SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported) February 5, 1999
Pen Interconnect, Inc.
(Exact Name of Registrant as Specified in its Charter)
Utah 1-14072 87-0430260
(State or other jurisdiction of (Commission File Number) (I.R.S. Employer
incorporation or organization) Identification Number)
1601 Alton Parkway, Irvine, California 92606
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number including Area Code: (949) 261-3131
2351 South 2300 West, Salt Lake City, UT 84119
(Registrant's Former Address, if Changed Since Last Report)
<PAGE>
Item 2. Acquisition or Disposition of Assets
1. On January 29, 1999, Pen Interconnect, Inc., (the "Company") entered
into an Asset Purchase Agreement with Pen Cabling Technologies, LLC (the
"Purchaser"), a wholly-owned subsidiary of CTG, Inc. ("CTG"), whereby the
Purchaser acquired substantially all of the assets relating to the Company's
custom cable and harness interconnections business located in Salt Lake City,
Utah (the "Cable Division"). The transaction was closed on February 5, 1999. The
purchase price was $1,075,000 and the assumption by the Purchaser of certain
lease obligations of the Cable Division. The purchase price was based upon the
approximate book value of the assets and liabilities divested. Additional
payments may be made by the Purchaser based on a post-closing valuation of the
inventory transferred in the transaction. The Company, the Purchaser, and CTG
also entered into a Consulting Agreement whereby the Company will receive
royalties on future sales of the Cable Division business and products. Of the
purchase price, $847,823 was paid to the Company's principal lender, FINOVA, and
$227,177 was paid to satisfy certain outstanding liabilities relating to the
Cable Division which were not assumed by the Purchaser. Prior to the closing,
there were no material relationships between the Purchaser, CTG, and the Company
or any director or officer of the Company, or any associate or affiliate of the
Company or any of its directors or officers, other than that CTG was a
non-material supplier to the Company.
2. As of December 23, 1998, the Company entered into an Agreement and
Plan of Merger by and among the Company, Pen Laminating, Inc., a wholly-owned
subsidiary of the Company, and Laminating Technologies, Inc. ("LTI") (the "LTI
Agreement"). Under the LTI Agreement, LTI would merge into Pen Laminating, Inc.
in exchange for the issuance of shares of the Company's Common Stock to the
shareholders of LTI. Each share of LTI Common Stock will be converted into a
number of shares of the Company's Common Stock equal to $0.50 divided by the
closing price of the Company's Common Stock on the fifth business day following
the effectiveness of a registration statement to be filed to register the Common
Stock to be issued to LTI's shareholders. In no event will the denominator
exceed $1.50. LTI currently has outstanding 3,185,100 shares of Common Stock,
and convertible securities to receive an aggregate of up to 8,656,800 shares of
LTI's Common Stock, which convertible securities will be converted into
securities convertible into the Company's Common Stock at the same ratio. The
closing of the transaction is contingent, among other factors, on the
effectiveness of the afore-mentioned registration statement and the approval of
both the Company=s and LTI's shareholders. There are no material relationships
between LTI and the Company or any director or officer of the Company, or any
associate or affiliate of the Company or any of its directors or officers.
2
<PAGE>
Item 5. Other Events.
On February 12, 1999, the Company issued 1,800 shares of a new Series A
Convertible Preferred Stock to various foreign investors (the "Series A
Preferred"). Each share of Series A Preferred has a Stated Value of $1,000. The
aggregate consideration for the issuance of the Series A Preferred was
$1,300,000 in cash and the cancellation of promissory notes for $500,000.
Dividends are payable quarterly on the Series A Preferred of $80.00 per share
per annum. Dividends increase to $160.00 per share per annum if the Company's
Common Stock is not listed on any national securities exchange. Each share of
Series A Preferred is convertible into an amount of shares of the Company's
Common Stock equal to the Stated Value of such share of Series A Preferred
divided by the average of the two lowest closing bid prices, as reported by
Bloomberg L.P., on the principal market for the Company's Common Stock based on
trading volume during the period of 22 consecutive trading days ending with the
last trading day prior to the date of conversion (the "Market Price") after
discounting the Market Price by 15% (the "Conversion Price"). In no event will
the Conversion Price be greater than a per share price equal to the closing bid
price of the Company's common stock on February 12, 1999 (the "Closing Price")
times 110%(the "Maximum Conversion Price"). The Series A Preferred is
convertible on the earlier of (i) June 14, 1999, (ii) the effectiveness of a
registration statement to be filed registering the shares of the Company's
Common Stock underlying the Series A Preferred, or (3) if the holder accepts the
Maximum Conversion Price, then it is convertible immediately. Until the issuance
of the Series A Preferred is approved by the Company's shareholders, Common
Stock issued on conversion cannot exceed 19.99% of the Company's outstanding
Common Stock. The Company is obligated to present the issuance of the Series A
Preferred for approval at its next meeting of shareholders. Until the Series A
Preferred becomes convertible, the Company has the right to redeem up to 50% of
the Series A Preferred for 140% of the Closing Price plus all accrued but unpaid
dividends, although the Series A Preferred holders then have a five-day right to
convert instead at the then applicable Conversion Price. The Series A Preferred
investors also received warrants to acquire an aggregate of 90,000 shares of the
Company's Common Stock exercisable at 120% of the Closing Price date and an
aggregate of 90,000 shares of the Company's Common Stock exercisable at 135% of
the Closing Price. A registration statement for the shares of Common Stock
underlying the Series A Preferred and warrants must be filed by March 29, 1999
and effective by June 1, 1999. If the registration dates are not met, the
penalty is 1.5% extra interest per month. The holders of the Series A Preferred
also received rights of first refusal with respect to certain future financings
by the Company. In connection with the issuance of the Series A Preferred, the
Company also paid a fee equal to 7% of the consideration received.
Item 7. Financial Statements, Pro Forma Financial Information, and Exhibits
(a) Financial Statements of Business Acquired.
(1) Consolidated Financial Statements of LTI and subsidiary as
of and for the two years ended March 31, 1998 (incorporated by
reference from LTI's annual report on Form 10-KSB for the
fiscal year ended March 31, 1998).
(2) Consolidated Financial Statements of LTI and subsidiary as
of and for the quarterly periods ended September 30, 1998 and
1997 (incorporated by reference from LTI's quarterly report on
Form 10-QSB for the fiscal quarter ended September 30, 1998).
(b) Pro Forma Financial Information
Pro forma financial information incorporating all of the
transactions described in Item 2 above follows this Item. This
pro forma information does not include the transaction
described in Item 5.
(c) Exhibits
2.1. Asset Purchase Agreement by and between the Company and
Pen Cabling Technologies, LLC dated as of January 29, 1999.
2.2. Consulting Agreement by and between the Company, Pen
Cabling Technologies, LLC, and CTG, Inc. dated as of January
29, 1999.
2.3. Agreement and Plan of Merger by and among the Company,
Pen Laminating, Inc., and Laminating Technologies, Inc. dated
as of December 21, 1998
2.4. Convertible Preferred Stock and Warrant Purchase
Agreement between Pen Interconnect, Inc., RBB Bank AG, Austost
Anstalt Schaan, Balmore Funds, S.A., and AMRO International,
S.A. dated as of February 12, 1999.
3.1. Certificate of Amendment creating Series A Convertible
Preferred Stock as filed February 10, 1999.
3
<PAGE>
Pen Interconnect, Inc.
NOTES TO FINANCIAL STATEMENTS
September 30, 1998 and 1997
4
<PAGE>
UNAUDITED PRO FORMA COMBINED
FINANCIAL STATEMENTS
--------------------
The unaudited pro forma data presented in the unaudited pro forma combined
financial statements are included in order to illustrate the effect on the
Company's financial statements of two transactions described below.
The unaudited pro forma combined balance sheet at September 30, 1998 presents
adjustments for two transactions. First, adjustments are presented as if, at
September 30, 1998, (Pen Interconnect, Inc. (Pen or the Company), had sold
substantially all of the assets relating to the Company's custom cable and
harness interconnections business located in Salt Lake City, Utah (the Cable
Division), which transaction closed on January 28, 1999. Second, adjustments are
presented as if, at September 30, 1998, the Agreement and Plan of Merger, dated
December 21, 1998, by and among the Company, Pen Laminating, Inc., a newly
created, wholly-owned subsidiary of the Company, and Laminating Technologies,
Inc. (LTI), of Atlanta Georgia, (which transaction is expected to close in the
second or third quarter of fiscal year 1999), had occurred. The Agreement and
Plan of Merger call for LTI to merge into Pen Laminating, Inc. in exchange for
the issuance of shares of the Company's common stock to the shareholders of LTI.
The unaudited pro forma combined statement of operations for the year ended
September 30, 1998 presents adjustments for the above two transactions to show
the effect of the pending sale transaction of the Cable Division and to show the
effect of the pending merger transaction with LTI. First, adjustments are
presented to show, as if at the beginning of the period, that the sales
transaction relating to the Cable Division had taken place. Second, adjustments
are presented as if, at the beginning of the period, that the LTI merger had
occurred.
The unaudited pro forma statements are derived from the respective historical
financial statements and notes thereto of Pen and LTI. The unaudited pro forma
combined balance sheet combines Pen's historical balance sheet as of September
30, 1998, after adjustments for the sale of the Cable Division, with the
historical balance sheet of LTI at September 30, 1998. The unaudited pro forma
combined statement of operations combines Pen's historical statement of
operations for the year ended September 30, 1998, after adjustments for the sale
of the Cable Division, with the statement of operations of LTI for the year
ended September 30, 1998 which is composed of the first six months of LTI's
fiscal year ending March 31, 1999 and the last six months of LTI's fiscal year
ended March 31, 1998.
The unaudited pro forma data is presented for informational purposes only and
may not be indicative of the future results of operations and financial position
of the Company or what the results of operations and financial position of the
Company would have been had the sale of the Cable Division and the merger with
LTI occurred on the dates indicated.
These unaudited pro forma statements should be read in conjunction with the
historical financial statements and the related notes thereto of Pen and of LTI.
5
<PAGE>
<TABLE>
<CAPTION>
PEN INTERCONNECT, INC.
PRO FORMA COMBINED BALANCE SHEET
SEPTEMBER 30, 1998
Sale of Division (1) (2) Acquisition of LTI (3) (4) (5)
(6) (7)
------------------------- --------------------------------
Historical Pro Forma Pro Forma Historical Pro Forma Pro Forma
Pen Adjustments Pen LTI Adjustments Combined
----------- ------------ ---------- --------------- --------------- -----------
<S> <C> <C> <C> <C> <C> <C>
Cash and cash equivalents $ 657,777 $ - $ 657,777 $ 196,361 $ - $ 854,138
Investments 242,739 - 242,739 1,989,812 - 2,232,551
Receivables 3,495,220 (310,467) 3,184,753 188,153 - 3,372,906
Allowance for bad debts (108,575) - (108,575) (25,000) - (133,575)
Inventories 3,680,169 (361,880) 3,318,289 426,431 - 3,744,720
Prepaid expenses 261,375 (19,757) 241,618 - - 241,618
Deferred income taxes 41,324 - 41,324 - - 41,324
Other current assets - - - 91,310 - 91,310
----------- ------------ ---------- --------------- --------------- -----------
Total current assets 8,270,029 (692,104) 7,577,925 2,867,067 - 10,444,992
Property and equipment 4,158,877 (2,858,275) 1,300,602 485,322 (485,322) 1,300,602
Accumulated depreciation (1,680,266) 1,472,008 (208,258) (179,698) 179,698 (208,258)
----------- ------------ ---------- --------------- --------------- -----------
Total property and equipment 2,478,611 (1,386,267) 1,092,344 305,624 (305,624) 1,092,344
Notes receivable, less current maturities 3,989 - 3,989 - - 3,989
Deferred income taxes 725,667 - 725,667 - - 725,667
Intangible assets 2,359,044 - 2,359,044 - 200,000 2,559,044
Accumulated amortization of intangibles (327,359) - (327,359) - - (327,359)
Investments 482,220 - 482,220 - - 482,220
Other assets 98,455 (32,390) 66,065 - - 66,065
----------- ------------ ---------- --------------- --------------- -----------
Total other assets 3,342,016 (32,390) 3,309,626 - 200,000 3,509,626
=========== ============ ========== =============== =============== ===========
Total assets $14,090,656 $ (2,110,761) $11,979,895 $ 3,172,691 $ (105,624) $15,046,962
=========== ============ ========== =============== =============== ===========
Line of credit $ 4,064,361 $ (458,000) $3,606,361 $ - $ - $ 3,606,361
Subordinated debentures 1,401,429 - 1,401,429 - - 1,401,429
Current maturities of long-term
obligations 1,132,538 (390,000) 742,538 46,249 - 788,787
Current maturities of capital leases 69,621 (64,886) 4,735 - - 4,735
Accounts payable 2,926,797 (227,000) 2,699,797 193,822 - 2,893,619
Accrued liabilities 389,889 - 389,889 77,014 400,000 866,903
----------- ------------ ---------- --------------- --------------- -----------
Total current liabilities 9,984,635 (1,139,886) 8,844,749 317,085 400,000 9,561,834
Long-term obligations, less
current maturities 51,965 - 51,965 16,254 - 68,219
Capital lease obligations, less
current maturities 22,333 - 22,333 - - 22,333
Negative goodwill - - - - 1,046,802 741,178
(305,624)
Deferred income taxes 165,755 - 165,755 - - 165,755
----------- ------------ ---------- --------------- --------------- -----------
Total liabilities 10,224,688 (1,139,886) 9,084,802 333,339 1,141,178 10,559,319
Preferred stock - - - - - -
Common stock 50,184 - 50,184 31,851 15,926 66,110
(31,851)
Additional paid-in capital 10,890,022 - 10,890,022 11,709,254 1,576,624 12,466,646
(11,709,254)
Accumulated deficit (7,074,238) (970,875) (8,045,113) (8,901,753) 9,101,753 (8,045,113)
(200,000)
----------- ------------ ---------- --------------- --------------- -----------
Total stockholders' equity 3,865,968 (970,875) 2,895,093 2,839,352 (1,246,802) 4,487,643
=========== ============ ========== =============== =============== ===========
Total liabilities and
stockholders' equity $14,090,656 $ (2,110,761) $11,979,895 $ 3,172,691 $ (105,624) $15,046,962
=========== ============ ========== =============== =============== ===========
</TABLE>
6
<PAGE>
<TABLE>
<CAPTION>
PEN INTERCONNECT, INC.
PRO FORMA COMBINED STATEMENT OF OPERATIONS
YEAR ENDED SEPTEMBER 30, 1998
Sale of Division (1) Acquisition of LTI (3) (5)
(8) (9)
-------------------------- -----------------------------
Historical Pro Forma Pro Forma Historical Pro Forma Pro Forma
Pen Adjustments Pen LTI Adjustments Combined
----------- ------------ ----------- ------------- -------------- ------------
<S> <C> <C> <C> <C> <C> <C>
Net sales $17,091,432 $ (3,833,312) $13,258,120 $ 932,191 $ - $14,190,311
Cost of sales 15,892,456 (3,950,345) 11,942,111 765,524 - 12,707,635
----------- ------------ ----------- ------------- -------------- ------------
Gross profit (loss) 1,198,976 117,033 1,316,009 166,667 - 1,482,676
----------- ------------ ----------- ------------- -------------- ------------
Operating expenses
Sales and marketing 565,185 (370,722) 194,463 427,127 - 621,590
Research and development 550,843 - 550,843 576,516 - 1,127,359
General and administrative 2,357,875 (934,026) 1,423,849 681,764 200,000 2,305,613
Abandoned lease fees 16,000 - 16,000 - - 16,000
Asset impairment charges 570,765 - 570,765 - - 570,765
Depreciation and amortization 675,753 (274,842) 400,911 94,538 (94,538) 400,911
----------- ------------ ----------- ------------- -------------- ------------
Total operating expenses 4,736,421 (1,579,590) 3,156,831 1,779,945 105,462 5,042,238
----------- ------------ ----------- ------------- -------------- ------------
Operating loss (3,537,445) (1,696,623) (1,840,822) (1,613,278) (105,462) (3,559,562)
----------- ------------ ----------- ------------- -------------- ------------
Other income (expense)
Interest expense (1,100,717) (77,100) (1,023,617) (6,874) - (1,030,491)
Investment income - - - 168,290 - 168,290
Amortization of negative goodwill - - - - 74,178 74,178
Other income (expense), net (39,361) - (39,361) - - (39,361)
----------- ------------ ----------- ------------- -------------- ------------
Total other income
(expense), net (1,140,078) (77,100) (1,062,978) 161,416 74,178 (827,384)
----------- ------------ ----------- ------------- -------------- ------------
Loss before income taxes (4,677,523) (1,773,723) (2,903,800) (1,451,862) (31,284) (4,386,946)
Income tax expense 767,860 - 767,860 - - 767,860
----------- ------------ ----------- ------------- -------------- ------------
=========== ============ =========== ============= ============== ============
NET LOSS $(5,445,383) $ (1,773,723) $(3,671,660) $ (1,451,862) $ (31,284) $(5,154,806)
=========== ============ =========== ============= ============== ============
Loss per common share
Basic $ (1.24) $ (0.86)
Diluted (1.24) (0.86)
Weighted-average common and
dilutive common equivalent
shares outstanding
Basic 4,397,490 5,990,040
Diluted 4,397,490 5,990,040
</TABLE>
7
<PAGE>
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS
----------------------------------------------------------
1. Reflects the Company's sale of Cable Division located in Salt Lake
City, Utah.
Effective January 29, 1999, the Company sold substantially all
of the assets and liabilities of its custom cable and harness
interconnections business to Pen Cabling Technologies, LLC, a
wholly-owned subsidiary of CTG, Inc. of Dayton, Ohio. The sales
price was $1,075,000 and the assumption of certain related lease
obligations. Additional payments may be made by the purchaser
based upon a post-closing valuation of certain assets
transferred in the transaction. In addition, the Company will
receive royalties on future sales of the Cable Divisions
products. Assets and liabilities sold were as follows:
Receivables, net $ 310,467
Inventories 361,880
Property and equipment, net 1,386,267
Prepaid expenses 19,757
Other assets 32,390
Capital leases (64,886)
-----------
Net assets sold 2,045,875
Cash received 1,075,000
===========
Loss on sale of Division $ (970,875)
===========
2. Reflects the use of the net proceeds from the sale of the Division as
follows:
Reduction of line of credit $ 458,000
Reduction of long-term obligations 390,000
Reduction of accounts payable 227,000
==========
$1,075,000
==========
3. Reflects the merger of the Company with Laminating Technologies, Inc.
(LTI) of Atlanta, Georgia under the Agreement and Plan of Merger (the
Agreement) dated December 21, 1998, which is expected to close in the
second or third quarter of fiscal year 1999. Under the Agreement, LTI
would merge into Pen Laminating, Inc., a newly created, wholly-owned
subsidiary of the Company in exchange for the issuance of shares of
the Company's common stock to the shareholders of LTI. Each share of
LTI common stock will be converted into a number of the Company's
common stock based upon a calculation which is equal to $0.50 divided
by the closing price of the Company's common stock on the fifth day
following the effective date of the registration statement covering
the merger transaction.
4. Reflects the recording of a non competition agreement with the
president of LTI in the amount of $200,000 to be paid over 36 months.
5. Reflects the recording of severance payments in the amount of
$200,000 to be paid to six key employees of LTI.
8
<PAGE>
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS - CONTINUED
----------------------------------------------------------------------
6. Reflects the issuance of the Company's common stock in exchange for
the common stock of LTI. This acquisition is to be accounted for by
the purchase method of accounting. Under purchase accounting, the
total purchase price was allocated to the tangible and intangible
assets and liabilities of LTI based upon their respective estimated
fair values, based upon preliminary valuations which are not yet
finalized. The actual allocation of the purchase price and the
resulting effect on income from operations may differ significantly
from the pro forma amounts included herein.
Also reflects the elimination of LTI's equity accounts and the
recording of negative goodwill as follows:
Common stock (LTI) $ 31,851
Additional paid-in-capital (LTI) 11,709,254
Accumulated deficit (LTI) (9,101,753)
------------
Net assets acquired 2,639,352
Common stock issued (Pen)
(1,592,550 shares at $1.00 per share) 1,592,550
============
Negative goodwill $ 1,046,802
============
The excess of fair value of net assets acquired over cost (negative
goodwill) is being amortized on a straight-line basis over ten years.
This amount represents the difference between the purchase price and
the fair value of the net assets acquired.
7. Reflects the reduction of negative goodwill and the reduction of net
property and equipment by the amount of the long-term assets acquired
in the amount of $305,624.
8. Reflects the amortization of negative goodwill for one year in the
amount of $74,178.
9. Reflects the reduction of depreciation and amortization expense of
$94,538 for LTI due to the fact that the cost of all property and
equipment of LTI has been eliminated and offset against the negative
goodwill.
9
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Pen Interconnect, Inc.
By: /s/ Stephen J. Fryer
--------------------------
Stephen J. Fryer
President and Chief Operating Officer
Date: February 16, 1999
10
ASSET PURCHASE AGREEMENT
between
PEN INTERCONNECT, INC.
and
PEN CABLING TECHNOLOGIES, LLC
dated as of January 29, 1999
<PAGE>
TABLE OF CONTENTS
PAGE
1. PURCHASE AND SALE.....................................................1
1.1 Inventory. .................................................1
---------
1.2 Customer List. .............................................1
-------------
1.3 Intellectual Property. .....................................1
---------------------
1.4 Intangibles. ...............................................1
-----------
1.5 Fixed Assets. ...........................................1
------------
1.6 Contracts. .................................................1
---------
1.7 Receivables. ...............................................2
-----------
1.8 Licenses and Permits. ......................................2
--------------------
2. EXCLUDED ASSETS. ....................................................2
3. ASSUMED LIABILITIES. ................................................2
4. EXCLUDED LIABILITIES. ...............................................2
5. PURCHASE PRICE. ......................................................2
--------------
5.1 Purchase Price at Closing. ...............................2
-------------------------
5.2 Adjustment to Purchase Price. ..............................2
----------------------------
5.3 Taxes. .....................................................3
-----
5.4 Allocation. ................................................3
----------
6. CONSIGNMENT OF INVENTORY. ............................................3
------------------------
6.1 Consignment of Certain Inventory. ..........................3
--------------------------------
6.2 Title. .....................................................3
-----
6.3 Sale of Consigned Inventory. ...............................3
---------------------------
6.4 Accounting and Payment. ....................................4
----------------------
6.5 Return of Consigned Inventory. .............................4
-----------------------------
6.6 Risk of Loss; Insurance. ...................................4
-----------------------
6.7 Financing Statement. .......................................4
-------------------
6.8 Setoff. ....................................................4
------
<PAGE>
7. REPRESENTATIONS AND WARRANTIES OF SELLER. ...........................4
----------------------------------------
7.1 Organization and Qualification. ............................4
------------------------------
7.2 Authority. .................................................5
---------
7.3 Validity. ..................................................5
--------
7.4 Conflict with Other Instruments. ...........................5
-------------------------------
7.5 Compliance with Laws. ......................................5
--------------------
7.6 Licenses and Permits. ......................................5
--------------------
7.7 Litigation. ................................................5
----------
7.8 Inventory. .................................................6
---------
7.9 Intellectual Property........................................6
---------------------
7.10 Fixed Assets. ..............................................7
------------
7.11 Customers. .................................................7
---------
7.12 Books and Records. .........................................7
-----------------
7.13 Absence of Changes. ........................................7
------------------
7.14 Title to Assets. ...........................................8
---------------
7.15 Taxes. .....................................................8
-----
7.16 Brokers and Finders. .......................................9
-------------------
7.17 Approvals or Consents. .....................................9
---------------------
7.18 Receivables. ...............................................9
-----------
7.19 Financial Statements. ......................................9
--------------------
7.20 Liabilities. ...............................................9
-----------
7.21 Contracts. .................................................9
---------
7.22 Employee Benefit Plans. ....................................10
----------------------
7.23 Insurance. ................................................11
---------
7.24 Environmental Protection....................................11
------------------------
7.25 Labor Relations. ..........................................12
---------------
7.26 Real Property. ............................................12
-------------
8. REPRESENTATIONS AND WARRANTIES OF PURCHASER. .......................12
-------------------------------------------
8.1 Organization and Standing. ................................12
-------------------------
8.2 Authority. ................................................13
---------
8.3 Validity. .................................................13
--------
8.4 Conflict with Other Instruments. ..........................13
-------------------------------
8.5 Approvals or Consents. ....................................13
---------------------
8.6 Brokers and Finders. ......................................13
-------------------
9. COVENANTS OF SELLER AND PURCHASER. .................................13
----------------------------------
9.1 Conduct of Business Prior to Closing. .....................13
------------------------------------
9.2 Notification of Material Adverse Changes. .................14
----------------------------------------
9.3 Other Transactions. .......................................14
------------------
9.4 Consents, Waivers and Approvals. ..........................14
-------------------------------
9.5 Supplemental Disclosure. ..................................14
-----------------------
9.6 Additional Reports. .......................................15
------------------
9.7 Conditions Precedent. .....................................15
--------------------
9.8 Purchaser's Due Diligence. ................................15
-------------------------
9.9 Further Assurances. .......................................15
------------------
9.10 Satisfaction of Obligations. ..............................15
---------------------------
<PAGE>
10. CONDITIONS PRECEDENT TO OBLIGATIONS OF PURCHASER. ..................15
------------------------------------------------
10.1 Representations True at Closing. ..........................15
-------------------------------
10.2 Covenants of Seller. ......................................16
-------------------
10.3 No Injunction, Etc. .......................................16
------------------
10.4 Incumbency. ...............................................16
----------
10.5 Consents, Waivers and Approvals. ..........................16
-------------------------------
10.6 Absence of Material Adverse Changes. ......................16
-----------------------------------
10.7 Certified Resolutions. ....................................16
---------------------
10.8 Retention of Employees. ....................................16
----------------------
10.9 Completion of Due Diligence. ..............................16
---------------------------
10.10 Covenants Not to Compete. ................................16
-------------------------
10.11 Outstanding Obligations. ..................................16
-----------------------
11. CONDITIONS PRECEDENT TO OBLIGATIONS OF SELLER. .....................17
---------------------------------------------
11.1 Representations True at Closing. ..........................17
-------------------------------
11.2 Covenants of Purchaser. ...................................17
----------------------
11.3 No Injunction, Etc. .......................................17
------------------
11.4 Incumbency. ...............................................17
----------
11.5 Certified Resolutions. ....................................17
---------------------
12. CLOSING DATE.........................................................17
-------------
12.1 Time and Place. ...........................................17
--------------
12.2 Transactions at the Closing. ..............................17
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12.3 Default at Closing. .......................................19
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13. CONSULTING AGREEMENT. ...............................................19
14. COVENANTS NOT TO COMPETE.............................................19
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14.1 Covenants. ................................................19
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14.2 Remedies. .................................................19
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14.3 Seller's Board of Directors. ..............................19
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15. CONFIDENTIALITY OF INFORMATION. ....................................19
16. INDEMNIFICATION. ...................................................20
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16.1 Agreement of Seller to Indemnify. .........................20
--------------------------------
16.2 Agreement of Purchaser to Indemnify. ......................20
-----------------------------------
16.3 Procedures for Indemnification. ...........................20
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16.4 Defense of Third Party Claims. ............................21
-----------------------------
16.5 Non-exclusive Remedy. ......................................21
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17. SURVIVAL. ..........................................................22
18. EMPLOYEES. .........................................................22
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18.1 Evaluation of Personnel. ..................................22
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18.2 Employee Liabilities. .....................................22
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18.3 Employment Agreements. ....................................22
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19. TERMINATION. .......................................................22
<PAGE>
20. TRANSACTION EXPENSES.................................................22
20.1 Brokers. ..................................................22
20.2 Expenses. .................................................22
21. MISCELLANEOUS........................................................22
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21.1 Notice. ...................................................23
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21.2 Assignment; Binding Effect. ...............................23
--------------------------
21.3 Headings; Exhibits and Schedules. .........................24
--------------------------------
21.4 Counterparts. .............................................24
------------
21.5 Integration of Agreement. .................................24
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21.6 Time of Essence. ..........................................24
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21.7 Governing Law. ............................................24
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21.8 Partial Illegality or Unenforceability. ...................24
--------------------------------------
21.9 Right to Proceed. .........................................24
----------------
21.10 Effect of Investigation. ..................................25
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21.11 Arbitration.................................................25
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<PAGE>
LIST OF EXHIBITS
Exhibit 1.2 Customer List
Exhibit 1.3 Intellectual Property
Exhibit 1.5 Fixed Assets
Exhibit 1.6 Contracts
Exhibit 1.7 Receivables
Exhibit 1.8 Licenses and Permits
Exhibit 3 Assumed Liabilities
Exhibit 5.1 Accounting Methodology
Exhibit 5.2 Inventory Procedures
Exhibit 5.4 Purchase Price Allocation
Exhibit 6.1 Consigned Inventory
Exhibit 7.1 Foreign Jurisdictions
Exhibit 7.7 Litigation
Exhibit 7.9 Intellectual Property
Exhibit 7.10 Fixed Assets
Exhibit 7.13 Absence of Changes
Exhibit 7.15 Taxes
Exhibit 7.18 Receivables
Exhibit 7.19 Financial Statements
Exhibit 7.20 Liabilities
Exhibit 7.21 Contracts
Exhibit 7.22 Employee Benefit Plans
Exhibit 7.23 Insurance
Exhibit 7.24 Environmental Protection
Exhibit 7.25 Labor Relations
Exhibit 7.26 Real Property
<PAGE>
ASSET PURCHASE AGREEMENT
PEN INTERCONNECT, INC., a Utah corporation ("Seller") and PEN CABLING
TECHNOLOGIES, LLC, an Ohio limited liability company ("Purchaser"), agree as
follows:
RECITALS
Seller is engaged, through its Pen Technology division (the "Pen
Technology Division"), in the design and manufacture of internal and external
custom cable and harness interconnections (the "Business").
Seller desires to sell, and Purchaser desires to purchase,
substantially all of the assets in which Seller has an interest (ownership or
otherwise) used or useful in the operation of the Business, all on the following
terms and conditions.
1. PURCHASE AND SALE...Purchaser agrees to purchase and Seller agrees to sell to
Purchaser, all of Seller's right, title and interest in and to the assets used
or useful in the Business, including without limitation, the following (to the
extent any of the exhibits pursuant to Section 1 reflect a date prior to the
Closing Date (as defined below), such exhibits will be deemed to include all
items as of the Closing Date):
1.1 Inventory. All inventory relating to the Business, except as set
forth in Section 6, wherever located (the "Inventory"), together with all rights
of Seller against suppliers of Inventory, including without limitation, Seller's
rights to receive refunds in connection with Seller's purchase of the Inventory.
1.2 Customer List. The customer list relating to the Business (the
"Customer List"), a copy of which is attached as Exhibit 1.2.
1.3 Intellectual Property. The intellectual property relating to the
Business, including without limitation, the "Pen Technology" and "Pen
Technologies" names, copyrights, trade secrets, patents, software and related
intellectual property, trade names, trademarks (the "Intellectual Property") and
all goodwill associated therewith, all of which is identified in Exhibit 1.3.
1.4 Intangibles. All intangible assets of the Seller relating to the
Business, including originals (or copies) of all customer files, order files,
product history records, advertising and mailing lists, marketing materials and
all historical business and financial records necessary to operate the Business
(the "Intangibles").
1.5 Fixed Assets......The fixed assets (the "Fixed Assets") set
forth in Exhibit 1.5.
1.6 Contracts. Those contracts, real and personal property leases,
purchase orders, supply orders, licenses and other agreements or commitments of
the Seller identified in Exhibit 1.6 (the "Contracts").
<PAGE>
1.7 Receivables. All accounts receivable of the Seller relating to the
Business, other than inter-company accounts and accounts that have aged beyond
ninety (90) days (the "Receivables"). All Receivables as of January 19, 1999 are
identified in Exhibit 1.7 showing an aging of each account. Seller will deliver
within five (5) days after the Closing Date a revised Exhibit 1.7 reflecting all
Receivables as of the Closing Date.
1.8 Licenses and Permits. All licenses and permits relating to the
Business, all of which are identified in Exhibit 1.8, to the extent the same are
assignable under applicable law.
The foregoing assets are collectively referred to in this Agreement as
the "Acquired Assets".
2. EXCLUDED ASSETS. Purchaser shall not acquire any of the assets of Seller that
are not described in Section 1, including without limitation, the assets of
Seller that are not used in or related to the Pen Technology Division (the
"Excluded Assets").
3. ASSUMED LIABILITIES. Purchaser agrees to assume certain liabilities of Seller
as set forth in Exhibit 3: (i) under operating and capital leases not included
in the Acquired Assets and (ii) relating to raw materials that have not been
accounted for in accounts receivable or inventory ("Assumed Liabilities").
4. EXCLUDED LIABILITIES. Except as expressly assumed pursuant to Section 3,
Purchaser shall not assume or become responsible for any liabilities of Seller,
whether known or unknown, absolute, contingent or otherwise, whether arising
before or after the Closing Date, whether related to the Pen Technology
Division, the Business, the Acquired Assets or otherwise, including without
limitation, deferred taxes, long-term debt, revolving credit warranty
obligations, products liability, liability arising under any environmental law
and employee-related liabilities. Such liabilities shall be referred to as the
"Excluded Liabilities".
5. PURCHASE PRICE.
5.1 Purchase Price at Closing. The purchase price (the "Purchase
Price") shall be the net book value of the Acquired Assets ("Net Book Value") as
determined by mutual agreement of Purchaser and Seller in accordance with the
accounting methodology set forth in Exhibit 5.1 (the "Methodology"). At the
Closing, Purchaser shall (i) pay Seller by wire transfer or certified check
$1,075,000 for the Acquired Assets and the Covenants Not to Compete set forth in
Section 14 below (the "Estimated Purchase Price"), which amount will be subject
to adjustment in accordance with Section 5.2; plus (ii) assume the Assumed
Liabilities.
<PAGE>
5.2 Adjustment to Purchase Price. Within thirty (30) days after the
Closing Date, Purchaser and Seller shall conduct a joint physical inspection of
the Inventory in accordance with the procedures set forth in Exhibit 5.2 and
shall jointly value the other Acquired Assets and Assumed Liabilities as of the
Closing Date using the Methodology. Based upon the results of the physical
inspection of Inventory and the valuation of the Acquired Assets and Assumed
Liabilities, Purchaser shall prepare and deliver to Seller a balance sheet of
the Pen Technology Division as of the Closing Date for the Acquired Assets and
the Assumed Liabilities (the "Closing Balance Sheet"), together with Purchaser's
determination of any adjustments required by this Section 5.2 (the "Closing
Adjustment"). For purposes of calculation of the Closing Adjustment, the
Purchase Price shall be (i) increased by any amount by which the Net Book Value
of the Acquired Assets reflected on the Closing Balance Sheet exceeds
$1,075,000, or (ii) decreased by any amount by which the Net Book Value of the
Acquired Assets reflected on the Closing Balance Sheet is less than $1,000,000.
Seller must dispute such Closing Adjustment by written notice to Purchaser
within thirty (30) days of receipt of its receipt or it will be deemed to be
accepted by Seller. If Seller disputes the Closing Adjustment within such time
period, it shall be submitted to the independent accounting firm of Deloitte &
Touche in Dayton, Ohio for final determination within thirty (30) days. Upon
final determination of the Closing Adjustment, whether by failure of Seller to
dispute such amount, by mutual agreement of the parties, or resolution by the
independent accounting firm, Seller or Purchaser, as appropriate, shall remit
payment of the Closing Adjustment to the other party by wire transfer or
certified check. Seller has the option to deduct such amounts from consulting
fees under the Consulting Agreement described in Section 13.
5.3 Taxes. Sellers shall pay all income or similar tax arising out of
the sale of the Acquired Assets. Purchaser will pay all applicable goods,
services and sales taxes arising out of the sale of the Acquired Assets.
5.4 Allocation. At the Closing, the parties shall execute an Allocation
of Purchase Price Agreement in substantially the form of Exhibit 5.4. Seller and
Purchaser will file their respective tax returns in a manner consistent with
such agreement. If Seller or Purchaser fails to so file its tax returns, it
shall indemnify and save harmless the other in respect of any additional tax,
interest, penalty and legal and accounting costs paid or incurred by the other
of them as a result of the failure to so file.
6. CONSIGNMENT OF INVENTORY.
6.1 Consignment of Certain Inventory. Purchaser shall accept possession
of those items of Inventory identified on Exhibit 6.1 on consignment from Seller
(the "Consigned Inventory") for a period of three (3) years after the Closing
Date. The parties acknowledge that this is intended as a true consignment and
not as a "sale on approval" or "sale or return" or a consignment intended as
security.
6.2 Title. Title to the Consigned Inventory, and its proceeds, shall
remain vested in Seller, and the Consigned Inventory shall be at all times
subject to and under the direction and control of Seller. Title to the Consigned
Inventory shall pass directly from Seller to such person or persons to which the
Consigned Inventory is sold in the manner and on the terms contained in this
Section 6.
<PAGE>
6.3 Sale of Consigned Inventory. Purchaser shall use reasonable efforts
in the sale of the Consigned Inventory. All sales shall be for cash or shall be
based on the credit terms established by Seller. All risk of loss relating to
any credit sales shall be borne exclusively by Seller. The Consigned Inventory
shall be sold for Seller's account on Seller's invoices. All credit sales (other
than those to Purchaser) shall be subject to Seller's prior approval. Seller
shall have no recourse against Purchaser for any uncollectible credit sales. All
invoices for the sale of the Consigned Inventory shall bear the following
notation:
THE GOODS COVERED BY THIS INVOICE HAVE BEEN PURCHASED BY PURCHASER "AS
IS" AND "WITH ALL FAULTS," AND PURCHASER ACKNOWLEDGES THAT THERE ARE NO
EXPRESS OR IMPLIED WARRANTIES, INCLUDING ANY IMPLIED WARRANTIES OF
MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE.
6.4 Accounting and Payment. Beginning one hundred twenty (120) days
after the Closing Date, Purchaser shall furnish Seller with a quarterly
statement itemizing all sales of the Consigned Inventory during the preceding
quarter. With the quarterly statement, Purchaser shall remit to Seller any money
received, together with any signed receipts or bills of lading for credit sales,
relating to the sale of Consigned Inventory during that quarter.
6.5 Return of Consigned Inventory. Purchaser may return any portion of
the Consigned Inventory that is not sold or used beginning six months after the
Closing Date and quarterly thereafter for a period of three years after the
Closing Date. Any Consigned Inventory that is returned shall be delivered to
Seller at a location to be designated by Seller. Seller shall bear the risk of
loss and the expenses incurred in returning any portion of the Consigned
Inventory. Purchaser shall not be liable for any costs or expenses associated
with any change in the original condition of the Consigned Inventory. Purchaser
agrees to store the Consigned Inventory in such a manner as to prevent direct
exposure to the weather. Purchaser's failure to segregate the Consigned
Inventory shall not operate as a waiver of Purchaser's right to return any
portion of the Consigned Inventory.
6.6 Risk of Loss; Insurance. Seller at all times assumes all risk of
loss or damage to the Consigned Inventory. Seller shall keep the Consigned
Inventory fully insured against loss by fire or other casualty for its own
benefit and at its own expense.
6.7 Financing Statement. At Seller's option, Purchaser shall sign a
Uniform Commercial Code financing statement covering the Consigned Inventory.
Seller shall file the financing statement or statements in the applicable state
and county offices and pay any filing fees required.
6.8 Setoff. Purchaser shall have the right to offset any claims for
Accounts Receivable uncollected by Purchaser beyond ninety (90) days after the
Closing Date against consignment payments to Seller.
<PAGE>
7. REPRESENTATIONS AND WARRANTIES OF SELLER. Seller represents and warrants to
Purchaser as follows:
7.1 Organization and Qualification. Seller is a corporation duly
organized, validly existing, and in good standing under the laws of the State of
Utah, and has all corporate power and authority to carry on the Business as now
being conducted and to own, lease or otherwise hold its properties. Seller is
duly qualified as a foreign corporation where the conduct of its business
requires such qualification or where the failure to qualify would not have a
materially adverse effect on the Business, the Acquired Assets, the Assumed
Liabilities or the transactions contemplated by this Agreement. Those
jurisdictions in which the Company is licensed or qualified to transact business
are listed on Exhibit 7.1.
7.2 Authority. Seller has full power and authority to enter into and
consummate this Agreement. Seller's execution, delivery and performance of this
Agreement has been duly authorized by all requisite corporate action.
7.3 Validity. This Agreement constitutes, and each of the other
agreements, documents and instruments executed and delivered by Seller will
constitute the legal, valid and binding obligations of Seller enforceable in
accordance with their terms except as enforceability may be limited by
applicable equitable principles or by bankruptcy, insolvency, moratorium or
similar laws affecting the enforcement of creditors' rights generally.
7.4 Conflict with Other Instruments. The execution, delivery and
consummation by Seller of this Agreement and each other agreement provided for
herein will not (a) conflict with, violate or result in a breach of the terms,
conditions or provisions of, or constitute a default (or an event which with
notice or lapse of time or both would become a default) under the Articles of
Incorporation or Bylaws of Seller, any of the Contracts, or any other contracts
or obligations not assumed by Purchaser hereunder but to which Seller is a party
or is bound or materially affected, (b) result in the creation of a lien or
encumbrance on any of the Acquired Assets, (c) entitle any party to accelerate
payment of any of the Assumed Liabilities, (d) violate the terms of any
settlement, judgment or decree to which Seller is a party, or by which Seller or
any of its properties is bound, or (e) violate any applicable federal, state,
local or foreign law, regulation or order.
7.5 Compliance with Laws. Seller has not violated any laws, ordinances,
regulations, orders, licenses or permits affecting the Acquired Assets or the
operation of the Business (including, without limitation, Environmental Laws,
the Americans with Disabilities Act, laws relating to occupational health and
safety and the terms and conditions of those licenses and permits identified on
Exhibit 1.8), and Seller is not subject to any judgment, order, writ, injunction
or decree that materially affects the Acquired Assets.
7.6 Licenses and Permits. Seller holds all licenses and permits from
all appropriate federal, state, foreign and other public authorities necessary
for the conduct of the Business. Exhibit 1.8 sets forth a list and brief
description of each such license or permit.
7.7 Litigation. Except as listed and described on Exhibit 7.7, there is
no action, claim or investigation pending, or to Seller's knowledge, threatened,
against Seller relating to the Business or affecting any of the Acquired Assets
(including, without limitation, actions or claims relating to any warranties or
guaranties by Seller or any products or services of Seller), nor is there any
judgment of any court, governmental agency, instrumentality, or arbitration
outstanding against Seller relating to the Business. Seller has received no
notice of any violation of any law, regulation or ordinance applicable to the
Business or the Acquired Assets.
<PAGE>
7.8 Inventory. All Non-Consigned Inventory as described in Section 6 is
of a quality and quantity usable or saleable in the ordinary course of business,
is now located at 2351 S.2300 West, Salt Lake City, Utah, and has been acquired
only in bona fide transactions entered into in the ordinary course of business.
The Inventory is reflected on Seller's books and records at the lower of cost
(determined on a first-in, first-out method) or market value.
7.9 Intellectual Property
(a) The following items are described more fully in Exhibit
7.9 and true and correct copies of documents relating to such items have been
provided to Purchaser:
(i) All existing United States, common law and foreign
patents, trademarks, trade names, service marks and copyrights (including
without limitation, applications, registrations, and, if applicable, goodwill
for all of the foregoing), mask works, trade secrets, disclosures, know-how,
formulations, trade dress, designs, drawings, logos, technology, mailing lists,
inventions, uses of ideas, software rights, confidential information, industrial
and commercial property, whether any of the foregoing is owned, licensed or held
for use, including without limitation, the right to infringement and other
claims related thereto and used in or relating to the Business;
(ii).....Agreements to which Seller is a party
relating to Intellectual Property; and
(iii)....All registered, assumed or fictitious names
under which Seller is conducting business.
(b) Seller warrants and represents that:
(i)......All right, title and interest in and to the
Intellectual Property are owned by Seller without limitation or encumbrance.
(ii).....All Intellectual Property is in good standing
and without any challenge.
(iii)....The Intellectual Property has been in
continuous use since the date of their adoption and first use as shown in
Exhibit 7.9.
<PAGE>
(iv).....Seller has acquired all rights to all
copyrights described in Exhibit 7.9.
(v)......Any trademarks, service marks or trade names
described in Exhibit 7.9 which have been obtained through transfer or assignment
include the associated goodwill.
(vi).....Seller has no knowledge of any infringement
or unlawful use of any of the Intellectual Property or any use of the same or
similar item so as to create a likelihood of confusion.
(vii)....No infringement of any Intellectual Property
has occurred, is known by Seller, or results from operation of the Business.
(viii)...Seller has no notice of, or knowledge of any
basis for, a claim against Seller that the Business infringes any intellectual
property rights of others.
(ix).....No proceedings or claims are pending or, to
the Seller's knowledge, threatened, with respect to the validity or ownership of
the Intellectual Property.
(x)......Seller has a valid and enforceable license to
use all software that is not owned by Seller.
7.10 Fixed Assets. Exhibit 7.10 contains a true and correct list of all
Fixed Assets used or useful in the Business. The Fixed Assets are in good
condition and repair, suitable for their intended use, ordinary wear and tear
excepted.
7.11 Customers. Exhibit 1.2 contains a true and complete list of all of
the customers of the Business during the fiscal year ended September 30, 1998
and for the period from October 1, 1998 through the date hereof. Since November
20, 1998 the Business has not lost any customer or customers which accounted
alone or together for more than 5% of the annual aggregate value of the products
and services sold or leased during the fiscal year ending September 30, 1998 and
there has not been any adverse change in the business relationship of Seller
with any of such customers. Seller has no knowledge that any of its customers
intends to reduce, and no customer has threatened to reduce, its purchases from
or business dealings with Seller, whether by reason of the consummation of this
Agreement or otherwise.
7.12 Books and Records. The books and records relating to the Business
have been previously delivered to Purchaser, are correct and complete and fairly
reflect the transactions to which Seller is a party or by which its properties
are subject or bound as they relate to the Business.
<PAGE>
7.13 Absence of Changes. Since December 3, 1998 and except as disclosed
on Exhibit 7.13, Seller has not with respect to the Business:
(a) entered into or consummated any transaction or engaged in
any activity other than in the ordinary course, including without limitation,
the sale, transfer or conveyance of any assets or the making of or committing to
make any capital expenditures in an aggregate amount greater than $5,000;
(b) suffered any material adverse change to the Business or
the Acquired Assets, and no fact or condition exists, or to Seller's knowledge,
has been threatened, which could have such an effect in the future;
(c) sold or transferred any of the Acquired Assets, except in
the ordinary course of business;
(d) incurred the imposition of any lien, encumbrance or claim
upon any of the Acquired Assets or engaged in a material conveyance to secure
debt, except for any lien with respect to personal property taxes or real
property taxes not yet due and payable;
(e) discharged or reduced any lien or encumbrance other than
as required by its terms, or paid any material liability other than current
liabilities incurred in the ordinary course of business and paid in accordance
with their terms;
(f) incurred any default in any liability (accrued or
otherwise);
(g) made any change adverse to it in the terms of any
agreement or instrument to which it is a party;
(h) waived, canceled, sold or otherwise disposed of for less
than the face value thereof any claim or right it has against others in excess
of reserved amounts;
(i) made any change in the terms of any insurance policy, or
canceled or allowed any such insurance policy or coverage thereunder to lapse
without replacement with equivalent coverage;
(j) paid any bonus to or granted any increase in the rates of
pay or any increase in the pension, retirement or other benefits of its
directors, officers or other employees, other than normal cost-of-living and
merit salary increases made in accordance with regular employment policies;
(k) introduced any new method of accounting;
(l) incurred or agreed to incur any indebtedness or entered
into any capitalized leases;
(m) entered into any Contract except in the ordinary course of
business; or
<PAGE>
(n) delayed payment of any account payable or other liability
of the Business beyond its due date.
7.14 Title to Assets. Seller has good and marketable title to all of
the Acquired Assets, whether real or personal, tangible or intangible, free and
clear of any liens or encumbrances, except liens for current personal and real
property taxes assessed but not yet due and payable. The Acquired Assets
constitute all assets necessary or useful to the operation of the Business.
7.15 Taxes. Except as disclosed in Exhibit 7.15, Seller has timely
filed all federal, state, and local tax returns relating to the Business and/or
the Acquired Assets (including without limitation, income, franchise, excise,
withholding, property, and sales and use tax returns) required to be filed by it
and has timely paid all taxes shown on such returns; each such return is
complete and correct in all material respects, and Seller has no tax liability
not disclosed on such returns or reflected on the Financial Statements (as
defined in Section 7.19 below), except for taxes not yet due and payable
resulting from the operation of the Business in the ordinary course or ownership
of the Acquired Assets by Seller from October 1, 1998 through the date hereof;
no assessments or notices of deficiency have been received by Seller, or to
Seller's knowledge, threatened against Seller with respect to any such return
which have not been paid or fully reserved against in the Financial Statements;
for the periods (or in the case of balance sheets, as of their respective dates)
covered by the Financial Statements, Seller fully accrued on the Financial
Statements all taxes which were not yet payable; Seller has not agreed to an
extension of the statute of limitations as to any tax return; and no amendments
or applications for refund have been filed or are planned with respect to any
such return. The last audit of any tax return of Seller is the current Utah
state sales and use tax audit.
7.16 Brokers and Finders. Seller has incurred no obligation for any
brokerage fees, agent's commissions or finder's fees in connection with this
Agreement.
7.17 Approvals or Consents. No governmental or other third-party
approval, release, consent or waiver is required as a condition to the validity
or consummation of this Agreement.
7.18 Receivables. Except as set forth in Exhibit 7.18, all of the
Receivables arose from bona fide transactions in the ordinary course of business
and the aging of the accounts receivable provided by Seller to Purchaser is true
and correct in all material respects. There has been no set-off or claim
asserted or, to any Seller's knowledge, threatened, with respect to any
Receivable, and no discount or credit has been agreed to with respect to any
Receivable except for ordinary course discounts for prompt payment. All of the
Receivables are collectable in full not later than the date which is ninety (90)
days after the Closing Date in the amount of the face value thereof calculated
in accordance with Seller's past practice. All Receivables are subject to the
terms and conditions of Seller's standard invoice.
7.19 Financial Statements. Attached as Exhibit 7.19 are copies of the
9/30/98 Balance Sheet (the "Financial Statements"). Except as noted in Exhibit
7.19, the Financial Statements (i) are true and correct in all material respects
and (ii) have been prepared in accordance with generally accepted accounting
principles, consistently applied ("GAAP"). The Financial Statements fairly
presents the financial condition of the Business as of the date thereof.
<PAGE>
7.20 Liabilities. Except as disclosed in Exhibit 7.20, the Business has
no material liabilities, known or unknown, contingent or otherwise, other than
those reflected in the Financial Statements and no default exists as to any of
the material liabilities of the Business.
7.21 Contracts. Exhibit 7.21 sets forth a list of each contract,
agreement, real and personal property lease, license, obligation or commitment
pertaining to the Business to which Seller or any of the Acquired Assets is
bound or affected.
Except as set forth in Exhibit 7.21, all Contracts are in full
force and effect and are valid and binding obligations enforceable against the
parties thereto, except as may be limited by applicable equitable principles or
bankruptcy, insolvency, or similar laws affecting the enforcement of creditors'
rights generally. Correct and complete copies of all Contracts have been
delivered to Purchaser. Except as set forth in Exhibit 7.21, Seller is not in
default under and, to Seller's knowledge, no other party is in default under,
and no condition exists which, with notice or the passage of time, or both,
would constitute a default by Seller under any of the Contracts. Except as set
forth in Exhibit 7.21, the validity and effectiveness of the Contracts will not
be adversely affected by this Agreement or its consummation and no consent,
waiver or approval from any party, other than Unisys as confirmed in Exhibit
7.21 is required to continue the Contracts on the same terms and conditions
after the Closing. Seller is not subject to any agreement requiring it to obtain
all or substantially all of its supply of any goods or services relating to the
Business from another person.
7.22 Employee Benefit Plans.
(a) Exhibit 7.22 contains a list of all material plans,
policies, arrangements and contracts, whether written or oral to or on behalf of
employees or former employees of the Business ("Employee Plans"), including,
without limitation, all employee benefit plans as defined in Section 3(3) of the
Employee Retirement Income Security Act of 1974 ("ERISA") in effect at the date
hereof providing or relating to any retirement, profit sharing, stock bonus,
stock option, incentive compensation, deferred compensation, fringe benefit or
welfare benefit. Seller has provided Purchaser with summary plan or other
descriptions of the Employee Plans, and will, prior to the Closing, make
available to Purchaser, upon request, copies of the Employee Plans and any
related documents, including, without limitation, agreements with third-party
service providers. Each summary plan description, Employee Plan or other
document provided or made available pursuant to the preceding sentence is
correct and complete in all material respects.
<PAGE>
(b) To Seller's knowledge and except as disclosed in Exhibit
7.22: (i) each of the Employee Plans is and has been at all times in compliance
with ERISA, the Internal Revenue Code of 1986, as amended (the "Code"), and all
other applicable laws, except for violations thereof which would not in the
aggregate give rise to a material obligation to pay money; (ii) each Employee
Plan intended to be qualified under Section 401(a) of the Code is so qualified;
(iii) no Employee Plan subject to Section 302 of ERISA or Section 412 of the
Code has incurred for any prior plan year and will not for its current plan year
incur an accumulated funding deficiency under Section 302 of ERISA or Section
412 of the Code; (iv) no claims are pending against Seller in respect of an
Employee Plan except for payment of benefits in the normal course of business,
and no employee of Seller and no beneficiary or dependent of an employee has
pending or, to Seller's knowledge, has threatened any appeal or litigation
regarding any denial of benefits under any Employee Plan; (v) neither Seller nor
any corporation or other trade or business (whether or not incorporated) which
together with Seller is an "employer" as defined in Section 4001(a) of ERISA (an
"ERISA Affiliate") has engaged in any transaction prohibited by Section 406 of
ERISA or Section 4975 of the Code; (vi) no reportable event (as defined in
Section 4043 of ERISA) has occurred with respect to any Employee Plan or any
other employee benefit plan covered by Title IV of ERISA maintained by Seller or
any ERISA Affiliate; (vii) neither Seller nor any ERISA Affiliate has incurred
any liability under Title IV of ERISA which remains outstanding, nor has the
Pension Benefit Guaranty Corporation or any "multiemployer plan" as defined in
Section 4001(a)(3) of ERISA asserted or threatened to assert any liability
against Seller or any ERISA Affiliate, other than the payments which have become
due and are unpaid; (viii) neither Seller nor any ERISA Affiliate has at any
time sponsored, maintained or contributed to a plan subject to Title IV of
ERISA; and (ix) Seller has complied with the health care continuation coverage
requirements of Section 4980(B) of the Code in respect of employees and former
employees of the Business and their dependents and beneficiaries.
(c) Except as set forth in Exhibit 7.22, no person has
asserted any claim under which the Business has any liability under any health
insurance, sickness, life insurance, disability, medical, surgical, hospital,
death benefit, or any other Employee Plan (whether or not disclosed on Exhibit
7.22) maintained by Seller or to which Seller is a party or may be bound, or
under any worker's compensation or similar law, which is not fully covered by
insurance maintained with responsible insurers or reserved for under the Audited
Financial Statement.
(d) Except as otherwise required by COBRA or disclosed on
Exhibit 7.22, the Business provides no benefits to retirees or former employees.
7.23 Insurance. Exhibit 7.23 contains a true and complete list of all
insurance policies and fidelity bonds covering the Acquired Assets or the
Business, including a brief description of the terms of each policy. All such
insurance is in full force and effect and is adequate for the nature and scope
of the risks inherent in the Business.
<PAGE>
7.24 Environmental Protection.
(a) Except as set forth on Exhibit 7.24, to the extent
materially necessary for the Business, Seller has obtained all permits, licenses
and other authorizations which are required under federal, state and local laws,
regulations or orders (collectively, the "Environmental Laws") relating to
pollution or protection of the environment, including laws relating to
emissions, discharges, releases or threatened releases of pollutants,
contaminants or hazardous or toxic materials or wastes into ambient air, surface
water, ground water or land, or otherwise relating to the manufacture,
processing, distribution, use, treatment, storage, disposal, transport or
handling of pollutants, contaminants or hazardous or toxic materials or wastes
or nuisance, and the transactions contemplated hereby will not materially alter
or impair any such permits, licenses and authorizations. Except as set forth in
Exhibit 7.24, Seller is in compliance with all terms and conditions of such
permits, licenses and authorizations and has complied with all other
Environmental Laws to the extent applicable to the Business.
(b) In connection with the Business, there are no
circumstances or plans by Seller which would be likely to interfere with or
prevent compliance or continued compliance with any Environmental Laws, or which
may give rise to any material liability under any Environmental Law, including,
without limitation, liability under the Comprehensive Environmental Response,
Compensation and Liability Act ("CERCLA") or similar state or local laws, or
otherwise form the basis of any material claim, notice of violation, or
investigation, based on or related to a violation of any Environmental Laws or
the manufacture, processing, distribution, use, treatment, storage, disposal,
transport or handling, or the emission, discharge, release or threatened release
into the environment, of any pollutant, contaminant, chemical, or industrial,
toxic or hazardous material, substance or waste. Without in any way limiting the
foregoing, no release, emission or discharge into the environment of any
hazardous substance (as that term is currently defined under CERCLA or any
applicable analogous state law) has occurred or is currently occurring in
connection with the conduct of the Business by Seller or, to Seller's knowledge,
any predecessor or on the properties used in the operations of the Business by
Seller or any such predecessor, or, to Seller's knowledge, any site to which
such substances from Seller may have been taken at any time in the past.
(c) Seller has not received notification from any government
or political subdivision thereof that any of the properties, assets or
operations owned or used by Seller in connection with the Business are in
violation of any Environmental Laws.
<PAGE>
7.25 Labor Relations. Except as set forth on Exhibit 7.25: no labor
union represents or purports to represent any employees of the Business; there
are no material controversies pending between the Business and any of its
employees, nor, to any Seller's knowledge, are any such material controversies
threatened; during the past three (3) years, the Business has not been the
subject of any labor organizing activity or labor dispute; Seller is not liable
for any arrears of wages or taxes or any penalties for failure to comply with
any of the foregoing; and Seller is not a party to and has no obligations under
any agreement (written, oral or implied) with any person or party regarding the
salary, rates of pay, benefits, or working conditions of any employees of the
Business and all of the employees of the Business are terminable at will. Seller
has no policy or past practice relating to payment of any severance or similar
benefit upon termination of employment. Seller is not involved in any
transaction or other situation with any employee, officer, director or affiliate
of the Business which may be generally characterized as a "conflict of
interest", including without limitation, direct or indirect interests in the
business of competitors, suppliers or customers of the Business; and no
situations exist with respect to the Business which involved or involves (i) the
use of any corporate funds for unlawful contributions, gifts, entertainment or
other unlawful expenses related to political activity, (ii) the making of any
direct or indirect unlawful payments to government officials or others from
corporate funds or the establishment or maintenance of any unlawful or
unrecorded funds, (iii) the receipt of any illegal discounts or rebates, or (iv)
any investigation by any federal, state, local or foreign government agency or
authority. Seller has delivered to Purchaser a list of employees of the Business
identifying job title, tenure, salary/wage and location, which list is complete
and correct.
7.26 Real Property. Exhibit 7.26 sets forth a true and correct list of
all real property owned or leased by Seller relating to the Business. Except as
set forth in Exhibit 7.26, all improvements thereon are in good condition and
repair, normal wear and tear excepted, and there exist no material patent or
latent defects. Except as disclosed in Exhibit 7.26, each lease covering any
property identified in Exhibit 7.26 is in full force and effect, and there has
not occurred an event of default by Seller (or an event, which with notice or
lapse of time would constitute an event of default) under any such lease, except
where such event or the absence of such lease would not have a material adverse
effect on the Business.
8. REPRESENTATIONS AND WARRANTIES OF PURCHASER. Purchaser represents and
warrants to Seller as follows:
8.1 Organization and Standing. Purchaser is a limited liability company
duly organized, validly existing and in good standing under the laws of the
State of Ohio and has all corporate power to conduct its business.
8.2 Authority. Purchaser has full power and authority to enter into and
consummate this Agreement. Purchaser's execution, delivery and performance of
this Agreement has been duly authorized by all requisite corporate action.
8.3 Validity. This Agreement constitutes, and each of the other
agreements, documents and instruments executed and delivered by Purchaser will
constitute the legal, valid and binding obligations of Purchaser enforceable in
accordance with their terms except as enforceability may be limited by
applicable equitable principles or by bankruptcy, insolvency, moratorium or
similar laws affecting the enforcement of creditors' rights generally.
8.4 Conflict with Other Instruments. The execution, delivery and
consummation by Purchaser of this Agreement and each other agreement provided
for herein will not (a) conflict with, violate or result in a breach of the
terms, conditions or provisions of, or constitute a default (or an event which
with notice or lapse of time or both would become a default) under the Articles
of Organization of Purchaser, or any contracts or obligations to which Purchaser
is a party or is bound or materially affected, (b) violate the terms of any
settlement, judgment or decree to which Purchaser is a party, or by which
Purchaser or any of its properties is bound, or (c) violate any applicable
federal, state, local or foreign law, regulation or order.
8.5 Approvals or Consents. No governmental or other third party
approval, release, consent or waiver is required by Purchaser as a condition to
the validity and consummation of this Agreement.
<PAGE>
8.6 Brokers and Finders. Purchaser has not incurred any obligation for
any brokerage fees, agent's commissions or finder's fees in connection with this
Agreement.
9. COVENANTS OF SELLER AND PURCHASER. The parties covenant and agree as follows:
9.1 Conduct of Business Prior to Closing. Until the Closing Date, and
unless Purchaser shall otherwise consent in writing or as provided herein,
Seller shall take the following actions:
(a) operate the Business as previously operated and only in
the ordinary course and use best efforts to preserve intact Seller's goodwill,
reputation, present business organization and relationships with persons having
business dealings with it;
(b) acquire or dispose of, or make any changes to, the
Business or the Acquired Assets or Assumed Liabilities reflected on the 9/30/98
Balance Sheet, only in the ordinary course of business;
(c) maintain all of Seller's properties used or useful in the
Business in good order and condition, reasonable wear and use excepted, and
maintain all policies of insurance covering such properties in effect on the
date hereof;
(d) pay Seller's accounts payable and collect its accounts
receivable relating to the Business in accordance with current business
practices;
(e) comply with all laws applicable to the conduct of the
Business; and
(f) maintain Seller's books and records relating to the
Business in the usual, regular and ordinary matter on a basis consistent with
past practices.
9.2 Notification of Material Adverse Changes. Between the date hereof
and the Closing Date, Seller shall promptly notify Purchaser in writing of the
occurrence of any of the matters described in Section 7.13 of which Seller has
knowledge. The parties shall promptly notify each other of any action, suit or
proceeding instituted or threatened against such party to restrain, prohibit or
otherwise challenge the legality of any transaction contemplated by this
Agreement. Seller shall promptly notify Purchaser of any lawsuit, claim,
proceeding or investigation that may be threatened or brought against Seller
that would have been listed on Exhibit 7.7 if such action had arisen prior to
the date thereof.
<PAGE>
9.3 Other Transactions. Until the earlier of March 1, 1999 or
termination of this Agreement, Seller shall deal exclusively and in good faith
with Purchaser regarding the sale of the Acquired Assets and will not, and will
direct its officers, partners, directors, financial advisors, accountants,
agents and counsel not to, (i) solicit submission of offers from any person
relating to a sale of the Acquired Assets or any other transaction involving the
disposition by Seller of the Pen Technology Division, (ii) participate in any
discussions or negotiations regarding, or furnish any nonpublic information to
any person regarding, any such transaction involving any person other than
Purchaser, or (iii) enter into any agreement or understanding, whether oral or
written, that would have the effect of preventing consummation of this
Agreement. If Seller or its representatives or agents should receive any
proposal for a such a transaction or any inquiry regarding such a proposal from
a third party, Seller will promptly so inform Purchaser.
9.4 Consents, Waivers and Approvals. Seller shall obtain prior to the
Closing all consents, waivers, approvals, and releases of liens, mortgages or
encumbrances necessary to permit the sale of the Acquired Assets to Purchaser
free and clear of any and all liens or encumbrances, including, but not limited
to, a termination of any and all liens relating to the Acquired Assets filed on
behalf of FINOVA, Seller's primary lender, and the operation of the Business by
Purchaser after the Closing Date in the ordinary course as operated by Seller
prior to Closing. Purchaser shall cooperate with and provide reasonable
assistance to Seller to obtain such consents, waivers, approvals and releases;
provided that Purchaser shall not be required to provide any consideration in
addition to that provided for herein. All such consents, waivers, releases and
approvals will be in writing and in form and substance satisfactory to
Purchaser, and copies thereof will be delivered to Purchaser promptly after
receipt thereof but in no event later than the Closing.
9.5 Supplemental Disclosure. Each of the parties hereto shall use best
efforts to refrain from taking any action which would render any representation
or warranty contained in this Agreement inaccurate as of the Closing Date
(provided, however, that a party shall still be liable hereunder for any breach
of such provisions, notwithstanding the exercise of reasonable efforts to
prevent such breach). Seller and Purchaser shall have the continuing obligation
up to and including the Closing Date to supplement promptly or amend the
Exhibits with respect to any matter hereafter arising or discovered which, if
existing or known at the date of this Agreement, would have been required to be
set forth or listed in the Exhibits. For the purpose of the rights and
obligations of the parties hereunder, any such supplemental disclosure shall be
deemed to have been disclosed as of the date of this Agreement if Purchaser
proceeds with the consummation of this Agreement following receipt of such
supplemental or amended Exhibits.
9.6 Additional Reports. Promptly after they become available, Seller
will make available to Purchaser copies of all management and control reports
(including agings of accounts receivable, listings of accounts payable and
inventory control reports) and financial statements (including all internal
financial statements) furnished to the management of Seller relating to the
Business.
<PAGE>
9.7 Conditions Precedent. Seller and Purchaser shall use their best
efforts in good faith to satisfy the conditions enumerated, respectively, in
Sections 10 and 11 hereof.
9.8 Purchaser's Due Diligence. Seller shall give Purchaser and its
counsel, accountants and other representatives full access during normal
business hours to all of the books, records, files, documents, assets,
properties, contracts, and commitments of Seller relating to the Business,
provided that such examinations shall be conducted in such a manner so as not to
unreasonably disrupt the normal business operations of Seller, and Seller shall
furnish Purchaser with such information concerning the affairs of Seller
relating to the Business which Purchaser may reasonably request, so that
Purchaser may have a full opportunity to verify the representations and
warranties contained in this Agreement and to ascertain such other matters
concerning the financial condition, operations, employees, business or prospects
of Seller relating to the Business as Purchaser may deem necessary or
appropriate. Seller shall deliver to Purchaser correct and complete copies of
all documents referred to in the Exhibits.
9.9 Further Assurances. From and after the Closing, Seller and
Purchaser agree, without further consideration, to execute and delivery promptly
to the other such further documents, and to take all such further actions, as
the parties may from time to time reasonably request in connection herewith.
9.10 Satisfaction of Obligations. From and after the Closing, Seller
shall satisfy and discharge in full the obligations set forth in Columns A and B
of Exhibit 7.13(n) in accordance with the terms set forth on such exhibit.
10. CONDITIONS PRECEDENT TO OBLIGATIONS OF PURCHASER. The obligation of
Purchaser to consummate this Agreement shall be subject to the satisfaction, on
or before the Closing Date, of the following conditions, all or any of which may
be waived by Purchaser.
10.1 Representations True at Closing. The representations and
warranties made by Seller in Section 7 hereof shall be true and correct in all
material respects on the Closing Date as though such representations and
warranties had been made on such date (except for changes permitted by this
Agreement) and Seller shall deliver to Purchaser a certificate dated as of the
Closing Date to the foregoing effect.
10.2 Covenants of Seller. Seller shall have duly performed in all
material respects all of the covenants, acts and undertakings to be performed by
it on or prior to the Closing Date, and Seller shall deliver to Purchaser a
certificate dated as of the Closing Date to the foregoing effect.
10.3 No Injunction, Etc. No proceeding shall have been instituted or
threatened by any third party before any court or governmental agency to enjoin,
or prohibit, or to obtain substantial damages in respect of the consummation of
the transactions provided for in this Agreement.
10.4 Incumbency. Seller shall have delivered a certificate of
incumbency executed by the president and secretary (or persons exercising
similar functions) of Seller listing each officer of Seller executing this
Agreement and all related agreements and documents.
<PAGE>
10.5 Consents, Waivers and Approvals. Purchaser shall have received a
true and correct copy of each consent, waiver or approval identified in Exhibit
7.17 hereto or otherwise required pursuant to Section 9.4.
10.6 Absence of Material Adverse Changes. Since September 30, 1998, (a)
Seller shall not have suffered any event which results in a material adverse
change to the Acquired Assets or the Business, and (b) Seller shall have taken,
omitted, permitted or suffered no transaction or event described in Section 7.13
hereof which is not described in Exhibit 7.13.
10.7 Certified Resolutions. Seller shall have delivered to Purchaser a
certificate executed by a duly authorized officer of Seller containing true and
correct copies of the resolutions duly adopted by the board of directors
approving and authorizing this Agreement and its consummation and the other
transactions and actions required of Seller hereunder. The applicable officers
shall certify that such resolutions have not been revoked or modified and remain
in full force and effect as of the Closing Date.
10.8 Retention of Employees. Purchaser shall have received confirmation
from those employees of Seller who have been identified by Purchaser as
essential to the operation of the Business that such employees are willing to
accept employment with Purchaser after the Closing if an offer of employment is
made by Purchaser.
10.9 Completion of Due Diligence. Purchaser shall have completed its
due diligence review of the Business and Acquired Assets and shall have
accepted, in its reasonable discretion, its findings.
10.10 Covenants Not to Compete. Members of the Board of Directors of
Seller shall have executed the Covenants Not to Compete described in Section 14.
10.11 Outstanding Obligations. Seller shall have delivered to Purchaser
a list of all creditors of Seller indicating the outstanding obligations for
indebtedness of Seller relating to the Business as of the Closing Date certified
by an officer of Seller as true and correct.
11. CONDITIONS PRECEDENT TO OBLIGATIONS OF SELLER. The obligation of
Seller to consummate this Agreement shall be subject to the satisfaction, on or
before the Closing Date, of the following conditions, all or any of which may be
waived by Seller.
11.1 Representations True at Closing. The representations and
warranties made by Purchaser in Section 8 hereof shall be true and correct in
all material respects on the Closing Date as though such representations and
warranties had been made on such date (except for changes permitted by this
Agreement) and Purchaser shall deliver to Seller a certificate dated as of the
Closing Date to the foregoing effect.
<PAGE>
11.2 Covenants of Purchaser. Purchaser shall have duly performed in all
material respects all of the covenants, acts and undertakings to be performed by
it on or prior to the Closing Date, and Purchaser shall deliver to Seller a
certificate dated as of the Closing Date to the foregoing effect.
11.3 No Injunction, Etc. No proceeding shall have been instituted or
threatened by any third party before any court or governmental agency to enjoin,
or prohibit, or to obtain substantial damages in respect of the consummation of
the transactions provided for in this Agreement.
11.4 Incumbency. Purchaser shall have delivered a certificate of
incumbency executed by the president and secretary (or persons exercising
similar functions) of Purchaser listing each officer executing this Agreement
and all related agreements and documents.
11.5 Certified Resolutions. Purchaser shall have delivered to Seller a
certificate executed by a duly authorized officer of Purchaser containing true
and correct copies of the resolutions duly adopted by the members approving and
authorizing this Agreement and its consummation and the other transactions and
actions required of Purchaser hereunder. The applicable officers shall certify
that such resolutions have not been revoked or modified and remain in full force
and effect as of the Closing Date.
12. CLOSING DATE.
12.1 Time and Place. Except as otherwise mutually agreed upon by the
parties, the closing of this Agreement (the "Closing") shall take place at the
offices of Coolidge Wall Womsley & Lombard in Dayton, Ohio on January 29, 1999
(the "Closing Date") or at such other time and place as the parties shall agree.
12.2 Transactions at the Closing. At the Closing, each of the following
transactions shall occur:
(a) Seller's Performance. Seller shall deliver the following
to Purchaser:
(i)...... all instruments of transfer conveying the
Acquired Assets to Purchaser free and clear of any claim or encumbrance, duly
executed and reasonably satisfactory in form and substance to Purchaser and its
counsel;
(ii).....the certificates of Seller required by
Sections 10.1 and 10.2 of this Agreement;
(iii)....copies of the consents, releases, approvals
and waivers required by Section 10.5 this Agreement not previously delivered to
Purchaser;
(iv).....certificates of incumbency required by
Section 10.4 of this Agreement;
<PAGE>
(v)......certified copies of the resolutions required
by Section 10.7 of this Agreement;
(vi) ....a copy of the Certificate of Incorporation
of Seller, certified by the Secretary of State of Utah and a copy of the by-laws
of Seller, certified by Seller's secretary as true and correct as of the Closing
Date;
(vii)....a certificate of good standing of Seller
from the Secretary of State of Utah and evidence of Seller's payment of all
applicable state franchise taxes as of the Closing Date; and
(viii)...such other evidence of the performance of
all covenants and satisfaction of all conditions required of Seller by this
Agreement, at or prior to the Closing, as Purchaser or its counsel reasonably
requires.
(b) Purchaser's Performance. At the Closing, Purchaser shall
deliver the following to Seller:
(i)......the amount required under Section 5.1(a) of
this Agreement shall be paid to Seller in immediately available funds;
(ii).....certificates of incumbency required by
Section 11.5 of this Agreement;
(iii)....an assumption agreement relating to the
Assumed Liabilities;
(iv) ....a copy of the Articles of Organization of
Purchaser, certified by the Secretary of State of Ohio;
(v)......a certificate of good standing of Purchaser
from the Secretary of State of Ohio and evidence of Purchaser's payment of all
applicable state franchise taxes as of the Closing Date;
(vi).....the certificates of Purchaser required by
Sections 11.1 and 11.2 of this Agreement; and
(vii)....such other evidence of the performance of
all the covenants and satisfaction of all of the conditions required of
Purchaser by this Agreement, at or before the Closing, as Seller or its counsel
reasonably require.
12.3 Default at Closing. Notwithstanding the provisions of Section 1,
if either Seller or Purchaser shall fail or refuse to consummate the
transactions set forth in this Agreement on or prior to the Closing Date, and if
the other parties shall not then be in material breach under terms of this
Agreement, all other conditions to the Closing shall have been satisfied and the
other parties shall stand ready, willing and able to make tender of its
deliveries required under Section 12.2, then, in addition to any other remedies
available to it, the other parties may invoke any equitable remedies to cause
the consummation of this Agreement, including without limitation, an action or
suit for specific performance.
<PAGE>
13. CONSULTING AGREEMENT. At the Closing, Purchaser and Seller agree to execute
the form of Consulting Agreement set forth as Exhibit 13 (the "Consulting
Agreement").
14. COVENANTS NOT TO COMPETE.
14.1 Covenants. Seller agrees not to compete, directly or indirectly,
with the Business in the United States for a period of two (2) years after the
Closing. "Compete" shall include participating in the custom-molded cable
business, hiring or soliciting for hire any persons who are then employees of
the Business, and selling, providing or soliciting customers or reasonably
likely prospects of the Business as of the Closing for the sale or provision of
the same or substantially similar products or services as those sold or provided
by the Business as of the Closing Date. Ownership of less than 5% of the voting
securities of an issuer listed on any national stock exchange or whose stock is
traded in the over-the-counter market shall not be a violation of the foregoing
prohibition. For purposes of this Section 14, Seller shall be permitted to
conduct the following two businesses: (i) cable and harnessing for use in
aircraft and (ii) cable interconnections for use exclusively on harnessing
products that are installed or used in equipment racks.
14.2 Remedies. Seller acknowledges that its commitments under this
Section 14 are conditions to Purchaser's execution of this Agreement, and that
in the event of its breach of this Section, Purchaser will not have an adequate
remedy available at law or in equity. Seller further agrees that in the event of
its breach or threatened breach of this Section 14, Purchaser shall be entitled
to injunctive relief and specific performance in addition to and not in lieu of
any other remedies available at law or in equity, and Seller to the extent
permitted by applicable law, hereby waives all defenses or objections to such
remedies. Seller agrees that the duration, geographical field of application and
subject matter of the restrictions of Section 14.1 are reasonable in light of
all the facts and circumstances.
14.3 Seller's Board of Directors. At the Closing, Seller's Directors
who are also officers shall execute Covenants Not to Compete in the form
attached as Exhibit 14.3.
15. CONFIDENTIALITY OF INFORMATION. The Non-Disclosure Agreement dated September
1, 1998, between Seller and Purchaser is incorporated herein by reference to
this Agreement and shall survive the Closing, except to the extent that it
conflicts or interferes with consummation of this Agreement. Purchaser shall not
be required to keep confidential any information regarding the Acquired Assets
or the Business in the public domain. After the Closing, Purchaser shall not be
required to keep confidential any information relating to the Acquired Assets or
the Business. Seller acknowledges that certain confidential and proprietary
information (the "Purchaser Information") regarding the business operations of
Purchaser will be disclosed to Seller in connection with this Agreement. Seller
agrees to hold such Purchaser Information in confidence on the same terms and
conditions as Purchaser's obligation to hold similar information of Seller in
confidence pursuant to the Non-Disclosure Agreement.
<PAGE>
16. INDEMNIFICATION. The terms "Loss" and "Losses" shall mean any and all
demands, claims, actions or causes of action, assessments, losses, damages,
liabilities, costs and expenses, including without limitation, interest,
penalties and reasonable attorneys' and other professional fees and expenses.
16.1 Agreement of Seller to Indemnify. Subject to the terms and
conditions of this Section 16.1, Seller agrees to indemnify, defend and hold
harmless Purchaser from, against, for and in respect of any and all Losses
asserted against or incurred by Purchaser by reason of (i) the breach of any
representation, warranty, covenant or agreement of Seller contained in or made
pursuant to this Agreement or in any agreement, certificate or Exhibit furnished
by Seller in connection with the execution and delivery of this Agreement or the
closing of the transactions contemplated hereby, (ii) the conduct of the
Business prior to the Closing Date, or (iii) for any Excluded Liability.
16.2 Agreement of Purchaser to Indemnify. Subject to the terms and
conditions of this Section 16.2, the Purchaser hereby agrees to indemnify,
defend and hold harmless Seller from, against, for and in respect of any and all
Losses asserted against or incurred by Seller by reason of: (i) the breach of
any representation, warranty, covenant or agreement of Purchaser, contained in
or made pursuant to this Agreement or in any agreement, certificate or Exhibit
furnished by Purchaser in connection with the execution and delivery of this
Agreement or the closing of the transactions contemplated hereby, or (ii) for
any Assumed Liability, or (iii) the conduct of the Business after the Closing
Date.
16.3 Procedures for Indemnification. "Indemnitor" shall mean the party
against whom indemnity is sought, and "Indemnitee" shall mean the party seeking
indemnification.
(a) A claim for indemnification ("Indemnification Claim")
shall be made by Indemnitee by delivery of a written declaration to Indemnitor
requesting indemnification and specifying the basis on which indemnification is
sought and the amount of asserted Losses and, in the case of a Third Party Claim
(as defined in Section 16.4 hereof), containing such other information as
Indemnitee shall have concerning such Third Party Claim.
(b) If the Indemnification Claim involves a Third Party Claim
the procedures set forth in Section 16.4 hereof shall be observed by Indemnitee
and Indemnitor.
(c) If the Indemnification Claim involves a matter other than
a Third Party Claim, the Indemnitor shall have thirty (30) business days to
object to such Indemnification Claim by delivery of a written notice of such
objection to Indemnitee specifying in reasonable detail the basis for such
objection. Failure to timely so object shall constitute acceptance of the
Indemnification Claim by the Indemnitor and the Indemnification Claim shall be
paid in accordance with Section 16.3(d). Failure to give prompt notice or to
provide copies of documents or to furnish relevant data shall not constitute a
defense (in whole or in part) to any claim for indemnification, except and only
to the extent that such failure shall have caused or increased such liability or
adversely affected the ability of the Indemnitor to defend against or reduce its
liability.
<PAGE>
(d) Upon determination of the amount of an Indemnification
Claim, whether by agreement between Indemnitor and Indemnitee, by an arbitration
award or otherwise, Indemnitor shall pay the amount of such Indemnification
Claim within ten (10) days of the date such amount is determined.
16.4 Defense of Third Party Claims. Should any claim be made, or suit
or proceeding be instituted against Indemnitee which, if prosecuted
successfully, would be a matter for which Indemnitee is entitled to
indemnification under this Agreement (a "Third Party Claim"), the obligations
and liabilities of the parties hereunder with respect to such Third Party Claim
shall be subject to the following terms and conditions.
(a) The Indemnitee shall give the Indemnitor written notice of
any such claim promptly after receipt by the Indemnitee of actual notice
thereof, and the Indemnitor will undertake the defense thereof by
representatives of its own choosing reasonably acceptable to the Indemnitee and
will confirm such in writing to Indemnitee within fifteen (15) days after
receipt of Indemnitee's notice, provided, however, that with respect to tax
audits, Indemnitee shall undertake defense of the claim. The assumption of the
defense of any such claim by the Indemnitor shall be an acknowledgment by the
Indemnitor of its obligation to indemnify the Indemnitee with respect to such
claim. If the Indemnitor fails or refuses to undertake the defense of such claim
(or fails to object by written notice to Indemnitee to a claim for which
Indemnitee has undertaken defense pursuant to the first sentence of this Section
16.4(a)) within such fifteen (15) day period, the Indemnitee shall have the
right to undertake the defense, compromise and settlement of such claim with
counsel of its own choosing. In the circumstances described in the preceding
sentence, the Indemnitee shall promptly, upon its assumption of the defense of
such claim, make an Indemnification Claim as specified in Section 16.3(a).
(b) The Indemnitee and Indemnitor shall cooperate with each
other in connection with the defense of any Third Party Claim, including making
available records relating to such claim and furnishing, without expense to the
Indemnitor, management employees of the Indemnitee as may be reasonably
necessary for the preparation of the defense of any such claim or for testimony
as a witness in any proceeding relating to such claim.
16.5 Non-exclusive Remedy. The indemnification provisions of this
Section 16 are in addition to, and not in lieu of, any statutory, equitable or
other legal remedy that may be available to any party with respect to this
Agreement.
17. SURVIVAL.
All representations, warranties, undertakings and agreements made by Seller,
Guarantors or Purchaser shall survive Closing for the applicable statute of
limitations periods.
<PAGE>
18. EMPLOYEES.
18.1 Evaluation of Personnel. From the date hereof to the Closing,
Seller shall use best efforts to maintain existing relations with its employees
and not to alter current personnel policies and practices with respect to such
employees. Seller agrees to cooperate with Purchaser from the date of this
Agreement to the Closing in the evaluation of and transition planning for
personnel of the Business.
18.2 Employee Liabilities. On the Closing Date, Seller will terminate
all of its employees relating to the Business (the "Employees"). Seller will
permit Purchaser to hire such Employees on such terms and conditions as
Purchaser shall determine in its sole discretion; provided, however, that
Agreement shall not be construed as or deemed to be an obligation of Purchaser
to hire or retain any of the Employees or to offer them any specific terms,
benefits or compensation.
18.3 Employment Agreements. At the Closing, Purchaser will enter into a
letter agreement relating to the employment of Duke DeForest.
19. TERMINATION. This Agreement may be terminated and the transactions
contemplated herein abandoned (a) by the mutual written consent of Seller and
Purchaser; (b) by either Seller or Purchaser upon the failure of the other to
comply with its conditions precedent to Closing and other obligations set forth
herein on or before the Closing Date; or (c) automatically on March 1, 1999, if
the Closing has not been completed by that time. Termination pursuant to this
Section shall relieve the parties of their obligations hereunder with each party
responsible for its own fees, costs and expenses; provided, however that if the
Agreement is terminated pursuant to (b) or (c) above because one party fails to
use its reasonable efforts to fulfill its obligations hereunder, such party
shall remain liable to the other party for all losses, costs, expenses
(including attorneys' fees) and liabilities incurred by such other party as a
result of such failure.
20. TRANSACTION EXPENSES.
20.1 Brokers. Purchaser and Seller each represent and warrant to the
other that no broker or finder has acted for it or them in connection with this
Agreement.
20.2 Expenses. All expenses incurred by the parties in connection with
or related to the authorization, preparation, execution and consummation of this
Agreement, including without limitation, all fees and expenses of agents,
representatives, investment bankers, brokers, printers, counsel and accountants
employed by any such party, shall be borne solely by the party which has
incurred the same.
<PAGE>
21. MISCELLANEOUS.
21.1 Notice. All notices, requests, demands and other communications
hereunder shall be in writing and shall be deemed given and received (a) on the
date of delivery when delivered by hand or when transmitted by confirmed
simultaneous telecopy, (b) on the following business day when sent by receipted
overnight courier, or (c) three (3) business days after deposit in the United
States Mail when mailed by registered or certified mail, return receipt
requested, first class postage prepaid, as follows:
(a) If to Purchaser to:
Pen Cabling Technologies, LLC
Attn: David Smith
1501 Webster Street
Dayton, OH 45404
FAX: (888) 467-1839
with a copy to:
Barbara L. Sager, Esq.
Coolidge, Wall, Womsley & Lombard
600 IBM Building
Dayton, Ohio 45402
FAX: (937) 223-6705
(b) If to Seller:
Pen Interconnect, Inc.
Attn: Stephen J. Fryer
1601 Alton Parkway
Irvine, CA 92606
FAX: (949) 261-3199
with a copy to:
James W. Lucas, Esq.
Law Offices of Oscar Folger
Suite 2400
521 Fifth Avenue
New York, NY 10175
FAX: (212) 697-7833
Any party may change the address to which notices are to be sent to it by giving
written notice of such change of address to the other parties in the manner
above provided for giving notice.
<PAGE>
21.2 Assignment; Binding Effect. This Agreement may not be assigned by
any of the parties hereto without the prior written consent of the other parties
hereto, provided that Purchaser may assign its rights under this Agreement to an
affiliated entity without the prior consent of Seller, provided that such
assignee also agrees to become a party to this Agreement with joint liability
for the obligations of Purchaser hereunder. This Agreement shall be binding upon
the parties hereto and their respective permitted successors, assigns and
transferees. Seller agrees not to sell substantially all of its assets or engage
in a similar transaction with another entity after the Closing Date unless the
acquiring entity agrees to be bound by the terms of this Agreement applicable to
Seller.
21.3 Headings; Exhibits and Schedules. The Section, Subsection and
other headings in this Agreement are inserted solely as a matter of convenience
and for reference, and are not a part of this Agreement. The Exhibits and
Schedules attached hereto are a material part of this Agreement and are
incorporated herein by this reference.
21.4 Counterparts. This Agreement may be executed in one or more
counterparts, all of which shall be considered one and the same agreement and
shall become effective when one counterpart has been signed by each party and
delivered to the other party hereto.
21.5 Integration of Agreement. Except as otherwise provided herein,
this Agreement supersedes all prior agreements, oral and written, between the
parties hereto with respect to the subject matter hereunder. Neither this
Agreement, nor any provision hereof, may be changed, waived, discharged,
supplemented or terminated orally, but only by an agreement in writing signed by
the party against which the enforcement of such change, waiver, discharge or
termination is sought.
21.6 Time of Essence. Time is of the essence in this Agreement.
21.7 Governing Law. This Agreement shall be governed by and construed
and enforced in accordance with the laws of the State of Ohio.
21.8 Partial Illegality or Unenforceability. Wherever possible, each
provision hereof shall be interpreted in such manner as to be effective under
applicable law, but in case any one or more of the provisions contained herein
shall, for any reason, be held to be illegal or unenforceable in any respect,
such illegality or unenforceability shall not affect any other provisions of
this Agreement, and this Agreement shall be construed as if such illegal or
unenforceable provision or provisions had never been contained herein unless the
deletion of such provision or provisions would result in such a material change
as to cause completion of the transactions contemplated hereby to be
unreasonable. To the extent any of the provisions of Section 14 are held to be
unenforceable, they shall not be deleted but shall be reformed to the minimum
extent necessary to make them enforceable.
<PAGE>
21.9 Right to Proceed. Anything in this Agreement to the contrary
notwithstanding, if any of the conditions specified in Section 10 have not been
satisfied, Purchaser shall have the right to proceed with the transactions
contemplated hereby without waiving any of its rights hereunder, and if any of
the conditions specified in Section 11 have not been satisfied, Seller shall
have the right to proceed with the transactions contemplated hereby without
waiving any of its rights hereunder.
21.10 Effect of Investigation. Any inspection, preparation or
compilation of information or Exhibits or audit of the inventories, properties,
financial condition or other matters relating to the Acquired Assets or the
Business conducted by or on behalf of Purchaser pursuant to this Agreement shall
in no way limit, affect or impair the ability of Purchaser to rely upon the
representations, warranties, covenants and agreements of Seller set forth
herein.
21.11 Arbitration.
(a) Any controversy, dispute or claim arising out of or
relating to this Agreement shall be submitted to arbitration in accordance with
the commercial rules of the American Arbitration Association ("AAA"), by which
each party will be bound.
(b) If the parties have not agreed during their negotiations
on a single arbitrator to whom the controversy, dispute or claim will be
submitted, either party may select an arbitrator and send written notice to the
other party of the selection. The party receiving such notice will have ten (10)
days from the date such party receives such notice of such selection to select a
second arbitrator and send notice of such to the party who selected the first
arbitrator. Failure to select the second arbitrator and to send timely notice,
as provided above, empowers the arbitrator first selected to resolve the
controversy. If both arbitrators have been duly named, they will as soon as is
reasonably practicable (but within thirty (30) days from the date the latter of
the two arbitrators is named) name a third arbitrator, and the controversy shall
be resolved by majority vote of the three arbitrators. The provisions of the
Federal Rules of Civil Procedure and the Federal Rules of Evidence shall be
applicable to any such arbitration.
(c) Any arbitration proceedings will be conducted in Dayton,
Ohio unless the parties otherwise agree.
(d) The parties agree to be bound by the decision of the
arbitrator and the decision thereof to be entered into any appropriate court or
other jurisdiction. Unless otherwise provided in this Agreement, the prevailing
party in the arbitration shall be promptly reimbursed for its reasonable costs
and fees (including attorneys' fees) incurred in connection with the arbitration
and shall not be responsible for the costs of arbitration.
<PAGE>
The parties have caused this Agreement to be executed effective as of
the 29th day of January, 1999.
PEN INTERCONNECT, INC.
By: /s/Stephen J. Fryer
Title: President and Chief Operating Officer
PEN CABLING TECHNOLOGIES, LLC
BY: CTG, INC., Sole Member
By: /s/Michael R. Shane
Michael R. Shane
Chairman and Chief Executive Officer
CONSULTING AGREEMENT
THIS CONSULTING AGREEMENT ("Agreement") is entered into this 29th day
of January, 1999, by and among PEN CABLING TECHNOLOGIES, LLC, an Ohio limited
liability company (the "Company"), CTG, INC., an Ohio corporation (ACTG@) and
PEN INTERCONNECT, INC., a Utah corporation ("Consultant").
RECITALS
The Company and Consultant entered into an Asset Purchase Agreement,
dated January 29, 1999 ("Purchase Agreement"), whereby Consultant agreed to
sell, and the Company agreed to purchase, all of the Acquired Assets (as that
term is defined in the Purchase Agreement).
The Company is a wholly-owned subsidiary of CTG.
The Company desires to engage Consultant to render consultative and
advisory services to the Company in respect of its business of designing and
manufacturing internal and external custom cable and harness interconnections
(the "Business").
Consultant desires to accept such engagement upon the terms and
conditions hereinafter set forth.
In consideration of the Recitals set forth above and the mutual
covenants set forth below, the parties hereby agree as follows:
1. Consultancy. The Company agrees to retain Consultant as a
consultant, and Consultant agrees to provide consulting services to the Company,
for a period of sixty (60) months after the Closing Date (as defined in the
Purchase Agreement). Consultant will provide the Company with the services of
members of its management to act as consultants on matters pertaining to the
Business. Consultant shall have the status of independent contractor. The manner
and method of performing such obligations will be under the control and
discretion of Consultant, the Company's sole interest being in the result of
such services. Consultant agrees and understands that during the course of the
consultancy, it shall not have the authority or power to enter into a contract
or agreement on the Company's behalf.
1
<PAGE>
2. Consulting Payments. In consideration for the consulting services
provided by Consultant, the Company agrees to pay Consultant consulting fees in
an amount equal to two and one half percent (2.5%) of Net Receipts from the
operation of the Business during the consultancy. "Net Receipts" are defined as
the Invoice amount excluding freight, handling fees and related fees of (a)
product manufactured in the Pen Technology, Salt Lake City facility for existing
or new accounts, (b) product manufactured any where other than the Salt Lake
City facility for existing accounts set forth on Exhibit 1.2 of the Purchase
Agreement if such products are invoiced by the Company, and (c) sales made to
existing accounts where the product is currently sourced from a third party.
Consulting payments will be made quarterly beginning one hundred twenty (120)
days after the Closing Date, and the final payment will be made one hundred
twenty (120) days following the end of the sixtieth month after the Closing
Date. In no event shall the aggregate amount of consulting payments under this
Agreement be less than $150,000 or exceed $600,000. Notwithstanding the above,
in the event that Consultant has not discharged (a) all of the liabilities set
forth in Column A of Exhibit 7.13(n) within three business of days of the
Closing Date and (b) 80% of the liabilities set forth in Column B of Exhibit
7.13(n) within sixty days of the Closing Date, the aggregate amount of
consulting payments under this Agreement shall not exceed $450,000. In the event
that Consultant has discharged all of the liabilities set forth in Column A of
Exhibit 7.13(n) within three business of days of the Closing Date and (b) 80% of
the liabilities set forth in Column B of Exhibit 7.13(n) within sixty days of
the Closing Date (including all amounts owed to CTG International), but has not
discharged the remaining 20% of the liabilities set forth in Column B of Exhibit
7.13(n) within sixty days of the Closing Date, the aggregate amount of
consulting payments under this Agreement shall not exceed $500,000.
3. Offset Rights. In addition to all other remedies available to the
Company for a breach of this Agreement, the Company shall have the right to
offset the following against consulting payments to Consultant:
(a) the amount of any Closing Adjustment (as defined in the
Purchase Agreement) payable by Consultant to the Company in accordance with
Section 5.2 of the Purchase Agreement to the extent that Consultant has not paid
the Company such amount;
(b) the amount of any Receivables (as defined in the Purchase
Agreement) that have not been collected within ninety (90) days after the
Closing Date;
(c) the amount of any credits that must be issued by the
Company to customers of the Business after the Closing Date which relate to the
period prior to Closing (including those that the Company determines must be
issued in order preserve goodwill with such customers);
(d) the amount of any payments that must be made by the
Company to vendors of the Business excluding vendors included in Assumed
Liabilities (as defined in the Purchase Agreement) provided Consultant was
current in all payment and other obligations to such vendors as of the Closing
Date) after the Closing Date which relate to the period prior to Closing
(including those that the Company determines must be issued in order to preserve
goodwill with such vendors); and
(e) the cost of any material repair or replacement of
equipment included in the Acquired Assets in the event of a breach by consultant
of Section 7.10 of the Purchase Agreement unless such repair or replacement is
necessitated by the use of such Acquired Assets by the Company after the
Closing.
2
<PAGE>
4. Termination. This Agreement shall be terminated upon the happening
of either of the following events:
(a) by reason of expiration of the term of this
Agreement; or
(b) by either party, in the event of an overt or
intentional breach by the other party of this
Agreement or any other contractual relationship
between the Company and Consultant.
5. The Company's Files. All records contained in the Company's files
shall be the property of the Company and Consultant shall not remove such
records upon termination of this Agreement.
6. Notices. All notices, requests, demands and other communications
hereunder shall be in writing and shall be deemed given and received (a) on the
date of delivery when delivered by hand or when transmitted by confirmed
simultaneous telecopy, (b) on the following business day when sent by receipted
overnight courier, or (c) three (3) business days after deposit in the United
States Mail when mailed by registered or certified mail, return receipt
requested, first class postage prepaid, as follows:
(a) If to the Company to:
Pen Cabling Technologies, LLC
Attn: David Smith
1501 Webster Street
Dayton, OH 45404
FAX: (888) 467-1839
with a copy to:
Barbara L. Sager, Esq.
Coolidge, Wall, Womsley & Lombard
33 W. First Street, Suite 600
Dayton, Ohio 45402
FAX: (937) 223-6705
(b) If to Consultant to:
Pen Interconnect, Inc.
Attn: Stephen J. Fryer
1601 Alton Parkway
Irvine, CA 92606
FAX: (949) 261-3199
with a copy to:
James W. Lucas, Esq.
Law Offices of Oscar Folger
Suite 2400
521 Fifth Avenue
New York, NY 10175
FAX: (212) 697-7833
Any party may change the address to which notices are to be sent to it by giving
written notice of such change of address to the other parties in the manner
above provided for giving notice.
3
<PAGE>
7. Headings. The section headings in this Agreement are inserted solely
as a matter of convenience for reference, and shall not in any way affect the
meaning or interpretation of any of the provisions of the Agreement.
8. Assignment; Binding Effect. This Agreement may not be assigned by
any of the parties hereto without the prior written consent of the other parties
hereto, provided that the Company may assign its rights under this Agreement to
an affiliated entity without the prior consent of Consultant, provided that such
assignee also agrees to become a party to this Agreement with joint liability
for the obligations of the Company hereunder. This Agreement shall be binding
upon the parties hereto and their respective permitted successors, assigns and
transferees. Consultant agrees not to sell substantially all of its assets or
engage in a similar transaction with another entity after the Closing Date
unless the acquiring entity agrees to be bound by the terms of this Agreement
applicable to Consultant.
9. Headings; Exhibits and Schedules. The Section, Subsection and other
headings in this Agreement are inserted solely as a matter of convenience and
for reference, and are not a part of this Agreement. The Exhibits and Schedules
attached hereto are a material part of this Agreement and are incorporated
herein by this reference.
10. Counterparts. This Agreement may be executed in one or more
counterparts, all of which shall be considered one and the same agreement and
shall become effective when one counterpart has been signed by each party and
delivered to the other party hereto.
11. Integration of Agreement. Except as otherwise provided herein, this
Agreement supersedes all prior agreements, oral and written, between the parties
hereto with respect to the subject matter hereunder. Neither this Agreement, nor
any provision hereof, may be changed, waived, discharged, supplemented or
terminated orally, but only by an agreement in writing signed by the party
against which the enforcement of such change, waiver, discharge or termination
is sought.
12. Time of Essence. Time is of the essence in this Agreement.
13. Governing Law. This Agreement shall be governed by and construed
and enforced in accordance with the laws of the State of Ohio.
4
<PAGE>
14. Partial Illegality or Unenforceability. Wherever possible, each
provision hereof shall be interpreted in such manner as to be effective under
applicable law, but in case any one or more of the provisions contained herein
shall, for any reason, be held to be illegal or unenforceable in any respect,
such illegality or unenforceability shall not affect any other provisions of
this Agreement, and this Agreement shall be construed as if such illegal or
unenforceable provision or provisions had never been contained herein unless the
deletion of such provision or provisions would result in such a material change
as to cause completion of the transactions contemplated hereby to be
unreasonable.
15. Arbitration.
(a) Any controversy, dispute or claim arising out of or
relating to this Agreement shall be submitted to arbitration in accordance with
the commercial rules of the American Arbitration Association, by which each
party will be bound.
(b) If the parties have not agreed during their negotiations
on a single arbitrator to whom the controversy, dispute or claim will be
submitted, either party may select an arbitrator and send written notice to the
other party of the selection. The party receiving such notice will have ten (10)
days from the date such party receives such notice of such selection to select a
second arbitrator and send notice of such to the party who selected the first
arbitrator. Failure to select the second arbitrator and to send timely notice,
as provided above, empowers the arbitrator first selected to resolve the
controversy. If both arbitrators have been duly named, they will as soon as is
reasonably practicable (but within thirty (30) days from the date the latter of
the two arbitrators is named) name a third arbitrator, and the controversy shall
be resolved by majority vote of the three arbitrators. The provisions of the
Federal Rules of Civil Procedure and the Federal Rules of Evidence shall be
applicable to any such arbitration.
(c) Any arbitration proceedings will be conducted in Dayton,
Ohio unless the parties otherwise agree.
(d) The parties agree to be bound by the decision of the
arbitrator and the decision thereof to be entered into any appropriate court or
other jurisdiction. Unless otherwise provided in this Agreement, the prevailing
party in the arbitration shall be promptly reimbursed for its reasonable costs
and fees (including attorneys' fees) incurred in connection with the arbitration
and shall not be responsible for the costs of arbitration.
16. CTG Guaranty. CTG agrees to guaranty the performance by the Company
of its obligation to make consulting payments to Consultant under Section 2 of
this Agreement, provided, however that the amount guaranteed by CTG shall not
exceed $150,000 in the aggregate.
5
<PAGE>
The parties have caused this Agreement to be executed effective as of
the 29th day of January, 1999.
COMPANY:
PEN CABLING TECHNOLOGIES, LLC
BY: CTG, INC., Sole Member
By: /s/Michael R. Shane
Michael R. Shane
Chairman and Chief Executive Officer
CTG:
CTG, INC.,
an Ohio corporation
By /s/Michael R. Shane
Its Chairman and Chief Exexcutive Officer
CONSULTANT:
PEN INTERCONNECT, INC.,
a Utah corporation
By /s/Stephen J. Fryer
Its President and Chief Operating Officer
AGREEMENT AND PLAN OF MERGER
Dated as of December 21, 1998
By and Among
PEN INTERCONNECT, INC.
PEN LAMINATING, INC.
and
LAMINATING TECHNOLOGIES, INC.
<PAGE>
AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER, dated as of December 21, 1998 (this
"Agreement"), is by and among Pen Interconnect, Inc., a Utah corporation (the
"Acquiror"), Pen Laminating, Inc., a Utah corporation and a wholly owned
subsidiary of the Acquiror ("Newco"), and Laminating Technologies, Inc., a
Delaware corporation (the "Company"). The Acquiror and Newco are sometimes
referred to herein as the "Acquiror Companies."
RECITALS:
The Board of Directors of the Company has determined that the business
combination to be effected by means of the Merger is fair to, and in the best
interests of, the Company and its stockholders and has approved and adopted this
Agreement and recommended approval and adoption of this Agreement by the
stockholders of the Company.
The Board of Directors of the Acquiror has determined that the business
combination to be effected by means of the Merger is consistent with and in
furtherance of the long-term business strategy of the Acquiror and is fair to,
and in the best interests of, the Acquiror and its shareholders and has approved
and adopted this Agreement and recommended approval and adoption of this
Agreement by the shareholders of the Acquiror.
Upon the terms and subject to the conditions of this Agreement and in
accordance with the Act and the GCL, Newco will merge with and into the Company
and the Company will be the Surviving Corporation.
The parties hereto have acknowledged that the Merger will not qualify
as a reorganization within the meaning of the provisions of Section 368(a) of
the Code.
NOW, THEREFORE, in consideration of the foregoing and the respective
representations, warranties, covenants and agreements set forth in this
Agreement, the parties hereto agree as follows:
ARTICLE I
DEFINITIONS
1.1 Definitions. Certain capitalized and other terms used in this
Agreement are defined in Annex A hereto and are used herein with the meanings
ascribed to them therein.
1.2 Rules of Construction. Unless the context otherwise requires, as
used in this Agreement: (a) a term has the meaning ascribed to it in Annex A;
(b) an accounting term not otherwise defined in Annex A or elsewhere in this
Agreement has the meaning ascribed to it in accordance with GAAP; (c) "or" is
not exclusive; (d) "including" means "including without limitation"; (e) words
in the singular include the plural; (f) words in the plural include the
singular; (g) words applicable to one gender shall be construed to apply to each
gender, (h) the terms "hereof," "herein," "hereby," "hereto" and derivative or
similar words refer to this entire Agreement; and (i) the terms "Article" or
"Section" shall refer to the specified Article or Section of this Agreement.
<PAGE>
ARTICLE II
TERMS OF MERGER
2.1 Statutory Merger. Subject to the terms and conditions and in
reliance upon the representations, warranties, covenants and agreements
contained herein, Newco shall merge with and into the Company at the Effective
Time. The terms and conditions of the Merger and the mode of carrying the same
into effect shall be as set forth in this Agreement. As a result of the Merger,
the separate corporate existence of each of the Constituent Corporations shall
cease and the Company shall continue as the Surviving Corporation.
2.2 Effective Time. As soon as practicable after the satisfaction or,
if permissible, waiver of the conditions set forth in Article VIII, the parties
hereto shall cause the Merger to be consummated by filing a Certificate of
Merger with the Secretary of State of the State of Delaware, in such form as
required by, and executed in accordance with the relevant provisions of, the GCL
and Articles of Merger with the Division in such form as required by, and
executed in accordance with the relevant provisions of, the Act.
2.3 Effect of the Merger. At the Effective Time, the effect of the
Merger shall be as provided in the applicable provisions of the GCL and the Act.
Without limiting the generality of the foregoing, and subject thereto, at the
Effective Time, except as otherwise provided herein, the Surviving Corporation
shall possess all the rights, privilges, power and franchises as of a public and
of a private nature and shall be subject to all the restrictions, disabilities
and duties of each of the Constituent Corporations; and all and singular, the
rights, privileges, powers and franchises of each of the Constituent
Corporations, and all property, real, personal and mixed, and all debts due to
either of the Constituent Corporations on whatever account, as well for stock
subscriptions as all other things in action or belonging to each of such
Constituent Corporations shall be vested in the Surviving Corporation as they
were of the respective Constituent Corporations, and the title to any real
estate vested by deed or otherwise, under the laws of the State of Delaware or
Utah, in either of such Constituent Corporations, shall not revert or be in any
way impaired by reason of the Merger; but all rights of creditors and all liens
upon any property of either of such Constituent Corporations shall be preserved
unimpaired, and all debts, liabilities and duties of the respective Constituent
Corporations shall thenceforth attach to the Surviving Corporation, and may be
enforced against it to the same extent as if said debts, liabilities and duties
had been incurred or contracted by it.
2.4 Articles of Incorporation; Bylaws. At the Effective time, the
articles of incorporation and the bylaws of the Company, as in effect
immediately prior to the Effective Time, shall be the articles of incorporation
and the bylaws of the Surviving Corporation.
2.5 Directors and Officers. The directors of Newco immediately prior to
the Effective Time shall be the directors of the Surviving Corporation, each to
hold office in accordance with the articles of incorporation and bylaws of the
Surviving Corporation, and the officers of Newco immediately prior to the
Effective Time shall be the officers of the Surviving Corporation, in each case
until their respective successors are duly elected or appointed and qualified.
The Company shall have the right to appoint one director to the board of
directors of the Acquiror.
2
<PAGE>
ARTICLE III
CONVERSION OF SECURITIES; EXCHANGE OF CERTIFICATES
3.1 Merger Consideration; Conversion and Cancellation of Securities. At
the Effective Time, by virtue of the Merger and without any action on the part
of the Acquiror Companies, the Company or the holders of any of the following
securities:
(a) Subject to the other provisions of this Article III, each
share of Company Common Stock issued and outstanding immediately prior
to the Effective Time (excluding any Company Common Stock described in
Section 3.1(c)) shall be converted into shares of Acquiror Common Stock
pursuant to the following ratio: fifty cents ($0.50) divided by the
closing price of the Acquiror Common Stock on the fifth business day
following the effective date of the Registration Statement, but in no
event shall the denominator exceed one dollar and fifty cents ($1.50).
Notwithstanding the foregoing, if between the date of this Agreement
and the Effective Time the outstanding shares of the Acquiror Common
Stock or the Company Common Stock shall have been changed into a
different number of shares or a different class, by reason of any stock
dividend, subdivision, reclassification, recapitalization, split,
combination or exchange of shares, the Common Stock Exchange Ratio
shall be correspondingly adjusted to reflect such stock dividend,
subdivision, reclassification, recapitalization, split, combination or
exchange of shares.
(b) All shares of Company Common Stock shall, upon conversion
thereof into shares of Acquiror Common Stock at the Effective Time,
cease to be outstanding and shall be automatically canceled and
retired, and each certificate previously evidencing Company Common
Stock outstanding immediately prior to the Effective Time (other than
Company Common Stock described in Section 3.1(c)) shall thereafter be
deemed, for all purposes other than the payment of dividends or
distributions, to represent that number of shares of Acquiror Common
Stock determined pursuant to the Common Stock Exchange Ratio and, if
applicable, the right to receive cash pursuant to Section 3.2(d) or (e)
or both. The holders of certificates previously evidencing Company
Common Stock shall cease to have any rights with respect to such
Company Common Stock except as otherwise provided herein or by law.
(c) Notwithstanding any provision of this Agreement to the
contrary, each share of Company Common Stock held in the treasury of
the Company and each share of Company Common Stock, if any, owned by
the Acquiror or any direct or indirect wholly owned Subsidiary of the
Acquiror of the Company immediately prior to the Effective Time shall
be cancelled and extinguished without conversion thereof.
(d) Each share of common stock, par value $0.01 per share, of
Newco issued and outstanding immediately prior to the Effective Time
shall be converted into one share of common stock, par value $0.01 per
share, of the Surviving Corporation.
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(e) All outstanding options and warrants to purchase shares of
Company Common Stock shall be converted into warrants to purchase
shares of Acquiror Common Stock based upon the same conversion ratio
set forth in Section 3.1(a), above.
3.2 Exchange of Certificates.
(a) Exchange Fund. At the Closing, the Acquiror shall deposit,
or cause to be deposited, with the Exchange Agent, for the benefit of
the former holders of Company Common Stock and for exchange through the
Exchange Agent in accordance with this Article III, certificates
evidencing that number of shares of the Acquiror Common Stock equal to
the product of the Common Stock Exchange Ratio and the number of shares
of Company Common Stock issued and outstanding immediately prior to the
Effective Time (exclusive of any such shares to be cancelled pursuant
to Section 3.1(c)). The Exchange Fund shall also include any dividends
or other distributions made with respect to the Acquiror Common Stock
to which the former holders of Company Common Stock would be entitled
pursuant to subsections (d) and (e) of this Section 3.2. The Exchange
Fund shall not be used for any purpose other than as expressly provided
in this Section 3.2.
(b) Letter of Transmittal. Promptly after the Effective Time,
the Acquiror will cause the Exchange Agent to send to each record
holder of Company Common Stock immediately prior to the Effective Time
a letter of transmittal and other appropirate materials for use in
surrendering to the Exchange Agent certificates that prior to the
Effective Time evidenced shares of Company Common Stock.
(c) Exchange Procedures. Promptly after the Effective Time,
the Exchange Agent shall distribute to each holder of record of Company
Common Stock immediately prior to the Effective Time, upon surrender to
the Exchange Agent for cancellation of one or more certificates that
theretofore evidenced shares of Company Common Stock, either (i) the
appropriate number of shares of the Acquiror Common Stock into which
such shares of Company Common Stock were converted pursuant to the
Merger and (ii) any cash to be paid in lieu of fractional interests in
shares of Acquiror Common Stock pursuant to Section 3.2(e) and any
dividends or distributions related to Acquiror Common Stock to be paid
pursuant to Section 3.2(d). If Acquiror Common Stock is to be issued to
a Person other than the Person in whose name the surrendered
certificate or certificates are registered, it shall be a condition of
issuance of the Acquiror Common Stock that the surrendered certificate
or certificates shall be properly endorsed, with signatures guaranteed,
or otherwise in proper form for transfer and that the Person requesting
such payment shall pay any transfer or other taxes required by reason
of the issuance of the Acquiror Common Stock to a Person other than the
registered holder of the surrendered certificate or certificates or
such Person shall establish to the satisfaction of the Acquiror that
such tax has been paid or is not applicable.
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(d) Distributions with Respect to Unexchanged Shares of
Company Common Stock. No dividends or other distributions declared or
made with respect to the Acquiror Common Stock with a record date after
the Effective Time shall be paid to the holder of any certificate that
theretofore evidenced shares of Company Common Stock until the holder
of such certificate shall surrender such certificate. Subject to the
effect of any applicable escheat laws, following surrender of any such
certificate, there shall be paid to the holder of the Acquiror Common
Stock issued in exchange for Company Common Stock, without interest,
(i) promptly, the amount of any cash payable with respect to a
fractional share to which such holder is entitled pursuant to Section
3.2(e) and the amount of dividends or other distributions with a record
date after the Effective Time theretofore paid with respect to such
whole shares of the Acquiror Common Stock and (ii), at the appropriate
payment date, the amount of dividends or other distributions, with a
record date after the Effective Time but prior to surrender and a
payment date occurring after surrender, payable with respect to such
whole shares of the Acquiror Common Stock.
(e) No Fractional Shares.
(i) Notwithstanding anything herein to the contrary,
no certificates or scrip evidencing fractional shares of the
Acquiror Common Stock shall be issued in connection with the
Merger.
(ii) Any fractional interests in shares of Acquiror
Common Stock to which a holder of record of Company Common
Stock at the Effective Time would otherwise be entitled shall
not entitle such holder to vote or to any rights of a
stockholder of the Acquiror. In lieu of any such fractional
interests in shares of Acquiror Common Stock, each holder of
record of Company Common Stock at the Effective Time who, but
for the provisions of this Section 3.2(e), would be entitled
to receive a fractional interest of a share of the Acquiror
Common Stock by virtue of the Merger shall be paid cash,
without any interest thereon, as hereinafter provided. The
Acquiror shall instruct the Exchange Agent to determine the
number of whole shares and fractional shares of the Acquiror
Common Stock allocable to each holder of record of Company
Common Stock at the Effective Time, to aggregate all such
fractional shares into whole shares, to sell the whole shares
of Acquiror Common Stock obtained thereby in the open market
at then prevailing prices on behalf of holders who otherwise
would be entitled to receive fractional share interests and to
distribute to each such holder such holder's ratable share of
the total proceeds of such sale based on the fractional
interests in shares of Acquiror Common Stock to which such
holder would otherwise have been entitled compared with the
aggregate number of such fractional interests, after making
appropriate deductions of the amount, if any, required for
federal income tax withholding purposes and after deducting
any applicable transfer taxes. All brokers' fees and
commissions incurred in connection with such sales of
fractional shares shall be paid by the Acquiror.
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(f) Termination of Exchange Fund. Any portion of the Exchange
Fund that remains unclaimed by the former holders of Company Common
Stock for 12 months after the Effective Time shall be delivered to the
Acquiror, upon demand, and any former holders of Company Common Stock
who have not theretofore complied with this Article III shall
thereafter look only to the Acquiror for the Acquiror Common Stock and
any cash to which they are entitled. Notwithstanding any other
provisions herein, neither the Exchange Agent nor any party hereto
shall be liable to any former holder of Company Common Stock for any
Acquiror Common Stock, cash in lieu of fractional share interests or
dividends or distributions thereon delivered to a public official
pursuant to any applicable abandoned property, escheat or similar law.
If any certificates evidencing Company Common Stock shall not have been
surrendered prior to the seventh anniversary of the Effective Time (or
such earlier date on which any shares of the Acquiror Common Stock, any
cash in lieu of fractional share interests or dividends or
distributions with respect to the Acquiror Common Stock to which the
holder of such certificates would otherwise be entitled would escheat
to or become the property of any governmental entity), then,
immediately prior to such date, any such shares, cash, dividends or
distributions in respect of such shares shall, to the extent permitted
by applicable Law, become the property of the Acquiror, free and clear
of all adverse claims and interests of any Person previosuly entitled
thereto.
(g) Withholding of Tax. The Acquiror shall be entitled to
deduct and withhold from the consideration otherwise payable pursuant
to this Agreement to any former holder of Company Common Stock such
amounts as the Acquiror (or any affiliate thereof) or the Exchange
Agent is required to deduct and withhold with respect to the making of
such payment under the code or state, local or foreign tax Law. To the
extent that amounts are so withheld by the Acquiror, such withheld
amounts shall be treated for all purposes of this Agreement as having
been paid to the former holder of Company Common Stock in respect of
which such deduction and withholding was made by the Acquiror.
(h) Investment of Exchange Fund. The Exchange Agent may invest
any cash included in the Exchange Fund in deposit accounts or
short-term money market instruments, as directed by the Acquiror, on a
daily basis. Any interest and other income resulting from such
investments shall be paid to the Acquiror. The Acquiror shall deposit
with the Exchange Agent as part of the Exchange Fund cash in an amount
equal to any loss of principal resulting from such investments promptly
after the incurrence of such a loss.
3.3 Closing. The Closing shall take place at the offices of Parsons
Behle & Latimer, 201 South Main, Suite 1800, Salt Lake City, Utah 84111, at
10:00 a.m. on the fifth Business Day following the date on which the conditions
to the Closing have been satisfied or waived or at such other place, time and
date as the parties hereto may agree. At the conclusion of the Closing on the
Closing Date, the parties hereto shall cause the Certificate of Merger to be
filed with the Secretary of State of the State of Delaware and Articles of
Merger to be filed with the Division.
3.4 Stock Transfer Books. At the close of business on the date of the
Effective Time, the stock transfer books of the Company shall be closed and
there shall be no further registration of transfers of shares of Company Common
Stock thereafter on the records of the Company.
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ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
Subject to the provisions of Section 10.1(b), the Company hereby
represents and warrants to the Acquiror as follows:
4.1 Organization and Qualification; Subsidiaries. The Company is a
legal entity duly organized, validly existing and in good standing under the
Laws of the State of Delaware, has all requisite corporate power and authority
to own, lease and operate its properties and to carry on its businesses as they
are now being conducted and is duly qualified and in good standing to do
business in the jurisdictions in which the nature of the businesses conducted by
them or the ownership or leasing of their respective properties makes such
qualification necessary, other than any matters, including the failure to be so
qualified and in good standing, that could not reasonably be expected to have a
Material Adverse Effect on the Company. The Company has one non-operational
subsidiary .
4.2 Certificate of Incorporation and Bylaws. The Company has heretofore
marked for identification and delivered to the Acquiror complete and correct
copies of the certificate of incorporation and the bylaws or the equivalent
organizational documents, in each case as amended or restated to the date
hereof, of the Company. The Company is not in violation of any of the provisions
of its certificate of incorporation or bylaws.
4.3 Capitalization.
(a) The authorized capital stock of the Company consists of
(i) 20,000,000 shares of Company Common Stock, of which, as of October
31, 1998, 3,185,100 shares were issued and outstanding, all of which
are duly authorized, validly issued, fully paid and nonassessable and
not subject to preemptive rights created by statute, the Company's
certificate of incorporation or bylaws or any agreement to which the
Company is a party or is bound; and (ii) 5,000,000 shares of preferred
stock, of which none are issued and outstanding. Since October 31,
1998, (x) no shares of Company Common Stock have been issued by the
Company, except upon exercise of Company Stock Options outstanding
under the Company Option Plans, and (y) the Company has not granted any
options for, or other rights to purchase, shares of Company Common
Stock.
(b) Except for shares reserved for issuance upon exercise of
Company Stock Options granted pursuant to the Company Option Plans and
listed in Section 4.3(b) of the Company's Disclosure Letter, no shares
of Common Stock are reserved for issuance, and, except for Company
Stock Options, there are no contracts, agreements, commitments or
arrangements obligating the Company to offer, sell, issue or grant any
Equity Security of the company or to redeem, purchase or acquire, or
offer to purchase or acquire, any outstanding Equity Security of the
Company.
(c) Except as set forth in Section 4.3(c) of the Company's
Disclosure Letter, there are no voting trusts, proxies or other
agreements, commitments or understandings of any character to which the
Company is a party or by which the Company is bound with respect to the
voting of any shares of capital stock of the Company.
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4.4 Authorization of Agreement. The Company has all requisite corporate
power and authority to execute and deliver this Agreement and, subject to
approval of this Agreement by the majority of the stockholders of the Company as
required by the applicable provisions of the GCL and the Company's certificate
of incorporation, each instrument required hereby to be executed and delivered
by it at the Closing, to perform its obligations hereunder and thereunder and to
consummate the transactions contemplated hereby. The execution and delivery by
the Company of this Agreement and each instrument required hereby to be executed
and delivered by it at the Closing and the performance of its obligations
hereunder and thereunder have been duly and validly authorized by all requisite
corporate action on the part of the Company (other than, with respect to the
Merger, the approval and adoption of this Agreement by the holders of a majority
of the outstanding shares of Company Common Stock in accordance with the
applicable provisions of the GCL and the Company's certificate of
incorporation). This Agreement has been duly executed and delivered by the
Company and (assuming due authorization, execution and delivery hereof by the
other parties hereto) constitutes a legal, valid and binding obligation of the
Company, enforceable against the Company in accordance with its terms, except as
the same may be limited by bankruptcy, involvency, reorganization of other
similar legal principles of general applicability governing the application and
availability of equitable remedies.
4.5 Approvals. Except for the applicable requirements, if any, of (a)
the Securities Act, (b) the Exchange Act, (c) state securities or blue sky laws,
(d) the HSR Act, (e) Nasdaq, (f) the filing and recordation of appropriate
merger documents as required by the GCL and the Act, and (g) those Laws,
Regulations and Orders noncompliance with which could not reasonably be expected
to have a Material Adverse Effect on the Company, no filing or registration
with, no waiting period imposed by and no Authorization of, any Governmental
Authority is required under any Law, Regulation or Order applicable to the
Company to permit the Company to execute, deliver or perform this Agreement or
any instrument required hereby to be executed and delivered by it at the
Closing.
4.6 No Violation. Assuming effectuation of all filings and
registrations with, termination or expiration of any applicable waiting periods
imposed by and receipt of all Authorizations of Governmental Authorities
indicated as required in Section 4.5 and receipt of the approval of the Merger
by the stockholders of the Company as required in Section 4.5 and receipt of the
approval of the Merger by the stockholders of the Company as required by the
GCL, neither the execution and delivery by the Company of this Agreement or any
instrument required hereby to be executed and delivered by it at the Closing,
nor the performance by the Company of its obligations hereunder or thereunder
will (a) to the Knowledge of the Company, violate or breach the terms of or
cause a default under any Law, Regulation or Order applicable to the Company,
the certificate of incorporation or bylaws of the Company or any Material
contract or Material agreement to which the Company is a party or by which it or
any of its properties or assets is bound, or (b) with the passage of time, the
giving of notice or the taking of any action by a third Person, have any of the
effects set forth in clause (a) of this Section, except in any such case for any
matters described in this Section that could not reasonably be expected to have
a Material Adverse Effect on the Company. Prior to the execution of this
Agreement, the Board of Directors of the Company has taken all necessary action
to cause this Agreement and the transactions contemplated hereby to be exempt
from the provisions of Section 203 of the GCL.
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4.7 Reports.
(a) Since March 31, 1995, the Company has filed (i) all SEC
Reports required to be filed by it with the Commission and (ii) the
Company has filed all other Reports required to be filed by it with any
other Governmental Authorities, except where the failure to file any
such Reports could not reasonably be expected to have a Material
Adverse Effect on the Company. Such Reports, including all those filed
after the date of this Agreement and prior to the Effective time, (x)
were prepared in all material respects in accordance with the
requirements of applicable Law (including, with respect to the
Company's SEC Reports, the Securities Act and the Exchange Act, as the
case may be, and the applicable Regulations of the Commission
thereunder), and (y), in the case of the Company's SEC Reports, did not
at the time they were filed 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.
(b) The Company's Audited Financial Statements, the Company's
Unaudited Financial Statements and any other financial statements of
the Company (including any related notes thereto) contained in any of
the Company's SEC Reports filed by the Company with the Commission
after the date of this Agreement (i) have been or will have been
prepared in accordance with the published Regulations of the Commission
and in accordance with GAAP (except (A) to the extent required by
changes in GAAP and (B), with respect to the Company's Audited
Financial Statements, as may be indicated in the notes thereto) and
(ii) fairly present the financial position of the Company as of the
respective dates thereof and the results of their operations and cash
flows for the periods indicated (including, in the case of any
unaudited interim financial statements, reasonable estimates of normal
and recurring year-end adjustments).
(c) Except as set forth in Section 4.7(c) of the Company's
Disclosure Letter, there exist no liabilities or obligations of the
Company that are Material to the Company, whether accrued, absolute,
contingent or threatened, and that would be required to be reflected,
reserved for or disclosed under GAAP in financial statements of the
Company as of and for the period ended on the date of this
representation and warranty, other than (i) liabilities or obligations
that are adequately reflected, reserved for or disclosed in the
Company's Audited Financial Statements, (ii) liabilities or obligations
incurred in the ordinary course of business of the Company since March
31, 1998, (iii) liabilities or obligations, the incurrence of which is
permitted by Section 6.2(a) and (iv) liabilities or obligations that
are not Material to the Company.
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(d) Accounts receivable reflected on the Company's Balance
Sheet have been properly stated at their realizable value after
consideration of all allowances and reserves in accordance with GAAP.
All accounts receivable and all other receivables reflected on the
current balance sheet and all such receivables arising after the
balance sheet date are bona fide receivables and are current and
enforceable and arose in the ordinary course of business. No material
counterclaims or offsetting claims with respect to such receivables are
pending or, to the Company's knowledge have been, threatened. All
accounts payable and all other payables reflected in the current
balance sheet are bona fide payables which arose in the ordinary course
of business.
(e) Inventories reflected on the Company's Balance Sheet, as
well as all inventory items acquired since the date of the Company's
Balance Sheet that are now the property of the Company, consist of raw
materials, supplies, work in process, and finished goods, of such
quality and in such quantities as are being used and will be usable or
are being sold and will be salable in the ordinary course of business
of the Company. These inventories exclude scrap, slow-moving items, and
obsolete items and are valued at the lower of cost or market value,
determined in accordance with GAAP consistently applied. Except as
disclosed in Section 4.7(e) of the Company's Disclosure Letter, since
the date of the Company's Balance Sheet, the Company has continued to
replenish these inventories in a normal and customary manner consistent
with prudent practice prevailing in the business, and there have been
no returns or recalls of any Company Product.
(f) Except as described in Section 4.7(f) of the Company's
Disclosure Letter, all obligations associated with benefits to be
provided to present and former employees of the Company after
retirement or termination have been properly recognized as liabilities
on the Company's balance sheet in accordance with Statements of
Financial Accounting Standards Nos. 106 and 112.
4.8 No Material Adverse Effect; Conduct.
(a) Since March 31, 1998, no event (other than any event that
is of general application to all or a substantial portion of the
Company's industry and other than any event that is expressly subject
to any other representation or warranty contained in Article IV) has,
to the Knowledge of the Company, occurred that, individually or
together with other similar events, could reasonably be expected to
constitute or cause a Material Adverse Effect on the Company.
(b) Except as set forth in Section 4.8(b) of the Company's
Disclosure Letter, during the period from September 30, 1998 to the
date of this Agreement, the Company has not engaged in any conduct that
is proscribed during the period from the date of this Agreement to the
Effective Time by subsections (i) through (xii) of Section 6.2(a).
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4.9 Title to Properties.
(a) Except as set forth in Schedule 4.9(a) of the Company's
Disclosure Letter, the Company has good and marketable title to all of
the properties reflected in the Company's Balance Sheet, other than any
properties reflected in the Company's Balance Sheet that have been sold
or otherwise disposed of since the date of the Company's Balance Sheet
or are not, individually or in the aggregate, Material to the Company,
free and clear of Liens, other than (x) Liens the existence of which is
reflected in the Company's Financial Statements, (y) Permitted
Encumbrances and (z) Liens that, individually or in the aggregate, are
not Material to the Company. The Company holds under valid lease
agreements all real and personal properties reflected in the Company's
Balance Sheet as being held under leases, and enjoys peaceful and
undisturbed possession of such properties under such leases, other than
(i) any properties as to which such leases have terminated in the
ordinary course of business since the date of the company's Balance
Sheet and (ii) any properties that, individually or in the aggregate,
are not Material to the Company. The Company has not received any
written notice of any adverse claim to the title to any properties
owned by it or with respect to any lease under which any properties are
held by it, other than any claims that, individually or in the
aggregate, could not reasonably be expected to have a Material Adverse
Effect on the Company.
(b) To the Knowledge of the Company, except as set forth in
Section 4.9(b) of the Company's Disclosure Letter, no parcel of real
property so listed as owned is, or its use is, in violation of any
applicable zoning laws nor in violation of any other local, state or
federal laws and regulations affecting the use and occupancy of such
property.
(c) There is no pending or, to the Knowledge of the Company,
threatened condemnation or similar proceeding or special assessment
affecting any real property, or any part thereof, nor has the Company
received notification that any such proceeding or assessment is
contemplated by any governmental authority.
(d) Except as set forth in Section 4.9(d) of the Company's
Disclosure Letter, since December 31, 1997, there has not been (i) any
damage, destruction, change in physical condition, or loss to or of any
of the Company's equipment, facilities, material or other personal
property ("Equipment") used in, on or in connection with the business
of the Company, whether or not covered by insurance, other than
ordinary wear on Equipment; (ii) any Equipment removed from the
premises of the Company except for Equipment which was surplus to the
operation of the business of the Company; (iii) any sale, lease or
other disposition of any Equipment other than in the ordinary course;
(iv) any contract or commitment to do any of the foregoing.
4.10 Certain Obligations. Except for those listed in Section 4.10 of
the Company's Disclosure Letter, the Company is not a party to or bound by any
Material Contract. Except as set forth in Section 4.10 of the Company's
Disclosure Letter, all Material Contracts to which the Company is a party are in
full force and effect, the Company has performed its obligations thereunder to
date and, to the Knowledge of the Company, each other party thereto has
performed its obligations thereunder to date, other than any failure of a
Material Contract to be in full force and effect or any nonperformance thereof
that could not reasonably be expected to have a Material Adverse Effect on the
Company.
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4.11 Authorizations; Compliance.
(a) The Company has obtained all Authorizations that are
necessary to carry on its businesses as currently conducted, except for
any such Authorizations as to which, individually or in the aggregate,
the failure to possess could not reasonably be expected to have a
Material Adverse Effect on the Company. Such Authorizations are in full
force and effect, have not been violated in any respect that could
reasonably be expected to have a Material Adverse Effect on the Company
and there is no action, proceeding or investigation pending or, to the
Knowledge of the Company, threatened regarding suspension, revocation
or cancellation of any such Authorizations, except for any suspensions,
revocations or cancellations of any such Authorizations that,
individually or in the aggregate, could not reasonably be expected to
have a Material Adverse Effect on the Company.
(b) The Company does not possess any rights, privileges,
powers or franchises, contracts, arrangements or understandings that
are used in, or are necessary to the business of the Company, as
presently conducted ("Necessary Rights"), except those that will be
transferred to the Acquiror as a result of the Merger and the other
transactions contemplated by this Agreement. The Company is currently
vested with all Necessary Rights.
4.12 Litigation; Compliance with Laws. There are no actions, suits,
investigations or proceedings (including any proceedings in arbitration) pending
or, to the Knowledge of the Company, threatened against the Company, at law or
in equity, in any Court or before or by any Governmental Authority, except
actions, suits, investigations or proceedings that are disclosed in the
Company's SEC Reports, that are set forth in Section 4.12 or Section 4.15 of the
Company's Disclosure Letter or that, individually or, with respect to multiple
actions, suits or proceedings that allege similar theories of recovery based on
similar facts, in the aggregate, could not reasonably be expected to have a
Material Adverse Effect on the Company. There are no Material claims pending or,
to the Knowledge of the Company, threatened by any Persons against the Company
for indemnification pursuant to any statute, organizational document, contract
or otherwise with respect to any claim, action, suit, investigation or
proceeding pending in any Court or before or by any Governmental Authority.
Except as set forth in Section 4.12 and Section 4.15 of the Company's Disclosure
Letter, the Company is in substantial compliance with all applicable Laws and
Regulations and is not in default with respect to any Order applicable to the
Company, except such events of noncompliance or defaults that, individually or
in the aggregate, could not reasonably be expected to have a Material Adverse
Effect on the Company.
4.13 Employee Benefit Plans. Except as set forth in the Company's SEC
Reports or in Section 4.13 of the Company's Disclosure Letter, the Company is in
substantial compliance with each Benefit Plan except for any noncompliance that
could not reasonably be expected to have a Material Adverse Effect on the
Company.
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4.14 Taxes.
(a) Except as set forth in Section 4.14(a) of the Company's
Disclosure Letter and except for such other matters as could not
reasonably be expected to have a Material Adverse Effect on the
Company, all returns and reports of or with respect to any Tax ("Tax
Returns") that are required to be filed by or with respect to the
Company on or before the Effective Time have been or will be timely
filed, all Taxes that are due on or before the Effective Time have been
or will be timely paid in full, all withholding Tax requirements
imposed on or with respect to the Company have been or will be
satisfied in full in all respects and no penalty, interest or other
charge is or will become due with respect to the late filing of any
such Tax Return or late payment of any such Tax.
(b) Except as set forth in Section 4.14(b) the Company's
Disclosure Letter, none of such Tax Returns has been audited by the
applicable Governmental Authority.
(c) Except as set forth in Section 4.14(c) of the Company's
Disclosure Letter, there is not in force any extension of time with
respect to the due date for the filing of any such Tax Return or any
waiver or agreement for any extension of time for the assessment or
payment of any Tax due with respect to the period covered by any such
Tax Return.
(d) Except as set forth in Section 4.14(d) of the Company's
Disclosure Letter, there is no claim against the Company for any Taxes,
and no assessment, deficiency or adjustment has been asserted or, to
the Knowledge of the Company, proposed with respect to any such Tax
Return, that, in either case, could reasonably be expected to have a
Material Adverse Effect on the Company.
(e) Except as set forth in Section 4.14(e) of the Company's
Disclosure Letter, the Company has not, during the last ten years, been
a member of an affiliated group filing a consolidated federal income
Tax Return, other than the affiliated group of which the Company is the
common parent corporation.
(f) The schedule set forth in Section 4.14(f) of the Company's
Disclosure Letter is accurate and sets forth fully the tax basis
information pertaining to net loss carry forwards of the Company;
provided, however, that the Company makes no representation or warranty
with respect to the Acquiror's ability to utilize such net loss carry
forwards.
4.15 Environmental Matters.
(a) Except for matters disclosed in the Company's SEC Reports
or in Section 4.15 of the Company's Disclosure Letter and except for
matters that, individually or in the aggregate, could not reasonably be
expected to have a Material Adverse Effect on the Company, (i) the
properties, operations and activities of the Company are in compliance
with all applicable Environmental Laws; (ii) the Company and the
properties and the operations of the Company are not subject to any
existing, pending or, to the Knowledge of the Company, threatened
action, suit, investigation, inquiry or proceeding by or before any
Court or Governmental Authority under any Environmental Law; (iii) all
Authorizations, if any, required to be obtained or filed by the Company
under any Environmental Law in connection with the business of the
Company have been obtained or filed and are valid and currently in full
force and effect; (iv) there has been no release of any hazardous
substance, pollutant or contaminant into the environment by the Company
or in connection with its properties or operations; and (v) there has
been no exposure of any Person or property to any hazardous substance,
pollutant or contaminant in connection with the properties, operations
and activities of the Company.
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(b) The Company has made available to the Acquiror all
internal and external environmental audits and studies and all
correspondence on environmental matters (in each case relevant to the
Company) in the possession of the Company for such matters as could be
reasonably expected to have a Material Adverse Effect on the Company.
4.16 Insurance. The Company owns and is beneficiary under all such
insurance policies underwritten by reputable insurers that, as to risks insured,
coverages and related limits and deductibles, are customary in the industry in
which the Company operates. All premiums due with respect to all such insurance
policies that are Material have been paid and, to the Knowledge of the Company,
all such policies are in full force and effect.
4.17 Affiliates. Section 4.17 of the Company's Disclosure Letter
contains a true and complete list of all Persons who are directors or executive
officers of the Company and any other Persons who, to the Knowledge of the
Company, may be deemed to be Affiliates of the Company. Concurrently with the
execution and delivery of this Agreement, the Company has delivered to the
Acquiror an executed letter agreement, substantially in the form of Annex B
hereto, from each such Person so identified.
4.18 Certain Business Practices. As of the date of this Agreement,
neither the Company nor any director, officer, employee or agent of the Company
has (a) used any funds for unlawful contributions, gifts, entertainment or other
unlawful expenses relating to political activity, (b) made any unlawful payment
to any foreign or domestic government official or employee or to any foreign or
domestic political party or campaign or violated any provision of the Foreign
Corrupt Practices Act of 1977, as amended, (c) consummated any transaction, made
any payment, entered into any agreement or arrangement or taken any other action
in violation of Section 1128B(b) of the Social Security Act, as amended, or (d)
made any other unlawful payment, except for any such matters that could not
reasonably be expected to have a Material Adverse Effect on the Company.
4.19 Brokers. Except as disclosed in Section 4.19 of the Company's
Disclosure Letter, no broker, finder or investment banker is entitled to any
brokerage, finder's or other fee or commission in connection with the
transactions contemplated by this Agreement based upon arrangements made by or
on behalf of the Company. The Company shall be solely responsible for the
payment of these fees.
4.20 Labor Controversies. The Company is not a party to any collective
bargaining agreement and there are no grievances, disputes or controversies
pending or threatened between the Company and any union, and there have not been
and are not now existing any threats of strikes, work stoppages, organizational
efforts or demands for collective bargaining by any union or like organization
respecting the Company. The Company has complied in all material respects with
all applicable Federal, foreign, state or local laws or regulations thereof
relating to wages, hours, collective bargaining and the payment of Social
Security and similar taxes; and the Company is not liable for any arrears of
wages or any taxes or penalties for failure to comply with any of the foregoing.
The Company has complied in all material respects with all applicable Federal,
foreign, state or local laws or regulations thereof relating to occupational
safety; and the Company is not liable for any penalties for failure to comply
therewith.
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4.21 Intellectual Property.
(a) Definitions. For the purposes of this Agreement, the
following terms have the following definitions:
(i) "Intellectual Property" shall mean any or all of
the following and all rights therein: (i) all United States,
international and foreign patents and applications (including
provisional applications) therefor that have not been
abandoned or withdrawn; (ii) all inventions (whether
patentable or not), invention disclosures, trade secrets,
proprietary information, know how, technology, technical data
and customer lists, and all documentation relating to any of
the foregoing, and all improvements thereto; (iii) all
copyrights, registered copyrights and applications therefor,
and moral or equivalent rights, throughout the world; (iv) all
industrial designs, including registered industrial designs
and applications therefor throughout the world; (v) all trade
names, logos, common law trademarks and service marks,
registered trademarks and service marks and applications
therefor that have not been abandoned or withdrawn, throughout
the world; and (vi) all databases and data collections and all
rights therein, throughout the world.
(ii) "Company Intellectual Property" shall mean any
Intellectual Property that is owned by, or filed in the name
of, the Company.
(iii) "Company Product" shall mean any product that
is distributed by or for the Company, either directly or
indirectly, or any proprietary information used by the Company
in the performance of any services provided to the Company's
customers, as of the date hereof.
(iv) "Company Registered Intellectual Property" shall
mean any Registered Intellectual Property owned by, or filed
in the name of, the Company.
(v) "Registered Intellectual Property" shall mean all
United States, international and foreign: (i) patents and
patent applications (including provisional applications) that
have not been abandoned or withdrawn; (ii) registered
trademarks and service marks and applications therefor that
have not been abandoned or withdrawn; (iii) registered
copyrights and applications therefor; and (iv) registered
industrial designs and applications therefor.
(b) Schedules of Company Registered Intellectual Property.
Section 4.21(b) of the Company's Disclosure Letter lists all Company
Intellectual Property that is included in Section 4.21(a)(ii)-(v), and
all Company Registered Intellectual Property and all patent
applications filed by or in the name of Company that have been
abandoned or withdrawn and trademark and service mark registration
applications filed by or in the name of Company that have been
abandoned or withdrawn. With respect to the Company Registered
Intellectual Property, Section 4.21(b) of the Company Disclosure Letter
also lists all declaration or renewal dates for such items occurring
within the period ending 5 years after the Effective Date.
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(c) Schedules of Actions or Proceedings. Section 4.21(c) of
the Company's Disclosure Letter lists each proceeding or action pending
(including any mediation) as of the date hereof and to which Company is
a party before any court or tribunal (including the United States
Patent and Trademark Office, or equivalent authority anywhere in the
world) related to any Company Registered Intellectual Property.
(d) Validity of Company Intellectual Property. Except as
disclosed in Section 4.21(c) of the Company Disclosure Schedule, there
is no Company Intellectual Property or Company Registered Intellectual
Property that is subject to any proceeding or outstanding decree,
order, judgment, agreement entered pursuant to an order of a court,
tribunal or equivalent authority anywhere in the world, or stipulation
in connection with any proceeding materially restricting in any manner
the use, transfer, or licensing thereof by Company, or that would be
likely to adversely affect the validity, use or enforceability of any
Company Intellectual Property or Company Registered Intellectual
Property. Company is not a party to any proceeding or outstanding
decree, order, judgment, agreement entered pursuant to an order of a
court, tribunal or equivalent authority anywhere in the world, or
stipulation in connection with any proceeding restricting in any manner
the use, transfer, or licensing by Company of any Intellectual Property
of any third party that is incorporated into a necessary component of
any Company Product.
(e) Company Registrations Properly Maintained. Except as
disclosed in Section 4.21(e) of the Company Disclosure Letter, each
item of Company Registered Intellectual Property is subsisting; all
necessary registration, maintenance and renewal fees due as of the date
hereof in connection with such Company Registered Intellectual Property
have been paid and all documents and certificates required to be filed
with a patent, copyright, trademark or other governmental authority in
the United States or any foreign jurisdiction for the purposes of
maintaining such Company Registered Intellectual Property have been
filed with such authority, except where the failure to pay any fees or
file any such documents would not result, in Company's reasonable
judgment, in a loss of benefits to or any liability to Company, or upon
the Closing, to Acquiror.
(f) Good and Clear Title to Intellectual Property. Except as
disclosed in Section 4.21(f) of the Company Disclosure Letter, the
Company: (i) owns and has good title to, or has all necessary licenses
(either express or implied) under or to, each item of Intellectual
Property that is incorporated into a necessary component of any Company
Product, including all Company Registered Intellectual Property, but
excluding any Intellectual Property incorporated into a necessary
component of any Company Product that has been developed or created by
a third party for Company, free and clear of any Lien (other than (A)
licenses and related restrictions, (B) any Lien not material in
character, amount or extent; and which Liens do not result in a loss of
benefits to or any liability to the Company); (ii) owns and has good
and exclusive title to, or has all necessary licenses (either express
or implied) under or to, each item of Intellectual Property that is
incorporated into a necessary component of the Company Products
specified in Section 4.21(b) of the Company Disclosure Letter,
including all Company Registered Intellectual Property, but excluding
any Intellectual Property incorporated into a necessary component of
any such Company Products that has been developed or created by a third
party for the Company, free and clear of any Lien (other than (A)
licenses and related restrictions, and (B) any Lien which does not
result in a material loss of benefits to or in any material liability
to the Company, excluding any custom development work of Company
Products performed by the company for any third party; and (iii) owns
and has good title to, or has a license to each trademark and trade
name used in connection with the distribution of any Company Products.
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(g) Third Party Intellectual Property. Except as disclosed in
Section 4.21(g) of the Company Disclosure Letter, to the extent that
any Intellectual Property incorporated into a necessary component of
any Company Products has been developed or created by a third party for
the Company, the Company either (i) has obtained ownership of, free and
clear of any Lien (other than (A) license and related restrictions, and
(B) any Lien which does not materially detract from the current manner
of manufacture, use or distribution of such Company Products that
include such Intellectual Property, or (ii) has obtained a license
under or to such third party's Intellectual Property, to the extent it
is legally possible to do so; except to the extent that the failure to
do so does not result, in the Company's reasonable judgment, in a loss
of benefits to or in any liability to the Company.
(h) No Transfer of Ownership. Except as disclosed in Section
4.21(h) of the Company Disclosure Letter, the Company has not
transferred ownership of, or granted any exclusive license with respect
to, any Company Intellectual Property owned by the Company at the time
of its development or any Company Registered Intellectual Property, to
any third party; except to the extent such Intellectual Property
pertains to custom development work of Company Products performed by
the Company for any third party.
(i) Schedule of Intellectual Property Agreements. Section
4.21(i) of the Company Disclosure Letter lists all contracts, licenses
and other agreements to which the Company is a party as of the date
hereof (i) with respect to Company Intellectual Property licensed or
transferred by the Company or any of its subsidiaries to any third
party (other than (A) those with end-users entered into in the ordinary
course of business, (B) those with distributors or resellers entered
into in the ordinary course of business, (C) those entered into in
connection with the sale or lease of hardware products and associated
software entered into in the ordinary course of business, (D) those
relating to the performance of services by the Company in the ordinary
course of business, and (E) those entered into in the ordinary course
of business on terms that do not materially deviate from the Company's
standard terms previously disclosed to Acquiror); or (ii) pursuant to
which a third party is licensing or transferring any Intellectual
Property to the Company that is incorporated into a necessary component
of a Company Product (other than (A) those entered into in connection
with the custom development work of Company Products performed by the
Company or any of its subsidiaries for any third party, (B) those that
pertain to mass-marketed products commercially available to similarly
situated businesses, (C) those that pertain to publicly available
protocols or specifications that are used in the development of Company
Products, and (D) those entered into in the ordinary course of business
on terms that do not materially deviate from the Company's standard
terms previously disclosed to Acquiror).
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(j) Acquiror Permitted to Exercise Company's Intellectual
Property Rights. Following the Effective time, the Acquiror will be
permitted to exercise all of the Company's rights under the contracts,
licenses and agreements required to be listed in Section 4.21(i) of the
Company's Disclosure Letter to the same extent the Company would have
been permitted to exercise such rights had the transactions
contemplated by this Agreement not occurred and without the payment of
any additional amounts or consideration other than ongoing fees,
royalties or payments which the Company would have been required to pay
had the transactions contemplated by this Agreement not occurred;
except to the extent that any contract, license, agreement or activity
of Acquiror (other than this Agreement or the Merger) affects the
exercise of such rights or the payment of such amounts.
(k) Infringement Indemnifications. Section 4.21(k) of the
Company's Disclosure Letter lists or specifically refers to all
material contracts, licenses and agreements to which the Company is a
party as of the date hereof and wherein or whereby the Company has
agreed to, or assumed, any obligation or duty to warrant, indemnify,
hold harmless or otherwise assume or incur any obligation or liability
with respect to the infringement or misappropriation by the Company of
third party Intellectual Property or the infringement or
misappropriation by a third party of Company Intellectual Property or
Company Registered Intellectual Property (other than (A) those with
end-users entered into in the ordinary course of business, (B) those
with distributors or resellers entered into in the ordinary course of
business, (C) those entered into in connection with the sale or lease
of hardware products and associated software entered into in the
ordinary course of business, (D) those relating to the performance of
services by the Company in the ordinary course of business, and (E)
those entered into in the ordinary course of business on terms that do
not materially deviate from the Company's standard terms previously
disclosed to Acquiror).
(l) Operation of Company Business Not Infringing. To the
Knowledge of the Company, the operation of the business of the Company
as such business is currently being operated with respect to Company
Products (including the Company's design, development, manufacture,
marketing and sale of Company Products) is not infringing or
misappropriating the Intellectual Property of any third party to the
extent that such infringement or misappropriation will result, in the
Company's reasonable judgment, in a material loss of benefits to or in
any material liability to the Company.
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(m) No Notice of Claim. Except as disclosed in Section 4.21 of
the Company's Disclosure Letter, the Company has not received notice
from any third party that any Company Product infringes or
misappropriates the Intellectual Property of any third party.
(n) No Present Infringement of Company Intellectual Property.
Except as disclosed in Section 4.21(n) of the Company's Disclosure
Letter, to the knowledge of the Company, no person is infringing or
misappropriating any Company Intellectual Property.
(o) Protection of Confidential Information. The Company has
taken all necessary steps to protect the Company's rights in the
Company's confidential information and trade secrets or any trade
secrets or confidential information of third parties provided to the
Company. Without limiting the foregoing, the Company makes reasonable
and customary efforts to implement a policy requiring each employee and
contractor to execute a proprietary information/confidentiality
agreement in the Company's standard form (as may have been changed over
time).
4.22 Company Common Stock. The Company has not made any
material misrepresentation to the Acquiror relating to the Company
Common Stock, and the Company has not omitted to state to the Acquiror
any material fact relating to the Company Common Stock which is
necessary in order to make the information given by or on behalf of the
Company to the Acquiror not misleading or which if disclosed would
reasonably affect the decision of a person considering an acquisition
of the Company Common Stock. No fact, event, condition or contingency
exists or has occurred which has, or in the future can reasonably be
expected to have, a Material Adverse Effect on the Company, which has
not been disclosed in the Company's Financial Statements, the Company's
SEC Reports or the Company's Disclosure Letter.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF THE ACQUIROR
Subject to the provisions of Section 10.1(b), the Acquiror hereby
represents and warrants to the Company as follows:
5.1 Organization and Qualification; Subsidiaries. The Acquiror and
Newco are legal entities duly organized, validly existing and in good standing
under the laws of their respective jurisdictions of incorporation or
organization, have all requisite corporate power and authority to own, lease and
operate their respective properties and to carry on their businesses as they are
now being conducted and are duly qualified and in good standing to do business
in each jurisdiction in which the nature of the business conducted by them or
the ownership or leasing of their respective properties makes such qualification
necessary, other than any matters, including the failure to be so qualified and
in good standing, that could not reasonably be expected to have a material
Adverse Effect on the Acquiror. The Acquiror has no directly or indirectly owned
Significant Subsidiaries.
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5.2 Articles of Incorporation and Bylaws. The Acquiror has heretofore
marked for identification and furnished to the Company complete and correct
copies of the articles of incorporation and the bylaws or the equivalent
organizational documents, in each case as amended or restated to the date
hereof, of the Acquiror and Newco. The Acquiror and Newco are not in violation
of any of the provisions of their respective articles of incorporation or
bylaws.
5.3 Capitalization.
(a) The authorized capital stock of the Acquiror consists of
50,000,000 shares of the Acquiror Common Stock of which as of December
16, 1998, 6,271,481 shares were issued and outstanding, all of which
are duly authorized, validly issued, fully paid and nonassessable and
not subject to preemptive rights created by statute, the Acquiror's
articles of incorporation or bylaws or any agreement to which the
Acquiror is a party or is bound, except as set forth in Section 5.3(a)
of Acquiror's Disclosure Letter. Since December 16, 1998, (x) no shares
of Acquiror Common Stock have been issued by the Acquiror except
Acquiror Common Stock issued pursuant to the exercise of outstanding
Acquiror Stock Options and (y) the Acquiror has not granted any options
for, or other rights to purchase, shares of Acquiror Common Stock.
(b) Except as set forth in Section 5.3(b) of the Acquiror's
Disclosure Letter and SEC Reports, no shares of Acquiror Common Stock
are reserved for issuance, and, except for the Acquiror Stock Options
and the warrants listed in Section 5.3(b) of the Acquiror's Disclosure
Letter, there are no contracts, agreements, commitments or arrangements
obligating the Acquiror to offer, sell, issue or grant any Equity
Securities of the Acquiror, to redeem, purchase or acquire, or offer to
purchase or acquire, any outstanding Equity Securities of the Acquiror
or to grant any Lien on any shares of capital stock of the Acquiror.
(c) There are no voting trusts, proxies or other agreements,
commitments or understandings of any character to which the Acquiror is
a party or by which the Acquiror is bound with respect to the voting of
any shares of capital stock of the Acquiror .
5.4 Authorization of Agreement. Each of the Acquiror and Newco has all
requisite corporate power and authority to execute and deliver this Agreement
and, subject to approval of this Agreement by the majority of the stockholders
of the Acquiror as required by the applicable provisions of Nasdaq, each
instrument required hereby to be executed and delivered by it at the Closing, to
perform its obligations hereunder and thereunder and to consummate the
transactions contemplated hereby. The execution and delivery by each of the
Acquiror and Newco of this Agreement and each instrument required hereby to be
executed and delivered by each of them at the Closing and the performance of
their respective obligations hereunder and thereunder have been duly and validly
authorized by all requisite corporate action on the part of the Acquiror and
Newco, respectively (other than, with respect to the Merger, the approval and
adoption of this Agreement by the holders of a majority of the outstanding
shares of Acquiror Common Stock in accordance with the applicable provisions of
the Nasdaq). This Agreement has been duly executed and delivered by the Acquiror
and Newco and (assuming due authorization, execution and delivery hereof by the
other party hereto) constitutes a legal, valid and binding obligation of the
Acquiror and Newco, enforceable against the Acquiror and Newco in accordance
with its terms, except as the same may be limited by bankruptcy, insolvency,
reorganization or other similar legal principles of general applicability
governing the application and availability of equitable remedies.
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5.5 Approvals. Except for the applicable requirements, if any, of (a)
the Securities Act, (b) the Exchange Act, (c) state securities or blue sky laws,
(d) the HSR Act, (e) the Nasdaq, (f) the filing and recordation of appropriate
merger documents as required by the GCL and the Act ,and (g) those Laws,
Regulations and orders noncompliance with which could not reasonably be expected
to have a Material Adverse Effect on the Acquiror or Newco, no filing or
registration with, no waiting period imposed by and no Authorization of, any
Governmental Authority is required under any Law, Regulation or Order applicable
to the Acquiror or Newco to permit the Acquiror or Newco to execute, deliver or
perform this Agreement or any instrument required hereby to be executed and
delivered by it at the Closing.
5.6 No Violation. Assuming effectuation of all filings and
registrations with, termination or expiration of any applicable waiting periods
imposed by, and receipt of all Authorizations of, Governmental Authorities
indicated as required in Section 5.05, neither the execution and delivery by the
Acquiror or Newco of this Agreement or any instrument required hereby to be
executed and delivered by it at the Closing nor the performance by the Acquiror
or Newco of its obligations hereunder or thereunder will (a) violate or breach
the terms of or cause a default under any Law, Regulation or Order applicable to
the Acquiror or Newco, the articles of incorporation or bylaws of the Acquiror
or Newco or any contract or agreement to which the Acquiror or any of its
Subsidiaries is a party or by which it or any of its properties or assets is
bound, or (b), with the passage of time, the giving of notice or the taking of
any action by a third Person, have any of the effects set forth in clause (a) of
this Section, except in any such case for any matters described in this Section
that could not reasonably be expected to have a Material Adverse Effect on the
Acquiror or Newco.
5.7 Reports.
(a) Since October 1, 1995, (i) the Acquiror has filed all SEC
Reports required to be filed by the Acquiror with the Commission and
will file with the SEC the Acquiror Annual Report on Form 10-K for the
year ended September 30, 1998, and (ii) the Acquiror has filed all
other Reports required to be filed by it with any other Governmental
Authorities and Nasdaq except where the failure to file any such
Reports could not reasonably be expected to have a Material Adverse
Effect on the Acquiror. The Acquiror's Reports, including those filed
after the date of this Agreement and prior to the Effective Time, (x)
were prepared in all material respects in accordance with the
requirements of applicable Law (including, with respect to the
Acquiror's SEC Reports, the Securities Act and the Exchange Act, as the
case may be, and the applicable Regulations of the Commission
thereunder) and (y), in the case of the Acquiror's SEC Reports, did not
at the time they were filed 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.
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(b) The Acquiror's Consolidated Audited Financial Statements
and any financial statements of the Acquiror (including any related
notes thereto) contained in any of the Acquiror's SEC Reports filed by
the Acquiror with the Commission after the date of this Agreement (i)
have been or will have been prepared in accordance with the published
Regulations of the Commission and in accordance with GAAP (except (A)
to the extent required by changes in GAAP and (B), with respect to the
Acquiror's Consolidated Audited Financial Statements, as may be
indicated in the notes thereto) and (ii) fairly present the
consolidated financial position of the Acquiror and its Subsidiaries as
of the respective dates thereof and the consolidated results of their
operations and cash flows for the periods indicated (including, in the
case of any unaudited interim financial statements, reasonable
estimates of normal and recurring year-end adjustments).
(c) Except as set forth in Section 5.7(c) of the Acquiror's
Disclosure Letter, there exists no liabilities or obligations of the
Acquiror that are Material to the Acquiror, whether accrued, absolute
or contingent, that would be required to be reflected, reserved for or
disclosed under GAAP in consolidated Financial Statements of the
Acquiror as of and for the period ended on the date of this
representation and warranty, other than (i) liabilities or obligations
that are adequately reflected, reserved for or disclosed in the
Acquiror's Financial Statements, (ii) liabilities or obligations
incurred in the ordinary course of business of the Acquiror since
September 30, 1997, (iii) liabilities or obligations the incurrence of
which is permitted by Section 6.2(b) and (iv) liabilities or
obligations that are not Material to the Acquiror.
(d) Except as set forth in Section 5.7(d) of Acquiror's
Disclosure Letter, accounts receivable reflected on the Acquiror's
balance sheet have been properly stated at their realizable value after
consideration of all allowances and reserves in accordance with GAAP.
All accounts receivable and all other receivables reflected on the
current balance sheet and all such receivables arising after the
balance sheet date are bona fide receivables and are current and
enforceable and arose in the ordinary course of business. No material
counterclaims or offsetting claims with respect to such receivables are
pending or, to the Acquiror's knowledge have been, threatened. All
accounts payable and all other payables reflected in the current
balance sheet are bona fide payables which arose in the ordinary course
of business.
(e) Except as set forth in Section 5.7(e) of Acquiror's
Disclosure Letter, inventories reflected on the Acquiror's balance
sheet, as well as all inventory items acquired since the date of the
Acquiror's balance sheet that are now the property of the Acquiror,
consist of raw materials, supplies, work in process, and finished
goods, of such quality and in such quantities as are being used and
will be usable or are being sold and will be salable in the ordinary
course of business of the Acquiror. These inventories exclude scrap,
slow-moving items, and obsolete items and are valued at the lower of
cost or market value, determined in accordance with GAAP consistently
applied. Except as disclosed in Section 5.7(e) of the Acquiror's
Disclosure Letter, since the date of the Acquiror's balance sheet, the
Acquiror has continued to replenish these inventories in a normal and
customary manner consistent with prudent practice prevailing in the
business, and there have been no returns or recalls of any Acquiror
Product.
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(f) Except as described in Section 5.7(f) of the Acquiror's
Disclosure Letter, all obligations associated with benefits to be
provided to present and former employees of the Acquiror after
retirement or termination have been properly recognized as liabilities
on the Acquiror's balance sheet in accordance with Statements of
Financial Accounting Standards Nos. 106 and 112.
5.8 No Material Adverse Effect; Conduct.
(a) Since September 30, 1997, no event (other than any event
that is of general application to all or a substantial portion of the
Acquiror's industry and other than any event that is expressly subject
to any other representation or warranty contained in Article V) has, to
the Knowledge of the Acquiror, occurred that, individually or together
with other similar events, could reasonably be expected to constitute
or cause a Material Adverse Effect on the Acquiror.
(b) Except as set forth in Section 5.8(b) of the Acquiror's
Disclosure Letter, during the period from September 30, 1997, to the
date of this Agreement, the Acquiror has not engaged in any conduct
that is proscribed during the period from the date of this Agreement to
the Effective Time by subsections (i) through (viii) of Section 6.2(b).
5.9 Title to Properties.
(a) The Acquiror has good and marketable title to all of the
properties reflected in the Acquiror's balance sheet, other than any
properties reflected in the Acquiror's balance sheet that have been
sold or otherwise disposed of since the date of the Acquiror's balance
sheet or are not, individually or in the aggregate, Material to the
Acquiror, free and clear of Liens, other than (x) Liens the existence
of which is reflected in the Acquiror's Financial Statements, (y)
Permitted Encumbrances and (z) Liens that, individually or in the
aggregate, are not Material to the Acquiror. The Acquiror holds under
valid lease agreements all real and personal properties reflected in
the Acquiror's balance sheet as being held under capitalized leases,
and enjoys peaceful and undisturbed possession of such properties under
such leases, other than (i) any properties as to which such leases have
terminated in the ordinary course of business since the date of the
Acquiror's balance sheet and (ii) any properties that, individually or
in the aggregate, are not Material to the Acquiror. The Acquiror has
not received any written notice of any adverse claim to the title to
any properties owned by it or with respect to any lease under which any
properties are held by it, other than any claims that, individually or
in the aggregate, could not reasonably be expected to have a Material
Adverse Effect on the Acquiror.
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(b) To the Knowledge of the Acquiror and Newco, except as set
forth in Section 5.9(b) of the Acquiror Disclosure letter, no parcel of
real property so listed as owned is, or its use is, in violation of any
applicable zoning laws nor in violation of any other local, state or
federal laws and regulations affecting the use and occupancy of such
property.
(c) There is no pending or, to the Knowledge of the
Acquiror's, threatened condemnation or similar proceeding or special
assessment affecting any real property, or any part thereof, nor has
the Acquiror or any of its Subsidiaries received notification that any
such proceeding or assessment is contemplated by any governmental
authority.
(d) Except as set forth in Sections 5.9(d) of the Acquiror's
Disclosure Letter, since September 30, 1997, there has not been (i) any
damage, destruction, change in physical condition, or loss to or of any
of the equipment, facilities, material or other personal property
("Acquiror's Equipment") used in, on or in connection with the business
of the Acquiror, whether or not covered by insurance, other than
ordinary wear on Acquiror's Equipment; (ii) any Acquiror's Equipment
removed from the premises of the Acquiror except for Acquiror's
Equipment which was surplus to the operation of the business of the
Acquiror; (iii) any sale, lease or other disposition of any Acquiror's
Equipment other than in the ordinary course; or (iv) any contract or
commitment to do any of the foregoing.
5.10 Certain Obligations. Except for those listed in Section 5.10 of
the Acquiror's Disclosure Letter or filed as Exhibits to the Acquiror's SEC
Reports, the Acquiror is not a party to or bound by any Material Contract.
Except as set forth in Section 5.10 of the Acquiror's Disclosure Letter, all
Material Contracts to which the Acquiror is a party are in full force and
effect, the Acquiror has performed its obligations thereunder to date and, to
the Knowledge of the Acquiror, each other party thereto has performed its
obligations thereunder to date, other than any failure of any such Material
Contract to be in full force and effect or any nonperformance thereof that could
not reasonably be expected to have a Material Adverse Effect on the Acquiror.
5.11 Authorizations; Compliance. The Acquiror has obtained all
Authorizations that are necessary to carry on its businesses as currently
conducted, except for any such Authorizations as to which the failure to
possess, individually or in the aggregate, could not reasonably be expected to
have a Material Adverse Effect on the Acquiror. Such Authorizations are in full
force and effect, have not been violated in any respect that could reasonably be
expected to have a Material Adverse Effect on the Acquiror and there is no
action, proceeding or investigation pending or threatened regarding suspension,
revocation or cancellation of any of such Authorizations, except in the case of
any suspension, revocation or cancellation of such Authorizations that could not
reasonably be expected to have a Material Adverse Effect on the Acquiror.
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5.12 Litigation; Compliance with Laws. There are no actions, suits,
investigations or proceedings (including any proceedings in arbitration) pending
or, to the Knowledge of the Acquiror, threatened against the Acquiror or any of
its Subsidiaries, at law or in equity, in any Court or before or by any
Governmental Authority, except actions, suits, proceedings or investigations
that are disclosed in the Acquiror's SEC Reports, that are set forth in Section
5.12 or Section 5.15 of the Acquiror's Disclosure Letter or that, individually
or, with respect to multiple actions, suits or proceedings that allege similar
theories of recovery based on similar facts, in the aggregate, could not
reasonably be expected to have a Material Adverse Effect on the Acquiror. There
are no Material claims pending or, to the Knowledge of the Acquiror, threatened
by any Persons against the Acquiror or any of its Subsidiaries for
indemnification pursuant to any statute, organizational document, contract or
otherwise with respect to any claim, action, suit, investigation or proceeding
pending in any Court or before or by any Governmental Authority. Except as set
forth in Section 5.12 and Section 5.15 of the Acquiror's Disclosure Letter, the
Acquiror is in substantial compliance with all applicable Laws and Regulations
and is not in default with respect to any Order applicable to the Acquiror or
any of its Subsidiaries, except such events of noncompliance or defaults that,
individually or in the aggregate, could not reasonably be expected to have a
Material Adverse Effect on the Acquiror.
5.13 Employee Benefit Plans. Except as set forth in the Acquiror's SEC
Reports or in Section 5.13 of the Acquiror's Disclosure Letter, the Acquiror is
in substantial compliance with each Benefit Plan except for any noncompliance
that could not reasonably be expected to have a material adverse effect on the
Company.
5.14 Taxes.
(a) Except as set forth in Section 5.14(a) of the Acquiror's
Disclosure Letter and, except for such matters as could not reasonably
be expected to have a Material Adverse Effect on the Acquiror, all Tax
Returns that are required to be filed by or with respect to the
Acquiror or any of its Subsidiaries on or before the Effective Time
have been or will be timely filed, all Taxes that are due on or before
the Effective Time have been or will be timely paid in full, all
withholding Tax requirements imposed on or with respect to the Acquiror
or any of its Subsidiaries have been or will be satisfied in full in
all respects and no penalty, interest or other charge is or will become
due with respect to the late filing of any such Tax Return or late
payment of any such Tax.
(b) Except as set forth in Section 5.14(b) of the Acquiror's
Disclosure Letter, none of such tax returns has been audited by the
applicable Governmental Authority.
(c) Except as set forth in Section 5.14(c) of the Acquiror's
Disclosure Letter, there is not in force any extension of time with
respect to the due date for the filing of any such Tax Return or any
waiver or agreement for any extension of time for the assessment or
payment of any Tax due with respect to the period covered by any such
Tax Return.
(d) Except as set forth in Section 5.14(d) of the Acquiror's
Disclosure Letter, there is no claim against the Acquiror or any of its
Subsidiaries for any Taxes, and no assessment, deficiency or adjustment
has been asserted or proposed with respect to any such Tax Return,
that, in either case, could reasonably be expected to have a Material
Adverse Effect on the Acquiror.
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(e) Except as set forth in Section 5.14(e) of the Acquiror's
Disclosure Letter, none of the Acquiror and its Subsidiaries has,
during the last ten years, been a member of an affiliated group filing
a consolidated federal income Tax Return, other than the affiliated
group of which the Acquiror is the common parent corporation.
5.15 Environmental Matters.
(a) Except for matters disclosed in the Acquiror's SEC Reports
or in Section 5.15 of the Acquiror's Disclosure Letter and except for
matters that, individually or in the aggregate, could not reasonably be
expected to have a Material Adverse Effect on the Acquiror, (a) the
properties, operations and activities of the Acquiror and its
Subsidiaries are in compliance with all applicable Environmental Laws;
(b) the Acquiror and its Subsidiaries and the properties and operations
of the Acquiror and its Subsidiaries are not subject to any existing,
pending or, to the Knowledge of the Acquiror, threatened action, suit,
investigation, inquiry or proceeding by or before any Court or
Governmental Authority under any Environmental Law; (c) all
Authorizations if any, required to be obtained or filed by the Acquiror
or any of its Subsidiaries under any Environmental Law in connection
with the business of the Acquiror and its Subsidiaries have been
obtained or filed and are valid and currently in full force and effect;
(d) there has been no release of any hazardous substance, pollutant or
contaminant into the environment by the Acquiror or its Subsidiaries or
in connection with their properties or operations; and (e) there has
been no exposure of any Person or property to any hazardous substance,
pollutant or contaminant in connection with the properties, operations
and activities of the Acquiror and its Subsidiaries.
(b) The Acquiror and its Subsidiaries have made available to
the Company all internal and external environmental audits and studies
and all correspondence on environmental matters (in each case relevant
to the Acquiror or any of its Subsidiaries) in the possession of the
Acquiror or its Subsidiaries for such matters as could reasonably be
expected to have a Material Adverse Effect on the Acquiror.
5.16 Insurance. The Acquiror and its Subsidiaries own and are
beneficiaries under all such insurance policies underwritten by reputable
insurers that, as to risks insured, coverages and related limits and
deductibles, are customary for a company of the size and nature of the Acquiror
and which is similarly situated. All premiums due with respect to all such
insurance policies that are Material have been paid and, to the Knowledge of the
Acquiror, all such policies are in full force and effect.
5.17 Certain Business Practices. As of the date of this Agreement,
neither the Acquiror or any of its Subsidiaries nor any director, officer,
employee or agent of the Acquiror or any of its Subsidiaries has (a) used any
funds for unlawful contributions, gifts, entertainment or other unlawful
expenses relating to political activity, (b) made any unlawful payment to any
foreign or domestic government official or employee or to any foreign or
domestic political party or campaign or violated any provision of the Foreign
Corrupt Practices Act of 1977, as amended, (c) consummated any transaction, made
any payment, entered into any agreement or arrangement or taken any other action
in violation of Section 1128B(b) of the Social Security Act, as amended, or (d)
made any other unlawful payment, except for any such matters that could not
reasonably be expected to have a Material Adverse Effect on the Acquiror.
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5.18 Newco. Newco is a wholly owned subsidiary of Acquiror.
5.19 Brokers. Except as set forth in Schedule 5.19 of Acquiror's
Disclosure Letter, no broker, finder or investment banker is entitled to any
brokerage, finder's or other fee or commission in connection with the
transactions contemplated by this Agreement based upon arrangements made by or
on behalf of the Acquiror.
5.20 Acquiror's Common Stock. The Acquiror has not made any material
misrepresentation to the Company relating to the Acquiror Common Stock, and the
Acquiror has not omitted to state to the Company any material fact relating to
the Acquiror Common Stock which is necessary in order to make the information
given by or on behalf of the Acquiror to the Company not misleading or which if
disclosed would reasonably affect the decision of a person considering an
acquisition of the Acquiror Common Stock. No fact, event, condition or
contingency exists or has occurred which has, or in the future can reasonably be
expected to have, a Material Adverse Effect on the Acquiror, which has not been
disclosed in the Acquiror's Financial Statements, theAcquiror's SEC Reports or
the Acquiror's Disclosure Letter.
5.21 Intellectual Property.
(a) Except as set forth in Schedule 5.21(a) of Acquiror's
Disclosure Letter, each of Acquiror and its Subsidiaries owns or has
the exclusive right to use pursuant to license, sublicense, agreement
or permission all Intellectual Property, free from any Liens (other
than Permitted Encumbrances) and free from any requirement of any past,
present or future royalty payments, license fees, charges or other
payments, or conditions or restrictions whatsoever. To the knowledge of
the Acquiror and its Subsidiaries, neither the Acquiror nor its
Subsidiaries infringes on or otherwise conflicts with any rights of any
Person in respect of any Intellectual Property of the Acquiror or its
Subsidiaries.
(b) Except as set forth in Schedule 5.21(b) of Acquiror's
Disclosure Letter, no claim or demand of any person has been made, nor
is there any proceeding that is pending or threatened, which: (i)
challenges the rights of each of the Acquiror or its Subsidiaries in
respect of any Intellectual Property; (ii) asserts that any of the
Acquiror or its Subsidiaries is infringing or otherwise in conflict
with, or is, except as set forth in Section 5.21(b) of the Acquiror's
Disclosure Letter, required to pay any royalty, license fee, charge or
other amount with regard to, any Intellectual Property; or (iii) claims
that any default exists under any agreement or arrangement listed in
Section 5.21(b) of the Acquiror's Disclosure Letter. None of the
Intellectual Property of the Acquiror and its Subsidiaries is subject
to any outstanding order, ruling, decree, judgment or stipulation by or
with any court, arbitrator or administrative agency.
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(c) Except as set forth in Schedule 5.21(c) of Acquiror's
Disclosure Letter, the Intellectual Property of the Acquiror and its
Subsidiaries has been duly registered with, filed in or issued by, as
the case may be, the United States Patent and Trademark Office, United
States Copyright Office, or such other filing offices, and each of the
Acquiror and its Subsidiaries has taken such other actions to ensure
full protection under any applicable laws or regulations, and such
registrations, filings, issuances and other actions remain in full
force and effect.
ARTICLE VI
COVENANTS
6.1 Affirmative Covenants.
(a) The Company hereby covenants and agrees that, prior to the
Effective Time, unless otherwise expressly contemplated by this
Agreement or consented to in writing by the Acquiror, or except for any
matter that, individually or in the aggregate, could not reasonably be
expected to have a Material Adverse Effect on the Acquiror and it
Subsidiaries, it will:
(i) operate its business in the usual and ordinary
course consistent with past practices;
(ii) use all reasonable efforts to preserve
substantially intact its business organization, maintain its
rights and franchises, retain the services of its respective
key employees and maintain its relationships with its
respective customers and suppliers;
(iii) after payment of all broker and legal fees, the
Severance Payments identified in paragraph 8.3(b), and any
other fees and/or costs associated with the transaction
contemplated by this Agreement, maintain on hand prior to and
at the Effective Time a minimum cash balance of $1,100,000;
which minimum cash balance shall be subject to adjustment as
follows:
(A) the parties hereto acknowledge that
the Company is currently spending
approximately $120,000 of its cash
per month as part of its operations;
and
(B) the parties contemplate an Effective
Time of March 31, 1999; and
(C) the parties hereto acknowledge that
if the Effective Time does not occur
on or prior to said March 31, 1999
date, the Company will not be able
to maintain on hand the $1,100,000
cash balance, and that as a result
of such inability, the parties
hereto agree that if the Effective
Time occurs after March 31, 1999 for
any reason other than the Company's
failure to act in good faith, the
minimum cash balance requirement set
forth earlier in this paragraph
6.1(a)(iii), shall be adjusted
downward accordingly at a rate of
$120,000 per month for the time
period between March 31, 1999 and
the Effective Time.
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(iv) maintain and keep its properties and assets in
as good repair and condition as at present, ordinary wear and
tear excepted, and maintain supplies and inventories in
quantities consistent with its customary business practice;
(v) maintain insurance and bonds comparable in amount
and scope of coverage to that currently maintained; except for
any matters that, individually or in the aggregate, could not
reasonably be expected to have a Material Adverse Effect on
the Company; and
(vi) use all reasonable efforts to cooperate with
Acquiror in selling the LTI Technology.
(b) The Acquiror hereby covenants and agrees that, prior to
the Effective Time, unless otherwise expressly contemplated by this
Agreement or consented to in writing by the Company, or except for any
matter that individually or in the aggregate, could not reasonably be
expected to have a Material Adverse Effect on the Company, it will and
will cause each of its Subsidiaries to:
(i) operate its business in the usual and ordinary
course consistent with past practices;
(ii) use all reasonable efforts to preserve
substantially intact its business organization, maintain its
rights and franchises, retain the services of its respective
key employees and maintain its relationships with its
respective customers and suppliers;
(iii) maintain and keep its properties and assets in
as good repair and condition as at present, ordinary wear and
tear excepted, and maintain supplies and inventories in
quantities consistent with its customary business practice;
and
(iv) use all reasonable efforts to keep in full force
and effect insurance and bonds comparable in amount and scope
of coverage to that currently maintained.
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6.2 Negative Covenants
(a) The Company covenants and agrees that, as expressly
contemplated by this Agreement or as otherwise consented to in writing
by the Acquiror, from the date of this Agreement until the Effective
Time, it will not do, any of the following:
(i) (A) increase the compensation payable to or to
become payable to any director or executive officer, (B) grant
any severance or termination pay; (C) amend or take any other
actions to increase the amount or accelerate the payment or
vesting of any benefit under any Benefit Plan (including the
acceleration of vesting, waiving of performance criteria or
the adjustment of awards or any other actions permitted upon a
change in control of such party or permitted upon a filing
under Section 13(d) or 14(d) of the Exchange Act with respect
to such party) or (D) contribute, transfer or otherwise
provide any cash, securities or other property to any grantee,
trust, escrow or other arrangement that has the effect of
providing or setting aside assets for benefits payable
pursuant to any termination, severance or other change in
control agreement; except (i) pursuant to any contract,
agreement or other legal obligation of the Company existing at
the date of this Agreement, (ii) increases in salary payable
or to become payable upon promotion to an office having
greater operational responsibilities, (iii) in the case of
severance or termination payments, pursuant to the severance
policy of the Company existing at the date of this Agreement,
and (iv) in the case of Benefit Plans, amendments required by
ERISA or other applicable Law.
(ii) except as set forth in Section 6.2(a) of the
Company's Disclosure Letter, (A) enter into any employment or
severance agreement with any director or executive officer,
either individually or as part of a class of similarly
situated persons, or (B) establish, adopt or enter into any
new Benefit Plan; except employment and severance agreements
and Benefit Plans for the benefit of any newly employed or
promoted officers or employees, in which case the terms of
such agreements and Benefit Plans shall be reasonably
consistent with those existing at the date of this Agreement,
and except Benefit Plans relating to health and life insurance
benefits established or adopted in the ordinary course of
business consistent with past practice;
(iii) declare or pay any extraordinary dividend on,
or make any other distribution in respect of outstanding
shares of capital, stock;
(iv) (A) redeem, purchase or acquire, or offer to
purchase or acquire, any outstanding Equity Securities of the
Company other than (1) any repurchase, forfeiture or
retirement of shares of Company Common Stock or Company Stock
Options occurring pursuant to the terms (as in effect on the
date of this Agreement) of any existing Benefit Plan of the
Company or any of its Subsidiaries, or (2) any periodic
purchase of Company Common Stock for allocation to employee's
accounts occurring pursuant to the terms (as in effect on the
date of this Agreement) of any existing employee stock
purchase plan; (B) effect any reorganization or
recapitalization; or (C) split, combine or reclassify any of
the capital stock of, or other equity interests in, the
Company or issue or authorize or propose the issuance of any
other securities in respect of, in lieu of or in substitution
for, such Equity Securities;
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(v) (A) offer, sell, issue or grant, or authorize the
offering, sale, issuance or grant, of any Equity Securities of
the Company, other than issuances of Company Common Stock (1)
upon the exercise of Company Stock Options outstanding at the
date of this Agreement in accordance with the terms thereof
(as in effect on the date of this Agreement) or (2) that
constitutes a periodic issuance of shares of Company Common
Stock required by the terms (as in effect on the date of this
Agreement) of any Benefit Plans of the Company or any of its
Subsidiaries, (B) amend or otherwise modify the terms (as in
effect on the date of this Agreement) of any outstanding
options, warrants or rights the effect of which shall be to
make such terms more favorable to the holders thereof (except
as may be required by ERISA or other applicable Law); (C) take
any action to accelerate the vesting of any outstanding
Company Stock Options or (D) grant or suffer to exist any Lien
with respect to any outstanding equity Securities of the
Company;
(vi) acquire or agree to acquire, by merging or
consolidating with, by purchasing an equity interest in or all
or a portion of the assets of, or in any other manner, any
business or any corporation, partnership, association or other
business organization or division thereof or otherwise to
acquire any assets of any other Person (other than the
purchase of assets from suppliers or vendors in the ordinary
course of business and consistent with past practice);
(vii) sell, lease, exchange or otherwise dispose of,
or grant any Lien (other than a Permitted Encumbrance) with
respect to, any of the assets of the Company that are Material
to the Company, except for dispositions of assets and
inventories in the ordinary course of business and consistent
with past practice and dispositions of assets and purchase
money Liens incurred in connection with the original
acquisition of assets and secured by the assets acquired in an
amount not to exceed $100,000 in the aggregate;
(viii) adopt any amendments to its charter or bylaws
or other organizational documents that would alter the terms
of its capital stock or other equity interests or would have a
Material Adverse Effect on the Company;
(ix) (A) change any of its methods of accounting in
effect at March 31, 1998, except as may be required to comply
with GAAP, (B) make or rescind any election relating to Taxes
(other than any election that must be made periodically and
that is made consistent with past practice), (C) settle or
compromise any claim, action, suit, litigation, proceeding,
arbitration, investigation, audit or controversy (except where
the cost to the Company of such settlements or compromises,
individually or in the aggregate, does not exceed $100,000) or
(D) change any of its methods of reporting income or
deductions for federal income tax purposes from those employed
in the preparation of the federal income tax returns for the
taxable year ending March 31, 1998, except, in each case, as
may be required by Law and for matters that could not
reasonably be expected to have a Material Adverse Effect on
the Company;
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(x) incur any obligations for borrowed money or
purchase money indebtedness (other than purchase money
indebtedness as to which Liens may be granted as permitted by
Section 6.2(a)(vii)) that are Material to the Company, whether
or not evidenced by a note, bond, debenture or similar
instrument, except drawings under credit lines existing at the
date of this Agreement and borrowings evidenced by short term
obligations issued in the ordinary course of business
consistent with past practice.
(xi) release any third Person from its obligations
under any existing standstill agreement relating to a
Competing Transaction or otherwise under any confidentiality
agreement or similar agreement;
(xii) enter into any Material Contract with any third
Person that provides for an exclusive arrangement with that
third Person or is substantially more restrictive on the
Company or substantially less advantageous to the Company than
Material Contracts existing on the date hereof; or
(xiii) agree in writing or otherwise to do any of the
foregoing.
(b) The Acquiror covenants and agrees that, except as
expressly set forth in the Acquiror's Disclosure Letter, as
contemplated by this Agreement, or as otherwise consented to in writing
by the Company, from the date of this Agreement until the Effective
time, it will not do, and will not permit any of its Subsidiaries to
do, any of the following:
(i) (A) increase the compensation payable to or to
become payable to any director or executive officer, (B) grant
any severance or termination pay; (C) amend or take any other
actions to increase the amount or accelerate the payment or
vesting of any benefit under any Benefit Plan (including the
acceleration of vesting, waiving of performance criteria or
the adjustment of awards or any other actions permitted upon a
change in control of such party or permitted upon a filing
under Section 13(d) or 14(d) of the Exchange Act with respect
to such party) or (D) contribute, transfer or otherwise
provide any cash, securities or other property to any grantee,
trust, escrow or other arrangement that has the effect of
providing or setting aside assets for benefits payable
pursuant to any termination, severance or other change in
control agreement; except (i) pursuant to any contract,
agreement or other legal obligation of the Acquiror or any of
its Subsidiaries existing at the date of this Agreement, (ii)
increases in salary payable or to become payable upon
promotion to an office having greater operational
responsibilities, (iii) in the case of severance or
termination payments, pursuant to the severance policy of the
Acquiror or its Subsidiaries existing at the date of this
Agreement and (iv) in the case of Benefit Plans, amendments
required by ERISA or other applicable Law.
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(ii) (A) enter into any employment or severance
agreement with any director or executive officer, either
individually or as part of a class of similarly situated
persons, or (B) establish, adopt or enter into any new Benefit
Plan; except employment and severance agreements and Benefit
Plans for the benefit of any newly employed or promoted
officers or employees, in which case the terms of such
agreements and Benefit Plans shall be reasonably consistent
with those existing at the date of this Agreement, and except
Benefit Plans relating to health and life insurance benefits
established or adopted in the ordinary course of business
consistent with past practice;
(iii) declare or pay any extraordinary dividend on,
or make any other distribution in respect of outstanding
shares of capital stock, except for dividends by a wholly
owned Subsidiary of the Company to the Company or another
wholly owned Subsidiary of the Company;
(iv) (A) redeem, purchase or acquire, or offer to
purchase or acquire, any outstanding Equity Securities of the
Acquiror or any of its Subsidiaries (other than (1) any such
acquisition by the Acquiror or any of its wholly owned
Subsidiaries directly from any wholly owned subsidiary of the
Acquiror, (2) any repurchase, forfeiture or retirement of
shares of the Acquiror Common Stock or the Acquiror Stock
Options occurring pursuant to the terms (as in effect on the
date of this Agreement) of any existing Benefit Plan of the
Acquiror or any of its Subsidiaries, or (3) any periodic
purchase of the Acquiror Common Stock for allocation to
employee's accounts occurring pursuant to the terms (as in
effect on the date of this Agreement) of any existing employee
stock purchase plan; (B) effect any reorganization or
recapitalization, or (C) split, combine or reclassify any of
the Equity Securities of the Acquiror or any of its
subsidiaries or issue or authorize or propose the issuance of
any other securities in respect of, in lieu of or in
substitution for, such Equity Securities;
(v) (A) offer, sell, issue or grant, or authorize the
offering, sale, issuance or grant, of any Equity Securities of
the Acquiror or any of its Subsidiaries, other than issuances
of the Acquiror Common Stock (1) upon the exercise of the
Acquiror Stock Options outstanding at the date of this
Agreement in accordance with the terms thereof (as in effect
on the date of this Agreement) or (2) that constitutes a
periodic issuance of shares of Acquiror Common Stock required
by the terms (as in effect on the date of this Agreement) of
any Benefit Plan of the Acquiror or any of its Subsidiaries;
(B) amend or otherwise modify the terms (as in effect on the
date of this Agreement) of any outstanding options, warrants
or rights the effect of which shall be to make such terms more
favorable to the holders thereof (except as may be required by
ERISA or other applicable Law); (C) take any action to
accelerate the vesting of any outstanding Acquiror Stock
Options or (D) grant any Lien with respect to any Equity
Securities of the Acquiror or of any Subsidiary of the
Acquiror;
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(vi) sell, lease, exchange or otherwise dispose of,
or grant any Lien (other than a Permitted Encumbrance) with
respect to, any of the assets of the Acquiror or any of its
Subsidiaries that are Material to the Acquiror, except for
dispositions of assets and inventories in the ordinary course
of business and consistent with past practice and dispositions
of assets and purchase money Liens incurred in connection with
the original acquisition of assets and secured by the assets
acquired in an amount not to exceed $100,000 in the aggregate;
(vii) adopt any amendments to its charter or bylaws
or other organizational documents that would alter the terms
of its capital stock or other equity interests or would have a
Material Adverse Effect on the shareholders of the Acquiror;
(viii) (A) change any of its methods of accounting in
effect at September 30, 1997, except as may be required to
comply with GAAP, (B) make or rescind any election relating to
Taxes (other than any election which must be made periodically
which is made consistent with past practice), (C) settle or
compromise any claim, action, suit, litigation, proceeding,
arbitration, investigation, audit or controversy relating to
Taxes (except where the cost to the Acquiror and its
subsidiaries of such settlements or compromises, individually
or in the aggregate, does not exceed $100,000) or (D) change
any of its methods of reporting income or deductions for
federal income tax purposes form those employed in the
preparation of the federal income tax returns for the taxable
year ending September 30, 1997, except, in each case, as may
be required by Law and for matters that could not reasonably
be expected to have a Material Adverse effect on the Acquiror;
(ix) enter into any Material Contract with any third
Person that provides for an exclusive arrangement with that
third Person or is substantially more restrictive on the
Acquiror or any of its Subsidiaries or substantially less
advantageous to the Acquiror or any of its Subsidiaries that
Material Contracts existing on the date hereof; or
(x) agree in writing or otherwise to do any of the
foregoing.
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6.3 No Solicitation. From the date of this Agreement until the
Effective Time or the termination of this Agreement pursuant to Section 9.1, the
Company agrees that neither the Company nor any of the directors and officers of
the Company shall, and that it shall direct and use its best efforts to cause
the other employees, agents and representatives (including investment bankers,
attorneys and accountants) employed or retained by the Company not to, directly
or indirectly, initiate, solicit, encourage or otherwise facilitate (including
by way of furnishing information or assistance) any Acquisition Proposal or any
inquiries that may be reasonably be expected to lead to an Acquisition Proposal.
The Company further agrees that neither the Company nor any of the directors and
officers of the Company shall, and that it shall direct and use its best efforts
to cause the other employees, agents and representatives (including investment
bankers, attorneys and accountants) employed or retained by the Company or any
of its Subsidiaries not to, directly or indirectly, engage in any discussion
with or provide any confidential information or data to any Person that may
reasonably be expected to lead to an Acquisition Proposal or engage in any
negotiations concerning, or otherwise facilitate any effort or attempt to make
or implement, an Acquisition Proposal. Notwithstanding the foregoing, the Board
of Directors of the Company shall be permitted (A), to the extent applicable, to
comply, with regard to an Acquisition Proposal, with Rule 14e-2(a) promulgated
under the Exchange Act, (B) in response to an unsolicited bona fide written
Acquisition Proposal from any Person, recommend such Acquisition Proposal to the
Company's stockholders or withdraw or modify in any adverse manner its approval
or recommendation of this Agreement, or both, or (C) to engage in any
discussions or negotiations with, or provide any information to, any Person in
response to an unsolicited bona fide written Acquisition Proposal by any such
Person, if and only to the extent that, in any such case described in clause (B)
or (C), if (i) the Board of Directors of the Company shall have concluded in
good faith that such Acquisition Proposal (x) in the case of that described in
clause (B) above would, if consummated, constitute a Superior Proposal or (y),
in the case described in clause (C) above could reasonably be expected to
constitute a Superior Proposal, (ii) the Board of Directors of the Company shall
have determined in good faith on the basis of written advice of outside legal
counsel that such action is necessary for such Board of Directors to act in a
manner consistent with its fiduciary duties under applicable Law, (iii) prior to
providing any information or data to any Person in connection with an
Acquisition Proposal by any such Person, the Board of Directors shall have
received from such Person an executed confidentiality agreement containing
customary terms and provisions and (iv) prior to providing any information or
data to any Person or entering into discussions or negotiations with any Person,
the Board of Directors of the Company shall have notified the Acquiror
immediately of such inquiries, proposals or offers received by, any such
information requested from, or any such discussions or negotiations sought to be
initiated or continued with, any of its representatives indicating, in
connection with such notice, the name of such Person and the material terms and
conditions of any proposals of offers. The Company agrees that it will keep the
Acquiror informed, on a current basis, of the status of any such discussions or
negotiations. The Company agrees that it will immediately cease and cause to be
terminated any existing activities, discussions or negotiations with any parties
conducted heretofore with respect to any Acquisition Proposal. The Company
agrees that it will take the necessary steps to inform promptly the individuals
or entities referred to in the first sentence of this Section 6.3 of the
obligations undertaken in this Section 6.3.
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6.4 Access and Information.
(a) Each of the Company and the Acquiror and its Subsidiaries
shall, (i) afford to the other and its officers, directors, employees,
accountants, consultants, legal counsel, agents and other
representatives (collectively, in the case of the Company, the
"Company's Representatives" and, in the case of the Acquiror and its
Subsidiaries, the "Acquiror's Representatives") access, at reasonable
times upon reasonable prior notice, to the officers, employees, agents,
properties, offices and other facilities of the other and to its books
and records and (ii) furnish promptly to the other and its
Representatives such information concerning its business, properties,
contracts, records and personnel (including financial, operating and
other data and information) as may be reasonably requested, from time
to time, by or on behalf of the other party.
(b) Each party to this Agreement (the Acquiror Companies being
considered one party for purposes of this Section 6.4(b)) shall hold,
and shall cause its representatives to hold, in confidence (unless and
to the extent compelled to disclose by judicial or administrative
process or, in the opinion of its counsel, by other requirements of
law) all Confidential Information (as defined below) and will not
disclose the same to any third party except as may reasonably be
necessary to carry out this Agreement and the transactions contemplated
hereby, including any due diligence review by or on behalf of each
party. If this Agreement is terminated, each party shall, and shall
cause its respective representatives to, promptly return to the other
party/parties all Confidential Information furnished by such other
party/parties, including all copies and summaries thereof. As used
herein, "Confidential Information" with respect to each party shall
mean all information concerning such party obtained by each other party
and their representatives from such first party in connection with the
transactions contemplated by this Agreement, except information (i)
ascertainable or obtained from public information; (ii) received from a
third party not employed by or otherwise affiliated with the party
receiving the information; or (iii) which is or becomes known to the
public other than through a breach of this Agreement by the party
receiving the information or any of its representatives. If this
Agreement is terminated for any reason pursuant to Article IX hereof,
each of the Company and the Acquiror shall, within ten days after a
request therefor from the other, return or destroy (and provide the
other party within such ten-day time period with a certificate of an
executive officer certifying such destruction) all of the information
furnished to such party and its Representatives pursuant to the
provisions of Section 6.4(a) and all internal memoranda, analyses,
evaluations and other similar material containing, reflecting or
prepared from any such information, in each case other than information
available to the general public without restriction.
ARTICLE VII
ADDITIONAL AGREEMENTS
7.1 Meetings of Stockholders.
(a) The Company shall, promptly after the date of this
Agreement, take all actions necessary in accordance with the GCL and
its certificate of incorporation and bylaws to convene a special
meeting of the Company's stockholders to consider approval and adoption
of this Agreement and the Merger (the "Company Stockholders' Meeting"),
and the Company shall consult with the Acquiror in connection
therewith. Subject to the provisions of Section 6.3, the Board of
Directors shall recommend this Agreement and the Merger to the
stockholders of the Company and the Company shall use all reasonable
efforts to solicit from stockholders of the Company proxies in favor of
the approval and adoption of this Agreement and to secure the vote or
consent of stockholders required by the GCL and its certificate of
incorporation and bylaws to approve and adopt this Agreement (the
"Required Company Vote").
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(b) The Acquiror shall, promptly after the date of this
Agreement, take all actions necessary in accordance with the Act and
its articles of incorporation and bylaws to convene a special meeting
of the Acquiror's shareholders to consider approval and adoption of
this Agreement and the Merger (the "Acquiror Shareholders' Meeting"),
and the Acquiror shall consult with the Company in connection
therewith. The Acquiror shall use all reasonable efforts to solicit
from stockholders of the Acquiror proxies in favor of the approval and
adoption of the Share Issuance and to secure the vote or consent of the
shareholders of the Acquiror required by the rules of the Nasdaq to
approve and adopt the Share Issuance (the "Required Acquiror Vote").
7.2 Registration Statement; Proxy Statements.
(a) As promptly as practicable after the execution of this
Agreement, the Acquiror and the Company shall prepare and file with the
Commission a joint proxy statement and forms of proxy to be used in
connection with the solicitation of proxies to be voted at the Acquiror
Shareholders' Meeting with respect to the Share Issuance and in
connections with the solicitation of proxies to be voted at the Company
Stockholders' Meeting with respect to this Agreement (such joint proxy
statement, together with any amendments thereof or supplements thereto
effected on or prior to the effective date of the Registration
Statement being , being the "Joint Proxy Statement"). At such time as
the Acquiror and the Company deem appropriate, the Acquiror shall
prepare and file with the Commission a registration statement on Form
S-4 (such registration statement, together with any amendments thereof
or supplements thereto, being the "Registration Statement") containing
the Joint Proxy Statement for stockholders of the Acquiror and the
Company (the Joint Proxy Statement shall also constitute a prospectus
for stockholders of the Company in connection with the registration
under the Securities Act of the offering, sale and delivery of the
Acquiror Common Stock to be issued pursuant to this Agreement in the
Merger to stockholders of the Company and, together, they shall be
referred to herein as the "Joint Proxy Statement/Prospectus"). Each of
the Acquiror Companies and the Company shall furnish all information
concerning it and the holders of its capital stock as the other may
reasonably request in connection with such actions. Each of the
Acquiror Companies and the Company will use all reasonable efforts to
have or cause the Registration Statement to become effective as
promptly as practicable, and shall take any action required to be taken
under any applicable federal or state securities Laws in connection
with the issuance of shares of the Acquiror Common Stock in the Merger.
As promptly as practicable after the Registration Statement shall have
become effective, (x) the Acquiror shall mail the Joint Proxy
Statement/Prospectus to its shareholders entitled to notice of and to
vote at the Acquiror's Shareholders' Meeting and (y) the Company shall
mail the Joint Proxy Statement/Prospectus to its stockholders entitled
to notice of and to vote at the Company Stockholders' Meeting.
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(b) The information supplied by the Company for inclusion in
the Registration Statement shall not, at the time the Registration
Statement is declared effective, contain any untrue statement of a
material fact or omit to state any material fact required to be stated
therein or necessary in order to make the statements therein not
misleading. The information supplied by the Company for inclusion in
the Joint Proxy Statement/Prospectus shall not, at the date the Joint
Proxy Statement/Prospectus (or any supplement thereto) is first mailed
to shareholders of the Acquiror, at the date (if different) the Joint
Proxy Statement/Prospectus (or any supplement thereto) is first mailed
to stockholders of the Company, at the time of the Acquiror
Shareholders' Meeting, at the time (if different) of the Company
Stockholders' Meeting or at the Effective Time, contain any untrue
statement of a material fact or omit to state any material fact
required to be stated therein or necessary in order to make the
statements therein, in the light of the circumstances under which they
were made, not misleading. If at any time prior to the Effective Time
any event or circumstance relating to the Company, or its or their
respective officers or directors, should be discovered by the Company
that should be set forth in an amendment to the Registration Statement
or a supplement to the Joint Proxy Statement/Prospectus, the Company
shall promptly inform the Acquiror. All documents that the Company is
responsible for filing with the Commission in connection with the
transactions contemplated herein shall comply as to form in all
material respects with the applicable requirements of the Securities
Act and the Regulations thereunder and the Exchange Act and the
Regulations thereunder.
(c) The information supplied by the Acquiror Companies for
inclusion in the Registration Statement shall not, at the time the
Registration Statement is declared effective, contain any untrue
statement of a material fact or omit to state any material fact
required to be stated therein or necessary in order to make the
statements therein not misleading. Such information supplied by the
Acquiror for inclusion in the Joint Proxy Statement/Prospectus shall
not, at the date (if different) the Joint Proxy Statement/Prospectus
(or any supplement thereto) is first mailed to stockholders of the
Company, at the time (if different) of the Company Stockholders'
Meeting or at the Effective Time, contain any untrue statement of a
material fact or omit to state any material fact required to be stated
therein or necessary in order to make the statements therein, in the
light of the circumstances under which they are made, not misleading.
If at any time prior to the Effective Time any event or circumstance
relating to the Acquiror or any of its Subsidiaries, or to their
respective offices or directors, should be discovered by the Acquiror
that should be set forth in an amendment to the Registration Statement
or a supplement to the Joint Proxy Statement/Prospectus, the Acquiror
shall promptly inform the Company. All documents that the Acquiror
Companies are responsible for filing with the Commission in connection
with the transactions contemplated hereby shall comply as to form in
all material respects with the applicable requirements of the
Securities Act and the Regulations thereunder and the Exchange Act and
the Regulations thereunder.
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(d) No amendment or supplement to the Registration Statement
or the Joint Proxy Statement/Prospectus shall be made by the Acquiror
or the Company without the approval of the other party, which shall not
be unreasonably withheld or delayed. The Acquiror and the Company each
will advise the other, promptly after it receives notice thereof, of
the time when the Registration Statement has become effective or any
supplement or amendment has been filed, the issuance of any stop order
suspending the effectiveness of the Registration Statement or the
solicitation of proxies pursuant to the Joint Proxy
Statement/Prospectus, the suspension of the qualification of the
Acquiror Common Stock issuable in connection with the Merger for
offering or sale in any jurisdiction, any request by the staff of the
Commission for amendment of the Registration Statement or the Joint
Proxy Statement/Prospectus, the receipt from the staff of the
Commission of comments thereon or any request by the staff of the
Commission for additional information with respect thereto.
7.3 Payment for Non-Competition Agreement. As consideration for the
non-competition agreement to be executed by Michael Noonan in favor of the
Acquiror Companies, the delivery of which is a condition to closing in
accordance with Section 8.2(c), below, the Acquiror shall pay to Noonan
thirty-six (36) equal monthly installments of $5,556, with the first payment due
at Closing and each payment due thereafter on the first day of each month.
7.4 Appropriate Action; Consents; Filings.
(a) The Company and the Acquiror shall each use all reasonable
efforts (i) to take, or to cause to be taken, all actions, and to do,
or to cause to be done, all things that, in either case, are necessary,
proper or advisable under applicable Law or otherwise to consummate and
make effective the transactions contemplated by this Agreement, (ii) to
obtain from any Governmental Authorities any Authorizations or Orders
required to be obtained by the Acquiror and its Subsidiaries or the
Company in connection with the authorization, execution, delivery and
performance of this Agreement and the consummation of the transactions
contemplated hereby, including the Merger, (iii) to make all necessary
filings, and thereafter make any other required submissions, with
respect to this Agreement and the Merger required under (A) the
Securities Act (in the case of the Acquiror) and the Exchange Act and
the Regulations thereunder and any other applicable federal or state
securities Laws, (B) the HSR Act and (C) any other applicable Law. The
Acquiror and the Company shall cooperate with each other in connection
with the making of all such filings, including providing copies of all
such documents to the nonfiling party and its advisors prior to filings
and, if requested, shall accept all reasonable additions, deletions or
changes suggested in connection therewith. The Company and the Acquiror
shall furnish all information required for any application or other
filing to be made pursuant to any applicable Law or any applicable
Regulations of any Governmental Authority (including all information
required to be included in the Joint Proxy Statement/Prospectus or the
Registration Statement) in connection with the transactions
contemplated by this Agreement.
(b) Each of the Company and the Acquiror shall give prompt
notice to the other of (i) any notice or other communication from any
Person alleging that the consent of such Person is or may be required
in connection with the Merger, (ii) any notice or other communication
from any Governmental Authority in connection with the Merger, (iii)
any actions, suits, claims, investigations or proceedings commenced or
threatened in writing against, relating to or involving or otherwise
affecting the Company, the Acquiror or its Subsidiaries that relate to
the consummation of the Merger; (iv) the occurrence of a default or
event that, with notice or lapse of time or both, will become a default
under any Material Contract of the Company or the Acquiror,
respectively; and (v) any change that is reasonably likely to have a
Material Adverse Effect on the Company or the Acquiror, respectively,
to consummate the transactions contemplated by this Agreement or to
fulfill their respective obligations set forth herein.
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(c) The Acquiror Companies and the Company agree to cooperate
and use all reasonable efforts vigorously to contest and resist any
action, including administrative or judicial action, and to have
vacated, lifted, reversed or overturned any Order (whether temporary,
preliminary or permanent) of any Court or Governmental Authority that
is in effect and that restricts, prevents or prohibits the consummation
of the Merger or any other transactions contemplated by this Agreement,
including the vigorous pursuit of all available avenues of
administrative and judicial appeal. Each of the Acquiror Companies and
the Company also agree to take any and all actions, including the
disposition of assets or the withdrawal from doing business in
particular jurisdictions, required by any Court or Governmental
Authority as a condition to the granting of any Authorization or Order
necessary for the consummation of the Merger or as may be required to
avoid, lift, vacate or reverse any legislative or judicial action that
would otherwise cause any condition to the Closing not to be satisfied;
provided, however, that in no event shall either party take, or be
required to take, any action that could reasonably be expected to have
a Material Adverse Effect on the Combined Companies.
(d) (i) Each of the Company and the Acquiror shall give any
notices to third Persons, and use, all reasonable efforts to obtain any
consents from third Persons (A) necessary, proper or advisable to
consummate the transactions contemplated by this Agreement, (B)
otherwise required under any contracts, licenses, leases or other
agreements in connection with the consummation of the transactions
contemplated hereby or (C) required to prevent a Material Adverse
Effect on the Company from occurring prior to or after the Effective
Time or a Material Adverse Effect on the Acquiror from occurring after
the Effective Time.
(ii) If any party shall fail to obtain any consent
from a third Person described in subsection (d)(i) above, such
party shall use all reasonable efforts, and shall take any
such actions reasonably requested by the other parties, to
limit the adverse effect upon the Company and the Acquiror,
and its Subsidiaries, and their respective businesses
resulting, or which could reasonably be expected to result
after the Effective Time, from the failure to obtain such
consent.
7.5 Affiliates.
(a) The Company shall use all reasonable efforts to obtain
from any Person who may be deemed to have become an Affiliate of the
Company after the date of this Agreement and on or prior to the Closing
Date a written agreement substantially in the form of Annex B hereto as
soon as practicable after attaining such status.
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(b) The Acquiror Companies shall not be required to maintain
the effectiveness of the Registration Statement for the purpose of
resale by stockholders of the Company who may be Affiliates of the
Company pursuant to Rule 145 under the Securities Act.
7.6 Public Announcements. The Acquiror and the Company shall consult
with each other before issuing any press release or otherwise making any public
statements with respect to the Merger and shall not issue any such press release
or make any such public statement prior to such consultation.
7.7 Stock Exchange Listings. The Acquiror shall use all reasonable
efforts to cause the shares of the Acquiror Common Stock to be issued in the
Merger to be approved for listing (subject to official notice of issuance) on
Nasdaq prior to the Effective Time.
7.8 State Takeover Statute. The Company shall take all action so that
the execution, delivery and performance of this Agreement and the consummation
of the Merger and the other transactions contemplated hereby will be exempt from
Section 203 of the GCL.
7.9 Indemnification of Directors and Officers.
(a) Subject to Section 7.9(b) below, until six years after the
Effective Time, the articles of incorporation and bylaws of the
Surviving Corporation as in effect immediately after the Effective Time
shall not be amended to reduce or limit the rights of indemnity
afforded to the present and former directors, officers, employees and
agents of the Company thereunder or to reduce or limit the ability of
the Company as the Surviving Corporation to indemnify such persons or
to hinder, delay or make more difficult the exercise of such rights of
indemnity or such ability to indemnify. The Surviving Corporation will
at all times exercise the powers granted to it by its articles of
incorporation, its bylaws and applicable law to indemnify to the
fullest extent possible the present and former directors and officers
of the Company against claims made against them arising from their
service in such capacities prior to the Effective Time.
(b) If any claim or claims shall, subsequent to the Effective
Time and within six years thereafter, be made against any present or
former director, officer, employee or agent of the Company based on or
arising out of the services of such Person prior to the Effective Time
in the capacity of such Person as a director, officer, employee or
agent of the Company, the provisions of subsection (a) of this Section
respecting the articles of incorporation and bylaws of the Surviving
Corporation shall continue in effect until the final disposition of all
such claims.
(c) The Acquiror hereby agrees after the Effective Time to
guarantee the payment of the Surviving Corporation's indemnification
obligations described in subsection (a) of this Section 7.8 up to an
amount determined as of the Effective Time equal to (i) the fair market
value of any assets of the Surviving Corporation distributed to the
Acquiror or any of its Subsidiaries (other than the Surviving
Corporation), minus (ii) any liabilities of the Surviving Corporation
assumed by the Acquiror or any of its Subsidiaries (other than the
Surviving Corporation, minus (iii) the fair market value of any assets
of the Acquiror or any of its Subsidiaries (other than the Surviving
Corporation) contributed to the Surviving Corporation and plus (iv) any
liabilities of the Acquiror or any of its Subsidiaries (other than the
Surviving Corporation) assumed by the Surviving Corporation.
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(d) Notwithstanding subsections (a), (b) or (c) of this
Section 7.10, the Acquiror and the Surviving Corporation shall be
released from the obligations imposed by such subsections if the
Acquiror shall assume the indemnification obligations of the Surviving
Corporation under its articles of incorporation and bylaws by operation
of Law or otherwise. Notwithstanding anything to the contrary in this
Section 7.10, neither the Acquiror nor the Surviving Corporation shall
be liable for any settlement effected without its written consent,
which shall not be unreasonably withheld.
(e) The Acquiror shall cause to be maintained in effect for
the period ending on the third anniversary of the Effective Time the
current policies of directors' and officers' liability insurance
maintained by the Company (or substitute policies providing at least
the same coverage and limits and containing terms and conditions that
are not materially less advantageous) with respect to claims arising
from facts or events which occurred before the Effective Time;
provided, however, that (i) neither the Acquiror nor the Surviving
Corporation shall be required to maintain any such policies to the
extent the coverage thereunder exceeds $3,000,000 and (ii) in no event
shall the Acquiror or the Surviving Corporation be required to expend
more than 100 percent of the current annual premiums paid by the
Company for such insurance.
(f) The provisions of this Section 7.08 are intended to be for
the benefit of, and shall be enforceable by, each Person entitled to
indemnification hereunder and the heirs and representatives of such
Person.
7.10 Event Notices. From and after the date of this Agreement until the
Effective Time, each party hereto shall promptly notify the other party hereto
of (i) the occurrence or nonoccurrence of any event the occurrence or
nonoccurrence of which would be likely to cause any condition to the obligations
of the latter party to effect the Merger and the other transactions contemplated
by this Agreement not to be satisfied and (ii) any failure of the former party
to comply with any covenant or agreement to be complied with by it pursuant to
this Agreement that would be likely to result in any condition to the
obligations of the latter party to effect the Merger and the other transactions
contemplated by this Agreement not to be satisfied. No delivery of any notice
pursuant to this Section 7.9 shall cure any breach of any representation or
warranty of the party giving such notice contained in this Agreement or
otherwise limit or affect the remedies available hereunder to the party
receiving such notice.
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ARTICLE VIII
CLOSING CONDITIONS
8.1 Conditions to Obligations of Each Party Under This Agreement. The
respective obligations of each party to effect the Merger and the other
transactions contemplated hereby shall be subject to the satisfaction at or
prior to the Closing of the following conditions, any or all of which may be
waived by the parties hereto, in whole or in part, to the extent permitted by
applicable Law:
(a) Effectiveness of the Registration Statement. The
Registration Statement shall have been declared effective by the
Commission under the Securities Act, no stop order suspending the
effectiveness of the Registration Statement shall have been issued by
the Commission and no proceedings for that purpose shall have been
initiated by the Commission.
(b) Stockholder Approval. This Agreement shall have been
approved and adopted by the requisite vote of the stockholders of the
Company as required by the GCL. The Share Issuance shall have been
approved and adopted by the requisite vote of the shareholders of the
Acquiror as required by the Act and by the rules of Nasdaq.
(c) No Order. No Court or Governmental Authority shall have
enacted, issued, promulgated, enforced or entered any Law, Regulation
or Order (whether temporary, preliminary or permanent) that is in
effect and has the effect of making the Merger illegal or otherwise
prohibiting consummation of the Merger.
(d) Fairness Opinions. Each party hereto shall have received
from its own financial advisors a fairness opinion which recommends the
consummation of the merger contemplated herein to the board of
directors of such party, and the board of directors of such party must
be able to rely on such recommendation in recommending the merger to
its shareholders.
(e) Listing on Nasdaq. The Acquiror's Common Stock shall be
(i) listed on Nasdaq and (ii) trading at a price per Share of at least
$1.00 for the 30 days immediately prior to the Effective Time. The
Acquiror shall also be in substantial compliance with all requirements
for continued listing on Nasdaq.
(f) Foreign Governmental Authorities. The parties hereto shall
have received all Authorizations and Orders of foreign Governmental
Authorities necessary in order to consummate the Merger in accordance
with applicable Law, except for any such Authorizations and Orders the
nonreceipt of which could not reasonably be expected to have a Material
Adverse Effect on the Acquiror (including the Surviving Corporation).
(g) Non-Competition Agreement. The Acquiror and/or the Company
shall have executed and delivered to Michael Noonan the non-competition
agreement described in Section 8.2(c) below.
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8.2 Additional Conditions to Obligations of the Acquiror Companies. The
obligations of the Acquiror Companies to effect the Merger and the other
transactions contemplated hereby shall be subject to the satisfaction at or
prior to the Closing of the following conditions, any or all of which may be
waived by the Acquiror Companies, in whole or in part, to the extent permitted
by applicable Law:
(a) Representations and Warranties. Each of the
representations and warranties of the Company contained in this
Agreement which is qualified as to materiality shall be true and
correct, and each of such representations and warranties that is not so
qualified shall be true and correct in all material respects, as of the
date of this Agreement and as of the Closing Date as though made again
on and as of the Closing Date, and the Acquiror shall have received a
certificate of the Chief Executive Officer and the Chief Financial
Officer of the Company, dated the Closing date, to such effect.
(b) Agreements and Covenants. The Company shall have performed
or complied in all material respects with all agreements and covenants
required by this Agreement to be performed or complied with by it on or
prior to the Effective Time, and the Acquiror shall have received a
certificate of the Chief Executive Officer and the Chief Financial
Officer of the Company, dated the Closing date, to such effect.
(c) Non-Competition Agreement. Michael Noonan shall have
delivered to the Company a non-competition agreement, in a form
substantially the same as the agreement attached as Schedule 8.2(c),
wherein he agrees not to compete with the Acquiror Companies for a
period of three years. The consideration for the non-competition shall
be paid in accordance with Section 7.3, above.
8.3 Additional Conditions to Obligations of the Company. The
obligations of the Company to effect the Merger and the other transactions
contemplated hereby shall be subject to the satisfaction at or prior to the
Closing of the following conditions, any or all of which may be waived by the
Company, in whole or in part, to the extent permitted by applicable Law:
(a) Representations and Warranties. Each of the
representations and warranties of the Acquiror contained in this
Agreement which is qualified as to materiality shall be true and
correct, and each of such representations and warranties that is not so
qualified shall be true and correct in all material respects, as of the
date of this Agreement and as of the Closing Date as though made again
on and as of the Closing Date, and the Company shall have received a
certificate of the Chief Executive Officer and the Chief Financial
Officer of the Acquiror, dated the Closing Date, to such effect.
(b) Severance Payments. The Acquiror shall have delivered to
the Company the sum of $200,000 by cash or certified check for
severance payment to six key employees of the Company.
(c) Agreements and Covenants. The Acquiror Companies shall
have performed or complied in all material respects with all agreements
and covenants required by this Agreement to be performed or complied
with by them on or prior to the Closing Date, and the Company shall
have received a certificate of the Chief Executive Officer and the
Chief Financial Officer of the Acquiror, dated the Closing Date, to
such effect.
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ARTICLE IX
TERMINATION, AMENDMENT AND WAIVER
9.1 Termination. This Agreement may be terminated at any time prior to
the Effective time, whether before or after approval of this Agreement by the
stockholders of the Company and before or after approval of the Share Issuance
by the shareholders of the Acquiror:
(a) by mutual consent of the Acquiror and the Company;
(b) by the Acquiror, upon a Material breach of any
representation, warranty, covenant or agreement on the part of the
Company set forth in this Agreement or if any representation or
warranty of the Company shall have become untrue in any Material
respect, in either case such that the conditions set forth in Section
8.2 would not be satisfied (a "Terminating Company Breach"); provided
that, if such Terminating Company Breach is curable by the Company
through the exercise of reasonable efforts and for so long as the
Company continues to exercise such reasonable efforts, the Acquiror may
not terminate this Agreement under this Section 9.1(b);
(c) by the Company, upon a Material breach of any
representation, warranty, covenant or agreement on the part of the
Acquiror companies set forth in this Agreement or if any representation
or warranty of the Acquiror Companies shall have become untrue in any
Material respect, in either case such that the conditions set forth in
Section 8.3 would not be satisfied (a "Terminating Acquiror Breach");
provided that, if such Terminating Acquiror Breach is curable by the
Acquiror Companies through the exercise of their reasonable efforts and
for so long as the Acquiror Companies continue to exercise such
reasonable efforts, the Company may not terminate this Agreement under
this Section 9.1(c);
(d) by either the Acquiror or the Company, if there shall be
any final and nonappealable Order that prevents the consummation of the
Merger, unless the party relying on such Order has not complied with
its obligations under Section 7.3;
(e) by either the Acquiror or the Company, if the Merger shall
not have been consummated before April 30, 1999; provided, however,
that this Agreement may be extended by mutual written agreement of the
parties to a date not later than May 31, 1999.
(f) by either the Acquiror or the Company, if this Agreement
shall fail to receive the Required Company Vote by the shareholders of
the Company at the Company Shareholders' Meeting;
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(g) by either the Acquiror or the Company, if this Agreement
shall fail to receive the Required Acquiror Vote by the stockholders of
the Acquiror at the Acquiror Stockholders' Meeting; or
(h) by the Company, upon two Business Days' prior written
notice to the Acquiror, if the Board of Directors of the Company shall
approve a Superior Proposal; provided, however, that (i) the Company
shall have complied with Section 6.3, (ii) the Board of Directors of
the Company shall have concluded in good faith, after giving effect to
all concessions that may be offered by the Acquiror pursuant to clause
(iv) below, on the advice of its financial advisers, that such proposal
is a Superior Proposal, (iii) the Board of Directors of the Company
shall have concluded in good faith, after receipt of the written advice
of outside counsel, that, notwithstanding all concessions that may be
offered by the Acquiror in negotiations entered into pursuant to clause
(iv) below, such action is necessary for the Board of Directors of the
Company to act in a manner consistent with its fiduciary duties under
applicable Law and (iv), prior to such termination, the Company shall,
and shall cause its respective financial and legal advisers to,
negotiate with the Acquiror to make such adjustments in the terms and
conditions of this Agreement as would enable the Company to proceed
with the transactions contemplated herein on such adjusted terms.
(i) by the Company, if the Acquiror Annual Report, to be filed
with the SEC, contains any Material differences from prior SEC Reports,
except for those differences disclosed in Section 9.1(i) of the
Acquiror's Disclosure Letter.
The right of any party hereto to terminate this Agreement pursuant to
this Section 9.1 shall remain operative and in full force and effect regardless
of any investigation made by or on behalf of any party hereto, any Person
controlling any such party or any of their respective officers, directors,
representatives or agents, whether prior to or after the execution of this
Agreement.
9.2 Effect of Termination. Except as provided in Section 9.5 or Section
10.1 of this Agreement, in the event of the termination of this Agreement
pursuant to Section 9.1, this Agreement shall forthwith become void, there shall
be no liability on the part of the Acquiror Companies or the Company or any of
their respective officers or directors to the other and all rights and
obligations of any party hereto shall cease, except that nothing herein shall
relieve any party from liability for any misrepresentation or breach of any
covenant or agreement under this Agreement.
9.3 Amendment. This Agreement may be amended by the parties hereto by
action authorized by their respective Boards of Directors at any time prior to
the Effective Time; provided, however, that, after approval of this Agreement by
the stockholders of the Company, or approval of the Share Issuance by the
shareholders of the Acquiror, no amendment may be made which would reduce the
amount or change the type of consideration into which each share of Company
common Stock shall be converted pursuant to this Agreement upon consummation of
the Merger. This Agreement may not be amended except by an instrument in writing
signed by the parties hereto.
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9.4 Waiver. At any time prior to the Effective Time, any party hereto
may (a) extend the time for the performance of any of the obligations or other
acts of the other party hereto, (b) waive any inaccuracies in the
representations and warranties of the other party contained herein or in any
document delivered pursuant hereto and (c) waive compliance by the other party
with any of the agreements or conditions contained herein. Any such extension or
waiver shall be valid only if set forth in an instrument in writing signed by
the party or parties to be bound thereby. For purposes of this Section 9.4, the
Acquiror Companies shall be deemed to be one party.
9.5 Fees, Expenses and Other Payments.
(a) Except as provided in Section 9.5(b) of this Agreement,
all Expenses incurred by the parties hereto shall be borne solely and
entirely by the party which has incurred such Expenses; provided,
however, that all Expenses related to printing, filing and mailing the
Registration Statement and the Joint Proxy Statement/Prospectus and all
Commission and other regulatory filing fees incurred in connection with
the Registration Statement and the Joint Proxy Statement/Prospectus
shall be for the account of the Acquiror; and provided, further, that
the Acquiror may, at its option, but subject to Section 7.4(c), pay any
Expenses of the Company that are solely and directly related to the
Merger.
(b) The Company agrees that, if this Agreement is terminated
pursuant to Section 9.1(b) (breach), or Section 9.1(h) (fiduciary out),
the Company shall promptly (but not later than five Business Days after
receipt of notice from the Acquiror that the amount is due) pay to the
Acquiror, as liquidated damages and expense reimbursement, an amount in
cash equal to $50,000 (the "Termination Fee");
(c) The Acquiror agrees that: (i) if this Agreement is
terminated pursuant to Section 9.1(c) (breach), the Acquiror shall
promptly (but not later than five Business Days after receipt of notice
from the Company that the amount is due) pay to the Company, as
liquidated damages and expense reimbursement, an amount in cash equal
to $50,000 (the "Termination Fee"); or (ii) if this Agreement is
terminated pursuant to Section 9.1(i) (Material difference in the
Acquiror Annual Report), the Acquiror shall promptly (but not later
than five Business Days after receipt of notice from the Company that
the amount is due) pay to the Company, as liquidated damages and
expense reimbursement, an amount in cash equal to $10,000 (the "Annual
Report Termination Fee").
(d) The Termination Fee or the Annual Report Termination Fee
shall be the sole and exclusive remedy of the Company or the Acquiror,
as the case may be (the "Fee Recipient"), for damages as a result of a
termination of this Agreement pursuant to the reasons set forth in
paragraphs 9.5(b) or 9.5(c) hereof. Because the actual damages that the
Fee Recipient would sustain if the Agreement is terminated pursuant to
the reasons set forth in paragraphs 9.5(b) or 9.5(c) hereof are
uncertain and would be impossible or very difficult to ascertain
accurately, the parties hereto agree in good faith that the Termination
Fee would be reasonable and just compensation and reimbursement of
expenses for the harm caused by such termination. Therefore, the Fee
Recipient agrees to accept said Termination Fee, if due and paid
hereunder, as liquidated damages and expense reimbursement, and not as
penalty, in the event of a termination pursuant to the reasons set
forth in paragraphs 9.5(b) or 9.5(c) hereof.
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(e) If either party hereunder shall fail to pay the party any
fee due hereunder, the breaching party shall pay the costs and expenses
(including legal fees and expenses) in connection with any action,
including the filing of any lawsuit or other legal action, taken to
collect payment, together with interest on the amount of any unpaid fee
at the publicly announced prime interest rate of Citibank, N.A., in
effect from time to time, from the date such fee was required to be
paid until payment in full.
ARTICLE X
GENERAL PROVISIONS
10.1 Effectiveness of Representations, Warranties and Agreements.
(a) Except as set forth in Section 10.1(b) of this Agreement,
the representations, warranties, covenants and agreements of each party
hereto shall remain operative and in full force and effect regardless
of any investigation made by or on behalf of any other party hereto,
any Person controlling any such party or any of their officers,
directors, representatives or agents whether prior to or after the
execution of this Agreement.
(b) The representations and warranties in this Agreement shall
terminate at the Effective Time and the representations, warranties,
covenants and agreements of each of the parties hereto shall terminate
upon the termination of this Agreement pursuant to Section 9.1, except
that the covenants and agreements set forth in Sections 9.2 and 9.5 and
in Article X hereof shall survive such termination of this Agreement.
10.2 Notices. All notices and other communications given or made
pursuant hereto shall be in writing and shall be deemed to have been duly given
upon receipt, if delivered personally, mailed by registered or certified mail
(postage prepaid, return receipt requested) to the parties at the following
addresses or sent by electronic transmission to the telecopier number specified
below:
(a) If to any of the Acquiror Companies, to:
Pen Interconnect, Inc..
2351 South 2300 West
Salt Lake City, Utah 84119
Attention: Stephen J. Fryer
Telecopier No.: (949) 261-3199
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with a copy to:
Parsons Behle & Latimer
201 South Main, Suite 1800
Salt Lake City, Utah 84111
Attention: Stuart Fredman
Telecopier No.: (801) 536-6111
(b) If to the Company, to:
Laminating Technologies, Inc.
1160 Hightower Trail
Atlanta, Georgia 30350-2910
Attention: Michael E. Noonan,
Chairman and Chief Executive Officer
Telecopier No.: (770) 518-4820
with a copy to:
Schnader Harrison Segal & Lewis
Suite 2800 Suntrust Plaza
303 Peachtree Street, N.E.
Atlanta, GA 30308-3252
Attention: David S. Cooper
Telecopier No. (404) 223-5164
or to such other address or telecopier number as any party may, from time to
time, designate in a written notice given in a like manner. Notice given by
telecopier shall be deemed delivered on the day the sender receives telecopier
confirmation that such notice was received at the telecopier number of the
addressee. Notice given by mail as set out above shall be deemed delivered three
days after the date the same is postmarked.
10.3 Headings. The headings contained in this Agreement are for
reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
10.4 Severability. If any term or other provision of this Agreement is
invalid, illegal or incapable of being enforced by any rule of law or public
policy, all other conditions and provisions of this Agreement shall nevertheless
remain in full force and effect so long as the economic or legal substance of
the transactions contemplated hereby is not affected in any manner materially
adverse to any party. Upon such determination that any term or other provision
is invalid, illegal or incapable of being enforced, the parties hereto shall
negotiate in good faith to modify this Agreement so as to effect the original
intent of the parties as closely as possible in an acceptable manner to the end
that transactions contemplated hereby are fulfilled to the extent possible.
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10.5 Entire Agreement. This Agreement (together with the Annexes, the
Company's Disclosure Letter and the Acquiror's Disclosure Letter) constitutes
the entire agreement of the parties, and supersedes all prior agreements and
undertakings, both written and oral, among the parties, with respect to the
subject matter hereof.
10.6 Assignment. This Agreement shall not be assigned by operation of
Law or otherwise.
10.7 Parties in Interest. This Agreement shall be binding upon and
inure solely to the benefit of each party hereto, and nothing in this Agreement,
express or implied, other than Section 7.11 which is intended also to benefit
the present and former directors, officers, employees and agents of the Company
therein referenced, and their heirs and representatives, is intended to or shall
confer upon any other Person any right, benefit or remedy of any nature
whatsoever under or by reason of this Agreement.
10.8 Failure or Indulgence Not Waiver; Remedies Cumulative. No failure
or delay on the part of any party hereto in the exercise of any right hereunder
shall impair such right or be construed to be a waiver of, or acquiescence in,
any breach of any representation, warranty, covenant or agreement herein, nor
shall any single or partial exercise of any such right preclude other or further
exercise thereof or of any other right. All rights and remedies existing under
this Agreement are cumulative with, and not exclusive of, any rights or remedies
otherwise available.
10.9 Governing Law. This Agreement shall be governed by, and construed
in accordance with, the Laws of the State of Utah, regardless of the Laws that
might otherwise govern under applicable principles of conflicts of law;
provided, however, that any matter involving the internal corporate affairs of
the Company shall be governed by the provisions of the GCL.
10.10 Time. Time is of the essence in the performance of the terms of
this Agreement.
10.11 Counterparts. This Agreement may be executed in multiple
counterparts, and by the different parties hereto in separate counterparts, each
of which when executed shall be deemed to be an original but all of which taken
together shall constitute one and the same agreement.
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IN WITNESS WHEREOF, each of the parties hereto has caused this
Agreement to be executed as of the date first written above by their respective
offices thereunto duly authorized.
PEN INTERCONNECT, INC.
By:/s/Stephen J. Fryer
----------------------
Name: Stephen J. Fryer
Title: Chief Executive Officer
PEN LAMINATING, INC.
By:/s/Stephen J. Fryer
----------------------
Name: Stephen J. Fryer
Title: Chief Executive Officer
LAMINATING TECHNOLOGIES, INC.
By:/s/Michael Noonan
--------------------
Name: Michael Noonan
Title: Chief Executive Officer
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ANNEX A
SCHEDULE OF DEFINED TERMS
The following terms when used in the Agreement shall have the meanings
set forth below unless the context shall otherwise require:
"Acquiror" shall mean Pen Interconnect, Inc., a Utah corporation, and
its successors from time to time.
"Acquiror Annual Report" shall mean the Annual report on Form 10-K of
the Acquiror for the year ended September 30, 1998 to be filed with the
Commission.
"Acquiror Benefit Plans" shall mean Benefit Plans with respect to the
Acquiror and its Subsidiaries.
"Acquiror Common Stock" shall mean the common shares, without par
value, of the Acquiror.
"Acquiror Companies" shall have the meaning ascribed to such term in
the first paragraph of this Agreement.
"Acquiror Representatives" shall have the meaning ascribed to such term
in Section 6.4.
"Acquiror Stock Options" shall mean stock options granted pursuant to
the Acquiror Stock Plans.
"Acquiror Stock Plans" shall mean the Acquiror's Stock Option Plan.
"Acquiror Stockholders' Meeting" shall have the meaning ascribed to
such term in Section 7.1(b).
"Acquiror's Audited Consolidated Financial Statements" shall mean the
consolidated balance sheets of the Acquiror and its Subsidiaries as of September
30, 1996, September 30, 1997, and September 30, 1998 (which year is not yet
complete) and the related consolidated statements of operations and cash flows
for the fiscal, years ended September 30, 1996, 1997 and 1998 (which year is not
yet complete), together with the notes thereto, all as audited, or to be
audited, by Grant Thornton, independent accountants. The Acquiror anticipates
that the Acquiror's Audited Consolidated Financial Statements for the year ended
September 30, 1998 will be complete by December 31, 1998 and will be included in
the Acquiror's Annual Report on Form 10-K for the year ended September 30, 1998
to be filed with the Commission.
"Acquiror's Consolidated Balance Sheet" shall mean the consolidated
balance sheet of the Acquiror as of September 30, 1998 included in the
Acquiror's Audited Consolidated Financial Statements.
Annex-1
<PAGE>
"Acquiror's Disclosure Letter" shall mean a letter of even date
herewith delivered by the Acquiror to the company with the execution of the
Agreement, which, among other things, shall identify exceptions to the
Acquiror's representations and warranties contained in Article V by specific
section and subsection references.
"Acquisition Proposal" shall mean any proposal or offer with respect to
a merger, consolidation, share exchange, business combination, reorganization,
recapitalization, liquidation, dissolution or similar transaction involving, or
any purchase or sale of all or any significant portion of the assets or 5% or
more of the Equity Securities of the Company that, in any case, could be
reasonably expected to interfere with the consummation of the Merger or the
other transactions contemplated by this Agreement.
"Act" shall mean the Utah Revised Business Corporation Act.
"Affiliate" shall, with respect to any Person, mean any other Person
that controls, is controlled by or is under common control with the former.
"Agreement" shall mean the Agreement and Plan of Merger made and
entered into as of December 21, 1998 among the Acquiror, Newco and the company,
including any amendments thereto and each Annex (including this Annex A) and
Schedule thereto (including the Acquiror's Disclosure Letter and the company's
Disclosure Letter).
"Articles of Merger" shall have the meaning ascribed to such term in
Section 2.2.
"Authorization" shall mean any and all permits, licenses,
authorizations, orders, certificates, registrations or other approvals granted
by any Governmental Authority.
"Benefit Plans" shall mean, with respect to a specified Person, any
employee pension benefit plan (whether or not insured), as defined in Section
3(2) of ERISA, any employee welfare benefit plan (whether or not insured) as
defined in Section 3(1) of ERISA, any plans that would be employee pension
benefit plans or employee welfare benefit plans if they were subject to ERISA,
such as foreign plans and plans for directors, any stock bonus, stock ownership,
stock option, stock purchase, stock appreciation rights, phantom stock,
severance, employment, change-in-control, deferred compensation and any bonus or
incentive compensation plan, agreement, program or policy (whether qualified or
nonqualified, written or oral) sponsored, maintained, or contributed to by the
specified Person or any of its Subsidiaries for the benefit of any of the
present or former directors, officers, employees, agents, consultants or other
similar representatives providing services to or for the specified Person or any
of its Subsidiaries in connection with such services or any such plans which
have been so sponsored, maintained or contributed to within six years prior to
the date of this Agreement; provided, however, that such term shall not include
(a) routine employment policies and procedures developed and applied in the
ordinary course of business and consistent with past practice, including wage,
vacation, holiday and sick or other leave policies, (b) workers compensation
insurance and (c) directors and officers liability insurance.
Annex-2
<PAGE>
"Business Day" means any day other than a day on which banks in the
State of Utah are authorized or obligated to be closed.
"Certificate of Merger" shall have the meaning ascribed to such term in
Section 2.4.
"Closing" shall mean a meeting, which shall be held in accordance with
Section 3.3, of representatives of the parties to the Agreement at which, among
other things, all documents deemed necessary by the parties to the Agreement to
evidence the fulfillment or waiver of all conditions precedent to the
consummation of the transactions contemplated by the Agreement are executed and
delivered.
"Closing Date" shall mean the date of the Closing as determined
pursuant to Section 3.3.
"Code" shall mean the Internal Revenue Code of 1986, as amended, and
the rules and regulations promulgated thereunder.
"Combined Companies" shall mean the Acquiror, the Surviving Corporation
and their Subsidiaries after giving effect to the Merger.
"Commission" shall mean the Securities and exchange Commission.
"Common Stock Exchange Ratio" shall mean the ratio of conversion of
Company Common Stock into Acquiror Common Stock pursuant to the Merger as
provided in Section 3.1(a).
"Company" shall mean Laminating Technologies, Inc., a Delaware
corporation, and its successors from time to time.
"Company Benefit Plans" shall mean Benefit Plans with respect to the
Company and its Subsidiaries.
"Company Common Stock" shall mean the common stock, par value $0.01 per
share, of the Company.
"Company Option Plans" shall mean the Company's Amended and Restated
1996 Stock Option Plan.
"Company Representatives" shall have the meaning ascribed to such term
in Section 6.4.
"Company Stock Options" shall mean stock options granted pursuant to
the Company Option Plans.
"Company Stockholders' Meeting" shall have the meaning ascribed to such
term in Section 7.1(a).
"Company's Audited Financial Statements" shall mean the balance sheets
of the Company as of March 31, 1997 and 1998 and the related consolidated and
combined statements of operations and cash flows for the fiscal, years ended
March 31, 1996, 1997 and 1998, together with the notes thereto, all as audited
by Grant Thornton & Co., independent accountants, under their report with
respect thereto dated May 7, 1998 and included in the Company's Annual Report on
form 10-K for the fiscal year ended March 31, 1998 filed with the Commission.
Annex-3
<PAGE>
"Company's Balance Sheet" shall mean the consolidated balance sheet of
the Company as of March 31, 1998 included in the Company's Audited Financial
Statements.
"Company's Financial Statements" shall mean the Company's Audited
Financial Statements and the Company's Unaudited Financial Statements.
"Company's Disclosure Letter" shall mean a letter of even date herewith
delivered by the Company to the Acquiror Companies concurrently with the
execution of the Agreement, which, among other things, shall identify exceptions
to the Company's representations and warranties contained in Article IV by
specific section and subsection references.
"Company's Unaudited Financial Statements" shall mean the unaudited
consolidated balance sheet of the Company as of September 30, 1997 and 1998 and
the related consolidated statements of operations and cash flows for the three
month periods ended September 30, 1997 and 1998, together with the notes
thereto, included in the Company's Quarterly Report on Form 10-Q for the quarter
ended September 30, 1998 filed with the Commission.
"Competing Transaction" shall mean any merger, consolidated, share
exchange, business combination or similar transaction involving the Company or
the acquisition in any manner, directly or indirectly, of a Material equity
interest in any voting securities of, or a substantial portion of the assets of,
the Company other than the transactions contemplated by this Agreement.
"Constituent Corporations" shall mean the Company and Newco.
"Control" (including the terms "controlled," "controlled by" and "under
common control with") means (except where another definition is expressly
indicated) the possession, directly or indirectly or as trustee or executor, of
the power to direct or cause the direction of the management or policies of a
Person, whether through the ownership of stock or as trustee or executor, by
contract or credit arrangement or otherwise.
"Court" shall mean any court or arbitration tribunal of the United
States, any foreign country or any domestic or foreign state, and any political
subdivision thereof, and shall include the European Court of Justice.
"Division" shall mean the Utah Division of Corporations and Commercial
Code.
"Effective Time" shall mean the date and time of the completion of the
filling of the Certificate of Merger with the Secretary of State of the State of
Delaware in accordance with Section 2.02 and the Articles of Merger with the
Division.
Annex-4
<PAGE>
"Environmental Law or Laws" shall mean any and all laws, statutes,
ordinances, rules, regulations, or orders of any Governmental Authority
pertaining to health or the environment currently in effect and applicable to a
specified Person and its Subsidiaries, including the Clean Air Act, as amended,
the Comprehensive Environmental, Response, Compensation and Liability Act of
1980 ("CERCLA"), as amended, the Federal Water Pollution Control Act, as
amended, the Occupational Safety and Health Act of 1970, as amended, the
Resource Conservation and Recovery Act of 1976 ("RCRA"), as amended, the Safe
Drinking Water Act, as amended, the Toxic Substances Control Act, as amended,
the Hazardous & Solid Waste Amendments Act of 1984, as amended, the Superfund
Amendments and Reauthorization Act of 1986, as amended, the Hazardous Materials
Transportation Act, as amended, the Oil Pollution Act of 1990, as amended
("OPA"), any state or local Laws implementing the foregoing federal Laws, and
all other environmental conservation or protection Laws. For purposes of the
Agreement, the terms "hazardous substance" and "release" have the meanings
specified in CERCLA; provided, however, that, to the extent the Laws of the
state or locality in which the property is located establish a meaning for
"hazardous substance" or "release" that is broader than that specified in either
CERCLA, such broader meaning shall apply, and the term "hazardous substance"
shall include all dehydration and treating wastes, waste (or spilled) oil, and
waste (or spilled) petroleum products, and (to the extent in excess of
background levels) radioactive material, even if such are specifically exempt
from classification as hazardous substances pursuant to CERCLA or RCRA or the
analogous statutes of any jurisdiction applicable to the specified Person or its
Subsidiaries or any of their respective properties or assets.
"Equity Securities" shall mean, with respect to a specified Person, any
shares of capital stock of, or other equity interests in, or any securities that
are convertible into or exchangeable for any shares of capital stock of, or
other equity interests in, or any outstanding options, warrants or rights of any
kind to acquire any shares of capital stock of, or other equity interests in,
such Person.
"ERISA" shall mean the employee Retirement Income Security Act of 1974,
as amended, and the Regulations promulgated thereunder.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended.
"Exchange Agent" shall mean __________________________________.
"Exchange Fund" shall mean the fund of Acquiror Common Stock, cash in
lieu of fractional share interests and dividends and distributions, if any, with
respect to such shares of Acquiror Common Stock established at the Exchange
Agent pursuant to Section 3.2(a).
"Expenses" shall mean all reasonable out-of-pocket expenses (including
all fees and expenses of counsel, accountants, investment bankers, experts and
consultants to a party hereto and its Affiliates) incurred by a party or on its
behalf in connection with or related to the authorization, preparation,
negotiation, execution and performance of this Agreement, the preparation,
printing, filing and mailing of the Registration Statement, the Joint Proxy
Statement, the Acquiror Proxy Statement and the Company Proxy Statement, the
solicitation of stockholder approvals and all other matters related to the
consummation of the transactions contemplated hereby.
Annex-5
<PAGE>
"GAAP" shall mean accounting principles generally accepted in the
United States as in effect from time to time consistently applied by a specified
Person.
"GCL" shall mean the General Corporation Law of the State of Delaware,
as in effect on the date of this Agreement and from time to time thereafter
during the pendency hereof.
"Governmental Authority" shall mean any governmental agency or
authority (other than a Court) of the United States, any foreign country, or any
domestic or foreign state, and any political subdivision thereof, and shall
include any multinational authority having governmental or quasi-governmental
powers.
"HSR Act" shall mean the Hart-Scott-Rodino Antitrust Improvements Act
of 1976, as amended, and the rules and regulations promulgated thereunder.
"IRS" shall mean the Internal Revenue Service.
"Joint Proxy Statement/Prospectus" shall have the meaning ascribed to
such term in Section 7.2(a).
"Knowledge" shall mean, with respect to either the Company or the
Acquiror, the knowledge of any executive officer of such party after reasonable
inquiry.
"Law" shall mean all laws, statutes and ordinances of the United
States, any state of the United States, any foreign country, any foreign state
and any political subdivision thereof, including all decisions of Courts having
the effect of law in each such jurisdiction.
"Lien" shall mean any mortgage, pledge, security interest, adverse
claim, encumbrance, lien or charge of any kind (including any agreement to give
any of the foregoing), any conditional sale or other title retention agreement,
any lease in the nature thereof or the filing of or agreement to give any
financing statement under the Laws of any jurisdiction.
"LTI Technology" shall mean all assets, technology and Intellectual
Property (as defined in Section 4.21) owned by the Company.
"Material" shall mean material to the (a) consolidated business,
condition (financial and other), results of operations, properties or prospects
of a specified Person and its Subsidiaries, if any, taken as a whole or (b) to
the specified Person's ability to perform its obligations under this Agreement
or fulfill the conditions to Closing; provided, however, that, as used in this
definition the word "material" shall have the meaning accorded thereto pursuant
to Section 11 of the Securities Act.
"Material Adverse Effect" shall mean any change or effect that would be
material and adverse (a) to the consolidated business, condition (financial or
otherwise), results of operations, properties or prospects of a specified Person
and its Subsidiaries, if any, taken as a whole or (b) to the specified Person's
ability to perform its obligations under this Agreement or fulfill the
conditions to Closing; provided, however, that, as used in this definition the
word "material" shall have the meaning accorded thereto pursuant to Section 11
of the Securities Act.
Annex-6
<PAGE>
"Material Contract" shall mean each contract, lease, indenture,
agreement, arrangement or understanding to which a specified Person or any of
its Subsidiaries is a party or to which any of the assets or operations of such
specified Person or any of its Subsidiaries is subject that is of a type that
would be required to be included as an exhibit to a registration statement on
Form S-1 pursuant to Paragraph (2), (4) or (10) of Item 601(b) of Regulation S-K
under the Securities Act if such a registration statement were to be filed by
such Person under the Securities Act on the date of determination.
Notwithstanding the foregoing, such term shall, in the case of the Company,
include any of the following contracts, agreements or commitments, whether oral
or written:
(1) Any collective bargaining agreement or other agreement
with any labor union;
(2) any agreement, contract or commitment with any other
Person, other than any agency or representation agreement relating to
operations of the Company or any of its Subsidiaries in any foreign
nation or state entered into in the ordinary course of business,
containing any covenant limiting the freedom of such specified Person
or any of its Subsidiaries to engage in any line of business or to
compete with any other Person;
(3) any partnership, joint venture or profit sharing agreement
with any Person;
(4) any employment or consulting agreement, contract or
commitment between the Company and any employee, officer or director
thereof (i) having more than one year to run from the date hereof, (ii)
providing for an obligation to pay or accrue compensation of $25,000 or
more per annum or (iii) providing for the payment or accrual of any
additional compensation upon a change in control of such Person or any
of its Subsidiaries or upon any termination of such employment or
consulting relationship following a change in control of such Person or
any of its Subsidiaries;
(5) any agency or representation agreement relating to
operations of the Company in any foreign nation or state with any
Person that is not terminable by the Company without penalty upon not
more than one year's notice; and
(6) any confidentiality agreement, development agreement or
license agreement relating to the products of the Company.
"Merger" shall mean the merger of Newco with and into the
Company as provided in Article II of this Agreement.
"NASD" shall mean the National Association of Securities Dealers, Inc.
"Nasdaq" shall mean the Nasdaq National Market.
Annex-7
<PAGE>
"Newco" shall mean Pen Merger, Inc., a Utah corporation and a wholly
owned Subsidiary of the Acquiror.
"Order" shall mean any judgment, order or decree of any Court or
Governmental Authority, federal, foreign, state or local.
"Permitted Encumbrances" shall mean the following:
(1) liens for taxes, assessments and other governmental
charges not delinquent or which are currently being contested in good
faith by appropriate proceedings; provided that, in the latter case,
the specified Person or one of its Subsidiaries shall have set aside on
its books adequate reserves with respect thereto;
(2) mechanics' and materialmen's liens not filed of record and
similar charges not delinquent or which are filed of record but are
being contested in good faith by appropriate proceedings; provided
that, in the latter case, the specified Person or one of its
Subsidiaries shall have set aside on its books adequate reserves with
respect thereto;
(3) liens in respect of judgments or awards with respect to
which the specified Person or one of its Subsidiaries shall in good
faith currently be prosecuting an appeal or other proceeding for review
and with respect to which such Person or such Subsidiary shall have
secured a stay of execution pending such appeal or such proceeding for
review; provided that such Person or such Subsidiary shall have set
aside on its books adequate reserves with respect thereto;
(4) easements, leases, reservations or other rights of others
in, or minor defects and irregularities in title to, property or assets
of a specified Person or any of its Subsidiaries; provided that such
easements, leases, reservations, rights, defects or irregularities do
not materially impair the use of such property or assets for the
purposes for which they are held;
(5) any lien or privilege vested in any lessor, licensor or
permittor for rent or other obligations of a specified Person or any of
its Subsidiaries thereunder so long as the payment of such rent or the
performance of such obligations is not delinquent;
(6) liens for taxes or assessments not yet due or not yet
delinquent;
(7) all rights to consent by, required notices to, filings
with, or other actions by governmental or tribal entities in connection
with the sale or conveyance of oil and gas leases or interests therein
if the same are customarily obtained subsequent to such sale or
conveyance;
(8) rights of reassignment;
Annex-8
<PAGE>
(9) easements for streets, alleys, highways, pipelines,
telephone lines, power lines, railways and other easements and
rights-of-way, on, over or in respect of any of the oil and gas
properties of a party hereto;
(10) all other liens, charges, encumbrances, contracts,
agreements, instruments, obligations, defects and irregularities
affecting the properties of a party hereto that are not such as to
adversely interfere with the operation, value or use of such
properties;
"Person" shall mean an individual, partnership, limited liability
company, corporation, joint stock company, trust, estate, joint venture,
association or unincorporated organization, or any other form of business or
professional entity, but shall not include a Court or Governmental Authority.
"Registration Statement" shall have the meaning ascribed to such term
in Section 7.2(a).
"Regulation" shall mean any rule or regulation of any Governmental
Authority having the effect of Law or of any rule or regulation of any
self-regulatory organization, such as Nasdaq.
"Reports" shall mean, with respect to a specified Person, all reports,
registrations, filings and other documents and instruments required to be filed
by the specified Person or any of its Subsidiaries with any Governmental
Authority (other than the Commission).
"Representatives" shall mean, collectively, the Company's
Representatives and the Acquiror's Representatives.
"Required Acquiror Vote" shall have the meaning ascribed to such term
in Section 7.1(b).
"Required Company Vote" shall have the meaning ascribed to such term in
Section 7.1(a).
"SEC Reports" shall mean (1) all Annual Reports on Form 10-K, (2) All
Quarterly Reports on Form 10-Q, (3) all proxy statements relating to meetings of
stockholders (whether annual or special), (4) all Current Reports on Form 8-K
and (5) all other reports, schedules, registration statements or other documents
required to be filed during a specified period by a specified Person with the
Commission pursuant to the Securities Act or the Exchange Act.
"Securities Act" shall mean the Securities Act of 1933, as amended.
"Share Issuance" shall mean the issuance of shares of Acquiror Common
Stock to be issued in the Merger.
A "Subsidiary" of a specified Person shall be any corporation,
partnership, limited liability company, joint venture or other legal entity of
which the specified Person (either alone or through or together with any other
Subsidiary) owns, directly or indirectly, 50% or more of the stock or other
equity or partnership 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 or of which the specified Person controls the
management.
Annex-9
<PAGE>
"Superior Proposal" means a bona fide Acquisition Proposal that the
Board of Directors of the Company determines in its good faith judgment (after
consultation with its financial advisers and legal counsel), taking into account
all legal, financial, regulatory and other aspects of the proposal or offer and
the Person making the proposal or offer, (i) would, if consummated, result in a
transaction that is more favorable to the Company's stockholders, from a
strategic and financial point of view, than the transactions contemplated by
this Agreement and (ii) is reasonably capable of being completed.
"Surviving Corporation" shall mean the Company as the corporation
surviving the Merger.
"Tax Returns" shall have the meaning ascribed to such term in Section
4.14(a) of the Agreement.
"Taxes" shall mean all taxes, charges, imposts, tariffs, fees, levies
or other similar assessments or liabilities, including income taxes, ad valorem
taxes, excise taxes, withholding taxes, stamp taxes or other taxes of or with
respect to gross receipts, premiums, real property, personal property, windfall
profits, sales, use, transfers, licensing, employment, payroll and franchises
imposed by or under any Law; and such terms shall include any interest, fines,
penalties, assessments or additions to tax resulting from, attributable to or
incurred in connection with any such tax or any contest or dispute thereof.
"Terminating Acquiror Breach" shall have the meaning ascribed to such
term in Section 9.10(c) of the Agreement.
"Terminating Company Breach" shall have the meaning ascribed to such
term in Section 9.01(b) of the Agreement.
"Termination Fee" shall have the meaning ascribed to such term in
Section 9.05(b).
"Title Defect" shall mean any encumbrance, encroachment, irregularity,
defect in or objection to a party's title to or contractual right in the
properties of such party (expressly excluding Permitted Encumbrances), that
alone or in combination with other defects renders such party's title to any of
such properties less than Marketable Title. Materialmen's, mechanics',
repairmen's, employees', contractors', operators' or other similar liens or
charges arising in the ordinary course of business incidental to construction,
maintenance or operation of such properties shall not constitute a Title Defect
(i) if they have not been filed pursuant to Law, (ii) if filed, they have not
yet become due and payable or payment is being withheld as provided by Law or
(iii) if their validity is being contested in good faith by appropriate action.
Annex-10
<PAGE>
ANNEX B
Laminating Technologies, Inc. Affiliates
AFFILIATE'S AGREEMENT
[Date]
Pen Interconnect, Inc.
2351 South 2300 West
Salt Lake City, Utah 84119
Ladies and Gentlemen:
The undersigned has been advised that, as of the date hereof, the
undersigned may be deemed to be an "affiliate" of Laminating Technologies, Inc.,
a Delaware corporation (the "Company"), as that term is defined for purposes of
paragraphs (c) and (d) of Rule 145 of the Regulations of the Commission under
the Securities Act.
Pursuant to the terms and subject to the conditions of that certain
Agreement and Plan of Merger by and among Pen Interconnect, Inc., a Utah
corporation (the "Acquiror"), Pen Merger, Inc., a newly formed Utah corporation
and a wholly owned, indirect Subsidiary of the Acquiror ("Newco"), and the
Company dated as of December 21, 1998 (the "Merger Agreement"), providing for,
among other things, the merger of Newco with and into the Company (the
"Merger"), the undersigned will be entitled to receive shares of Acquiror Common
Stock in exchange for shares of Company Common Stock owned by the undersigned at
the Effective Time of the Merger as determined pursuant to the Merger Agreement.
Capitalized terms used but not defined herein are defined in Annex A to the
Merger Agreement and are used herein with the same meanings as ascribed to them
therein.
In consideration of the agreements contained herein, the Acquiror's
reliance on this letter in connection with the consummation of the Merger and
for other good and valuable consideration, the receipt and sufficiency of which
are hereby acknowledged, the undersigned hereby represents, warrants and agrees
that the undersigned will not make any sale, transfer or other disposition of
the Acquiror Common Stock received by the undersigned pursuant to the Merger in
violation of the Securities Act or the applicable Regulations thereunder. The
undersigned has been advised that the offering, sale and delivery of the shares
of Acquiror common Stock pursuant to the Merger will have been registered with
the Commission under the Securities Act on a Registration Statement on Form S-4.
The undersigned has also been advised, however, that, since the undersigned may
be deemed to be an Affiliate of the Company at the time the Merger is submitted
for a vote of the stockholders of the Company, the Acquiror Common Stock
received by the undersigned pursuant to the Merger can be sold by the
undersigned only (i) pursuant to an effective registration statement under the
Securities Act, (ii) in conformity with the volume and other limitations of Rule
145 promulgated by the Commission under the Securities Act or (iii) in reliance
upon an exemption from registration that is available under the Securities Act.
Annex-11
<PAGE>
The undersigned also understands that instructions will be given to the
transfer agent for the Acquiror Common Stock with respect to the Acquiror Common
Stock to be received by the undersigned pursuant to the Merger and that there
will be placed on the certificates representing such shares of Acquiror Common
Stock, or any substitutions therefor, a legend stating in substance as follows:
"These shares were issued in a transaction to which
Rule 145 promulgated under the Securities Act of 1933, as
amended, applies. These shares may only be transferred in
accordance with the terms of such Rule and an Affiliate's
Agreement between the original holder of such shares and Pen
Interconnect, Inc., a copy of which agreement is on file at
the principal offices of Pen Interconnect, Inc."
It is understood and agreed that the legend set forth above shall be
removed upon surrender of certificates bearing such legend by delivery of
substitute certificates without such legend if the undersigned shall have
delivered to the Acquiror an opinion of counsel, in form and substance
reasonably satisfactory to the Acquiror, to the effect that (i) the sale or
disposition of the shares represented by the surrendered certificates may be
effected without registration of the offering, sale and delivery of such shares
under the Securities Act and (ii)( the shares to be so transferred may be
publicly offered, sold and delivered by the transferee thereof without
compliance with the registration provisions of the Securities Act.
By its execution hereof, the Acquiror agrees that it will, as long as
the undersigned owns any shares of Acquiror Common Stock to be received by the
undersigned pursuant to the Merger that are subject to the restrictions on sale,
transfer or other disposition herein set forth, take all reasonable efforts to
make timely filings with the commission of all reports required to be filed by
it pursuant to the Exchange Act and will promptly furnish upon written request
of the undersigned a written statement confirming that such reports have been so
timely filed.
If you are in agreement with the foregoing, please so indicate by
signing below and returning a copy of this letter to the undersigned, at which
time this letter shall become a binding agreement between us.
Very truly yours,
By:
Name:
Title:
Date:
Address:
Annex-12
<PAGE>
ACCEPTED this ____ day of ___________, 1998 PEN INTERCONNECT, INC.
By: ________________________
Name:
Title:
Annex-13
CONVERTIBLE PREFERRED STOCK AND WARRANT PURCHASE AGREEMENT
Between
Pen Interconnect, Inc.
and
the Investors Signatory Hereto
CONVERTIBLE PREFERRED STOCK AND WARRANT PURCHASE AGREEMENT dated as of
February 4, 1999 (the "Agreement"), between, the Investors signatory hereto
(each an "Investor" and together the "Investors"), and Pen Interconnect, Inc., a
corporation organized and existing under the laws of the State of Utah (the
"Company").
WHEREAS, the parties desire that, upon the terms and subject to the
conditions contained herein, the Company shall issue and sell to the Investors,
and the Investors shall purchase, (i) $1,800,000 liquidation preference of
Convertible Preferred Stock (as defined below) and (ii) Warrants (as defined
below) to purchase up to 50,000 shares of the Common Stock (as defined below) at
120% of the Closing Date closing bid price for such Common Stock and a further
50,000 shares of Common Stock at 135% of the Closing Date closing bid price for
such Common Stock per $1,000,000 liquidation preference of Convertible Preferred
Stock purchased.
WHEREAS, such investments will be made in reliance upon the provisions
of Section 4(2) ("Section 4(2)") of the United States Securities Act and
Regulation D ("Regulation D") and the other rules and regulations promulgated
thereunder (the "Securities Act"), and/or upon such other exemption from the
registration requirements of the Securities Act as may be available with respect
to any or all of the investments in securities to be made hereunder.
NOW, THEREFORE, the parties hereto agree as follows:
ARTICLE I
Certain Definitions
"Capital Shares"
shall mean the Common Stock and any shares of any other class of common stock
whether now or hereafter authorized, having the right to participate in the
distribution of earnings and assets of the Company.
"Capital Shares Equivalents"
shall mean any securities, rights, or obligations that are convertible into or
exchangeable for or give any right to subscribe for any Capital Shares of the
Company or any warrants, options or other rights to subscribe for or purchase
Capital Shares or any such convertible or exchangeable securities.
"Closing"
shall mean the closing of the purchase and sale of the Convertible Preferred
Stock and Warrants pursuant to Section 2.1.
"Closing Date"
shall mean the date on which all conditions to the Closing have been satisfied
(as defined in Section 2.1 (b) hereto) and the Closing shall have occurred.
<PAGE>
"Common Stock"
shall mean the Company's common stock, $0.01 par value per share.
"Conversion Shares"
shall mean the shares of Common Stock issuable upon conversion of the
Convertible Preferred Stock and any shares of Common Stock issued as dividends
upon the Convertible Preferred Stock.
"Convertible Preferred Stock" shall mean the $1,800,000 liquidation preference
amount of Series A Convertible Preferred Stock, as described in the Certificate
of Designations in the form of Exhibit A hereto, to be issued to the Investor
pursuant to this Agreement.
"Damages"
shall mean any loss, claim, damage, judgment, penalty, deficiency, liability,
costs and expenses (including, without limitation, reasonable attorney's fees
and disbursements and reasonable costs and expenses of expert witnesses and
investigation).
"Effective Date"
shall mean the date on which the SEC first declares effective a Registration
Statement registering the resale of the Registrable Securities as set forth in
the Registration Rights Agreement.
"Escrow Agent"
shall have the meaning set forth in the Escrow Agreement.
"Escrow Agreement"
shall mean the Escrow Agreement in substantially the form of Exhibit D hereto
executed and delivered contemporaneously with this Agreement.
"Exchange Act"
shall mean the Securities Exchange Act of 1934, as amended, and the rules and
regulations promulgated thereunder.
"Legend"
shall mean the legend set forth in Section 9.1.
"Market Price"
on any given date shall mean the average of the two lowest closing bid prices
on the Principal Market (as reported by Bloomberg L.P.) of the Common Stock on
any Trading Day during the twenty-two Trading Day period ending on the Trading
Day immediately prior to the date for which the Market Price is to be
determined.
"Material Adverse Effect"
shall mean any effect on the business, operations, properties, prospects, or
financial condition of the Company that is material and adverse to the Company
and its subsidiaries and affiliates, taken as a whole, and/or any condition,
circumstance, or situation that would prohibit or otherwise interfere with the
ability of the Company to enter into and perform any of its obligations under
this Agreement, the Registration Rights Agreement, the Escrow Agreement, the
Convertible Preferred Stock or the Warrants in any material respect.
"Outstanding"
when used with reference to shares of Common Stock or Capital Shares
(collectively the "Shares"), shall mean, at any date as of which the number of
such Shares is to be determined, all issued and outstanding Shares, and shall
include all such Shares issuable in respect of outstanding scrip or any
certificates representing fractional interests in such Shares; provided,
however, that "Outstanding" shall not mean any such Shares then directly or
indirectly owned or held by or for the account of the Company.
"Person"
shall mean an individual, a corporation, a partnership, an association, a
trust or other entity or organization, including a government or political
subdivision or an agency or instrumentality thereof.
"Principal Market"
shall mean the American Stock Exchange, the New York Stock Exchange, the
NASDAQ National Market, or the NASDAQ Small-Cap Market, whichever is at the time
the principal trading exchange or market for the Common Stock, based upon share
volume.
<PAGE>
"Purchase Price" shall mean one million five hundred thousand dollars
($1,500,000).
"Registrable Securities"
shall mean the Conversion Shares and the Warrant Shares until (i) the
Registration Statement has been declared effective by the SEC, and all
Conversion Shares and Warrant Shares have been disposed of pursuant to the
Registration Statement, (ii) all Conversion Shares and Warrant Shares have been
sold under circumstances under which all of the applicable conditions of Rule
144 (or any similar provision then in force) under the Securities Act ("Rule
144") are met, (iii) all Conversion Shares and Warrant Shares have been
otherwise transferred to holders who may trade such shares without restriction
under the Securities Act, and the Company has delivered a new certificate or
other evidence of ownership for such securities not bearing a restrictive legend
or (iv) such time as, in the opinion of counsel to the Company, all Conversion
Shares and Warrant Shares may be sold without any time, volume or manner
limitations pursuant to Rule 144(k) (or any similar provision then in effect)
under the Securities Act.
"Registration Rights Agreement"
shall mean the agreement regarding the filing of the Registration Statement
for the resale of the Registrable Securities, entered into between the Company
and the Investor as of the Closing Date in the form annexed hereto as Exhibit C.
"Registration Statement"
shall mean a registration statement on Form S-3 (if use of such form is then
available to the Company pursuant to the rules of the SEC and, if not, on such
other form promulgated by the SEC for which the Company then qualifies and which
counsel for the Company shall deem appropriate, and which form shall be
available for the resale of the Registrable Securities to be registered
thereunder in accordance with the provisions of this Agreement, the Registration
Rights Agreement and in accordance with the intended method of distribution of
such securities), for the registration of the resale by the Investor of the
Registrable Securities under the Securities Act.
"Regulation D"
shall have the meaning set forth in the recitals of this Agreement.
"SEC"
shall mean the Securities and Exchange Commission.
"Section 4(2)"
shall have the meaning set forth in the recitals of this Agreement.
"Securities Act"
shall have the meaning set forth in the recitals of this Agreement.
"SEC Documents"
shall mean the Company's Annual Report on Form 10-KSB for the fiscal year
ended September 30, 1998 and each report, proxy statement or registration
statement filed by the Company with the SEC pursuant to the Exchange Act or the
Securities Act since the filing of such Annual Report through the date hereof.
"Shares" shall have the meaning set forth in Section 1.16.
"Trading Day"
shall mean any day during which the Principal Market at such day shall be open
for business.
"Warrants"
shall mean the warrants substantially in the form of Exhibit B to be issued to
the Investors hereunder, half of which for each Investor shall be exercisable at
120% of the Closing Date closing bid price of the Common Stock on the Principal
Market and the other half of which shall be exercisable at 135% of the Closing
Date closing bid price of the Common Stock on the Principal Market.
"Warrant Shares"
shall mean all shares of Common Stock or other securities issued or issuable
pursuant to exercise of the Warrants.
<PAGE>
ARTICLE II
Purchase and Sale of Convertible Preferred Stock and Warrants
Section II.1. Investment.
(a) Upon the terms and subject to the conditions set forth herein, the
Company agrees to sell, and the Investors agree to purchase the Convertible
Preferred Stock and the Warrants at the Purchase Price on the Closing Date as
follows:
(i) Upon execution and delivery of this Agreement, each
Investor shall deliver to the Escrow Agent
immediately available funds in their proportionate
amount of the Purchase Price as set forth on the
signature pages hereto, except that RBB Bank AG shall
be entitled to pay $500,000 of its Purchase Price by
means of tendering back to the Company (through the
Escrow Agent) a convertible promissory note of the
Company dated October, 1998 previously issued to RBB
Bank in the principal amount of $500,000 (the "RBB
Debenture"), and the Company shall deliver the
Convertible Preferred Stock certificates and the
Warrants to the Escrow Agent, in each case to be held
by the Escrow Agent pursuant to the Escrow Agreement.
(ii) Upon satisfaction of the conditions set forth in
Section 2.1(b), the Closing ("Closing") shall occur
at the offices of the Escrow Agent at which the
Escrow Agent (x) shall release the Convertible
Preferred Stock and the Warrants to the Investor and
(y) shall release the Purchase Price (after all fees
have been paid as set forth in the Escrow Agreement)
and the RBB Debenture to the Company, pursuant to the
terms of the Escrow Agreement.
(b) The Closing is subject to the satisfaction of the following
conditions:
(i) acceptance and execution by the Company and by the
Investors, of this Agreement and all Exhibits hereto;
(ii) delivery into escrow by each Investor other than RBB
Bank of immediately available funds in the amount of
the Purchase Price of the Convertible Preferred Stock
and the Warrants, and the delivery by RBB Bank of the
RBB Debenture, as more fully set forth in the Escrow
Agreement;
(iii) all representations and warranties of the Investors
contained herein shall remain true and correct as of
the Closing Date (as a condition to the Company's
obligations);
(iv) all representations and warranties of the Company
contained herein shall remain true and correct as of
the Closing Date (as a condition to the Investors'
obligations);
(v) the Company shall have obtained all permits and
qualifications required by any state for the offer
and sale of the Convertible Preferred Stock and
Warrants, or shall have the availability of
exemptions therefrom;
<PAGE>
(vi) the sale and issuance of the Convertible Preferred
Stock and the Warrants hereunder, and the proposed
issuance by the Company to the Investors of the
Common Stock underlying the Convertible Preferred
Stock and the Warrants upon the conversion or
exercise thereof shall be legally permitted by all
laws and regulations to which the Investors and the
Company are subject and there shall be no ruling,
judgment or writ of any court prohibiting the
transactions contemplated by this Agreement;
(vii) delivery of the original fully executed Convertible
Preferred Stock certificates and Warrants
certificates to the Escrow Agent;
(viii) delivery to the Escrow Agent of an opinion of Law
Offices of Oscar Folger, counsel to the Company, in
the form of Exhibit E hereto;
(ix) delivery to the Escrow Agent of the Irrevocable
Instructions to Transfer Agent in the form attached
hereto as Exhibit F;
(x) delivery to the Escrow Agent of the Registration
Rights Agreement; and
(xi) delivery to the Escrow Agent of the written
agreements of each director and officer of the
Company to vote all shares of Common Stock over which
they have voting power in favor of a resolution at
the next meeting of the Company's stockholders to
permit the Company to issue Conversion Shares in
excess of 20% of the Company's issued and outstanding
Common Stock as of the Closing Date.
Liquidated Damages.
The parties hereto acknowledge and agree that the sums payable pursuant to the
Registration Rights Agreement shall constitute liquidated damages and not
penalties. The parties further acknowledge that (a) the amount of loss or
damages likely to be incurred is incapable or is difficult to precisely
estimate, (b) the amounts specified in such Sections bear a reasonable
proportion and are not plainly or grossly disproportionate to the probable loss
likely to be incurred by the Investors in connection with the failure by the
Company to timely cause the registration of the Registrable Securities and (c)
the parties are sophisticated business parties and have been represented by
sophisticated and able legal and financial counsel and negotiated this Agreement
at arm's length.
ARTICLE III
Representations and Warranties of Investor
Each Investor, severally and not jointly, represents and warrants to the Company
that:
Intent.
The Investor is entering into this Agreement for its own account and the
Investor has no present arrangement (whether or not legally binding) at any time
to sell the Convertible Preferred Stock, the Warrants, any Conversion Shares or
Warrant Shares to or through any person or entity; provided, however, that by
making the representations herein, the Investor does not agree to hold such
securities for any minimum or other specific term and reserves the right to
dispose of the Conversion Shares and Warrant Shares at any time in accordance
with federal and state securities laws applicable to such disposition.
Sophisticated Investor.
The Investor is a sophisticated investor (as described in Rule 506(b)(2)(ii)
of Regulation D) and an accredited investor (as defined in Rule 501 of
Regulation D), and Investor has such experience in business and financial
matters that it is capable of evaluating the merits and risks of an investment
in the Convertible Preferred Stock, the Warrants and the underlying Common
Stock. The Investor acknowledges that an investment in the Convertible Preferred
Stock, the Warrants and the underlying Common Stock is speculative and involves
a high degree of risk.
<PAGE>
Authority.
This Agreement and each agreement attached as an Exhibit hereto which is
required to be executed by Investor has been duly authorized and validly
executed and delivered by the Investor and is a valid and binding agreement of
the Investor enforceable against it in accordance with its terms, subject to
applicable bankruptcy, insolvency, or similar laws relating to, or affecting
generally the enforcement of, creditors' rights and remedies or by other
equitable principles of general application.
Not an Affiliate.
The Investor is not an officer, director or "affiliate" (as that term is
defined in Rule 405 of the Securities Act) of the Company.
Absence of Conflicts.
The execution and delivery of this Agreement and the agreements the forms of
which are attached as Exhibits hereto and executed in connection herewith, and
the consummation of the transactions contemplated hereby and thereby, and
compliance with the requirements hereof and thereof, will not violate any law,
rule, regulation, order, writ, judgment, injunction, decree or award binding on
Investor or (a) violate any provision of any indenture, instrument or agreement
to which Investor is a party or is subject, or by which Investor or any of its
assets is bound; (b) conflict with or constitute a material default thereunder;
(c) result in the creation or imposition of any lien pursuant to the terms of
any such indenture, instrument or agreement, or constitute a breach of any
fiduciary duty owed by Investor to any third party; or (d) require the approval
of any third-party (which has not been obtained) pursuant to any material
contract, agreement, instrument, relationship or legal obligation to which
Investor is subject or to which any of its assets, operations or management may
be subject.
Disclosure; Access to Information.
The Investor has received all documents, records, books and other publicly
available information pertaining to Investor's investment in the Company that
have been requested by the Investor. The Company is subject to the periodic
reporting requirements of the Exchange Act, and the Investor has reviewed or
received copies of all SEC Documents that have been requested by it.
Manner of Sale.
At no time was Investor presented with or solicited by or through any leaflet,
public promotional meeting, television advertisement or any other form of
general solicitation or advertising.
ARTICLE IV
Representations and Warranties of the Company
The Company represents and warrants to the Investor that, except as set forth on
the Disclosure Schedule attached hereto:
Organization of the Company.
The Company is a corporation duly incorporated and existing in good standing
under the laws of the State of Utah and has all requisite corporate authority to
own its properties and to carry on its business as now being conducted. The
Company does not have any subsidiaries and does not own more that fifty percent
(50%) of or control any other business entity except as set forth in the SEC
Documents. The Company is duly qualified and is in good standing as a foreign
corporation to do business in every jurisdiction in which the nature of the
business conducted or property owned by it makes such qualification necessary,
other than those in which the failure so to qualify would not have a Material
Adverse Effect.
<PAGE>
Authority.
(i) The Company has the requisite corporate power and corporate authority to
enter into and perform its obligations under this Agreement, the Registration
Rights Agreement, the Escrow Agreement, and the Warrants and to issue the
Convertible Preferred Stock, the Conversion Shares, the Warrants and the Warrant
Shares pursuant to their respective terms, (ii) the execution, issuance and
delivery of this Agreement, the Registration Rights Agreement, the Escrow
Agreement, the Convertible Preferred Stock and the Warrants by the Company and
the consummation by it of the transactions contemplated hereby have been duly
authorized by all necessary corporate action and no further consent or
authorization of the Company or its Board of Directors or stockholders is
required, and (iii) this Agreement, the Registration Rights Agreement, the
Escrow Agreement, the Convertible Preferred Stock and the Warrants have been
duly executed and delivered by the Company and at the Closing shall constitute
valid and binding obligations of the Company enforceable against the Company in
accordance with their terms, except as such enforceability may be limited by
applicable bankruptcy, insolvency, or similar laws relating to, or affecting
generally the enforcement of, creditors' rights and remedies or by other
equitable principles of general application. The Company has duly and validly
authorized and reserved for issuance shares of Common Stock sufficient in number
for the conversion of the Convertible Preferred Stock and for the exercise of
the Warrants. The Company understands and acknowledges the potentially dilutive
effect to the Common Stock of the issuance of the Conversion Shares and, upon
any redemption of the Warrants, the Warrant Shares. The Company further
acknowledges that its obligation to issue Conversion Shares upon conversion of
the Convertible Preferred Stock and Warrant Shares upon exercise of the Warrants
in accordance with this Agreement and the Convertible Preferred Stock is
absolute and unconditional regardless of the dilutive effect that such issuance
may have on the ownership interests of other stockholders of the Company and
notwithstanding the commencement of any case under 11 U.S.C. ss. 101 et seq.
(the "Bankruptcy Code"). The Company shall not seek judicial relief from its
obligations hereunder except pursuant to the Bankruptcy Code. In the event the
Company is a debtor under the Bankruptcy Code, the Company hereby waives to the
fullest extent permitted any rights to relief it may have under 11 U.S.C. ss.
362 in respect of the conversion of the Convertible Preferred Stock and the
exercise of the Warrants. The Company agrees, without cost or expense to the
Investor, to take or consent to any and all action necessary to effectuate
relief under 11 U.S.C. ss. 362.
Capitalization.
The authorized capital stock of the Company consists of 50,000,000 shares of
Common Stock, $0.01 par value per share, of which 6,068,481 shares are issued
and outstanding as of January 31, 1999 and 5,000,000 shares of preferred stock,
par value $0.01 per share, of which no shares are issued and outstanding. The
Company has duly designated 1,800 shares of its preferred stock as Series A
Convertible Preferred Stock. Except for outstanding options and warrants to
acquire a total of 8,070,000 shares of Common Stock, there are no outstanding
Capital Shares Equivalents. All of the outstanding shares of Common Stock of the
Company have been duly and validly authorized and issued and are fully paid and
non-assessable.
Common Stock.
The Company has registered its Common Stock pursuant to Section 12(b) or (g)
of the Exchange Act and is in full compliance with all reporting requirements of
the Exchange Act, and the Company is in compliance with all requirements for the
continued listing or quotation of its Common Stock, and such Common Stock is
currently listed or quoted on the Principal Market. As of the date hereof, the
Principal Market is the Nasdaq National Market and the Company has not received
any notice regarding, and to its knowledge there is no threat, of the
termination or discontinuance of the eligibility of the Common Stock for such
listing.
<PAGE>
SEC Documents.
The Company has delivered or made available to the Investors true and complete
copies of the SEC Documents. The Company has not provided to the Investors any
information that, according to applicable law, rule or regulation, should have
been disclosed publicly prior to the date hereof by the Company, but which has
not been so disclosed. As of their respective dates, the SEC Documents complied
in all material respects with the requirements of the Exchange Act, and rules
and regulations of the SEC promulgated thereunder and the SEC Documents did not
contain any untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading. The financial statements of the Company included in the SEC
Documents complied in all material respects with applicable accounting
requirements and the published rules and regulations of the SEC or other
applicable rules and regulations with respect thereto at the time of such
inclusion. Such financial statements have been prepared in accordance with
generally accepted accounting principles applied on a consistent basis during
the periods involved (except (i) as may be otherwise indicated in such financial
statements or the notes thereto or (ii) in the case of unaudited interim
statements, to the extent they exclude footnotes or may be condensed or summary
statements) and fairly present in all material respects the financial position
of the Company as of the dates thereof and the results of operations and cash
flows for the periods then ended (subject, in the case of unaudited interim
statements, to normal year-end audit adjustments). Neither the Company nor any
of its subsidiaries has any material indebtedness, obligations or liabilities of
any kind (whether accrued, absolute, contingent or otherwise, and whether due or
to become due) that would have been required to be reflected in, reserved
against or otherwise described in the financial statements or in the notes
thereto in accordance with GAAP, which was not fully reflected in, reserved
against or otherwise described in the financial statements or the notes thereto
included in the SEC Documents or was not incurred in the ordinary course of
business consistent with the Company's past practices since the last date of
such financial statements.
Exemption from Registration; Valid Issuances.
Subject to the accuracy of the Investors' representations in Article III, the
sale of the Convertible Preferred Stock, the Conversion Shares, the Warrants and
the Warrant Shares will not require registration under the Securities Act and/or
any applicable state securities law. When issued and paid for in accordance with
the Warrants and validly converted in accordance with the terms of the
Convertible Preferred Stock, the Conversion Shares and the Warrant Shares will
be duly and validly issued, fully paid, and non-assessable. Neither the sales of
the Convertible Preferred Stock, the Conversion Shares, the Warrants or the
Warrant Shares pursuant to, nor the Company's performance of its obligations
under, this Agreement, the Registration Rights Agreement, the Escrow Agreement,
the certificate of designation for the Convertible Preferred Stock, or the
Warrants will (i) result in the creation or imposition by the Company of any
liens, charges, claims or other encumbrances upon the Convertible Preferred
Stock, the Conversion Shares, the Warrants or the Warrant Shares or, except as
contemplated herein, any of the assets of the Company, or (ii) entitle the
holders of Outstanding Capital Shares to preemptive or other rights to subscribe
to or acquire the Capital Shares or other securities of the Company. The
Convertible Preferred Stock, the Conversion Shares, the Warrants and the Warrant
Shares shall not subject the Investors to personal liability to the Company or
its creditors by reason of the possession thereof.
No General Solicitation or Advertising in Regard to this Transaction.
Neither the Company nor any of its affiliates nor, to the knowledge of the
Company, any person acting on its or their behalf (i) has conducted or will
conduct any general solicitation (as that term is used in Rule 502(c) of
Regulation D) or general advertising with respect to any of the Convertible
Preferred Stock, the Conversion Shares, the Warrants or the Warrant Shares, or
(ii) made any offers or sales of any security or solicited any offers to buy any
security under any circumstances that would require registration of the
Convertible Preferred Stock, the Conversion Shares, the Warrants or the Warrant
Shares under the Securities Act.
<PAGE>
No Conflicts.
The execution, delivery and performance of this Agreement by the Company and
the consummation by the Company of the transactions contemplated hereby,
including without limitation the issuance of the Convertible Preferred Stock,
the Conversion Shares, the Warrants and the Warrant Shares, do not and will not
(i) result in a violation of the Company's Certificate of Incorporation or
By-Laws or (ii) conflict with, or constitute a material default (or an event
that with notice or lapse of time or both would become a default) under, or give
to others any rights of termination, amendment, acceleration or cancellation of,
any material agreement, indenture or instrument, or any "lock-up" or similar
provision of any underwriting or similar agreement to which the Company is a
party, or (iii) result in a violation of any federal, state or local law, rule,
regulation, order, judgment or decree (including federal and state securities
laws and regulations) applicable to the Company or by which any material
property or asset of the Company is bound or affected, nor is the Company
otherwise in violation of, conflict with or default under any of the foregoing
(except in each case for such conflicts, defaults, terminations, amendments,
accelerations, cancellations and violations as would not have, individually or
in the aggregate, a Material Adverse Effect). The business of the Company is not
being conducted in violation of any law, ordinance or regulation of any
governmental entity, except for possible violations that either singly or in the
aggregate would not have a Material Adverse Effect. The Company is not required
under federal, state or local law, rule or regulation to obtain any consent,
authorization or order of, or make any filing or registration with, any court or
governmental agency in order for it to execute, deliver or perform any of its
obligations under this Agreement or issue and sell the Convertible Preferred
Stock or the Warrants in accordance with the terms hereof (other than any SEC,
Nasdaq or state securities filings that may be required to be made by the
Company subsequent to Closing, any registration statement that may be filed
pursuant hereto, and any shareholder approval required by the rules applicable
to companies whose common stock trades on the Nasdaq Stock Market); provided
that, for purposes of the representation made in this sentence, the Company is
assuming and relying upon the accuracy of the relevant representations and
agreements of the Investors herein.
No Material Adverse Change.
Since September 30, 1998, no Material Adverse Effect has occurred or exists
with respect to the Company, except as disclosed in the SEC Documents.
No Undisclosed Events or Circumstances.
Since September 30, 1998, no event or circumstance has occurred or exists with
respect to the Company or its businesses, properties, prospects, operations or
financial condition, that, under applicable law, rule or regulation, requires
public disclosure or announcement prior to the date hereof by the Company but
which has not been so publicly announced or disclosed in the SEC Documents.
No Integrated Offering.
Other than pursuant to an effective registration statement under the
Securities Act, or pursuant to the issuance or exercise of employee stock
options, or pursuant to its discussion with the Investors in connection with the
transactions contemplated hereby, the Company has not issued, offered or sold
the Convertible Preferred Stock, the Warrants or any shares of Common Stock
(including for this purpose any securities of the same or a similar class as the
Convertible Preferred Stock, the Warrants or Common Stock, or any securities
convertible into a exchangeable or exercisable for the Convertible Preferred
Stock or Common Stock or any such other securities) within the six-month period
next preceding the date hereof, and the Company shall not permit any of its
directors, officers or Affiliates directly or indirectly to take, any action
(including, without limitation, any offering or sale to any person or entity of
the Convertible Preferred, Warrants or shares of Common Stock), so as to make
unavailable the exemption from Securities Act registration being relied upon by
the Company for the offer and sale to Investors of the Convertible Preferred
Stock (and the Conversion Shares) or the Warrants (and the Warrant Shares) as
contemplated by this Agreement.
<PAGE>
Litigation and Other Proceedings.
Except as disclosed in the SEC Documents, there are no lawsuits or proceedings
pending or, to the knowledge of the Company, threatened, against the Company,
nor has the Company received any written or oral notice of any such action,
suit, proceeding or investigation, which could reasonably be expected to have a
Material Adverse Effect. Except as set forth in the SEC Documents, no judgment,
order, writ, injunction or decree or award has been issued by or, to the
knowledge of the Company, requested of any court, arbitrator or governmental
agency which could result in a Material Adverse Effect.
No Misleading or Untrue Communication.
The Company and, to the knowledge of the Company, any person representing the
Company, or any other person selling or offering to sell the Convertible
Preferred Stock or the Warrants in connection with the transaction contemplated
by this Agreement, have not made, at any time, any oral communication in
connection with the offer or sale of the same which contained any untrue
statement of a material fact or omitted to state any material fact necessary in
order to make the statements, in the light of the circumstances under which they
were made, not misleading.
Material Non-Public Information.
Except as set forth in the Disclosure Schedule, the Company has not disclosed
to the Investors any material non-public information that (i) if disclosed,
would reasonably be expected to have a material effect on the price of the
Common Stock or (ii) according to applicable law, rule or regulation, should
have been disclosed publicly by the Company prior to the date hereof but which
has not been so disclosed.
Insurance.
The Company maintains property and casualty, general liability, workers'
compensation, environmental hazard, personal injury and other similar types of
insurance with financially sound and reputable insurers that is adequate,
consistent with industry standards and the Company's historical claims
experience. The Company has not received notice from, and has no knowledge of
any threat by, any insurer (that has issued any insurance policy to the Company)
that such insurer intends to deny coverage under or cancel, discontinue or not
renew any insurance policy presently in force.
Section IV.16. Tax Matters.
(a) The Company has filed all Tax Returns which it is required to file
under applicable laws; all such Tax Returns are true and accurate and have been
prepared in compliance with all applicable laws; the Company has paid all Taxes
due and owing by it (whether or not such Taxes are required to be shown on a Tax
Return) and have withheld and paid over to the appropriate taxing authorities
all Taxes which it is required to withhold from amounts paid or owing to any
employee, stockholder, creditor or other third parties; and since December 31,
1997, the charges, accruals and reserves for Taxes with respect to the Company
(including any provisions for deferred income taxes) reflected on the books of
the Company are adequate to cover any Tax liabilities of the Company if its
current tax year were treated as ending on the date hereof.
(b) No claim has been made by a taxing authority in a jurisdiction
where the Company does not file tax returns that such corporation is or may be
subject to taxation by that jurisdiction. There are no foreign, federal, state
or local tax audits or administrative or judicial proceedings pending or being
conducted with respect to the Company; no information related to Tax matters has
been requested by any foreign, federal, state or local taxing authority; and,
except as disclosed above, no written notice indicating an intent to open an
audit or other review has been received by the Company from any foreign,
federal, state or local taxing authority. There are no material unresolved
questions or claims concerning the Company's Tax liability. The Company (A) has
not executed or entered into a closing agreement pursuant to ss. 7121 of the
Internal Revenue Code or any predecessor provision thereof or any similar
provision of state, local or foreign law; or (B) has not agreed to or is
required to make any adjustments pursuant to ss. 481 (a) of the Internal Revenue
Code or any similar provision of state, local or foreign law by reason of a
change in accounting method initiated by the Company or any of its subsidiaries
or has any knowledge that the IRS has proposed any such adjustment or change in
accounting method, or has any application pending with any taxing authority
requesting permission for any changes in accounting methods that relate to the
business or operations of the Company. The Company has not been a United States
real property holding corporation within the meaning of ss. 897(c)(2) of the
Internal Revenue Code during the applicable period specified in ss.
897(c)(1)(A)(ii) of the Internal Revenue Code.
<PAGE>
(c) The Company has not made an election under ss. 341(f) of the
Internal Revenue Code. The Company is not liable for the Taxes of another person
that is not a subsidiary of the Company under (A) Treas. Reg. ss. 1.1502-6 (or
comparable provisions of state, local or foreign law), (B) as a transferee or
successor, (C) by contract or indemnity or (D) otherwise. The Company is not a
party to any tax sharing agreement. The Company has not made any payments, is
obligated to make payments or is a party to an agreement that could obligate it
to make any payments that would not be deductible under ss. 280G of the Internal
Revenue Code.
(d) For purposes of this Section 4.16:
"IRS" means the United States Internal Revenue Service.
"Tax" or "Taxes" means federal, state, county, local, foreign,
or other income, gross receipts, ad valorem, franchise,
profits, sales or use, transfer, registration, excise,
utility, environmental, communications, real or personal
property, capital stock, license, payroll, wage or other
withholding, employment, social security, severance, stamp,
occupation, alternative or add-on minimum, estimated and other
taxes of any kind whatsoever (including, without limitation,
deficiencies, penalties, additions to tax, and interest
attributable thereto) whether disputed or not.
"Tax Return" means any return, information report or filing
with respect to Taxes, including any schedules attached
thereto and including any amendment thereof.
Property.
Neither the Company nor any of its subsidiaries owns any real property. Each
of the Company and its subsidiaries has good and marketable title to all
personal property owned by it, free and clear of all liens, encumbrances and
defects except such as do not materially affect the value of such property and
do not materially interfere with the use made and proposed to be made of such
property by the Company; and to the Company's knowledge any real property,
mineral or water rights, and buildings held under lease by the Company as tenant
are held by it under valid, subsisting and enforceable leases with such
exceptions as are not material and do not interfere with the use made and
intended to be made of such property, mineral or water rights, and buildings by
the Company.
Intellectual Property.
Each of the Company and its subsidiaries owns or possesses adequate and
enforceable rights to use all patents, patent applications, trademarks,
trademark applications, trade names, service marks, copyrights, copyright
applications, licenses, know-how (including trade secrets and other unpatented
and/or unpatentable proprietary or confidential information, systems or
procedures) and other similar rights and proprietary knowledge (collectively,
"Intangibles") necessary for the conduct of its business as now being conducted.
To the Company's knowledge, except as disclosed in the SEC Documents neither the
Company nor any of its subsidiaries is infringing upon or in conflict with any
right of any other person with respect to any Intangibles. Except as disclosed
in the SEC Documents, no claims have been asserted by any person to the
ownership or use of any Intangibles and the Company has no knowledge of any
basis for such claim.
<PAGE>
Internal Controls and Procedures.
The Company maintains books and records and internal accounting controls which
provide reasonable assurance that (i) all transactions to which the Company is a
party or by which its properties are bound are executed with management's
authorization; (ii) the recorded accounting of the Company's assets is compared
with existing assets at regular intervals; (iii) access to the Company's assets
is permitted only in accordance with management's authorization; and (iv) all
transactions to which the Company is a party or by which its properties are
bound are recorded as necessary to permit preparation of the financial
statements of the Company in accordance with U.S. generally accepted accounting
principles.
Payments and Contributions.
Neither the Company nor any of its directors, officers or, to its knowledge,
other employees has (i) used any Company funds for any unlawful contribution,
endorsement, gift, entertainment or other unlawful expense relating to political
activity; (ii) made any direct or indirect unlawful payment of Company funds to
any foreign or domestic government official or employee; (iii) violated or is in
violation of any provision of the Foreign Corrupt Practices Act of 1977, as
amended; or (iv) made any bribe, rebate, payoff, influence payment, kickback or
other similar payment to any person with respect to Company matters.
No Misrepresentation.
Except as set forth in the Disclosure Schedule, no representation or warranty
of the Company contained in this Agreement, any schedule, annex or exhibit
hereto or any agreement, instrument or certificate furnished by the Company to
the Investors pursuant to this Agreement, contains any untrue statement of a
material fact or omits to state a material fact required to be stated therein or
necessary to make the statements therein, not misleading.
ARTICLE V
Covenants of the Investors
Compliance with Law.
The Investor's trading activities with respect to shares of the Company's
Common Stock will be in compliance with all applicable state and federal
securities laws, rules and regulations and rules and regulations of the
Principal Market on which the Company's Common Stock is listed.
Short Sales.
The Investor and its affiliates shall not engage in short sales of the
Company's Common Stock until after the effective date of the Registration
Statement. It shall not be a breach of this covenant if an Investor converts any
of its Convertible Preferred Stock prior to the earlier of the 120th day
following the Closing Date or the effective date of the Registration Statement,
and then hedges that long position by any lawful means.
ARTICLE VI
Covenants of the Company
Registration Rights.
The Company shall cause the Registration Rights Agreement to remain in full
force and effect and the Company shall comply in all material respects with the
terms thereof.
<PAGE>
Reservation of Common Stock.
As of the date hereof, the Company has reserved and the Company shall continue
to reserve and keep available at all times, free of preemptive rights, shares of
Common Stock for the purpose of enabling the Company to issue the Conversion
Shares and the Warrant Shares pursuant to any conversion of the Convertible
Preferred Stock or exercise of the Warrants; such amount of shares of Common
Stock to be reserved shall be calculated based upon a Market Price for the
Common Stock under the terms of the Convertible Preferred Stock of $0.25. The
number of shares so reserved from time to time, as theretofore increased or
reduced as hereinafter provided, may be reduced by the number of shares actually
delivered pursuant to any conversion of the Convertible Preferred Stock or
exercise of the Warrants and the number of shares so reserved shall be increased
or decreased to reflect potential increases or decreases in the Common Stock
that the Company may thereafter be obligated to issue by reason of adjustments
to the Warrants.
Listing of Common Stock.
The Company hereby agrees to maintain the listing of the Common Stock on a
Principal Market, and as soon as reasonably practicable following the Closing to
list the Conversion Shares and the Warrant Shares on the Principal Market. The
Company further agrees, if the Company applies to have the Common Stock traded
on any other Principal Market, it will include in such application the
Conversion Shares and the Warrant Shares, and will take such other action as is
necessary or desirable in the opinion of the Investors to cause the Common Stock
to be listed on such other Principal Market as promptly as possible. The Company
will take all action to continue the listing and trading of its Common Stock on
a Principal Market (including, without limitation, maintaining sufficient net
tangible assets) and will comply in all respects with the Company's reporting,
filing and other obligations under the bylaws or rules of the Principal Market
and shall provide Investors with copies of any correspondence to or from such
Principal Market which questions or threatens delisting of the Common Stock,
within three (3) Business Days of the Company's receipt thereof, until the
Investors have disposed of all of their Registrable Securities.
Exchange Act Registration.
The Company will cause its Common Stock to continue to be registered under
Section 12(b) or (g) of the Exchange Act, will use its best efforts to comply in
all respects with its reporting and filing obligations under the Exchange Act,
and will not take any action or file any document (whether or not permitted by
the Exchange Act or the rules thereunder) to terminate or suspend such
registration or to terminate or suspend its reporting and filing obligations
under said Act until the Investors has disposed of all of its Registrable
Securities.
Legends.
The certificates evidencing the Registrable Securities shall be free of
legends, except as set forth in Article IX.
Corporate Existence.
The Company will take all steps necessary to preserve and continue the
corporate existence of the Company.
Consolidation; Merger. The Company shall not, at any time after the date hereof,
effect any merger or consolidation of the Company with or into, or a transfer of
all or substantially all of the assets of the Company to, another entity (a
"Consolidation Event") unless the resulting successor or acquiring entity (if
not the Company) assumes by written instrument or by operation of law the
obligation to deliver to the Investors such shares of stock and/or securities as
the Investors are entitled to receive pursuant to this Agreement.
Issuance of Convertible Preferred Stock and Warrant Shares.
The sale of the Convertible Preferred Stock and the issuance of the Warrant
Shares pursuant to exercise of the Warrants and the Conversion Shares upon
conversion of the Convertible Preferred Stock shall be made in accordance with
the provisions and requirements of Section 4(2) of Regulation D and any
applicable state securities law. The Company shall make any necessary SEC and
"blue sky" filings required to be made by the Company in connection with the
sale of the Securities to the Investors as required by all applicable Laws, and
shall provide a copy thereof to the Investors promptly after such filing.
<PAGE>
Limitation on Future Financing.
The Company agrees that it will not enter into any sale of its securities for
cash at a discount to Market Price until 120 days after the effective date of
the Registration Statement, without giving the Investors a pro-rata right of
first refusal to provide such financing, which the Investors must accept within
five (5) Trading Days, except (i) pursuant to any presently existing employee
benefit plan which plan has been approved by the Company's stockholders, (ii)
pursuant to any compensatory plan for a full-time employee or key consultant,
(iii) pursuant to any repricing of any existing warrants or options outstanding
on the Closing Date (but not to any exercise price below the closing bid price
of the Common Stock on the Principal Market on the date of such repricing, or
(iv) with the prior approval of a majority in interest of the Investors, which
will not be unreasonably withheld, in connection with a strategic partnership or
other business transaction, the principal purpose of which is not simply to
raise money.
Pro-Rata Redemption. The Company agrees that if it shall redeem any of the
Convertible Preferred Stock, that it shall make such redemption pro-rata among
all Investors in proportion their respective initial purchases of such
securities pursuant to this Agreement.
ARTICLE VII
Survival; Indemnification
Survival.
The representations, warranties and covenants made by each of the Company and
each Investor in this Agreement, the annexes, schedules and exhibits hereto and
in each instrument, agreement and certificate entered into and delivered by them
pursuant to this Agreement, shall survive the Closing and the consummation of
the transactions contemplated hereby. In the event of a breach or violation of
any of such representations, warranties or covenants, the party to whom such
representations, warranties or covenants have been made shall have all rights
and remedies for such breach or violation available to it under the provisions
of this Agreement or otherwise, whether at law or in equity, irrespective of any
investigation made by or on behalf of such party on or prior to the Closing
Date.
Indemnity.
(a) The Company hereby agrees to indemnify and hold harmless the Investors,
their respective Affiliates and their respective officers, directors, partners
and members (collectively, the "Investor Indemnitees"), from and against any and
all Damages, and agrees to reimburse the Investor Indemnitees for all reasonable
out-of-pocket expenses (including the reasonable fees and expenses of legal
counsel), in each case promptly as incurred by the Investor Indemnitees and to
the extent arising out of or in connection with:
(i) any misrepresentation, omission of fact or breach of any
of the Company's representations or warranties contained in this
Agreement, the annexes, schedules or exhibits hereto or any instrument,
agreement or certificate entered into or delivered by the Company
pursuant to this Agreement; or
(ii) any failure by the Company to perform in any material
respect any of its covenants, agreements, undertakings or obligations
set forth in this Agreement, the annexes, schedules or exhibits hereto
or any instrument, agreement or certificate entered into or delivered
by the Company pursuant to this Agreement.
(a) Each Investor, severally and not jointly hereby agrees to indemnify
and hold harmless the Company, its Affiliates and their respective officers,
directors, partners and members (collectively, the "Company Indemnitees"), from
and against any and all Damages, and agrees to reimburse the Company Indemnitees
for reasonable all out-of-pocket expenses (including the reasonable fees and
expenses of legal counsel), in each case promptly as incurred by the Company
Indemnitees and to the extent arising out of or in connection with:
<PAGE>
(i) any misrepresentation, omission of fact, or breach of any
of the Investor's representations or warranties contained in this
Agreement, the annexes, schedules or exhibits hereto or any instrument,
agreement or certificate entered into or delivered by the Investor
pursuant to this Agreement; or
(ii) any failure by the Investor to perform in any material
respect any of its covenants, agreements, undertakings or obligations
set forth in this Agreement or any instrument, certificate or agreement
entered into or delivered by the Investor pursuant to this Agreement.
Notice.
Promptly after receipt by either party hereto seeking indemnification pursuant
to Section 7.2 (an "Indemnified Party") of written notice of any investigation,
claim, proceeding or other action in respect of which indemnification is being
sought (each, a "Claim"), the Indemnified Party promptly shall notify the party
against whom indemnification pursuant to Section 7.2 is being sought (the
"Indemnifying Party") of the commencement thereof; but the omission to so notify
the Indemnifying Party shall not relieve it from any liability that it otherwise
may have to the Indemnified Party, except to the extent that the Indemnifying
Party is materially prejudiced and forfeits substantive rights and defenses by
reason of such failure. In connection with any Claim as to which both the
Indemnifying Party and the Indemnified Party are parties, the Indemnifying Party
shall be entitled to assume the defense thereof. Notwithstanding the assumption
of the defense of any Claim by the Indemnifying Party, the Indemnified Party
shall have the right to employ separate legal counsel and to participate in the
defense of such Claim, and the Indemnifying Party shall bear the reasonable
fees, out-of-pocket costs and expenses of such separate legal counsel to the
Indemnified Party if (and only if): (x) the Indemnifying Party shall have agreed
to pay such fees, out-of-pocket costs and expenses, (y) the Indemnified Party
and the Indemnifying Party reasonably shall have concluded that representation
of the Indemnified Party and the Indemnifying Party by the same legal counsel
would not be appropriate due to actual or, as reasonably determined by legal
counsel to the Indemnified Party, potentially differing interests between such
parties in the conduct of the defense of such Claim, or if there may be legal
defenses available to the Indemnified Party that are in addition to or disparate
from those available to the Indemnifying Party, or (z) the Indemnifying Party
shall have failed to employ legal counsel reasonably satisfactory to the
Indemnified Party within a reasonable period of time after notice of the
commencement of such Claim. If the Indemnified Party employs separate legal
counsel in circumstances other than as described in clauses (x), (y) or (z)
above, the fees, costs and expenses of such legal counsel shall be borne
exclusively by the Indemnified Party. Except as provided above, the Indemnifying
Party shall not, in connection with any Claim in the same jurisdiction, be
liable for the fees and expenses of more than one firm of legal counsel for the
Indemnified Party (together with appropriate local counsel). The Indemnifying
Party shall not, without the prior written consent of the Indemnified Party
(which consent shall not unreasonably be withheld), settle or compromise any
Claim or consent to the entry of any judgment that does not include an
unconditional release of the Indemnified Party from all liabilities with respect
to such Claim or judgment.
Direct Claims.
In the event one party hereunder should have a claim for indemnification that
does not involve a claim or demand being asserted by a third party, the
Indemnified Party promptly shall deliver notice of such claim to the
Indemnifying Party. If the Indemnified Party disputes the claim, such dispute
shall be resolved by mutual agreement of the Indemnified Party and the
Indemnifying Party or by binding arbitration conducted in accordance with the
procedures and rules of the American Arbitration Association as set forth in
Article X. Judgment upon any award rendered by any arbitrators may be entered in
any court having competent jurisdiction thereof.
<PAGE>
ARTICLE VIII
Due Diligence Review; Non-Disclosure of Non-Public Information.
Due Diligence Review.
Subject to Section 8.2, the Company shall make available for inspection and
review by the Investors, advisors to and representatives of the Investors (who
may or may not be affiliated with the Investors and who are reasonably
acceptable to the Company), any underwriter participating in any disposition of
the Registrable Securities on behalf of the Investors pursuant to the
Registration Statement, any such registration statement or amendment or
supplement thereto or any blue sky, Nasdaq or other filing, all SEC Documents
and other filings with the SEC, and all other publicly available corporate
documents and properties of the Company as may be reasonably necessary for the
purpose of such review, and cause the Company's officers, directors and
employees to supply all such publicly available information reasonably requested
by the Investors or any such representative, advisor or underwriter in
connection with such Registration Statement (including, without limitation, in
response to all questions and other inquiries reasonably made or submitted by
any of them), prior to and from time to time after the filing and effectiveness
of the Registration Statement for the sole purpose of enabling the Investors and
such representatives, advisors and underwriters and their respective accountants
and attorneys to conduct initial and ongoing due diligence with respect to the
Company and the accuracy of the Registration Statement.
Section VIII.2. Non-Disclosure of Non-Public Information.
(a) The Company shall not disclose material non-public information to
the Investors, advisors to or representatives of the Investors unless prior to
disclosure of such information the Company identifies such information as being
non-public information and provides the Investors, such advisors and
representatives with the opportunity to accept or refuse to accept such
non-public information for review. Other than disclosure of any comment letters
received from the SEC staff with respect to the Registration Statement, the
Company may, as a condition to disclosing any non-public information hereunder,
require the Investors' advisors and representatives to enter into a
confidentiality agreement in form reasonably satisfactory to the Company and the
Investors.
(b) Nothing herein shall require the Company to disclose material
non-public information to the Investors or their advisors or representatives,
and the Company represents that it does not disseminate material non-public
information to any investors who purchase stock in the Company in a public
offering, to money managers or to securities analysts, provided, however, that
notwithstanding anything herein to the contrary, the Company will, as
hereinabove provided, promptly notify the advisors and representatives of the
Investors and, if any, underwriters, of any event or the existence of any
circumstance (without any obligation to disclose the specific event or
circumstance) of which it becomes aware, constituting material non-public
information (whether or not requested of the Company specifically or generally
during the course of due diligence by such persons or entities), which, if not
disclosed in the prospectus included in the Registration Statement would cause
such prospectus to include a material misstatement or to omit a material fact
required to be stated therein in order to make the statements, therein in light
of the circumstances in which they were made, not misleading. Nothing contained
in this Section 8.2 shall be construed to mean that such persons or entities
other than the Investors (without the written consent of the Investors prior to
disclosure of such information as set forth in Section 8.2(a)) may not obtain
non-public information in the course of conducting due diligence in accordance
with the terms of this Agreement and nothing herein shall prevent any such
persons or entities from notifying the Company of their opinion that based on
such due diligence by such persons or entities, that the Registration Statement
contains an untrue statement of a material fact or omits a material fact
required to be stated in the Registration Statement or necessary to make the
statements contained therein, in light of the circumstances in which they were
made, not misleading.
<PAGE>
ARTICLE IX
Legends; Transfer Agent Instructions
Legends.
Unless otherwise provided below, each certificate representing Registrable
Securities will bear the following legend or equivalent (the "Legend"):
THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE
U.S. SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR ANY OTHER
APPLICABLE SECURITIES LAWS AND HAVE BEEN ISSUED IN RELIANCE UPON AN EXEMPTION
FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND SUCH OTHER
SECURITIES LAWS. NEITHER THIS SECURITY NOR ANY INTEREST OR PARTICIPATION HEREIN
MAY BE REOFFERED, SOLD, ASSIGNED, TRANSFERRED, PLEDGED, ENCUMBERED, HYPOTHECATED
OR OTHERWISE DISPOSED OF, EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OR PURSUANT TO A TRANSACTION THAT IS EXEMPT FROM, OR
NOT SUBJECT TO, SUCH REGISTRATION.
Transfer Agent Instructions. Upon the execution and delivery hereof, the Company
is issuing to the transfer agent for its Common Stock (and to any substitute or
replacement transfer agent for its Common Stock upon the Company's appointment
of any such substitute or replacement transfer agent) instructions in
substantially the form of Exhibit F hereto. Such instructions shall be
irrevocable by the Company from and after the date hereof or from and after the
issuance thereof to any such substitute or replacement transfer agent, as the
case may be, except as otherwise expressly provided in the Registration Rights
Agreement.
No Other Legend or Stock Transfer Restrictions.
No legend other than the one specified in Section 9.1 has been or shall be
placed on the share certificates representing the Registrable Securities and no
instructions or "stop transfer orders," so called, "stock transfer
restrictions," or other restrictions have been or shall be given to the
Company's transfer agent with respect thereto other than as expressly set forth
in this Article IX.
Investors' Compliance.
Nothing in this Article shall affect in any way each Investor's obligations
under any agreement to comply with all applicable securities laws upon resale of
the Common Stock.
<PAGE>
ARTICLE X
Choice of Law
Governing Law/Arbitration.
This Agreement shall be governed by and construed in accordance with the laws
of the State of New York applicable to contracts made in New York by persons
domiciled in New York City and without regard to its principles of conflicts of
laws. Any dispute under this Agreement or any Exhibit attached hereto shall be
submitted to arbitration under the American Arbitration Association (the "AAA")
in New York City, New York, and shall be finally and conclusively determined by
the decision of a board of arbitration consisting of three (3) members
(hereinafter referred to as the "Board of Arbitration") selected as according to
the rules governing the AAA. The Board of Arbitration shall meet on consecutive
business days in New York City, New York, and shall reach and render a decision
in writing (concurred in by a majority of the members of the Board of
Arbitration) with respect to the amount, if any, which the losing party is
required to pay to the other party in respect of a claim filed. In connection
with rendering its decisions, the Board of Arbitration shall adopt and follow
the laws of the State of New York. To the extent practical, decisions of the
Board of Arbitration shall be rendered no more than thirty (30) calendar days
following commencement of proceedings with respect thereto. The Board of
Arbitration shall cause its written decision to be delivered to all parties
involved in the dispute. Any decision made by the Board of Arbitration (either
prior to or after the expiration of such thirty (30) calendar day period) shall
be final, binding and conclusive on the parties to the dispute, and entitled to
be enforced to the fullest extent permitted by law and entered in any court of
competent jurisdiction. The Board of Arbitration shall be authorized and is
hereby directed to enter a default judgment against any party failing to
participate in any proceeding hereunder within the time periods set forth in the
AAA rules. The non-prevailing party to any arbitration (as determined by the
Board of Arbitration) shall pay the expenses of the prevailing party including
reasonable attorney's fees, in connection with such arbitration. Any party shall
be entitled to obtain injunctive relief from a court in an appropriate case.
ARTICLE XI
Assignment
Assignment.
Neither this Agreement nor any rights of the Investors or the Company
hereunder may be assigned by either party to any other person. Notwithstanding
the foregoing, (a) the provisions of this Agreement shall inure to the benefit
of, and be enforceable by, any permitted transferee of any of the Convertible
Preferred Stock or Warrants purchased or acquired by any Investor hereunder with
respect to the Convertible Preferred Stock or Warrants held by such person, and
(b) upon the prior written consent of the Company, which consent shall not
unreasonably be withheld or delayed, each Investor's interest in this Agreement
may be assigned at any time, in whole or in part, to any other person or entity
(including any affiliate of the Investor) who agrees to make the representations
and warranties contained in Article III and who agrees to be bound by the terms
of this Agreement.
ARTICLE XII
Notices
Notices.
All notices, demands, requests, consents, approvals, and other communications
required or permitted hereunder shall be in writing and, unless otherwise
specified herein, shall be (i) personally served, (ii) deposited in the mail,
registered or certified, return receipt requested, postage prepaid, (iii)
delivered by reputable air courier service with charges prepaid, or (iv)
transmitted by hand delivery, telegram, or facsimile, addressed as set forth
below or to such other address as such party shall have specified most recently
by written notice. Any notice or other communication required or permitted to be
given hereunder shall be deemed effective (a) upon hand delivery or delivery by
facsimile, with accurate confirmation generated by the transmitting facsimile
machine, at the address or number designated below (if delivered on a business
day during normal business hours where such notice is to be received), or the
first business day following such delivery (if delivered other than on a
business day during normal business hours where such notice is to be received)
or (b) on the second business day following the date of mailing by reputable
courier service, fully prepaid, addressed to such address, or upon actual
receipt of such mailing, whichever shall first occur. The addresses for such
communications shall be:
<PAGE>
If to the Company: Pen Interconnect, Inc.
1601 Alton Parkway
Irvine, CA 92606
Attention: Stephen J. Fryer, President
Telephone: (949) 261-3118
Facsimile: (949) 261-3199
if to the Investors: As set forth on the signature pages hereto
with a copy to: Joseph A. Smith, Esq.
(shall not constitute notice) Epstein Becker & Green, P.C.
250 Park Avenue
New York, New York
Telephone: (212) 351-4500
Facsimile: (212) 661-0989
Either party hereto may from time to time change its address or facsimile number
for notices under this Section 12.1 by giving written notice of such changed
address or facsimile number to the other party hereto as provided in this
Section 12.1.
ARTICLE XIII
Miscellaneous
Counterparts/ Facsimile/ Amendments.
This Agreement may be executed in multiple counterparts, each of which may be
executed by less than all of the parties and shall be deemed to be an original
instrument which shall be enforceable against the parties actually executing
such counterparts and all of which together shall constitute one and the same
instrument. Except as otherwise stated herein, in lieu of the original
documents, a facsimile transmission or copy of the original documents shall be
as effective and enforceable as the original. This Agreement may be amended only
by a writing executed by all parties.
Entire Agreement.
This Agreement, the agreements attached as Exhibits hereto, which include, but
are not limited to the Convertible Preferred Stock, the Warrants, the Escrow
Agreement, and the Registration Rights Agreement, set forth the entire agreement
and understanding of the parties relating to the subject matter hereof and
supersedes all prior and contemporaneous agreements, negotiations and
understandings between the parties, both oral and written relating to the
subject matter hereof. The terms and conditions of all Exhibits to this
Agreement are incorporated herein by this reference and shall constitute part of
this Agreement as is fully set forth herein.
Severability.
In the event that any provision of this Agreement becomes or is declared by a
court of competent jurisdiction to be illegal, unenforceable or void, this
Agreement shall continue in full force and effect without said provision;
provided that such severability shall be ineffective if it materially changes
the economic benefit of this Agreement to any party.
<PAGE>
Headings.
The headings used in this Agreement are used for convenience only and are not
to be considered in construing or interpreting this Agreement.
Reporting Entity for the Common Stock.
The reporting entity relied upon for the determination of the trading price or
trading volume of the Common Stock on any given Trading Day for the purposes of
this Agreement shall be Bloomberg, L.P. or any successor thereto. The written
mutual consent of the Investors and the Company shall be required to employ any
other reporting entity.
Replacement of Certificates.
Upon (i) receipt of evidence reasonably satisfactory to the Company of the
loss, theft, destruction or mutilation of a certificate representing the
Convertible Preferred Stock or any Conversion Shares or Warrants or any Warrant
Shares and (ii) in the case of any such loss, theft or destruction of such
certificate, upon delivery of an indemnity agreement or security reasonably
satisfactory in form and amount to the Company (which shall not exceed that
required by the Company's transfer agent in the ordinary course) or (iii) in the
case of any such mutilation, on surrender and cancellation of such certificate,
the Company at its expense will execute and deliver, in lieu thereof, a new
certificate of like tenor.
Fees and Expenses.
Each of the Company and the Investors agrees to pay its own expenses incident
to the performance of its obligations hereunder, except that the Company shall
pay the fees, expenses and disbursements of Epstein Becker & Green, P.C.,
counsel to the investors other than RBB Bank, in an amount equal to $10,000, all
as set forth in the Escrow Agreement.
<PAGE>
Brokerage.
Each of the parties hereto represents that it has had no dealings in
connection with this transaction with any finder or broker who will demand
payment of any fee or commission from the other party except for JWGenesis
Financial Services Corp., whose fee shall be paid by the Company. The Company on
the one hand, and the Investors, on the other hand, agree to indemnify the other
against and hold the other harmless from any and all liabilities to any person
claiming brokerage commissions or finder's fees on account of services purported
to have been rendered on behalf of the indemnifying party in connection with
this Agreement or the transactions contemplated hereby.
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be executed by the undersigned, thereunto duly authorized, as of
the date first set forth above.
PEN INTERCONNECT, INC.
By: /s/Stephen Fryer
Stephen Fryer, President
Address: Investor: Austost Anstalt Schaan, $250,000
Fax: By:/s/Austost Anstalt Schaan
Name:
Authorized Signatory
Address: Investor: Balmore Funds, S.A., $250,000
Fax: By: /s/Balmore Funds, S.A.
Name:
Authorized Signatory
Address: c/o Ultra Finanz Investor: AMRO International, S.A., $500,000
Grossmunster Platz 26
Zurich CH 8022, Switzerland
Fax: 011-411-262-5515 By:/s/H.U. Bachofen
Name: H.U. Bachofen, Director
Address: Investor: RBB Bank AG, $800,000
Fax: By:/s/Herbert Strauss
Herbert Strauss, Head Trader
<PAGE>
DISCLOSURE SCHEDULE TO0
Convertible Preferred Stock and Warrant Purchase Agreement by and between
RBB Bank AG, Austost Anstalt Schaan, Balmore Funds, S.A.,
and AMRO International, S.A. and Pen Interconnect, Inc.,
(the "Company"), dated as of February 4, 1999 (the "Agreement")
Numbers refer to the relevant sections of the Purchase Agreement
4.4) The Company has received notifications from The Nasdaq Stock Market
questioning whether the Company meets the market capitalization and net
tangible asset requirements for continued listing on The Nasdaq Stock
Market and can generally continue in compliance with all continued
listing standards. The Company has requested an oral hearing to
demonstrate compliance with or request temporary exceptions from the
listing requirements. This oral hearing is scheduled for February 26,
1999.
4.5) Since September 30, 1998, the Company has constantly varying balances
on its principal bank financing with FINOVA and has continued to incur
material operating losses.
4.10) See 4.4 and 4.5.
4.13) YC International, Inc., a California corporation., d/b/a Yamada
International Corporation vs. Pen Interconnect, Inc., a Utah
corporation, Case #990200093DC before the 3rd Judicial District Court,
Salt Lake County, State of Utah, Murray Dept. claims $79,309.52 for
goods sold to the Company plus accrued interest. An answer is due
2/12/99 and the Company is involved in settlement discussions.
4.15(i) See 4.4 and 4.5. Also, the Company is in the process of closing the
sale of its Salt Lake City-based MOTOSAT division to James Pendleton
and affiliates. The letter of intent for this sale was previously
announced to the public but, as of the date of the Purchase Agreement,
the Company had not made any announcements relating to the closing.
