UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14C
Information Statement Pursuant to Section 14(c) of the Securities Exchange Act of 1934
(Amendment No. ________)
Filed by the Registrant x
Filed by a Party other than the Registrant ¨
Check the appropriate box:
x
Preliminary Information Statement.
¨
Confidential, for Use of the Commission Only (as permitted by Rule 14c-5(d)(2)).
¨
Definitive Information Statement.
DPAC TECHNOLOGIES CORP.
(Name of Registrant as Specified in its Charter)
Payment of Filing Fee (Check the appropriate box):
¨
No fee required.
x
Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1)
Title of each class of securities to which transaction applies:
(2)
Aggregate number of securities to which transaction applies:
(3)
Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (set forth the amount on which the filing fee is calculated and state how it was determined):
(4)
Proposed maximum aggregate value of transaction:
$10,500,000 based on cash payment for assets purchased
(5)
Total fee paid:
$2,100.00
¨
Fee paid previously with preliminary materials.
¨
Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing.
(1)
Amount Previously Paid:
(2)
Form, Schedule or Registration Statement No.:
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Filing Party:
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Date Filed:
5675 Hudson Industrial Park
Hudson, Ohio 44236
By Order of the Board of Directors | ||||||
/s/ Steven D. Runkel Steven D. Runkel, President and Chief Executive Officer Hudson, Ohio | ||||||
[_________ __, 2011] |
QUESTIONS AND ANSWERS ABOUT THE ASSET SALE AND DISSOLUTION | 1 | |||||
INFORMATION STATEMENT RELATING TO ACTIONS APPROVED BY WRITTEN CONSENT OF THE SHAREHOLDERS | 9 | |||||
CAUTION REGARDING FORWARD-LOOKING STATEMENTS | 10 | |||||
SUMMARY TERM SHEET | 11 | |||||
ACTION NO. 1 THE ASSET SALE | 15 | |||||
General | 15 | |||||
Summary of DPAC and Quatech | 15 | |||||
Background of the Asset Sale and the Dissolution of DPAC | 16 | |||||
Recommendations of the Committee and the DPAC Board and Reasons for Recommending Approval of the Asset Purchase Agreement and the Plan of Dissolution to the Consenting Shareholders | 19 | |||||
Fairness Opinion of Western Reserve Partners LLC | 21 | |||||
Principal Provisions of the Asset Purchase Agreement | 26 | |||||
Interests of Certain Persons in the Asset Sale and the Plan of Dissolution | 30 | |||||
Voting and Support Agreement | 32 | |||||
Absence of Appraisal Rights | 32 | |||||
Certain Federal Income Tax Consequences of the Asset Sale | 33 | |||||
State Income Tax Consequences of the Asset Sale | 33 | |||||
Required Vote | 33 | |||||
Regulatory Approvals | 33 | |||||
ACTION NO. 2 PLAN OF COMPLETE LIQUIDATION AND DISSOLUTION | 34 | |||||
General | 34 | |||||
Background and Reasons for the Plan of Dissolution | 34 | |||||
Availability of Proceeds for Distribution | 35 | |||||
Default Allocation of Proceeds | 35 | |||||
Allocation Agreement | 37 | |||||
Risks Associated with the Plan of Dissolution | 37 | |||||
Liquidating Distributions; Nature; Amount; Timing | 40 | |||||
Plan of Dissolution Expenses and Indemnification | 42 | |||||
Interests of Certain Persons in the Asset Sale and the Plan of Dissolution | 43 | |||||
Principal Provisions of the Plan of Dissolution | 43 | |||||
Sales of DPAC’s Assets | 43 | |||||
Conduct of DPAC Following Adoption of the Plan of Dissolution | 44 | |||||
Contingent Liabilities; Contingency Reserve | 44 | |||||
Listing and Trading of the Common Stock | 44 | |||||
Regulatory Approvals | 44 | |||||
Absence of Appraisal Rights | 45 | |||||
Certain Income Tax Consequences of the Plan of Dissolution | 45 | |||||
Required Vote | 46 | |||||
FINANCIAL INFORMATION | 46 | |||||
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT | 47 | |||||
WHERE YOU CAN FIND MORE INFORMATION | 48 | |||||
DELIVERY OF INFORMATION STATEMENT TO SHAREHOLDERS SHARING AN ADDRESS | ||||||
ANNEXES | ||||||
Annex A — Asset Purchase Agreement | A-1 | |||||
Annex B — Plan of Complete Liquidation and Dissolution | B-1 | |||||
Annex C — Fairness Opinion | C-1 |
• | The execution and delivery of the Asset Purchase Agreement (the “Asset Purchase Agreement”), attached as Annex A to this Information Statement, and the sale of substantially all of the assets of our subsidiary, Quatech, Inc., an Ohio corporation (“Quatech”), to Q-Tech Acquisition, LLC (the “Buyer”), a Delaware limited liability company and a wholly owned subsidiary of B&B Electronics Manufacturing Company, a Delaware corporation (“B&B”), for $10.5 million in cash, which amount is subject to adjustment based on a working capital adjustment in the Asset Purchase Agreement (which any such adjustments will only be made if and only to the extent that the working capital at closing is at least $70,000 more or less than the working capital target) and an escrow amount of not more than $900,000 (the “Asset Sale”), and the change of the corporate name of DPAC after the closing under the Asset Purchase Agreement to DT Sale Corp. |
• | The Plan of Complete Liquidation and Dissolution of DPAC, substantially in the form of Annex B attached to this Information Statement, including the dissolution of DPAC contemplated thereby (the “Plan of Dissolution”). |
of view to DPAC, a Special Committee of the DPAC Board consisting of two independent directors (the “Committee”) and the DPAC Board each concluded that the completion of the sale of our assets to the Buyer for $10.5 million in cash (subject to certain adjustments and escrow arrangements described in this Information Statement) was the alternative most likely to enable DPAC to satisfy our outstanding obligations to creditors and to maximize value to our shareholders. See “Action No. 1: Approval of the Asset Sale — Background of the Asset Sale and Dissolution of DPAC” and “— Recommendations of the Committee and the DPAC Board and Reasons for Recommending Approval of the Asset Purchase Agreement and the Plan of Dissolution to the Consenting Shareholders.”
wait to file the certificate of dissolution after the closing of the Asset Sale, though we would begin the process of winding down our business as soon as the Asset Sale closes. We intend to make a public announcement of the anticipated filing date of the certificate of dissolution in advance of its filing.
the right to receive their $100 per share liquidation preference to support the distribution of $0.05 per share to the Nonaffiliated Shareholders. In addition, DCV and other affiliated holders of Common Stock have agreed not to participate in any distribution on the Common Stock with such Nonaffiliated Shareholders on a pro rata basis. As a result, each of these Affiliated Shareholders will receive less than they would otherwise be entitled under our articles of incorporation (currently estimated at less than $0.012 per share on an as converted, fully diluted basis).
See “Action No. 1: Asset Sale — Interests of Certain Persons in the Asset Sale and the Plan of Dissolution” and “Action No. 2: Plan of Complete Liquidation and Dissolution — Interests of Certain Persons in the Asset Sale and the Plan of Dissolution.”
5675 Hudson Industrial Park
Hudson, Ohio 44236
Telephone: (800) 553-1170
5675 Hudson Industrial Park
Hudson, Ohio 44236
RELATING TO
ACTIONS APPROVED BY WRITTEN CONSENT OF THE SHAREHOLDERS
Nonaffiliated Shareholders or the Affiliated Shareholders and other parties to the Allocation Agreement, and in any event, no such distributions will occur if the Asset Sale is not completed, but we intend to make such distributions as quickly as practicable after the closing after we pay or make provision to pay all of our debts and liabilities. While the DPAC Board has no intention of abandoning or delaying the filing of the certificate of dissolution, the DPAC Board also has discretion to abandon the Dissolution, and to determine when to file the certificate of dissolution with the California Secretary of State.
5675 Hudson Industrial Park
Hudson, Ohio 44236
Telephone: (800) 553-1170
arrangements with Fifth Third and Canal have been extended repeatedly, and the repayment dates under the certain credit arrangements with Canal, Fifth Third and the State of Ohio will come due in July 2011, September 2011 and 2013, respectively. Thus, we began to consider whether a sale of DPAC would result in a greater likelihood of repayment of our debts to Canal, Fifth Third and the State of Ohio and provide some degree of equity return for our shareholders.
under the existing capital structure so as to permit DPAC to distribute to the Nonaffiliated Shareholders an amount more commensurate with the overall trading price of DPAC’s Common Stock on the OTCQB Markets.
approval, the DPAC Board unanimously approved the Asset Purchase Agreement and the sale of the Purchased Assets to Buyer on the terms set forth in the Asset Purchase Agreement. For the reasons described above, the Board also unanimously deemed it advisable in its judgment that, upon consummation of the Asset Sale, DPAC should thereafter be liquidated and wound-up and, at the appropriate time, be dissolved, and it approved the Plan of Dissolution.
• | that DCV, our majority shareholder, and certain of our other shareholders agreed to take considerably less (currently estimated at approximately $0.012 per share on an as converted, fully diluted basis) than the amount to which they would otherwise be entitled in terms of liquidating distributions and other contractual rights in connection with the Dissolution to support the distribution to the Nonaffiliated Shareholders on the basis of $0.05 per share; |
• | that DPAC and Quatech are and have been in default since September 30, 2009 on certain of their borrowing arrangements with Canal and Fifth Third, that the repayment dates with respect to each such borrowing arrangement are quickly approaching, and that such lenders may exercise their rights to accelerate the debt or pursue other available remedies; |
• | that Fifth Third and the State of Ohio agreed to enter into consent and forbearance agreements with DPAC and Quatech pursuant to which each waived any events of default that would otherwise result from the Asset Purchase Agreement and agreed not to exercise any of their rights under the loan agreements in place with DPAC or Quatech until the closing has occurred or the Asset Purchase Agreement has terminated; and that Canal acknowledged and reaffirmed the subordination of its lender rights to the rights of Fifth Third; |
• | that DPAC had explored alternative financing options, such as finding potential refinancing opportunities for its existing debt, and conducted a market search for potential acquirers; |
• | that the DPAC Board believes that all realistic potential acquirers of DPAC, or Quatech, whether in the form of a merger, acquisition of shares or asset purchase, had been contacted which had resulted in no indications of interest in a transaction; |
• | that it was highly unlikely that other acquisition or merger opportunities providing the benefit of an all cash purchase price at the level proposed by Buyer would be or become available to DPAC; |
• | that the Asset Sale would maximize the amount of cash available for DPAC, and consequently maximize the value of the enterprise to its creditors and shareholders, particularly the Nonaffiliated Shareholders, and provide the Nonaffiliated Shareholders with liquidating distributions of $0.05 per share, an amount that (a) the DPAC Board viewed as in the best interests of DPAC and its shareholders in light of DPAC’s historical and projected financial performance and historical trading prices of DPAC’s stock, and (b) is significantly in excess of the $0.003 per share that our common shareholders would be expected to receive if we were to dissolve DPAC and make distributions to our shareholders based solely on the liquidation preferences |
of the Series A Preferred Stock and the number of shares of Common Stock issued as of July 25, 2011, and distribute any remaining assets pro rata to the holders of Common Stock; |
• | that, notwithstanding that the Asset Purchase Agreement does not permit DPAC or Quatech to terminate the Asset Purchase Agreement or the Asset Sale, DPAC’s pre-signing “market check” efforts to locate potential acquirers at or above the value proposed by Buyer and B&B gives strong support to the DPAC Board’s belief that no other viable acquisition partners exist; |
• | that DPAC’s majority shareholder, DCV, has agreed to approve the Asset Sale, and has, along with certain other affiliates of DPAC, consented to the Asset Sale and the Dissolution in writing and entered into a voting and support agreement with Buyer; |
• | that DPAC’s efforts to reduce costs internally by headcount reductions and salary reductions had resulted in all of the cost savings that could reasonably be expected to result; |
• | that the value of DPAC’s assets, particularly its existing customer relationships, could decline over time in the absence of additional expenditures by DPAC and Quatech to support them, and that the Asset Sale and Plan of Dissolution represent the best opportunity to monetize the value of DPAC’s assets at their present value; and |
• | that Western Reserve, DPAC’s financial advisor, rendered an opinion that the purchase price under the Asset Purchase Agreement for the Purchased Assets is fair, from a financial point of view, to DPAC, which opinion is described below under the section entitled “ Fairness Opinion of Western Reserve Partners LLC.” |
• | The Committee consists solely of directors who are not officers or controlling shareholders of the Company and who do not otherwise have a conflict of interest or lack independence with respect to the Asset Sale; |
• | The members of the Committee will only benefit from the Asset Sale to the extent that the stock options they hold will permit them to receive distributions under the Allocation Agreement; and |
• | The Committee has been involved in the deliberations since the initial discussion regarding a proposed transaction with the Buyer in December 2010, until the execution of the Asset Purchase Agreement, and was provided with full access to DPAC’s management and documentation in connection with the due diligence conducted by its advisors. |
• | determined that the Asset Purchase Agreement, and the transactions contemplated thereby, are in the best interests of DPAC and its shareholders, |
• | approved the Asset Purchase Agreement and the transactions contemplated thereby, in accordance with the requirements of the California General Corporation Law, |
• | determined that the Dissolution, as contemplated by the Plan of Dissolution, was in the best interests of DPAC and its shareholders, and |
• | recommended that the Consenting Shareholders approve the transactions contemplated by the Asset Purchase Agreement (which such approval constitutes the approval by the outstanding shares required under Section 152 of the California General Corporation Law) and approve the Dissolution and the Plan of Dissolution (which approval constitutes the vote of shareholders holding shares representing more than 50 percent of the voting power of DPAC). |
• | the most recent draft of the Asset Purchase Agreement, dated July 25, 2011, which Western Reserve believed to be in substantially final form; |
• | SEC filings related to DPAC, including its Annual Reports on Form 10-K for the fiscal years ended December 31, 2010, December 31, 2009 and December 31, 2008 and its Quarterly Report on Form 10-Q for the fiscal quarter ended March 31, 2011; |
• | certain other internal information, primarily financial in nature, including projections, concerning the business and operations of Quatech, as furnished to Western Reserve by Quatech for purposes of its analysis; |
• | publicly available information concerning the Company, its industry and end-markets, including industry websites and trade associations; |
• | publicly available information concerning certain other companies that Western Reserve believed to be comparable to Quatech and the trading markets for certain of such other companies’ securities; |
• | publicly available information concerning the nature and terms of certain transactions that Western Reserve considered relevant to the Transaction; |
• | interviews with members of the Company’s management during a visit to Quatech’s Hudson, Ohio facility and via telephone to discuss Quatech’s business and prospects and other matters Western Reserve deemed relevant; |
• | results of a 30-day “go shop” marketing process through which Western Reserve solicited additional acquisition proposals for Quatech; none were received; |
• | Western Reserve’s assessment of general economic, market and financial conditions and its experience in connection with similar transactions and securities’ valuation generally; and |
• | other information Western Reserve judged necessary or appropriate to render its opinion. |
publicly traded companies focused on manufacturing connectivity and wireless equipment serving end markets similar to those served by Quatech. The companies included:
• | Digi International Inc. |
• | Laird PLC |
• | Numerex Corp. |
• | RF Industries Ltd. |
• | RF Monolithics Inc. |
• | Sierra Wireless Inc. |
• | Telular Corp. |
Revenue Multiples | EBITDA Multiples | ||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
LTM | 2011E | LTM | 2011E | ||||||||||||||||||||
Mean Comparable Multiple | 1.22x | 0.91x | 10.5x | 8.2x | |||||||||||||||||||
Median Comparable Multiple | 1.14 | 0.98 | 10.5x | 8.3x | |||||||||||||||||||
Revenue | EBITDA | ||||||||||||||||||||||
LTM | 2011E | LTM | 2011E | ||||||||||||||||||||
Selected Multiple | 1.10x | 1.00x | 10.5x | 8.0x | |||||||||||||||||||
Quatech Results1 | $ | 8,346 | $ | 9,900 | $ | 844 | $ | 1,554 | |||||||||||||||
Implied Enterprise Value | $ | 9,181 | $ | 9,900 | $ | 8,858 | $ | 12,432 | |||||||||||||||
Less: Quatech Net Debt | $ | (4,899 | ) | $ | (4,845 | ) | $ | (4,899 | ) | $ | (4,845 | ) | |||||||||||
Implied Equity Value | $ | 4,282 | $ | 5,055 | $ | 3,959 | $ | 7,587 | |||||||||||||||
Liquidity/Going Concern Discount | (15.0%) | (15.0%) | (15.0%) | (15.0%) | |||||||||||||||||||
Discounted Equity Value | $ | 3,640 | $ | 4,296 | $ | 3,365 | $ | 6,449 | |||||||||||||||
Plus: Quatech Net Debt | $ | 4,899 | $ | 4,845 | $ | 4,899 | $ | 4,845 | |||||||||||||||
Adjusted Enterprise Value | $ | 8,538 | $ | 9,142 | $ | 8,264 | $ | 11,294 | |||||||||||||||
Midpoint of Valuation Range | $8,840 | $9,779 | |||||||||||||||||||||
Selected Valuation Range | $8,800 | — | $9,800 | ||||||||||||||||||||
Close | Target | Acquirer | ||||||||
---|---|---|---|---|---|---|---|---|---|---|
Mar 2011 | Motorola Israel, Ltd. (m2m Modules Division) | Telit Communications PLC | ||||||||
Dec 2010 | SmartOptics AS | Ignis ASA | ||||||||
Dec 2010 | Enfora, Inc. | Novatel Wireless Inc. | ||||||||
Nov 2010 | Microtune, Inc. | Zoran Corporation | ||||||||
Oct 2010 | Summit Instruments, Inc. | Spectrum Control, Inc. | ||||||||
Aug 2010 | EF Johnson Technologies, Inc. | Francisco Partners Management LLC | ||||||||
Jul 2010 | Cinterion Wireless Modules GmbH | Gemalto NV |
Revenue Multiples | �� | EBITDAMultiples | |||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
MeanComparable Multiple | 1.00x | N/A | |||||||||||||||||||||
Median Comparable Multiple | 1.12x | N/A | |||||||||||||||||||||
LTMRevenue | LTMEBITDA | ||||||||||||||||||||||
Selected MultipleRange | 1.00x | 1.15x | — | — | |||||||||||||||||||
QuatechResults | $ | 8,346 | $ | 8,346 | — | — | |||||||||||||||||
Implied EnterpriseValue | $ | 8,346 | $ | 9,598 | — | — | |||||||||||||||||
SelectedValuation Range | $8,300 | — | $9,600 |
• | maximum secured senior transaction financing of approximately $1.6 million, or approximately 1.0x Quatech’s 2011E EBITDA, which is supported by reasonable advance rate assumptions applied to Quatech’s working capital asset base; |
• | additional mezzanine financing in the amount of $1.6 million, or approximately 1.0x Quatech’s 2011E EBITDA, incorporating both current pay and warrant features to effect market returns of 25.0% to 30.0%; |
• | control equity investor returns of 40.0% to 50.0%, commensurate with the historical financial performance of Quatech and risks associated with achieving the financial projections; and |
• | projected sale of Quatech at the end of 2016 at an EBITDA exit multiple range of 5.5x to 6.5x. |
• | all cash, cash equivalents and investments; |
• | all of the Sellers’ accounts receivable, advance payments, deposits, prepaid items (other than prepaid items under the Sellers’ insurance policies) and expenses, deferred charges, rights of offset and credits and claims for refund; |
• | all of the Sellers’ intellectual property rights, including those related to trademarks, patents, copyrights, software and other proprietary rights and any licenses thereto; |
• | all of the Sellers’ rights under contracts, agreements and purchase and sale orders, including customer contracts and leases of real property and personal property; |
• | all of the Sellers’ inventory including its finished goods, raw materials, work-in-process inventories, packaging materials, products, supplies and other items of tangible property; |
• | all of the Sellers’ vehicles, tools, parts and supplies, machinery and equipment, furniture, fixtures, office equipment and supplies, computer hardware and software; |
• | all of the Sellers’ books, records, manuals, documents, books of account, correspondence, sales and credit reports, customer lists, literature, brochures, advertising or promotional material and the like; and |
• | any governmental licenses, permits and approvals to the extent their transfer is permitted by applicable law. |
• | all the current liabilities of Quatech at the date of the Asset Purchase Agreement to the extent shown on the balance sheet of December 31, 2010, and any current liabilities as of the closing that were incurred in the ordinary course of business between the date of the Asset Purchase Agreement and the closing date, |
• | liabilities arising under the contracts to assumed by Buyer, which by their terms are required to be performed, paid or otherwise discharged following the closing date; |
• | liabilities for real property, personal property and similar taxes that would apply to the Purchased Assets after the closing; and |
• | liabilities for product warranties provided prior to the closing to our customers in the ordinary course of business. |
• | to use all available cash to pay off account payables that have been otherwise been included in the calculation of the working capital adjustment; |
• | to carry on its business in the ordinary course in substantially the same manner as it has been conducted; |
• | to preserve its business organization and not amend its organizational documents; |
• | not to adopt a plan of liquidation or dissolution, other than the Plan of Dissolution described in this Information Statement; |
• | not to purchase or redeem any shares of its capital stock, or grant or issue any right to purchase any such shares; |
• | not to pay, cancel, incur, waive or settle any material debt, claim, action, liability or obligation, except in the ordinary course of business; |
• | not to sell, assign, license, transfer, convey, lease or otherwise dispose of any of their assets or allow the assets to become subject to any additional lien or encumbrance; |
• | to maintain books and records in accordance with past practice; |
• | to keep in force applicable insurance policies at appropriate coverage levels; |
• | not to make capital expenditures in excess of $25,000 singly, or $50,000 in the aggregate; and |
• | not take or permit any action that would cause certain changes, events or conditions to occur. |
• | no law, restraining order or injunction will be in effect, and no inquiry or litigation will be asserted, pending or threatened that would have the effect of restringing or prohibiting the Asset Sale; |
• | each of the representations and warranties of the Sellers in the Asset Purchase Agreement are required to be true and correct in all material respects as of the signing date and true and correct in all material respects as of the closing date (except for representations and warranties that are expressly subject to a materiality component, which must be true and correct in all respects as of the closing date); |
• | DPAC and Quatech must have materially performed all obligations required to be performed under the Asset Purchase Agreement prior to the closing date; |
• | no action, event or condition has occurred that has had or would reasonably be expected to have a material adverse effect on the Sellers; |
• | the Sellers will have obtained all required consents, which include the consent of the landlord of our Hudson, Ohio facility and certain contracts to be assigned to Buyer; |
• | all liens on the Purchased Assets shall have been fully released; and |
• | the Sellers will have delivered to Buyer and B&B all certificates, instruments of transfer and other documents and deliverables necessary to effect the transfer of the Purchased Assets to Buyer. |
• | no law, restraining order or injunction will be in effect, and no inquiry or litigation will be asserted, pending or threatened that would have the effect of restringing or prohibiting the Asset Sale; |
• | each of the representations and warranties of Buyer and B&B in the Asset Purchase Agreement are required to be true and correct in all material respects as of the signing date and true and correct in all material respects as of the closing date (except for representations and warranties that are expressly subject to a materiality component, which must be true and correct in all respects as of the closing date); and |
• | Buyer and B&B must have materially performed all obligations required to be performed under the Asset Purchase Agreement prior to the closing date. |
• | by the mutual written consent of Buyer and Quatech; |
• | by either Buyer or Quatech if the closing has not occurred on or before October 31, 2011 (unless the party seeking to terminate the Asset Purchase Agreement has failed to fulfill any obligation under the Asset Purchase Agreement which is the cause for the closing not to have occurred); |
• | by Buyer if there has been a material breach of any representation, warranty, covenant or agreement made by the Sellers; or |
• | by Quatech if there has been a material breach of any representation, warranty, covenant or agreement made by Buyer. |
• | any breach of or inaccuracy in any representation or warranty made by the Sellers; |
• | any breach of any covenant of the Sellers; and |
• | any of the liabilities of the Sellers that are not assumed by Buyer at the closing. |
• | any breach of or inaccuracy in any representation or warranty made by Buyer; |
• | any breach of any covenant of Buyer; and |
• | any of the liabilities that are assumed by Buyer at the closing. |
Buyer for a negative working capital adjustment to the Purchase Price, will be satisfied solely from the Escrow Amount. However, any indemnification obligations of the Sellers for breaches of specific representations relating to the Sellers’ authority to enter into the Asset Purchase Agreement and to consummate the Asset Sale and the other transactions contemplated by the Asset Purchase Agreement, breaches of representations relating to the Sellers’ title to the Purchased Assets and the absence of liens and breaches of the Sellers’ representations relating to any broker fees other than fees to Western Reserve are not limited to the Maximum (but are limited to the amount of the Purchase Price), and Buyer and B&B may seek indemnification directly from DPAC and/or Quatech for such breaches. Additionally, the obligation to indemnify Buyer and B&B for breaches of post-closing covenants (such as the non-competition and non-solicitation provisions) and for losses relating to liabilities that Buyer and B&B do not assume at the closing are not limited to the Maximum, and Buyer and B&B may seek indemnification directly from DPAC and/or Quatech for such losses. As DPAC and Quatech intend to begin the liquidation, winding up and dissolution of each as soon as is reasonably practicable after the closing of the Asset Sale, Buyer’s and B&B’s recourse for indemnification may be limited by applicable law to the extent that such dissolutions are completed prior to any claims being made by Buyer and/or B&B, but each shareholder of DPAC is subject to potential liability, up to the amount distributed in connection with the Dissolution to the extent that the Sellers are required to indemnify Buyer and B&B prior to the completion of the Dissolution.
Officer’s base salary and monthly auto allowance through the date of termination, plus an additional 30 days from the date of termination, plus credit for any vacation earned but not taken, (ii) plus, in exchange for a full release of DPAC, will continue to pay for twelve months the salary and monthly auto allowance then in effect for such executive, and continuation of health and life insurance benefits during that time, (iii) plus full vesting of all unvested stock options and restricted stock. If either Named Executive Officer obtains alternative employment after the termination while the twelve months of continued salary is being paid, then such severance payments would be reduced to the difference between the executive’s base salary with DPAC at the time of termination and the amount of base salary under such new employment position.
(rounded to the nearest thousand)
except per share amounts
Proceeds from Asset Sale | $ | 10,500 | ||||
Escrow amount | ($ | 900 | ) | |||
Net proceeds | $ | 9,600 | ||||
Estimated costs and fees: | ||||||
Western Reserve (Investment Banking Services) | $ | 225 | ||||
Legal costs | $ | 100 | ||||
Steven Runkel — Severance | $ | 98 | ||||
Stephen Vukadinovich — Severance | $ | 108 | ||||
Information Statement, Printing, mailing, redemption, filling costs | $ | 56 | ||||
Directors & Officers liability insurance | $ | 39 | ||||
Board fees | $ | 45 | ||||
Total costs and fees | $ | 671 |
Payment of Secured Loans: | ||||||
Fifth Third Bank, N.A. | $ | 1,500 | ||||
Canal Mezzanine Partners, L.P. | $ | 1,555 | ||||
State of Ohio Development Fund | $ | 2,070 | ||||
$ | 5,125 | |||||
Contingency Reserve | $ | 200 | ||||
Retention and other wind down costs | $ | 225 | ||||
Estimate of cash assets legally available for distribution: | $ | 3,379 | ||||
Estimated Distribution to equity holders: | ||||||
Distribution to holders of Series A Preferred Stock (aggregate) | $ | 3,000 | ||||
Distribution to holders of Common Stock (aggregate) | $ | 379 | ||||
Effective distribution per share of Common Stock (1) | $ | 0.003 |
(1) Based on $379,000 divided by an aggregate of 141,995,826 shares of Common Stock outstanding as of July 25, 2011.
Years | | Date | | Max of High Sale | | Min of Low Sale | | Average of Closing Sale | | Average of Volume | ||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
2008 | Qtr1 | $ | 0.060 | $ | 0.010 | $ | 0.025 | 27,859 | ||||||||||||||
Qtr2 | $ | 0.050 | $ | 0.020 | $ | 0.034 | 13,119 | |||||||||||||||
Qtr3 | $ | 0.060 | $ | 0.030 | $ | 0.036 | 11,947 | |||||||||||||||
Qtr4 | $ | 0.050 | $ | 0.010 | $ | 0.021 | 18,631 | |||||||||||||||
2009 | Qtr1 | $ | 0.030 | $ | 0.010 | $ | 0.019 | 8,259 | ||||||||||||||
Qtr2 | $ | 0.040 | $ | 0.010 | $ | 0.022 | 9,084 | |||||||||||||||
Qtr3 | $ | 0.030 | $ | 0.010 | $ | 0.020 | 7,598 | |||||||||||||||
Qtr4 | $ | 0.050 | $ | 0.010 | $ | 0.025 | 38,189 | |||||||||||||||
2010 | Qtr1 | $ | 0.020 | $ | 0.000 | $ | 0.016 | 17,566 | ||||||||||||||
Qtr2 | $ | 0.017 | $ | 0.000 | $ | 0.011 | 16,224 | |||||||||||||||
Qtr3 | $ | 0.024 | $ | 0.000 | $ | 0.013 | 12,240 | |||||||||||||||
Qtr4 | $ | 0.040 | $ | 0.015 | $ | 0.021 | 33,390 | |||||||||||||||
2011 | Qtr1 | $ | 0.070 | $ | 0.015 | $ | 0.046 | 39,650 | ||||||||||||||
Qtr2 | $ | 0.100 | $ | 0.045 | $ | 0.050 | 7,929 |
• | the acknowledgement by our chief executive officer and chief financial officer that certain amounts of severance they would otherwise receive prior to any distributions to shareholders will be delayed and possibly reduced; |
• | the confirmation by Canal and Hillstreet of the total amounts they are eligible to receive in connection with the termination of the Canal Warrants and the Hillstreet Warrants, which is equal to $0.017 per share and $0.026 per share for Canal and Hillstreet, respectively (assuming the warrants were converted into shares of Common Stock); |
• | the allocation of any liquidating distributions made by us after the closing under the Asset Purchase Agreement among the parties to the Allocation Agreement, which will be shared pari passu with all such parties, up to the maximum amounts established in the Allocation Agreement; |
• | the confirmation that distributions that we make will include an allocation for the benefit of holders of stock options that are outstanding as of the closing, net of the exercise prices payable thereunder; |
• | the confirmation of the parties to the Allocation Agreement that they waive the rights they would otherwise have to participate pro rata in distributions, and the acknowledgement that the effect of the distribution intended to be made to the Nonaffiliated Shareholders will be to reduce the amount they will receive, in some cases significantly; |
• | the waiver of the parties to the Allocation Agreement of any right of contribution under California law or otherwise from the Nonaffiliated Shareholders in the event that any party to the Allocation Agreement is required to return any distribution to DPAC because such distribution was improper under California law. |
be satisfied. Notwithstanding this waiver, each shareholder could be pursued by a creditor directly. Accordingly, in such event a shareholder could be required to return all distributions previously made in Dissolution and thus would receive nothing from DPAC as a result of the Plan of Dissolution. Moreover, in the event a shareholder has paid taxes on amounts theretofore received, a repayment of all or a portion of such amount could result in a situation in which a shareholder may incur a net tax cost if the repayment of the amount distributed does not cause a reduction in taxes payable in an amount equal to the amount of the taxes paid on amounts previously distributed.
(rounded to the nearest hundred thousand)
except per share amounts
Proceeds from Asset Sale (1) | $ | 10,500 | ||||
Escrow amount (2) | ($ | 900 | ) | |||
Net proceeds | $ | 9,600 | ||||
Estimated costs and fees: | ||||||
Western Reserve (Investment Banking Services) | $ | 225 | ||||
Legal costs | $ | 100 | ||||
Steven Runkel — Severance | $ | 98 | ||||
Stephen Vukadinovich — Severance | $ | 108 | ||||
Information Statement, Printing, mailing, redemption, filling costs | $ | 56 | ||||
Directors & Officers liability insurance | $ | 39 | ||||
Board fees | $ | 45 | ||||
Total costs and fees | $ | 671 | ||||
Payment of Secured Loans: (3) | ||||||
Fifth Third Bank, N.A. | $ | 1,500 | ||||
Canal Mezzanine Partners, L.P. | $ | 1,555 | ||||
State of Ohio Development Fund | $ | 2,070 | ||||
$ | 5,125 | |||||
Contingency Reserve | $ | 200 | ||||
Retention and other wind down costs | $ | 225 | ||||
Estimate of cash assets legally available for distribution: | $ | 3,379 | ||||
Estimated Distribution — Nonaffiliated Shareholders (aggregate) (4) | $ | 1,711 |
Estimated Distributions — Parties to Allocation Agreement: | ||||||
Development Capital Ventures, L.P. (5) | $ | 932 | ||||
William Roberts (5)(6) | $ | 229 | ||||
James Bole (5)(6) | $ | 44 | ||||
Steven Runkel (5)(7) | $ | 32 | ||||
The Hillstreet Fund, L.P. | $ | 141 | ||||
Canal Mezzanine Partners, L.P. | $ | 120 | ||||
Employee Stock Options (aggregate) (8) | $ | 116 | ||||
Board and Management Stock Options (aggregate) | $ | 54 | ||||
Total Estimated Distributions — Parties to Allocation Agreement | 1,668 | |||||
Total Estimated Distributions | 3,379 | |||||
Estimated Distribution to equity holders: | ||||||
Distribution to holders of Series A Preferred Stock (aggregate) | $ | 3,000 | ||||
Distribution to holders of Common Stock (aggregate) | $ | 379 | ||||
Effective distribution per share of Common Stock (1) | $ | 0.003 |
(1) | Assumes that no negative or positive working capital adjustment is estimated to exist as of the closing. |
(2) | Assumes that no negative working capital adjustment is estimated to exist as of the closing. |
(3) | Assumes a closing under the Asset Purchase Agreement of August 31, 2011. |
(4) | Calculated as approximately 34,228,000 shares of Common Stock held by Nonaffiliated Shareholders at $0.05 per share. |
(5) | Distribution amounts calculated without regard to allocation among Series A Preferred Stock and/or Common Stock. |
(6) | Board member. |
(7) | Named Executive Officer. |
(8) | Options outstanding other than options held by Board and management, calculated as $0.05 per share, minus applicable exercise price. |
• | Consummation of the Asset Sale and Cessation of Business. If the Asset Sale contemplated by the Asset Purchase Agreement is consummated, DPAC will proceed to sell off the remainder of its business assets (if any), and then continue with its winding up pursuant to the Plan of Dissolution and not engage in any further business activities except for those related to managing, completing and winding up of its business and affairs. |
• | Employees and Consultants. For the purpose of effecting the liquidation of its remaining assets, DPAC may retain or hire certain employees and consultants that the DPAC Board deems necessary or advisable to supervise the liquidation. |
• | Expenses. The DPAC Board will provide, from DPAC’s assets, reasonable funds for payment of the expenses of the Dissolution, including filing fees and other expenses related to the liquidation process. |
• | Payment of Claims. DPAC will satisfy, or adequately provide satisfaction of, all legally enforceable debts and liabilities of it and Quatech in an orderly matter. |
• | Indemnification of Board and Officers. DPAC may reserve sufficient assets and/or obtain and maintain such insurance as shall be necessary for continued indemnification of the members of the DPAC Board, officers and agents, and other parties whom DPAC agreed to indemnify. |
• | Distributions to Shareholders. After paying or adequately providing for the expenses of liquidation and debts and liabilities and reserving assets for indemnification and insurance, the Plan of Dissolution authorizes DPAC to make the liquidating distribution to the Nonaffiliated Shareholders described in this Information Statement and the other distributions to the parties to the Allocation Agreement from the proceeds of the Asset Sale and any retained assets. Any remaining assets (such as the Escrow Amount, if ultimately received by DPAC after the post-closing period has elapsed without claims for indemnification from Buyer and B&B) will thereafter be distributed to the parties to the Allocation Agreement in accordance therewith. |
• | Liquidating Trust. If deemed advisable, the DPAC Board may cause DPAC to create a liquidating trust and to distribute beneficial interests in the liquidating trust to DPAC’s shareholders as of the time of establishment of such liquidating trust as part of the liquidation process. The liquidating trust will be constituted pursuant a liquidating trust agreement in a form approved by the DPAC Board. |
• | Abandonment; Amendment. The DPAC Board may amend or abandon implementation of the Plan of Dissolution without the further approval of DPAC’s shareholders, to the extent permitted by the California General Corporation Law. |
• | Certificate of Dissolution; other certificates. The DPAC Board will determine in its sole discretion the timing of the filing of appropriate certificates of dissolution and other certificates required under applicable law. |
by the amount of any indemnity claims made by Buyer and B&B). DPAC does not expect to have any material amount of non-cash assets after the Asset Sale is completed.
AND MANAGEMENT
Name of Beneficial Owner | Amount and Nature of Beneficial Ownership | Percentage of Class (1) | ||||||||
---|---|---|---|---|---|---|---|---|---|---|
Development Capital Ventures, L.P. 7500 Iron Bar Lane, Suite 209 Fort Mill, SC 29708-6908 | 167,876,205 | (2) | 78.4 | % | ||||||
Current directors and executive officers: | ||||||||||
Steven D. Runkel | 4,727,764 | (3) | 3.2 | % | ||||||
William Roberts | 11,835,439 | (4) | 7.9 | % | ||||||
James Bole | 2,887,911 | (5) | 1.9 | % | ||||||
Mark Chapman | 666,667 | (6) | * | |||||||
Dennis Leibel | 800,000 | (6) | * | |||||||
Sam Tishler | 867,667 | (6) | * | |||||||
Stephen Vukadinovich | 569,250 | (6) | * | |||||||
All executive officers and directors as a group (seven persons) | 22,454,198 | 14.3 | % | |||||||
*Less than 1% of the shares outstanding. |
(1) | Shares of Common Stock, which were not outstanding but which could be acquired upon exercise of a warrant or option or conversion of shares of our Series A Preferred Stock within 60 days from the date of this filing, are considered outstanding for the purpose of computing the percentage of outstanding shares beneficially owned by each person. However, such shares are not considered to be outstanding for any other purpose. |
(2) | Includes 31,035,258 shares of Common Stock for the issuance of accrued dividends and the equivalent of 67,647,059 shares of Common Stock for the potential conversion of 28,750 shares of Class A Preferred Shares. |
(3) | Includes 2,645,748 shares subject to options that are exercisable within 60 days. |
(4) | Includes 927,404 shares of Common Stock for the issuance of accrued stock dividends, 666,667 shares subject to options that are exercisable within 60 days and 1,764,706 shares for the potential conversion of 750 shares of Class A Preferred Shares. |
(5) | Includes 618,268 shares of Common Stock for the issuance of accrued stock dividends, 666,667 shares subject to options that are exercisable within 60 days and 1,176,471 shares for the potential conversion of 500 shares of Class A Preferred Shares. |
(6) | Consists only of shares subject to options that are exercisable within 60 days. |
* | Represents less than 1% of the outstanding shares. |
• | Annual Report on Form 10-K for the year ended December 31, 2010; |
• | Quarterly Report on Form 10-Q for the quarter ended March 31, 2011; and |
• | Current Reports on Form 8-K filed on June 24, 2011, August 3, 2011, and [__________]. |
5675 Hudson Industrial Park
Hudson, Ohio 44236
Telephone: (800) 553-1170
by and among
Q-TECH ACQUISITION, LLC
B&B ELECTRONICS MANUFACTURING COMPANY
QUATECH, INC.
and
DPAC TECHNOLOGIES CORP.
Page | ||||||||||
---|---|---|---|---|---|---|---|---|---|---|
ARTICLE I | THE TRANSACTION | 1 | ||||||||
1.1. | Purchase and Sale of Acquired Assets; Assumed Liabilities | 1 | ||||||||
1.2. | Purchase Price Payment | 4 | ||||||||
1.3. | Closing Statement; Adjustment to Aggregate Purchase Price | 5 | ||||||||
ARTICLE II | CLOSING | 7 | ||||||||
2.1. | Closing Date | 7 | ||||||||
2.2. | Closing Deliveries | 7 | ||||||||
ARTICLE III | REPRESENTATIONS AND WARRANTIES OF SELLER AND PARENT | 8 | ||||||||
3.1. | Organization | 8 | ||||||||
3.2. | Authority | 8 | ||||||||
3.3. | No Conflict; Consents | 9 | ||||||||
3.4. | Capitalization | 9 | ||||||||
3.5. | Subsidiaries | 10 | ||||||||
3.6. | Financial Statements; Undisclosed Liabilities | 10 | ||||||||
3.7. | Absence of Certain Changes or Events | 10 | ||||||||
3.8. | Condition and Sufficiency of Acquired Assets | 11 | ||||||||
3.9. | Real Property | 11 | ||||||||
3.10. | Leases; Leased Real Property | 11 | ||||||||
3.11. | Working Capital Assets | 12 | ||||||||
3.12. | Intellectual Property | 13 | ||||||||
3.13. | Contracts | 14 | ||||||||
3.14. | Litigation | 14 | ||||||||
3.15. | Compliance with Laws; Permits | 14 | ||||||||
3.16. | Environmental Matters | 14 | ||||||||
3.17. | Employee Benefit Matters | 15 | ||||||||
3.18. | Taxes | 16 | ||||||||
3.19. | Consents | 17 | ||||||||
3.20. | Employee Relations | 17 | ||||||||
3.21. | Transactions with Related Parties | 18 | ||||||||
3.22. | Insurance | 18 | ||||||||
3.23. | Brokers | 18 | ||||||||
3.24. | Compensation Arrangements | 19 | ||||||||
3.25. | Relationship with Significant Customers and Suppliers | 19 | ||||||||
3.26. | Products | 19 | ||||||||
3.27. | Information Statement | 19 | ||||||||
3.28. | Fairness Opinion | 19 | ||||||||
3.29. | Consent and Forbearance of Lenders | 20 | ||||||||
3.30. | Disclosure | 20 |
(continued)
Page | ||||||||||
---|---|---|---|---|---|---|---|---|---|---|
ARTICLE IV | REPRESENTATIONS AND WARRANTIES OF BUYER | 20 | ||||||||
4.1. | Organization | 20 | ||||||||
4.2. | Power and Authority | 20 | ||||||||
4.3. | No Conflict | 20 | ||||||||
4.4. | Consents | 21 | ||||||||
4.5. | Brokers | 21 | ||||||||
4.6. | Financial Resources | 21 | ||||||||
4.7. | Information | 21 | ||||||||
ARTICLE V | COVENANTS | 21 | ||||||||
5.1. | Cooperation by Parent and Seller | 21 | ||||||||
5.2. | Conduct of the Business Pending Closing | 21 | ||||||||
5.3. | Access | 22 | ||||||||
5.4. | Name Change | 22 | ||||||||
5.5. | Notification and Cure | 22 | ||||||||
5.6. | Insurance | 22 | ||||||||
5.7. | Exclusivity | 22 | ||||||||
5.8. | Confidentiality | 23 | ||||||||
5.9. | Non-Compete | 23 | ||||||||
5.10. | Further Assurances | 24 | ||||||||
5.11. | Employee Matters | 24 | ||||||||
5.12. | Escrow Agreement | 25 | ||||||||
5.13. | Release of Encumbrances | 25 | ||||||||
5.14. | Information Statement; Stockholder Approval | 25 | ||||||||
5.15. | Use of Proceeds and Distributions to Parent’s Stockholders | 26 | ||||||||
5.16. | Retention of and Access to Records | 26 | ||||||||
ARTICLE VI | CONDITIONS TO BUYER’S OBLIGATIONS | 26 | ||||||||
6.1. | Representations and Warranties True and Correct | 26 | ||||||||
6.2. | Covenants and Agreements Performed | 26 | ||||||||
6.3. | Seller Closing Certificate | 26 | ||||||||
6.4. | Seller Secretary’s Certificate | 26 | ||||||||
6.5. | No Prohibition or Proceedings | 27 | ||||||||
6.6. | Consents and Approvals | 27 | ||||||||
6.7. | FIRPTA Certificates | 27 | ||||||||
6.8. | Information Statement | 27 | ||||||||
6.9. | Material Adverse Effect | 27 | ||||||||
6.10. | Closing Deliverables | 27 | ||||||||
6.11. | Fairness Opinion and Consent and Forbearance Agreements | 27 |
(continued)
Page | ||||||||||
---|---|---|---|---|---|---|---|---|---|---|
ARTICLE VII | CONDITIONS TO SELLER’S AND PARENT’S OBLIGATIONS | 27 | ||||||||
7.1. | Representations and Warranties True and Correct | 27 | ||||||||
7.2. | Covenants and Agreements Performed | 28 | ||||||||
7.3. | Buyer Closing Certificate | 28 | ||||||||
7.4. | No Prohibition or Proceedings | 28 | ||||||||
ARTICLE VIII | TERMINATION PRIOR TO CLOSING | 28 | ||||||||
8.1. | Termination | 28 | ||||||||
8.2. | Effect on Obligations | 28 | ||||||||
ARTICLE IX | TAX MATTERS | 28 | ||||||||
9.1. | Allocation | 28 | ||||||||
9.2. | Transfer Taxes | 29 | ||||||||
9.3. | Clearance Certificates | 29 | ||||||||
9.4. | FIRPTA Certificates | 29 | ||||||||
ARTICLE X | SURVIVAL AND INDEMNIFICATION | 29 | ||||||||
10.1. | Survival | 29 | ||||||||
10.2. | General Indemnification | 29 | ||||||||
10.3. | Sole Remedy | 31 | ||||||||
10.4. | Tax Treatment | 32 | ||||||||
ARTICLE XI | MISCELLANEOUS | 32 | ||||||||
11.1. | Interpretive Provisions | 32 | ||||||||
11.2. | Entire Agreement | 32 | ||||||||
11.3. | Successors and Assigns | 32 | ||||||||
11.4. | Headings | 32 | ||||||||
11.5. | Modification and Waiver | 32 | ||||||||
11.6. | Expenses | 32 | ||||||||
11.7. | Notices | 33 | ||||||||
11.8. | Governing Law; Consent to Jurisdiction | 33 | ||||||||
11.9. | Public Announcements | 34 | ||||||||
11.10. | No Third Party Beneficiaries | 34 | ||||||||
11.11. | Guarantee of Buyer’s Pre-Closing Obligations | 34 | ||||||||
11.12. | No Successor or Transferee Liability | 34 | ||||||||
11.13. | Counterparts | 34 | ||||||||
ARTICLE XII | CERTAIN DEFINITIONS | 34 |
Exhibits | ||||||
1.2 | Form of Escrow Agreement | |||||
2.2.A | Form of Bill of Sale | |||||
2.2.B | Form of Assumption and Assignment Agreement | |||||
5.11.A | Form of Employment Agreement: Steven Runkel | |||||
5.11.B | Form of Consulting and Services Agreements: Stephen Vukadinovich and Denise Calvert |
Schedules | |||||||
1.1(b) | Excluded Assets | ||||||
1.2(b) | Estimated Working Capital | ||||||
2.2 | Third Party Consents | ||||||
Disclosure Schedules | |||||||
3.1 | Organization | ||||||
3.3 | No Conflict; Consents | ||||||
3.4 | Capitalization | ||||||
3.5 | Subsidiaries | ||||||
3.6 | Financial Statements; Undisclosed Liabilities | ||||||
3.7 | Absence of Certain Changes or Events | ||||||
3.8 | Condition and Sufficiency of Acquired Assets | ||||||
3.10 | Leases; Leased Real Property | ||||||
3.11 | Working Capital Assets | ||||||
3.12 | Intellectual Property | ||||||
3.13 | Contracts | ||||||
3.14 | Litigation | ||||||
3.15 | Compliance with Laws; Permits | ||||||
3.16 | Environmental Matters | ||||||
3.17 | Employee Benefit Matters | ||||||
3.18 | Taxes | ||||||
3.19 | Consents | ||||||
3.20 | Employee Relations | ||||||
3.22 | Insurance | ||||||
3.24 | Compensation Arrangements | ||||||
3.25 | Relationship with Significant Customers and Suppliers | ||||||
3.26 | Products | ||||||
5.11 | Assumed Benefit Contracts | ||||||
9.1 | Preliminary Tax Allocation |
THE TRANSACTION
obligations under Benefit Plans other than with respect to the Assumed Benefit Contracts, if any) owed to any employee or former employee of Seller;
all supporting schedules, analyses, working papers and other documentation, and (ii) include only disagreements based on mathematical errors or based on Closing Working Capital not being calculated in accordance with this Section 1.3. The Receiving Party shall be deemed to have agreed with all items and amounts included in the calculation of the Closing Working Capital delivered by the Delivering Party pursuant to Section 1.3(a) except such items that are specifically disputed in the Notice of Disagreement. Notwithstanding anything to the contrary in this Section 1.3, if neither Buyer nor Seller delivers a Closing Statement in accordance with Section 1.3(a) within one hundred twenty (120) days after the Closing Date, then the Estimated Working Capital shall be deemed the Final Working Capital, and no further adjustment to the Estimated Purchase Price shall be made.
CLOSING
REPRESENTATIONS AND WARRANTIES OF SELLER
AND PARENT
and Parent of this Agreement and the Ancillary Agreements to which Seller or Parent is or will be a party and the consummation by Seller and Parent of the transactions contemplated hereby and thereby have been duly authorized and approved by (i) the board of directors of both Seller and Parent; (ii) the special committee of independent members of the board of directors of the Parent; (iii) Parent as the sole stockholder of the issued and outstanding shares of Seller’s common stock, no par value, acting under a written consent (the “Seller Stockholder Approval”); and (iv) holders of a majority of the issued and outstanding shares of Parent’s common stock, no par value (the “Common Stock”), and Parent’s Series A Preferred Stock, no par value (the “Preferred Stock”), including the Majority Stockholders, voting together as a single class, acting under a written consent thereof (the “Parent Stockholder Approval” and together with the Seller Stockholder Approval, the “Stockholder Approvals”), which each such resolutions and/or written consents having been certified as true and complete by the Secretary of Seller or Parent, as applicable, and delivered to Buyer concurrently with the execution of this Agreement. This Agreement has been, and each Ancillary Agreement to which Seller and Parent is a party will be, duly and validly executed and delivered by Seller and Parent, to the extent a party thereto, and constitutes, and will constitute, the valid and binding obligation of Seller and Parent, enforceable against Seller and Parent in accordance with its respective terms, except as the enforceability thereof may be limited by any applicable bankruptcy, reorganization, insolvency or other laws affecting creditors’ rights generally or by general principles of equity.
rights (including preemptive rights or stock appreciation rights), or other arrangements or commitments obligating Seller or Parent to issue or dispose of any of its equity securities or any ownership interest therein.
of the Securities and Exchange Commission) of any of the foregoing, (k) made, authorized or deferred any single capital expenditure in excess of $25,000, or capital expenditures in excess of $50,000 in the aggregate, (l) changed or modified in any manner its existing credit, collection and payment policies, procedures and practices with respect to accounts receivable and accounts payable, respectively, including acceleration of collections of receivables, failure to make or delay in making collections of receivables (whether or not past due), acceleration of payment of payables or failure to pay or delay in payment of payables, (m) incurred any material damage, destruction, theft, loss or business interruption, not otherwise covered by insurance, (n) made any declaration, payment or setting aside for payment of any dividend or other distribution (whether in cash, stock or property) with respect to any securities of Seller, (o) made or revoked any Tax election, settled or compromised any Tax liability with any Taxing Authority, or filed any amended Tax Return, or (p) waived or released any material right or claim of Seller or incurred any modifications, amendments or terminations of any Contracts which are in the aggregate materially adverse to Seller or its business.
Except as otherwise expressly set forth in the Leases, Seller has no obligations to provide deposits, letters of credit or other credit enhancements to retain its rights under the Leases or otherwise operate its business at the Leased Real Properties.
(the “Registered IP Rights”), specifying as to each such item, as applicable, the owner thereof and the jurisdiction in which the item is issued, registered or applied for, including any issuance, registration or application numbers, and the date of application, issuance or registration of the item. Except as set forth on Schedule 3.12.1(a), (i) upon and following the due execution and delivery of the intellectual property assignment contemplated under Section 3.12(d), Seller owns and shall own the Registered IP Rights, and all other Intellectual Property owned or purported to be owned by Seller for use in its business, including without limitation unregistered trademarks, service marks, logos, designs, trade dress and other indicia of source, unregistered copyrights, software, inventions (whether or not patentable or reduced to practice), know-how, trade secrets, product formulas, franchises, industrial design rights, rights-to-use and other intellectual and industrial property rights (together with the Registered IP Rights, the “Seller Intellectual Property”) free and clear of all Encumbrances other than Permitted Encumbrances, and has the right to use all other Intellectual Property used or held for use by Seller in its business, (ii) the conduct of the business of Seller as now being conducted, and the use of the Seller Intellectual Property, does not infringe, dilute or constitute a misappropriation or other violation of any Intellectual Property of others, (iii) no person other than Seller owns or has any direct or indirect proprietary or financial interest in, license under, or covenant not to sue or other waiver with respect to any Seller Intellectual Property, (iv) there is no contractual restriction affecting the use of any Seller Intellectual Property, and Seller has not given any indemnification to any Person against infringement of the Intellectual Property of others, (v) the Seller Intellectual Property is subsisting, valid and in full force and effect, and there are no proceedings pending or, to the knowledge of Seller or Parent, threatened alleging the invalidity or unenforceability of the Seller Intellectual Property, or Seller’s ownership thereof, (vi) Seller is the applicant of record in all registrations or applications for registration or issuance of the Seller Intellectual Property, and no cancellation, reexamination, opposition, extension of time to oppose, interference, rejection, final refusal to register or issue or other invalidation proceeding is pending or has been received in connection with any Seller Intellectual Property, (vii) none of the trade secrets, confidential know-how or other confidential or proprietary information included within the Seller Intellectual Property has been disclosed to any Person unless such disclosure was necessary and made pursuant to an appropriate confidentiality agreement, or was made pursuant to a subpoena or similar legal process, and Seller has no knowledge of any unauthorized release, disclosure or use of any such trade secrets or confidential or proprietary information; and (viii) to the knowledge of Seller and Parent, no Person is infringing, diluting or misappropriating any of the Seller Intellectual Property, and, and none of Seller or Parent have asserted or threatened any claim or objection against any person for any such infringement, dilution or misappropriation.
of, any information, notice of claims, demand or other notification that Seller or Parent (or any of their respective predecessors) is or may be potentially responsible with respect to any investigation, cleanup, remedial action, removal action or other response action (“Remediation”) of or with respect to Hazardous Substances.
and paid over to the appropriate Taxing Authority all amounts required to be so withheld and paid under all applicable laws and timely filed all Tax Returns related thereto.
or salary for a period other than the current payroll period, (iii) any amount of vacation pay or pay in lieu of vacation time off, other than vacation time off or pay in lieu thereof earned in or in respect of the current fiscal year, (iv) any amount of severance pay or similar benefits, (v) unemployment insurance benefits, (vi) workers’ compensation or disability benefits, (vii) any violation of any statute, ordinance, order, rule or regulation relating to employment terminations or layoffs, (viii) any violation of any statute, ordinance, order, rule or regulation relating to employee “whistleblower” or “right-to-know” rights and protections, (ix) any violation of any statute, ordinance, order, rule or regulations relating to the employment obligations of federal contractors or subcontractors or (x) any violation of any regulation relating to minimum wages or maximum hours of work, and neither Seller nor Parent are aware of any such claims which have not been asserted. No person (including any governmental body) has asserted or threatened any claims against Seller under or arising out of any regulation relating to discrimination or occupational safety in employment or employment practices.
on Schedule 3.24, Seller has no presently effective powers of attorney or any material obligations or liabilities, either actual, accrued, accruing or contingent, as guarantor, surety, cosigner, endorser, co-maker, indemnitor or otherwise, with respect to any obligation of any person.
for the Continuing Defaults and Existing Defaults (as such terms are defined in the FTB Consent and Forbearance Agreement), the terms of the Loan Documents (as such term is defined in the FTB Consent and Forbearance Agreement). Pursuant to the terms of the FTB Consent and Forbearance Agreement, Canal Mezzanine Partners, L.P. has acknowledged and reaffirmed the subordination of its lender rights to the rights of Fifth Third Bank. Seller has entered into a written agreement, in the form previously delivered to Buyer (the “Ohio Consent and Forbearance Agreement” together with the FTB Consent and Forbearance Agreement, the “Consent and Forbearance Agreements”), whereby the Director of the State of Ohio (the “State”) has (i) consented to Seller’s execution and delivery of this Agreement and the transactions contemplated hereby and waived any event of default that may arise under any credit facility, loan document, security, warrant, note or other agreement (the “Ohio Debt Documents”) of which the State is a party as a result of Seller becoming a party to this Agreement or the transactions contemplated hereby; and (ii) agreed not to exercise any of its rights, privileges or remedies arising as a result of any event of default (whether currently existing or which may come to exist following the date hereof) under any of the Ohio Debt Documents, whether caused by Seller’s execution and delivery of this Agreement, the transactions contemplated hereby or otherwise, other than any event of default arising from a failure by Seller to pay any accrued interest when due under any Ohio Debt Document, prior to the earlier of (x) the Closing, or (y) the termination of this Agreement.
REPRESENTATIONS AND WARRANTIES OF BUYER
the maturity or cancellation of performance of any obligation under, or result in the creation or imposition of any Encumbrance of any nature whatsoever upon any assets or property or give to others any interests or rights therein under any indenture, deed of trust, mortgage, loan or credit agreement, license, permit, contract, lease, or other agreement, instrument or commitment to which Buyer or B&B is a party or by which it may be bound or affected; except, in each case, for violations, breaches, defaults, required consents, terminations, accelerations, Encumbrances or rights that in the aggregate would not hinder or impair the ability of Buyer or B&B to perform its obligations hereunder or the consummation of the transactions contemplated hereby.
COVENANTS
and not merge or consolidate with, or purchase substantially all or a material portion of the assets of, or otherwise acquire any business of, any person, (d) not take any action described in Section 3.7(a)-(p), nor otherwise take any action which action would result in a breach of any of their representations and warranties contained herein in any material respect at, or as of any time prior to the Closing, (e) maintain its books of account and records in its usual, regular and ordinary manner, consistent with its past practice, (f) not take any action or omit to take any action which will result in a violation of any applicable law or cause a breach of any agreements, contracts or commitments by it which is material to its business (including the Contracts), (g) not issue, redeem, repurchase, split or reclassify any capital stock or other equity securities of Seller, or issue or become a party to any subscriptions, warrants, rights, options, convertible securities or other agreements or commitments of any character relating to its issued or unissued capital stock or other equity securities of Seller, if any, or grant any phantom stock, stock appreciation or similar rights, or take any action that would result in a revocation, or adversely affect the effectiveness or sufficiency, of the Stockholder Approvals, (h) not agree or commit to do any of the foregoing referred to in clauses (a)-(g), and (i) promptly advise Buyer of any fact, condition, occurrence or change known to Parent or Seller that would cause a breach of this Section 5.2 or would have a Material Adverse Effect.
distributions in a manner consistent with the Information Statement and applicable law. Reference is hereby made to that certain Plan of Complete Liquidation and Dissolution, adopted by the board of directors of Parent on July 27, 2011, which shall be effective upon the Closing (a copy of which was provided to Buyer prior to the date hereof) (the “Plan of Dissolution”), and the Allocation Agreement, dated as of the date hereof, by and among Parent, Seller, Development Capital Ventures, L.P., Canal Mezzanine Partners, L.P., The Hillstreet Fund, L.P., and the Management Shareholders and Officer Employees named therein (as such terms are defined therein) (the “Allocation Agreement”). Seller and Parent covenant and agree that, unless such distribution would be prohibited under applicable law, following the Closing and receipt of the Estimated Purchase Price at the Closing, Parent will pay the Nonaffiliated Shareholder Distributions (as such term is defined in the Plan of Dissolution) in accordance with Section 4(c) of the Plan of Dissolution and as described in the Information Statement, in the form provided to Buyer immediately prior to the signing of this Agreement. Seller and Parent covenant and agree that, following the Closing, until such time as Parent has paid or made provision for Nonaffiliated Shareholder Distributions, Parent shall not pay or make provision for payment of any payment or distribution to any Person who is a party to the Allocation Agreement.
CONDITIONS TO BUYER’S OBLIGATIONS
CONDITIONS TO SELLER’S AND PARENT’S OBLIGATIONS
TERMINATION PRIOR TO CLOSING
TAX MATTERS
SURVIVAL AND INDEMNIFICATION
reasonably acceptable to the Indemnitee, to contest, defend, litigate or settle any such Third Party Claim which involves (and continues to involve) solely monetary damages; provided that the Indemnitor shall have notified the Indemnitee in writing of its intention to so contest within fifteen (15) days of the Indemnitee having given notice of the Third Party Claim to the Indemnitor (a “Notice of Defense”) and; provided, further, that (1) the Indemnitor expressly waives in such notice to the Indemnitee any objection, as between the Indemnitor and the Indemnitee, that such Third Party Claim is not subject to the indemnification obligations of the Indemnitor under this Section 10.2, subject to the Threshold and Maximum, if applicable; (2) the Third Party Claim is not, in the reasonable judgment of the Indemnitee, likely to result in Losses that will exceed the Maximum; (3) assumption by the Indemnitor of such Third Party Claim could not reasonably be expected to cause a material adverse effect on the Indemnitee’s business and (4) the Indemnitor shall diligently contest the Third Party Claim (the conditions set forth in clauses (1), (2), (3) and (4) being collectively referred to as the “Litigation Conditions”). The Indemnitee shall have the right to participate in, and to be represented by counsel (at its own expense) in any such contest, defense, litigation or settlement conducted by the Indemnitor; provided, that the Indemnitee shall be entitled to reimbursement for such expenses if the Indemnitor shall fail to diligently contest the Third Party Claim. Subject to Section 10(d)(ii) below, the Indemnitor shall not be entitled, or shall lose its right, to contest, defend, litigate and settle the Third Party Claim if the Indemnitee shall give written notice to the Indemnitor of any valid objection thereto based upon the Litigation Conditions.
MISCELLANEOUS
5675 Hudson Industrial Park
Hudson, Ohio 44236
Attn: President
Fax No.: (330) 655-9010
301 Grant Street, 20th Floor
One Oxford Centre
Pittsburgh PA 15219
Attn: Perry S. Patterson
Fax No.: (412) 562-1041
707 Dayton Road
P.O. Box 1040
Ottawa, IL 61350
Attention: President
Fax No.: (815) 433-5109
Cira Centre
2929 Arch Street
Philadelphia, PA 19104
Attention: R. Jeffrey Legath, Esq.
Fax No.: (215) 994-2222
CERTAIN DEFINITIONS
into in the ordinary course of business consistent with past practice) providing for payments by or to Seller in an aggregate amount of $25,000 or more during the fiscal year in which this Agreement is executed; (g) lease agreements for machinery and equipment, motor vehicles, or furniture and office equipment or other personal property by or with any vendor (or any group of related vendors) that had annual aggregate payments exceeding $5,000 in any of the last three (3) calendar years; (h) agreements restricting in any manner the right of Seller to compete with any other person, or restricting the right of Seller to sell to or purchase from any other person; (i) guarantees, letters of credit, performance, bid or completion bonds, surety and appeal bonds, return of money bonds, and surety or indemnification agreements; (j) custom bonds and standby letters of credit; (k) license agreements to which Seller is a party regarding any Intellectual Property of others; (l) agreements, contracts or commitments which cannot be terminated by Seller on notice of thirty (30) days or less and without payment by Seller of less than $10,000 upon such termination; (m) agreements with any manufacturers, distributors or sales representatives, (n) powers of attorney and (o) agreements relating to the acquisition or disposition of any business or division of a business or its assets outside the ordinary course of business, including without limitation any stock purchase agreements, asset purchase agreements, merger agreements, business combination agreements and any earn-out or agreement for the deferred payment of purchase price entered into in connection therewith.
is so delivered, the Closing Statement as agreed by Seller and Buyer pursuant to Section 1.3 or (z) if such Notice of Disagreement is so delivered and in the absence of such agreement, the Final Closing Statement as prepared by the Arbiter pursuant to Section 1.3.
QUATECH, INC. | ||||||
By: /s/ Steven D. Runkel Name: Steven D. Runkel Title: President & Chief Executive Officer | ||||||
DPAC TECHNOLOGIES CORP. | ||||||
By: /s/ Steven D. Runkel Name: Steven D. Runkel Title: President & Chief Executive Officer | ||||||
Q-TECH ACQUISITION, LLC | ||||||
By: /s/ Sean Harrigan Name: Sean Harrigan Title: President & Chief Executive Officer | ||||||
B&B ELECTRONICS MANUFACTURING COMPANY | ||||||
By: /s/ Sean Harrigan Name: Sean Harrigan Title: President & Chief Executive Officer |
DPAC Technologies Corp.
required by and satisfactory to the Board or Trustees. The Company will close its stock transfer books and discontinue recording transfers of Common Stock and Preferred Stock on the date on which the Company files its Certificate of Dissolution in the Office of the Secretary of State of the State of California as set forth in Sections 1901 and 1905 of the CCL, and thereafter certificates representing Common Stock and Preferred Stock will not be assignable or transferable on the books of the Company except by will, intestate succession, or operation of law.
on July 27, 2011
to set forth their respective rights in connection with further liquidating distributions by DPAC following the Closing under the Purchase Agreement and the payment of the Nonaffiliated Shareholder Distributions.
thereafter, to the holders of Common Stock pro rata (net of any amounts paid to the holders of Common Stock pursuant to the Nonaffiliated Shareholder Distributions and after giving effect to any liquidating distribution previously made pursuant to this Section 1.2).
DPAC Technologies Corp. | ||||||
By: /s/ Steven D. Runkel Name: Steven D. Runkel Title: Chief Executive Officer | ||||||
Quatech, Inc. | ||||||
By: /s/ Steven D. Runkel Name: Steven D. Runkel Title: Chief Executive Officer |
U.S. Small Business Administration as Receiver for Development Capital Ventures, L.P. | ||||||
By: /s/ Thomas G. Morris Name: Thomas G. Morris Title: Director, Office of Liquidation | ||||||
Canal Mezzanine Partners, L.P. | ||||||
By: Canal Mezzanine Management, LLC Its: General Partner | ||||||
By: Canal Holdings, LLC Its: Managing Member | ||||||
By: /s/ Kevin Coyne Name: Kevin Coyne Title: President | ||||||
The HillStreet Fund, L.P. | ||||||
By: HillStreet Capital Inc. Its: Investment Manager | ||||||
By: /s/ Chris Meininger Name: Chris Meininger Title: President |
Management Shareholder: | ||||||
Name: Steven D. Runkel | ||||||
Signature: /s/ Steven D. Runkel | ||||||
Management Shareholder: | ||||||
Name: William Roberts | ||||||
Signature: /s/ William Roberts | ||||||
Management Shareholder: | ||||||
Name: James Bole | ||||||
Signature: /s/ James Bole | ||||||
Officer Employee: | ||||||
Name: Stephen Vukadinovich | ||||||
Signature: /s/ Stephen Vukadinovich |
HOLDER: | ||||||
[NAME OF HOLDER] | ||||||
By: Name: Title: | ||||||
COMPANY: | ||||||
DPAC Technologies Corp. | ||||||
By: Name: Steven D. Runkel Title: Chief Executive Officer |
Name | Payment in respect of | Maximum Distribution Amount | Percentage Allocation of Distribution (up to Maximum Distribution Amount) | |||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Development Capital Ventures, L.P. | Series A Preferred and Common | $ | 1,534,352 | 50.32 | % | |||||||||
Canal Mezzanine Partners, L.P. | Canal Warrant Documents | $ | 145,000 | 4.76 | % | |||||||||
The Hillstreet Fund, L.P. | Hillstreet Warrant Documents | $ | 170,000 | 5.58 | % | |||||||||
William Roberts | Series A Preferred and Common Stock | $ | 414,617 | 13.60 | % | |||||||||
William Roberts | Stock Options — Board | $ | 7,450 | 0.24 | % | |||||||||
James Bole | Series A Preferred and Common Stock | $ | 80,489 | 2.64 | % | |||||||||
James Bole | Stock Options — Board | $ | 7,450 | 0.24 | % | |||||||||
Steven Runkel | Common Stock | $ | 59,326 | 1.95 | % | |||||||||
Steven Runkel | Stock Options — Board | $ | 53,984 | 1.77 | % | |||||||||
Steven Runkel | Severance | $ | 180,000 | 5.90 | % | |||||||||
Sam Tishler | Stock Options — Board | $ | 7,450 | 0.24 | % | |||||||||
Dennis Leibel | Stock Options — Board | $ | 8,450 | 0.28 | % | |||||||||
Mark Chapman | Stock Options — Board | $ | 7,450 | 0.24 | % | |||||||||
Stephen Vukadinovich | Severance | $ | 173,900 | 5.70 | % | |||||||||
Optionholders | Stock Options | $ | 199,091 | 6.53 | % | |||||||||
$ | 3,049,009 | 100.00 | % |
DPAC Technologies Corp.
5675 Hudson Industrial Parkway
Hudson, OH 44236-5012
July 27, 2011
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July 27, 2011
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