THE SHARES OF COMMON STOCK OF NETWORK SYSTEMS INTERNATIONAL,
INC., A NEVADA CORPORATION, PURSUANT TO THIS STOCK PURCHASE
AGREEMENT HAVE NOT BEEN REGISTERED UNDER THE UNITED STATES
SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR ANY
STATE SECURITIES LAWS, AND MAY NOT BE SOLD OR TRANSFERRED OR
OFFERED FOR SALE OR TRANSFER UNLESS A REGISTRATION STATEMENT
UNDER THE SECURITIES ACT AND OTHER APPLICABLE SECURITIES LAWS
WITH RESPECT TO SUCH SECURITIES IS THEN IN EFFECT, OR IN THE
OPINION OF COUNSEL, SUCH REGISTRATION UNDER THE SECURITIES ACT
AND OTHER APPLICABLE SECURITIES LAWS IS NOT REQUIRED.
NETWORK SYSTEMS INTERNATIONAL, INC.
STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT is entered into as of July 10,
2000, by and between NETWORK SYSTEMS INTERNATIONAL, INC. , a
Nevada corporation (hereinafter the "Corporation") and the
Investors whose names appear on the signature pages hereto
(hereinafter the "Investors," each an "Investor").
RECITALS
A. The Corporation desires to raise money by the sale of
1,666,667 common shares of the Corporation ("Stock") to the
Investors, subject to the terms and conditions of this Agreement.
B. The Investors desire to purchase the Stock from the
Corporation and the Corporation desires to sell such Stock to the
Investors on the terms and conditions hereinafter set forth.
AGREEMENTS
NOW, THEREFORE, in consideration of the mutual agreements,
covenants, representations and warranties contained in this
Agreement, the parties agree as follows:
Section 1. Authorization and Sale of Stock.
a. Sale and Issuance of Stock. Subject to the terms
and conditions of this Agreement, the Investors agree to purchase
at the Closing (as defined below), and the Corporation agrees to
sell and issue to the Investors at the Closing, that number of
Shares (the "Shares") set forth opposite each such Investor's
name on the signature page attached to this Agreement, at the
purchase price of $.60 per Share, for an aggregate purchase price
of $1,000,000.
b. Closing. Subject to the terms and conditions
hereof, the closing of the purchase and sale of the Shares
(hereinafter the "Closing") shall occur on, or about, July 21,
2000, at 10:00 a.m., in Greensboro, North Carolina, or at such
other time which the Corporation shall determine (the date of the
Closing is hereinafter referred to as the "Closing Date").
c. Delivery. At the Closing, the Corporation will
deliver to each Investor a stock certificate registered in such
Investor's name, representing the Shares to be purchased by such
Investor, against payment of the purchase price therefore, by
certified funds payable to the Corporation, or at the election of
the Corporation by wire transfer per the Corporation's
instruction.
Section 2. Corporation's Representations and Warranties.
The Corporation hereby
represents and warrants as of the Closing as follows:
2.1 Organization and Corporate Power. The Corporation
is a corporation which will be, at the time of closing, duly
organized, in good standing under the laws of Nevada and is
qualified as a foreign corporation in all jurisdictions in which
the nature of its property owned or leased by it or the conduct
of its business requires such qualification except for such
jurisdiction where the failure to so qualify would not materially
and adversely affect the business, operations or financial
condition of the Corporation. The Corporation has all requisite
corporate power and authority necessary to own and operate its
properties and to carry on its business as now conducted and,
subject to obtaining such permits, licenses, consents and the
like as may be required in any jurisdiction in which the
Corporation intends to conduct business, which the Corporation
has no knowledge or reason to believe will not be reasonably
obtained, as proposed or contemplated to be conducted in the
future and enter into and to carry out the provisions of this
Agreement and the transactions contemplated hereby.
2.2 Corporate Capitalization.
a. Authorized Capital Stock. Immediately prior to the
Closing, the Corporation's authorized capital stock shall consist
of One Hundred Million (100,000,000) shares of common Stock, par
value $0.001 per share, of which Seven Million Eight Hundred
Thirteen Thousand One Hundred Fifty-Four (7,813,154) shares are
issued and outstanding and Twelve Thousand Five Hundred (12,500)
shares of preferred stock, par value $0.001 per share, of which
Three Thousand Four Hundred Fifty-Five (3,455) shares are issued
and outstanding. All of the issued and outstanding shares of
Common Stock have been duly authorized and validly issued, are
fully paid and nonassessable and have been issued in compliance
with all applicable state and federal securities laws.
b. Restrictions on Transfer. Except for any
restrictions imposed by applicable state and federal securities
laws, and as set forth on Schedule 2.2(b), there is no right of
first refusal, co-sale right, right of participation, right of
first offer, option or other restriction on transfer applicable
to any shares of the Corporation's Common Stock. Except as set
forth on Schedule 2.2(b), the Corporation is not a party to, or
is subject to any agreement that affects or relates to the voting
or giving of written consent with respect to any shares of the
Corporation's Common Stock.
2.3 Corporate Compliance; Authorization.
a. Compliance with Instruments. To the Corporation's
knowledge, the Corporation is not in violation, breach or default
of any term of its Certificate of Incorporation or Bylaws, or of
any material term or provision of any judgment, decree, order
statute, rule or regulation applicable to or binding upon the
material adverse affect on the Corporation's business or
financial condition.
b. Authorization. The Corporation has all requisite
corporate power and authority to execute, deliver and perform its
obligations under this Agreement, and all corporate action on the
part of the Corporation, its officers, directors and
shareholders, necessary for the sale and issuance of the Shares
and the Corporation's obligations hereunder have been taken.
This Agreement, the Certificate of Incorporation and all
agreements attached hereto as Exhibits, are each legal, valid and
binding obligations of the Corporations enforceable in accordance
with their respective terms, except as such enforcement may be
limited by bankruptcy, insolvency, reorganization, moratorium or
other laws and equitable principals relating to or affecting the
enforcement of creditors' rights in general and by general
principals of equity. Except for the Wachovia Bank Revolving
Credit Agreement dated June 16, 1999, the execution, delivery and
compliance with the performance by the Corporation of this
Agreement does not and will not (1) conflict with or result in a
breach of the terms, conditions and provisions of any contractual
obligation, (2) result in the creation of any, material lien,
security interest, charge or encumbrance upon the Corporation's
capital stock or assets.
2.4 Absence of Litigation. Except as set forth on
schedule 2.4, there are no (a) actions proceedings, arbitrations
or investigations pending or any threat thereof, or verdicts or
judgments entered against the Corporation before any court or
before any administrative agency or officer which might result in
any material adverse change in the business, properties or
condition, financial or otherwise, of the Corporation or (b)
violations by the Corporation of any foreign, federal, state or
local laws, regulations or order, including but not limited to
laws pending to workplace safety and environmental clean-up, the
violation of which would have a material adverse effect on the
business of the Corporation.
2.5 Tax Returns and Payments. The Corporation has
filed or caused to be filed and accurately prepared all federal
and state income tax returns and all other federal and state tax
returns which are required to be filed by the Corporation. Except
as set forth on schedule 2.5, the Corporation has paid or caused
to be paid or set aside adequate reserves for all taxes,
penalties, and interests due or which may become due as shown on
such returns.
2.6 Financial Statements. The Corporation's 10-KSB for
the period ending September 30, 1999, 10-QSB for the period
ending March 31, 2000 and unaudited financial statements for the
two month period beginning April 1, 2000 and ending May 31, 2000
(hereinafter collectively referred to as the "Financial
Statements")which have been delivered to the Investors and (a)
are complete and correct in all material respects, (b) are in
accordance with the Corporation's books and records, and (c)
present fairly its financial position as of the dates indicated
and the results of its operations for the period indicated.
2.7 Material Change. Since May 31, 2000, there has not
occurred:
a. Any material adverse change in the assets,
liabilities, business, prospects, condition (financial or
otherwise), or operating results of the Corporation from that
reflected in the Financial Statements;
b. Any material increase in the indebtedness or
liabilities of the Corporation over the level thereof as
reflected in the Financial Statements;
c. Any increase in the compensation (including,
without limitation, the rate of commissions) payable to, or any
payment of a cash salary bonus to, any officer, director or
employee of, or consultant to, the Corporation;
d. Any material change in the manner of keeping the
book accounts or records of the Corporation or in the accounting
practices therein reflected.
e. Any declaration or payment of any dividends other
than payments of dividends on its preferred shares, or
distribution to the Corporation's Shareholders by the
Corporation, any acquisition or redemption by the Corporation of
any of its equity securities or loan by the Corporation to any of
its security holders.
2.8 Liabilities. Except as set forth on schedule 2.8,
the Corporation, which will be a non-operational holding company
at the closing, will not have any liabilities or obligations,
absolute or contingent outstanding as of the Closing Date except
for liabilities which may have been incurred in the ordinary
course of business, none of which in the aggregate, total more
than $2,500.
2.9 Extent of Offering. Except as contemplated in this
Agreement, neither the Corporation, nor any agent acting on its
behalf, has offered or will offer or solicit any offers to sell
any securities to any person or persons so as to require the
issuance or sale of the Shares to be registered to the provisions
of Section 5 of the Securities Act of 1933, as amended (the
"Securities Act"), or prevent the Corporation from utilizing the
provisions of Section 4(2) or Regulation D of the Securities Act
or any applicable state securities law exemption from
qualification.
2.10 Fees, Commissions and Expenses. The Corporation
does not have any agreement to pay any commission or finders'
fees which relate to proceeds received from the sale of stock
pursuant to this Agreement.
2.11 Validity of Issuance. The Shares to be purchased
and sold pursuant to this Agreement, will, when issued, sold, and
delivered, be duly and validly issued, fully paid and
nonassessable, and will be free and clear of any liens or
encumbrances caused or created by the Corporation.
2.12 Private Offering. At no time did the Corporation
present to the Investors or any other persons, or solicit the
Investors or any other person with, any leaflet, newspaper or
magazine article, radio or television advertisement, or any other
form of general advertising or solicitation, nor did the
Corporation invite the Investors or any other to attend a
promotional meeting otherwise than in connection and concurrently
with such communicated offer.
Section 3. Investor Representations and Warranties.
Each Investor represents and warrants to the Corporation that:
a. Investment. The Investor is acquiring the Shares
for investment for its own account and not with a view to, or
resale in connection with, any distribution thereof, and such
Investor has no present intention of selling or distributing any
such Shares. It understands that the Shares have not been
registered under the Securities Act by reason of a Section 4(2)
exemption.
b. Limitations on Resale or Transfer. The Investor
understands and acknowledges that the Investor's ability to sell
the Shares may be limited by the lack of a ready market in which
to sell the Shares and that the certificates issued will carry
the following 144 legend:
"The shares represented by this Certificate have not
been registered under the Securities Act of 1933 (the "Act") and
are "restricted securities" as that term is defined in Rule 144
under the Act. The shares may not be offered for sale, sold or
otherwise transferred except pursuant to an exemption from
registration under the Act, the availability of which is to be
established to the satisfaction of the Company."
c. Reliance by Company. Investor understands and
acknowledges that the Corporation will rely upon the
representations, warranties, agreements and understandings made
herein in making its decision whether to accept Investor's offer,
and that the foregoing representations, warranties, agreements
and understandings shall survive the closing of this Agreement.
d. Access to Data. The Investor has had an
opportunity to discuss the Corporation's business, management and
financial affairs with its management and to obtain any
additional information necessary or appropriate for deciding
whether or not to purchase the Shares. The Investor acknowledges
that no representation or warranties, oral and written, have been
made by the Corporation, or any other agent thereof except as set
forth in this Agreement.
e. Accredited Investor Status. The Investor
represents that it meets one or more of the following standards
(by initializing each applicable standard):
Standard One: The Investor is a
natural person who has an individual net worth or joint net worth
with his or her spouse in excess of $1,000,000. "Net Worth"
means the net fair market value of equity of the Investor's
assets and properties.
Standard Two: The Investor is a
natural person who has had individual income in excess of
$200,000 or joint income with his or her spouse in excess of
$300,000 during 1998 and 1999 and reasonably expects to have the
same income level in 2000.
Standard Three: The Investor is a
corporation partnership or trust with total assets in excess of
$5,000,000 and not formed specifically to acquire the securities
offered herein.
Standard Four: The Investor is an entity
in which all of the equity or beneficial owners are deemed to be
"accredited" investors by reason of each of them meeting either
Standard One, Two or Three above.
e. Previous Investments. The Investor is an investor
in securities of companies in the development stage and
acknowledges that it is able to fend for itself, can bear the
economic risk of its investment and has such knowledge and
experience in financial or business matters that it is capable of
evaluating the merit and risks of the investment contemplated
herein.
f. Risks. The Investor understands that the
investment in the Corporation involves a high degree of risk and
is suitable only for investors who can afford a loss of their
entire investment and who have no need for liquidity from their
investment.
g. Private Offering. At no time was the investor
presented or solicited by any leaflet, newspaper or magazine
article, radio or television advertisement, or any form of
general advertising or solicited or invited to attend a
promotional meeting otherwise than in connection and concurrently
with such communicated offer.
h. Authorization. The Investor is a resident of the
state set forth in the address of the Investor shown on the
signature page of this Agreement. The Investor has all requisite
authorization to execute and deliver the Agreement and
understands that the Corporation is relying on the
representations and warranties of the Investor, including but not
limited to the Investor's financial sophistication and status as
an accredited investor, in determining the availability of an
exemption from registration under the Securities Act.
Section 4. Condition Precedent to Obligation of Investor to
Close
4.1. Representations and Warranties; Performance. Each
of the representations and warranties made by the Corporation
herein will be true and correct in all material respects as of
the Closing with the same effect as though made at that time
except for changes contemplated, permitted or required by this
Agreement; the Corporation will have performed and complied with
all agreements, covenants and conditions required by this
Agreement to be performed and complied with by it prior to the
Closing; and the Investors will have received, at the Closing, a
certificate of the Corporation, signed by the President, stating
that each of the representations and warranties made by the
Corporation herein is true and correct in all material respects
as of the Closing except for changes contemplated, permitted or
required by this Agreement and that the Corporation has performed
and complied with all agreements, covenants and conditions
required by this Agreement to be performed and complied with by
it prior to the Closing.
4.2 Corporate Reorganization. The Corporation shall
cause its operating assets and liabilities, except as set forth
on Schedule 2.8, to be contributed to either a newly created
wholly-owned subsidiary, Network Systems International of North
Carolina, Inc. or its existing subsidiary, Vercom, Inc.
(collectively referred to as the "Subsidiaries"). The parties
acknowledge and agree that any federal tax benefits related to
the Corporation's losses through the later of (1) the date of the
contribution of assets to the Subsidiaries, or (2) if the put
option described in Section 4.5 is exercised, the date of such
exercise; shall follow the operating assets to the Subsidiaries.
Specifically, the parties acknowledge that except for any federal
or state tax payments made after the Closing with respect to any
pre-closing tax liabilities, all rights to the benefit of federal
income tax refunds shall be an asset of Network Systems
International of North Carolina, Inc. The Corporation will agree
to take all actions necessary to cause the monetary benefit of
these losses to inure to the benefit of Network Systems
International of North Carolina, Inc. Except as otherwise noted,
all agreements of the Corporation, including employment
contracts, will be assigned to the subsidiaries.
4.3 Board of Directors. All members of the Board of
Directors of the Corporation, except ▇▇▇▇▇▇ ▇▇▇▇▇, shall submit
their resignations to the Corporation to be effective prior to
the date of Closing. Also prior to Closing, the sole remaining
director, ▇▇▇▇▇▇ ▇▇▇▇▇, will appoint ▇▇▇▇▇▇▇ ▇▇▇▇▇ to the Board
of Directors and then immediately resign.
4.4 Sale of Corporation's Common Stock. Prior to
Closing, ▇▇▇▇▇▇ ▇. ▇▇▇▇▇, ▇. ▇▇▇▇▇▇, ▇▇., ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇ and
▇▇▇▇▇ ▇. ▇▇▇▇▇▇ (collectively the "Selling Shareholders") will
enter into an agreement to sell two million seven hundred
thousand (2,700,000)shares of the Corporation's common stock for
a purchase price of one million five hundred thousand dollars
($1,500,000). The Selling Shareholders agree to sell the shares
in the following amounts:
Name Shares
▇▇▇▇▇▇ ▇. ▇▇▇▇▇ 1,900,000
▇. ▇. ▇▇▇▇▇▇, ▇▇. 600,000
▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇ 100,000
▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇ 100,000
Section 4.5 Selling Shareholders Purchase of
Subsidiaries. The Selling Shareholders will enter into an
agreement which provides the Corporation with an option to
require the Selling Shareholders to purchase the Subsidiaries of
the Corporation for a purchase price of three million dollars
($3,000,000). The option to purchase of the Subsidiaries may be
exercised by the Board of Directors' after Closing, but within 45
days of Closing. If the option is exercised, the Selling
Shareholders will deliver as a consideration for the purchase of
the Subsidiaries $1,500,000 in cash and a secured, Non-Recourse
Promissory Note in the amount of $1,500,000 payable in 120 days.
The security on the Non-Recourse Promissory Note will be
2,925,856 shares of the Corporation's Common Stock which the
Corporation shall have the right to sell for a total of
$1,500,000. As part of the purchase of the Subsidiaries, and as
a condition to the Selling Shareholders' obligation to consummate
the purchase, the Corporation must commit to reduce the
Subsidiaries' indebtedness to Wachovia Bank by three million
dollars ($3,000,000).
Section 5. Condition Precedent to Obligation of Corporation
to Close. It shall be a condition precedent to the Corporation's
obligation to close the purchase and sale of the Shares under
this Agreement that the Corporation has obtained the consent of
Wachovia Bank, N.A. to the issuance and sale of the Shares and to
other matters described in the Form 8-K filed on or about July
10, 2000
Section 6. Miscellaneous.
6.1. Successors and Assigns. Except as otherwise
expressly provided herein, the provisions hereof shall inure to
the benefit of, and be binding upon, the successors, assigns,
heirs, executors and administrators of the parties hereto.
6.2. Entire Agreement. This Agreement and the exhibits
attached hereto and the other documents delivered pursuant hereto
constitute the full and entire understanding and agreement
between the Corporation and the Investors with regard to the
subjects hereof and thereof.
6.3. Notice. Any notice, payment, report or other
communication required or permitted to be given by one to any
other party by this Agreement shall be in writing and either (i)
served personally on the other party or parties; (ii) sent by
express, registered or certified first class mail, postage
prepaid, addressed to the other party or parties at its or their
address or addresses as indicated next to their signatures below,
or to such other address as any addressee shall have therefore
furnished to the other parties by like notice; (iii) delivered by
commercial courier to the other party or parties; or (iv) sent by
facsimile with the original sent by U.S. Mail. Such notice shall
be deemed received on the second day after transmittal if sent by
one day courier together with a transmission of such notice by
facsimile if the recipient has the capability to receive a
facsimile.
6.4. Finder's Fee and Broker's Fees. The Corporation
and the Investors hereto represent and warrant that they have
retained no finder or broker in connection with the transactions
by this Agreement, and hereby agrees to indemnify and to hold the
other harmless from any liability for any finder's or broker's
fee to any broker or other person or firm (and the cost and
expenses of defending against such liability or asserted
liability) for which such indemnifying person, or any of its
employees or representatives, are responsible.
6.5. Titles and Subtitles. The titles of the Sections
and subsections of this Agreement are for the convenience of
reference only and are not to be considered in construing this
Agreement.
6.6. Counterparts. This Agreement may be executed in
any number of counterparts, each of which shall be original, but
all of which together shall constitute one instrument.
6.7. Applicable Law. This Agreement shall be governed
by and construed in accordance with the laws of the State of
North Carolina.
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the day and year hereinabove first written.
CORPORATION
NETWORK SYSTEMS INTERNATIONAL, INC.
▇▇▇ ▇▇▇▇▇ ▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Fax (▇▇▇)-▇▇▇-▇▇▇▇
By: /s/ ▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇, President
INVESTOR INVESTOR
By: /s/ ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇ By: /s/ ▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇
INVESTOR INVESTOR
By: /s/ ▇▇▇▇ ▇. ▇▇▇▇ By: /s/ ▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇ ▇. ▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇
INVESTOR INVESTOR
By: /s/ D. ▇▇▇▇ ▇▇▇▇▇ By: /s/ ▇▇▇▇▇ ▇▇▇▇
D. ▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇
INVESTOR
By: /s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
Network Systems International, Inc.
Schedule 2.4
Absence of Litigation Listing
1. Mediation Settlement Agreement between Network Information
Services, Inc. and Highland Industries, Inc., Network owes
Highland $150,000 as final payment of settlement. Confession of
Judgment to be issued on July 31, 2000 if not paid.
2. Canton Financial Services Corporations v. Network Systems
International, Inc. in the Circuit Court for the Thirteenth
Judicial Circuit in and for Hillborough County. State of Florida
Civil
Division, Case No. 98-657, Division "A". Trial
anticipated for late September 2000.
3. Building Lien filed 6/9/00 in Guilford County by J. ▇▇▇▇▇
▇▇▇▇▇, Inc., ▇.▇. ▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇. Principal
owed $63,246.18.
4. ▇▇▇▇▇▇▇ versus ▇▇▇▇ ▇▇▇▇▇▇▇▇ and Network Systems
International, Inc. Shareholder is suing a former Director of
the company for approximately $10,000 in short swing profits
received while a Director. The company will receive any monies
collected less attorney fees.
Network Systems
International, Inc.
Schedule 2.2(b)
Restrictions on Transfer
1. Stock Option Agreement dated April 15,1999, granting options
to 500,000 shares of Common Stock to ▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇.
2. Stock Option Awards granted during 1999
3. Rights related to the Corporation's Preferred Stock.
4. Wachovia Revolving Credit Agreement, dated June 16,1999.
Network Systems International, Inc.
Schedule 2.5
Tax Returns and Payments
The following list the Federal or State tax returns which have
been filed accurately but payment has not been made:
1. Network Systems International, Inc. and Subsidiaries Federal
Form 1120 filed on June 15, 2000 for the tax year ending
September 30, 1999. A tax liability of $169,002 remains to be
paid on a total tax liability of $432,897. Network Systems
International, Inc. and Subsidiaries has filed a Form 1138
"Extension of Time for Payment of Taxes by a Corporation
Expecting a Net Operating Loss Carryback" to utilize the
available NOL Carryback which is approximately $2,000,000 for the
year ended September 30, 2000.
2. Vercom Software, Inc. Federal Form 1120 filed on June 15,
2000 for the short tax period January 1, 2000 to June 16, 2000.
The entire tax liability of $72,780 remains to be paid for this
short period.
Network Systems International, Inc.
Schedule 2.8
Listing of Liabilities
1. Liabilities and/or obligations related to the matters
described on schedule 2.2(b)
2. Liabilities and/or obligations related to the matters
described on schedule 2.4
3. Liabilities and/or obligations related to the matters as
detailed in section 2.5
4. Liabilities and/or obligations of the Company under the
Contribution Agreement in which the operating assets of the
Company will be contributed to NSI-NC
5. All expenses incurred by Millennium
