AGREEMENT AND PLAN OF MERGER AND REORGANIZATION
Among
ACS Electronics, Ltd., Tech 80 Acquisition Corp.,
Technology 80 Inc., Duane Markus,
Jack Pagel and Tom Gould
Dated as of January 27, 1999
TABLE OF CONTENTS
RECITALS
ARTICLE I THE MERGER
SECTION 1.1. THE MERGER
SECTION 1.2. EFFECTIVE TIME
SECTION 1.3. CLOSING
SECTION 1.4. EFFECTS OF THE MERGER
SECTION 1.5. ARTICLES OF INCORPORATION AND BY-LAWS
SECTION 1.6. DIRECTORS
SECTION 1.7. OFFICERS
ARTICLE II CONVERSION OF SECURITIES
SECTION 2.1. CONVERSION OF CAPITAL STOCK
SECTION 2.2. EXCHANGE AND PAYMENT
SECTION 2.3. DELIVERIES AT THE CLOSING
ARTICLE III REPRESENTATIONS AND WARRANTIES OF THE COMPANY
SECTION 3.1. CORPORATE EXISTENCE
SECTION 3.2. MINUTE BOOKS
SECTION 3.3. CAPITALIZATION
SECTION 3.4. POWER AND AUTHORIZATION
SECTION 3.5. DUE EXECUTION; ENFORCEABILITY
SECTION 3.6. NONVIOLATION
SECTION 3.7. NO APPROVALS REQUIRED
SECTION 3.8. NO PROCEEDINGS
SECTION 3.9. FINANCIAL STATEMENTS
SECTION 3.10. ABSENCE OF CHANGES
SECTION 3.11. PROPERTIES AND ASSETS
SECTION 3.12. CONTRACTS
SECTION 3.13. INTELLECTUAL PROPERTY
SECTION 3.14. TAXES
SECTION 3.15. LITIGATION
SECTION 3.16. COMPLIANCE WITH LAWS; GOVERNMENTAL AUTHORIZATIONS
SECTION 3.17. ENVIRONMENTAL MATTERS
SECTION 3.18. EMPLOYMENT AGREEMENTS AND EMPLOYEE BENEFIT PLANS
SECTION 3.19. EMPLOYEES
SECTION 3.20. INSURANCE
SECTION 3.21. ACCOUNTS, LOCKBOXES, SAFE DEPOSIT BOXES AND POWERS
OF ATTORNEY
SECTION 3.22. TRANSACTIONS WITH AFFILIATES
SECTION 3.23. SEC REPORTS AND FINANCIAL STATEMENTS
SECTION 3.24. INFORMATION IN DISCLOSURE DOCUMENTS
SECTION 3.25. DISCLOSURE
SECTION 3.26. CERTAIN BUSINESS PRACTICES AND REGULATIONS
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER
SUB
SECTION 4.1. CORPORATE EXISTENCE
SECTION 4.2. POWER AND AUTHORIZATION
SECTION 4.3. DUE EXECUTION; ENFORCEABILITY
SECTION 4.4. NONVIOLATION
SECTION 4.5. NO APPROVALS REQUIRED
SECTION 4.6. NO PROCEEDINGS
SECTION 4.7. INFORMATION IN DISCLOSURE DOCUMENTS AND REGISTRATION
STATEMENTS
SECTION 4.8. INTERIM OPERATIONS OF MERGER SUB
ARTICLE V COVENANTS
SECTION 5.1. CONDUCT OF BUSINESS OF THE COMPANY
SECTION 5.2. COVENANTS OF PARENT
ARTICLE VI ADDITIONAL AGREEMENTS
SECTION 6.1. REASONABLE EFFORTS
SECTION 6.2. ACCESS TO INFORMATION
SECTION 6.3. SHAREHOLDERS MEETING
SECTION 6.4. LEGAL CONDITIONS TO THE MERGER; LEGAL COMPLIANCE
SECTION 6.5. NO SOLICITATION
SECTION 6.6. FEES AND EXPENSES
SECTION 6.7. NOTIFICATION OF CERTAIN MATTERS
SECTION 6.8. INDEBTEDNESS
SECTION 6.9. INDEMNIFICATION
SECTION 6.10. LIMITATION ON INDEMNIFICATION
SECTION 6.11. CLAIM FOR INDEMNIFICATION
SECTION 6.12. CERTAIN PURCHASES BY THE PRINCIPALS OR AFFILIATES
ARTICLE VII CONDITIONS
SECTION 7.1. CONDITIONS TO EACH PARTY'S OBLIGATION TO EFFECT THE
MERGER
SECTION 7.2. CONDITIONS OF OBLIGATIONS OF PARENT
SECTION 7.3. CONDITIONS OF OBLIGATIONS OF THE COMPANY
ARTICLE VIII TERMINATION AND AMENDMENT
SECTION 8.1. TERMINATION
SECTION 8.2. EFFECT OF TERMINATION
SECTION 8.3. AMENDMENT
SECTION 8.4. EXTENSION; WAIVER
ARTICLE IX MISCELLANEOUS
SECTION 9.1. SURVIVAL OF REPRESENTATIONS AND WARRANTIES
SECTION 9.2. DEFINITIONS
SECTION 9.3. BROKERS' AND FINDERS' FEES
SECTION 9.4. SALES, TRANSFER AND DOCUMENTARY TAXES, ETC.
SECTION 9.5. PUBLICITY
SECTION 9.6. CONTENTS OF AGREEMENT; PARTIES IN INTEREST; ETC.
SECTION 9.7. ASSIGNMENT AND BINDING EFFECT
SECTION 9.8. NOTICES
SECTION 9.9. GOVERNING LAW; JURISDICTION
SECTION 9.10. NO BENEFIT TO OTHERS
SECTION 9.11. SCHEDULES
SECTION 9.12. SEVERABILITY
SECTION 9.13. COUNTERPARTS
SECTION 9.14. KNOWLEDGE 47
This AGREEMENT AND PLAN OF MERGER AND REORGANIZATION dated as
of January 27, 1999, by and among ACS Electronics, Ltd., an
Israeli corporation ("Parent"), Tech 80 Acquisition Corp., a
Minnesota corporation and a newly--formed wholly-owned subsidiary
of Parent ("Merger Sub"), and Technology 80 Inc., a Minnesota
corporation (the "Company"), Duane Markus, Jack Pagel and Tom
Gould (collectively, the "Principals"). Certain terms used herein
and not otherwise defined herein are defined in ARTICLES II and
IX.
RECITALS
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WHEREAS, the Company is engaged in the production and sale of
broad-level motion controllers and encoder interfaces for the
semiconductor, medical and packaging industries, designed for
industry-standard bus architectures (the "Business");
WHEREAS, the Board of Directors of the Company (subject to
its receipt of the fairness opinion referenced in SECTION 7.3(d)),
and the Boards of Directors of Parent and Merger Sub, deem it
advisable and in the best interests of their respective
shareholders that Parent indirectly acquire the Business pursuant
to the terms and conditions set forth in this Agreement;
WHEREAS, the Board of Directors of the Company (subject to
its receipt of the fairness opinion referenced in SECTION 7.3(d)),
and the Boards of Directors of Parent and Merger Sub, have
determined that the merger of the Merger Sub with and into the
Company (the "Merger"), with the Company surviving as a wholly-
owned subsidiary of Parent, would be in the best interests of
their respective shareholders and have approved this Agreement and
a Plan of Merger, and have directed that the Plan of Merger be
submitted to the respective shareholders of the Company and Merger
Sub; and
NOW, THEREFORE, in consideration of the foregoing and the
respective representations, warranties, covenants and agreements
set forth herein, the parties hereto, intending to be legally
bound hereby, agree as follows:
ARTICLE I
THE MERGER
SECTION 1.1. THE MERGER. Upon the terms and subject to the
conditions hereof and the Minnesota Business Corporation Act (the
"MBCA"), at the Effective Time, the Company and Merger Sub shall
consummate the Merger pursuant to which (i) Merger Sub shall be
merged with and into the Company, (ii) the separate corporate
existence of Merger Sub shall thereupon cease, (iii) the Company
shall be the surviving corporation in the Merger (the "Surviving
Corporation") and shall continue to be governed by the laws of the
State of Minnesota, and (iv) the properties, rights, privileges,
powers and franchises of the Company and Merger Sub shall be
vested in the Surviving Corporation by the Merger.
SECTION 1.2. EFFECTIVE TIME. Upon the terms and subject to
the conditions hereof, articles of merger (the "Articles of
Merger") shall be duly prepared, executed and acknowledged by the
Surviving Corporation and thereafter delivered to the Secretary of
State of the State of Minnesota for filing, as provided in the
MBCA, as soon as practicable after the Company's shareholders
approve the Merger. The Merger shall become effective upon the
filing of the Articles of Merger with the Secretary of State of
the State of Minnesota or at such other time as is provided in the
Articles of Merger. The date and time when the Merger becomes
effective is herein referred to as the "Effective Time."
SECTION 1.3. CLOSING. Subject to the satisfaction or waiver
of all of the conditions to closing contained in ARTICLE VII
hereof, the closing of the Merger (the "Closing") will take place
as promptly as practicable (and in any event within two business
days) after satisfaction or waiver of the conditions to Closing
contained in ARTICLE VII and payment of the estimated Total
Purchase Price pursuant to SECTION 2.1(f), at the offices of
Lindquist & Vennum P.L.L.P., 4200 IDS Center, 80 South Eighth
Street, Minneapolis, Minnesota 55402, unless another date or place
is agreed to in writing by the parties hereto. The date on which
the Closing occurs is referred to herein as the "Closing Date."
SECTION 1.4. EFFECTS OF THE. The Merger shall have the
effects set forth in the MBCA.
SECTION 1.5. ARTICLES OF INCORPORATION AND BY-LAWS.
(a) Articles of Incorporation.
--------------------------
The Articles of Incorporation of Merger Sub in effect at the
Effective Time shall be the Articles of Incorporation of the
Surviving Corporation until amended in accordance with the terms
thereof and applicable law.
(b) By-Laws.
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The By-Laws of Merger Sub in effect at the Effective Time shall be
the By-Laws of the Surviving Corporation until amended in
accordance with the terms thereof and applicable law.
SECTION 1.6. DIRECTORS. The directors of Merger Sub at the
Effective Time shall be the directors of the Surviving
Corporation, each to hold office from the Effective Time in
accordance with the Articles of Incorporation and By-Laws of the
Surviving Corporation and until his or her successor is duly
elected and qualified.
SECTION 1.7. OFFICERS. The officers of Merger Sub at the
Effective Time shall be the officers of the Surviving Corporation,
each to hold office from the Effective Time in accordance with the
Articles of Incorporation and By-Laws of the Surviving Corporation
and until his or her successor is duly appointed and qualified.
ARTICLE II
CONVERSION OF SECURITIES
SECTION 2.1. CONVERSION OF CAPITAL STOCK. As of the
Effective Time, by virtue of the Merger and without any action on
the part of the holder of any shares of Common Stock, $.01 par
value per share, of the Company (the "Company Common Stock") or
rights to acquire Company Common Stock, or the holder of any
capital stock of Merger Sub:
(a) Merger Sub Common Stock.
------------------------
Each issued and outstanding share of Common Stock, no par value,
of Merger Sub (the "Merger Sub Common Stock") shall be converted
into one share of common stock of the Surviving Corporation.
(b) Company Common Stock.
---------------------
Each share of Company Common Stock issued and outstanding as of
the Effective Time shall be converted into the right to receive,
in cash, an amount equal to (the "Consideration"): (x) the sum of
(1) the Total Purchase Price plus (2) the Total Options Exercise
Price minus (3) the Shareholder Fund Administrative Expenses,
divided by (y) the sum of the number of shares of Company Common
Stock outstanding at the Effective Time plus the number of shares
of Company Common Stock issuable upon exercisable of all Company
Options (as defined in SECTION 2.1(c)) outstanding at the
Effective Time. "Total Options Exercise Price" means an amount
equal to the total exercise price payable upon exercise of all
Company Options outstanding at the Effective Time for all shares
of Company Common Stock issuable upon exercise of all such Company
Options. All shares of Company Common Stock, when so converted,
shall no longer be outstanding and shall automatically be canceled
and retired and shall cease to exist, and each holder of a
certificate representing any such shares shall cease to have any
rights with respect thereto, except the right to receive the
Consideration upon the surrender of such certificate in accordance
with SECTION 2.2, without interest (except as set forth in SECTION
2.1(h)).
(c) Company Options.
----------------
All stock options to purchase shares of Company Common Stock (the
"Company Options") outstanding at the Effective Time, whether or
not all shares subject to such Company Option are vested, shall,
by virtue of the Merger and without any action on the part of the
holder thereof, be converted into the right to receive cash, as
determined on a per share basis for each share issuable upon
exercise thereof (assuming full vesting thereof) in an amount (the
"Net Consideration") equal to the per share Consideration minus
the exercise price per share of Company Common Stock payable upon
exercise of such Company Options. All Company Options, when so
converted, shall no longer be outstanding and shall automatically
be canceled and retired and shall cease to exist. Each holder of
an agreement representing such stock option rights ("Option
Agreement") shall cease to have any rights with respect thereto,
except the right to receive the Net Consideration.
(d) Stock Dividends, Etc.
---------------------
If after the date hereof and prior to the Effective Time the
outstanding shares of Company Common Stock or the outstanding
securities convertible into Company Common Stock shall have been
changed into a different number of shares or a different class, by
reason of any stock dividend, subdivision, reclassification,
recapitalization, split, combination or exchange of shares, the
Consideration and Net Consideration shall be correspondingly
adjusted to reflect such stock dividend, subdivision,
reclassification, recapitalization, split, combination or exchange
of shares.
(e) The Total Purchase Price.
-------------------------
The Total Purchase Price shall be determined according to the
following definitions and formulas:
(i) Total Purchase Price.
---------------------
"Total Purchase Price" shall mean the sum of (1) the Base Price
plus (2) the Portfolio Position and minus (3) the Shortfall
Amount.
(ii) Portfolio Position.
-------------------
"Portfolio Position" shall mean the sum of the Company's cash and
cash equivalents plus its short term and other investments, all as
of the Closing Date and all as determined in accordance with
generally accepted accounting principles applied on a basis
consistent with the accounting principles applied by the
Accountants (defined below) in the preparation of the August 31,
1998 audited financial statements of the Company ("GAAP").
(iii) Shortfall Amount.
-----------------
"Shortfall Amount" shall mean the amount, if any, by which the
Adjusted Net Book Value as of the Closing Date is less than
$1,840,000. The Shortfall Amount shall not be less than $0.
(iv) Adjusted Net Book Value.
------------------------
"Adjusted Net Book Value" shall mean the amount by which (1) the
book value of the Company's property and equipment, receivables
(not including "interest from employees" or "money due-loans" as
set forth in the Company's financial statements), inventory, pre-
paid assets and Adjusted Tax Assets on the Closing Date, exceed
(2) the total liabilities of the Company as of the Closing Date,
all as set forth in the Company's financial statements as of the
Closing Date and all as determined by the Accountants in the
manner described at SECTION 2.1(f)(ii) below.
(v) Adjusted Tax Assets.
--------------------
"Adjusted Tax Assets" means an amount equal to (1) all tax credits
of the Company on the Closing Date which would be available to the
Survivor Corporation, plus (2) an amount equal to the estimated
tax refund (including interest) that the Company could receive
from using any net capital losses of the Company incurred during
the current fiscal year (including, without limitation, as a
result of the liquidation of the Company's investments
contemplated by SECTION 5.1(k)) in connection with taxes paid on
any net capital gains of the Company in prior fiscal years.
(vi) Base Price.
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"Base Price" shall mean the sum of (1) $6,350,000 and (2) 1.508
multiplied by the amount by which Applicable Sales exceed
$1,159,000; provided, however, that in no event shall the Base
Price be greater than $6,700,000 nor less than $6,350,000. At any
time after the date hereof when the Applicable Sales are known,
the Company and Parent parties may acknowledge in writing the
amount of the Base Price, and the amount so acknowledged shall be
binding on the parties.
(vii) Applicable Sales.
-----------------
"Applicable Sales" shall mean Company sales during the period
commencing November 1, 1998 and ending January 31, 1999
(regardless of whether the Closing occurs before or after the end
of such quarter).
(f) Determination and Payment.
--------------------------
The Total Purchase Price shall be determined and paid as follows:
(i) Estimate; Shareholder Fund.
---------------------------
The day before the Closing Date, the Company shall provide an
estimate of the Total Purchase Price based on a pro forma Total
Purchase Price Certificate and a pro forma Closing Date Balance
Sheet (as defined below) prepared in good faith by the Company.
On the Closing Date, Parent shall pay in cash such estimated Total
Purchase Price into the Shareholder Fund in accordance with
instructions of the Principals.
(ii) Accountants; Total Purchase Price Certificate.
----------------------------------------------
Within twenty-one (21) days after the Closing Date, Lurie,
Besikof, Lapidus & Co., LLP, 2501 Wayzata Boulevard, Minneapolis
MN 55405 ("Accountants") shall at the expense of Parent (1)
prepare financials of Company as of the Closing Date which shall
be prepared in accordance with GAAP and in accordance with the
Accountant's Letter (described below), and shall include a balance
sheet as of the Closing Date (the "Closing Date Balance Sheet")
and associated statements of income and cash flows for the period
then ended, including the quarter ended January 31, 1999
(collectively, the "Closing Date Financials"), and (2) provide
Parent and the Principals with a certificate stating the final
amount of Total Purchase Price, determined by the Accountants in
accordance with this ARTICLE II (the "Total Purchase Price
Certificate").
(A) Preparation of the Closing Date Balance Sheet.
----------------------------------------------
The assets and liabilities set forth in the Closing Date Balance
Sheet shall be determined using the same accounting methods,
policies, principles, practices, and procedures, with consistent
classification, judgments, and estimation methodology, as used in
determining assets and liabilities included in the Financial
Statements. The Closing Date Balance Sheet shall prepared without
giving effect to the Merger, and any assets, liabilities, revenues
or expenses of the Merger Sub, or the consummation of the
transactions contemplated hereby (including, without limitation,
without reference to the payments made under the non-competition
and severance agreements referenced in SECTION 7.2(d)). The
Closing Date Balance Sheet shall include, without limitation, all
liabilities related to the consummation of the transaction
contemplated hereby to the extent incurred but not paid by the
Company at the Effective Time (except to the extent that this
Agreement provides for payment by the Parent or Merger Sub), and
all accrued but unpaid tax liabilities of the Company at the
Effective Time. Further, the Closing Date Balance Sheet shall be
prepared in accordance with the procedures set forth in the
Accountant's letter to the Company and Parent dated January __,
1999 (the "Accountant's Letter").
(B) Drafts; Access.
---------------
The Accountant shall afford the Principals and Parent (including
their or its employees, accountants, agents, and professional
advisors) the opportunity to review and comment upon drafts of the
Closing Date Financials and the Total Purchase Price Certificate
prior to the finalization of the same by the Accountants. The
Accountants, Principals and Parent shall attempt in good faith to
resolve any disputes with respect to the draft Closing Date
Financials and the calculations therein before the final Closing
Date Financials and the Total Purchase Price Certificate are
delivered by the Accountant. In connection therewith, the
Surviving Corporation shall arrange for the work papers of the
Accountants to be made available to the Principals and Parent, and
the Principals and Parent may make inquiries of representatives of
the Surviving Corporation and the Surviving Corporation's
Accountants to the extent deemed necessary by the Principals or
Parent.
(iii) Payments; Adjustments.
----------------------
Within seven (7) days of the finalization of the Total Purchase
Price Certificate in accordance with this SECTION 2.1(f), (1) if
the estimated Total Purchase Price paid into the Shareholder Fund
on the Closing Date exceeds the final Total Purchase Price, the
Principals shall pay from the Shareholder Fund such excess to
Parent along with interest earned on such excess while held in the
Shareholder Fund; or (2) if the estimated Total Purchase Price
paid into the Shareholder Fund on the Closing Date is less than
the final Total Purchase Price, Parent shall pay such deficit into
the Shareholder Fund with interest thereon from and after the
Closing Date to the date of such payment at the same rate of
interest as that earned on the Shareholder Fund during such
period. The date on which such adjusting payment is made, but not
later then seven days after the date of finalization of the final
Total Purchase Price Certificate, is referred to herein as the
"Availability Date." On and after the Availability Date, the
Principals shall pay from the Shareholder Fund the Consideration
or Net Consideration to holders of Certificates or Option
Agreements in accordance with the terms of this ARTICLE II.
(A) Supplemental Payments.
----------------------
However, if Parent has not paid in full any amounts required to be
paid under this SECTION 2.1(f)(iii) at the time such Consideration
or Net Consideration is paid to such holders, the Principals may
make a supplemental payment from the Shareholder Fund as
appropriate as additional payments are made by or on behalf of
Parent.
(B) Breaches.
---------
For purposes of this Agreement, if Parent fails to pay the amount
required to be paid under this SECTION 2.1(f)(iii) in full within
seven days of finalization of the Total Purchaser Price
Certificate in accordance with this SECTION 2.1(f), interest shall
accrue on such amount at the rate of one and one-half percent per
month (or the maximum rate permitted by law, if lesser). Further,
Parent shall pay all costs and expenses, including, without
limitation, reasonable attorneys' fees, incurred in connection
with the enforcement of Parent's obligations under this Agreement,
whether or not suit is brought. Commencing on the Closing Date,
the Surviving Corporation hereby guarantees the prompt payment and
performance of all of Parent's obligations under this Agreement.
The Principals, or any of them, may bring an action hereunder to
enforce payment or performance of any amounts or obligations owed
by Parent or the Surviving Corporation under this Agreement, and
in connection therewith, the Principals shall be entitled as a
matter of right to specific performance of Parent's and Surviving
Corporation's obligations under this Agreement.
(iv) The Principals.
---------------
For purposes of this SECTION 2.1(f), all decisions of the
Principals to made under this SECTION 2.1(f) shall be made by a
majority in interest of the Principals based on the number of
shares of Company Common Stock owned of record or beneficially by
the Principals immediately prior to the Merger, provided, however,
that withdrawals from the Shareholder Fund may only be made with
approval of at least two Principals. For purposes of this SECTION
2.1(f), all notices required to be given to the Principals shall
be deemed duly delivered if delivered to Duane Markus in
accordance with the provisions of SECTION 9.8.
(v) Finalization Based on No Notice of Dispute.
-------------------------------------------
The final Closing Date Financials and Total Purchase Price
Certificate delivered by the Accountant to the Principals and
Parent (and the Total Purchase Price as determined therein) shall
be conclusive and binding upon the parties unless either the
Principals or Parent, within ten (10) business days after the
delivery to the Principals and Parent of the final Closing Date
Financials and Total Purchase Price Certificate, notifies the
other in writing that such notifying party or parties disputes any
of the amounts set forth therein, specifying in reasonable detail
the nature and amount of the dispute and the basis therefor;
provided, however, that the Principals may dispute only those
items that are different from the positions taken by the Company
in the pro forma Total Purchase Price Certificate and Closing Date
Balance Sheet provided pursuant to SECTION 2.1(f)(i). If no such
notice is given, the Total Purchase Price Certificate shall be
finalized and the provisions of SECTION 2.1(f)(iii) shall apply
without further action by the Principals or Parent.
(vi) Finalization Based On Mutual Agreement.
---------------------------------------
If either the Principals or Parent gives timely notice of a
dispute under SECTION 2.1(f)(v), the Principals and Parent shall
in good faith attempt to resolve any dispute. If at any time they
mutually resolve such dispute (even after submittal to the
Arbiter), the Closing Date Financials and the Total Purchase Price
Certificate may be amended in writing by them to the extent
necessary to reflect the resolution of the dispute. The Total
Purchase Price Certificate as so amended shall be deemed finalized
and shall be conclusive and binding upon the parties, in which
case the provisions of SECTION 2.1(f)(iii) shall apply.
(vii) Finalization Based on Determination of the Arbiter.
---------------------------------------------------
If the Principals and Parent do not reach mutual resolution the
dispute within 15 days after notice is given by either the
Principals or Parent under SECTION 2.1(f)(v), either the
Principals or Parent may at any time thereafter submit the dispute
to Deloitte & Touche or other independent accounting firm
acceptable to the Principals and Parent (the "Arbiter"), for
resolution by the Arbiter.
(A) Submission.
-----------
To submit the dispute, the Principals or Parent shall provide
written notice to the Arbiter and the Parent or Principals, as the
case may be, which notice shall specify in reasonable detail the
unresolved nature and amount of the dispute and the basis
therefor. The Arbiter may establish reasonable rules and
procedures for affording the Principals, Parent and the
Accountants (or their employees, accountants, agents, and
professional advisors) a reasonable opportunity to present
information for consideration by the Arbiter.
(B) Determination.
--------------
Promptly, but no later than 30 days after submission of the
dispute to the Arbiter, the Arbiter shall make a determination,
based solely on such information provided by the Principals,
Parent and the Accountant (or their employees, accountants,
agents, and professional advisors), and not by independent review,
and shall render a report as to its determination of the final
Total Purchase Price Certificate (and the resulting computation of
the Total Purchase Price). The final Total Purchase Price
Certificate as determined by the Arbiter shall be conclusive and
binding upon all parties, in which case the provisions of SECTION
2.1(f)(iii) shall apply. In resolving any disputed item, the
Arbiter (x) shall be bound by the provisions of this SECTION
2.1(f) and (y) may not assign a value to any item greater than the
greatest value for such item claimed by either party or less than
the smallest value for such item claimed by either party.
(C) Fees.
-----
The fees, costs, and expenses of the Arbiter (A) shall be borne by
Parent in the proportion that the aggregate dollar amount of such
disputed items so submitted that are unsuccessfully disputed by
Parent (as finally determined by the Arbiter) bears to the
aggregate dollar amount of such items so submitted and (B) shall
be paid by the Principals from the Shareholder Fund as a
Shareholder Fund Administrative Expense in the proportion that the
aggregate dollar amount of such disputed items so submitted that
are successfully disputed by Parent (as finally determined by the
Arbiter) bears to the aggregate dollar amount of such items so
submitted.
(g) Certain Obligations and Duties of the Principals.
-------------------------------------------------
The Principals shall have the same duties, obligations and
liabilities, and the same limitations of duties, obligations and
liabilities, that an independent exchange agent would have in
fulfilling the duties of the Principals under this ARTICLE II
(other than finalization of the Total Purchase Price or in
enforcing the obligations of Parent and the Surviving Corporation
under this Agreement) if the parties had retained an independent
exchange agent pursuant to an agreement containing terms and
conditions customary for transactions of this type. The
Principals shall have no liabilities or obligations for actions
undertaken in finalizing the Total Purchase Price (or in enforcing
the obligations of Parent and the Surviving Corporation under this
Agreement) if the Principals act in good faith in connection
therewith.
(h) Interest on the Shareholder Fund.
---------------------------------
The Shareholder Fund shall be an interest-bearing account. From
and after the Closing Date until the Availability Date, any
interest earned on the Shareholder Fund (after taking into account
the payment adjustments and interest, if any, to be paid under
SECTION 2.1(f)(iii), including interest paid on late payments),
shall accrue to the benefit of holders of Certificates and Option
Agreements pro rata among them based on the number of shares of
Company Common Stock outstanding and the number of shares of
Company Common Stock issuable upon exercise of all Company
Options, and shall be paid to such holders along with payment of
the Consideration or Net Consideration, as the case may be.
Except as set forth in SECTION 2.1(j), from and after the
Availability Date (and except for interest paid on late payments),
any interest thereafter earned on the remaining balance of the
Shareholder Fund shall accrue to the benefit of the Surviving
Corporation and, unless otherwise agreed by the Principals and the
Surviving Corporation, shall be paid from the Shareholder Fund by
the Principals to the Surviving Corporation when undistributed
funds are returned to the Surviving Corporation in accordance with
SECTION 2.2(d).
(i) The Shareholder Fund.
----------------------
The "Shareholder Fund" means an interest-bearing account
established by the Principals at a bank or other financial
institution selected by them, which account shall be for the
benefit of, and shall be deemed an asset of, of all shareholders
of the Company and holders of Option Agreements. The Shareholder
Fund shall be used for payment of the Consideration to the holders
of shares of the Company and for payment of the Net Consideration
to holders of Option Agreement, in accordance with the terms of
this ARTICLE II. The Shareholder Fund shall be administered by the
Principals as representatives of the Shareholders, and amounts may
be withdrawn therefrom with the approval of at least two of the
Principals. The Surviving Corporation shall reasonably cooperate
with and assist the Principals in the administration of the
Shareholder Fund and in the fulfillment of the Principals'
obligations under this ARTICLE II, provided, however, that the
Surviving Corporation shall not be obligated to incur any
significant out-of-pocket costs in connection therewith not
related to the fulfillment of the Surviving Corporation's
obligations under SECTION 2.2. The Principals are expressly
authorized with withdraw funds from the Shareholder Fund to pay or
reimburse the Principals for Shareholder Fund Administrative
Expenses.
(j) Shareholder Fund Administrative Expenses.
-----------------------------------------
"Shareholder Fund Administrative Expenses" means (1) the fees,
costs and expenses, if any, of the Arbiter to be paid by the
Principals from the Shareholder Fund pursuant to SECTION
2.1(f)(vii), and (2) the out-of-pocket costs paid or incurred by
the Principals, their affiliates or others incurred in performance
of the Principal's obligations under this ARTICLE II. It is
acknowledged that the Principals' obligations under this ARTICLE
II includes, without limitation, establishing and administering
the Shareholder Fund, finalizing the determination of the Total
Purchase Price, enforcing the Parent's and the Surviving
Corporation's obligations under this Agreement, providing the
transmittals to holders of Certificates and Option Agreement,
paying from the Shareholder Fund the Consideration and Net
Consideration and complying with tax reporting requirements.
Solely for purposes of illustration, the out-of-pocket costs that
the Principals may pay or incur in connection therewith may
include, without limitation, legal and accounting fees, bank
charges, printing costs and mailing charges and consultant fees.
(i) Certain Exclusions.
-------------------
The Principals shall not be entitled to any fees or compensation
in connection with fulfilling their obligations under this ARTICLE
II, and Shareholder Fund Administrative Expenses shall not include
any such fees or compensations of the Principals. Further,
Shareholder Fund Administrative Expenses shall not include amounts
for which the Principals are required to indemnify under SECTION
2.1(k) to the extent that the Principals have breached their
duties under this ARTICLE II. However, Shareholder Fund
Administrative Expenses shall include amounts for which the
Principals are required to so indemnify to the extent that the
Principals have not so breached their duties under this ARTICLE
II.
(ii) Reserve.
--------
In recognition of the fact that the Principals will incur out-of-
pocket costs after the Availability Date, the Principals are
hereby authorized to create a reserve for their good faith
estimate of the out-of-pocket costs that may be incurred in
fulfilling their obligations under this ARTICLE II after the
Availability Date, and such reserve shall be deemed a Shareholder
Fund Administrative Expense. Except to the extent of available
interest earned on the Shareholder Fund from and after the
Availability Date, the Principals shall not be entitled to payment
or reimbursement from the Shareholder Fund of any out-of-pocket
costs paid or incurred in excess of such reserve after the
Availability Date. If the actual out-of-pocket costs paid or
incurred by the them as of the date that undistributed funds are
to be paid to the Surviving Corporation under SECTION 2.2(d), the
excess reserve, at the election of the Principals, may either be
paid to the Surviving Corporation or paid to a charitable
organization exempt under Section 501(c)(3) of the Internal
Revenue Code.
(k) Indemnification by the Principals.
----------------------------------
In addition to the indemnity made by the Principals in SECTION
6.9, and without reference to the limitations on indemnity set
forth in SECTIONS 6.10 or 6.11, from and after the Effective Time,
the Principals, jointly or severally, hereby agree to indemnify
and hold harmless Parent and the Surviving Corporation, and their
respective officers, directors, employees, agents, consultants,
for any Losses (as defined in SECTION 6.9) actually suffered or
incurred by them as a result of any breach of the Principals'
obligations under this ARTICLE II.
SECTION 2.2. EXCHANGE AND PAYMENT
(a) Exchange.
---------
(i) Transmittals.
-------------
As soon as practicable after the Effective Time, the Principals
and the Surviving Corporation shall mail to each holder of record
of a certificate or certificates (collectively, the
"Certificates") whose shares were converted pursuant to SECTION
2.1, and to holders of record of Option Agreements, into the right
to receive the Consideration or Net Consideration (i) a letter of
transmittal (which shall be in such form and have such provisions
as the Principals and Surviving Corporation may reasonably
specify) and (ii) instructions for use in effecting the surrender
of the Certificates or Option Agreements in exchange for the
Consideration or Net Consideration.
(ii) Surrender; Payment.
-------------------
Upon surrender of a Certificate or Option Agreement for
cancellation to the Surviving Corporation, together with such
letter of transmittal, duly executed, the holder of such
Certificate or Option Agreement shall be entitled to receive in
exchange therefor the Consideration to which such holder is
entitled pursuant to SECTION 2.1(b) hereof or the Net
Consideration to which such holder is entitled to pursuant to
SECTION 2.1(c) and the Certificate or Option Agreement so
surrendered shall forthwith be canceled. Within two (2) business
days after the Surviving Corporation's receipt of the surrendered
Certificate or Option Agreement for cancellation with such duly
executed letter of transmittal, the Surviving Corporation shall
provide notice to the Principals regarding such holder's right to
payment, including the name of the holder and the Consideration or
Net Consideration payable to such holder. Promptly thereafter,
the Principals shall pay from the Shareholder Fund such
Consideration or Net Consideration, as the case may, to such
holder, after giving effect to any required tax withholdings, in
accordance with the terms hereof (with interest thereon as
provided in SECTION 2.1(h)).
(iii) Computation Statement.
----------------------
To the extent practicable, prior to or simultaneous with payment
of the Consideration or Net Consideration (and in any event,
promptly after payment thereof), the Principals shall provide a
holder of a Certificate or Option Agreement with a brief statement
showing a final computation of the Consideration or Net
Consideration, including, without limitation, a computation of the
final Total Purchase Price and a brief and summary accounting of
the Shareholder Fund Administrative Expenses incurred and the
reserve established under SECTION 2.1(j) (if any).
(iv) Transfers; Lost Certificates or Option Agreements.
--------------------------------------------------
In the event of a transfer of ownership of Company Common Stock or
an Option Agreement which is not registered in the transfer
records of the Company, the Consideration or Net Consideration
payable to the transferee thereof in the Merger may be issued to a
transferee if the Certificate representing such Company Common
Stock or Option Agreement is presented to the Surviving
Corporation, accompanied by all documents required to evidence and
effect such transfer and by evidence that any applicable stock
transfer taxes have been paid. In the event any Certificates or
Option Agreements shall have been lost, stolen, or destroyed, the
Principals may pay the Consideration or Net Consideration from the
Shareholder Fund in exchange for such lost, stolen, or destroyed
Certificates or Option Agreement, upon the making of an affidavit
of that fact by the holder thereof; provided, however, that the
Surviving Corporation may, in its discretion and as a condition
precedent to the issuance thereof, require the owner of such lost,
stolen, or destroyed Certificate or Option Agreement to deliver a
bond in such sum as they may direct as indemnity against any claim
that may be made against the Principals, the Parent or the
Surviving Corporation with respect to such Certificate or Option
Agreement alleged to have been lost, stolen, or destroyed. Until
surrendered as contemplated by this SECTION 2.2, each Certificate
and Option Agreement shall be deemed at any time after the
Effective Time to represent only the right to receive upon such
surrender the Consideration or Net Consideration payable in the
Merger.
(v) The Surviving Corporation's Obligations; Indemnification.
---------------------------------------------------------
The Surviving Corporation's obligations under this SECTION 2.2(a)
shall be performed by Ricky Carlson or other employee of the
Surviving Corporation reasonably acceptable to the Principals.
From and after the Effective Time, the Parent and the Surviving
Corporation, jointly or severally, hereby agree to indemnify and
hold harmless the Principals and the holders of Certificates or
Option Agreements, and their respective affiliates, for any Losses
(as defined in SECTION 6.9) actually suffered or incurred by them
as a result of any breach of the Surviving Corporation's under
this SECTION 2.2(a).
(b) Dissenters' Rights.
-------------------
(i) Demand and Perfection.
----------------------
Notwithstanding any provision of this Agreement to the contrary,
the holder (a "Dissenting Shareholder") of any shares of Company
Common Stock who has demanded and perfected such holder's right to
dissent from the Merger and to be paid the fair value of such
shares (the "Dissenting Shares") in accordance with Sections
302A.471 and 302A.473 of the MBCA and as of the Effective Time has
neither effectively withdrawn nor lost his, her or its right to
such dissent shall not have a right to receive the Consideration
for such Dissenting Shares pursuant to SECTION 2.1(b) and shall
only be entitled to such rights as are granted by the MBCA. The
Surviving Corporation shall make any and all payments due to
holders of Dissenting Shares.
(ii) Withdrawal or Loss of Rights.
-----------------------------
Notwithstanding the provisions of SECTION 2.2(b)(i), if any
Dissenting Shareholder demanding dissenters' rights with respect
to such Dissenting Shareholder's Dissenting Shares under the MBCA
shall effectively withdraw or lose (through failure to perfect or
otherwise) his, her or right to dissent, then as of the Effective
Time or the occurrence of such event, whichever occurs later, such
Dissenting Shares shall automatically be converted into and
represent only the right to receive the Consideration as provided
in SECTION 2.1(b) upon surrender of the certificate or
certificates representing such Dissenting Shares.
(iii) Payment.
--------
The Company shall give Parent and Merger Sub prompt notice of any
demand by a Dissenting Shareholder for payment, or notices of
intent to demand payment received by the Company under Sections
302A.471 and 302A.473 of the MBCA, and Parent and Merger Sub shall
have the right to participate in all negotiations and proceedings
with respect to such demands. The Company shall not, except with
the prior written consent of Parent (which consent shall not be
unreasonably withheld, delayed or conditioned) or as otherwise
required by law, make any payment with respect to, or settle, or
offer to settle, any such demands.
(c) Satisfaction.
-------------
All of the Consideration or Net Consideration paid upon shares of
Company Common Stock or upon securities convertible into Company
Common Stock in accordance with the terms hereof shall be deemed
to have been paid in full satisfaction of all rights pertaining to
such shares.
(d) Undistributed Funds.
--------------------
Any portion of the Shareholder Fund which remains undistributed to
the shareholders of the Company for six months after the Effective
Time shall be delivered by the Escrow Agent (along with interest
accruing thereon from and after the Availability Date as provided
in SECTION 2.1(h)) to the Surviving Corporation, upon demand, and
any shareholders of the Company who have not theretofore complied
with this ARTICLE II shall, subject to any applicable abandoned
property, escheat or similar law, thereafter look only to the
Surviving Corporation for the Consideration or Net Consideration
payable in the Merger (plus interest only as expressly provided in
SECTION 2.1(h)). None of Parent, Merger Sub, the Company or the
Surviving Corporation shall be liable to any holder of shares of
Company Common Stock or securities convertible into Company Common
Stock for such Consideration or Net Consideration payable in the
Merger delivered to a public official pursuant to any applicable
abandoned property, escheat or similar law.
SECTION 2.3. DELIVERIES AT THE CLOSING
(a) Deliveries by the Company and the Principals.
---------------------------------------------
At the Closing the Company and the Principals shall take the
following actions and deliver or cause to be delivered to Parent
and Merger Sub each of the following items:
(i) President's Certificate.
------------------------
A certificate dated as of the date of the Closing executed by the
President of the Company certifying, in such form as Parent may
reasonably request, that the representations and warranties of the
Company, and the Principals, respectively, set forth in ARTICLE
III of this Agreement were true and correct as of the date of the
execution of this Agreement and are true and correct and as of the
date of the Closing as if made on and as of such date, and that
since August 31, 1998, there has been no Material Adverse Effect;
(ii) Certificate of Good Standing.
-----------------------------
A certificate of good standing of the Company issued by the
Secretary of State of Minnesota, dated as of a date not more than
ten (10) days prior to the Closing Date;
(iii) Certified Resolutions.
----------------------
True copies of, (1) resolutions of the Board of Directors, and any
applicable committee thereof, certified by the Company's
Secretary, (A) approving this Agreement, the Plan of Merger and
the transactions contemplated under this Agreement, and (B)
authorizing each of the persons who sign, on the Company's behalf,
this Agreement or any documents or instruments delivered or
required to be delivered in connection with the transactions
contemplated by this Agreement, and (2) resolutions adopted by the
shareholders of the Company, certified by the Company's Secretary,
approving the Plan of Merger in accordance with the requirements
of the MBCA;
(iv) Opinion.
--------
An opinion of Fredrikson & Byron, P.A. dated as of the Closing in
a form and substance reasonably satisfactory to Parent;
(v) Non-Competition and Severance Agreements.
-----------------------------------------
A duly executed Non-Competition and Severance Agreement between
Duane Markus and the Surviving Corporation, and duly executed
Severance Agreements between each of Jack Pagel and Tom Gould and
the Surviving Corporation; and
(vi) Other.
------
Copies of any other documentation or information reasonably
requested by Parent.
(b) Deliveries by Parent and Merger Sub.
------------------------------------
At the Closing, Parent and Merger Sub shall take the following
actions and deliver or cause to be delivered to the Company each
of the following items:
(i) Officer Certificate.
--------------------
Certificates dated as of the date of the Closing executed by an
authorized officer of Parent and by an authorized officer of
Merger Sub, respectively, certifying, in such form as the Company
may reasonably request, that the representations and warranties of
Parent and Merger Sub, respectively, were true and correct as of
the date of the execution of the Agreement and are true and
correct on and as of the date of the Closing as if made on or as
of such date;
(ii) Certified Resolutions.
----------------------
True copies of (1) resolutions of the Board of Directors of Parent
and Merger Sub certified by the Secretary of each, (A) approving
this Agreement, the Plan of Merger and the transaction
contemplated under this Agreement, and (B) authorizing each of the
persons who sign, on behalf of Parent and Merger Sub, the
Agreement or any instruments or documents delivered or required to
be delivered in connection with the consummation of the
transactions under this Agreement; and (2) true copies of
resolutions adopted by the sole shareholder of the Merger Sub, as
certified by Merger Sub's Secretary, approving the Plan of Merger
in accordance with the MBCA;
(iii) Opinion.
--------
An opinion of Lindquist & Vennum P.L.L.P. (which may rely on or
incorporate an opinion of Israeli counsel) counsel for Parent,
dated as of the date of the Closing, in form and substance
reasonably satisfactory to the Company; and
(iv) Other.
------
Copies of any other documentation or information reasonably
requested by the Company.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company and the Principals represent and warrant to
Parent and Merger Sub as follows:
SECTION 3.1. CORPORATE EXISTENCE. The Company is duly
organized, validly existing and in good standing under the laws of
the State of Minnesota. The Company is duly qualified to do
business and is in good standing as a foreign corporation in each
jurisdiction, if any, where the conduct of the Business or the
ownership of assets by it requires it to be so qualified or, if
not so qualified, such failure to be so qualified will not have a
material adverse effect on the Business or the Company's financial
condition, results of operations or prospects taken as a whole.
The Company has delivered to Parent and Merger Sub true and
complete copies of the Company's Articles of Incorporation and By-
Laws as currently in effect. SCHEDULE 3.1 to this Agreement is a
complete and accurate list of each jurisdiction in which either,
(a) the Company owns or leases property, or (b) the Company is
qualified to do business, together with the date of such
qualification.
SECTION 3.2. MINUTE BOOKS. The minute books of the Company
contain accurate records of all actions taken by the shareholders,
Board of Directors and all committees of the Board of Directors of
the Company. Complete and accurate copies of all such minute
books have been made available to Parent and Merger Sub.
SECTION 3.3. CAPITALIZATION. As of the date hereof, the
authorized capital stock of the Company consists of: (i) 5,000,000
shares of Company Common Stock of which, as of August 31, 1998,
1,606,283 shares were issued and outstanding. As of August 31,
1998, 166,125 shares of Company Common Stock were reserved for
issuance upon exercise of outstanding options (the "Company Stock
Options") pursuant to the Company's Incentive Stock Option Plan
and its Directors' Stock Option Plan, (the "Company Stock Plans").
The Company has no outstanding warrants. All the outstanding
shares of the Company's capital stock are, and all shares which
may be issued pursuant to Company Stock Plans will be, when issued
in accordance with the terms thereof, duly authorized, validly
issued, fully paid and non-assessable and free of any preemptive
rights in respect thereto. As of the date hereof, no bonds,
debentures, notes or other indebtedness having the right to vote
(or convertible into securities having the right to vote) ("Voting
Debt") of the Company are issued or outstanding. Except as set
forth above or in SCHEDULE 3.3, as of the date hereof, there are
no existing options, warrants, calls, subscriptions or other
rights or other agreements, commitments, understandings or
restrictions of any character binding on the Company with respect
to the issued or unissued capital stock or Voting Debt of the
Company. Except as set forth above or in SCHEDULE 3.3, there are
no existing options, warrants, calls, subscriptions or other
rights or other agreements, commitments, understandings or
restrictions of any character obligating the Company to issue,
transfer or sell or cause to be issued, transferred or sold any
shares of capital stock or Voting Debt of, or other equity
interests in, the Company, or securities convertible into or
exchangeable for such shares, Voting Debt or equity interests, or
obligating the Company to grant, extend or enter into any such
option, warrant, call, subscription or other right, agreement,
commitment, understanding or restriction. Except as set forth in
SCHEDULE 3.3, there are no contractual obligations of the Company
to repurchase, redeem or otherwise acquire any shares of capital
stock of the Company. Since August 31, 1998, no shares of Company
Common Stock have been issued except issuance of shares reserved
for issuance and issued pursuant to the Company Stock Plans.
Except as set forth in SCHEDULE 3.3, there are no voting trusts,
proxies or other agreements or understandings to which the Company
is a party or is bound with respect to voting any shares of
capital stock of the Company.
SECTION 3.4. POWER AND AUTHORIZATION. The Company has full
power, authority and legal right to execute, deliver and perform
this Agreement and such of the Related Documents as are required
to be delivered by the Company in accordance with the provisions
hereof. The execution, delivery and performance of this Agreement
and the Related Documents by the Company have been duly authorized
by all necessary corporate action, subject to obtaining
shareholder approval pursuant to SECTION 6.3 and subject to
receipt of the fairness opinion referenced in SECTION 7.3(d).
SECTION 3.5. DUE EXECUTION; ENFORCEABILITY. This Agreement
and the Related Documents have been duly executed and delivered on
behalf of the Company and the Principals, and this Agreement and
the Related Documents constitute legal, valid and binding
obligations of the Company and the Principals, enforceable in
accordance with their respective terms against the Company and the
Principals, except as enforceability may be limited by applicable
insolvency, bankruptcy, reorganization, moratorium or other
similar laws affecting creditors' rights generally and by general
equitable principles.
SECTION 3.6. NON-VIOLATION. Except as set forth in SCHEDULE
3.6, the execution, delivery and performance of this Agreement and
the Related Documents by the Company and Principals does not and
will not violate, conflict with, result in the breach of, or
constitute a default or result in or permit any acceleration of
any obligation under: (a) any law, ordinance or governmental rule
or regulation to which the Company is subject; (b) any judgment,
order, writ, injunction, decree or award of any court, arbitrator
or governmental or regulatory official, body or authority which is
applicable to the Company; (c) the Articles of Incorporation or
By-Laws of the Company or any securities issued by it; or (d) any
mortgage, indenture, agreement, contract, commitment, lease, plan,
license, or other instrument, document or understanding, oral or
written, to which the Company is a party, by which the Company may
have rights or by which any of the assets of the Company may be
bound or affected; or give any party thereunder the right to
terminate, modify, accelerate or otherwise change the existing
rights or obligations of the Company thereunder.
SECTION 3.7. NO APPROVALS REQUIRED. Except for the filing of
the Articles of Merger and the Proxy Statement as provided herein,
no authorization, approval or consent of and no registration or
filing with any governmental or regulatory official, body or
authority (except as contemplated or required by this Agreement)
is required in connection with the execution, delivery or
performance of this Agreement or the Related Documents by the
Company or the Principals, and the execution, performance or
delivery of this Agreement and the Related Documents by the
Company or the Principals will not result in the creation of any
Lien upon any of the assets of the Company.
SECTION 3.8. NO PROCEEDINGS. There is no injunction, order
or decree of any court or administrative agency or any action or
proceeding pending or, to the knowledge of the Company or the
Principals, threatened by or against the Company to restrain or
prohibit the consummation of the transactions contemplated hereby.
SECTION 3.9. FINANCIAL STATEMENTS. The Company has delivered
to Parent and Merger Sub copies of its audited balance sheets as
of August 31, 1998, 1997 and 1996 and its unaudited balance sheet
(the "Balance Sheet") as of December 31, 1998 (the "Balance Sheet
Date"), and related statements of income for the fiscal years
ended August 31, 1998, 1997 and 1996 and the four months ended
December 31, 1998 (collectively, the "Financial Statements"). The
audited Financial Statements have been reported on by Lurie,
Besikof, Lapidus & Co., LLP and the unaudited Financial Statements
have been prepared by the management of the Company, in each case,
in accordance with GAAP throughout the periods involved (except as
otherwise indicated in the notes thereto), and are true and
correct in all material respects, and present fairly, in all
material respects, the financial condition of the Company as at
the dates of such balance sheets and its results of operations for
such respective periods then ended. Except as will be disclosed
or accrued on the Closing Date Balance Sheet, the Company does not
have any liabilities or obligations, either direct or indirect,
matured or unmatured or absolute, contingent or otherwise, except
(1) liabilities arising in the ordinary course of business under
any agreement, contract, commitment, lease or plan listed on
SCHEDULE 3.12 or not required to be disclosed because of the term
or amount involved, and (2) other liabilities or obligations not
required by GAAP to be reflected on the Closing Date Balance Sheet
if such other liabilities or obligations are otherwise disclosed
on the Schedules attached hereto or are not otherwise required to
be disclosed by this ARTICLE III.
SECTION 3.10. ABSENCE OF CHANGES. Since August 31, 1998,
except as described in SCHEDULE 3.10, there has not been: (a) any
Material Adverse Effect; (b) any material loss, damage,
condemnation or destruction to any of the Company's properties or
assets; (c) any sale, transfer or other disposition of any of the
Company's properties or assets (except for property sold or
disposed of in the ordinary course of business consistent with
past practice); (d) any change in the Company's number of
authorized shares of capital stock or Indebtedness not reflected
on the Closing Date Balance Sheet; or (e) any change in the titles
of, or in the salaries or bonuses for, employees, except for
changes in the ordinary course of business consistent with past
practice. The Company has operated the Business in the ordinary
course consistent with past practice from the Balance Sheet Date
to the date hereof and will continue to operate the Business in a
similar fashion through the Closing Date.
SECTION 3.11. PROPERTIES AND ASSETS. SCHEDULE 3.11 sets
forth: (a) a description, by deed reference or otherwise, of all
real property, if any, owned by, and all easement rights granted
to, the Company; (b) a complete and correct list of each lease of
real property, if any, to which the Company is a party, true
copies of which leases, any amendments thereto and any options
exercised thereunder, have previously been delivered to Parent and
Merger Sub; and (c) a description of all fixed assets, machinery,
equipment, furniture, fixtures and other tangible personal
property owned or leased by the Company with a book value as of
the Balance Sheet Date in excess of $500. The Company has good,
valid and marketable title to all of its properties and assets,
real, personal and mixed, which it purports to own, including,
without limitation, all properties and assets used or useful in
the Business or to be reflected on the Closing Date Balance Sheet,
free and clear of all Liens, and defects of title of any nature
whatsoever, except for: (i) Liens listed in SCHEDULE 3.11; (ii)
Liens for current real or personal property taxes not yet due and
payable; (iii) worker's, carrier's, mechanics, materialmen's and
other similar Liens; and (iv) defects of title and other
restrictions and encumbrances that are immaterial in character,
amount and extent and which do not materially detract from the
value or materially interfere with the present or proposed use of
the properties they affect.
SECTION 3.12. CONTRACTS.
(a) Schedule 3.12.
--------------
SCHEDULE 3.12 sets forth a complete and correct list of all
currently existing contracts, obligations, agreements, plans,
arrangements, commitments or the like (written or oral) of a
material nature to which the Company is a party ("Contracts"),
including, without limitation, the following:
(i) Employee Contacts; Etc.
-----------------------
Employment, bonus or consulting agreements, pension, profit-
sharing, deferred compensation, stock bonus, stock option, stock
purchase, phantom stock or similar plans, including agreements
evidencing rights to purchase securities of the Company and
agreements among the Company and its shareholders;
(ii) Inventory Contracts; Etc.
-------------------------
Agreements for the purchase of inventory, materials, supplies,
services, equipment or any capital item or items and involving a
consideration of more than $5,000 per contract or series of
related contracts;
(iii) Union Contracts; Etc.
---------------------
Agreements with any labor union or collective bargaining
organization or other labor agreements;
(iv) Supplier Contracts; Etc.
------------------------
Agreements with suppliers, customers, dealers, distributors, sales
representative and agents;
(v) Personal Property Leases.
-------------------------
Leases of personal property as lessee involving a consideration of
more than $500 per month per lease or series of related leases;
(vi) Non-Competition Contracts.
--------------------------
Agreements limiting the freedom of the Company to compete in any
line of business or in any geographic area or with any person or
entity;
(vii)Sale Contracts; Etc.
--------------------
Agreements providing for disposition of the business, assets or
stock of the Company, agreements of merger or consolidation or
letters of intent with respect to the foregoing;
(viii) Contracts with Affiliates.
--------------------------
Agreements to which the Company is a party and in which any of the
officers, directors or employees of the Company has any personal
interest, either direct or indirect;
(ix) Acquisition Contracts.
----------------------
Letters of intent or agreements with respect to the acquisition of
the business, assets or stock of any other business; and
(x) Other.
------
All other agreements that are material to the ownership or
operation of the Business.
(b) Defaults; Etc.
--------------
Except as otherwise set forth on SCHEDULE 3.12 or SCHEDULE 3.18,
(i) the Company has complied in all material respects with all
material provisions of all such Contracts, and there does not
exist any event of default by the Company under any thereof or any
event that, after the giving of notice or the lapse of time, or
both, would constitute such an event of default, (ii) the Company
is not aware of any existing event of default by any other party
to any such Contract, and (iii) all of such Contracts are freely
transferable in the Merger without the consent of any other party
thereto.
SECTION 3.13. INTELLECTUAL PROPERTY.
(a) Proprietary Rights.
-------------------
Except as set forth on SCHEDULE 3.13, the Company is the sole and
exclusive owner of all patents, patent rights, trademarks,
trademark rights, trade names, trade name rights, copyrights,
service marks, trade secrets, applications for trademarks and for
service marks, technology and know-how (including all trade
secrets, data bases, customer lists, confidential information,
discoveries, inventions and improvements), rights in computer
software that the Company purports to own (excluding commercially
available software licensed from third parties) and other
proprietary rights and information listed on SCHEDULE 3.13
(collectively, "Proprietary Rights") and constituting all
Proprietary Rights used in the Business as presently conducted,
free and clear of all Liens, claims, charges, security interests
and encumbrances, except as set forth in such Schedule.
(b) Assignment; Etc.
----------------
The Company has not, as of and since the date upon which it
acquired any of the Proprietary Rights, (i) transferred, conveyed,
sold, assigned, pledged, mortgaged or granted a security interest
in any of the Proprietary Rights to any third party, (ii) entered
into any license, franchise or other agreement with respect to any
of the Proprietary Rights with any third person, or (iii)
otherwise encumbered any of the Proprietary Rights. The Company
has taken all reasonable measures to maintain and enforce the
Proprietary Rights and to safeguard the secrecy of all Proprietary
Rights that are considered to be trade secrets.
(c) Infringement.
-------------
The conduct of the business of the Company as currently conducted
does not conflict or infringe in any way with any proprietary
right of any third party that, individually or in the aggregate,
is reasonably likely to have a Material Adverse Effect, and there
is no claim, suit, action or proceeding pending or to the
knowledge of the Company and the Principals threatened against the
Company (i) alleging that use of the Proprietary Rights by the
Company conflicts or infringes in any way with any third party's
proprietary rights, or (ii) challenging the Company's ownership of
or right to use or the validity of any Proprietary Right. To the
knowledge of the Company and the Principals, there are no
conflicts or infringements by any third party of any Proprietary
Rights.
(d) The Merger.
-----------
The ownership or possession of Proprietary Rights and the right to
secure such rights currently enjoyed by the Company will not be
affected in any material way by the transactions contemplated by
this Agreement.
SECTION 3.14. TAXES. The Company has filed all tax reports
and returns required to be filed by it including, without
limitation, any information reports that are required to be
provided to any payee or other third party, and such reports and
returns were true, correct and complete in all material respects.
Except as set forth in SCHEDULE 3.14 (a) the Company has paid all
taxes and other charges due or claimed to be due from it to any
federal, state, local or foreign taxing authority (including,
without limitation, those due in respect of properties, income,
franchises, licenses, sales or payrolls and any withholding
obligations, or other trust fund taxes and any interest, penalties
or additions to tax); (b) all reserves for taxes reflected in the
Balance Sheet are adequate; (c) there are no tax Liens upon any
property or assets of the Company, except Liens for current taxes
not yet due; (d) the Company has made all required declarations of
estimated federal, state or local income taxes and has paid all
taxes as shown on such declarations; (e) there are no facts which
exist or have existed which would constitute grounds for the
assessment of any tax liability and neither the Internal Revenue
Service nor any other taxing authority is now asserting against
the Company any deficiency or claim for additional taxes or
interest thereon or penalties in connection therewith; and (f)
there are no outstanding agreements or waivers extending the
statutory period of limitation applicable to any tax return for
any period. Copies of all Federal income tax returns of the
Company in respect of all years not barred by the statute of
limitations have heretofore been delivered to Parent and Merger
Sub. All taxes and other assessments and levies required to be
withheld by the Company from customers with respect to the sale of
goods, or from or on behalf of employees for income, social
security and unemployment insurance taxes have been collected or
withheld and either paid to the appropriate governmental agency or
set aside and held in accounts for such purpose.
SECTION 3.15. LITIGATION. Except as described on SCHEDULE
3.15, no suit, action or other litigation, including any
arbitration, investigation or other proceeding of or before any
court, arbitrator or federal, state or other governmental or
regulatory official, body or authority, is pending or, to the
knowledge of the Company and the Principals, threatened against
the Company or which relates to the Business or the assets of the
Company, nor does the Company know of any reasonably likely basis
for any such litigation, arbitration, investigation or proceeding,
the result of which could materially and adversely affect the
Company, its assets, financial condition, results of operations or
prospects, the Business, or the transactions contemplated hereby.
The Company is not a party to or subject to the provisions of any
judgment, order, writ, injunction, decree or award of any court,
arbitrator or governmental or regulatory official, body or
authority which may materially and adversely affect the Company,
its financial condition, results of operations or prospects, the
Business, or the transactions contemplated hereby.
SECTION 3.16. COMPLIANCE WITH LAWS; GOVERNMENTAL
AUTHORIZATIONS. The Company is in compliance with all federal,
state, and local laws, ordinances, rules, regulations, permits,
judgments, orders and decrees applicable to it, the Business or
any of its properties, assets, or operations, except to the extent
that noncompliance therewith, either singly or in the aggregate,
would not have a Material Adverse Effect. SCHEDULE 3.16 contains a
complete listing of all governmental licenses, franchises,
permits, approvals and other governmental authorizations necessary
to permit the Company to operate the Business and to own its
properties and assets, all of which are in full force and effect
and will remain in full force and effect after the consummation of
the transactions contemplated by this Agreement.
SECTION 3.17. ENVIRONMENTAL MATTERS. Except as described on
SCHEDULE 3.17 (a) the Company has complied, and to the knowledge
of the Company and the Principals, others have complied, with all
Environmental Laws applicable to all of its facilities and
properties currently or formerly owned or operated by the Company;
(b) none of the properties or facilities currently or formerly
owned or operated by the Company has been used by the Company, or
to the knowledge of the Company and the Principals, by others for
the generation, storage, manufacture, use, transportation,
disposal or treatment of Hazardous Substances other than in
compliance with all applicable Environmental Laws; (c) there has
been no Hazardous Discharge made by the Company, or to the
knowledge of the Company and the Principals, by others on or from
any of the properties or facilities currently or formerly owned or
operated by the Company, except in compliance with all applicable
Environmental Laws; and (d) there are no outstanding and, to the
knowledge of the Company and the Principals, threatened
Environmental Actions against the Company or, to the knowledge of
the Company and the Principals, (i) against the owners of any
facilities operated by the Company or (ii) against any of the
owners or operators of any facilities that may have received solid
wastes or Hazardous Substances from the Company.
SECTION 3.18. EMPLOYMENT AGREEMENTS AND EMPLOYEE BENEFIT
PLANS.
(a) Compensation and Benefit Plans.
-------------------------------
Except as set forth in SCHEDULE 3.12 or SCHEDULE 3.18, the Company
does not have and has not had at any time, any bonus, deferred
compensation, pension, retirement, profit-sharing, thrift,
savings, employee stock ownership, stock bonus, stock purchase,
restricted stock or stock option plans, employment or severance
contracts, other material employee benefit plans and any
applicable "change of control" or similar provisions in any plan,
contract or arrangement which cover employees or former employees
("Company Employees") of the Company or any entity (an "ERISA
Affiliate") which is considered one employer with the Company
under Section 4001(b)(1) of the Employee Retirement Income
Security Act of 1974, as amended ("ERISA"), or Section 414(b) or
(c) of the Internal Revenue Code of 1986, as amended (the "Code")
or any other benefit plans, contracts or arrangements (regardless
of whether they are funded or unfunded or foreign or domestic)
covering Company Employees, including, but not limited to,
"employee benefit plans" within the meaning of Section 3(3) of
ERISA (collectively, the "Compensation and Benefit Plans"). The
Company has made available to Parent and Merger Sub true and
complete copies of all Compensation and Benefit Plans, including
any trust instruments and/or insurance contracts, if any, forming
a part of any such plans, and all amendments thereto; where
applicable, current summary plan descriptions; where applicable,
the most current determination letter received from the Internal
Revenue Service (the "Service") and most recent determination
letter application, and where applicable, annual reports,
financial statements and actuarial reports for the last three plan
years ending before December 31, 1998, which fairly and accurately
reflect the financial condition of such plans.
(b) ERISA.
------
All of the Compensation and Benefit Plans, to the extent subject
to ERISA, are in material compliance with ERISA. Each Compensation
and Benefit Plan which is an "employee pension benefit plan"
within the meaning of Section 3(2) of ERISA ("Pension Plan") and
which is intended to be qualified under Section 401(a) of the
Code, has received a favorable determination letter from the
Service, and the Company is not aware of any circumstances likely
to result in revocation of any such favorable determination
letter. Neither the Company nor any ERISA Affiliate has engaged
in a transaction with respect to any Compensation and Benefit Plan
that, assuming the taxable period of such transaction expired as
of the date hereof, could subject the Company or any ERISA
Affiliate to a tax or penalty imposed by either Section 4975 of
the Code or Section 502(i) of ERISA in an amount which would have
a Material Adverse Effect. Neither the Company nor any ERISA
Affiliate has contributed or been required to contribute to any
Multi-employer Pension Plan subject to Subtitle E of Title IV of
ERISA.
(c) Certain ERISA Liabilities.
--------------------------
No liability under Subtitles C or D of Title IV of ERISA has been
or is expected to be incurred by the Company or any ERISA
Affiliate with respect to any ongoing, frozen or terminated
Compensation and Benefit Plan, currently or formerly maintained by
any of them.
(d) Contributions.
--------------
All contributions required to be made or accrued as of December
31, 1998 under the terms of any Compensation and Benefit Plan for
which the Company may have liability have been timely made or have
been reflected on the Balance Sheet. No Pension Plan has incurred
an "accumulated funding deficiency" (whether or not waived) within
the meaning of Section 412 of the Code or Section 302 of ERISA.
Neither the Company nor any ERISA Affiliate has provided, or is
required to provide, security to any Pension Plan pursuant to
Section 401(a)(29) of the Code.
(e) Retiree Benefits.
-----------------
Except as set forth in SCHEDULE 3.12 or SCHEDULE 3.18, the Company
does not have any obligations for retiree benefits under any
Compensation and Benefit Plans.
(f) The Merger.
-----------
Except as expressly provided in this Agreement or as set forth on
SCHEDULE 3.12 or SCHEDULE 3.18, the consummation of the
transactions contemplated by this Agreement will not: (i) entitle
any current or former employee or officer of the Company or any
ERISA Affiliate to severance pay, unemployment compensation or any
other payment, except as expressly provided in this Agreement, or
(ii) accelerate the time of payment or vesting, or increase the
amount of compensation due any such employee or officer.
(g) Unfunded Liabilities.
---------------------
The Company has no unfunded liabilities with respect to any
Pension Plan which covers former Employees in an amount which
would have a Material Adverse Effect.
(h) Termination.
------------
Immediately after the Effective Time, the Surviving Corporation
could terminate each Compensation and Benefit Plan in accordance
with its terms and applicable law without incurring any material
liability.
(i) Additional Payments.
--------------------
Except as expressly provided in this Agreement or as set forth on
SCHEDULE 3.12 or SCHEDULE 3.18, with respect to the Company and
the Business, the transactions contemplated by this Agreement will
not cause any additional payments to be due under any Compensation
and Benefit Plan, nor accelerate the payment or vesting of any
amounts due under any Compensation and Benefit Plan, nor result in
any excess parachute payment within the meaning of Code Section
280G except for payments which are paid prior to the Effective
Time, accrued on the Closing Date Balance Sheet or for which funds
have been reserved.
(j) Claims.
-------
There are no pending, or to the Company's knowledge, threatened or
anticipated claims by or on behalf of any Compensation and
Benefit Plan, by any employee or beneficiary covered under any
such Compensation and Benefit Plan, or otherwise involving any
such Compensation and Benefit Plan (other than routine claims for
benefits).
SECTION 3.19. EMPLOYEES. SCHEDULE 3.19 sets forth a complete
and correct list, as of the date hereof, of the names and current
annual salary rates of any officer or employee of the Company
whose current regular annual compensation is $40,000 or more,
together with a list of all bonuses paid to any such persons for
the Company's last two calendar years, and, to the extent existing
on the date hereof, all arrangements with respect to any bonuses
or deferred compensation to be paid to them from and after the
date hereof.
SECTION 3.20. INSURANCE. All policies or binders of fire,
liability, product liability, workers' compensation, vehicular and
other insurance held by or on behalf of the Company are set forth
on SCHEDULE 3.20. Each such policy or binder is valid and
enforceable against the Company in accordance with its terms, and
is in full force and effect. No notice has been received from any
insurer with respect to the cancellation of, or intent to cancel,
or the non-renewal of, any of such policies. Except as set forth
on SCHEDULE 3.20, to the Company's and the Principals' knowledge,
no event has occurred which could result in a cancellation of any
of the insurance policies set forth on such Schedule or a refusal
by the insurer to pay under such policies, nor has the Company
failed to make any claim under any such policies in a due and
timely fashion.
SECTION 3.21. ACCOUNTS, LOCKBOXES, SAFE DEPOSIT BOXES AND
POWERS OF ATTORNEY. SCHEDULE 3.21 sets forth: (i) the names of
each bank, savings and loan association, securities or commodities
broker, clearing corporation, or other financial institution in
which the Company has an account, including cash contribution
accounts, customer accounts, securities accounts, and the names of
all persons authorized to draw thereon or have access thereto,
(ii) the location of all lockboxes and safe deposit boxes of the
Company and the names of all persons authorized to draw thereon or
have access thereto and (iii) the names of all persons, if any,
holding powers of attorney relating to the Company or the
Business, copies of which have been provided to Parent and Merger
Sub. At the time of the Closing, all monies, securities,
securities entitlements, financial assets and accounts of the
Company (if any) related to, necessary to or advisable for the
conduct of the Business shall be held by, and be accessible only
to, the Company.
SECTION 3.22. TRANSACTIONS WITH AFFILIATES. As of the date
hereof, except as disclosed in SCHEDULE 3.22, there are no
outstanding notes payable to or accounts receivable from, or
advances by the Company to, and the Company is not otherwise a
creditor of, any shareholder, officer, director, employee, or
affiliate of the Company, other than any such transactions which
do not exceed $1,000 individually or $10,000 in the aggregate, and
the Company is not a party to any contract with any shareholder,
officer, director, or employee of the Company.
SECTION 3.23. SEC REPORTS AND FINANCIAL STATEMENTS. The
Company has timely made all required filings with the Securities
and Exchange Commission (the "SEC") under the Securities Act of
1933, as amended (the "Securities Act"), the Securities Exchange
Act of 1934, as amended (the "Exchange Act"), the Investment
Company Act of 1940, as amended (the "Investment Company Act") and
the Investment Adviser's Act of 1940, as amended (the "Adviser's
Act"), the National Association of Securities Dealers ("NASD"),
NASDAQ, and state securities authorities, and has made available
to Parent true and complete copies of, all forms, reports and
documents required to be filed by the Company since the Company's
inception under the Securities Act, the Exchange Act, the
Investment Company Act, the Adviser's Act, or rules or regulations
of the NASD, NASDAQ, or state securities authority (collectively,
the "Company SEC Documents"). The Company SEC Documents,
including, without limitation, any financial statements or
schedules included therein, (a) did not contain any untrue
statement of a material fact or omit to state a material fact
required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances under which they
were made, not misleading, and (b) complied in all material
respects with the applicable requirements of the Securities Act,
the Exchange Act, Investment Company Act, Adviser's Act, or rules
or regulations of the NASD, NASDAQ or state securities authority,
as the case may be. The financial statements of the Company
included in the Company SEC Documents (including the notes and
schedules thereto, the "Company Financial Statements") comply as
to form in all material respects with applicable accounting
requirements and with the published rules and regulations of the
SEC with respect thereto.
SECTION 3.24. INFORMATION IN DISCLOSURE DOCUMENTS. None of
the information supplied or to be supplied by the Company, the
Principals or their representatives for inclusion or incorporation
by reference in the Proxy Statement relating to the meeting of the
Company's shareholders to be held in connection with the Merger
(the "Proxy Statement") will, at the date mailed to the Company's
shareholders and at the time of the meeting of shareholders to be
held in connection with the Merger, contain any untrue statement
of a material fact or omit to state any material fact required to
be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they were made,
not misleading. The Proxy Statement will comply as to form in all
material respects with the provisions of the Exchange Act and the
rules and regulations thereunder, except that no representation is
made by the Company with respect to statements made therein based
on information supplied by Parent for inclusion in the Proxy
Statement.
SECTION 3.25. DISCLOSURE. Neither this Agreement (including
the Schedules hereto) nor any Related Document, insofar as they
relate to the Company or the Principals, contains or will contain
any untrue statement of a material fact or omits or will omit a
material fact required to make the statements herein or therein
not misleading in light of the circumstances under which those
statements were or will be made. There is no fact known to the
Company or the Principals which has not been disclosed to Parent
and Merger Sub pursuant to this Agreement, the Schedules hereto or
the Company SEC Documents that could reasonably be expected to
cause a Materially Adverse Effect.
SECTION 3.26. CERTAIN BUSINESS PRACTICES AND REGULATIONS
Neither the Company nor Principals, with respect to the Business
or any other person has made or received, and no officer,
director, employee, agent or other representative of the Company
or Principals, with respect to the Businesses or any other person
has made or received, directly or indirectly, in cash or in kind,
any illegal bribes, kickbacks, political contributions with
corporate funds, payments to or from corporate funds not recorded
in records of the Company payments to or from corporate funds that
were falsely recorded on such books and records, illegal payments
to or from corporate funds to governmental officials in their
individual capacities, illegal payments from corporate funds to
obtain or retain business, or any payments constituting fraud or
abuse of any laws.
SECTION 3.27. SCHEDULES. As of the date hereof, the Company has
not completed its internal investigation and review for purposes
of confirming and verifying the representations and warranties of
the Company contained in this Agreement. The Company shall
provide to Parent the Schedules contemplated by this Agreement as
soon as reasonably practicable, but in any event within five (5)
business days prior to the Closing Date as required by SECTION
7.2(f). In the event that Parent determines that such Schedules
contains information which in Parent's good faith, reasonable
business judgment adversely affects the value of the Company's
business or prospects, then Parent shall have the right, within
five (5) days of the receipt of the full and complete Schedules,
to terminate this Agreement as set forth in SECTION 8.1(c)(vii).
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUB
Parent and Merger Sub represent and warrant to the Company
and the Principals as follows:
SECTION 4.1. CORPORATE EXISTENCE. Parent and Merger Sub are
corporations duly organized, validly existing and in good standing
under the laws of their respective jurisdictions of incorporation.
Merger Sub is duly qualified to do business and is in good
standing as a foreign corporation in each jurisdiction, if any,
where the conduct of business or the ownership of assets by Merger
Sub requires it to be so qualified or, if not so qualified, such
failure to be so qualified will not have a material adverse effect
on Merger Sub. Merger Sub has delivered to the Company true and
complete copies of Merger Sub's governing documents as currently
in effect.
SECTION 4.2. POWER AND AUTHORIZATION. Parent and Merger Sub
each has full power, authority and legal right to execute, deliver
and perform this Agreement and such of the Related Documents as
are required to be delivered by Parent and Merger Sub in
accordance with the provisions hereof. The execution, delivery and
performance of this Agreement and the Related Documents by Parent
and Merger Sub have been duly authorized by all necessary
corporate and other action.
SECTION 4.3. DUE EXECUTION; ENFORCEABILITY. This Agreement
and the Related Documents have been duly executed and delivered on
behalf of Parent and Merger Sub, and this Agreement and the
Related Documents constitute legal, valid and binding obligations
of Parent and Merger Sub, enforceable in accordance with their
respective terms, except as enforceability may be limited by
applicable insolvency, bankruptcy, reorganization, moratorium or
other similar laws affecting creditors' rights generally and by
general equitable principles.
SECTION 4.4. NON-VIOLATION. The execution, delivery and
performance of this Agreement and the Related Documents by Parent
and Merger Sub does not and will not violate, conflict with,
result in the breach of, or constitute a default or result in or
permit any acceleration of any obligation under: (a) any law,
ordinance or governmental rule or regulation to which Parent or
Merger Sub is subject; (b) any judgment, order, writ, injunction,
decree or award of any court, arbitrator or governmental or
regulatory official, body or authority which is applicable to
Parent or Merger Sub; (c) the Certificate of Incorporation or By-
Laws of Parent or Merger Sub or any securities issued by Parent or
Merger Sub; or (d) any mortgage, indenture, agreement, contract,
commitment, lease, plan, license, or other instrument, document or
understanding, oral or written, to which Parent or Merger Sub is a
party, by which Parent or Merger Sub may have rights or by which
any of the assets of Parent or Merger Sub may be bound or
affected; or give any party thereunder the right to terminate,
modify, accelerate or otherwise change the existing rights or
obligations of Parent or Merger Sub thereunder.
SECTION 4.5. NO APPROVALS REQUIRED. Except for the filing of
the Articles of Merger and the Proxy Statement as provided herein,
no authorization, approval or consent of and no registration or
filing with any governmental or regulatory official, body or
authority is required in connection with the execution, delivery
or performance of this Agreement or the Related Documents by
Parent or Merger Sub, and, except for Liens which may be created
in connection with any financing obtained by Parent or Merger Sub,
the execution, performance or delivery of this Agreement and the
Related Documents by Parent and Merger Sub will not result in the
creation of any Lien upon any of the assets of Parent or Merger
Sub.
SECTION 4.6. NO PROCEEDINGS. There is no injunction, order
or decree of any court or administrative agency or any action or
proceeding pending or, to the knowledge of Parent, threatened by
or against Parent or Merger Sub to restrain or prohibit the
consummation of the transactions contemplated hereby.
SECTION 4.7. INFORMATION IN DISCLOSURE DOCUMENTS AND
REGISTRATION STATEMENTS. None of the information supplied or to
be supplied by Parent or its representatives for inclusion or
incorporation by reference in the Proxy Statement will, at the
date mailed to the Company's shareholders and at the time of the
meeting of the Company's shareholders to be held in connection
with the Merger, contain any untrue statement of a material fact
or omit any material fact required to be stated therein or
necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading.
SECTION 4.8. INTERIM OPERATIONS OF MERGER SUB. Merger Sub
was formed solely for the purpose of engaging in the transactions
contemplated hereby, has engaged in no other business activities
and has conducted its operations only as contemplated hereby.
Merger Sub may enter into employment agreements with James Burkett
and Rick Carlson prior to the Closing.
ARTICLE V
COVENANTS
SECTION 5.1. CONDUCT OF BUSINESS OF THE COMPANY. During the
period from the date of this Agreement and continuing until the
Effective Time, except as contemplated or permitted by this
Agreement or SCHEDULE 5.1, or to the extent that Parent shall
otherwise consent in writing:
(a) Ordinary Course.
----------------
The Company shall (i) carry on the Business in the usual, regular
and ordinary course consistent with past practice, (ii) maintain
selling prices and discounts of products and services at levels
equal to the average pricing and discount levels for each product
and service during the three month period prior to the date of
this Agreement and (iii) use all reasonable efforts to preserve
intact the present business organization of the Company, keep
available the services of the present officers and employees of
the Company and preserve the relationships with customers,
suppliers and others having business dealings with the Company.
(b) Dividends; Etc.
---------------
The Company shall not, nor shall the Company propose to (i)
declare or pay any dividends on or make other distributions
(whether in cash, securities or property or any combination
thereof) in respect of any of its capital stock, (ii) adjust,
split, combine or reclassify any of its capital stock or issue or
authorize or propose the issuance of any other securities in
respect of, in lieu of or in substitution for shares of its
capital stock (except for issuance of shares of capital stock upon
exercise or conversion of any rights to acquire shares of capital
stock outstanding on the date hereof) or (iii) repurchase, redeem
or otherwise acquire to repurchase, redeem or otherwise acquire,
any shares of capital stock of the Company.
(c) Issuances.
----------
Except as expressly contemplated by this Agreement and except for
issuance of shares of capital stock upon exercise or conversion of
any rights to acquire shares of capital stock outstanding on the
date hereof, the Company shall not issue, transfer, pledge or
sell, or authorize or propose or agree to the issuance, transfer,
pledge or sale of, any shares of its capital stock of any class,
any Voting Debt or other equity interests or any securities
convertible into, or any rights, warrants, calls, subscriptions,
options or other rights or agreements, commitments or
understandings to acquire, any such shares, Voting Debt, equity
interests or convertible securities.
(d) Articles and Bylaws.
--------------------
The Company shall not amend or propose to amend its Articles of
Incorporation or By-Laws.
(e) Acquisitions.
-------------
The Company shall not acquire or agree to acquire by merging or
consolidating with, or by purchasing a substantial equity interest
in or substantial portion of the assets of, or by any other
manner, any business or any corporation, partnership, association
or other business organization or division thereof or otherwise
acquire or agree to acquire any assets outside the ordinary and
usual course of business consistent with past practice or
otherwise enter into any material commitment or transaction
outside the ordinary and usual course of business consistent with
past practice, provided, however, that the foregoing shall not
apply to sales of receivables or other assets contemplated by
SECTION 6.12.
(f) Dispositions.
-------------
The Company shall not sell, lease, license, encumber or otherwise
dispose of, or agree to sell, lease, license, encumber or
otherwise dispose of, any of its assets outside the ordinary and
usual course of business consistent with past practice, provided,
however, that the foregoing shall not apply to sales of
receivables or other assets contemplated by SECTION 6.12.
(g) Indebtedness; Etc.
------------------
The Company shall not (i) incur, assume, pre-pay, guarantee,
endorse or otherwise become liable or responsible (whether
directly, contingently or otherwise) for any Indebtedness except
in the ordinary and usual course of business consistent with past
practice, (ii) issue or sell any debt securities or warrants or
rights to acquire any debt securities of the Company or guarantee
any obligations of others or (iii) make any loans, advances or
capital contributions to, or investments in, any other person
except in the ordinary and usual course of business consistent
with past practice (except as otherwise contemplated by Section
5.1(k)).
(h) Compensation; Etc.
------------------
The Company shall not (i) enter into, adopt, amend (except as may
be required by law and except for immaterial amendments) or
terminate any Compensation and Benefit Plan or other employee
benefit plan or any agreement, arrangement, plan or policy between
the Company and one or more of its directors, officers or
employees or (ii) except in the ordinary course of business
consistent with past practice, increase in any manner, the
compensation or fringe benefits of any director, officer or
employee or increase any benefit to any director, officer or
employee not required by any plan or arrangement as in effect as
of the date hereof or enter into any contract, agreement,
commitment or arrangement to do any of the foregoing or engage in
any transaction with any shareholder, officer or director,
provided that the foregoing shall not restrict the payment of any
obligations owed to such persons otherwise accrued on the
Company's financial statements, and provided further, that the
foregoing shall not restrict the Company from paying $100,000 that
it intends to pay to Jack Pagel for additional consulting services
rendered to the Company prior to the date hereof.
(i) Filings.
--------
The Company shall promptly provide Parent copies of all filings
made by the Company with any federal, state or foreign
governmental entity in connection with this Agreement, and the
Related Documents and the transactions contemplated hereby and
thereby.
(j) Accounting.
-----------
The Company will not change any of its accounting principles,
policies or procedures, except as may be required by GAAP.
(k) Investments.
------------
The Company shall liquidate, and convert to cash or cash-
equivalents, all investments in an orderly fashion on or before
that date which is not less than five (5) trading days prior to
the Effective Time.
(l) Other.
------
Notwithstanding the fact that such action might otherwise be
permitted pursuant to this SECTION 5.1, the Company shall not take
any action that would or is reasonably likely to result in any of
the conditions to the Merger set forth in ARTICLE VII not being
satisfied or that would materially impair the ability of the
Company to consummate the Merger in accordance with the terms
hereof or materially delay such consummation.
SECTION 5.2. COVENANTS OF PARENT.
(a) Certain Actions.
----------------
During the period from the date of this Agreement and continuing
until the Effective Time, Parent agrees as to itself and Merger
Sub that Parent shall not take any action that would or is
reasonably likely to result in any of the conditions to the Merger
set forth in ARTICLE VII not being satisfied or that would
materially impair the ability of Parent or Merger Sub to
consummate the Merger in accordance with the terms hereof or
materially delay such consummation.
(b) Parent Filings.
---------------
Parent shall promptly provide the Company (or its counsel) copies
of all filings made by Parent with any federal, state or foreign
Governmental Entity in connection with this Agreement and the
Related Documents and the transactions contemplated hereby and
thereby.
ARTICLE VI
ADDITIONAL AGREEMENTS
SECTION 6.1. REASONABLE EFFORTS. Subject to the terms and
conditions of this Agreement, each of the parties hereto agrees to
use commercially reasonable efforts to take, or cause to be taken,
all actions, and to do or cause to be done, all things necessary,
proper or advisable under applicable laws and regulations to
consummate and make effective the transactions contemplated by
this Agreement and the Related Documents including, without
limitation, (i) the prompt preparation and filing with the SEC of
the Proxy Statement, (ii) such actions as may be required to have
the Proxy Statement cleared by the SEC as promptly as practicable,
including by consulting with each other as to, and responding
promptly to, any SEC comments with respect thereto and (iii) the
mailing of the Proxy Statement to shareholders of the Company.
Each party shall promptly consult with the other and provide any
necessary information and material with respect to all filings
made by such party with any Governmental Entity in connection with
this Agreement and the Related Documents and the transactions
contemplated hereby and thereby.
SECTION 6.2. ACCESS TO INFORMATION. Upon reasonable notice,
the Company shall afford to the officers, employees, accountants,
counsel and other representatives of Parent, access, during normal
business hours during the period prior to the Effective Time, to
all of its properties, books, contracts, commitments and records
and all other information concerning the business, properties and
personnel of the Company as Parent may reasonably request, and,
during such period, each of the Company and Parent shall furnish
promptly to the other a copy of each report, schedule,
registration statement and other document filed by it during such
period pursuant to the requirements of federal securities laws.
Unless otherwise required by law, the parties will hold any such
information which is non-public in confidence in accordance with
the confidentiality agreement, dated September 15, 1998 between
the Company and Parent (the "Confidentiality Agreement").
SECTION 6.3. SHAREHOLDERS MEETING. The Company shall call a
meeting of its shareholders to be held as promptly as practicable
after the Proxy Statement is cleared by the SEC for the purpose of
voting upon the approval and adoption of this Agreement. The
Company will, through its Board of Directors, recommend to its
shareholders approval and adoption of this Agreement and shall use
commercially reasonable efforts to hold such meeting as soon as
practicable; PROVIDED that the Company may withdraw its
recommendation (and such shareholder meeting need not be held) if
the Board of Directors of the Company, after consultation with and
based upon the advice of Fredrikson & Byron, P.A. or other
independent legal counsel, determines in good faith that such
withdrawal or modification is necessary for the Company's Board of
Directors to comply with its fiduciary duties to shareholders
under applicable law. The Principals shall vote all shares of
Company Common Stock beneficially owned by them as of the record
date for any such meeting in accordance with the terms of the
letters attached hereto as Schedule 6.3.
SECTION 6.4. LEGAL CONDITIONS TO THE MERGER; LEGAL
COMPLIANCE. Each of the Company, Parent and Merger Sub will use
commercially reasonable efforts to comply promptly with all legal
requirements which may be imposed with respect to the Merger
(which actions shall include, without limitation, furnishing all
information in connection with approvals or filings with any
Governmental Entity required to be obtained or made by Parent,
Merger Sub or the Company) and will promptly cooperate with and
furnish information to each other in connection with any such
requirements imposed upon any of them in connection with the
Merger. Subject to the terms and conditions hereof, each of the
Company and Parent will promptly use commercially reasonable
efforts to obtain (and will cooperate with each other in
obtaining) any consent, authorization, order or approval of, or
any exemption by, any Governmental Entity or other public or
private third party, required to be obtained or made by such party
in connection with the Merger or the taking of any action
contemplated thereby or by this Agreement. The Company shall use
commercially reasonable efforts to take such actions as are
necessary to assure compliance by the Company with all applicable
legal requirements relating to licenses, employment and benefits
matters and other governmental regulations.
SECTION 6.5. NO SOLICITATION.
(a) No Solicitation.
----------------
Until the earlier of the Effective Time or the termination of this
Agreement pursuant to ARTICLE VIII, the Company and the Principals
will not directly or indirectly, through any officer, director,
agent, affiliate, shareholder or otherwise, initiate, solicit,
encourage, negotiate or discuss with any third party (including by
way of knowingly furnishing non-public information concerning the
Company, the Business or its assets or properties in connection
therewith), or take any other action to knowingly facilitate any
inquiries with respect to or the making of, any proposal or offer
that constitutes or may reasonably be expected to lead to an
Alternative Transaction (as defined below). As used herein, an
"Alternative Transaction" shall mean a merger, consolidation,
business combination, sale of a significant amount of assets
outside of the ordinary course of business, sale of shares of
capital stock outside of the ordinary course of business, sale or
other disposition of the Business, tender or exchange offer, or
similar transaction involving the Company. The Company will
promptly communicate to Parent the terms of any proposal or
inquiry that it has received or may receive in respect of any such
transaction or of any such information requested from it or of any
such negotiations or discussions being sought to be initiated with
the Company and may inform any third party who contacts the
Company on an unsolicited basis concerning an Alternative
Transaction that the Company is obligated hereunder to disclose
such to Parent.
(b) Limited Exceptions.
-------------------
Notwithstanding the foregoing, this SECTION shall not prohibit the
Board of Directors of the Company from (i) furnishing information
to or entering into discussions or negotiations with, any person
or entity that makes an unsolicited bona fide Alternative
Transaction, if, and only to the extent that, (A) the Board of
Directors of the Company determines in good faith, after receipt
of advice to such effect from Fredrikson & Byron, P.A. or other
independent legal counsel, that such action is so required for the
Board of Directors to comply with its fiduciary duties to
shareholders imposed by law, (B) prior to furnishing information
to, or entering into discussions and negotiations with, such
person or entity, the Company promptly provides written notice to
Parent to the effect that it is furnishing information to, or
entering into discussions or negotiations with, such person or
entity, and (C) the Company keeps Parent informed of the status
and all material terms and events with respect to any such
Alternative Transaction; and (ii) to the extent applicable,
complying with Rules 14d-9 and 14e-2 promulgated under the 1934
Act, as amended, with regard to an Alternative Transaction.
Nothing in this SECTION shall (x) permit the Company to terminate
this Agreement (except as specifically provided in ARTICLE VIII
hereof), (y) permit the Company to enter into any agreement with
respect to an Alternative Transaction for as long as this
Agreement remains in effect (it being agreed that for as long as
this Agreement remains in effect, the Company shall not enter into
any agreement with any person that provides for, or in any way
facilitates, an Alternative Transaction), or (z) affect any other
obligation of the Company under this Agreement while this
Agreement remains in effect.
SECTION 6.6. FEES AND EXPENSES.
(a) Incurring Party.
----------------
Except as set forth in SECTION 6.6(b) or SECTION 6.6(c), whether
or not the Merger is consummated, all costs and expenses incurred
in connection with this Agreement and the transactions
contemplated hereby shall be paid by the party incurring such
expenses.
(b) Payment by Parent.
------------------
If Parent exercises its right not to consummate the transaction
because of the occurrence of a Material Adverse Effect as defined
in this Agreement as to the Company, Parent shall pay the
Company's legal expenses incurred after December 10, 1998 relating
to the negotiation and consummation of this Agreement and the
transactions contemplated hereby in an amount up to $50,000;
provided that any request by the Company for such payment shall be
made in writing and accompanied by applicable invoices of legal
counsel to the Company showing sufficient detail of work performed
and expenses incurred in connection therewith.
(c) Payment by the Company.
-----------------------
So long as Parent shall not have materially breached its
obligations under this Agreement, the Company will pay Parent, in
immediately available funds, $400,000, if this Agreement is
terminated by the Company pursuant to SECTION 8.1(d)(iii) or if
the Company shall enter into any agreement, arrangement or
understanding providing for an Alternative Transaction.
SECTION 6.7. NOTIFICATION OF CERTAIN MATTERS. The Company
shall give prompt notice to Parent, and Parent shall give prompt
notice to the Company, of (a) the occurrence or non-occurrence of
any event, the occurrence or non-occurrence of which would be
likely to cause (i) any representation or warranty contained in
this Agreement to be untrue or inaccurate or (ii) any covenant,
condition or agreement contained in this Agreement not to be
complied with or satisfied, (b) any failure of the Company or
Parent, as the case may be, to comply with or satisfy any
covenant, condition or agreement to be complied with or satisfied
by it hereunder or (c) the occurrence of any Material Adverse
Effect with respect to the Company or the Business; PROVIDED,
HOWEVER, that the delivery of any notice pursuant to this SECTION
6.7 shall not limit or otherwise affect the remedies available
hereunder to the party receiving such notice.
SECTION 6.8. INDEBTEDNESS. The Company agrees that
immediately prior to the Effective Time, there will not be
outstanding any Indebtedness in respect of which the Company is
obligated, other than the Indebtedness listed in SCHEDULE 6.8 up
to the amounts set forth in such Schedule, or Indebtedness
reflected on the Closing Date Balance Sheet.
SECTION 6.9. INDEMNIFICATION.
(a) Indemnification Obligations.
----------------------------
Subject to the provisions of SECTIONS 6.10 and 6.11, from and
after the Effective Time, Parent and the Surviving Corporation,
and their respective officers, directors, employees, agents,
consultants, successors and assigns shall be indemnified and held
harmless by the Principals, jointly and severally, for any and all
liabilities, losses, damages, claims, costs and expenses,
interest, awards, judgments, damages, (including punitive damages
awarded to third party claimants) fines, fees and penalties,
including without limitation, fees and expenses of attorneys,
experts and consultants (collectively, "Losses") actually suffered
or incurred by them:
(i) Breaches of Representations and Warranties.
-------------------------------------------
Arising out of or resulting from the material breach of any
representation or warranty made by the Company or the Principals
in this Agreement or Related Documents (provided that each
Principal severally, and not jointly, provides such
indemnification hereunder with respect to such breaches made by a
Principal in a Related Document); and
(ii) Other Breaches.
---------------
Arising out of or resulting from the breach of any covenant or
agreement by the Company contained in this Agreement or Related
Documents.
(b) Indemnification Procedures.
---------------------------
Promptly after the receipt by a party which is entitled to
indemnification hereunder (the "Indemnified Party") of a notice of
any claim, action, suit or proceeding of any third party which is
subject to indemnification hereunder, such Indemnified Party shall
give written notice of such claim to the party obligated to
provide indemnification hereunder (the "Indemnifying Party"),
stating the nature and basis of such claim and the amount thereof,
to the extent known. Subject to SECTIONS 6.10 and 6.11, failure
of the Indemnified Party to give such notice shall not relieve the
Indemnifying Party from any liability which he may have on account
of this indemnification or otherwise, except to the extent that
the Indemnifying Party is materially prejudiced. The Indemnifying
Party shall be entitled to participate in the defense of and if it
so chooses, to assume a defense of or otherwise contest, such
claim, action, suit or proceeding with counsel selected by the
Indemnifying Party and reasonably satisfactory to the Indemnified
Party. Upon the election by the Indemnifying Party to assume the
defense of, or otherwise contest, such claim, action, suit or
proceeding, the Indemnifying Party shall not be liable for any
legal or other expenses subsequently incurred by the Indemnified
Party in connection with the defense thereof, although the
Indemnified Party shall have the right to participate in the
defense thereof and to employ counsel, at its own expense.
Notwithstanding the foregoing, the Indemnifying Party shall be
liable for the reasonable fees and expenses of counsel employed by
the Indemnified Party, to the extent that (i) the Indemnifying
Party has not employed counsel reasonably acceptable to the
Indemnified Party to assume the defense of such action within a
reasonable time after receiving notice of the commencement of the
action, (ii) employment of counsel has been authorized in writing
by the Indemnifying Party or (iii) representation of the
Indemnifying Party and the Indemnified Party by the same counsel
would, in the reasonable opinion of such counsel, constitute a
conflict of interest or otherwise violate rules of professional
responsibility (in which case the Indemnifying Party will not have
the right to direct the defense of such action on behalf of the
Indemnified Party). The parties shall cooperate in any such
defense, give each other reasonable access to all information
relevant thereto and use commercially reasonable efforts to make
employees and other representatives available on a mutually
convenient basis to provide additional information or explanation
of any material provided in connection therewith. Whether or not
the Indemnifying Party shall have assumed the defense, the
Indemnifying Party shall not be obligated to indemnify the other
party hereunder for any settlement entered into without the
Indemnifying Party's prior written consent, which consent shall
not be unreasonably withheld or delayed. The Indemnifying Party
may not enter into any settlement without the Indemnified Party's
prior written consent, which consent shall not be unreasonably
withheld or delayed . To the extent that the Indemnifying Party's
undertaking set forth in this SECTION 6.9 may be unenforceable for
any reason, such Indemnifying Party shall contribute the maximum
amount that he is permitted to contribute under applicable law to
the payment and satisfaction of all Losses incurred by the
Indemnified Party (subject to SECTIONS 6.10 and 6.11).
SECTION 6.10. LIMITATION ON INDEMNIFICATION. The Principals
shall not have any liability for indemnification with respect to
Losses incurred by the Indemnified Parties unless and until the
aggregate amount of Losses exceeds $25,000 at which point the
Indemnified Parties shall be entitled to indemnification for all
Losses incurred; provided that recovery by the Indemnified Parties
from the Principals with respect to any and all such Losses shall
be limited in all events to an aggregate amount of $300,000 in
total from any and all Principals.
SECTION 6.11. CLAIM FOR INDEMNIFICATION. No claim for
Indemnification will be valid unless made on or prior to one year
after the Effective Time, after which date the Principals'
obligations to indemnify shall terminate with respect to any claim
except those which were specifically identified in a written
notice given to the Principals specifying in reasonable detail the
claim and basis for Indemnification prior to one year after the
Effective Time.
SECTION 6.12. CERTAIN PURCHASES BY THE PRINCIPALS OR
AFFILIATES. On or before the Effective Time, it is acknowledged
and agreed that the Principals, or their affiliates, at their and
the Company's discretion, may purchase one or more receivables
(or, with Parent's consent other assets) of the Company for cash
in an amount equal to the face value of such receivables (or the
fair market value of such other assets as mutually determined by
Parent, such parties and the Company). The Company shall provide
Parent with prior or simultaneous notice of the sale of any
receivables under this Section. It is acknowledged and agreed
that, all else being equal, any such receivables (or other assets)
purchased for cash by such parties would decrease the Adjusted Net
Book Value that would otherwise be determined under this Agreement
(including, if applicable, to reduce the Adjusted Net Book Value
to $1,840,000), and would increase the cash that would constitute
part of the Portfolio Position of the Company. If the Principals
or such affiliates purchase receivables, the Surviving Corporation
shall provide commercially reasonable assistance in the collection
thereof at no cost to such parties, but such receivables shall be
assigned on a non-recourse basis and the Surviving Corporation
shall have no responsibility for any amounts not collected.
ARTICLE VII
CONDITIONS
SECTION 7.1. CONDITIONS TO EACH PARTY'S OBLIGATION TO EFFECT
THE MERGER. The respective obligations of the parties to effect
the Merger are subject to the satisfaction, on or prior to the
Closing Date, of the following conditions:
(a) Shareholder Approval.
---------------------
The Merger shall have been approved by the shareholders of the
Company in accordance with the MBCA at the meeting held pursuant
to SECTION 6.3 (the "Meeting"). In addition to any approval
otherwise required by the MBCA, the Merger shall have been
approved (the "Non-Principal Shareholder Approval") by the
affirmative vote of the holders of a majority of the shares
represented in person or by proxy at the Meeting with authority to
vote on the matter and which are beneficially owned by
shareholders other than the Principals. For purposes of the Non-
Principal Shareholder Approval, shares beneficially owned other
than by the Principals and covered by a proxy granted to one or
more the Principals shall be deemed voted by the beneficial owner
as directed on the form of proxy or, if no direction is given,
shall be deemed to have affirmatively voted in favor of the Merger
(and such shares, solely by reason of such proxy, shall not be
deemed shares beneficially owned by the Principals for purposes of
the Non-Principal Shareholder Approval).
(b) Governmental Approvals.
-----------------------
Other than the filing of the Articles of Merger, all
authorizations, consents, orders or approvals of, or declarations
or filings with, or expirations of waiting periods imposed by, any
Governmental Entity, the failure of which to obtain would have a
Material Adverse Effect or on the ability of the parties hereto to
consummate the transactions contemplated hereby, shall have been
filed, occurred or been obtained.
(c) Actions.
--------
No temporary restraining order, preliminary or permanent
injunction or other order issued by any court of competent
jurisdiction or other legal restraint or prohibition preventing
the consummation of the Merger shall be in effect (each party
agreeing to use commercially reasonable efforts to have any such
order reversed or injunction lifted).
SECTION 7.2. CONDITIONS OF OBLIGATIONS OF PARENT. The
obligations of Parent to effect the Merger are subject to the
satisfaction, on or prior to the Closing Date, of the following
conditions unless waived by Parent in writing:
(a) Representations and Warranties.
-------------------------------
The representations and warranties of the Company shall be true
and correct in all material respects as of the date hereof, and,
except to the extent such representations and warranties speak as
of an earlier date, as of the Closing Date as though made on and
as of the Closing Date, and Parent shall have received a
certificate signed on behalf of the Company by the chief executive
officer or the chief financial officer of the Company to such
effect.
(b) Obligations.
------------
The Company shall have performed in all material respects all
obligations required to be performed by it under this Agreement at
or prior to the Closing Date, and Parent shall have received a
certificate signed on behalf of the Company by the chief executive
officer or the chief financial officer of the Company to such
effect.
(c) Opinion.
--------
Parent shall have received the opinion of Fredrikson & Byron, P.A.
concerning such legal matters relating to the Merger as are
customarily obtained in transactions of a type similar to the
Merger.
(d) Non-Competition and Severance Agreements.
---------------------------------------------
Duane Markus shall have executed and delivered to the Surviving
Corporation a non-competition and severance agreement providing
for the payment of $400,000 to Duane Markus (of which $375,000
shall be a severance payment and $25,000 shall be a payment in
consideration for his non-competition covenants), and each of Jack
Pagel and Tom Gould shall have executed and delivered to the
Surviving Corporation severance agreements providing for the
payment of $50,000 to each of them, all such agreements in form
and substance acceptable to Parent, in its sole discretion.
(e) No Material Adverse Effect.
---------------------------
No Material Adverse Effect shall have occurred or be threatened,
or be pending subject to the giving of notice or the passage of
time or both.
(f) Schedules.
----------
Parent shall have received all of the Schedules to be attached to
this Agreement not less than five (5) business days prior to the
Closing Date and shall not have identified (and given written
notice thereof to the Company) within five (5) business days after
receipt of such Schedules any matter or matters which, alone or in
the aggregate, it determines in good faith and in its reasonable
business judgment to adversely affect its valuation of and plans
for the future development of the Surviving Corporation and the
Business.
(g) Other.
------
All corporate and other proceedings and actions required to be
taken by the Company and its shareholders in connection with the
transactions contemplated hereby, and all certificates, opinions,
agreements, instruments and documents, mentioned herein or
incident to any such transactions shall have been delivered and
shall be reasonably satisfactory in form and substance to Parent
and its counsel.
SECTION 7.3. CONDITIONS OF OBLIGATIONS OF THE COMPANY. The
obligation of the Company to effect the Merger is subject to the
satisfaction of the following conditions, on or prior to the
Closing Date, unless waived by the Company:
(a) Representations and Warranties.
-------------------------------
The representations and warranties of Parent and Merger Sub
contained in this Agreement shall be true and correct in all
material respects as of the date hereof, and, except to the extent
such representations and warranties speak as of an earlier date,
as of the Closing Date as though made on and as of the Closing
Date, and the Company shall have received a certificate signed on
behalf of Parent by the chief executive officer or the chief
financial officer of Parent to such effect.
(b) Obligations.
------------
Parent and Merger Sub shall have performed in all material
respects all obligations required to be performed by them under
this Agreement at or prior to the Closing Date, and the Company
shall have received a certificate signed on behalf of Parent by
the chief executive officer or the chief financial officer of
Parent to such effect.
(c) Opinion.
--------
The Company shall have received the opinion of Lindquist & Vennum
P.L.L.P. (which may incorporate an opinion of Israeli counsel)
concerning such legal matters relating to the Merger as are
customarily obtained in transactions of a type similar to the
Merger.
(d) Fairness Opinion.
-----------------
The Company shall have received an opinion from a financial
advisor selected by the Company that the consideration to be
received by the Company's shareholders in conjunction with the
Merger is fair to the Company's shareholders from a financial
point of view.
(e) Non-Competition and Severance Agreements.
-----------------------------------------
Duane Markus shall have executed and delivered to the Surviving
Corporation a non-competition and severance agreement providing
for the payment of $400,000 to Duane Markus (of which $375,000
shall be a severance payment and $25,000 shall be a payment in
consideration for his non-competition covenants), and each of Jack
Pagel and Tom Gould shall have executed and delivered to the
Surviving Corporation severance agreements providing for the
payment of $50,000 to each of them.
ARTICLE VIII
TERMINATION AND AMENDMENT
SECTION 8.1. TERMINATION. This Agreement may be terminated
at any time prior to the Effective Time, whether before or after
approval of the Merger and this Agreement by the shareholders of
the Company:
(a) Mutual Consent.
---------------
By mutual written consent of Parent and the Company.
(b) Certain Date.
-------------
By either Parent or the Company if the Merger shall not have been
consummated on or before the Termination Date (unless the failure
to so consummate the Merger by such date shall be due to the
action or failure to act of the party seeking to terminate this
Agreement, which action or failure to act constitutes a breach of
this Agreement). "Termination Date" means March 31, 1999,
provided, however, that if the SEC shall not have cleared the
Proxy Statement as contemplated by SECTION 6.3 by February 28,
1999, the Termination Date shall be extended to May 15, 1999.
(c) Parent.
-------
By Parent if:
(i) there has been a material breach on the part of the Company
in the representations, warranties or covenants of the Company set
forth herein, or any material failure on the part of the Company
to comply with its obligations hereunder, or
(ii) the Company's shareholders do not approve of the Merger and
this Agreement at the meeting required under SECTION 6.3 hereof,
or
(iii) more than fifteen percent (15%) of the shareholders of the
Company exercise dissenter's rights under the MBCA, or
(iv) the Board of Directors of the Company withdraws, amends, or
modifies in a manner adverse to Parent its favorable
recommendation of the Merger, or
(v) the Company or the Principals fail to deliver such documents
as required by ARTICLE II of this Agreement, or
(vi) any of the conditions to Closing by Parent or Merger Sub set
forth in SECTION 7.2, or any of the conditions set forth in
SECTION 7.1, have not been satisfied, or
(vii) within five (5) business days following receipt of all of the
Schedules as contemplated by SECTION 3.27 and SECTION 7.2(f), if
Parent has identified (and given written notice thereof to the
Company) any matter or matters which, alone or in the aggregate,
it determines in good faith and in its reasonable business
judgment to adversely affect its valuation of and plans for the
future development of the Surviving Corporation and the Business.
(d) The Company.
------------
By the Company if:
(i) there has been a material breach on the part of Parent in
the representations, warranties or covenants of Parent set forth
herein, or any material failure on the part of Parent to comply
with its obligations hereunder, or
(ii) the Company's shareholders do not approve of the Merger and
this Agreement in accordance with the provisions of SECTION 7.1(a)
at the meeting required under SECTION 6.3 hereof, or
(iii) the Company's Board of Directors withdraws its recommendation
to approve and adopt this Agreement in accordance with SECTION
6.3, or
(iv) Parent or Merger Sub fails to deliver such documents or
payments as required by ARTICLE II of this Agreement, or
(v) any of the conditions to Closing by the Company set forth in
SECTION 7.3, or any of the conditions set forth in SECTION 7.1,
have not been satisfied.
SECTION 8.2. EFFECT OF TERMINATION. In the event of a
termination of this Agreement by either the Company or Parent as
provided in SECTION 8.1, this Agreement shall forthwith become
void and there shall be no liability or obligation on the part of
Parent, Merger Sub, the Company, the Principals or their
affiliates or respective officers or directors, other than the
Company or Parent as provided in SECTION 6.6 and the
Confidentiality Agreement.
SECTION 8.3. AMENDMENT. This Agreement may be amended by the
parties hereto, by action taken or authorized by their respective
Boards of Directors, at any time before or after approval of the
matters presented in connection with the Merger by the
shareholders of the Company but, after any such approval, no
amendment shall be made which by law requires further approval by
such shareholders without such further approval. This Agreement
may not be amended except by an instrument in writing signed on
behalf of each of the parties hereto.
SECTION 8.4. EXTENSION; WAIVER. At any time prior to the
Effective Time, the parties hereto, by action taken or authorized
by their respective Boards of Directors, may to the extent legally
allowed, (i) extend the time for the performance of any of the
obligations or other acts of the other parties hereto, (ii) waive
any inaccuracies in the representations and warranties contained
herein or in any document delivered pursuant hereto and (iii)
waive compliance with any of the agreements or conditions
contained herein. Any agreement on the part of a party hereto to
any such extension or waiver shall be valid only if set forth in a
written instrument signed on behalf of such party.
ARTICLE IX
MISCELLANEOUS
SECTION 9.1. SURVIVAL OF REPRESENTATIONS AND WARRANTIES. All
representations and warranties made by the parties in this
Agreement or in any Related Documents shall survive the Closing
for a period of one (1) year. Notwithstanding any investigation or
audit conducted before or after the Closing Date or the decision
of any party to complete the Merger, each party shall be entitled
to rely upon the representations and warranties set forth herein
and therein, and none of such representations and warranties shall
be deemed waived or modified in any respect by reason of any such
investigation.
SECTION 9.2. CERTAIN DEFINITIONS.
"Environmental Actions" means any complaint, summons,
citation, notice, directive, order, claim, litigation,
investigation, proceeding, judgment, letter or other communication
from any federal, state, local or municipal agency, department,
bureau, office or other authority, or any third party, delivered
to, or applicable to, the Company respecting (a) any of the
properties currently or formerly owned or operated by the Company
or any of their respective predecessors, or (b) any facility that
received solid or hazardous wastes from the Company or any of its
predecessors, or involving any violation of any Environmental
Laws.
"Environmental Laws" means the Comprehensive Environmental
Response, Compensation and Liability Act, 42 U.S.C. 9601 et seq.,
the Resource Conservation and Recovery Act, 42 U.S.C. 6901 et
seq., the Toxic Substances Control Act, 15 U.S.C. 2601 et seq.,
the Clean Water Act, 33 U.S.C. 1251 et seq., the Clean Air Act, 42
U.S.C. 7501 et seq., the Safe Drinking Water Act, 43 U.S.C. 300f-
300j-26, the Occupational Safety and Health Act, 29 U.S.C. 655,
and any other laws imposing liability or establishing standards of
conduct for environmental protection.
"Governmental Entity" means any court, arbitral tribunal,
administrative agency or commission or other governmental or other
regulatory authority or administrative agency or commission.
"Hazardous Discharge" means any releasing, spilling, leaking,
pumping, pouring, emitting, emptying, discharging, injecting,
escaping, leaching, disposing or dumping of any Hazardous
Substances into the soil, surface waters or ground waters at any
of the properties or facilities currently or formerly owned or
operated by the Company or any of its predecessors or at any
facility that received solid or hazardous wastes generated by the
Company or any of its predecessors.
"Hazardous Substances" means (a) any pollutant, contaminant,
toxic substance, hazardous waste or hazardous substance, as
defined in or regulated by any Environmental Laws, or any other
compound, element or chemical determined to be hazardous or toxic
by a Governmental Entity under any Environmental Laws and (b)
asbestos or asbestos-containing materials.
"Indebtedness" means (i) all obligations for borrowed money
(including without limitation, all notes payable and drafts
accepted representing extensions of credit, all obligations
evidenced by bonds, debentures, notes or similar instruments, all
obligations on which interest charges are customarily paid, all
obligations under conditional sale or other title retention
agreements and all obligations issued or assumed as full or
partial payment for property whether or not any such notes, drafts
or obligations are obligations for borrowed money), (ii) all
obligations secured by any Lien existing on property owned or
acquired subject thereto, whether or not the obligations secured
thereby shall have been assumed, (iii) all obligations of the type
referred to in clauses (i) and (ii) above guaranteed (other than
by endorsement of the above instruments for collection in the
ordinary course of business), directly or indirectly, in any
manner, or in effect guaranteed, directly or indirectly, through
an agreement, contingent or otherwise (a) to purchase securities,
indebtedness or other obligations of the type referred to in
clauses (i) and (ii) above, (b) to purchase, sell or lease (as
lessee or lessor) property or to purchase or sell services
primarily for the purpose of enabling the debtor to make payment
of indebtedness or other obligations of the type referred to in
clauses (i) and (ii) above or to assure the owner of such
indebtedness or other obligations against loss, (c) to supply
funds to or to in any manner invest in the debtor or (d) to repay
amounts drawn down by beneficiaries of letters of credit, (iv) all
obligations of the type referred to in clauses (i) through (iii)
above for the payment or purchase of which the Company has agreed
contingently or otherwise to advance or supply funds and (v) all
capitalized lease obligations.
"Lien" means any security interest, mortgage, lien, pledge,
charge, claim, restriction or other encumbrance of any nature
whatsoever.
"Material Adverse Effect" means any circumstance, change in
or effect on the Business or the Company that, individually or in
the aggregate with any other circumstances, changes in, or effects
on the Business or the Company is or is reasonably likely to be
(a) materially adverse to the Business or the Company or to the
Company's assets, liabilities, operations, results of operations
or business relationships, (b) materially adverse to the ability
of Parent or Merger Sub to operate or conduct the Business in the
manner in which it is currently conducted or operated or (c)
materially adverse to the ability of the parties to this Agreement
to consummate the transactions contemplated by this Agreement or
the Related Documents; provided, however, that no circumstance,
change or effect on the Portfolio Position shall be deemed to be a
Material Adverse Effect.
"Related Documents" means, with respect to the Company, any
certificate, instrument, agreement or other document executed and
delivered by the Company, and with respect to the Principals, any
certificate, instrument, agreement or other document executed and
delivered by any Principal, pursuant to or in connection with the
transactions contemplated by this Agreement.
SECTION 9.3. BROKERS' AND FINDERS' FEES.
(a) The Company and the Principals.
-------------------------------
The Company and the Principals represent and warrant to Parent and
Merger Sub that all negotiations relative to this Agreement have
been carried on without the intervention of any person who may be
entitled to any brokerage or finder's fee or other commission in
respect of this Agreement or the consummation of the transactions
contemplated hereby, and the Principals agree to indemnify and
hold Parent and Merger Sub harmless from and against any and all
claims, losses, liabilities and expenses which may be asserted
against or incurred by them as a result of the Company's or the
Principals' dealings, arrangements or agreements with any such
person.
(b) Parent and Merger Sub.
----------------------
Parent and Merger Sub represent and warrant to the Company and the
Principals that all negotiations relative to this Agreement have
been carried on without the intervention of any person who may be
entitled to any brokerage or finder's fee or other commission in
respect of this Agreement or the consummation of the transactions
contemplated hereby, and Parent agrees to indemnify and hold the
Company and the Principals harmless from and against any and all
claims, losses, liabilities and expenses which may be asserted
against or incurred by it as a result of Parent's dealings,
arrangements or agreements with any such person.
SECTION 9.4. SALES, TRANSFER AND DOCUMENTARY TAXES, ETC. The
Surviving Corporation shall pay all federal, state and local
sales, documentary and other transfer taxes, if any, due as a
result of the Merger, whether imposed by law on the Company,
Parent or Merger Sub.
SECTION 9.5. PUBLICITY. Except as otherwise required by law
or the rules and regulations of the NASD or NASDAQ, for so long as
this Agreement is in effect, neither the Company, Parent nor
Merger Sub shall issue or cause the publication of any press
release or other public announcement with respect to the
transactions contemplated by this Agreement or the Related
Documents without the consent of the other parties, which consent
shall not be unreasonably withheld or delayed.
SECTION 9.6. CONTENTS OF AGREEMENT; PARTIES IN INTEREST; ETC.
This Agreement, the Related Documents and the Confidentiality
Agreement set forth the entire understanding of the parties hereto
with respect to the transactions contemplated hereby. Any and all
previous agreements, understandings, representations or warranties
between or among the parties regarding the subject matter hereof
or thereof, whether written or oral, are superseded by this
Agreement.
SECTION 9.7. ASSIGNMENT AND BINDING EFFECT. This Agreement
may not be assigned prior to the Closing by any party hereto
without the prior written consent of the other parties, except
that the rights, but not the obligations, of Parent and Merger Sub
hereunder may be assigned to any wholly-owned subsidiary of
Parent. Subject to the foregoing, all of the terms and provisions
of this Agreement shall be binding upon and inure to the benefit
of and be enforceable by the successors and assigns of the
Company, the Principals, Parent and Merger Sub.
SECTION 9.8. NOTICES. Any notice, request, demand, waiver,
consent, approval or other communication which is required or
permitted hereunder shall be in writing and shall be deemed given
only if delivered personally or sent by registered or certified
mail, postage prepaid, by a national overnight courier service as
follows:
If to Parent, Merger Sub or the Surviving Corporation, to:
ACS Electronics, Ltd.
Attn: Ze'ev Kirshenboim
Industrial Park P.O.B. 5668
Migdal Ha'Emek 10500, Israel
With copies to:
Bruno Lerer, Esq.
655 Third Avenue
20th Floor
New York, NY 10017-5617
Jeffrey N. Saunders, Esq.
Lindquist & Vennum P.L.L.P.
4200 IDS Center
80 South Eighth Street
Minneapolis, Minnesota 55402
If to the Company to:
Technology 80, Inc.
658 Mendelssohn Avenue North
Minneapolis, MN 55427
Attn: President
If to Duane Markus, to:
Duane Markus
405 Bushaway Road
Wayzata, MN 55391
If to Jack Pagel, to:
Jack Pagel
2940 Gale Road
Wayzata, MN 55391
If to Tom Gould, to:
Tom Gould
4120 Queen Avenue
Minneapolis, MN 55410
With copies to:
Simon Root, Esq.
Fredrikson & Byron, P.A.
1100 International Centre
900 Second Avenue South
Minneapolis, MN 55402
or to such other address as the addressee may have specified in a
notice duly given to the sender as provided herein. Such notice,
request, demand, waiver, consent, approval or other communication
will be deemed to have been given as of the date so delivered or
mailed.
SECTION 9.9. GOVERNING LAW; JURISDICTION.
(a) Governing Law.
--------------
This Agreement shall be governed by and interpreted and enforced
in accordance with the internal laws of the State of Minnesota,
without giving effect the conflict of laws provisions of any
jurisdiction.
(b) Consent to Jurisdiction; Service of Process.
--------------------------------------------
Each party hereto hereby: (i) irrevocably submits to the
jurisdiction of any federal or state court located within the
State of Minnesota, U.S.A. over any dispute arising out of or
relating to this Agreement or any of the transactions contemplated
hereby; (ii) irrevocably agrees that all claims in respect of such
dispute or proceeding may be heard and determined in such courts;
(iii) irrevocably waives, to the fullest extent permitted by
applicable law, (A) any objection that it may now or hereafter
have to establishing venue of any such dispute brought in such
court or (B) any defense of inconvenient forum for the maintenance
of such dispute; (iv) agrees that a judgment in any such dispute
may be enforced in other jurisdictions by suit on the judgment or
in any other manner provided by law; and (v) consents to process
being served by any party to this Agreement in any suit, action,
or proceeding of the nature specified in this Section by the
mailing of a copy thereof in accordance with the provisions
hereof.
SECTION 9.10. NO BENEFIT TO OTHERS. The representations,
warranties, covenants and agreements contained in this Agreement
and the Related Documents are for the sole benefit of the parties
hereto and their respective permitted successors and assigns, and
they shall not be construed as conferring any rights on any other
persons.
SECTION 9.11. SCHEDULES. All Schedules referred to herein
are intended to be and hereby are specifically made a part of this
Agreement.
SECTION 9.12. SEVERABILITY. Any provision of this Agreement
which is invalid or unenforceable in any jurisdiction shall be
ineffective to the extent of such invalidity or unenforceability
without invalidating or rendering unenforceable the remaining
provisions hereof, and any such invalidity or unenforceability in
any jurisdiction shall not invalidate or render unenforceable such
provision in any other jurisdiction.
SECTION 9.13. COUNTERPARTS. This Agreement may be executed
in any number of counterparts, each of which when executed and
delivered shall be deemed to be an original and all of which
counterparts taken together shall constitute but one and the same
instrument.
SECTION 9.14. KNOWLEDGE. For purposes of this Agreement and
any Related Document, any reference to "knowledge" or other
similar term with respect to a party hereto, when modifying any
representation, warranty, covenant or agreement made by a party
hereto, shall mean that none of such parties, when individuals,
and none of the officers, directors or senior management of any
entity has any actual and present knowledge that such
representation, warranty, covenant or agreement is not true and
correct to the same extent as provided herein or any applicable
Related Document, after such person has made appropriate review of
all applicable files reasonably available to such person.
IN WITNESS WHEREOF, the parties hereto have duly executed
this Agreement as of the date first above written.
TECHNOLOGY 80 INC.
By: /s/ Duane Markus
-----------------------
Duane Markus, President
ACS ELECTRONICS, LTD.
By: /s/ Ze'ev Kirshenboim
_____________________
Its: CEO
TECH 80 ACQUISITION CORP.
By: /s/ Ze'ev Kirshenboim
_____________________
Its: CEO
DUANE MARKUS
/s/ Duane Markus
______________________________
JACK PAGEL
/s/ Jack Pagel
______________________________
TOM GOULD
/s/ Tom Gould
______________________________
Schedules
Schedule 3.1 Jurisdiction List
Schedule 3.3 Capitalization
Schedule 3.6 Non-Violation
Schedule 3.10 Material Changes
Schedule 3.11 Properties and Assets
Schedule 3.12 List of Contracts
Schedule 3.13 Intellectual Property
Schedule 3.14 Taxes
Schedule 3.15 Litigation
Schedule 3.16 Compliance with Laws; Governmental
Authorizations
Schedule 3.17 Environmental Matters
Schedule 3.18 Employee Benefits
Schedule 3.19 Employees
Schedule 3.20 Insurance
Schedule 3.21 Accounts, Lockboxes, Safe Deposit Boxes and
Powers of Attorney
Schedule 3.22 Transactions with Affiliates
Schedule 5.1 Conduct of the Business
Schedule 6.3 Affiliate Letters
Schedule 6.8 Indebtedness