Form of Opinion of Seller's Counsel
Exhibit 1.56 Form of Transition Services Agreement
ASSET PURCHASE AGREEMENT
------------------------
ASSET PURCHASE AGREEMENT, made as of December 17, 2004, by and between
SER SOLUTIONS, INC. and SER SYSTEMS, INC., both Virginia corporations,
(collectively, the "Seller"), and JHA SYNERGY, INC. and JACK HENRY &
ASSOCIATES, INC., both Delaware corporations (collectively "Buyer").
RECITALS
--------
WHEREAS, Seller owns the Assets, is a party to the Contracts and the
Rochester Hills Lease and is subject to the Assumed Liabilities, which
Assets, Contracts and Assumed Liabilities are employed by Seller in its
IDM Business (as defined herein); and
WHEREAS, Seller desires to sell the Assets and assign the Rochester
Hills Lease and Assumed Liabilities to Buyer, and Buyer desires to purchase
the Assets and accept assignment of the Rochester Hills Lease and Assumed
Liabilities from Seller, all on the terms and subject to the conditions set
forth herein.
AGREEMENT
---------
NOW, THEREFORE, in consideration of the Recitals and of the mutual
covenants, conditions and agreements set forth herein and for other good
and valuable consideration, the receipt and sufficiency of which hereby
are acknowledged, it is agreed that:
ARTICLE I
DEFINITIONS
When used in this Agreement, the following terms shall have the
meanings specified:
Section 1.1 Accounting Principles. "Accounting Principles" shall
mean those principles set forth on Schedule 1.1 attached hereto used or to
be used in connection with preparing the Initial Working Capital Calculation
and the Final Working Capital Calculation.
Section 1.2 Accounts. "Accounts" shall mean all accounts
receivable, notes receivable, prepaid expenses and associated rights
(including, without limitation, all security deposits, letters of credit and
security documents) arising from the sale of goods and services by Seller in
the IDM Business and existing as of the Effective Time of the Closing as set
forth in Schedule 1.2 attached hereto.
Section 1.3 Accounts Payable. "Accounts Payable" shall mean all
accounts payable of Seller arising from the conduct by Seller of the IDM
Business as set forth in Schedule 1.3 attached hereto or incurred after the
date of Schedule 1.3 in the ordinary course of business.
Section 1.4 Affiliate. "Affiliate" shall mean, with respect to any
Person, any other Person that directly or indirectly controls, is controlled
by or is under common control with such Person.
Section 1.5 Agreement. "Agreement" shall mean this Asset Purchase
Agreement, together with the Exhibits and Schedules attached hereto, as the
same may be amended from time to time in accordance with the terms hereof.
Section 1.6 Assets. "Assets" shall mean the Accounts, the
Contracts, the Equipment, the Intangibles and the Inventory, as set forth
in this Agreement and Schedules 1.2, 1.24, 3.14, and 1.39, respectively,
together with all goodwill associated with the IDM Business (to the extent
such goodwill is not included in such Intangibles); provided, however, that
the term "Assets" shall exclude the Excluded Assets.
Section 1.7 Assignment and Assumption Agreement. "Assignment and
Assumption Agreement" shall mean the assignment and assumption agreement, in
the form of Exhibit 1.7 attached hereto, to be executed by Buyer and Seller
for the assignment of the Contracts and the Assumed Liabilities from Seller
to Buyer.
Section 1.8 Assignment of Lease Agreement. "Assignment of Lease
Agreement" shall mean the assignment and assumption of the Rochester Hills
Lease in the form of Exhibit 1.8 attached hereto to be executed by Seller,
Buyer and Landlord.
Section 1.9 Assumed Liabilities. "Assumed Liabilities" shall mean
Seller's liabilities (i) to the IDM Customers for Deferred Maintenance and
other deferred revenue; (ii) under the Rochester Hills Lease; (iii) all
Accounts Payable; (iv) to the IDM Customers incurred by Seller in the
ordinary course of business for orders outstanding as of the Effective Time
of the Closing and reflected on Seller's books (other than any liability
arising out of or relating to a breach by Seller in connection with such
order that occurred prior to the Effective Time of the Closing); (v) arising
after the Effective Time of the Closing under the Contracts; (vi) any sales
or use taxes that will arise as a result of the sale of the Assets pursuant
to this Agreement (other than Seller's state and Federal Income Tax
obligations) and (vii) any liability of Seller described in Schedule 1.9
attached hereto.
Section 1.10 Bill of Sale. "Bill of Sale" shall mean the bill of
sale with respect to the Assets, to be executed by Seller in favor of Buyer
in the form of Exhibit 1.10 attached hereto.
Section 1.11 Brainware Engine License. "Brainware Engine License"
shall mean that certain license agreement, in the form attached hereto
as Exhibit 1.11, pursuant to which Seller shall grant to Buyer a
non-exclusive, perpetual, royalty free, worldwide (except where
prohibited by law), license, to: (x) integrate the executable version
of the SERbrainware engine ("Brainware Engine") solely in the PowerSearch
Module of SERsynergy (collectively "Integrated Product"); (y) use,
demonstrate, market, distribute, sell, and sublicense the Integrated Product
to end user customers either directly or via third parties such as resellers
and distributors; and (z) provide maintenance and support services,
implementation, training, and other services associated with the Integrated
Product; [other terms of such license agreement shall include:
(i) Seller's agreement that to the extent it may release updates
to the Brainware Engine in the ordinary course of business (which Seller
shall have no obligation to do under this Agreement), Seller will make such
updates available to Buyer free of charge, provided that such updates do not
include substantially new feature functionality;
(ii) A disclaimer of any rights of Buyer/Licensee to the Brainware
Engine with respect to any products other than the Integrated Product;
(iii) A prohibition on reverse engineering; and
(iv) An acknowledges by Buyer that all rights in the Brainware
Engine belong to Seller.]
Section 1.12 Business Day. "Business Day" shall mean any day except
a Saturday, Sunday or other day on which commercial banks in New York, New
York, are generally authorized to close.
Section 1.13 Buyer. "Buyer" shall mean JHA Synergy, Inc., and its
corporate parent Jack Henry & Associates, Inc., both Delaware corporations.
Section 1.14 Buyer's Consents. "Buyer's Consents" shall mean all
consents, approvals, certificates and authorizations required to be obtained
by Buyer in connection with the transactions contemplated herein.
Section 1.15 Closing. "Closing" shall mean the conference held
at 9:00 a.m., local time, on the Closing Date, at the offices of Hunton &
Williams LLP, counsel to Seller, 1751 Pinnacle Drive, Suite 1700, McLean,
Virginia.
Section 1.16 Closing Date. "Closing Date" shall mean December 17,
2004, or such other date as the parties hereto may mutually agree in
writing, on which date the Closing shall occur.
Section 1.17 Code. "Code" shall mean the Internal Revenue Code of
1986, as amended.
Section 1.18 Commercially Reasonable Efforts. "Commercially
Reasonable Efforts" shall mean the efforts that a prudent Person desirous of
achieving a result would use in similar circumstances to achieve that result
as expeditiously as reasonably possible, provided, however, that this will
not be deemed to require a Person to undertake extraordinary or unreasonable
measures, including the payment of amounts in excess of normal and usual
filing fees and processing fees, if any, or other payments with respect to
any Contract that are significant in the context of such Contract.
Section 1.19 Continuing Employee. "Continuing Employee" shall mean
any IDM Employee who is offered and accepts employment with Buyer from and
after the Effective Time of the Closing.
Section 1.20 Contracts. "Contracts" shall mean all contracts,
agreements, leases of personal property, licenses, relationships and
commitments that relate primarily to the IDM Business and to which Seller is
a party or by which Seller is bound as of the Closing Date, which is in full
force and effect as of the Closing Date.
Section 1.21 Copyrights. "Copyrights" shall have the meaning
in Section 3.14.
Section 1.22 Deferred Maintenance. "Deferred Maintenance" shall mean
Seller's obligation to provide maintenance services to IDM Customers
pursuant to the Contracts.
Section 1.23 Effective Time of the Closing. "Effective Time of the
Closing" shall mean 10:00 a.m., local time, on the Closing Date.
Section 1.24 Equipment. "Equipment" shall mean all tangible assets
(other than Inventory) used exclusively in the IDM Business as of the
Effective Time of the Closing, including, but not limited to, all computers,
printers, servers, furniture, fixtures, leasehold improvements, equipment
and spare parts, as set forth on Schedule 1.24 hereto.
Section 1.25 ERISA. "ERISA" shall mean the Employee Retirement
Income Security Act of 1974, as amended.
Section 1.26 Excluded Assets. "Excluded Assets" shall mean all of
the assets of the Seller other than the Assets, including but not limited
to (a) assets relating to Sellers contact center business, (b) assets
relating to Seller's Brainware business, including but not limited to the
SERbrainware technology, including SERdistiller, SERiMail, SERoutlookAccess
and SERglobalBrain (personal edition, enterprise edition, API toolkit,
etc.), (c) any General Intangible including the word "SER" and (d) assets
relating to corporate overhead, employees, equipment and materials used in
providing administrative support to the Seller's businesses, including the
IDM Business, including the corporate PBX (other than PBX in the Rochester
Hills Facility) and software such as Softrax (financial) and Vantive (CRM)
("Corporate Assets.").
Section 1.27 Final Working Capital Calculation. "Final Working
Capital Calculation" shall mean the Working Capital Calculation to be
prepared and delivered in accordance with Section 2.3 hereof.
Section 1.28 Final Working Capital. "Final Working Capital" shall
mean the result of the Final Working Capital Calculation.
Section 1.29 Final Purchase Price. "Final Purchase Price" shall mean
the Initial Purchase Price as adjusted pursuant to Section 2.3 hereof.
Section 1.30 Financial Statement. "Financial Statement" shall have
the meaning given to such term in Section 3.4 herein.
Section 1.31 General Intangibles. "General Intangibles" shall mean
the intangible assets owned or licensed by Seller and used primarily in
the conduct of the IDM Business as of the Effective Time of the Closing,
including: (a) all registered and unregistered trademarks, service marks,
trade dress, logos, trade names and brand names, and any combination of such
names, used in the IDM Business including all goodwill associated therewith
and all applications, registrations and renewals in connection therewith;
(b) all trade secrets and confidential business information used in the IDM
Business (including ideas, research and development, know-how, compositions,
designs, drawings, specifications, customer and supplier lists, pricing and
cost information and business and market plans and proposals); (c) the
proprietary software used in, licensed or sold in the IDM Business other
than Excluded Assets; and (d) the rights, benefits and obligations set forth
in the Brainware Engine License.
Section 1.32 Governmental Authority. "Governmental Authority"
shall mean any federal, state, municipal or other governmental department,
commission, board, bureau, agency or instrumentality, or any court.
Section 1.33 IDM Business. "IDM Business" shall mean the Seller's
business of developing, selling and servicing integrated document management
software, including SERsynergy and all SERsynergy modules (i.e., Reports
(COLD/ERM), Document Management, Check, Document Distribution, Internet
Integration, Workflow, and PowerSearch), and all prior versions of
SERsynergy sold under the names of MacroFiche, MacroSearch, and MacroLog,
and formerly conducted under the names "MacroSoft" and "SER MacroSoft."
Section 1.34 IDM Contract. "IDM Contract" shall have the meaning
given to such term in Section 3.8 herein.
Section 1.35 IDM Employee. "IDM Employee" shall mean any of Seller's
employees engaged in the IDM Business and listed on the attached
Schedule 1.35.
Section 1.36 Initial Working Capital. "Initial Working Capital"
shall mean the result of the Initial Working Capital Calculation.
Section 1.37 Initial Working Capital Calculation. "Initial Working
Capital Calculation" shall mean the Working Capital Calculation as of the
date hereof, a copy of which is attached hereto as Schedule 1.37.
Section 1.38 Initial Purchase Price. "Initial Purchase Price" shall
mean $35,000,000.
Section 1.39 Intangibles. "Intangibles" shall mean the Copyrights
and the General Intangibles.
Section 1.40 Inventory. "Inventory" shall mean all the inventories
of goods owned by Seller and held for resale, and all supplies held for use,
in the IDM Business as of the Effective Time of the Closing as set forth on
Schedule 1.40 attached hereto.
Section 1.41 Knowledge. An individual will be deemed to have
"Knowledge" of a particular fact or other matter if that individual is
actually aware of that fact or matter. A Person (other than an individual)
will be deemed to have "Knowledge" of a particular fact or other matter if
any individual who is currently serving as a director, executive officer,
partner, executor or trustee of that Person (or any individual in any
similar capacity) has Knowledge of that fact or other matter.
Section 1.42 Law. "Law" shall mean any federal, state, local or
other law or governmental requirement of any kind, and the rules,
regulations and orders promulgated thereunder.
Section 1.43 Losses. "Losses" shall have the meaning given to such
term in Section 8.1(a) herein.
Section 1.44 Material Adverse Effect. "Material Adverse Effect"
shall mean a material adverse effect on the business or assets of the IDM
Business, taken as a whole; provided, however, that Material Adverse Effect
(and the word "material" and phrases of like import) shall exclude any
adverse changes or conditions as and to the extent such changes or
conditions relate to or result from: (a) public or industry knowledge of the
transactions contemplated by this Agreement (including but not limited to
any action or inaction by Seller's employees, customers or vendors); (b)
general economic conditions or other conditions (regulatory or other)
including those affecting the industries in which the IDM Business operates;
(c) those matters disclosed on Schedule 3.16 attached hereto; and (d)
changes resulting from Seller's compliance with the terms of this Agreement.
Section 1.45 Opinion of Seller's Counsel. "Opinion of Seller's
Counsel" shall mean the opinion of Hunton & Williams LLP, counsel to Seller,
in the form of Exhibit 1.45 attached hereto.
Section 1.46 Permits. "Permits" shall mean all governmental
approvals, authorizations, registrations, permits and licenses necessary or
required for the conduct of the IDM Business in the ordinary course as of
the Effective Time of the Closing, as set forth on Schedule 1.46.
Section 1.47 Permitted Liens. "Permitted Liens" shall
mean: (a) those liens, claims, mortgages or encumbrances that are
specifically listed on Schedule 1.47 attached hereto; (b) all liens
for Taxes, assessments, water and sewer rents and other governmental
charges not yet due and payable or being contested in good faith by
appropriate proceedings; (c) Laws that affect the use of the Assets
including, without limitation, zoning, building and other similar
restrictions, and (d) other liens of a minor nature that do not,
individually or in the aggregate, in any material respect interfere
with or impair the continued use of the Assets in the ordinary course
of business consistent with past practice.
Section 1.48 Person. "Person" shall mean any individual,
sole proprietorship, trust, estate, executor, legal representative,
unincorporated association, association, institution, corporation, company,
partnership, limited liability company, limited liability partnership, joint
venture, government (whether national, federal, state, provincial, county,
city, municipal or otherwise, including, without limitation, any authority,
instrumentality, division, agency, body or department thereof), and any
regulatory or self-regulatory authority, agency or other entity.
Section 1.49 Representatives. "Representatives" shall mean a
Person's affiliates, directors, officers, employees and advisors, including
without limitation, attorneys, accountants, bankers and consultants.
Section 1.50 Rochester Hills Facility. "Rochester Hills Facility"
shall mean that certain office premises at 811 South Boulevard East, Suite
220, Rochester Hills, Michigan, currently occupied by Seller pursuant to the
Rochester Hills Lease.
Section 1.51 Rochester Hills Lease. "Rochester Hills Lease" shall
mean that certain office lease for 811 South Boulevard East, Suite 220,
Rochester Hills, Michigan, dated June 1, 2004.
Section 1.52 Seller. "Seller" shall mean SER Solutions, Inc., and
its corporate parent SER Systems, Inc., both Virginia corporations.
Section 1.53 Seller's Consents. "Seller's Consents" shall mean all
consents, approvals, certificates and authorizations required to be obtained
by Seller in connection with the transactions contemplated herein that are
specifically identified on Schedule 3.3 attached hereto.
Section 1.54 Tax or Taxes. "Tax" or "Taxes" shall mean any federal,
state, county, local or foreign taxes, charges, levies, imposts, duties,
other assessments or similar charges of any kind whatsoever, including
interest, penalties and additions imposed thereon or with respect thereto,
arising from or relating to the IDM Business.
Section 1.55 Tax Return. "Tax Return" shall mean any report, return,
document, schedule or other information supplied or required to be supplied
to a taxing authority with respect to Taxes, including any return of an
affiliated, combined or unitary group.
Section 1.56 Transition Services Agreement. "Transition Services
Agreement" shall mean that certain Transition Services Agreement in the form
attached hereto as Exhibit 1.56.
Section 1.57 Working Capital Calculation. "Working Capital
Calculation" shall mean the amount calculated by subtracting the Accounts
Payable, deferred revenue, accrued expenses and liabilities included in
the Assumed Liabilities from the sum of the Accounts (net of appropriate
reserves), and Inventory (net of appropriate reserves) of Seller included
in the Assets.
ARTICLE II
PURCHASE AND SALE
Section 2.1 Purchase and Sale; Assignment and Assumption.
(a) Seller hereby agrees that at the Closing, and upon all of the
terms and subject to all of the conditions of this Agreement, it shall sell,
convey, transfer and deliver to Buyer the Assets, free and clear of all
liens, claims, mortgages or encumbrances except for Permitted Liens, and
Buyer hereby agrees that at the Closing, and upon all of the terms and
subject to all of the conditions of this Agreement, it shall purchase the
Assets, free and clear of all liens, claims, mortgages or encumbrances
except for Permitted Liens.
(b) Seller hereby agrees that at the Closing, and upon all of the
terms and subject to all of the conditions of this Agreement, it shall
assign to Buyer the Assumed Liabilities and the Rochester Hills Lease, and
Buyer hereby agrees that at the Closing, and upon all of the terms and
subject to all of the conditions of this Agreement, it shall assume from
Seller the Assumed Liabilities and the Rochester Hills Lease.
Section 2.2 Payment of the Initial Purchase Price; Deliveries at
Closing.
(a) In consideration of Seller's sale, transfer, assignment,
conveyance and delivery of the Assets and the assignment of the Assumed
Liabilities and the Rochester Hills Lease, Buyer shall, at Closing, pay to
Seller by wire transfer of immediately available funds an amount equal to
the Initial Purchase Price. In addition, at Closing, Buyer shall deliver or
cause to be delivered to Seller the following items, each (where applicable)
properly executed and dated as of the Closing Date by Buyer and, if not
attached as an exhibit to this Agreement, in form and substance satisfactory
to Seller:
(i) the Assignment and Assumption Agreement;
(ii) the Assignment of Lease Agreement;
(iii) the Brainware Engine License,
(iv) the Buyer's Consents; and
(v) a certificate of the Secretary of Buyer as to such factual
matters as may be reasonably requested by Seller.
(b) At Closing, Seller shall deliver or cause to be delivered to Buyer
the following items, each properly executed and dated as of the Closing Date
by all parties thereto (other than Buyer) and, if not attached as an exhibit
to this Agreement, in form and substance reasonably satisfactory to Buyer:
(i) the Bill of Sale;
(ii) the Assignment and Assumption Agreement;
(iii) the Assignment of Lease Agreement;
(iv) Brainware Engine License,
(v) Transition Services Agreement;
(vi) the Seller's Consents;
(vii) the Opinion of Seller's Counsel; and
(viii) a certificate of the Secretary of Seller as to such
factual matters as may be reasonably requested by Buyer.
Section 2.3 Working Capital Calculation; Settlement of Final
Purchase Price.
(a) On the date hereof, Seller shall provide to Buyer the Initial
Working Capital Calculation. Within 30 days after the Closing Date,
Seller shall prepare and deliver to Buyer a draft Final Working Capital
Calculation, which shall be prepared (i) in accordance with the Accounting
Principles, and (ii) in a manner consistent with the Initial Working Capital
Calculation.
(b) If Buyer has no objections to the draft Final Working Capital
Calculation, such draft shall constitute the Final Working Capital
Calculation. If Buyer has any objections to the draft Final Working Capital
Calculation, it will deliver a detailed statement describing its objections
to Seller within 10 days after receiving the draft Final Working Capital
Calculation. Buyer and Seller will use their reasonable best efforts to
resolve any such objections. If a final resolution is not obtained within
10 days after Seller has received the statement of objections, Buyer and
Seller will select a nationally recognized independent accounting firm
mutually acceptable to them to resolve any remaining objections. If Buyer
and Seller are unable to agree on the choice of an accounting firm, they
will select a nationally recognized independent U.S. accounting firm by lot
(after excluding KPMG LLP and Deloitte & Touche LLP ).
(c) Buyer and Seller will each submit to the selected accounting firm
a written statement setting forth such party's proposed aggregate resolution
of the unresolved objections and any supporting data and analysis. The
selected accounting firm will evaluate the Buyer's and Seller's proposed
aggregate resolutions of the objections and shall issue its resolution
within 30 days. Seller will revise the draft Final Working Capital
Calculation as appropriate to reflect the resolution of Buyer's objections
(as agreed upon by Buyer and Seller or as determined by such selected
accounting firm) and deliver it to Buyer within 10 days after the resolution
of such objections. Such revised statement shall constitute the Final
Working Capital Calculation.
(d) To the extent that the Final Working Capital Calculation shows
that the Final Working Capital is more than $25,000 less than the Initial
Working Capital, such difference shall be paid to Buyer in immediately
available funds by Seller within five Business Days of Seller's delivery
of such Final Working Capital Calculation. To the extent that the Final
Working Capital Calculation shows that the Final Working Capital is more
than $25,000 greater than the Initial Working Capital, Buyer shall pay such
excess to Seller in immediately available funds within two Business Days of
Seller's delivery of such Final Working Capital Calculation. All payments
made pursuant to this Section 2.3 (d) shall be accompanied by accrued
interest thereon from the Closing Date at the prevailing prime rate as
announced by the Wall Street Journal (Eastern Edition), from time to time.
(e) If any unresolved objections are submitted to an accounting firm
for resolution as provided above, the party whose proposed resolution is not
selected by the accounting firm shall pay the fees and expenses of such
accounting firm.
(f) Seller will make the work papers used in preparing the draft
Final Working Capital Calculation and the Final Working Capital Calculation
available to Buyer at reasonable times and upon reasonable notice at any
time following delivery by Seller of the draft Final Working Capital
Calculation and during the resolution of any objections with respect
thereto.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF SELLER
Seller represents and warrants to Buyer as follows:
Section 3.1 Organization Seller. Seller is a corporation duly
incorporated, validly existing and in good standing under the laws of the
Commonwealth of Virginia. Seller has full corporate power to carry on the
IDM Business as it is now being conducted and to own, operate and hold under
lease the assets and properties that comprise the IDM Business in the places
where such properties and assets now are owned, operated or held.
Section 3.2 Authorization; Enforceability.
The execution, delivery and performance by Seller of this Agreement and
of all of the documents and instruments contemplated hereby to which Seller
is a party are within the corporate power of Seller and have been duly
authorized by all corporate action of Seller. This Agreement is, and the
other documents and instruments required hereby to which Seller is a party
will be, when executed and delivered by the parties thereto, the valid and
binding obligations of Seller, enforceable against Seller in accordance with
their respective terms, except as the enforceability thereof may be limited
or otherwise affected by bankruptcy, insolvency, fraudulent transfer,
reorganization, moratorium and similar laws of general applicability
relating to or affecting creditors' rights or by general equity principles,
and except as rights to indemnification and contribution may be limited by
applicable law or public policy.
Section 3.3 No Violation or Conflict by Seller. The execution,
delivery and performance of this Agreement at the Closing, and the other
documents and instruments required hereby to which Seller is a party, by
Seller will not conflict with or violate any Law, judgment, order or decree
binding on Seller or the articles of incorporation or bylaws of Seller.
No notice to, filing or registration with, or authorization, consent or
approval of, any Governmental Authority is necessary or is required to be
made or obtained by Seller in connection with the execution and delivery of
this Agreement, and the other documents and instruments required hereby to
which Seller is a party, by Seller or the consummation by Seller of the
transactions contemplated hereby. Except as set forth in Schedule 3.3
attached hereto, the execution, delivery and performance of this Agreement,
and the other documents and instruments required hereby to which Seller
is a party, will not constitute a violation or breach of any contract
or agreement to which Seller is a party or by which Seller is bound,
or require the consent or approval of any party to any such contract
or agreement or give any party to any such contract or agreement a right
of termination, cancellation, acceleration or modification thereunder.
Section 3.4 Financial Statements. Seller has delivered to Buyer an
unaudited statement of income and balance sheet with respect to the IDM
Business for the eleven month period ended November 30, 2004 (the "Financial
Statement"), which Financial Statement was prepared in accordance with
Generally Accepted Accounting Principles, with the specific exceptions
set forth on Schedule 3.4, and was prepared in accordance with the
notes provided in Schedule 3.4. Such Financial Statement accurately
presents in all material respects the financial condition of the IDM
Business and has been prepared from and is in accordance in all material
respects with the accounting records of Seller.
Section 3.5 Title to and Sufficiency of Assets. Seller owns
good and valid title to all of the Assets, free and clear of any and all
mortgages, liens, encumbrances, charges, claims, restrictions, pledges,
security interests or impositions except for the liens described on
Schedule 3.5 attached hereto, and the Permitted Liens, and, upon Buyer's
payment of the Initial Purchase Price at Closing, good and valid title
to the Assets, free and clear of all mortgages, liens, encumbrances,
charges, claims, restrictions, pledges, security interests or impositions,
except for the Permitted Liens, will pass to Buyer. The Assets,
Contracts and Rochester Hills Lease include all tangible and intangible
assets, contracts and rights (other than Corporate Assets) necessary
for the operation by Buyer after the Effective Time of the Closing
of the IDM Business conducted by Seller prior to the Effective Time
of the Closing in accordance with Seller's current practice. The Assets,
Contracts and Rochester Hills Lease do not include any equity or debt
securities of or interest in, or any right or obligation to acquire any
equity or debt securities of or interest in, any corporation, partnership,
limited liability company, business trust, joint venture or other business
association.
Section 3.6 No Litigation. Except as set forth in Schedule
3.6 attached hereto, there is no litigation, arbitration proceeding,
governmental investigation, citation or action of any kind pending
or, to the Knowledge of Seller, proposed or threatened (a) relating
to the IDM Business or the Assets, Contracts or Rochester Hills Lease,
or (b) that seeks restraint, prohibition, damages or other relief in
connection with this Agreement or the consummation of the transactions
contemplated hereby.
Section 3.7 Inventory. The Inventory is useable or saleable in the
ordinary course of the IDM Business as currently conducted, subject to the
reserves and accruals established with respect thereto on the books of
Seller maintained in connection with the IDM Business division, and such
reserves and accruals have been determined in a manner consistent with
generally accepted accounting principles and the past practices of Seller,
subject to the Accounting Principles.
Section 3.8 Contracts. Seller has made available to Buyer true
and complete copies of all Contracts (a) involving the sale of software or
maintenance for products sold and supported by Seller in the IDM Business
(the "IDM Contracts"); (b) third-party distribution agreements; and
(c) partner agreements. Except as set forth in Schedule 3.8 hereto,
each IDM Contract is in full force and effect and, to the Knowledge
of Seller, is enforceable in accordance with its terms (except as the
enforcement thereof may be limited or otherwise affected by bankruptcy,
insolvency, reorganization, moratorium or other laws generally affecting
the rights of creditors and subject to general equity principles
(whether considered at law or in equity)). Seller has performed each
material term, covenant and condition of each of the IDM Contracts that
is required to be performed by it at or before the date hereof. Except
as set forth in Schedule 3.8 hereto or as would not have an Material
Adverse Effect, no event has occurred that would, with the passage
of time or compliance with any applicable notice requirements, constitute
a breach or default by Seller or, to the Knowledge of Seller, any other
Person under any of the IDM Contracts, and, to the Knowledge of Seller,
no party to any of the IDM Contracts intends to cancel, terminate or
exercise any option under any of the IDM Contracts.
Section 3.9 Accounts. The Accounts: (a) all have arisen from bona
fide transactions in the ordinary course of business and (b) are expected to
be collectible in accordance with normal trade practice, subject to reserves
established for uncollectible accounts by Seller. Except as set forth in
Schedule 3.9 attached hereto, there are no pending or, to the Knowledge
of Seller, threatened disputes or claims between Seller and any Account
obligor outside of the ordinary course of business and relating to any
Account or the security documents or collateral related thereto.
Section 3.10 Condition of Equipment. The Equipment, taken as a
whole, is in good operating condition and repair for equipment of like type
and age, subject to ordinary wear and tear, and is substantially fit for the
purposes for which it currently is being utilized.
Section 3.11 Compliance with Law. The conduct of the IDM Business
and the use of its Assets and performance by Seller under the Contracts does
not violate or conflict with any Law. All Permits required by Seller to
conduct the IDM Business have been obtained, are in full force and effect
and are being complied with in all material respects. Except as set
forth in Schedule 11 attached hereto, consummation of the transactions
contemplated by this Agreement will not, with respect to any material
Permit, require the consent or approval of, or any filing with, any
Governmental Authority.
Section 3.12 Taxes. Seller has filed all required Tax Returns
relating to the IDM Business, the Assets, the Contracts and the Rochester
Hills Lease. There are no unpaid and unaccrued (on the balance sheet as of
September 30, 2004) Taxes due and payable, the nonpayment of which could
materially and adversely affect the IDM Business any of the Assets or the
use thereof by Buyer, the Rochester Hills Lease, or the Contracts. No
Tax authority has asserted any claim for the assessment of any such Tax
liability. Seller is not a foreign person for purposes of Section 1445 of
the Code. None of the Assets is subject to a "safe harbor lease" under
former Section 168(f)(8) of the Internal Revenue Code of 1954, as amended
before the Tax Reform Act of 1984.
Section 3.13 Employment Agreements and Benefits. Schedule 3.13
attached hereto is a true and complete list of all agreements relating
to the employment, compensation and other benefits of Persons who are
currently IDM Employees including, without limitation, collective bargaining
agreements and pension, retirement, bonus, profit sharing, health,
disability, life insurance, hospitalization, education or other similar
plans or arrangements (whether or not subject to ERISA), true copies of
which have been delivered by Seller to Buyer. None of the agreements
listed on Schedule 3.13 will be breached by Seller's execution, delivery
and performance of this Agreement. Except as set forth in Schedule 3.13,
(a) no such agreements require Buyer to assume any employment, compensation,
fringe benefit, pension, profit sharing or deferred compensation agreement
or plan in respect of any IDM Employee; and (b) Seller does not and has not
contributed to or maintained a "multiemployer plan" (as defined in ERISA
Section 3(37)).
Section 3.14 Intangibles.
(a) (i) Schedule 3.14 contains a complete and accurate list of
all registered and unregistered copyrights in both published works and
unpublished works owned by Seller and used in the IDM Business
(collectively, "Copyrights");
(ii) to the Knowledge of Seller, all of the registered Copyrights
are currently in compliance with formal applicable Laws, are valid and
enforceable, and are not subject to any maintenance fees or taxes or actions
falling due within ninety (90) days after the date of Closing;
(iii) to the Knowledge of Seller, no Copyright is infringed or
has been challenged or threatened in any way; none of the subject matter of
any of the Copyrights infringes or is alleged to infringe any copyright of
any third party; and
(iv) to the Knowledge of Seller, all works encompassed by the
Copyrights have been marked with the proper copyright notice.
(b) Seller owns the entire right, title and interest in and to the
owned General Intangibles, and is a party to valid and subsisting licenses
that are included among the Contracts with respect to the licensed
Intangibles, subject only to the Permitted Liens.
(c) To the Knowledge of Seller:
(i) there are no claims, demands or proceedings instituted,
pending or threatened by any third party pertaining to or challenging
Seller's rights to use any of the Intangibles;
(ii) there is no trademark, trade name, patent or copyright owned
by a third party (other than the Seller) that Seller is using in the conduct
of the IDM Business without a license to do so;
(iii) no third party is infringing upon any Intangibles owned
by, or exclusively licensed to, Seller in the conduct of the IDM Business;
and
(iv) except as set forth in Schedule 3.14, the computer software
components of the General Intangibles do not contain any "open source"
code (as defined by the Open Source Initiative) or "free" code (as defined
by the Free Software Foundation)(collectively, "Open Source Code") or
operate in such a way that it is compiled with or linked to Open Source
Code.
Section 3.15 Fees and Expenses of Brokers and Others. Seller is not
committed to any liability for any brokers' or finders' fees or any similar
fees in connection with the transactions contemplated by this Agreement, and
has not retained any broker or agent to act on its behalf in connection with
the transactions contemplated by this Agreement, except that Seller has
engaged Needham and Company to represent Seller in connection with such
transactions, and Seller shall pay all fees and expenses in connection with
such engagement.
Section 3.16 No Material Adverse Change. Except as set forth
in Schedule 3.16 attached hereto, since the date of September 30, 2004,
Seller has carried on the IDM Business in the ordinary course and
substantially in the same manner as heretofore carried on and there
has not been (a) any change or development with respect to the IDM
Business constituting a Material Adverse Effect; (b) any loss, damage,
condemnation or destruction to the Assets or properties of the IDM Business,
whether or not insured against, constituting a Material Adverse Effect;
(c) any mortgage, pledge, lien or encumbrance made on any of the Assets,
except for Permitted Liens; or (d) any sale, transfer or other disposition
of assets or properties of the type included in the Assets other than in the
ordinary course of business.
Section 3.17 Environmental Conditions. Seller is not in violation of
any applicable statute, law or regulation relating to the environment or
occupational health and safety, and no material expenditures are or will
be required in order to comply with any such existing statute, law or
regulation. No Hazardous Materials (as defined below) are used or have been
used, stored, or disposed of by Seller or, to the Knowledge of Seller, by
any other person or entity on any property owned, leased or used by the IDM
Business. For the purposes of the preceding sentence, "Hazardous Materials"
shall mean (a) materials which are listed or otherwise defined as
"hazardous" or "toxic" under any applicable local, state, federal and/or
foreign laws and regulations that govern the existence and/or remedy of
contamination on property, the protection of the environment from
contamination, the control of hazardous wastes, or other activities
involving hazardous substances, including building materials or
(b) any petroleum products or nuclear materials.
Section 3.18 Lease. The Rochester Hills Lease is valid, binding and
enforceable against Seller in accordance with its terms. Seller has not
sent or received any notice of default thereunder and to the Knowledge of
Seller no event or condition exists which constitutes, or after notice or
lapse of time or both would constitute, a material default thereunder.
The leasehold interests under the Leases are subject to no lien or other
encumbrance created by Seller other than Permitted Liens.
Section 3.19 Disclosure. No representation or warranty made by
Seller in this Agreement or in any Schedule to this Agreement contains any
untrue statement of a material fact or omits to or otherwise fails to state
a material fact required to be stated therein or necessary to make the
statements contained therein not misleading. Seller has made available to
Buyer all material documents and records concerning Seller's ownership of
the Assets, and the Seller has no Knowledge of any material fact relating
to the IDM Business which may have a Material Adverse Effect on the same
and which has not been disclosed to the Buyer.
Section 3.20 No Knowledge of Breach. Seller has no Knowledge that
Buyer has breached any of the representations and warranties made by Buyer
in this Agreement.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF BUYER
Buyer hereby represents and warrants to Seller that:
Section 4.1 Organization of Buyer. Buyer is a corporation duly
incorporated, validly existing and in good standing under the laws of the
State of Delaware and has full corporate power to enter into this Agreement
and to perform its obligations hereunder.
Section 4.2 Authorization; Enforceability.
The execution, delivery and performance by Buyer of this Agreement and
of all of the documents and instruments contemplated hereby to which Buyer
is a party are within the corporate power of Buyer and have been duly
authorized by Buyer's Board of Directors and shareholders (if required) and
all other necessary corporate action of Buyer. This Agreement is, and the
other documents and instruments required hereby to which Buyer is a party
will be, when executed and delivered by the parties thereto, the valid and
binding obligations of Buyer, enforceable against Buyer in accordance with
their respective terms, except as the enforceability thereof may be limited
or otherwise affected by bankruptcy, insolvency, fraudulent transfer,
reorganization, moratorium and similar laws of general applicability
relating to or affecting creditors' rights or by general equity principles,
and except as rights to indemnification and contribution may be limited by
applicable law or public policy.
Section 4.3 No Violation or Conflict by Buyer. The execution,
delivery and performance of this Agreement, and the other documents and
instruments required hereby to which Buyer is a party, by Buyer do not
and will not conflict with or violate any Law, judgment, order or decree
binding on Buyer or the charter or bylaws of Buyer. No notice to, filing
or registration with, or authorization, consent or approval of, any
Governmental Authority is necessary or is required to be made or obtained by
Buyer in connection with the execution and delivery of this Agreement, and
the other documents and instruments required hereby to which Buyer is a
party, by Buyer or the consummation by Buyer of the transactions
contemplated hereby. The execution, delivery and performance of this
Agreement, and the other documents and instruments required hereby to which
Buyer is a party, do not and will not constitute a violation or breach of
any contract or agreement to which Buyer is a party or by which Buyer is
bound, or require the consent or approval of any party to any such contract
or agreement or give any party to any such contract or agreement a right of
termination, cancellation, acceleration or modification thereunder.
Section 4.4 No Litigation. There is no litigation, arbitration
proceeding, governmental investigation, citation or action of any kind
pending, or, to the Knowledge of Buyer, proposed or threatened, that seeks
restraint, prohibition, damages or other relief in connection with this
Agreement or the consummation of the transactions contemplated hereby.
Section 4.5 Fees and Expenses of Brokers and Others. Buyer is not
committed to any liability for any brokers' or finders' fees or any similar
fees in connection with the transactions contemplated by this Agreement, and
has not retained any broker or agent to act on its behalf in connection with
the transactions contemplated by this Agreement.
Section 4.6 Availability of Consideration. Buyer currently
maintains immediately available funds required to pay the Initial Purchase
Price to Seller at Closing.
Section 4.7 No Knowledge of Breach. Buyer has no Knowledge that
Seller has breached any of the representations and warranties made by Seller
in this Agreement.
ARTICLE V
CERTAIN MATTERS PENDING THE CLOSING
Seller and Buyer covenant and agree that from and after the date of
this Agreement and until the Closing Date as follows:
Section 5.1 Carry on in Regular Course. Except as specifically
contemplated by this Agreement, or as set forth on Schedule 5.1 source
not found. attached hereto, Seller shall carry on the IDM Business in
the ordinary course and substantially in the same manner as heretofore
carried on and to use its Commercially Reasonable Efforts to preserve the
assets, properties, business and relationships with suppliers and customers
of the IDM Business. Seller shall: (a) advise Buyer promptly in writing
of any change in the financial position, results of operations, assets or
liabilities of the IDM Business constituting a Material Adverse Effect of
which it becomes aware; (b) deliver to Buyer on the Closing Date a list of
all material acquisitions or dispositions of Assets between the date of the
Initial Working Capital Calculation, and the Closing Date; and (c) give
Buyer prior written notice of any material acquisitions or dispositions of
Assets after the date of the Initial Working Capital Calculation of which it
becomes aware. Seller shall not dividend, distribute or transfer any Assets
to any Affiliate of Seller, except for dividends, distributions or transfers
of current assets, current liabilities, Excluded Assets or liabilities other
than the Assumed Liabilities.
Section 5.2 Compensation. Without the prior written consent of
Buyer or as otherwise expressly contemplated in this Agreement, Seller shall
not, except in the ordinary course of business grant any increases in the
rate of pay of any IDM Employees.
Section 5.3 Compliance with Law. Seller shall materially comply
with all applicable Laws, and with all orders of any court or of any
federal, state, municipal or other Governmental Authority binding upon
Seller and relating to the IDM Business (except for any such orders that
are being contested by Seller in good faith by appropriate proceedings).
Section 5.4 Cooperation; Conditions to Closing. Buyer and Seller
shall use their Commercially Reasonable Efforts and shall cooperate in all
reasonable respects in connection with the giving of any notices to any
Governmental Authority or securing the permission, approval, determination,
consent or waiver of any Governmental Authority required by Law in
connection with the transactions contemplated herein. Buyer and Seller
shall also use their Commercially Reasonable Efforts to cause the conditions
precedent to one another's obligations to be performed at Closing, as set
forth in Article VI and Article VII, to be satisfied. Neither Buyer
nor Seller shall knowingly take any action that would constitute a
misrepresentation or breach of any warranty contained in Articles III
and IV hereof. Each party hereto shall promptly notify the other of any
event or condition that would constitute a misrepresentation or breach of
warranty hereunder. Seller shall provide Buyer with reasonable access
during business hours to the Assets and the personnel of the IDM Business
in a manner that is not disruptive to Seller's business operations.
Section 5.5 Publicity. All general notices, releases, statements
and communications to employees, suppliers, distributors and customers of
the IDM Business and to the general public and the press relating to the
transactions contemplated by this Agreement shall be made only at such times
and in such manner as may be mutually agreed upon by Buyer and Seller.
ARTICLE VI
CONDITIONS PRECEDENT TO THE OBLIGATIONS OF BUYER
Each and every obligation of Buyer to be performed at the Closing shall
be subject to the satisfaction prior to or at the Closing, or waiver by
Buyer, of the following express conditions precedent:
Section 6.1 Compliance with Agreement. Seller shall have performed
and complied with all of its obligations under this Agreement, which are to
be performed or complied with by it prior to or at the Closing.
Section 6.2 Proceedings and Instruments Satisfactory. All
proceedings, corporate or other, to be taken by Seller in connection with
the transactions contemplated by this Agreement, and all documents incident
thereto, shall be reasonably satisfactory in form and substance to Buyer,
and Seller shall have made available to Buyer for examination the originals
or true and correct copies of all documents that Buyer may reasonably
request in connection with the transactions contemplated by this Agreement.
Section 6.3 No Litigation. No investigation, suit, action or other
proceeding shall be pending before any court or Governmental Authority that
seeks restraint, prohibition, damages or other relief in connection with
this Agreement or the consummation of the transactions contemplated hereby.
Section 6.4 Representations and Warranties.
(a) All of Seller's representations and warranties in this Agreement
(considered collectively), and each of these representations and warranties
(considered individually), which are not qualified as to materiality or
Material Adverse Effect, shall have been accurate in all material respects
as of the date of this Agreement (except to the extent such representations
and warranties are specifically made as of a particular date, in which case
such representations and warranties shall be true and correct in all
material respects as of such date), and shall be accurate in all material
respects as of the time of the Closing as if then made (except to the extent
such representations and warranties are specifically made as of a particular
date, in which case such representations and warranties shall be true and
correct in all material respects as of such date), taking into account any
and all supplement to the Schedules.
(b) Each of the representations and warranties in this Agreement that
contains an express materiality qualification, shall have been accurate in
all respects as of the date of this Agreement (except to the extent such
representations and warranties are specifically made as of a particular
date, in which case such representations and warranties shall be true and
correct in all respects as of such date), and shall be accurate in all
respects as of the time of the Closing as if then made (except to the extent
such representations and warranties are specifically made as of a particular
date, in which case such representations and warranties shall be true and
correct in all respects as of such date), taking into account any and all
supplement to the Schedules.
Section 6.5 Seller's Consents. All of the Seller's Consents shall
have been obtained.
Section 6.6 Deliveries at Closing. Seller shall have delivered to
Buyer the documents specified in Section 2.2 (b) hereof.
ARTICLE VII
CONDITIONS PRECEDENT TO THE OBLIGATIONS OF SELLER
Each and every obligation of Seller to be performed at the Closing
shall be subject to the satisfaction prior to or at the Closing, or waiver
by Seller, of the following express conditions precedent:
Section 7.1 Compliance with Agreement. Buyer shall have performed
and complied with all of its obligations under this Agreement, which are to
be performed or complied with by it prior to or at the Closing.
Section 7.2 Proceedings and Instruments Satisfactory. All
proceedings, corporate or other, to be taken by Buyer in connection with
the transactions contemplated by this Agreement, and all documents incident
thereto, shall be reasonably satisfactory in form and substance to Seller,
and Buyer shall have made available to Seller for examination the originals
or true and correct copies of all documents that Seller may reasonably
request in connection with the transactions contemplated by this Agreement.
Section 7.3 No Litigation. No investigation, suit, action or other
proceeding shall be pending before any court or Governmental Authority that
seeks restraint, prohibition, damages or other relief in connection with
this Agreement or the consummation of the transactions contemplated hereby.
Section 7.4 Representations and Warranties.
(a) All of Buyer's representations and warranties in this Agreement
(considered collectively), and each of these representations and warranties
(considered individually), which are not qualified as to materiality or
Material Adverse Effect, shall have been accurate in all material respects
as of the date of this Agreement (except to the extent such representations
and warranties are specifically made as of a particular date, in which case
such representations and warranties shall be true and correct in all
material respects as of such date), and shall be accurate in all material
respects as of the time of the Closing as if then made (except to the extent
such representations and warranties are specifically made as of a particular
date, in which case such representations and warranties shall be true and
correct in all material respects as of such date), taking into account any
and all supplement to the Schedules.
(b) Each of the representations and warranties in Section 4.2,
and each of the representations and warranties in this Agreement that
contains an express materiality qualification, shall have been accurate
in all respects as of the date of this Agreement (except to the extent
such representations and warranties are specifically made as of a
particular date, in which case such representations and warranties
shall be true and correct in all respects as of such date), and shall be
accurate in all respects as of the time of the Closing as if then made
(except to the extent such representations and warranties are specifically
made as of a particular date, in which case such representations and
warranties shall be true and correct in all respects as of such date),
taking into account any and all supplement to the Schedules.
Section 7.5 Buyer's Consents. All of the Buyer's Consents shall
have been obtained.
Section 7.6 Deliveries at Closing. Buyer shall have delivered to
Seller the documents and instruments specified in Section 2.2 (a) hereof.
ARTICLE VIII
INDEMNITIES AND ADDITIONAL COVENANTS
Section 8.1 Seller's Indemnity.
(a) Seller hereby agrees to indemnify and hold Buyer harmless from and
against, and agrees to defend promptly Buyer from and to reimburse Buyer
for, any and all losses, damages, costs, expenses, liabilities, claims
and obligations of any kind, including, without limitation, reasonable
attorneys' fees and other legal costs and expenses (hereinafter referred
to collectively as "Losses"), that Buyer may at any time suffer or incur,
or become subject to, as a result of (i) any breach of any of the
representations and warranties made by Seller in or pursuant to this
Agreement, and (ii) any failure by Seller to perform any of their covenants
and obligations set forth in this Agreement; provided, however, that Seller
shall not be required to indemnify Buyer pursuant to Section 8.1(a) hereof
in respect of the representations and warranties made by Seller unless such
right to indemnification is asserted by Buyer (whether or not such Losses
have actually been incurred) by written notice to Seller within the
following time periods:
(y) with respect to the representations and warranties set forth
in Sections 3.12 and 3.17 hereof, insofar as they relate to
compliance with Tax Laws or environmental conditions, within
the applicable statute of limitations with respect to the
underlying Law that forms the basis of such claim (including
all extensions thereof agreed to with Tax authorities); and
(z) with respect to all other representations and warranties set
forth in Article III hereof, within eighteen months after the
Closing Date.
Notwithstanding the foregoing, Seller shall not be required to indemnify
Buyer pursuant to Section 8.1(a) in respect of the representations and
warranties made by Seller unless and until the amount of all Losses for
which indemnification is sought hereunder first exceeds $250,000, in which
event all Losses in excess of $250,000 shall be subject to indemnification.
The aggregate obligation of Seller pursuant to Section 8.1(a) shall in no
event exceed an amount equal to 25% of the Initial Purchase Price.
(b) The amounts for which Seller shall be liable under Section 8.1(a)
hereof shall be net of (i) any insurance proceeds received by Buyer in
connection with the facts and circumstances giving rise to the right of
indemnification, and (ii) any federal or state income tax benefit realized
or the then present value of any such benefit reasonably expected to be
realized by Buyer as a result of facts and circumstances giving rise to
such indemnification.
(c) In the event a claim against Buyer arises that is covered by the
indemnity provisions of Section 8.1(a) of this Agreement, notice shall be
promptly given by Buyer to Seller. Seller shall have the right to contest
and defend by all appropriate legal proceedings relating to such claim and
to control all settlements (unless Buyer agrees to assume the cost of
settlement and to forgo such indemnity) and to select lead counsel to defend
any and all such claims at the sole cost and expense of Seller; provided,
however, that no compromise or settlement of such claims may be effected
by Seller without the Buyer's consent unless (i) there is no finding or
admission of any violation of Law, and (ii) the sole remedy provided is
monetary damages that are paid in full by Seller. Buyer may select counsel
to participate in any defense, in which event Buyer's counsel shall be at
the sole cost and expense of Buyer. In connection with any such claim,
action or proceeding, the parties shall cooperate with each other and
provide each other with access to relevant books and records in their
possession.
(d) Except as set forth in Section 8.8, this Section 8.1 shall
be the sole remedy of Buyer against Seller after Closing for any claim
arising in connection with the transactions contemplated herein. Seller's
representations and warranties made herein shall survive the Closing, but
only to the extent and for such time as is necessary to enable Buyer to
enforce its rights to indemnification under this Section.
Section 8.2 Buyer's Indemnity.
(a) Buyer hereby agrees to indemnify and hold Seller harmless from and
against, and agrees to defend promptly Seller from and to reimburse Seller
for, any and all Losses that Seller may at any time suffer or incur, or
become subject to, as a result of (i) any breach or inaccuracy of any of
the representations and warranties made by Buyer in or pursuant to this
Agreement, (ii) any failure by Buyer to perform any of its covenants and
obligations set forth in this Agreement (including, without limitation,
satisfaction of the Rochester Hills Lease and the Assumed Liabilities);
provided, however, that Buyer shall not be required to indemnify Seller
pursuant to Section 8.2(a) hereof in respect of the representations and
warranties made by Buyer unless such right is asserted (whether or not
such Losses have actually been incurred) by written notice to Buyer within
eighteen months after the Closing Date; and (iii) any liability arising out
of Buyer's ownership or operation of the Assets at or after the Effective
Time of the Closing. Notwithstanding the foregoing, Buyer shall not be
required to indemnify Seller pursuant to Section 8.2(a) in respect of the
representations and warranties made by Buyer unless and until the amount
of all Losses for which such indemnification is sought hereunder first
exceeds $250,000, in which event all Losses in excess of $250,000 shall
be subject to indemnification. Buyer's aggregate obligation pursuant to
Section 8.2(a) shall in no event exceed an amount equal to 25% of the
Initial Purchase Price.
(b) The amounts for which Buyer shall be liable under Section 8.2(a)
hereof shall be net of (i) any insurance proceeds received by Seller in
connection with the facts giving rise to the right of indemnification,
and (ii) any federal or state income tax benefit realized or the then
present value of any such benefit reasonably expected to be realized by
Seller as a result of facts and circumstances giving rise to such
indemnification.
(c) In the event a claim against Seller arises that is covered by the
indemnity provisions of Section 8.2(a) of this Agreement, notice shall be
promptly given by Seller to Buyer. Buyer shall have the right to contest
and defend by all appropriate legal proceedings such claim and to control
all settlements (unless Seller agrees to assume the cost of settlement and
to forgo such indemnity) and to select lead counsel to defend any and all
such claims at the sole cost and expense of Buyer; provided, however,
that no compromise or settlement of such claims may be effected by Buyer
without Seller's consent unless (i) there is no finding or admission of any
violation of Law, and (ii) the sole remedy provided is monetary damages that
are paid in full by Buyer. Seller may select counsel to participate in any
defense, in which event such counsel shall be at the sole cost and expense
of Seller. In connection with any such claim, action or proceeding, the
parties shall cooperate with each other and provide each other with access
to relevant books and records in their possession.
(d) Except as provided in Section 8.5 hereof, this Section 8.2 shall
be the sole remedy of Seller against Buyer after Closing for any claim
arising in connection with the transactions contemplated herein. Buyer's
representations and warranties made herein shall survive the Closing, but
only to the extent and for such time as is necessary to enable Seller to
enforce their rights to indemnification under this Section.
Section 8.3 Bulk Sales Compliance. Except as otherwise provided
herein, Buyer hereby waives compliance by Seller with the provisions of the
bulk sales laws of any state (including any such laws relating to Taxes),
insofar as any such laws may apply to the transactions contemplated herein.
Seller hereby covenants and agrees to pay and discharge when due all claims
of creditors that could be asserted against Buyer by reason of such
noncompliance. Seller hereby agrees to indemnify and hold Buyer harmless
from and against and shall on demand reimburse Buyer for any and all Losses
suffered by Buyer by reason of Seller's failure to pay and discharge any
such claims.
Section 8.4 Additional Instruments; Regulatory Matters. Subject to
the terms and conditions herein provided, each of the parties hereto agrees
to use Commercially Reasonable Efforts to take, or cause to be taken, all
action, and to do, or cause to be done, all things necessary, proper and
advisable to consummate and make effective the transactions contemplated by
this Agreement, including assisting each other in completing all necessary
governmental and regulatory filings related to the transactions contemplated
herein. In case at any time after the Effective Time of the Closing any
further action is necessary or desirable to carry out the purposes of this
Agreement, Buyer and Seller shall take all such action.
At any time and from time to time after the Closing, at either party's
request and without further consideration, each party hereto shall execute
and deliver such other instruments of sale, transfer, conveyance, assignment
and confirmation and take such other action as any other party may
reasonably deem necessary or desirable in order to more effectively
transfer, convey and assign to Buyer, and to confirm Buyer's title to and
interest in, and obligations with respect to, the Assets, the Contracts, the
Rochester Hills Lease and the Assumed Liabilities, and the consummation of
the transactions contemplated herein.
Section 8.5 Employment Matters. It is the Buyer's intention to make
written offers of employment to substantially all of the IDM Employees. It
is the Seller's intention to assist Buyer in hiring the IDM Employees.
Accordingly, Seller shall use commercially reasonable best efforts to
encourage IDM Employees who are given written offers of employment by Buyer
on terms that are not less than substantially similar to the employees'
current employment terms ("Buyer's Offer of Employment") to accept such
offers from Buyer. In addition, Seller agrees that for a period of one year
after the date hereof, Seller will not solicit or hire any IDM Employee that
received Buyer's Offer of Employment without Buyer's consent, which shall
not be unreasonably withheld. Buyer agrees that each Buyer's Offer of
Employment accepted by an IDM Employee shall include a release of Seller
with respect to severance payments and other claims arising out of the
termination of employment by Seller associated with the transaction
contemplated hereby.
Section 8.6 Allocation of Purchase Price. The Initial Purchase
Price and the Assumed Liabilities (to the extent they constitute part of
the amount realized by Seller for federal income Tax purposes) shall be
allocated among the Assets and the Contracts in accordance with Schedule
8.6 hereto, which the parties shall adjust to reflect any differences
between the Final Purchase Price and the Initial Purchase Price. This
allocation is intended to comply with the allocation method required
by Section 1060 of the Code. The parties shall cooperate to comply
with all requirements of Section 1060 and the regulations thereunder,
and once the allocation has been adjusted to reflect the Final Purchase
Price, the allocation shall be adjusted only if and to the extent necessary
to comply with such requirements. Buyer and Seller agree that they will not
take nor will they permit any affiliated person to take, for income Tax
purposes, any position inconsistent with such allocation; provided, however,
that (a) Buyer's total cost for the Assets may differ from the total amount
allocated hereunder to reflect Buyer's transaction costs other than the
Final Purchase Price and Assumed Liabilities, and (b) the amount realized by
Seller may differ from the total amount allocated hereunder to reflect
Seller's transaction costs that reduce the amount realized for income Tax
purposes.
Section 8.7 Access to Books and Records. From and after the
Closing, Buyer will authorize and permit Seller and its Representatives to
have access during normal business hours, upon reasonable notice and for
reasonable purposes and in such manner as will not unreasonably interfere
with the conduct of Buyer's business, to all books, records, files,
documents and correspondence included among the Assets that relate to the
conduct of the IDM Business prior to the Effective Time of the Closing.
From and after the Closing, Seller will authorize and permit Buyer and its
Representatives to have access during normal business hours, upon reasonable
notice and for reasonable purposes and in such manner as will not
unreasonably interfere with the conduct of Seller's business, to all books,
records, files, documents and correspondence not included among the Assets
that relate to the conduct of the IDM Business prior to the Effective Time
of the Closing. Buyer and Seller agree to maintain all books and records,
files, documents and other correspondence related to the IDM Business prior
to the Effective Time of the Closing in accordance with their respective
normal document retention practices after the Closing Date. Buyer shall
notify Seller if at any time during the six years following the Closing Date
it intends to destroy any or all of such books, papers or records, and
Seller shall have the right to review and remove at Seller's expense any
such books, papers and records.
Section 8.8 Non-Competition.
(a) For a period of two (2) years after the Closing Date, Seller shall
not, anywhere in the United States, engage in, or own, manage, operate or
control any Person engaged in or planning to become engaged in, the business
of selling document management products that compete directly with the IDM
Business to the customers of the IDM Business as of the Closing Date or to
any other Person or Persons in any industry (a "Competing Business"),
provided, however, that Seller may (i) purchase or otherwise acquire up to
(but not more than) one percent (1%) of any class of the securities of any
Person (but may not otherwise participate in the activities of such Person)
if such securities are listed on any national or regional securities
exchange or have been registered under Section 12(g) of the Exchange
Act, and (ii) sell products and applications based on the SERbrainware
technology, including SERdistiller, SERiMail, SERoutlook Access and
SERglobalBrain (personal edition, enterprise edition, API toolkit), and
other knowledge management technology products or integrations of products
and applications with other third-party products to persons who may or may
not compete with Buyer and who may or may not be present or former customers
of the IDM Business, and (iii) at the sole discretion of the Seller, sell,
assign or transfer any of the Excluded Assets to any Person at anytime.
(b) If a final judgment of a court or tribunal of competent
jurisdiction determines that any term or provision contained in Section
8.8(a) is invalid or unenforceable, then the parties agree that the court
or tribunal will have the power to reduce the scope, duration or geographic
area of the term or provision, to delete specific words or phrases or to
replace any invalid or unenforceable term or provision with a term or
provision that is valid and enforceable and that comes closest to expressing
the intention of the invalid or unenforceable term or provision. This
Section 8.8 will be enforceable as so modified after the expiration of
the time within which the judgment may be appealed.
(c) Seller agrees that the restrictions set forth in this Section
8.8 are reasonable in scope, territory and time period and are necessary
to protect the value of the Assets to be purchased by Seller.
Section 8.9 Collection of Accounts. From and after the Closing,
Seller shall reasonably cooperate with Buyer in connection with Buyer's
efforts to collect the obligations due under the Accounts as reasonably
requested by Buyer. Buyer shall reimburse Seller for Seller's reasonable
out-of-pocket expenses incurred in providing the requested cooperation under
this Section 8.9.
Section 8.10 Confidentiality.
(a) As used in this Agreement, the term "Confidential Information"
includes any and all of the following information of Seller or Buyer that
has been or may hereafter be disclosed in any form, whether in writing,
orally, electronically or otherwise, or otherwise made available by
observation, inspection or otherwise by either party or its Representatives
(collectively, a "Disclosing Party") to the other party or its
Representatives (collectively, a "Receiving Party"):
(1) all information that is a trade secret under applicable trade
secret or other law;
(2) all information concerning product specifications, data,
know-how, formulae, compositions, processes, designs,
sketches, photographs, graphs, drawings, samples, inventions
and ideas, past, current and planned research and
development, current and planned manufacturing or
distribution methods and processes, customer lists, current
and anticipated customer requirements, price lists, market
studies, business plans, computer hardware, software and
computer software and database technologies, systems,
structures and architectures;
(3) all information concerning the business and affairs of the
Disclosing Party (which includes historical and current
financial statements, financial projections and budgets, tax
returns and accountants' materials, historical, current and
projected sales, capital spending budgets and plans, business
plans, strategic plans, marketing and advertising plans,
publications, client and customer lists and files, contracts,
the names and backgrounds of key personnel and personnel
training techniques and materials, however documented), and
all information obtained from review of the Disclosing
Party's documents or property or discussions with the
Disclosing Party regardless of the form of the communication;
and
(4) all notes, analyses, compilations, studies, summaries and
other material prepared by the Receiving Party to the extent
containing or based, in whole or in part, upon any
information included in the foregoing.
Any trade secrets of a Disclosing Party shall also be entitled to all of the
protections and benefits under applicable trade secret law and any other
applicable law. If any information that a Disclosing Party deems to be a
trade secret is found by a court of competent jurisdiction not to be a trade
secret for purposes of this Agreement, such information shall still be
considered Confidential Information of that Disclosing Party for purposes of
this Agreement to the extent included within the definition. In the case of
trade secrets, each of Buyer and Seller hereby waives any requirement that
the other party submit proof of the economic value of any trade secret or
post a bond or other security.
(b) Each Receiving Party acknowledges the confidential and proprietary
nature of the Confidential Information of the Disclosing Party and agrees
that such Confidential Information (i) shall be kept confidential by the
Receiving Party; (ii) shall not be used for any reason or purpose other than
to evaluate and consummate the transactions contemplated by this Agreement;
and (iii) without limiting the foregoing, shall not be disclosed by the
Receiving Party to any Person, except in each case as otherwise expressly
permitted by the terms of this Agreement or with the prior written consent
of an authorized representative of Seller with respect to Confidential
Information of Seller (each, a "Seller Contact") or an authorized
representative of Buyer with respect to Confidential Information of Buyer
(each, a "Buyer Contact"). Each of Buyer and Seller shall disclose the
Confidential Information of the other party only to its Representatives
who require such material for the purpose of evaluating the transactions
contemplated by this Agreement and are informed by Buyer or Seller, as the
case may be, of the obligations of this Agreement with respect to such
information. Each of Buyer and Seller shall (i) enforce the terms of this
Agreement as to its respective Representatives; (ii) take such action to the
extent necessary to cause its Representatives to comply with the terms and
conditions of this Agreement; and (iii) be responsible and liable for any
breach of the provisions of this Agreement by it or its Representatives.
(c) From and after the Closing, the provisions of this Section 8.10
shall not apply to or restrict in any manner Buyer's use of any Confidential
Information of the Seller included in the Assets or relating to the IDM
Business or the Assumed Liabilities.
(d) This Section 8.10 shall not apply to that part of the Confidential
Information of a Disclosing Party that a Receiving Party demonstrates
(a) was, is or becomes generally available to the public other than as
a result of a breach of this Agreement or any other confidentiality or
non-disclosure agreement among the parties; (b) was or is developed by
the Receiving Party independently of and without reference to any
Confidential Information of the Disclosing Party; or (c) was, is or
becomes available to the Receiving Party on a non-confidential basis
from a third party not bound by a confidentiality agreement or any legal,
fiduciary or other obligation restricting disclosure.
(e) If a Receiving Party becomes compelled in any legal proceeding or
is requested by a Governmental Authority having regulatory jurisdiction over
this Agreement to make any disclosure that is prohibited or otherwise
constrained by this Agreement, that Receiving Party shall provide the
Disclosing Party with prompt notice of such compulsion or request so that
it may seek an appropriate protective order or other appropriate remedy or
waive compliance with the provisions of this Agreement. In the absence of
a protective order or other remedy, the Receiving Party may disclose that
portion (and only that portion) of the Confidential Information of the
Disclosing Party that, based upon advice of the Receiving Party's counsel,
the Receiving Party is legally compelled to disclose or that has been
requested by such Governmental Authority, provided, however, that the
Receiving Party shall use reasonable efforts to obtain reliable assurance
that confidential treatment will be accorded by any Person to whom any
Confidential Information is so disclosed.
(f) If this Agreement is terminated or upon a request made by the
Disclosing Party, each Receiving Party shall, at the Disclosing Party's sole
discretion (a) destroy all Confidential Information of the Disclosing Party
prepared or generated by the Receiving Party without retaining a copy of
any such material; (b) promptly deliver to the Disclosing Party all other
Confidential Information of the Disclosing Party, together with all copies
thereof, in the possession, custody or control of the Receiving Party or,
alternatively, with the written consent of a Seller Contact or a Buyer
Contact (whichever represents the Disclosing Party) destroy all such
Confidential Information; and (c) certify all such destruction in writing to
the Disclosing Party, provided, however, that the Receiving Party may retain
a list that contains general descriptions of the information it has returned
or destroyed to facilitate the resolution of any controversies after the
Disclosing Party's Confidential Information is returned.
Section 8.11 Non-Solicitation; Non-Disparagement.
(a) For a period of two years after the Closing Date, Buyer shall
not, directly or indirectly hire, retain or attempt to hire or retain any
employee or independent contractor of Seller or in any way interfere with
the relationship between Buyer and any of its employees or independent
contractors, in each case other than the IDM Employees. For a period of two
years after the Closing Date, Seller shall not, directly or indirectly hire,
retain or attempt to hire or retain any Continuing Employee, or in any way
interfere with the relationship between Buyer and any Continuing Employee.
Nothing in this Section 8.11 shall prevent either party from engaging in
general public solicitations for employees in the ordinary course of
business.
(b) After the Closing Date, neither party will disparage the other
party or any of its respective shareholders, directors, officers, employees
or agents.
ARTICLE IX
TERMINATION
Section 9.1 Termination. Time is of the essence of this Agreement.
This Agreement may be terminated and the transactions contemplated hereby
may be abandoned as follows:
(a) at any time prior to the Closing Date by mutual written agreement
of Seller and Buyer;
(b) by Buyer on the Closing Date if any of the conditions set forth
in Article VI of this Agreement shall not have been fulfilled by the Closing
Date;
(c) by Seller on the Closing Date if any of the conditions set forth
in Article VII of this Agreement shall not have been fulfilled by the
Closing Date; or
(d) by Seller or Buyer at any time after [December 31, 2004] if, by
the date of such termination and despite substantial adherence to the terms
of this Agreement by such party, the Closing has not occurred.
Section 9.2 Rights on Termination; Waiver.
(a) If this Agreement is terminated pursuant to Section 9.1, all
further obligations of the parties under or pursuant to this Agreement shall
terminate without further liability of either party to the other (except any
liability of any party then in breach of its obligations hereunder, as to
which the party not in breach shall retain all of its rights and remedies
under applicable Law), except for the provisions contained in Sections 8.10
and 8.11 hereof, which shall survive such termination in accordance with
their respective terms.
(b) If any of the conditions set forth in Article VI of this Agreement
have not been satisfied, Buyer may nevertheless elect to waive such
conditions and proceed with the consummation of the transactions
contemplated hereby. If any of the conditions set forth in Article VII
of this Agreement have not been satisfied, Seller may nevertheless elect
to waive such conditions and proceed with the consummation of the
transactions contemplated hereby.
ARTICLE X
MISCELLANEOUS
Section 10.1 Transfer Taxes and Fees. Seller shall pay all Taxes
charged to Sellers, grantors, transferors or assignors under applicable Law.
Buyer shall pay all other transfer, sales or recording Taxes and other
filing fees arising under applicable Law in connection with the transactions
contemplated hereunder.
Section 10.2 Entire Agreement; Amendment. This Agreement and the
documents referred to herein and to be delivered pursuant hereto constitute
the entire agreement between the parties pertaining to the subject matter
hereof, and supersede all prior and contemporaneous agreements,
understandings, negotiations and discussions of the parties, whether oral or
written, and there are no warranties, representations or other agreements
between the parties in connection with the subject matter hereof, except
as specifically set forth herein or therein. No amendment, supplement,
modification, waiver or termination of this Agreement shall be binding
unless executed in writing by the party to be bound thereby. No waiver of
any of the provisions of this Agreement shall be deemed or shall constitute
a waiver of any other provision of this Agreement, whether or not similar,
nor shall such waiver constitute a continuing waiver unless otherwise
expressly provided.
Section 10.3 Expenses. Except as otherwise specifically provided
herein, whether or not the transactions contemplated by this Agreement are
consummated, each of the parties hereto shall pay the fees and expenses of
their respective counsel, accountants and other experts and the other
expenses incident to the negotiation and preparation of this Agreement
and consummation of the transactions contemplated hereby.
Section 10.4 Governing Law. (a) This Agreement shall be construed
and interpreted according to the laws of the State of Delaware, without
regard to the conflicts of law rules thereof. Buyer and Seller hereby agree
that service of process delivered pursuant to Section 10.6 hereof shall
suffice as adequate service of process.
(b) Notwithstanding any provision set forth in this Agreement to the
contrary, there is no agreement among the parties to submit disputes under
this Agreement to arbitration.
Section 10.5 Assignment. This Agreement and each party's respective
rights hereunder may not be assigned at any time except as expressly set
forth herein and without the prior written consent of the other party.
Section 10.6 Notices. All communications, notices and disclosures
required or permitted by this Agreement shall be in writing and shall be
deemed to have been given when delivered personally or by messenger or one
Business Day after having been sent by overnight delivery service, or three
Business Days after the date when mailed by registered or certified U.S.
mail, postage prepaid, return receipt requested, or when received via
telecopy, telex or other electronic transmission, in all cases addressed to
the person for whom it is intended at his address set forth below or to such
other address as a party shall have designated by notice in writing to the
other party in the manner provided by this Section:
If to Seller: SER Solutions, Inc.
Loudoun Tech Center
21680 Ridgetop Circle
Dulles, Virginia 20166
Attention: Carl E. Mergele
Phone: 703-948-5500
Fax: 703-430-7738
With a copy to: Hunton & Williams LLP
Riverfront Plaza, East Tower
951 East Byrd Street
Richmond, Virginia 23219-4074
Attention: Randall S. Parks, Esq.
Phone: 804-788-8200
Fax: 804-788-8218
If to Buyer: Jack Henry & Associates, Inc.
663 Highway 60
Monett, Missouri 65708
Attention: Kevin Williams, Chief Financial Officer
Phone: 417-235-6652
Fax: 417-235-1765
With a copy to: Robert Schendel, General Counsel
Jack Henry & Associates, Inc.
10910 W. 87th Street
Lenexa, Kansas 66214
Phone: 913-341-3434
Fax: 913-495-1111
Section 10.7 Counterparts; Headings. This Agreement may be executed
in several counterparts, each of which shall be deemed an original, but such
counterparts shall together constitute but one and the same Agreement. The
Table of Contents and Article and Section headings in this Agreement are
inserted for convenience of reference only and shall not constitute a part
hereof.
Section 10.8 Interpretation. Unless the context requires otherwise,
all words used in this Agreement in the singular number shall extend to and
include the plural, all words in the plural number shall extend to and
include the singular and all words in any gender shall extend to and include
all genders. All references to contracts, agreements, leases or other
understandings or arrangements shall refer to oral as well as written
matters.
Section 10.9 Severability. If any provision, clause or part of this
Agreement, or the application thereof under certain circumstances, is held
invalid, the remainder of this Agreement, or the application of such
provision, clause or part under other circumstances, shall not be affected
thereby.
Section 10.10 No Reliance. No third party is entitled to rely on
any of the representations, warranties and agreements contained in this
Agreement. Buyer and Seller assume no liability to any third party because
of any reliance on the representations, warranties and agreements of Buyer
or Seller contained in this Agreement.
Section 10.11 Specific Performance. Seller and Buyer hereby agree
that irreparable damage would occur in the event any of the provisions of
this Agreement were not performed in accordance with the terms hereof and
that money damages would be an inadequate remedy to compensate for the
breach of this Agreement. Accordingly, each party agrees that the other
shall be entitled to specific performance of the terms hereof, in addition
to any other remedy at law or equity.
[Signature Page Follows]
IN WITNESS WHEREOF, each party hereto has caused this Asset Purchase
Agreement to be executed in its name by a duly authorized officer as of the
day and year first above written.
SELLER: SER SYSTEMS, INC.
By: ____________________________________
Name: ____________________________________
Title: ____________________________________
SER SOLUTIONS, INC.
By: ____________________________________
Name: ____________________________________
Title: ____________________________________
BUYER: JHA SYNERGY, INC.
By: ____________________________________
Name: ____________________________________
Title: ____________________________________
BUYER: JACK HENRY & ASSOCIATES, INC.
By: ____________________________________
Name: ____________________________________
Title: ____________________________________
EXHIBIT 31.1
CERTIFICATION
-------------
I, John F.Prim, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Jack Henry &
Associates, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement
of a material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial
information included in this report, fairly present in all material respects
the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:
a) Designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our supervision, to
ensure that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this report is being
prepared;
b) Evaluated the effectiveness of the registrant's disclosure controls and
procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end of
the period covered by this report based on such evaluation; and
c) Disclosed in this report any change in the registrant's internal control
over financial reporting that occurred during the registrant's most recent
fiscal quarter (the registrant's fourth fiscal quarter in the case of an
annual report) that has materially affected, or is reasonably likely to
materially affect, the registrant's internal control over financial
reporting; and
5. The registrant's other certifying officer and I have disclosed, based on
our most recent evaluation of internal control over financial reporting, to
the registrant's auditors and the audit committee of registrant's board of
directors (or persons performing the equivalent functions):
a) All significant deficiencies and material weaknesses in the design or
operation of internal controls over financial reporting which are reasonably
likely to adversely affect the registrant's ability to record, process,
summarize and report financial information ; and
b) Any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal controls
over financial reporting.
Date: February 9, 2005
/s/ John F. Prim
------------------------------
John F. Prim
Chief Executive Officer
EXHIBIT 31.2
CERTIFICATION
-------------
I, Kevin D. Williams, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Jack Henry &
Associates, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement
of a material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial
information included in this report, fairly present in all material respects
the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:
a) Designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our supervision, to
ensure that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this report is being
prepared;
b) Evaluated the effectiveness of the registrant's disclosure controls and
procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end of
the period covered by this report based on such evaluation; and
c) Disclosed in this report any change in the registrant's internal control
over financial reporting that occurred during the registrant's most recent
fiscal quarter (the registrant's fourth fiscal quarter in the case of an
annual report) that has materially affected, or is reasonably likely to
materially affect, the registrant's internal control over financial
reporting; and
5. The registrant's other certifying officer and I have disclosed, based on
our most recent evaluation of internal control over financial reporting, to
the registrant's auditors and the audit committee of registrant's board of
directors (or persons performing the equivalent functions):
a) All significant deficiencies and material weaknesses in the design or
operation of internal controls over financial reporting which are reasonably
likely to adversely affect the registrant's ability to record, process,
summarize and report financial information ; and
b) Any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal controls
over financial reporting.
Date: February 9, 2005 /s/ Kevin D. Williams
-------------------------------
Kevin D. Williams
Chief Financial Officer
EXHIBIT 32.1
Written Statement of the Chief Executive Officer
Pursuant to 18 U.S.C. Section 1350
Solely for the purposes of complying with 18 U.S.C. Section 1350, I, the
undersigned Chief Executive Officer of Jack Henry & Associates, Inc. (the
"Company"), hereby certify that the Quarterly Report on Form 10-Q of the
Company for the three and six-months ended December 31, 2004 (the "Report")
fully complies with the requirements of Section 13(a) of the Securities
Exchange Act of 1934 and that information contained in the Report fairly
presents, in all material respects, the financial condition and results of
operations of the Company.
Dated: February 9, 2005
*/s/ John F. Prim
------------------------------------
John F. Prim
Chief Executive Officer
* A signed original of this written statement required by Section 906 has
been provided to Jack Henry & Associates, Inc. and will be retained by Jack
Henry & Associates, Inc. and furnished to the Securities and Exchange
Commission or its staff upon request.
EXHIBIT 32.2
Written Statement of the Chief Financial Officer
Pursuant to 18 U.S.C. Section 1350
Solely for the purposes of complying with 18 U.S.C. Section 1350, I, the
undersigned Chief Financial Officer of Jack Henry & Associates, Inc. (the
"Company"), hereby certify that the Quarterly Report on Form 10-Q of the
Company for the three and six-months ended December 31, 2004 (the "Report")
fully complies with the requirements of Section 13(a) of the Securities
Exchange Act of 1934 and that information contained in the Report fairly
presents, in all material respects, the financial condition and results of
operations of the Company.
Dated: February 9, 2005
*/s/ Kevin D. Williams
------------------------------------
Kevin D. Williams
Chief Financial Officer
* A signed original of this written statement required by Section 906 has
been provided to Jack Henry & Associates, Inc. and will be retained by Jack
Henry & Associates, Inc. and furnished to the Securities and Exchange
Commission or its staff upon request.
