EXHIBIT 10.5
AGREEMENT AND PLAN OF MERGER
This Agreement and Plan of Merger (the "Agreement"), dated as of
February 20, 2002, is by and among Portsmith, Inc., a Delaware corporation (the
"Company"), the holders of the outstanding capital stock of the Company who have
signed the signature page hereto (collectively, the "Stockholders"), Mobility
Electronics, Inc., a Delaware corporation ("Parent"), and Mobility Europe
Holdings, Inc., a Delaware corporation and wholly-owned subsidiary of Parent
("Merger Sub").
WITNESSETH:
WHEREAS, Parent, as the sole stockholder of Merger Sub, and the
respective Boards of Directors of Merger Sub and the Company have each approved
the merger of the Company with and into Merger Sub (the "Merger") in accordance
with the Delaware General Corporation Law (the "DGCL") and the provisions of
this Agreement; and
WHEREAS, it is intended for federal income tax purposes that the Merger
qualify as a tax free reorganization within the meaning of Sections 368(a)(1)(A)
and 368(a)(2)(D) of the Internal Revenue Code of 1986, as amended (the "Code").
NOW, THEREFORE, in consideration of the foregoing premises and the
mutual covenants, promises, representations, warranties and agreements contained
herein, and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto agree as
follows:
ARTICLE I
DEFINITIONS
Section 1.1 DEFINITIONS. Certain terms used in this Agreement are
defined in Exhibit A attached hereto.
ARTICLE II
CONTROL EFFECTIVE TIME, THE MERGER, MERGER EFFECTIVE TIME AND
MERGER CONSIDERATION
Section 2.1 CONTROL EFFECTIVE TIME. The parties hereto agree that as of
February 1, 2002 (the "Control Effective Time"), for ease of accounting cut off,
Mobility shall have the authority and responsibility for the operation and
management of the business and assets of the Company, and that the Board of
Directors of the Company shall not take any actions unless approved in writing
by Mobility. In such capacity, Mobility shall have the power and authority to
take, or refrain from taking, any actions in order to operate and manage the
business and assets of the Company. Mobility agrees to operate and manage the
Company in a lawful and prudent manner. The parties further agree that all
losses and income of the Company from the Control Effective Time shall be deemed
to be losses or income (as the case may be) of Merger Sub.
Section 2.2 EXERCISE OF OPTIONS AND WARRANTS. Prior to the Merger
Effective Time, each holder of: (i) stock options of the Company issued under
the Company's 2000 Management
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Stock Option Plan and the Company's 2000 Stock Option Plan; and (ii) warrants to
purchase shares of common stock, par value $0.001 per share, of Portsmith
("Portsmith Common Stock"), which stock options and warrants are identified on
Schedule 3.2 attached hereto, shall have the option to exercise such stock
options and warrants, as the case may be, and pay the exercise price by
delivering to the Company cash and/or a promissory note, in substantially the
form of Exhibit F attached hereto, aggregating in the amount of such exercise
price (the "Election Option"). An option or warrant holder who does not elect
the Election Option in accordance with the previous sentence (a "Non-Electing
Securityholder") will be deemed not to be an Eligible Stockholder, and such
Non-Electing Stockholder's options and/or warrants will be deemed to be canceled
and terminated as of the Merger Effective Time. Notwithstanding anything in this
Article II to the contrary, the Merger Consideration payable to the stockholders
of the Company (excluding the Non-Electing Stockholders and the Dissenting
Stockholders) shall be reduced by an amount equal to the product of the Merger
Consideration multiplied by a fraction, the numerator of which shall be the
number of Portsmith Shares held by the Non-Electing Stockholders and the
Dissenting Stockholders immediately prior to the Merger Effective Time and the
denominator which shall be the number of Portsmith Shares issued and outstanding
immediately prior to the Merger Effective Time.
Section 2.3 THE MERGER. At the Merger Effective Time, in accordance
with this Agreement and the DGCL, the Company shall be merged with and into
Merger Sub, the separate existence of the Company shall cease, and Merger Sub
shall continue as the surviving corporation (the "Surviving Corporation"). In
connection with the Merger, the Surviving Corporation shall change its name to
"Portsmith, Inc."
Section 2.4 EFFECT OF THE MERGER. At the Merger Effective Time, the
Surviving Corporation shall thereafter possess all of the public and private
rights, privileges, powers, assets, liabilities and obligations of Merger Sub
and the Company.
Section 2.5 CONSUMMATION OF THE MERGER. As soon as practicable after
the execution of this Agreement, the parties shall cause the Merger to be
consummated by filing with the Secretary of State of Delaware a Certificate of
Merger in such form as required by, and executed in accordance with, the
relevant provisions of the DGCL (the date and time of such filing, or such later
date as agreed by the parties and set forth therein, being the "Merger Effective
Date").
Section 2.6 CERTIFICATE OF INCORPORATION; BYLAWS; DIRECTORS AND
OFFICERS. The Certificate of Incorporation and Bylaws of the Surviving
Corporation shall be the Certificate of Incorporation and Bylaws of Merger Sub
as in effect immediately prior to the Merger Effective Time; provided, however,
that, at the Merger Effective Time the name of the Surviving Corporation shall
be changed to "Portsmith, Inc." The directors of Merger Sub immediately prior to
the Merger Effective Time (i.e., Charles R. Mollo, William O. Hunt and Joan
Brubacher) shall be the initial directors of the Surviving Corporation and shall
serve until their successors have been duly elected or appointed and qualified
or until their earlier death, resignation or removal in accordance with the
Surviving Corporation's Certificate of Incorporation and Bylaws and the DGCL.
Immediately following the Merger, Holmes Lundt ("Lundt") and a designee of Lundt
will be elected to the Board of Directors of the Surviving Corporation, and
Lundt will be
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elected CEO and President of Surviving Corporation. The officers of Merger Sub
immediately prior to the Merger Effective Time shall be the initial officers of
the Surviving Corporation.
Section 2.7 AGGREGATE MERGER CONSIDERATION. Exhibit B lists all the
holders of Portsmith Common Stock and securities convertible or exercisable into
shares of Portsmith Common Stock, and the portion of the Merger Consideration
(as defined below) to be received by such securityholder, assuming such
securityholder is an Eligible Stockholder. If any such securityholder is not an
Eligible Stockholder, then the Merger Consideration shall be reduced in
accordance with Sections 2.2 and 2.11. The aggregate consideration to be
received by the Eligible Stockholders holding shares of Portsmith Common Stock
(the "Portsmith Shares") in connection with the Merger shall be each Eligible
Stockholder's share of the following (as determined by the percentages set forth
in Exhibit B) (collectively, the "Merger Consideration"):
(a) SHARE CONSIDERATION. 800,000 shares of common
stock, par value $0.01 per share (the "Parent Common Stock"), of Parent
(the "Share Consideration").
(b) PERFORMANCE EARN OUT.
(i) No later than ten (10) business
days following the date Portsmith
FMV (as defined below) is
determined pursuant to subpart (iv)
or (v) below, Parent shall pay to
the Eligible Stockholders an
aggregate amount equal to the
Performance Earn Out (as defined
below), subject to the
indemnification and offset rights
of Parent and Merger Sub under
Article VIII below.
(ii) As soon as reasonably practicable
after December 31, 2002, but on or
prior to April 1, 2003 (subject to
extension as provided below),
Parent shall determine in writing
and deliver to the Eligible
Stockholders (the "Earn Out
Notice") the value of an earn out
payment to be made to the Eligible
Stockholders equal to 45.6% of
Portsmith FMV (the "Performance
Earn Out"), with payment, being in
the form of cash and/or shares of
Parent Common Stock (valued at the
Current Market Price as of the date
that Portsmith FMV has been finally
determined). The mix of cash and
Parent Common Stock paid to satisfy
the Performance Earn Out shall be
at Parent's sole discretion;
provided, however, that the total
cash portion of the Merger
Consideration shall be limited to
sixty percent (60%) thereof (the
"Cash Cap"), subject to subsection
(d) below.
(iii) As used herein, the term "Portsmith
FMV" shall mean the value of the
Surviving Corporation as of
December 31, 2002. For purposes of
determining Portsmith FMV: (1) the
Surviving Corporation shall be
considered as a stand-alone entity,
and except for the fee payable to
Parent for sales of
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the Surviving Corporation's
products as provided in Section 7.2
below, no expenses, overhead and/or
costs of Parent shall be considered
in such determination, unless
approved by the Surviving
Corporation's President; (2) only
fifty percent (50%) of the bonuses
payable to the executive management
team of the Surviving Company (as
discussed in Section 7.4 below)
shall be considered as an expense
in such calculation (the "Bonus
Responsibility"); and (3) the value
of Surviving Corporation's
subsidiary, Mobility 2001 Limited,
organized under the laws of the
United Kingdom ("Subsidiary"),
shall not be included in such
calculation.
(iv) After delivery of the Earn Out
Notice, Parent and Holmes Lundt
("Lundt"), or Lundt's successor, if
chosen by a majority of the
Stockholders, shall have sixty (60)
days thereafter to: (i) mutually
agree on Portsmith FMV using all
commercially reasonable efforts to
reach such an agreement; or (ii)
designate a mutually agreeable
Independent Financial Expert (as
defined below), who shall determine
the Portsmith FMV within such sixty
(60) day period. Failing to do so,
within ten (10) days following the
expiration of such sixty (60) day
period Parent, on the one hand, and
Lundt, on the other hand, shall
each designate an Independent
Financial Expert to determine
Portsmith FMV, and Parent shall pay
any undisputed portion of the
Performance Earn Out to the
Eligible Stockholders. If either
Parent or Lundt fails to designate
an Independent Financial Expert
within the time period specified,
then the determination of the other
Independent Financial Expert shall
be deemed to be that of the
Independent Financial Experts.
(v) In the event that the two
Independent Financial Experts
cannot agree on Portsmith FMV
within twenty (20) days after their
selection, then the two Independent
Financial Experts shall, within
five (5) days following such twenty
(20) day period, mutually select a
third Independent Financial Expert
to determine Portsmith FMV within
twenty (20) days following
selection, and the value selected
by such third Independent Financial
Expert shall be binding on all
parties. Each such Independent
Financial Expert may use any
customary method in determining
Portsmith FMV.
(vi) The cost of the Independent
Financial Expert selected by Parent
or Lundt on behalf of the Eligible
Stockholders (as
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the case may be) shall be paid by
such selecting party, and the cost
of the third Independent Financial
Expert, if any, selected by the two
Independent Financial Experts shall
be paid one-half by each party.
(vii) As used herein, "Independent
Financial Expert" shall mean any
investment bank which is registered
as a broker-dealer under the
Exchange Act of 1934, as amended
(the "Exchange Act"), and has
aggregate net capital of at least
$5 million, which does not (and
whose directors, officers,
employees, affiliates or
stockholders do not) have a
material direct or indirect
financial interest in the Company
or Parent or any of their
respective affiliates, which has
not been, and, at the time it is
called upon to give independent
financial advice, is not (and none
of whose directors, officers,
employees, affiliates or
stockholders is) a promoter,
director, officer, stockholder of
the Company or Parent or any of
their respective affiliates and
which does not provide any advice
or opinions to the Company or
Parent or any of their respective
affiliates. As used in this
Agreement, an "affiliate" of any
person is a person controlling,
controlled by or under common
control with such person.
(c) REVENUE EARN OUT.
(i) No later than ten (10) business
days following the date the Revenue
Earn Out (as defined below) is
determined, Parent shall pay to the
Eligible Stockholders (subject to
the indemnification and offset
rights of Parent and Merger Sub
under Article VIII below) an earn
out equal to the following
calculations (the "Revenue Earn
Out"):
((2002 Revenue x .52) - $4.1
million) x PF, where PF = 2002
Profit Percentage/9%
For the above purposes: (i) "2002
Revenue" shall mean the revenue of
the Company and the Surviving
Corporation (excluding Subsidiary),
net of returns and allowances, for
calendar year 2002; and (ii) "2002
Profit Percentage" shall mean the
net income of the Company and the
Surviving Corporation (excluding
Subsidiary) as a percentage of 2002
Revenues (taking into account the
Bonus Responsibility), for calendar
year 2002; in each case above, as
determined in accordance with GAAP.
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(ii) The Revenue Earn Out shall be
determined by Parent as soon as
practicable after December 31,
2002, but in no event later than
April 1, 2003, which determination
shall be in writing and delivered
to the Eligible Stockholders (the
"Revenue Earn Out Notice"). The
Revenue Earn Out shall be payable
in the form of cash and/or Parent
Common Stock (valued at the Current
Market Price as of the date that
the Revenue Earn Out has been
finally determined). The mix of
cash and Parent Common Stock paid
to satisfy the Revenue Earn Out
shall be at Parent's sole
discretion; provided, however, that
the total cash portion of the
Merger Consideration shall be
limited to the Cash Cap, subject to
subsection (d) below.
(iii) Any disputes by the Eligible
Stockholders as to the
determination of the Revenue Earn
Out shall be handled by Parent and
Lundt, on behalf of the Eligible
Stockholders, in the same manner as
set forth in subsections (iv)-(vii)
of subsection (b) above; provided,
however, that Parent shall pay any
undisputed portion of the Revenue
Earn Out to the Eligible
Stockholders on or prior to April
15, 2003.
(d) LIMITATION OF SHARES OF PARENT COMMON STOCK.
Notwithstanding anything in this Section 2.7 to the contrary, in no
event shall Parent issue more than 3,023,863 shares of Parent Common
Stock in the aggregate (i.e., 19.9% of the issued and outstanding
shares as of the date hereof) under the provisions of subsections (a),
(b) and (c) above (the "Share Cap"); it being agreed and understood
that any excess over the Share Cap to be paid as Merger Consideration
shall be paid in cash; provided further, however, in the event that the
entire Performance Earn Out and/or Revenue Earn Out may not be paid due
to the Share Cap and the Cash Cap, then Parent and Lundt, on behalf of
the Eligible Stockholders, shall attempt to reach a satisfactory
payment arrangement and, failing to do so, at any time, Lundt may
request Parent to, and Parent shall, call a Special Meeting of its
stockholders (the "Special Meeting") in order to request such
stockholders to approve the issuance of shares of Parent Common Stock
as Merger Consideration in excess of the Share Cap, and Parent shall
use all commercially reasonable efforts to obtain such approval, and
will file a proxy statement in connection therewith as soon as
practicable, but no more than sixty (60) days after, Lundt's request;
provided, however, that in lieu of calling the Special Meeting, Parent
will give Lundt, on behalf of the Eligible Stockholders, the option to
be paid cash in excess of the Cash Cap, which option can be accepted or
rejected in Lundt's sole discretion.
(e) PLEDGE AGREEMENT. The parties hereto agree that
payment of the Performance Earn Out and the Revenue Earn Out shall be
secured by a security interest in the shares of capital stock of the
Surviving Corporation pursuant to a Pledge Agreement, in substantially
the form of Exhibit E attached hereto (the "Pledge Agreement").
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(f) OTHER AMOUNTS. For purposes of determining only
the Cash Cap, any cash paid under this Section 2.7, any cash paid for
fractional shares under Section 2.8(d) and any cash paid pursuant to
Section 2.11 shall be included in such calculation as cash paid as part
of the Merger Consideration.
(g) INTEREST INCOME. A portion of the Performance
Earn Out and the Revenue Earn Out payments made after the Merger
Effective Date may be characterized as ordinary interest income for
U.S. federal income tax purposes. The amount of such interest is
determined under the deferred payment transaction rules of Section 483
of the Code. The portion of those payments that is treated as interest
will generally equal the excess of the fair market value of the earn
out payments on the date of receipt over the present value of those
payments, determined as of the Merger Effective Date, discounted using
the applicable federal rate in effect for the month in which the Merger
closes. Any payments made by Parent in the form of cash will be
allocated first to any imputed interest determined under Section 483.
Section 2.8 CONVERSION OF SECURITIES. At the Merger Effective Time, by
virtue of the Merger and without any action on the part of Parent, Merger Sub,
the Company or the Stockholders:
(a) Each Portsmith Share issued and outstanding
immediately prior to the Merger Effective Time (other than shares held
in treasury of the Company) shall be canceled and retired and be
converted into the right to receive the portion of the total Merger
Consideration payable to the respective Eligible Stockholders as set
forth on Exhibit B (as adjusted to exclude Dissenting Stockholders, if
any).
(b) Each Portsmith Share which is issued and
outstanding immediately prior to the Merger Effective Time and which is
held in the treasury of the Company shall be canceled and retired and
no payment shall be made with respect thereto.
(c) As a result of the Merger and without any action
on the part of the Stockholders, all Portsmith Shares shall cease to be
outstanding, shall be canceled and returned and shall cease to exist,
and each holder of a certificate formerly representing any Portsmith
Shares shall thereafter cease to have any rights with respect to such
Portsmith Shares (a "Certificate"), except the right to receive,
without interest, a pro-rata portion of the Merger Consideration in
accordance with Section 2.7 and Exhibit B upon the surrender of such
Certificate.
(d) No fractional shares of Parent Common Stock shall
be issued in connection with the Merger. In lieu thereof, cash in the
amount of such fractional share of Parent Common Stock will be paid for
any fractional share that would have otherwise been issued.
(e) At the Merger Effective Time, each share of
common stock, par value $0.01 per share, of Merger Sub issued and
outstanding immediately prior to the Merger Effective Time as a result
of the Merger shall be automatically converted into one
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newly and validly issued, fully paid and nonassessable share of common
stock of the Surviving Corporation.
Section 2.9 ADJUSTMENT OF MERGER CONSIDERATION. In the event that,
subsequent to the date of this Agreement but prior to the Merger Effective Time,
the outstanding shares of Parent Common Stock or Portsmith Common Stock,
respectively, shall have been changed into a different number of shares or a
different class as a result of a stock split, reverse stock split, stock
dividend, subdivision, reclassification, split, combination, exchange,
recapitalization or other similar transaction, the shares of Parent Common Stock
included in the Merger Consideration shall be appropriately adjusted.
Section 2.10 ESCROWED SHARES. Notwithstanding anything to the contrary
in this Agreement, Parent shall withhold in the aggregate 400,000 shares of
Parent Common Stock to be issued to the Eligible Stockholders pursuant to this
Agreement (the "Escrowed Shares"), which Escrowed Shares shall be held pursuant
to the terms of that certain Stock Escrow Agreement, substantially in the form
attached hereto as Exhibit C.
Section 2.11 APPRAISAL RIGHTS. Notwithstanding anything in this Article
II to the contrary: (i) any stockholder of the Company exercising appraisal
rights in accordance with Section 262 of the DGCL (collectively, the "Dissenting
Stockholders"), shall receive, in lieu of the Merger Consideration, the
consideration determined by the Court of Chancery in the State of Delaware under
such Section 262 of the DGCL; and (ii) the Merger Consideration payable to the
stockholders of the Company (excluding the Non-Electing Stockholders and the
Dissenting Stockholders) shall be reduced by an amount equal to the product of
the Merger Consideration multiplied by a fraction, the numerator of which shall
be the number of Portsmith Shares held by the Non-Electing Stockholders and the
Dissenting Stockholders immediately prior to the Merger Effective Time and the
denominator which shall be the number of Portsmith Shares issued and outstanding
immediately prior to the Merger Effective Time.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to Parent and Merger Sub that the
following are true and correct as of the date hereof:
Section 3.1 ORGANIZATION AND GOOD STANDING; QUALIFICATION. The Company
is a corporation duly organized, validly existing and in good standing under the
laws of the State of Delaware, with all requisite corporate power and authority
to carry on the business in which it is engaged, to own the properties it owns,
to execute and deliver this Agreement and to consummate the transactions
contemplated hereby. The Company is duly qualified and licensed to do business
and is in good standing in all jurisdictions where the nature of its business
makes such qualification necessary, which jurisdictions are listed in Schedule
3.1, except where the failure to be qualified or licensed would not have a
material adverse effect on the business of the Company. The Company does not
have any assets, employees or offices in any state other than the states listed
in Schedule 3.1. All Schedules referenced in this Article III are contained in
the Company Disclosure Letter of even date herewith.
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Section 3.2 CAPITALIZATION. The authorized capital stock of the Company
consists of (i) 2,000,000 shares of common stock, par value $0.001 per share, of
which 1,415,361 shares are issued and outstanding and no shares of such capital
stock are held in the treasury of the Company. All of issued and outstanding
shares of capital stock of the Company are duly authorized, validly issued,
fully paid and nonassessable. Except as set forth in Schedule 3.2, there exist
no options, warrants, subscriptions or other rights to purchase, or securities
convertible into or exchangeable for, the capital stock of the Company. The
Company is not a party to or bound by, nor does it have any knowledge of, any
agreement, instrument, arrangement, contract, obligation, commitment or
understanding of any character, whether written or oral, express or implied,
relating to the sale, assignment, encumbrance, conveyance, transfer or delivery
of any capital stock of the Company. No shares of capital stock of the Company
have been issued or disposed of in violation of the preemptive rights of any of
the Company's stockholders. All accrued dividends on the capital stock of the
Company, whether or not declared, have been paid in full.
Section 3.3 CORPORATE RECORDS. The copies of the Certificate of
Incorporation and all amendments thereto and the Bylaws of the Company that have
been delivered to Parent are true, correct and complete copies thereof, as in
effect on the date hereof. Except as set forth in Schedule 3.3, the minute books
of the Company, copies of which have been delivered to Parent, contain accurate
minutes of all meetings of, and accurate consents to all actions taken without
meetings by, the Board of Directors (and any committees thereof) and the
stockholders of the Company since the formation of the Company.
Section 3.4 AUTHORIZATION AND VALIDITY. The execution, delivery and
performance by the Company of this Agreement and the other agreements
contemplated hereby, and the consummation of the transactions contemplated
hereby and thereby, have been duly authorized by the Company, subject to the
requisite stockholder approval. This Agreement and each other agreement
contemplated hereby have been duly executed and delivered by the Company and
constitute legal, valid and binding obligations of the Company, enforceable
against the Company in accordance with their respective terms, except as may be
limited by applicable bankruptcy, insolvency or similar laws affecting
creditors' rights generally or the availability of equitable remedies.
Section 3.5 SUBSIDIARIES. The Company does not own, directly or
indirectly, any of the capital stock of any other corporation or any equity,
profit sharing, participation or other interest in any corporation, partnership,
joint venture or other entity.
Section 3.6 NO VIOLATION. Except as set forth in Schedule 3.6, neither
the execution, delivery or performance of this Agreement or the other agreements
contemplated hereby nor the consummation of the transactions contemplated hereby
or thereby will (i) conflict with, or result in a violation of, any provision
of, the Certificate of Incorporation or Bylaws of the Company; (ii) conflict
with, or result in a violation or breach of the terms, conditions or provisions
of, or constitute a default under, any agreement, indenture or other instrument
under which the Company is bound or to which the Portsmith Common Stock or any
of the assets of the Company are subject, or result in the creation or
imposition of any security interest, lien, charge or encumbrance upon the
Portsmith Common Stock or any of the assets of the Company; or (iii) violate or
conflict with any judgment, decree, order, statute, rule or regulation of any
court or any
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public, governmental or regulatory agency or body having jurisdiction over the
Company, the Portsmith Common Stock or the assets of the Company.
Section 3.7 CONSENTS. Except as set forth in Schedule 3.7, no consent,
authorization, approval, permit or license of, or filing with, any governmental
or public body or authority, any lender or lessor or any other person or entity
is required to authorize, or is required in connection with, the execution,
delivery and performance of this Agreement or the agreements contemplated hereby
on the part of the Company.
Section 3.8 FINANCIAL STATEMENTS. The Company has furnished to Parent
the unaudited balance sheet and related unaudited statements of income, retained
earnings and cash flows for each of the twelve-months ended December 31, 1999
and 2000, and the draft balance sheet and related unaudited statement of income,
retained earnings and cash flow for the twelve-months ended December 31, 2001,
including in each case, the notes thereto, as well as unaudited balance sheet
and related unaudited statement of income, retained earnings and cash flows for
the month of January, 2002 (collectively, the "Financial Statements"). The
Financial Statements have been prepared in accordance with generally accepted
accounting principles applied on a consistent basis throughout the periods
indicated, except that the unaudited Financial Statements may not contain all
footnotes required by generally accepted accounting principles. Except as set
forth on Schedule 3.8, the Financial Statements fairly present the financial
condition and operating results of the Company as of the dates, and for the
periods, indicated therein, subject to normal year-end audit adjustments. Except
as set forth in the Financial Statements, the Company has no material
liabilities, contingent or otherwise, other than (i) liabilities incurred in the
ordinary course of business subsequent to January 31, 2002 and (ii) obligations
under contracts and commitments incurred in the ordinary course of business and
not required under generally accepted accounting principles to be reflected in
the Financial Statements, which, in either instance of (i) and (ii) above,
individually or in the aggregate are not material to the financial condition or
operating results of the Company.
Section 3.9 LIABILITIES AND OBLIGATIONS. Except as set forth in
Schedule 3.9, the Financial Statements reflect all liabilities of the Company,
accrued, contingent or otherwise (known or unknown and asserted or unasserted),
arising out of transactions effected or events occurring on or prior to the date
hereof. All reserves shown in the Financial Statements are appropriate,
reasonable and sufficient to provide for losses thereby contemplated. Except as
set forth in the Financial Statements, the Company is not liable upon or with
respect to, or obligated in any other way to provide funds in respect of or to
guarantee or assume in any manner, any debt, obligation or dividend of any
person, corporation, association, partnership, joint venture, trust or other
entity, and the Company does not know of any basis for the assertion of any
other claims or liabilities of any nature or in any amount.
Section 3.10 EMPLOYEE MATTERS.
(a) COMPENSATION AND PLANS. Schedule 3.10(a) contains
a complete and accurate list of the names, titles and cash
compensation, including without limitation wages, salaries, bonuses
(discretionary and formula) and other cash compensation (the "Cash
Compensation") of (i) all employees of the Company and (ii) consultants
who were paid in excess of $5,000 during the past twelve months.
Schedule 3.10(a) contains a
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complete and accurate list of all compensation plans, arrangements or
practices (the "Compensation Plans") sponsored by the Company or to
which the Company contributes on behalf of its employees, other than
Employee Benefit Plans listed in Schedule 3.11. The Compensation Plans
include without limitation employment agreements, noncompetition
agreements, employee leasing agreements, plans, arrangements or
practices that provide for severance pay, deferred compensation,
incentive, bonus or performance awards, and stock ownership or stock
options. Each of the Compensation Plans can be terminated or amended at
will by the Company.
(b) EMPLOYEE POLICIES AND PROCEDURES. Schedule
3.10(b) contains a complete and accurate list of all employee manuals,
policies, procedures and work-related rules created by the Company (the
"Employee Policies and Procedures") that apply to employees of the
Company. Each of the Employee Policies and Procedures can be amended or
terminated at will by the Company.
(c) LABOR COMPLIANCE. Except as set forth in Schedule
3.10(c), the Company (i) has been and is in compliance with all laws,
rules, regulations and ordinances respecting employment and employment
practices, terms and conditions of employment and wages and hours, and
(ii) is not liable for any arrears of wages or penalties for failure to
comply with any of the foregoing. The Company has not engaged in any
unfair labor practice or discriminated on the basis of race, color,
religion, sex, national origin, age or handicap in its employment
conditions or practices. There are no (i) unfair labor practice charges
or complaints or racial, color, religious, sex, national origin, age or
handicap discrimination charges or complaints pending or threatened
against the Company before any federal, state or local court, board,
department, commission or agency nor does any basis therefore exist or
(ii) existing or threatened labor strikes, disputes, grievances,
controversies or other labor troubles affecting the Company nor does
any basis therefore exist.
(d) UNIONS; ALIENS. The Company has never been a
party to any agreement with any union, labor organization or collective
bargaining unit. No employees of the Company are represented by any
union, labor organization or collective bargaining unit. To the best
knowledge of the Company, the employees of the Company have no
intention to and have not threatened to organize or join a union, labor
organization or collective bargaining unit. All employees of the
Company are citizens of, or are authorized to be employed in, the
United States.
Section 3.11 EMPLOYEE BENEFIT PLANS.
(a) Schedule 3.11 contains a complete and accurate
list of all employee benefit plans (the "Employee Benefit Plans")
within the meaning of Section 3(3) of the Employee Retirement Income
Security Act of 1974, as amended ("ERISA") sponsored by the Company or
to which the Company contributes on behalf of its employees and all
Employee Benefit Plans previously sponsored or contributed to on behalf
of its employees within the three years preceding the date hereof. Each
of the Employee Benefit Plans can be terminated or amended at will by
the Company. No unwritten amendment exits with respect to any Employee
Benefit Plan. Each Employee
11
Benefit Plan has been administered and maintained in compliance with
all laws, rules and regulations. No Employee Benefit Plan is currently
the subject of an audit, investigation, enforcement action or other
similar proceeding conducted by any state or federal agency. No
prohibited transaction (within the meaning of Section 4975 of the Code)
have occurred with respect to any Employee Benefit Plan. No threatened
or pending claims, suits or other proceedings exist with respect to any
Employee Benefit Plan other than normal benefit claims filed by
participants or beneficiaries.
(b) The Company has received a favorable
determination letter or ruling from the Internal Revenue Service for
each Employee Benefit Plan intended to be qualified within the meaning
of Section 401(a) of the Code and/or tax-exempt within the meaning of
Section 501(a) of the Code. No proceedings exist or have been
threatened that could result in the revocation of any such favorable
determination letter or ruling. No accumulated funding deficiency
(within the meaning of Section 412 of the Code), whether waived or
unwaived, exists with respect to an Employee Benefit Plan. With respect
to each Employee Benefit Plan described in Section 501(c)(9) of the
Code, the assets of each such plan are at least equal in value to the
present value of accrued benefits as of the date hereof. The Company
does not have any liability to pay excise taxes with respect to any
Employee Benefit Plan under applicable provisions of the Code or ERISA.
No facts or circumstances exist that would result in the imposition of
liability against Parent by the Pension Benefit Guaranty Corporation as
a result of any act or omission by the Company.
Section 3.12 TITLE; LEASED ASSETS. A description of all interests in real
property owned by the Company (collectively, the "Real Property") is set forth
in Schedule 3.12(a). Except as set forth in Schedule 3.12(a), the Company has
good, valid and marketable title to all the Real Property. Except as set forth
in Schedule 3.12(b), the Company has good, valid and marketable title to all
tangible and intangible personal property owned by them (collectively, the
Personal Property"). A list and brief description of all leases of real and
personal property to which the Company is a party, either as lessor or lessee,
are set forth in Schedule 3.12(c). All such leases are valid and enforceable in
accordance with their respective terms except as may be limited by applicable
bankruptcy, insolvency or similar laws affecting creditors' rights generally or
the availability of equitable remedies.
Section 3.13 COMMITMENTS.
(a) COMMITMENTS; DEFAULTS. Except as set forth in
Schedule 3.13, the Company has not entered into, nor are the Portsmith
Common Stock, the assets or the business of the Company bound by,
whether or not in writing, any
(i) partnership or joint venture
agreement;
(ii) deed of trust or other security
agreement;
(iii) guaranty or suretyship,
indemnification or contribution
agreement or performance bond;
12
(iv) employment, consulting or
compensation agreement or
arrangement, including the election
or retention in office of any
director or officer;
(v) labor or collective bargaining
agreement;
(vi) debt instrument, loan agreement or
other obligation relating to
indebtedness for borrowed money or
money lent or to be lent to
another;
(vii) deed or other document evidencing
an interest in or contract to
purchase or sell real property;
(viii) agreement with dealers or sales or
commission agents, public relations
or advertising agencies,
accountants or attorneys;
(ix) lease of real or personal property,
whether as lessor, lessee,
sublessor or sublessee;
(x) agreement between the Company and
any affiliate of the Company;
(xi) any agreement for the acquisition
of services, supplies, equipment or
other personal property and
involving more than $25,000 in the
aggregate;
(xii) powers of attorney;
(xiii) contracts containing noncompetition
covenants;
(xiv) any other contract or arrangement
that involves either an unperformed
commitment in excess of $5,000 or
that terminates more than 30 days
after the date hereof;
(xv) agreement relating to any material
matter or transaction in which an
interest is held by any person or
entity referred to in Section 3.26;
(xvi) agreement providing for the
purchase from a supplier of all or
substantially all of the
requirements of the Company of a
particular product or service; or
(xvii) any other agreement or commitment
not made in the ordinary course of
business or that is material to the
business or financial condition of
the Company.
13
All of the foregoing are hereinafter collectively referred to as the
"Commitments." True, correct and complete copies of the written Commitments have
heretofore been delivered or made available to Parent, and true, correct and
complete written descriptions of the oral Commitments, are set forth on Schedule
3.13. There are no existing defaults, events of default or events, occurrences,
acts or omissions that, with the giving of notice or lapse of time or both,
would constitute defaults by the Company, and no penalties have been incurred
nor are amendments pending, with respect to the Commitments, except as described
in Schedule 3.13. The Commitments are in full force and effect and are valid and
enforceable obligations of the parties thereto in accordance with their
respective terms, and no defenses, off-sets or counterclaims have been asserted
or, to the best knowledge of the Company and Stockholders, may be made by any
party thereto, nor has the Company waived any rights thereunder, except as
described in Schedule 3.13. The Company has not received notice of any default
with respect to any Commitment.
(b) NO CANCELLATION OR TERMINATION OF COMMITMENT.
Except as contemplated hereby, the Company has not received notice of
any plan or intention of any other party to any Commitment to exercise
any right to cancel or terminate any Commitment or agreement, and the
Company does not know of any fact that would justify the exercise of
such a right. The Company does not currently contemplate, or have
reason to believe, any other person or entity currently contemplates,
any amendment or change to any Commitment.
Section 3.14 INSURANCE. A list and brief description of all insurance
policies of the Company are set forth in Schedule 3.14. To the Company's
knowledge, all of such policies are valid and enforceable policies, issued by
insurers of recognized responsibility in amounts and against such risks and
losses as is customary in the industry of the insured.
Section 3.15 PATENTS, TRADE-MARKS, SERVICE MARKS AND COPYRIGHTS. Except
as set forth in Schedule 3.15, the Company owns or possesses sufficient title
and ownership of or licenses to all patents, trademarks, service marks, trade
names, copyrights, trade secrets, licenses, information and proprietary rights
and processes (including, without limitation, products, tooling, technology,
software, firmware and the like) necessary for its business as conducted and as
currently proposed to be conducted (including, without limitation, the
manufacture and sale of cradles for certain handheld devices produced by Symbol,
Palm, Handspring, Compaq IPAQ, Sony and other key customers) without any
conflict with, or infringement of, the rights of others. There are no
outstanding options, licenses or agreements of any kind relating to the
foregoing, nor is the Company bound by or a party to any options, licenses or
agreements of any kind with respect to the patents, trademarks, service marks,
trade names, copyrights, trade secrets, licenses, information and other
proprietary rights and processes of any other person or entity other than such
licenses or agreements arising from the purchase of "off the shelf' or standard
commercial products. The Company has not received any communications alleging
that the Company has violated or, by conducting its business, would violate any
of the patents, trademarks, service marks, trade names, copyrights, trade
secrets or other proprietary rights or processes of any other person or entity.
The Company, to the best of its knowledge, is not aware that any of its
employees is obligated under any contract (including licenses, covenants or
commitments of any nature) or other agreement, or subject to any judgment,
decree or order of any court or administrative agency, that would interfere with
the use of such employee's best efforts to
14
promote the interest of the Company or that would conflict with the Company's
business. Neither the execution or delivery of this Agreement, nor the carrying
on of the Company's business by the employees of the Company, nor the conduct of
the Company's business as currently proposed, will conflict with or result in a
breach of the terms, conditions, or provisions of, or constitute a default
under, any contract, covenant or instrument under which any such employee is now
obligated. The Company does not believe it is or will be necessary to use any
inventions of any of its employees (or persons it currently intends to hire)
made prior to their employment by the Company. The Company is not using or in
any way making use of any confidential information or trade secrets of any third
party, including without limitation, any past or present employees of the
Company.
Section 3.16 TAXES. The Company has filed all tax returns and reports
as required by law. These returns and reports are true and correct in all
material respects. The Company has paid all taxes and other assessments due,
other than those that are due but not yet required to be paid, which taxes are
identified on Schedule 3.16. The Company has not made any elections pursuant to
the Code (other than elections that relate solely to methods of accounting,
depreciation or amortization) that would have a material effect on the Company,
its financial condition, its business as presently conducted or proposed to be
conducted or any of its properties or material assets. The Company had never had
any tax deficiency proposed or assessed against it and has not executed any
waiver of any statute of limitations on the assessment or collection of any tax
or governmental charge. None of the Company's federal income tax returns and
none of its state income or franchise tax or sales or use tax returns has ever
been audited by governmental authorities. Since the date of the Financial
Statements, the Company has not incurred any taxes, assessments or governmental
charges other than in the ordinary course of business and the Company has made
adequate provisions on its books of account for all taxes, assessments and
governmental charges with respect to its business, properties and operations for
such period. The Company has withheld or collected from each payment made to
each of its employees, the amount of all taxes (including, but not limited to,
federal income taxes, federal Insurance Contribution Act taxes and Federal
Unemployment Tax Act taxes) required to be withheld or collected therefrom, and
has paid the same to the proper tax receiving officers or authorized
depositories.
Section 3.17 COMPLIANCE WITH LAWS. The Company has complied with all
laws, regulations and licensing requirements and has filed with the proper
authorities all necessary statements and reports. There are no existing
violations by the Company or Stockholders of any federal, state or local law or
regulation that could affect the property or business of the Company. The
Company possesses all necessary licenses, franchises, permits and governmental
authorizations to conduct its business as now conducted.
Section 3.18 FINDER'S FEE. The Company has not incurred any obligation
for any finder's, broker's or agent's fee in connection with the transactions
contemplated hereby.
Section 3.19 LITIGATION. Except as set forth in Schedule 3.19, there is
no action, suit, proceeding or investigation pending or, to the best knowledge
of the Company, currently threatened against the Company that questions the
validity of the Agreements or the right of the Company to enter into them, or to
consummate the transactions contemplated hereby or thereby, or that might
result, either individually or in the aggregate, in any material adverse changes
in the
15
assets, condition or affairs of the Company, financially or otherwise, or any
change in the current equity ownership of the Company, nor is the Company aware
that there is any basis for the foregoing. The foregoing includes, without
limitation, actions pending or to the best knowledge of the Company threatened
in writing involving the prior employment of any of the Company's employees,
their use in connection with the Company's business of any information or
techniques allegedly proprietary to any of their former employers. The Company
is not a party or subject to the provisions of any order, writ, injunction,
judgment or decree of any court or government agency or instrumentality. There
is no action, suit, proceeding or investigation by the Company currently pending
or which the Company intends to initiate.
Section 3.20 ACCURACY OF INFORMATION FURNISHED. The information
furnished to Parent by the Company hereby or in connection with the transactions
contemplated hereby is true, correct and complete in all respects. Such
information states all facts required to be stated therein or necessary to make
the statements therein, in light of the circumstances under which such
statements are made, true, correct and complete.
Section 3.21 CONDITION OF FIXED ASSETS. All of the plants, structures
and equipment (the "Fixed Assets") owned by the Company are in good condition
and repair (subject to normal wear and tear) for their intended use in the
ordinary course of business and conform in all material respects with all
applicable ordinances, regulations and other laws and there are no known latent
defects therein.
Section 3.22 INVENTORY. All of the inventory owned by the Company is in
good, current, standard and merchantable condition and is not obsolete or
defective. Purchase commitments for merchandise are not in excess of normal
requirements and, taken as a whole, are not at prices in excess of market
prices. At the date of this Agreement, the Company has the types and quantities
of inventories appropriate, taken as a whole, to conduct its business
consistently with past practices.
Section 3.23 ACCOUNTS RECEIVABLE. Schedule 3.23 sets forth the accounts
receivable of the Company from sales made as of the date of this Agreement and
the payments and rights to receive payments related thereto. All such accounts
receivable have arisen from bona fide transactions in the ordinary course of
business and are valid and enforceable claims subject to no right of set-off or
counterclaim.
Section 3.24 CUSTOMERS. Except as set forth on Schedule 3.24, no
customer or supplier that was significant to the Company during the period from
June 30, 2001 to December 31, 2001 (including, without limitation, Symbol), has
terminated, materially reduced or, to the Company's knowledge, threatened to
terminate or materially reduce its purchases from or provision of products or
services to the Company, as the case may be, and the Company does not have any
knowledge of any risks or issues with respect to any of its customers which
could result in the Company not meeting its 2002 business plan, as previously
delivered to Parent.
Section 3.25 PRODUCT WARRANTIES. Except as set forth on Schedule 3.25,
there is no claim against or liability of the Company on account of product
warranties or with respect to the manufacture, sale or rental of defective
products and there is no basis for any such claim on account of defective
products heretofore manufactured, sold or rented that is not fully covered by
insurance.
16
Section 3.26 OWNERSHIP INTERESTS OF INTERESTED PERSONS. Except as set
forth in Schedule 3.26, the Company is not indebted, directly or indirectly, to
any of its officers or directors or to their respective spouses or children, in
any amount whatsoever other than in connection with expenses or advances of
expenses incurred in the ordinary course of business. Except as set forth in
Schedule 3.26, none of the Company's officers or directors, or any members of
their immediate families, are, directly or indirectly, indebted to the Company
(other than in connection with purchases of the Company's stock) or to the best
knowledge of the Company have any direct or indirect ownership interest in any
firm or corporation with which the Company is affiliated or with which the
Company has a business relationship, or any firm or corporation which competes
with the Company except that officers, directors and/or stockholders of the
Company may own stock in (but not exceeding two percent of the outstanding
capital stock of) any publicly traded company that may compete with the Company.
Except as set forth in Schedule 3.26, none of the Company's officers or
directors or any members of their immediate families are, directly or
indirectly, interested in any material contract with the Company. Except as set
forth in Schedule 3.26, the Company is not a guarantor or indemnitor of any
indebtedness of any other person, firm or corporation.
Section 3.27 ENVIRONMENTAL MATTERS. The Company is not in violation of
any applicable statute, law or regulation relating to the environment or
occupational health and safety, and to its knowledge, no material expenditures
are or will be required in order to comply with any such existing statute, law
or regulation.
Section 3.28 CONFIDENTIAL INFORMATION AND INVENTION ASSIGNMENT
AGREEMENTS. All officers of the Company, and substantially all current employees
of the Company, have executed an agreement with the Company regarding
confidentiality and proprietary information substantially in the form or forms
delivered to the counsel for Parent. The Company is not aware that any of its
employees or consultants is in violation thereof.
Section 3.29 CERTAIN PAYMENTS. To the best knowledge of the Company,
neither the Company nor any director, officer or employee of the Company has
paid or caused to be paid, directly or indirectly, in connection with the
business of the Company: (a) to any government or agency thereof or any agent of
any supplier or customer any bribe, kick-back or other similar payment; or (b)
any contribution to any political party or candidate (other than from personal
funds of directors, officers or employees not reimbursed by their respective
employers or as otherwise permitted by applicable law).
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE STOCKHOLDERS
Each Stockholder, as to itself, represents and warrants to Parent and
Merger Sub that the following are true and correct as of the date hereof:
17
Section 4.1 AUTHORITY AND OWNERSHIP.
(a) Such Stockholder has the capacity to execute and
deliver this Agreement and the Escrow Agreement and to consummate the
transactions contemplated hereby. All necessary action required to have
been taken by or on behalf of such Stockholder by applicable law or
otherwise to authorize (i) the approval, execution and delivery on its
behalf of this Agreement and the Escrow Agreement and (ii) its
performance of its obligations under this Agreement and the Escrow
Agreement and the consummation of the transactions contemplated hereby
and thereby have been taken. This Agreement and the Escrow Agreement
constitutes such Stockholder's valid and binding agreement, enforceable
against such Stockholder in accordance with its terms, except (A) as
the same may be limited by applicable bankruptcy, insolvency,
moratorium or similar laws of general application relating to or
affecting creditors' rights, including without limitation, the effect
of statutory or other laws regarding fraudulent conveyances and
preferential transfer, and (B) for the limitations imposed by general
principles of equity.
(b) Except as set forth on Schedule 4.1(b), such
Stockholder owns, beneficially and of record, good and marketable title
to the Portsmith Common Stock listed opposite its name on Exhibit B,
free and clear of all security interests, liens, adverse claims,
encumbrances, equities, proxies, options, voting agreements,
stockholders' agreements or restrictions.
Section 4.2 NO BREACH. The execution and delivery of this Agreement and
the Escrow Agreement do not, and the consummation of the transactions
contemplated hereby or thereby will not (i) constitute a breach or default (or
an event that with notice or lapse of time or both would become a breach or
default) or give rise to any lien, third party right of termination,
cancellation, material modification or acceleration under any agreement,
understanding or undertaking to which such Stockholder is a party or by which it
is bound, or (ii) constitute a violation of any law, rule or regulation to which
such Stockholder is subject.
Section 4.3 CONSENTS AND APPROVALS. Neither the execution and delivery
by such Stockholder of this Agreement or the Escrow Agreement nor the
consummation by such Stockholder of the transactions contemplated hereby or
thereby will require such Stockholder to obtain any consent, approval,
authorization or permit of, or to make any filing with or give any notification
to, any governmental or regulatory authority, any lender or lessor or any other
person or entity.
Section 4.4 BROKERS AND FINDERS. Such Stockholder has not employed any
broker or finder or incurred any liability for any brokerage fees, commissions
or finder's fees in connection with the transactions contemplated herein.
Section 4.5 STATUS OF STOCKHOLDER. Such Stockholder is knowledgeable in
making investments and is able to bear the economic risk of loss of its
investment in Parent. Except as provided in Schedule 4.5 attached hereto, such
Stockholder is an "accredited investor", as that term is defined in Rule 501(a)
of Regulation D under the Securities Act of 1933, as amended (the "Securities
Act"). Such Stockholder is acting on its own behalf in connection with the
investigation and examination of Parent and its decision to execute this
Agreement and all related documents, instruments and agreements. Such
Stockholder is receiving the Merger
18
Consideration for its own account, and not with a view of distribution. Such
Stockholder acknowledges that the Parent Common Stock will be unregistered and
may not be sold or transferred in the absence of registration under the
Securities Act and applicable state securities laws, unless an exemption exists
therefore, and Parent has no obligation to effect such a registration.
Such Stockholder acknowledges Parent has made all documents pertaining
to the transactions contemplated herein, in the Exhibits and Schedules attached
hereto and as filed with the Securities and Exchange Commission available to
such Stockholder and/or such Stockholder's representative and has allowed such
Stockholder and/or its representative an opportunity to ask questions and
receive answers thereto and to verify and clarify any information contained in
such documents. Such Stockholder has relied upon advice of its representative
and/or independent investigation made by such Stockholder and/or such
Stockholder's representative, and acknowledges that no representations or
agreements other than those set forth in this Agreement have been made to such
Stockholder in respect thereto. For any Stockholder who is not an accredited
investor, such Stockholder, by reason of its business or financial experience
and/or that of its representative who is unaffiliated with Parent and who is not
compensated by Parent or any affiliate of Parent, such Stockholder has the
capacity to protect such Stockholder's own interest in connection with the
transactions contemplated by this Agreement and the issuance of the Merger
Consideration to such Stockholder with respect to the transactions contemplated
herein. Such Stockholder expressly acknowledges and confirms that such
Stockholder has evaluated and understands the risks and terms of investing in
the securities of Parent to be issued to such Stockholder pursuant to this
Agreement, and/or such Stockholder and its representative have, such knowledge
and experience in financial and business matters in general and in particular
with respect to this type of investment that such Stockholder is, or they are,
capable of evaluating the merits and risks of an investment in the Parent Common
Stock to be issued to such Stockholder in connection with the transactions
contemplated herein.
Section 4.6 INVESTMENTS IN COMPETITORS. Such Stockholder does not own
directly or indirectly any interests or has any investment in any corporation,
business or other person that is a competitor of the Company, except that such
Stockholder may own stock in (but not exceeding one percent of the outstanding
capital stock of) any publicly traded company that may compete with the Company.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUB
Parent and Merger Sub represent and warrant to the Company and the
Stockholders that the following are true and correct as of the date hereof:
Section 5.1 ORGANIZATION AND GOOD STANDING. Parent and Merger Sub are
each corporations duly organized, validly existing and in good standing under
the laws of the state of its incorporation, with all requisite corporate power
and authority to carry on the business in which it is engaged, to own the
properties it owns, to execute and deliver this Agreement and to consummate the
transactions contemplated hereby.
19
Section 5.2 AUTHORIZATION AND VALIDITY. The execution, delivery and
performance by Parent and Merger Sub of this Agreement and the other agreements
contemplated hereby, and the consummation of the transactions contemplated
hereby and thereby, have been duly authorized by Parent and Merger Sub. This
Agreement and each other agreement contemplated hereby have been as of the date
of this Agreement, duly executed and delivered by Parent and Merger Sub and
constitute legal, valid and binding obligations of Parent and Merger Sub,
enforceable against Parent and Merger Sub in accordance with their respective
terms, except as may be limited by applicable bankruptcy, insolvency or similar
laws affecting creditors' rights generally or the availability of equitable
remedies.
Section 5.3 NO VIOLATION. Neither the execution, delivery or
performance of this Agreement or the other agreements contemplated hereby nor
the consummation of the transactions contemplated hereby or thereby will (i)
conflict with, or result in a violation or breach of the terms, conditions and
provisions of, or constitute a default under, the Certificate of Incorporation
or Bylaws of Parent or Merger Sub or any agreement, indenture or other
instrument under which Parent or Merger Sub is bound or (ii) violate or conflict
with any judgment, decree, order, statute, rule or regulation of any court or
any public, governmental or regulatory agency or body having jurisdiction over
Parent or Merger Sub or the properties or assets of Parent or Merger Sub.
Section 5.4 FINDER'S FEE. Neither Parent nor Merger Sub has incurred
any obligation for any finder's, broker's or agent's fee in connection with the
transactions contemplated hereby.
Section 5.5 LITIGATION. There is no action, suit, proceeding or
investigation pending or, to the best knowledge of the Company, currently
threatened against Parent or any of its subsidiaries that questions the validity
of the Agreements or the right of Parent or Merger Sub to enter into them, or to
consummate the transactions contemplated hereby or thereby. Neither Parent nor
any of its subsidiaries is a party or subject to the provisions of any order,
writ, injunction, judgment or decree of any court or government agency or
instrumentality.
Section 5.6 SEC FILINGS; PARENT FINANCIAL STATEMENTS.
(a) Parent has filed all forms, reports and documents
required to be filed by Parent with the SEC since the effective date of
the registration statement of Parent's initial public offering, and has
made available to Company such forms, reports, and documents in the
form filed with the SEC. All such required forms, reports and documents
(including those that Parent may file subsequent to the date hereof)
are referred to herein as the "Parent SEC Reports". As of their
respective dates, the Parent SEC Reports (i) complied as to form in all
material respects with the requirements of the Securities Act or the
Exchange Act of 1934, as amended (the "Exchange Act"), as the case may
be, and the rules and regulations of the SEC thereunder applicable to
such Parent SEC Reports, and (ii) did not at the time they were filed
(or if amended or superseded by a filing prior to the date of this
Agreement, then on the date of such filing) 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 the light of the circumstances under which they were made,
not misleading, except to the extent corrected prior to the date of
this Agreement by a subsequently filed Parent SEC Report. None of
Parent's subsidiaries is required to file any forms, reports or other
documents with the SEC.
20
(b) Each of the consolidated financial statements
(including, in each case, any related notes thereto) contained in the
Parent SEC Reports (the "Parent Financials"), including any Parent SEC
Reports filed after the date hereof until the Closing, (i) complied as
to form in all material respects with the published rules and
regulations of the SEC with respect thereto, (ii) was prepared in
accordance with GAAP applied on a consistent basis throughout the
periods involved (except as may be indicated in the notes thereto or,
in the case of unaudited interim financial statements, as may be
permitted by the SEC on Form 10-Q, 8-K or any successor form under the
Exchange Act) and (iii) fairly presented the consolidated financial
position of Parent and its subsidiaries as at the respective dates
thereof and the consolidated results of operations and cash flows for
the periods indicated, except that the unaudited interim financial
statements may not contain footnotes and were or are subject to normal
and recurring year-end adjustments. The balance sheet of Parent
contained in Parent SEC Report as of September 30, 2001 is hereinafter
referred to as the "Parent Balance Sheet."
Section 5.7 SECURITIES EXEMPTION. Based on the representations of
Stockholders in Article IV above, the issuance of the securities pursuant to
this Agreement are exempt from registration under the Securities Act.
ARTICLE VI
CLOSING DELIVERIES
Section 6.1 DELIVERIES OF THE COMPANY AND STOCKHOLDERS. Simultaneously
with the execution of this Agreement, the Company and Stockholders shall deliver
to Parent the following, all of which shall be in form and content satisfactory
to Parent and its counsel:
(a) a copy of resolutions of the Board of Directors
of the Company authorizing the execution, delivery and performance of
this Agreement and all related documents and agreements, each certified
by the Secretary of the Company as being true and correct copies of the
originals thereof subject to no modifications or amendments;
(b) certificate, dated within five days prior to the
date of this Agreement, of the Secretary of State of Delaware
establishing that the Company is in existence, has paid all franchise
taxes and otherwise is in good standing to transact business in its
state of incorporation;
(c) all authorizations, consents, approvals, permits
and licenses referenced in Schedule 3.7;
(d) executed noncompetition agreement between Merger
Sub and Lundt in the form attached as Exhibit D (the "Lundt
Noncompetition Agreement");
(e) executed Stock Escrow Agreement; and
(f) executed Pledge Agreement.
21
Section 6.2 DELIVERIES OF PARENT AND MERGER SUB. Simultaneously with
the execution of this Agreement, Parent and Merger Sub shall deliver the
following to the Company or the appropriate party:
(a) a copy of resolutions of the Board of Directors
of Parent and Merger Sub authorizing the execution, delivery and
performance of this Agreement and all related documents and agreements,
certified by the Secretary of Parent and Merger Sub as being a true and
correct copy of the original thereof subject to no modifications or
amendments;
(b) executed Lundt Noncompetition Agreement;
(c) executed Stock Escrow Agreement; and
(d) executed Pledge Agreement.
ARTICLE VII
OTHER AGREEMENTS
Section 7.1 PAYMENT OF SHARE CONSIDERATION. As soon as practicable, but
in no event later than ten (10) business days, after Closing, Parent shall
deliver the Share Consideration (less the Escrowed Shares) to the Stockholders;
provided, however, that for any Eligible Stockholder who is not a party hereto,
Parent shall hold the Share Consideration payable to such Eligible Stockholder
until the appraisal period under Section 262 of the DGCL has expired.
Section 7.2 SALES REPRESENTATIVE AGREEMENT. Effective as of the
Closing, Parent will be the sole and exclusive representative of the Surviving
Corporation for the sales of the Surviving Corporation's products (as the same
are offered for sale by the Surviving Corporation from time to time (the
"Products") for all non-original equipment manufacturer channel sales. Parent
will solicit from its customers purchase orders for Products, and will submit
such purchase orders to the Surviving Corporation. The Surviving Corporation
may, in its sole discretion, accept or reject all or any portion of a purchase
order. Parent will not take title to any of the Products, but will act as an
independent sales representative of the Surviving Corporation. The parties
understand and agree that Parent currently, and in the future will, market and
sell its own products and products manufactured by other persons and entities,
and nothing in this Agreement shall in anyway restrict or prohibit Parent from
undertaking such activities. For each sale of Products sold by Parent, the
Surviving Corporation will pay Parent a fee equal to seven percent (7%) of the
sales price of such Product, net of returns and allowances, which fee shall be
payable within fifteen (15) days after the end of each calendar month for
amounts received by the Surviving Corporation from purchasing customers during
such calendar month. The Products shall be co-branded as to the Surviving
Corporation and Parent, as Parent and the Surviving Corporation may mutually
agree. Parent shall be responsible for, and shall pay, all costs and expenses
relating or pertaining to the marketing and sales of Product. The Surviving
Corporation shall be responsible for, and shall pay, all costs and expenses
relating or pertaining to the fulfillment of sales resulting from Parent's
activities under this Section 7.2, including,
22
without limitation, all returns, market development funds, and other related
costs of sales, unless otherwise agreed to in writing by Parent.
Section 7.3 PRODUCT DEVELOPMENT. The parties agree that the Surviving
Corporation will continue to remain focused on its current handheld-centric
business plan, as previously presented by the Surviving Corporation to Parent.
Parent and the Surviving Corporation further agree that, in order for Parent and
the Surviving Corporation to leverage their respective developed technologies,
where possible, the parties will collaborate on product road maps, and use all
commercially reasonable efforts to develop and implement mutually acceptable
product plans; it being agreed and understood that the intent of such activities
is to have the Surviving Corporation fulfill the market's requirements for a
family of high-value products targeted at the handheld portable computer market.
Section 7.4 COMPENSATION ARRANGEMENTS. Following, but in no event more
than thirty (30) business days after, the Closing, Parent shall devise a bonus
plan for the executive management team of the Surviving Corporation and will
also allocate and deliver to the employees of the Surviving Corporation options
to purchase an aggregate of 200,000 shares of Parent Common Stock under Parent's
Amended and Restated 1996 Long Term Incentive Plan; which options will be in the
form of Exhibit G attached hereto. The above allocations shall be mutually
agreeable to Parent and Lundt.
Section 7.5 CAPITAL INFUSION. Immediately following the Closing, Parent
will make an additional $1,000,000 capital contribution to Surviving
Corporation.
Section 7.6 CONVERSION OF NOTE. Effective as of the Merger Effective
Time, the principal balance of, and all accrued but unpaid interest on, that
certain Subordinated Convertible Promissory Note, dated August 29, 2002; in the
original principal amount of up to $3,000,000, and with the Company as "Maker"
and Parent as "Payee", shall be deemed to be a capital contribution by Parent to
the capital stock of the Surviving Corporation, and the related Security
Agreement shall be deemed to be cancelled and of no further force or effect.
Section 7.7 EXECUTION OF ASSIGNMENT OF INVENTIONS AGREEMENT. Prior to
the Merger Effective Time, Dan Axtman, the Company's Chief Technology Officer,
shall have executed and delivered to the Company an Assignment of Inventions
Agreement, substantially in the form of Exhibit H attached hereto.
Section 7.8 FURTHER INSTRUMENTS OF TRANSFER. Following the Closing, at
the request of Parent, Stockholders shall deliver any further instruments of
transfer and take all reasonable action as may be necessary or appropriate to
carry out more effectively the provisions of this Agreement and to establish and
protect the rights created in favor of the parties hereunder or thereunder.
Section 7.9 PARENT COVENANTS REGARDING SURVIVING CORPORATION'S
OPERATION. As a material inducement to the Company to enter into this Agreement,
Parent hereby agrees that, during the time period beginning on the Merger
Effective Date and ending on December 31, 2002 (the "Transition Period"), Parent
hereby covenants and agrees with the Company that, at all times during the
Transition Period, Parent shall:
23
(a) cooperate with the Surviving Corporation,
regarding the recruitment, hiring, employment, management,
compensation, retention and termination of employees and contractors of
the Surviving Corporation during the Transition Period;
(b) not dissolve or liquidate the Surviving
Corporation, nor sell or cause the Surviving Corporation to sell,
transfer or otherwise dispose of any of the Surviving Corporation's
assets other than in the ordinary course of the Surviving Corporation's
business and other than the capital stock of Subsidiary, nor transfer
any liabilities to the Surviving Corporation, nor merge or consolidate
the Surviving Corporation with another entity or sell, distribute or
otherwise dispose of the capital stock of the Surviving Corporation;
provided, however, that this subpart (b) shall not in any way prohibit
or impede the Surviving Corporation from becoming a party to, and
receiving proceeds from, Parent's credit facility, and the assets of
Surviving Corporation may be pledged under such a credit facility;
provided further, however, that Parent shall use all commercially
reasonable efforts to cause the lender under Parent's credit facility,
with respect to Surviving Corporation, to only loan against Surviving
Corporation's account receivables and inventory and to limit Surviving
Corporation's liability to the borrowing percentage for such assets
under such lender's borrowing base calculation;
(c) not relocate the Surviving Corporation's physical
offices or operations;
(d) except as provided in this Article VII, provide
that, with respect to any transactions between Parent (or any of its
affiliates) and the Surviving Corporation in which the Surviving
Corporation has agreed to undertake new or additional material
responsibilities or obligations at the request of Parent (or any such
affiliate), the revenue attributable to the Surviving Corporation shall
be determined on terms no less favorable than if such transaction had
been on an arm's length basis with an independent third party;
provided, however, that neither the Surviving Corporation nor Parent
shall be obligated to enter into any such transactions;
(e) not take any materially adverse action to
interfere with the Surviving Corporation's revenue contracts or to
discourage customers, employees, vendors, suppliers or other business
associates of the Surviving Corporation from continuing to maintain
their business relationship with the Surviving Corporation as in effect
on the Control Effective Date; and
(f) except with respect to the Pledge Agreement,
pledge or otherwise encumber any shares of capital stock of Surviving
Corporation
Section 7.10 NASDAQ LISTING. If required by the rules of the Nasdaq
stock market, Parent agrees to use its best efforts to cause the shares of
Parent Common Stock issuable pursuant to this Agreement to be approved for
listing on the Nasdaq National Market.
Section 7.11 INDEMNIFICATION OF PORTSMITH DIRECTORS AND OFFICERS. From
the Merger Effective Date until the sixth anniversary of the Merger Effective
Date, the Surviving Corporation shall fulfill and honor all obligations of the
Company pursuant to the Company's
24
Certificate of Incorporation, Bylaws and indemnification agreements entered into
with the directors and officers of the Company as they are in effect on the date
hereof and pay all amounts that become due and payable under such provisions.
Section 7.12 SPIN-OUT OF SUBSIDIARY. Following the Merger Effective
Date, Parent may cause Surviving Corporation to assign to Parent the equity
interest owned by Surviving Corporation in Subsidiary for $10.00.
ARTICLE VIII
REMEDIES
Section 8.1 INDEMNIFICATION BY THE ELIGIBLE STOCKHOLDERS. Subject to
the terms and conditions of this Article and Section 9.6, the Eligible
Stockholders jointly and severally agree to indemnify, defend and hold Parent
and Merger Sub and their respective directors, officers, agents, attorneys and
affiliates (collectively, "Parent Indemnitees") harmless from and against all
losses, claims, obligations, demands, assessments, penalties, liabilities,
costs, damages, attorneys' fees and expenses (collectively, "Damages"), asserted
against or incurred by any Parent Indemnitee by reason of or resulting from a
breach of any representation, warranty or covenant of the Company or
Stockholders contained herein, in any exhibit, schedule, certificate or
financial statement delivered hereunder, or in any agreement executed in
connection with the transactions contemplated hereby; provided, however, that no
claim shall be made for Damages under this Section 8.1 until, and such claims
may be made only to the extent that, the dollar amount of all such claims for
Damages shall exceed in the aggregate $50,000 (the "Threshold"); and provided
further, however, the aggregate liability of the Eligible Stockholders for
Damages shall not exceed the greater of: (i) $500,000; or (ii) fifty percent
(50%) of the Merger Consideration. All Damages in excess of the Threshold shall
be apportioned among the Eligible Stockholders in accordance with the
percentages of the Merger Consideration received or to be received by such
Eligible Stockholders pursuant to Exhibit B, and no Eligible Stockholder will be
required to pay more in Damages than the Merger Consideration that such Eligible
Stockholder received and/or was entitled to receive. Any Damages under this
Section 8.1 shall first be deducted from, and offset against, the Performance
Earn Out and/or the Revenue Earn Out.
Section 8.2 INDEMNIFICATION BY PARENT. Subject to the terms and
conditions of this Article and Section 9.6, Parent and Merger Sub agree to
indemnify, defend and hold the Stockholders harmless from and against all
Damages asserted against or incurred by the Stockholders by reason of or
resulting from a breach of any representation, warranty or covenant of Parent or
Merger Sub contained herein, in any exhibit, schedule, certificate or financial
statement delivered hereunder, or in any agreement executed in connection with
the transactions contemplated hereby; provided, however, that no claim shall be
made for Damages under this Section 8.2 until, and such claims may be made only
to the extent that, the dollar amount of all such claims for Damages shall
exceed in the aggregate $50,000; and provided further, however, the aggregate
liability of Parent and Merger Sub for Damages shall not exceed the greater of:
(i) $500,000; or (ii) fifty percent (50%) of the Merger Consideration.
Section 8.3 CONDITIONS OF INDEMNIFICATION. The obligations and
liabilities of the Eligible Stockholders, Parent and Merger Sub (the
"indemnifying party") to the other (the "party
25
to be indemnified") under Sections 8.1 and 8.2 with respect to claims resulting
from the assertion of liability by third parties ("Third Party Claims") shall be
subject to the following terms and conditions:
(a) Within 20 days (or such earlier time as might be
required to avoid prejudicing the indemnifying party's position) after
receipt of notice of commencement of any action evidenced by service of
process or other legal pleading, the party to be indemnified shall give
the indemnifying party written notice thereof together with a copy of
such claim, process or other legal pleading, and the indemnifying party
shall have the right to undertake the defense thereof by
representatives of its own choosing and at its own expense; provided
that the party to be indemnified may participate in the defense with
counsel of its own choice, the fees and expenses of which counsel shall
be paid by the party to be indemnified unless (i) the indemnifying
party has agreed to pay such fees and expenses, (ii) the indemnifying
party has failed to assume the defense of such action or (iii) the
named parties to any such action (including any impleaded parties)
include both the indemnifying party and the party to be indemnified and
the party to be indemnified has been advised by counsel that there may
be one or more legal defenses available to it that are different from
or additional to those available to the indemnifying party (in which
case, if the party to be indemnified informs the indemnifying party in
writing that it elects to employ separate counsel at the expense of the
indemnifying party, the indemnifying party shall not have the right to
assume the defense of such action on behalf of the party to be
indemnified, it being understood, however, that the indemnifying party
shall not, in connection with any one such action or separate but
substantially similar or related actions in the same jurisdiction
arising out of the same general allegations or circumstances, be liable
for the reasonable fees and expenses of more than one separate firm of
attorneys at any time for the party to be indemnified, which firm shall
be designated in writing by the party to be indemnified).
(b) In the event that the indemnifying party, by the
30th day after receipt of notice of any such claim (or, if earlier, by
the 10th day preceding the day on which an answer or other pleading
must be served in order to prevent judgment by default in favor of the
person asserting such claim), does not elect to defend against such
claim, the party to be indemnified will (upon further notice to the
indemnifying party) have the right to undertake the defense, compromise
or settlement of such claim on behalf of and for the account and risk
of the indemnifying party and at the indemnifying party's expense,
subject to the right of the indemnifying party to assume the defense of
such claims at any time prior to settlement, compromise or final
determination thereof.
(c) Notwithstanding the foregoing, the indemnifying
party shall not settle any claim without the consent of the party to be
indemnified unless such settlement involves only the payment of money
and the claimant provides to the party to be indemnified a release from
all liability in respect of such claim. If the settlement of the claim
involves more than the payment of money, the indemnifying party shall
not settle the claim without the prior consent of the party to be
indemnified.
(d) The party to be indemnified and the indemnifying
party will each cooperate with all reasonable requests of the other.
26
Section 8.4 WAIVER. No waiver by any party of any default or breach by
another party of any representation, warranty, covenant or condition contained
in this Agreement, any exhibit or any document, instrument or certificate
contemplated hereby shall be deemed to be a waiver of any subsequent default or
breach by such party of the same or any other representation, warranty, covenant
or condition. No act, delay, omission or course of dealing on the part of any
party in exercising any right, power or remedy under this Agreement or at law or
in equity shall operate as a waiver thereof or otherwise prejudice any of such
party's rights, powers and remedies. All remedies, whether at law or in equity,
shall be cumulative and the election of any one or more shall not constitute a
waiver of the right to pursue other available remedies.
Section 8.5 REMEDIES EXCLUSIVE. The remedies provided in this Article
shall be the exclusive rights and remedies available to one party against the
other, either at law or in equity, except in the case of fraud.
Section 8.6 OFFSET. Any and all amounts owing or to be paid by Parent
to Stockholders, hereunder shall be subject to offset and reduction pro tanto by
any amounts that may be owing at any time by Stockholders to Parent in respect
of any failure or breach of any representation, warranty or covenant of the
Company or Stockholders under or in connection with this Agreement or any other
agreement with Parent or any transaction contemplated hereby or thereby, as
reasonably determined by Parent. If Parent determines that such offset is
appropriate, notice shall be given to Stockholders of such determination at
least 10 days prior to the due date of the payment to be reduced. If the
conditions upon which the reduction is based are cured by Stockholders prior to
such due date, as determined by Parent, the amount of such payment shall not be
so reduced.
Section 8.7 COSTS AND EXPENSES. Whether or not the transactions
contemplated hereby are consummated, each party hereto shall bear its own costs
and expenses (including attorneys' fees and expenses and specifically,
Stockholders shall be responsible for all costs and expenses of Stockholders and
the Company in negotiating and consummating the transactions contemplated
herein, including, without limitation, legal and accounting fees and expenses);
provided, however, if the Merger is consummated, Parent shall pay up to a
maximum of $50,000 of such costs and expenses of the Stockholders and the
Company.
Section 8.8 SPECIFIC PERFORMANCE. The parties hereto acknowledge that a
refusal by a party to consummate the transactions contemplated hereby will cause
irreparable harm to the other parties hereto, for which there may be no adequate
remedy at law and for which the ascertainment of damages would be difficult.
Therefore, each party shall be entitled, in addition to, and without having to
prove the inadequacy of, other remedies at law, to specific performance of this
Agreement, as well as injunctive relief (without being required to post bond or
other security).
ARTICLE IX
MISCELLANEOUS
Section 9.1 AMENDMENT. This Agreement may be amended, modified or
supplemented only by an instrument in writing executed by all the parties
hereto.
27
Section 9.2 ASSIGNMENT. Neither this Agreement nor any right created
hereby or in any agreement entered into in connection with the transactions
contemplated hereby shall be assignable by any party hereto.
Section 9.3 PARTIES IN INTEREST; NO THIRD PARTY BENEFICIARIES. Except
as otherwise provided herein, the terms and conditions of this Agreement shall
inure to the benefit of and be binding upon the respective heirs, legal
representatives, successors and assigns of the parties hereto. Neither this
Agreement nor any other agreement contemplated hereby shall be deemed to confer
upon any person not a party hereto or thereto any rights or remedies hereunder
or thereunder.
Section 9.4 ENTIRE AGREEMENT. This Agreement and the agreements
contemplated hereby constitute the entire agreement of the parties regarding the
subject matter hereof, and supersede all prior agreements and understandings,
both written and oral, among the parties, or any of them, with respect to the
subject matter hereof.
Section 9.5 SEVERABILITY. If any provision of this Agreement is held to
be illegal, invalid or unenforceable under present or future laws effective
during the term hereof, such provision shall be fully severable and this
Agreement shall be construed and enforced as if such illegal, invalid or
unenforceable provision never comprised a part hereof; and the remaining
provisions hereof shall remain in full force and effect and shall not be
affected by the illegal, invalid or unenforceable provision or by its severance
herefrom. Furthermore, in lieu of such illegal, invalid or unenforceable
provision, there shall be added automatically as part of this Agreement a
provision as similar in its terms to such illegal, invalid or unenforceable
provision as may be possible and be legal, valid and enforceable.
Section 9.6 SURVIVAL OF REPRESENTATIONS, WARRANTIES AND COVENANTS. The
representations, warranties and covenants contained herein shall survive the
Closing and all statements contained in any certificate, exhibit or other
instrument delivered by or on behalf of the Company, Stockholders, Parent or
Merger Sub pursuant to this Agreement shall be deemed to have been
representations and warranties by the Company and Stockholders, Parent and
Merger Sub, as the case may be, and, notwithstanding any provision in this
Agreement to the contrary, shall survive the Closing until the earlier of: (i)
eighteen months after the Closing; or (ii) five (5) business days following the
date of final determination of the Performance Earn Out and the Revenue Earn Out
(the "Indemnification Period") except for representations and warranties with
respect to any tax or tax-related matters, which shall survive the Closing until
the running of any applicable statutes of limitation.
Section 9.7 GOVERNING LAW. THIS AGREEMENT AND THE RIGHTS AND
OBLIGATIONS OF THE PARTIES HERETO SHALL BE GOVERNED BY AND CONSTRUED AND
ENFORCED IN ACCORDANCE WITH THE SUBSTANTIVE LAWS (BUT NOT THE RULES GOVERNING
CONFLICTS OF LAWS) OF THE STATE OF DELAWARE.
Section 9.8 CAPTIONS. The captions in this Agreement are for
convenience of reference only and shall not limit or otherwise affect any of the
terms or provisions hereof.
28
Section 9.9 CONFIDENTIALITY; PUBLICITY AND DISCLOSURES. Each party
shall keep this Agreement and its terms confidential, and shall make no press
release or public disclosure, either written or oral, regarding the transactions
contemplated by this Agreement without the prior knowledge and consent of the
other parties hereto; provided that the foregoing shall not prohibit any
disclosure (i) by press release, filing or otherwise that is required by federal
securities laws or the rules of the Nasdaq National Market and (ii) to
attorneys, accountants, investment bankers or other agents of the parties
assisting the parties in connection with the transactions contemplated by this
Agreement.
Section 9.10 NOTICE. All notices and other communications hereunder
shall be in writing and shall be given by personal delivery, mailed by
registered or certified mail (postage prepaid, return receipt requested), sent
by facsimile transmission, sent by a nationally recognized overnight courier
service or sent by electronic submission to the parties at the following
addresses (or at such other address for a party as is specified by like change
of address):
If to Parent: Mobility Electronics, Inc.
7955 East Redfield Road
Scottsdale, Arizona 85260
Attn: Chief Executive Officer
Fax No.: 480-596-0349
If to the Company
or Stockholder: Portsmith, Inc.
960 Broadway Avenue, Suite 300
Boise, Idaho 83706
Attn: Holmes Lundt
Fax No.: 650-470-2670
Notice shall be deemed received (a) on the business day following the date on
which it is deposited with a nationally recognized and reputable overnight
courier service, (b) on the date on which it is delivered personally, (c) when
sent by facsimile with confirmation of receipt received by sender, or (d) on the
third business day following the date on which it is deposited in the U. S.
mail.
Section 9.11 STOCKHOLDER RELEASES; CONSENT. Effective as of the Merger
Effective Date, each Stockholder hereby irrevocably waives, releases, and
discharges the Company and each affiliate of the Company and its subsidiaries
from any and all liabilities and obligations to such Stockholder of any kind or
nature whatsoever, whether as a stockholder, officer, director or employee of
the Company, any of its subsidiaries or otherwise, existing as of the Merger
Effective Time including without limitation liabilities or obligations relating
to rights of contribution or indemnification, in each case whether absolute or
contingent, liquidated or unliquidated, and whether arising at law or in equity,
and each Stockholder hereby agrees that it will not seek to recover any amounts
in connection therewith or thereunder from the Company, or any of its
subsidiaries; provided that nothing in this Section 9.11 will constitute a
waiver of any claims the Stockholders may have against the Parent or Merger Sub
arising under this Agreement or the agreements contemplated hereby and hereby
agrees that any and all agreements to which such Stockholder is a party and
which relate to Stockholder's ownership or
29
voting of Portsmith Common Stock or options to acquire Portsmith Common Stock or
the right to designate directors are terminated and of no further force or
effect. By executing and delivering this Agreement the Stockholders irrevocably
consent to this Agreement, the Merger, and all of the transactions contemplated
by this Agreement, such consent to have the same effect as a vote by the
Stockholders at a meeting duly called and held for the purpose of acting on
proposals to approve this Agreement, the Merger, and the other transactions
contemplated by this Agreement.
Section 9.12 COUNTERPARTS. This Agreement may be executed in multiple
counterparts, each of which shall be deemed an original, and all of which
together shall constitute one and the same instrument.
30
EXECUTED as of the date first above written.
PARENT:
MOBILITY ELECTRONICS, INC.
By: /s/ Charles R. Mollo
-------------------------------
Charles R. Mollo
Chief Executive Officer
MERGER SUB:
MOBILITY EUROPE HOLDINGS, INC.
By: /s/ Charles R. Mollo
-------------------------------
Charles R. Mollo
President
COMPANY:
PORTSMITH, INC.
By: /s/ Holmes Lundt
-------------------------------
Holmes Lundt,
Chief Executive Officer
STOCKHOLDERS:
/s/ Holmes Lundt
-----------------------------------
Holmes Lundt
/s/ Leslie Lundt
-----------------------------------
Leslie Lundt
/s/ Jesse Asla
-----------------------------------
Jesse Asla
/s/ Rick Neff
-----------------------------------
Rick Neff
31
EXHIBIT A
DEFINITIONS
"CERTIFICATE" shall have the meaning set forth in Section 2.6(c).
"CLOSING" shall mean the closing of the transactions contemplated by
this Agreement, which shall occur at 10:00 a.m., local time, on the date hereof,
in the offices of Jackson Walker L.L.P., 901 Main Street, Suite 6000, Dallas,
Texas 75202, or at such other time and place as shall be mutually agreed in
writing by the parties hereto.
"CODE" shall mean the Internal Revenue Code of 1986.
"COMMITMENTS" shall have the meaning set forth in Section 3.13.
"CONTROL EFFECTIVE TIME" shall have the meaning set forth in the
preamble.
"CURRENT MARKET PRICE" shall mean (i) if the principal trading market
for the Parent Common Stock is a United States national or regional securities
exchange, the average closing price on such exchange for the thirty trading days
prior to the day in question; or (ii) if sales prices for shares of Parent
Common Stock are reported by the Nasdaq National Market or Small Cap Market (or
a similar system then in use), the average last reported sales price so reported
for the thirty trading days prior to the day in question; or (iii) if neither
(i) nor (ii) above are applicable, and if bid and ask prices for shares of
Parent Common Stock are reported in the over-the-counter market by Nasdaq (or,
if not so reported, by the National Quotation Bureau), the average of the high
bid and low ask prices so reported for the thirty trading days prior to the day
in question. Notwithstanding the foregoing, if there is no reported closing
price, last reported sales price, or bid and ask prices, as the case may be, for
the thirty days prior to the day in question, then the current market price
shall be determined as of the latest thirty consecutive trading days for which
such closing price, last reported sales price, or bid and ask prices, as the
case may be, are available, unless such securities have not been traded on an
exchange or in the over-the-counter market for thirty (30) or more days
immediately prior to the day in question, in which case the current market price
shall be determined in good faith by, and reflected in a formal resolution of,
the Board of Directors of Parent.
"DGCL" shall mean the Delaware General Company Law.
"DAMAGES" shall have the meaning set forth in Section 8.1.
"ERISA" shall mean the Employee Retirement Income Security Act of 1974,
as amended.
"ELIGIBLE STOCKHOLDERS" shall mean all stockholders of the Company,
except Dissenting Stockholders and Non-Electing Securityholder.
"GAAP" shall mean United States generally accepted accounting
principles applied on a consistent basis for all time periods.
A-1
"INDEMNIFICATION PERIOD" shall have the meaning set forth in Section
9.6.
"INDEMNIFYING PARTY" shall have the meaning set forth in Section 8.3.
"MERGER CONSIDERATION" shall have the meaning set forth in Section 2.7.
"MERGER EFFECTIVE DATE" shall have the meaning set forth in Section
2.5.
"ORDINARY COURSE OF BUSINESS" means the usual and customary way in
which the Company or any Subsidiary, as the case may be, has conducted its
business in the past.
"PARENT COMMON STOCK" shall have the meaning set forth in Section
2.5(a).
"PARTY TO BE INDEMNIFIED" shall have the meaning set forth in Section
8.3.
"PORTSMITH SHARES" shall have the meaning set forth in Section 2.7.
"SEC" shall mean the Securities and Exchange Commission.
"SECURITIES ACT" shall mean the Securities Act of 1933, as amended.
"SHARE CONSIDERATION" shall have the meaning set forth in Section
2.7(a).
"SUBSIDIARY" shall mean any corporation, partnership, joint venture or
other legal entity of which the Company owns, directly or indirectly, 100% of
the stock or other equity interests the holders of which are generally entitled
to vote for the election of the board of directors or other governing body of
such corporation or other legal entity; and shall include within the meaning of
the term each Subsidiary, as defined above, of any Subsidiary of the Company.
"SURVIVING COMPANY" shall have the meaning set forth in Section 2.1.
"TAX" shall have the meaning set forth in Section 3.19.
"TAX RETURN" shall have the meaning set forth in Section 3.19.
"THIRD PARTY CLAIMS" shall have the meaning set forth in Section 8.3.
A-2
EXHIBIT B
<Table>
<Caption>
Portsmith Shares Owned Merger Consideration
-------------------------- -----------------------------------------------
Percentage of Percentage
Name of Share Performance of Revenue
Stockholder Number Percentage Consideration Earn Out Earn Out
- ----------- ------------ ---------- -------------- -------------- ------------
Holmes and Leslie Lundt 511,823 31.2015850% 249,613 14.2279228% 31.2015850%
Richard Liggitt 220,000 13.4115675% 107,293 6.1156748% 13.4115675%
Dan Axtman 192,425 11.7305494% 93,844 5.3491305% 11.7305494%
Jess Asla 158,315 9.6511468% 77,209 4.4009230% 9.6511468%
Jason Carnahan 139,605 8.5105540% 68,084 3.8808126% 8.5105540%
Richard Neff 121,545 7.4095862% 59,277 3.3787713% 7.4095862%
Ryan Adamson 87,500 5.3341462% 42,673 2.4323706% 5.3341462%
Amy Reino 74,505 4.5419492% 36,336 2.0711289% 4.5419492%
Mark Petersen 43,143 2.6300693% 21,041 1.1993116% 2.6300693%
Ethan Savage 20,500 1.2497142% 9,998 0.5698697% 1.2497142%
Bryan Capdeville 20,000 1.2192334% 9,754 0.5559704% 1.2192334%
Daren Nordhagen 12,500 0.7620209% 6,096 0.3474815% 0.7620209%
Christine Derheim 11,000 0.6705784% 5,365 0.3057837% 0.6705784%
Matthew Cole 8,000 0.4876934% 3,902 0.2223882% 0.4876934%
Diane Rigby 7,500 0.4572125% 3,658 0.2084889% 0.4572125%
Fenwick & West LLP 5,625 0.3429094% 2,743 0.1563667% 0.3429094%
Brenda Marcelin 2,639 0.1608778% 1,287 0.0733603% 0.1608778%
Cliff Weisgerber 2,500 0.1524042% 1,219 0.0694963% 0.1524042%
Joshua Wester 1,250 0.0762021% 610 0.0347482% 0.0762021%
------------ ----------- -------------- -------------- ------------
Total: 1,640,375 100.0000000% 800,000 45.6000000% 100.0000000%
</Table>
B-1