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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): November 12, 1996
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TMCI Electronics, Inc.
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(Exact name of registrant as specified in its charter)
Delaware 0-27510 77-0413814
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(State or other jurisdiction (Commission (IRS Employer
of incorporation) File Number) Identification No.)
1875 Dobbin Drive, San Jose, CA 95133
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including are code: 408-272-5700
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ITEM 2. ACQUISITION OF ASSETS
On November 12, 1996, Touche Electronics, Inc. ("TEI"), a wholly owned
subsidiary of TMCI Electronics, Inc. ("TMCI"), acquired the net assets (accounts
receivable, inventory, and capital equipment) of the San Jose based Division
from Pen Interconnect, Inc.("PII"). The effective date of the acquisition is
November 1, 1996. TEI will account for the acquisition as a purchase.
On November 12, TEI paid PII $3.3 million, which includes $2.0 million
in cash and two prime +.5% Promissory Notes in the principal amounts of $500
thousand and $400 thousand, respectively, along with the issuance of common
stock valued at $400 thousand to PII. TEI supplied the remaining funds from the
initial public offering (IPO) as the cash consideration. TMCI and TEI will,
collectively, pay the Promissory Notes over a 48 and 24 month amortized period,
respectively.
PII's San Jose Division is a wire cable and harness manufacturer,
producing different types of cable and harness that are used by TEI and other
subcontractors in the production of original equipment manufacturer (OEM)
products. TEI intends to continue such business, by incorporating it into its
wholly owned subsidiary, TEI as a Division.
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL FORMATION AND EXHIBITS
(a) and (b). The financial statements and pro forma financial
information are not filed as required as part of this 8-K Report, because such
financial statements are not available, but shall be filed not later than 60
days from the date of this report as an amendment.
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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 hereunto duly authorized.
TMCI Electronics, Inc.
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(Registrant)
Date: November 27, 1996 /s/ Charles E. Shaw
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Charles E. Shaw
Vice President - Chief Financial Officer
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EXHIBIT INDEX
Exhibit 1. Asset Purchase Agreement
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EXHIBIT 1
ASSET PURCHASE AGREEMENT
THIS ASSET PURCHASE AGREEMENT ("Agreement"), dated as of 12:01 a.m.,
November 1, 1996, by and among PEN INTERCONNECT, INC., a Utah corporation
("Company"), as seller, and TOUCHE ELECTRONICS, INC., a California corporation
("Purchaser"), as purchaser and TMCI ELECTRONICS, INC., a Delaware corporation
("TMCI").
RECITALS:
WHEREAS, the Company wishes to sell to Purchaser, and Purchaser wishes
to purchase from the Company all of the assets and business of the Company
related to or used in connection with its San Jose division ("Division"), upon
the terms, conditions and provisions hereinafter set forth; and
WHEREAS, Purchaser is the wholly-owned subsidiary of TMCI.
NOW, THEREFORE, in consideration of the mutual terms, conditions and
other AGREEMENTS set forth herein, Purchaser, TMCI and THE Company hereby agree
as follows:
ARTICLE I
DEFINITIONS
1.1 Certain Definitions. As used in this Agreement, the following terms
have the following meanings unless the context otherwise requires:
"Accounts Receivable" has the meaning specified in Section 2.1(k).
"Act" has the meaning specified in Section 3.19.
"Action or Proceeding" means any action, suit, proceeding, claim
pending or filed or arbitration by any Person or any investigation or audit by
any Governmental or Regulatory Body.
"Additional Common Stock" has the meaning specified in Section 2.5.
"Affiliate" with respect to any Person, means any other Person
controlling, controlled by or under common control with such Person, except that
the Purchaser, TMCI and the Company shall not be deemed to be affiliates of each
other after the Closing.
"Agreement" means this Asset Purchase Agreement.
"Assets" has the meaning specified in Section 2.1.
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"Assignable Contracts" has the meaning specified in Section 2.1(c).
"Assignment and Assumption Agreement" has the meaning specified in
Section 5.1(g).
"Associate" means, with respect to any Person, any corporation or other
business organization of which such Person is an officer or partner or is the
beneficial owner, directly or indirectly, of ten percent (10%) or more of any
class of equity securities, any trust or estate in which such Person has a
substantial beneficial interest or as to which such Person serves as a trustee
or in a similar capacity and any relative or spouse of such Person, or any
relative of such spouse, who has the same home as such Person or any child or
sibling of such Person or such Person's spouse.
"Assumed Liabilities" has the meaning specified in Section 2.2.
"Benefits" has the meaning specified in Section 6.5(c)(ii).
"Bentley" has the meaning specified in Section 4.5.
"best knowledge", "knowledge" or words to that effect shall mean, as to
any Person, to the best knowledge of such Person after due inquiry and
investigation.
"Books and Records" of any Person means all files, documents,
instruments, papers, books and records relating to the business, operations,
conditions of (financial or other), results of operations and assets and
properties of such Person, including without limitation, financial statements,
Tax Returns and related work papers and letters from accountants, budgets,
pricing guidelines, ledgers, journals, deeds, title policies, minute books,
stock certificates and books, stock transfer ledgers, contracts and other
agreements, licenses, customer lists, computer files and programs, retrieval
programs, operating data and plans and environmental studies and plans.
"Bulk Sales or Transfer Laws" means Sections 6101 et seq. of the
Uniform Commercial Code as adopted by the State of California.
"Business Day" means those days as defined in California Civil Code
Section 9.
"Business" has the meaning specified in Section 2.1.
"Cash Payment" has the meaning specified in Section 2.4(a).
"Claim" has the meaning specified in Section 2.6.
"Claim Notice" has the meaning specified in Section 7.4(a).
"Closing" has the meaning specified in Section 2.8.
"Closing Date" has the meaning specified in Section 2.8.
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"Code" means the Internal Revenue Code of 1986, as amended.
"Common Stock" has the meaning specified in Section 2.4(a).
"Company" has the meaning specified in the first paragraph of this
Agreement.
"Company Plan" means each "employee benefit plan" (within the meaning
of Section 3(3) of the Employee Retirement Income Security Act of 1974, as
amended ("ERISA")) and each other policy, arrangement or practice that either
covers any employee of the Company or is maintained by the Company with respect
to which the Company makes or has an obligation to make contributions in
connection with the Business.
"Company's Restrictive Covenants" has the meaning specified in Section
6.5(c).
"Company's Restricted Customers" has the meaning specified in Section
6.5(b)(i).
"Confidential Company Information" has the meaning specified in Section
6.5(b)(ii).
"Contracts and other Agreements" means all executory contracts,
agreements, understandings, indentures, notes, bonds, loans, instruments,
leases, mortgages, franchises, licenses, commitments or other legally binding
arrangements which pertain to the Division or the Business.
"Delivery Date" has the meaning specified in Section 2.6.
"Division" has the meaning specified in the Recitals.
"document or other papers" means any document, agreement, instrument,
certificate, notice, consent, affidavit, letter, telegram, telex, statement,
schedule (including any Schedule to this Agreement) or exhibit (including any
Exhibit to this Agreement).
"Environmental, Health and Safety Laws" means the Comprehensive
Environmental Response, Compensation and Liability Act of 1980, the Resource
Conservation and Recovery Act of 1976, and the Occupational Safety and Health
Act of 1970, each as amended, together with all other laws (including rules,
regulations, codes, plans, injunctions, judgments, orders, decrees, rulings, and
charges thereunder) of federal, state, local, and foreign governments (and all
agencies thereof) concerning pollution or protection of the environment, public
health and safety, or employee health and safety, including laws relating to
emissions, discharges, releases, or threatened releases of pollutants,
contaminants, or chemical, industrial, hazardous, or toxic materials or wastes
into ambient air, surface water, ground water, or lands or otherwise relating to
the manufacture, processing, distribution, use, treatment, storage, disposal,
transport, or handling of pollutants, contaminants, or chemical, industrial,
hazardous, or toxic materials or wastes.
"Extremely Hazardous Substance" has the meaning set forth in Sec. 302
of the Emergency Planning and Community Right-to-Know Act of 1986, as amended.
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"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"ERISA Affiliate" means each entity required to be aggregated with the
Company under Section 414(b), (c), (m) or (o) of the Code or Section 4001 of
ERISA.
"Escrow Agents" has the meaning specified in Section 2.6.
"GAAP" means generally accepted accounting principles.
"Governmental or Regulatory Body" means court, tribunal, arbitrator or
any government or political subdivision thereof, whether federal, state, county,
local or foreign, or any agency, authority, official or instrumentality of any
such government or political subdivision.
"Guaranty" has the meaning specified in Section 2.4(c).
"Holdback Stock" has the meaning specified in Section 2.6.
"Inventory" has the meaning specified in Section 2.1(d).
"Investor Rights Agreement" has the meaning specified in Section 3.19.
"Indemnified Party" has the meaning specified in Section 7.4.
"Indemnifying Party" has the meaning specified in Section 7.4.
"Intellectual Property" has the meaning specified in Section 2.1(a).
"IRS" means the Internal Revenue Service.
"Law" means any law, statute, rule, regulation, ordinance and other
pronouncement having the effect of law of the United States, any foreign country
or any domestic or foreign state, county, city or other political subdivision or
of any Governmental or Regulatory Body.
"Liability" or "Liabilities" means any direct or indirect indebtedness,
liability, claim, loss, damage, deficiency, obligation or responsibility, fixed
or unfixed, choate or inchoate, liquidated or unliquidated, secured or
unsecured, accrued, absolute, contingent or otherwise.
"Lien" means any lien, pledge, hypothecation, mortgage, security
interest, claim, lease, charge, option, right of first refusal, easement,
servitude, transfer restriction under any stockholder or similar agreement,
encumbrance or any other restriction or limitation whatsoever.
"Loss" or "Losses" has the meaning specified in Section 7.2.
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"Market Price" means with respect to the date of determination, the
average of the last reported sale price of one share of TMCI's Common Stock, par
value $0.001, for the twenty (20) trading days immediately preceding the date of
determination.
"Material Adverse Effect" means, in the case of any Person, any change
or changes or effect or effects that individually or in the aggregate are or may
reasonably be expected to be materially adverse to (i) the assets, properties,
business, operations, income, prospects or condition (financial or otherwise) of
such Person or the transactions contemplated by this Agreement or (ii) the
ability of such Person to perform its obligations under this Agreement.
"Material Contracts" means:
(a) The Assignable Contracts;
(b) Contracts and other Agreements with any current or former employee,
consultant, agent, other representative of the Business;
(c) Contracts or other Agreements for the sale, distribution or license
of any of the Assets or for the grant to any Person of any preferential rights
to purchase any of the Assets;
(d) Contracts and other Agreements under which the Company agrees to
indemnify any Person for use of the Assets;
(e) Contracts and other Agreements relating to the creation of Liens on
any of the Assets; and
(f) Contracts and other Agreements for the sale or lease of Tangible
Property.
"Order" means any writ, judgment, decree, injunction or similar order
of any Governmental or Regulatory Body, in each case whether preliminary or
final.
"Person" means any individual, corporation, partnership, limited
liability company, firm, joint venture, association, joint-stock company, trust,
unincorporated organization, Governmental or Regulatory Body or other entity.
"Promissory Notes" has the meaning specified in Section 2.4(a).
"Purchase Price" has the meaning specified in Section 2.4(a).
"Purchaser" has the meaning specified in the first paragraph of this
Agreement.
"Purchaser's Restricted Customers" has the meaning specified in Section
6.5(a).
"Records" has the meaning specified in Section 2.1(h).
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"Restricted Area" has the meaning specified in Section 6.5(a).
"Restricted Period" has the meaning specified in Section 6.5(a).
"Restricted Products" has the meaning specified in Section 6.5(a).
"Restrictive Covenants" has the meaning specified in Section 6.5(e).
"Sale Completion Date" has the meaning specified in Section 2.5.
"Sale Proceeds" means the proceeds, net of brokerage commissions, from
the sale of the Common Stock by the Company pursuant to the Investor Rights
Agreement.
"Second Anniversary Date" has the meaning specified in Section 2.5.
"Security Agreement" has the meaning specified in Section 2.4(c).
"Shortfall Amount" means the amount (if any) of four hundred thousand
dollars ($400,000) subject to adjustment as provided in Section 2.7 over (i) the
Sale Proceeds, if the Holdback Stock is sold under a registration statement
pursuant to the Investor Rights Agreement, or (ii) otherwise, the value of the
Holdback Stock determined by multiplying number of shares of Holdback Stock by
the Market Price on the Second Anniversary Date.
"Tangible Property" has the meaning specified in Section 3.11.
"Tax Return" means any return, report, information return, or other
document (including any related or supporting information) filed or required to
be filed with any federal, state, local or foreign governmental entity or other
authority in connection with the determination, assessment or collection of any
Tax (whether or not such Tax is imposed on the Company) or the administration of
any laws, regulations or administrative requirements relating to any Tax.
"Tax" and "Taxes" means all taxes, charges, fees, levies or other
assessments imposed by any federal, state, local or foreign taxing authority,
whether disputed or not, including, without limitation, income, capital,
estimated, excise, property, sales, use, transfer, withholding employment,
payroll, and franchise taxes and such terms shall include any interest,
penalties or additions attributable to or imposed on or with respect to such
assessments.
"TMCI" has the meaning specified in the first paragraph of this
Agreement.
"TMCI's Restrictive Covenants" has the meaning specified in Section
6.5(d).
"Transfer Taxes" has the meaning specified in Section 6.3.
"Unaudited Financial Statements" has the meaning specified in Section
3.6.
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ARTICLE II
ACQUISITION OF THE ASSETS;
ASSUMED LIABILITIES AND PURCHASE PRICE
2.1 Purchase of the Assets. On the terms and subject to the conditions
set forth in this Agreement, the Company hereby sells, transfers, assigns,
conveys and delivers to Purchaser, and Purchaser hereby purchases, acquires and
accepts from the Company, all of the right, title and interest of the Company in
and to all of the assets (excluding intercompany and cash accounts), properties
and rights owned by the Company, and which either (a) are used primarily by the
Company in the business and operations of the Division as such business is
conducted on the date hereof ("Business"), or (b) are held at the primary
location of the Business, except as set forth in Section 2.1(1), both tangible
and intangible, free and clear of any Liens (the foregoing are hereinafter
collectively referred to as the "Assets"). The Assets include, without
limitation, all of the right, title and interest of the Company in or to the
following:
(a) Intellectual Property. Except as set forth in Section 6.5(b),
all intellectual property rights used or held for use in the conduct of the
Business (including the Division's goodwill therein) and all rights, privileges,
claims, causes of action and options relating to the Business or its assets or
properties, including but not limited to trademarks, copyrights, whether or not
registered, applied for, or under common law, and internet domain registrations,
if any, trade names, service marks, goodwill, trade secrets (including the
property defined as "trade secrets" in the California Uniform Trade Secrets
Act), know-how, manufacturing methods, engineering drawings and specifications,
inventions, patents or patents pending, if any, or improvements thereto (whether
or not patentable or reduced to practice) and all other proprietary information
used in the conduct of the Business (the "Intellectual Property"), as set forth
in Schedule 2.1(a), including, but not limited to, all trademarks and
servicemarks used in or useful to, the Business and any registered copyrights or
patents. Notwithstanding anything to the contrary contained herein, neither
Purchaser nor TMCI shall have any right to the name "Pen Interconnect" or any
derivative thereof;
(b) IP Licenses. All licenses, sublicenses and other agreements
used in the Business under which the Company is a licensor or licensee of any
Intellectual Property (the "IP Licenses"), as set forth on Schedule 2.1(b);
(c) Assignable Contracts. All of the contracts and other agreements
used in the Business to which the Company is a party and which are utilized in
the conduct of the Business, as set forth on Schedule 2.1(c) (the "Assignable
Contracts");
(d) Inventory. All inventories or work-in-process, finished goods,
merchandise, demonstration equipment, office and other supplies, parts,
packaging materials, advertising materials and other accessories related thereto
which is otherwise used or held for use by the Division or in the conduct of the
Business, which are held at, or are in transit from or to, the locations at
which the Business is conducted or including any of the foregoing purchased
subject to any conditional sales or title retention agreement in favor
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of any other Person, together with all rights of the Company against suppliers
of such inventories (the "Inventory"), all as set forth on Schedule 2.1(d);
(e) Tangible Personal Property. In addition to the Inventory
separately described above, all furniture, fixtures, equipment, tooling, molds,
and dyes, machinery and other tangible personal property used or held primarily
for use in the conduct of the Business or which are held at the primary location
at which the Business is conducted, including those located at suppliers'
premises or customers' premises on consignment, or otherwise used or held for
use by the Company in the conduct of the Business, including any of the
foregoing purchased, all as set forth on Schedule 2.1(e);
(f) Warranties. All rights of the Company under or pursuant to all
warranties, representations and guarantees made by suppliers, manufacturers or
contractors in connection with products sold to or services provided to the
Company for the Division or the Business, or affecting the IP Licenses,
property, machinery or equipment used in the conduct of the Business;
(g) Telephone Numbers and E Mail Accounts. All rights in and to the
telephone numbers and E Mail accounts of the Division, subject to the
regulations of the California Public Utilities Commission;
(h) Books and Records. All books, records and information or copies
thereof relating to the Assets or the Business except for records pertaining to
employees or consultants not employed or retained by the Company or the Division
on November 1, 1996 (the "Records")
(i) Advertising. All customer and market record referral data and
materials, and all advertising and promotional literature and material relating
to the Assets, including without limitation, catalogs, brochures, pamphlets, art
work and printing plates;
(j) Customer List. Subject to the restrictions of Section 6.5(b),
the list of all of the past and current customers of the Division;
(k) Accounts Receivable. All accounts receivable of the Division
including, without limitation, those set forth on Schedule 2.1(k) ("Accounts
Receivable"); and
(l) Other Assets. Any and all other assets used primarily in
connection with the operation of the Business or which are held at the primary
location of the Business, as set forth on Schedule 2.1(1)(1) except for those
assets set forth on Schedule 2.1(1)(2).
2.2 Assumed Liabilities. Subject to the terms and conditions set forth
herein, Purchaser hereby assumes those liabilities of the Company set forth on
Schedule 2.2 and agrees to perform and discharge promptly and fully when due all
of the outstanding obligations of the Company under the Assignable Contracts as
listed in Schedule 2.1(c) arising and to be performed on or after the Closing
Date (collectively, the "Assumed Liabilities"). In the event of any claim
against Purchaser with respect to any of the Assumed Liabilities hereunder,
Purchaser shall have, and the Company hereby assigns to
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Purchaser, any defense, counterclaim, or right of set off which would have been
available to the Company if such claim had been asserted against the Company.
The Company agrees to cooperate with Purchaser in the defense of any such claim
against Purchaser, provided that Purchaser shall be obligated to reimburse the
Company for out-of-pocket expenses incurred by it in cooperating with Purchaser.
2.3 Liabilities Not Assumed. Except for the Assumed Liabilities,
Purchaser does not assume nor have any responsibility for or with respect to,
nor have any duty under any other obligation, debt, agreement or Liability of
the Company.
2.4 Purchase Price.
(a) Subject to adjustment as provided herein and in addition to the
Assumed Liabilities, the purchase price (the "Purchase Price") for the Assets to
be purchased by Purchaser from the Company hereunder shall be a total of four
million dollars ($4,000,000) payable at Closing as follows: (i) two million
dollars ($2,000,000) to be a cash payment (the "Cash Payment"), (ii) a
promissory note in the face amount of five hundred thousand dollars ($500,000)
in substantially the form of Exhibit "A", (iii) a promissory note in the face
amount of four hundred thousand dollars ($400,000) in substantially the form of
Exhibit "B", and (iv) the issuance by TMCI to the Company of fifty three
thousand six hundred sixty-nine (53,669) shares of its common stock, par value
$0.001 per share ("Holdback Stock"; (v) the issuance by TMCI to the Company of
eighty thousand five hundred three (80,503) shares of its common stock, par
value $.001 per share, subject to the terms and conditions of the Earn Out
Agreement in substantially the form of Exhibit "C" hereto and (vi) the right of
the Company to receive up to one hundred thousand dollars ($100,000) pursuant to
Section 2.7 hereof. The TMCI common stock delivered to the Company pursuant to
(iv) and (v) herein is collectively referred to as the "Common Stock". The
number of shares of Common Stock to be delivered to the Company at Closing is
determined by dividing one million dollars ($1,000,000) by $7.4532, which is the
average of the last reported sale price of one share of TMCI's common stock for
the twenty (20) trading days immediately preceding November 1, 1996. Any
fraction of a share resulting therefrom will be remitted to the Company in cash
and no fractional shares shall be issued. The promissory notes referred to in
(ii) and (iii) above are collectively referred to as the "Promissory Notes."
(b) The Cash Payment shall be paid to the Company by Purchaser on
the Closing Date by delivery of certified funds or by wire transfer of
immediately available funds to an account designated by the Company.
(c) The payment of the Promissory Notes will be secured by the
Assets, as evidenced by a Security Agreement in substantially the form of
Exhibit "D" ("Security Agreement"), and the personal guaranty of Rolando Loera,
the president of Purchaser in substantially the form of Exhibit "E"
("Guaranty").
2.5 Additional Consideration. Within ten business days after the second
anniversary of the issuance of the Holdback Stock (as defined below) to the
Company ("Second Anniversary Date"), or if the Holdback Stock is sold pursuant
to the Investor
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Rights Agreement, within thirty (30) days following the date of the completion
of such sale (the "SALE COMPLETION DATE"), Purchaser shall deliver to the
Company a sum of cash equal to the Shortfall Amount, provided that Purchaser
may, at its sole option, pay all or any portion of the Shortfall Amount by the
delivery of a number of additional shares of TMCI's common stock (the
"Additional Common Stock") equal to the Shortfall Amount (or portion thereof),
if any, divided by (x) the Market Price on the Second Anniversary Date if the
Additional Common Stock is delivered pursuant to this Section 2.5, or (y) the
Market Price on the Sale Completion Date if the Additional Common Stock is
delivered pursuant to a sale of the Holdback Stock under the Investor Rights
Agreement. Any Additional Common Stock which is delivered to Pen pursuant to a
sale of the Holdback Stock under the Investor Rights Agreement will be
"unregistered" securities under the Act.
2.6 Common Stock Holdback. As security for the Company's
representations and warranties in Article III and the Company's indemnification
obligations in Article VII, Purchaser shall deliver the Holdback Stock to an
escrow account (the "Escrow Account") in which Parsons Behle & Latimer will
serve as escrow agent (the "Escrow Agent"). Subject to any reductions in the
amount of the Holdback Stock pursuant to this Section 2.6, the Holdback Stock
shall be released to the Company on the earlier of (i) the date which is one (1)
year after the Closing Date, or (ii) the effective date of a registration
statement with the United States Securities and Exchange Commission (the
"Delivery Date"), except to the extent there is any claim pending under this
Section 2.6 on any amount of such Holdback Stock. To be entitled to
reimbursement under this Section 2.6, Purchaser must comply with the provisions
of this Section, but compliance with this section will not relieve Purchaser of
its obligations to comply with the provisions of Article VII hereof.
(a) Delivery of Notice. Purchaser shall provide notice to the
Company within thirty (30) days of the discovery of any breach of the
representations and warranties contained in Article III or the indemnities set
forth in Article VII, and such notice shall detail (i) the nature and amount of
any such breach, (ii) the Purchaser's right to indemnification from the Company
and (iii) the nature and amount of a cure acceptable to the Purchaser (the
"Claim").
(b) Company's Right to Object. The Company shall have twenty (20)
days from the date of its receipt of any notice under Section 2.6(a) to deliver
a written objection to such Claim to Purchaser and the Escrow Agents. If the
Company does not object to the Claim within such time, then it shall have twenty
(20) days, after expiration of the initial twenty (20) day period, to satisfy
the Claim and notify Purchaser that the Claim is satisfied, without reduction in
the amount of the Holdback Stock. Purchaser shall, thereafter, notify the
Company that it approves or does not approve the Company's satisfaction of the
Claim, which approval shall not be unreasonably withheld.
(c) Procedure to Arbitrate Disputes. If the Company objects to the
Claim pursuant to Section 2.6(b), or if Purchaser does not approve the Company's
satisfaction of a Claim, then the parties shall have sixty (60) days to
negotiate a satisfactory settlement of the Claim. Such sixty (60) days shall be
measured from the time that either (i) Purchaser receives the Company's
objection to the Claim, or (ii) Purchaser notifies the Company that it does not
approve the Company's satisfaction of the Claim. If the parties are unable to
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negotiate a satisfactory settlement of their dispute regarding any Claim within
sixty (60) days, then either party may submit the dispute to arbitration in
accordance with Section 8.15 hereof.
(d) Reduction of the Amount of Holdback Stock. If it is ultimately
determined that the Company is indebted to Purchaser under this Section 2.6,
then the Escrow Agents shall, upon receipt of instructions from an appropriate
officer of the Company, release, and deliver to Purchaser, the number of shares
of the Holdback Stock equal in value to the dollar amount of the indebtedness.
The number of shares shall be determined by dividing the amount of the
indebtedness by the average of the last reported sales price of one share of the
Common Stock for the twenty (20) trading days immediately prior to the date that
Purchaser became entitled to recover under this Section 2.6.
(e) Close of Escrow/Escrow Instructions. The escrow created hereby
shall close on the earlier of (i) the Delivery Date, or (ii) the date that the
number of shares of Holdback Stock is reduced to zero. The parties shall prepare
escrow instructions and deliver them to the Escrow Agents. The escrow
instructions shall provide, at a minimum, that none of the Holdback Stock shall
be released from escrow prior to the Delivery Date unless both Escrow Agents
authorize such release in writing. The instructions shall also require the
Escrow Agents to deliver the Holdback Stock, or the remaining portion thereof,
to the Company on the Delivery Date.
2.7 Additional Stock for Collection of Accounts Receivable. Purchaser
will deliver to the Company .13417 shares of its common stock ("Additional
Stock") for every $1.00 of the Division's past due over 120 days accounts
receivable as of October 31, 1996 collected by the Purchaser and the Company
jointly within one hundred eighty (180) days of the Closing Date, up to a
maximum of thirteen thousand four hundred seventeen (13,417) shares of stock.
Purchaser and the Company agree to use practices consistent with their ordinary
business practices in collecting the past due over 120 days accounts receivable
of the Division as set forth on Schedule 2.1(k). The parties acknowledge that as
of October 31, 1996 the past due over 120 days accounts receivable is in the
amount of $272,427. The certificate representing the stock to be issued to the
Company pursuant to this Section 2.7 will be delivered to the Company by
Purchaser within 30 days after the expiration of the period during which
Purchaser may collect the past due over 120 days accounts receivable. Such stock
shall become Holdback Stock and shall be governed by the provisions of Section
2.6 hereof.
2.8 Closing Date. The consummation of the purchase and sale of the
Assets (the "Closing") shall be held simultaneously with the execution of this
Agreement ("Closing Date"). The Closing may be held by the Purchaser, TMCI and
the Company exchanging facsimile signature pages and complying with the
conditions set forth in Article V.
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ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to Purchaser and TMCI with the
knowledge that Purchaser and TMCI are relying on such representations and
warranties in entering into this Agreement, and that the statements contained in
this Article III are true, correct, complete and current as of the date of this
Agreement.
3.1 Organization and Qualification. The Company is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Utah and has all requisite corporate power and authority to (a) enter into this
Agreement and to perform its obligations hereunder, (b) own, lease and operate
its properties and assets used in the Business as they are now owned, leased and
operated and (c) carry on its business, including, without limitation, the
Business, as now presently conducted. The Company is duly qualified to do
business and is in good standing in each jurisdiction, including, but not
limited to, California, in which the nature of its business or properties makes
such qualification necessary, except where the failure to do so would not have a
Material Adverse Effect after the Closing Date on the Business, the Assets or
Purchaser.
3.2 Validity and Execution of Agreement. The Company has the full legal
right, capacity and power and has all requisite corporate authority and approval
required to enter into, execute and deliver this Agreement and to perform fully
its obligations hereunder. The board of directors of the Company has approved
the transactions contemplated pursuant to this Agreement and each of the other
documents contemplated by this Agreement. Pursuant to the provisions of the Utah
Code Annotated, the shareholders of the Company are not required to approve the
transactions contemplated by this Agreement. This Agreement constitutes the
valid and binding obligation of the Company and is enforceable against it in
accordance with its terms, except as such enforcement may be limited by
bankruptcy, insolvency, reorganization, moratorium or other similar laws
affecting the enforcement of creditors' rights in general and by general
principles of equity.
3.3 No Conflict. Except as set forth on Schedule 3.3, neither the
execution and delivery of this Agreement by the Company nor the performance by
the Company of the transactions contemplated hereby will: (a) violate or
conflict with any of the provisions of the Articles of Incorporation or By-Laws
(or similar governing documents) of the Company; (b) except as would not have a
Material Adverse Effect after the Closing Date on the Company, the Business, the
Assets or Purchaser, violate, conflict with, result in the acceleration of, or
entitle any party to accelerate the maturity or the cancellation of the
performance of any obligation under, or result in the creation or imposition of
any Lien in or upon any of Assets or constitute a default (or an event which
might, with the passage of time or the giving of notice, or both, constitute a
default) under any mortgage, indenture, deed of trust, lease, contract, loan or
credit agreement, license or other instrument to which the Company is a party or
by which its or any of its properties or assets may be bound or affected; or (c)
except as would not have a Material Adverse Effect after the Closing Date on the
Company, the Business, the Assets or Purchaser, violate or conflict with any
provision of any Law or Order applicable to the Company or require any consent
or
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approval of or filing or notice with any Governmental or Regulatory Body. The
Company has obtained all necessary and proper consents from its lenders,
customers, suppliers, and similar parties, as necessary to prevent or avoid a
Material Adverse Effect after the Closing Date on the Business, the Assets, the
Division or Purchaser by reason of a failure by the Company to obtain such
consent.
3.4 Books and Records. Except as set forth on Schedule 3.4, the Records
of the Company as supplied to Purchaser are true, correct, complete and current
in all material respects.
3.5 Certificate of Incorporation and Bv-Laws. The Company has
heretofore delivered to Purchaser true, correct, complete and current copies of
the Certificate or Articles of Incorporation and By-Laws or similar governing
documents of the Company as in full force and effect on the date hereof.
3.6 Financial Statements. The unaudited financial statements (the
"Unaudited Financial Statements") of the Division for the year ended September
30, 1996 and the period ended October 31, 1996, attached hereto as Schedule 3.6
WERE PREPARED IN accordance with GAAP consistently applied for the periods
covered thereby. The statement of income contained therein FAIRLY PRESENTS THE
RESULTS of operations of the Division for the year ended on such date.
3.7 No Material Adverse Change. Except as set forth on Schedule 3.7,
since September 30, 1996, to the Company's knowledge there has been no material
adverse change in the assets, properties, business, operations, income or
condition (financial or otherwise) of the Business, nor is any such change
threatened, nor has there been any damage, destruction or loss which could have
a Material Adverse Effect after the Closing Date on the Business, the Assets or
Purchaser, whether or not covered by insurance.
3.8 Tax Matters. All Tax Returns required to be filed with respect to
the Company have been timely filed and all such Tax Returns were correct and
complete in all respects. The Company has timely paid to the appropriate tax
authorities all Taxes due or claimed to be due from it by any Tax authority. No
adjustment relating to any Tax Return required to be filed with respect to the
Company has been proposed formally or informally by any Tax authority, and to
the best knowledge of the Company no basis exists for any such adjustment. The
Company is not currently the beneficiary of any extension of time within which
to file any Tax Return. There are no liens for Taxes upon assets or properties
of the Company. There is no examination or proceeding pending or, to the
knowledge of the Company, threatened by any tax authority relating to the
determination, assessment or collection of, or any delinquencies in filing
related to any Taxes of the Company. Notwithstanding anything contained herein
to the contrary contained herein, the Company shall not be deemed to be in
breach of this Section 3.8 if the breach of any of the statements contained in
this Section 3.8 does not have a Material Adverse Effect after the Closing Date
upon the Assets, the Division, the Business or the Purchaser. The Company holds
a valid California resale certificate.
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3.9 Litigation. Except as set forth on Schedule 3.9, there are no
outstanding Orders by which the Company, or any of its securities, assets,
properties or businesses are bound. Except as set forth on Schedule 3.9, there
is no Action or Proceeding pending or, to the knowledge of the Company
threatened (whether or not the defense thereof or liabilities in respect thereof
are covered by insurance) against or affecting the Company or any of its assets,
properties or businesses, including without limitation the Business and the
Assets, which if adversely decided would have a Material Adverse Effect after
the Closing on the Company, the Purchaser, the Business, the Division or the
Assets, nor are there any facts known to the Company which are likely to give
rise to any such Action or Proceeding which if adversely decided, would have a
Material Adverse Effect after the Closing on the Company, the Purchaser, the
Business, the Division or the Assets.
3.10 Contracts and Other Agreements. True, complete and current copies
of all of the Material Contracts have been delivered to Purchaser or made
available to Purchaser for inspection. A list of the Material Contracts is
attached hereto as Schedule 3.10. All of the Material Contracts are valid,
subsisting, in full force and effect and binding upon the Company and to the
best knowledge of the Company, the Company has satisfied in full or provided for
all of its liabilities and obligations thereunder requiring performance prior to
the date hereof in all material respects, is not in default under any of them,
nor does any condition exist that with notice or lapse of time or both would
constitute such a default. To the knowledge of the Company, no other party to
any such Material Contract is in default thereunder, nor does any condition
exist that with notice or lapse of time or both would constitute such a default.
Except as separately identified on Schedule 3.10, no approval or consent of any
Person is needed for the Material Contracts to continue to be in full force and
effect, and all of the Company's rights under Material Contracts to be assigned
to Purchaser hereunder will be conveyed to Purchaser, upon consummation of the
transactions contemplated by this Agreement.
3.11 Tangible Property. Schedule 3.11 sets forth a true, complete,
correct and current list of all categories of tangible personal property (other
than Inventory), including, without limitation, equipment, furniture, leasehold
improvements, fixtures, vehicles, structures, any related capitalized items and
other similar tangible property, in each case owned or leased by the Company and
material to the Business (collectively, the "Tangible Property") together with a
description of all leases or subleases of Tangible Property to which the Company
(on behalf of the Business) is the lessor, sublessor, lessee or sublessee and
all options to purchase or sell the underlying property. The Tangible Property
is free from material defects (patent and latent), has been maintained in
accordance with normal industry practice, is in good operating condition and
repair (subject to normal wear and tear), and is suitable for the purposes for
which it presently is used.
3.12 Intellectual Property.
(a) The Company owns or is licensed to use all "Intellectual
Property" that is necessary for the conduct of the Business, free and clear of
any Liens of any kind that may interfere with the conduct of the Business.
Except as disclosed in Schedule 3.12, the Company is not a party to any
agreement limiting the use of Intellectual Property.
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(b) No LITIGATION IS PENDING or, to the knowledge of the Company,
threatened, that challenges the validity, enforceability, ownership of, or right
to use, sell, license or dispose of any Intellectual Property, nor does the
Company know of any valid grounds for any such claim.
(c) None of the material trade secrets of the Company as are
material to the Business has been disclosed to any Person, except as required
pursuant to the filing of a patent application by the Company, unless such
disclosure was necessary and the use was made pursuant to a confidentiality
agreement. All such trade secrets are protected against their use by other
Persons to an extent and in a manner customary in the industries in which the
Company operates, except that the Company has not required its employees to sign
confidentiality or similar agreements.
3.13 ERISA. The Company has provided to the Purchaser a true, correct
and complete copy of each Company Plan, or if no copy exists, a written
description thereof. All of the Company Plans are, and have been maintained and
administered, in all material respects in compliance with all applicable
requirements of ERISA and the Internal Revenue Code of 1986, as amended (the
"Code"), to the extent such Company Plans are subject to ERISA and the Code.
Each Company Plan that is intended to be a qualified plan under Section 401(a)
of the Code has received all necessary favorable determination letters from the
Internal Revenue Service and, to the Company's knowledge, such Company Plans
have not been operated in any way which would adversely affect their qualified
status. As a result of the transactions contemplated by this Agreement, the
Purchaser shall have no liability with respect to any Company Plan maintained by
the Company or any trade or business under common control with the Company
within the meaning of Section 414(b), (c) or (m) of the Code. Other than usual
claims for benefits arising under the Company Plans in the normal course, there
are no pending claims, and the transactions contemplated by this Agreement will
not give rise to any material claims, suits or proceedings which might cause the
Company to incur liability to any employee under any Company Plan, including any
liability for severance payments to any employee or former employee of the
Company, which may have a Material Adverse Effect after the Closing Date upon
the Assets, the Division, the Business or the Purchaser.
3.14 Title; Liens. At the Closing, Company will deliver to Purchaser
one or more Forms UCC-2 -- Termination Statement from National Bank of Canada.
At such time as the Termination Statements are properly filed with the
appropriate state agency, except as set forth on Schedule 3.14, the title to the
Assets will be in each case free and clear of any Lien and the Company will have
good and marketable title to the Assets.
3.15 Compliance with Laws. Except as set forth in Schedule 3.15, the
Company (a) is in compliance with all, and not in violation of any, and has not
received any claim or notice that it is not in compliance in any material
respect with, or that it is in violation in any material respect of, any Law or
Order to which the Business or any of the Assets (including the use thereof) are
subject and (b) has not failed to obtain or to adhere to the requirements of any
governmental permit, license, registration and other governmental consent or
authorization necessary in connection with the Business or the Assets, which
failure would have a Material Adverse Effect after the Closing Date on the
Business, the
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Assets, the Division or Purchaser. The Company has advised Purchaser in writing
of any proposed health or other law, rule or regulation which, to its knowledge,
could reasonably be expected to have a Material Adverse Effect on the Business,
the Division, the Assets or Purchaser on or which, to its knowledge, could
reasonably be expected to require substantial new capital investments by
Purchaser in the Business.
3.16 Entire Business. Except as otherwise provided herein, the sale of
the Assets to be sold by the Company to Purchaser pursuant to this Agreement
will convey to Purchaser the entire Business and all of the tangible and
intangible property used by the Company (whether owned, leased or held under
license by the Company, by any of the Company's Affiliates, Associates or by
others, including, without limitation, any of the assets of the Business)
primarily in connection with the conduct of the Business as heretofore conducted
by the Company or held at the primary location of the Business. Except as
disclosed in Schedule 3.16, there are no material facilities, services, assets
or properties shared with any other Person which are used by the Company in the
Business.
3.17 Brokers. All negotiations relative to this Agreement and the
transactions contemplated hereby have been carried out by the Company directly
with Purchaser without the intervention of any person on behalf of the Company
in such manner as to give rise to any valid claim by any Person against
Purchaser for a finder's fee, brokerage commission or similar payment. Any
brokers or finders retained by the Company or the Division shall be entitled to
a fee only upon completion of the transactions contemplated by this Agreement.
The Company agrees that it shall be solely responsible to pay the fees and costs
of any broker or finder which it has retained.
3.18 Environmental, Health and Safety Laws.
(a) Each of the Company, its Affiliates and, to its knowledge,
it's predecessors has complied with all Environmental, Health and Safety Laws,
and no action, suit, proceeding, hearing, investigation, charge, complaint,
claim, demand, or notice has been filed or commenced against any of them
alleging any failure so to comply. Without limiting the generality of the
preceding sentence, each of the Company, its Affiliates and, to its knowledge,
its predecessors has obtained and been in compliance with all of the terms and
conditions of all permits, licenses, and other authorizations which are required
under, and has complied with all other limitations, restrictions, conditions,
standards, prohibitions, requirements, obligations, schedules, and timetables
which are contained in, all Environmental, Health and Safety Laws.
(b) None of the Company or its Affiliates has any Liability (and none
of the Company, its Affiliates and, to its knowledge, its predecessors has
handled or disposed of any substance, arranged for the disposal of any
substance, exposed any employee or other individual to any substance or
condition, or owned or operated any property or facility in any manner that
could form the basis for any present or future action, suit, proceeding,
hearing, investigation, charge, complaint, claim, or demand against any of the
Company and its Affiliates giving rise to any Liability) for damage to any site,
location, or body of water (surface or subsurface), for any illness of or
personal injury to any employee or other individual, or for any reason under any
Environmental, Health, and Safety Law.
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(c) All properties and equipment used in the business of the
Company, its Affiliates and, to its knowledge, its predecessors have been and
are free of asbestos, PCB's, methylene chloride,trichloroethylene,
1,2-transdichloroethylene, dioxins, dibenzofurans, and Extremely Hazardous
Substances.
(d) Notwithstanding anything contained herein to the contrary, the
Company shall not be deemed to be in breach of this Section 3.18 if the breach
of any of the representations and warranties contained in Section 3.18(a), (b)
and (c) does not have a Material Adverse Effect after the Closing upon the
Assets, the Division, the Business or the Purchaser.
3.19 Restrictions on Common Shares. The Common Stock when issued to the
Company, will constitute "restricted securities" as that term is defined in Rule
144, as promulgated under the Securities Act of 1933, as amended (the "Act"),
and as such may not be transferred except pursuant to an effective registration
statement filed under the Act, or pursuant to a valid exemption from the
registration requirements of the Act. Except as provided in the Investors'
Rights Agreement dated of even date herewith, neither TMCI nor the Purchaser has
any obligation, whatsoever, to register the Common Stock under the Act and has
no present intention to so register the Common Stock. If the Company desires to
sell or transfer any interest in the Common Stock pursuant to an exemption from
registration under the Act and under state securities laws, the Company shall
first provide the Purchaser with a description of the circumstances and an
opinion of counsel reasonably satisfactory to counsel to Purchaser that such
sale or transfer is so exempt. Investor understands that resale to the public
will not be available for at least two years under Rule 144. The Common Stock is
being acquired by the Company for investment purposes only, solely for its own
account, and without any present intention of participating directly or
indirectly in the distribution or resale of all or any portion of the Common
Stock then being acquired. The following legend shall be placed upon the
certificate or certificates representing the Common Stock:
The shares represented by this certificate have not been
registered under the Securities Act of 1933. The shares have
been acquired for investment and may not be sold, transferred
or assigned in the absence of an effective registration
statement for these shares under the Securities Act of 1933 or
an opinion of the Company's [TMCI Electronics, Inc.] counsel
that registration is not required under said Act.
In addition, an appropriate legend for the State of California shall be placed
upon the certificates. Purchaser may place a "stop transfer order" regarding the
Common Stock with its transfer agent as appropriate to comply with the
requirements of this Section 3.19.
3.20 Accounts Receivable. All accounts receivable of the Company which
are sixty (60) days or less past due are reflected properly in the Unaudited
Financial Statements, are valid receivables subject to no setoffs or
counterclaims, are collectible, and will be collected within one hundred eighty
(180) days, in accordance with their terms at their recorded amounts, subject
only to the reserve for bad debts set forth in the Unaudited Financial
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Statements as adjusted for the passage of time through the Closing Date, subject
to Purchaser and TMCI using their normal and customary collection practices. The
amount of the accounts receivable subject to this paragraph 3.20 is four hundred
twenty thousand nine hundred forty-eight dollars ($420,948). To the extent the
sixty (60) days or less past due accounts receivable are not collected within
the aforementioned one hundred eighty (180) day period, the amount of the
uncollected receivables shall be offset against the Holdback Stock.
3.21 Relationship With Customers. The Company has not received notice
from any of its material customers that such customer intends to discontinue its
business relationship with the Division.
3.22 Securities. The Company is an "accredited investor" as defined in
Rule 501(a) of Regulation D promulgated under the Act. The Company acknowledges
that TMCI has delivered to it its Prospectus dated March 5, 1996, its Annual
Report on Form 10-KSB for the fiscal year ended December 31, 1995 and its
Quarterly Report on Form 10-QSB for the quarter ended June 30, 1996. The Company
has had the opportunity to review and discuss the above-referenced documents
with TMCI and has had the opportunity to ask questions and make inquiries of
representatives of TMCI regarding TMCI's financial condition, assets and
operations and the Company has received satisfactory answers to such questions
and inquiries.
3.23 Disclosure. None of the representations, warranties or covenants
contained in this Agreement, nor in any Schedule or Exhibit hereto contains or
will contain an untrue statement of a material fact or omits a material fact
necessary to make the statements contained herein or therein not misleading.
3.24 Equipment. All equipment used in the operation of the Business is
in good operating condition, ordinary wear and tear excepted.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF PURCHASER AND TMCI
Purchaser and TMCI represent and warrant to the Company with knowledge
that Company is relying upon such representation and warranties in entering into
this Agreement, and that the statements contained in this Article IV are true,
correct, complete and current as of the date of this Agreement.
4.1 Organization and Capitalization of TMCI. TMCI is a corporation duly
organized and validly existing and in good standing under the laws of the State
of Delaware and has all requisite corporate power and authority to (a) enter
into this Agreement and to perform its obligations hereunder, (b) own, lease and
operate its properties and assets as they are now owned, leased and operated and
(c) carry on its business as now conducted. The authorized capital stock of TMCI
as of the Closing Date consists of 25,000,000 shares of common stock, par value
$0.001 per share of which approximately 3,365,600 shares are issued and
outstanding.
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4.2 Organization and Capitalization of Purchaser. Purchaser is a
corporation duly organized and validly existing and in good standing under the
laws of the State of California and has all requisite corporate power and
authority to (a) enter into this Agreement and to perform its obligations
hereunder, (b) own, lease and operate its properties and assets as they are now
owned, leased and operated and (c) carry on its business as now conducted.
Purchaser is the wholly-owned subsidiary of TMCI.
4.3 Validity and Execution of Agreement. Purchaser and TMCI have the
full legal right, capacity and power and have all requisite corporate authority
and approval required to enter into, execute and deliver this Agreement and to
perform fully its obligations hereunder. The Boards of Directors of TMCI and
Purchaser have approved the transactions contemplated pursuant to this Agreement
and each of the other documents contemplated by this Agreement. This Agreement
constitutes the valid and binding obligation of TMCI and Purchaser,
respectively, enforceable against TMCI and Purchaser in accordance with its
terms, except as such enforcement may be limited by bankruptcy, insolvency,
reorganization, moratorium or other similar laws affecting the enforcement of
creditors' rights in general and by general principles of equity.
4.4 No Conflict. Neither the execution and delivery of this Agreement
by TMCI and Purchaser nor the performance by TMCI and Purchaser of the
transactions contemplated hereby will: (a) violate or conflict with any of the
provisions of the articles of incorporation or by-laws of TMCI and Purchaser (or
similar governing documents) as the case may be, (b) violate or conflict with
any provisions of any Law or Order applicable to TMCI or Purchaser; or (c)
require any consent or approval by or filing or notice with any Governmental or
Regulatory Body.
4.5 Brokers. All negotiations relative to this Agreement and the
transactions contemplated hereby have been carried out by TMCI and Purchaser
directly with the Company without the intervention of any Person on behalf of
Purchaser in such manner as to give rise to any valid claim by any Person
against the Company for a finder's fee, brokerage commission or similar payment,
except to The Bentley Companies ("Bentley"). All amounts so payable to Bentley
shall be paid by TMCI or the Purchaser.
4.6 Articles of Incorporation and Bylaws. TMCI and Purchaser have each
heretofore delivered to the Company true, correct and complete copies of their
Articles of Incorporation and Bylaws or similar governing documents as in full
force and effect on the date hereof.
4.7 Delivery of Documents. TMCI has delivered to the Company its true,
correct, complete and current Prospectus dated March 5, 1996, its Annual Report
on Form 10-KSB for the fiscal year ended December 31, 1995, its quarterly
reports on Form 10-QSB for the quarter ended June 30, 1996. Each of these
documents contain the information required to be included therein by applicable
law and as to such required information do not contain any untrue statements of
material fact or omit a material fact necessary to make the statements contained
thereof not misleading. Each audited and unaudited financial statement (and the
notes relating thereto) contained in such reports was prepared in accordance
with generally accepted accounting principles consistently applied (except as
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otherwise indicated therein) and fairly presents the consolidated financial
condition of TMCI and its subsidiaries as of the respective date thereof and the
related consolidated results of operations, stockholders' equity, and cash flows
or changes in financial position, as applicable, of TMCI and its subsidiaries
for and during the respective period covered thereby.
4.8 Consents and Approvals. Except for Form 8-K, no consent approval or
authorization of, or declaration, filing or registration with, any third party,
including any governmental or regulatory authority, United States or foreign, is
required in connection with the execution, delivery and performance of this
Agreement by TMCI or Purchaser.
4.9 Absence of Certain Changes or Events. Except as previously
disclosed to the Company, since September 30, 1996 there has been no material
adverse change in the assets, properties, business, operations, income or
condition (financial or otherwise) of TMCI or Purchaser nor is any such change
threatened, nor has there been any damage, destruction or loss which could have
a Material Adverse Effect after the Closing Date on TMCI or Purchaser, whether
or not covered by insurance. TMCI has not (i) declared any dividend or made any
payment or other distribution with respect to its shares of capital stock, (ii)
acquired or disposed of any shares of its capital stock or granted any options,
warrants or other rights to acquire or convert any obligation into any shares of
its capital stock, (iii) sold, assigned, transferred, conveyed or otherwise
disposed of, or agreed to sell or dispose of, a substantial portion of its
assets, except for sales of inventory in the ordinary course of business, (iv)
entered into any transaction of merger or consolidation with any other entity,
or (v) agreed or entered into any commitment to take any of the above actions.
4.10 Litigation. Except as set forth on Schedule 4.9, there are no
outstanding Orders by which TMCI or Purchaser, or any of its securities, assets,
properties or businesses are bound. Except as set forth on Schedule 4.9, there
is no Action or Proceeding pending or, to the knowledge of TMCI or Purchaser
threatened (whether or not the defense thereof or liabilities in respect thereof
are covered by insurance) against or affecting TMCI or Purchaser or any of its
assets, properties or businesses, including without limitation the Business and
the Assets, which if adversely decided would have a Material Adverse Effect
after the Closing on TMCI or Purchaser, nor are there any facts which are likely
to give rise to any such Action or Proceeding which if adversely decided, would
have a Material Adverse Effect after the Closing on TMCI, the Purchaser, the
Business, the Division or the Assets.
4.11 Status of Shares. The Common Stock when issued in accordance with
the terms of this Agreement will be duly authorized, validly issued, fully paid
and nonassessable and free of liens, encumbrances or preemptive rights contained
in the Certificate of Incorporation or Bylaws of TMCI; provided, however, that
the Common Stock may be subject to restrictions on transfer under state and/or
federal securities laws and the Holdback Stock and Earn Out Stock is subject to
forfeiture as provided in this Agreement.
4.12 Disclosure. None of the representations, warranties or covenants
contained in this Agreement, any document provided by TMCI or Purchaser to the
Company, nor in any Schedule or Exhibit hereto made by TMCI or Purchaser,
contains or will contain any
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untrue statement of material fact or omits a material fact necessary to make the
statements contained herein or therein not misleading.
ARTICLE V
CONDITIONS PRECEDENT TO THE CLOSING
5.1 Conditions Precedent to the Obligations of Purchaser to Complete
the Closing. The obligations of Purchaser to enter into and complete the Closing
are subject to the fulfillment at or prior to the Closing of the following
conditions, any one or more of which may be waived by Purchaser:
(a) Representations, Warranties and Covenants. The representations
and warranties of the Company contained in this Agreement shall be true,
complete and correct in all material respects.
(b) Consents, Waivers, Licenses, Filings, etc. The consents,
approvals, authorizations, licenses, registrations, declarations or filings
listed on Schedule 3.3, if any, hereto shall have been obtained or made, as the
case may be.
(c) Third Party Consents. Except as otherwise waived by Purchaser,
all consents, permits and approvals from parties to contracts or other
agreements with the Company set forth on any Schedule to this Agreement,
including, but not limited to, the Assignable Contracts, and any other material
consent, permit or approval that may be required in connection with the
performance by the Company of its obligations under this Agreement or the
consummation of the transactions contemplated by this Agreement or the
continuance of the Company's contracts or other agreements with Purchaser after
the Closing shall have been obtained.
(d) Injunction, etc. At the Closing, there shall not be any Order
outstanding against any party hereto or Law promulgated that prevents
consummation of the transactions contemplated by this Agreement or any of the
conditions to the consummation of the transactions contemplated by this
Agreement or would be likely to have any Material Adverse Effect on the Business
or the Assets to be purchased hereunder.
(e) Opinion of Counsel to the Company. Purchaser shall have been
provided with an opinion of Parsons Behle & Latimer, counsel to the Company, in
form and substance satisfactory to Purchaser and dated the date of the Closing.
(f) Approval of Counsel to Purchaser. All actions and proceedings
hereunder and all documents and other papers required to be delivered by the
Company hereunder or in connection with the consummation of the transaction
contemplated hereby and all other related matters shall have been approved by
Rosenblum, Parish & Isaacs, counsel to Purchaser, as to their form and
substance, which approval shall not be unreasonably withheld.
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(g) Conveyancing Documents. The Company shall have executed and
delivered to Purchaser an Assignment and Assumption Agreement (an "Assignment
and Assumption Agreement") in substantially the form of Exhibit "F" hereto, and
such further instruments and documents as may be reasonably requested by
Purchaser in order to complete the transfer of the Assets to Purchaser and as
may be necessary for the Purchaser's operation of the Business.
(h) Earn Out Agreement. The Company shall have executed and
delivered to Purchaser the Earn Out Agreement.
(i) Investors' Rights Agreement. The Company shall have executed
and delivered to Purchaser an Investors' Rights Agreement in form and substance
satisfactory to both parties hereto.
(j) Strategic Marketing and Manufacturing Agreement. The Company
shall have executed and delivered to Purchaser and TMCI the Strategic Marketing
and Manufacturing Agreement in form and substance satisfactory to both parties
hereto.
(k) Subordination Agreement. The Company shall have executed and
delivered to Purchaser and TMCI the Subordination Agreement in form and
substance satisfactory to both parties hereto.
(l) Resolutions. The Company shall have delivered to Purchaser a
copy of the resolution of its Board of Directors authorizing and approving the
execution of this Agreement and the consummation of the transactions
contemplated hereby.
5.2 Conditions Precedent to the Obligations of the Company to Complete
the Closing. The obligations of the Company to enter into and complete the
Closing are subject to the fulfillment on or prior to the Closing, of the
following conditions, any one or more of which may be waived by the Company:
(a) Representations, Warranties and Covenants. The representations,
warranties and covenants of Purchaser and TMCI shall be true, complete and
correct in all material respects.
(b) Injunction. etc. At the Closing, there shall not be any Order
outstanding against any party hereto or Law promulgated that prevents
consummation of the transactions contemplated by this Agreement or any of the
conditions to the consummation of the transaction contemplated by this Agreement
or would be likely to have any Material Adverse Effect on the Business or the
Assets to be purchased by Purchaser hereunder.
(c) Opinion of Counsel to Purchaser. Purchaser shall have been
provided with an opinion of Rosenblum, Parish & Isaacs, counsel to Purchaser and
TMCI, in form and substance satisfactory to the Company and dated the date of
the Closing.
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(d) Delivery of Purchase Price. Purchaser shall have delivered to
the Company the Cash Payment, the Promissory Notes, and a stock certificate
representing fifty three thousand six hundred eight-eight (53,688) shares of
TMCI's common stock.
(e) Delivery of Security Agreements. Purchaser and TMCI shall have
delivered to the Company the Security Agreement and underlying Form UCC-1 and
caused to be delivered to the Company the Guaranty.
(f) Conveyancing Documents. Purchaser and TMCI shall have executed
and delivered to the Company the Assignment and Assumption Agreement.
(g) Resolutions. Purchaser and TMCI shall have delivered to the
Company a copy of the resolution of their respective Boards of Directors
authorizing and approving the execution of this Agreement and the consummation
of the transactions contemplated hereby.
(h) Investors' Rights Agreement. Purchaser and TMCI shall have
executed and delivered to the Company an Investors' Rights Agreement in form and
substance satisfactory to both parties hereto.
(i) Strategic Marketing and Manufacturing Agreement. The Purchaser
and TMCI shall have executed and delivered to the Company the Strategic
Marketing and Manufacturing Agreement in form and substance satisfactory to both
parties hereto.
(j) Earn Out Agreement. The Purchaser shall have executed and
delivered to the Company the Earn Out Agreement.
(k) Subordination Agreement. The Purchaser and TMCI shall have
executed and delivered to the Company the Subordination Agreement in form and
substance satisfactory to both parties hereto.
(l) Approval of Counsel to Company. All actions and proceedings
hereunder and all documents and other papers required to be delivered by the
Purchaser and TMCI hereunder or in connection with the consummation of the
transaction contemplated hereby and all other related matters shall have been
approved by Parsons Behle & Latimer, counsel to the Company, as to their form
and substance, which approval shall not be unreasonably withheld.
ARTICLE VI
POST-CLOSING COVENANTS
The parties covenant to take the following actions after the Closing
Date:
6.1 Further Information. Following the Closing, each party will afford
to the other party, its counsel and its accountants, during normal business
hours, reasonable access to the books, records and other data of the Company or
relating to the Business, the Assets,
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or the Assumed Liabilities in its possession with respect to periods prior to
the Closing and the right to make copies and extracts therefrom, to the extent
that such access may be reasonably required by the requesting party (a) to
facilitate the investigation, litigation and final disposition of any claims
which may have been or may be made against any party or its Affiliates and (b)
for any other reasonable business purpose.
6.2 Record Retention. Each party agrees that for a period of not less
than seven (7) years following the Closing Date, it shall not destroy or
otherwise dispose of any of the Records relating to the Business, the Assets,
the Assumed Liabilities, or the Company in its possession with respect to
periods prior to the Closing. Each party shall have the right to destroy all or
part of such Records after the seventh anniversary of the Closing Date or, at an
earlier time by giving each other party hereto thirty (30) days prior written
notice of such intended disposition and by offering to deliver to the other
parties, at the other parties' expense, custody of such Records as such party
may intend to destroy.
6.3 Transfer and Property Taxes. The Company agrees to pay all sales,
use, transfer, real property transfer, recording, gains, stock transfer and
other similar taxes and fees ("Transfer Taxes") arising out of or in connection
with the transactions effected pursuant to this Agreement, and shall indemnify,
defend and hold harmless the Purchaser and TMCI with respect to such Transfer
Taxes. The Company shall file all necessary documentation and Tax Returns with
respect to such Transfer Taxes. Personal property taxes assessed against the
Assets for the year 1996 shall be prorated as of the Closing Date.
6.4 Post-Closing Assistance. The Company, on the one hand, and
Purchaser, on the other hand, will provide each other with such assistance as
may reasonably be requested in connection with the preparation of any Tax
Return, any audit or other examination by any taxing authority, or any judicial
or administrative proceedings relating to liability for Taxes, and each will
retain and provide the requesting party with any records or information that may
be reasonably relevant to such return, audit or examination, proceedings or
determination. The party requesting assistance shall reimburse the other party
for reasonable out-of-pocket expenses (other than salaries or wages of any
employees of the parties) incurred in providing such assistance. Any information
obtained pursuant to this Section 6.4 or pursuant to any other Section hereof
providing for the sharing of information or the review of any Tax Return or
other schedule relating to Taxes shall be kept confidential by the parties
hereto.
6.5 Non-Compete.
(a) Company's Covenants Against Competition. In consideration for
the payment by Purchaser of the Purchase Price on the Closing Date, Company for
itself (and for and on behalf of its current officers and directors) agrees that
it will not at any time within the four (4) year period immediately following
the Closing Date ("Restricted Period"), directly or indirectly, engage in, or
have any ownership interest in any person, firm, corporation, or business which
engages in, in any way, (i) the manufacturing of harness, ribbon, or non-molded
specialty cables ("Restricted Products") within the counties of Alameda, Contra
Costa, Marin, San Francisco, San Mateo, Santa Clara, Sacramento, Santa Cruz, or
Sonoma, State of California ("Restricted Area"); or (ii) soliciting orders for
or
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selling the Restricted Products to any customers in the Restricted Area
("Purchaser's Restricted Customers"). Notwithstanding anything contained herein
to the contrary, the restrictions contained in this 6.5(a) shall not preclude
the Company from directly or indirectly engaging in, or having any interest in
any person, firm, corporation or business which engages in, in any way
manufacturing the Restricted Products in any area outside of the Restricted Area
(as long as it does not sell to any of Purchaser's Restricted Customers) nor
shall the restriction, set forth above preclude in any way the Company from
selling to or soliciting orders from any customers in the Restricted Area for
molded cables or any product which is not a Restricted Product. Notwithstanding
the foregoing, neither the Company nor any officer or director of the Company
shall be in breach of this Section 6.5(a) merely because it owns five percent
(5%) or less of the outstanding common stock of a corporation, if, at the time
of the acquisition of such stock by the Company (or its officers or directors),
such stock is listed on a national securities exchange, is quoted on NASDAQ, or
is regularly traded in the over-the-counter market by a member of a national
securities exchange.
(b) Purchaser's and TMCI's Covenants Against Competition;
Acknowledgment of Confidential Information and Trade Secrets.
(i) Purchaser and TMCI acknowledge and agree that the Company
has invested significant amounts of time and money in developing its molded
specialty cable business and that Company would not sell the Assets to Purchaser
but for the agreements and covenants of the Purchaser contained in this Section
6.5(b). Accordingly, the Purchaser and TMCI for themselves (and for and on
behalf of each of their respective Affiliates) each covenants and agrees that it
will not at any time, during the Restricted Period, directly or indirectly
engage in, or have any ownership interest in any person, firm, corporation, or
business that engages in, in any way, the manufacturing of, the sale of or the
solicitation of orders for molded specialty cables to or from any customer in
the State of California to which the Company is currently selling such products
("Company's Restricted Customers"). A list of certain of the Company's customers
("Company's Customer List") which includes the Company's Restricted Customers
will be delivered by the Company to Purchaser at Closing. Notwithstanding
anything contained herein to the contrary, this Section 6.5(b) shall not
preclude Purchaser from selling to nor soliciting orders from the Company's
Restricted Customers for harness, ribbon and non-molded specialty cables or from
selling or soliciting orders from persons who are not the Company's Restricted
Customers for Molded Specialty Cables. Notwithstanding the foregoing, neither
Purchaser, TMCI nor any affiliate of Purchaser or TMCI shall be in breach of
this Section 6.5(b) merely because it owns five percent (5%) or less of the
outstanding common stock of a corporation, if, at the time of the acquisition of
such stock by Purchaser, TMCI (or any affiliate of Purchaser or TMCI), such
stock is listed on a national securities exchange, is quoted on NASDAQ, or is
regularly traded in the over-the-counter market by a member of a national
securities exchange.
(ii) During and after the Restricted Period, Purchaser, TMCI
and each Affiliate shall keep secret and retain in strictest confidence, and
shall not use for the benefit of itself or himself or others, any and all
confidential information with respect to the operations by the Company of its
molded specialty cable business learned by TMCI, the Purchaser and each
Affiliate heretofore or hereafter directly or indirectly from the
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Company, including, without limitation, information with respect to (a)
prospective facilities, (b) sales figures, (c) profit or loss figures, (d)
customers, clients, suppliers, sources of supply and customer lists (including
those entities designated on the Company's Customer List) and (e) pricing
information ("Confidential Company Information"), and shall not disclose such
Confidential Company Information to anyone outside of Purchaser, TMCI and its
Affiliates except with the Company's express written consent and except for
Confidential Company Information which (i) is at the time of receipt or
thereafter becomes publicly known through no wrongful act of the Purchaser, TMCI
or an Affiliate or (ii) is received from a third party not under an obligation
to keep such information confidential and without breach of this Agreement.
Notwithstanding anything contained herein to the contrary, Purchaser, TMCI and
its Affiliates shall not disclose the Confidential Company Information to any
person or entity which subsequent to the date hereof directly or indirectly
acquires the Purchaser, TMCI and, thereby becomes an affiliate of the Purchaser
or TMCI. Purchaser and TMCI hereby acknowledge and agree that the Company's
Customer List is the proprietary and confidential information of the Company and
is a trade secret under the laws of the State of California.
(c) Rights and Remedies of Purchaser Upon Breach. If the Company or
any Affiliate breaches, or threatens to commit a breach of, any of the
provisions of Section 6.5(a) (the "Company's Restrictive Covenants"), Purchaser
shall have the following rights and remedies, each of which rights and remedies
shall be independent of the other and severally enforceable and shall not be
affected by the provisions of Article VI, and all of which rights and remedies
shall be in addition to, and not in lieu of, any other rights and remedies
available to Purchaser under law or in equity:
(i) The right and remedy to have the Company's Restrictive
Covenants specifically enforced (without posting any bond) by any court having
equity jurisdiction, including, without limitation, the right to an entry
against the Company or such Affiliate of restraining orders and injunctions
(preliminary, mandatory, temporary and permanent) against violations, threatened
or actual, and whether or not then continuing, of such covenants, it being
acknowledged and agreed that any such breach or threatened breach will cause
irreparable injury to Purchaser and that money damages will not provide adequate
remedy to Purchaser.
(ii) The right and remedy to require the Company or such
Affiliate to account for and pay over to Purchaser all profits ("Benefits")
derived or received by such person the result of any transactions constituting a
breach of any of the Company's Restrictive Covenants, and such person shall
account for and pay over such Benefits to Purchaser.
(d) Rights and Remedies of Company Upon Breach. If the Purchaser or
TMCI or any Affiliate breaches, or threatens to commit a breach of, any of the
provisions of Section 6.5(b) ("TMCI's Restrictive Covenants"), the Company shall
have the following rights and remedies (upon compliance with any necessary
prerequisites imposed by law upon the availability of such remedies), each of
which rights and remedies shall be independent of the other and severally
enforceable and shall not be affected by the provisions of Article
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VI, and all of which rights and remedies shall be in addition to, and not in
lieu of, any other rights and remedies available to the Company under law or in
equity:
(i) The right and remedy to have the TMCI's Restrictive
Covenants specifically enforced (without posting any bond) by any court having
equity jurisdiction, including, without limitation, the right to an entry
against TMCI and Purchaser or such Affiliate of restraining orders and
injunctions (preliminary, mandatory, temporary and permanent) against
violations, threatened or actual, and whether or not then continuing, of such
covenants, it being acknowledged and agreed that any such breach or threatened
breach will cause irreparable injury to the Company and that money damages will
not provide adequate remedy to the Company.
(ii) The right and remedy to require TMCI and Purchaser or such
Affiliate to account for and pay over to the Company all compensation, profits,
monies, accruals, increments or other benefits (collectively, "Benefits")
derived or received by such person the result of any transactions constituting a
breach of any of the TMCI's Restrictive Covenants, and such person shall account
for and pay over such Benefits to the Company.
(e) Severability of Covenants. If any court determines that any of
the Company's Restrictive Covenants or TMCI's Restrictive Covenants
(collectively, the "Restrictive Covenants"), or any part thereof, is invalid or
unenforceable, the remainder of the Restrictive Covenants shall not thereby be
affected and shall be given full effect, without regard to the invalid portions.
(f) Blue-Pencilling. If any court determines that any of the
Restrictive Covenants, or any part thereof, is unenforceable because of the
duration of such provision or the area covered thereby, such court shall have
the power to reduce the duration or area of such provisions and, in its reduced
form, such provision shall then be enforceable and shall be enforced.
(g) Enforceability in Jurisdictions. Purchaser and the Company
intend to and hereby confer jurisdiction to enforce the Restrictive Covenants
upon the courts of any jurisdiction within the geographical scope of the
Restrictive Covenants. If the courts of any one or more of such jurisdictions
hold the Restrictive Covenants wholly unenforceable by reason of the breadth of
such scope or otherwise, it is the intention of Purchaser and the Company that
such determination not bar or in any way affect Purchaser's or the Company's, as
the case may be, right to the relief provided above in the courts of any other
jurisdiction within the geographical scope of such Restrictive Covenants, as to
breaches of such Restrictive Covenants in such other respective jurisdictions,
such Restrictive Covenants as they relate to each jurisdiction being, for this
purpose, severable into diverse and independent covenants, subject, where
appropriate, to the doctrine of res judicata.
6.6 Delivery of Certificates. The Company will use its best efforts to
provide the Purchaser with a sales tax clearance certificate from the State
Board of Equalization and a certificate of no claims from the Economic
Development Department in a commercially reasonable manner and time.
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ARTICLE VII
SURVIVAL; INDEMNIFICATION
7.1 Survival of Representations, Warranties, Covenants and Agreements.
The representations, warranties, covenants and agreements of the Company,
Purchaser and TMCI contained in this Agreement will survive the Closing for a
period of three (3) years.
7.2 Indemnification of Purchaser. Subject to the limitations contained
in this Article VII, the Company agrees to indemnify, defend and hold harmless
Purchaser and its directors, officers, shareholders, partners, employees,
successors and assigns from and against any and all losses, Liabilities
(including punitive or exemplary damages and fines or penalties and any interest
thereon), expenses (including fees and disbursements of counsel and expenses of
investigation and defense), claims, liens or other obligations of any nature
whatsoever (hereinafter individually, a "Loss" and collectively, "Losses")
which, directly or indirectly, arise out of, result from or relate to (a) any
inaccuracy in or any breach of any representation and warranty, or any breach of
any covenant or agreement, of the Company contained in this Agreement or in any
document or other papers delivered pursuant to this Agreement, (b) any liability
or obligation of the Company which is not an Assumed Liability, including any
sales or use tax arising from this transaction, including, but not limited to,
any liability resulting from the operation of California Revenue and Tax Code
Section 6811, et seq. (c) the failure of the Company to comply with any Bulk
Sales or Transfer Laws or failure to comply with any other applicable laws,
rules or regulations and Purchaser's waiver of compliance with such laws,
including California Civil Code Section 3440, (d) the Company's misappropriation
of trade secrets, or its infringement or alleged infringement of any patent,
copyright, trademark, servicemark, or any other proprietary right of any Person,
(e) any claims which arise from the operations of the Business by the Company
prior to the Closing Date other than the Assumed Liabilities, (f) any
obligations of the Company for claims under ERISA, and (g) violations of the
Environmental, Health and Safety Laws by the Company prior to the Closing Date.
7.3 Indemnification of the Company. Subject to the limitations
contained in this Article VII, Purchaser and TMCI agree to indemnify, defend and
hold harmless the Company, its respective directors, officers, shareholders,
partners, employees, successors and assigns from and against any and all Losses
which, directly or indirectly, arise out of, result from or relate to (a) any
inaccuracy in or any breach of any representation and warranty, or any breach of
any covenant or agreement, of Purchaser contained in this Agreement or in any
documents or other papers delivered pursuant to this Agreement, (b) any Assumed
Liability assumed by Purchaser pursuant to Section 2.2, (c) operations of the
Business by the Purchaser subsequent to the Closing Date, (d) violations of the
Environment, Health and Safety laws by Purchaser subsequent to the Closing Date,
and (e) the failure by Purchaser to pay any Transfer Taxes.
7.4 Method of Asserting Claims. The party making a claim under this
Article VII is referred to as the "Indemnified Party" and the party against whom
such claims are asserted under this Article VII is referred to as the
"Indemnifying Party." all claims by any Indemnified Party under this Article VII
shall be asserted and resolved as follows:
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(a) In the event that any claim or demand for which an Indemnifying
Party would be liable to an Indemnified Party hereunder is asserted against or
sought to be collected from such Indemnified Party by a third party, said
Indemnified Party shall with reasonable promptness notify in writing the
Indemnifying Party of such claim or demand, specifying the basis for such claim
or demand, and the amount or the estimated amount thereof to the extent then
determinable (which estimate shall not be conclusive of the final amount of such
claim and demand; the "Claim Notice"); provided, however, that any failure to
give such Claim Notice will not be deemed a waiver of any rights of the
Indemnified Party except to the extent the rights of the Indemnifying Party are
actually prejudiced by such failure. The Indemnifying Party, upon request of the
Indemnified Party, shall retain counsel (who shall be reasonably acceptable to
the Indemnified Party) to represent the Indemnified Party and shall pay the
reasonable fees and disbursements of such counsel with regard thereto' provided,
however, that any Indemnified Party is hereby authorized prior to the date on
which it receives written notice from the Indemnifying Party designating such
counsel, to retain counsel, whose fees and expenses shall be at the expense of
the Indemnifying Party, to file any motion, answer or other pleading and take
such other action which it reasonably shall deem necessary to protect its
interests or those of the Indemnifying Party until the date on which the
Indemnified Party receives such notice from the Indemnifying Party. After the
Indemnifying Party shall retain such counsel, the Indemnified Party shall have
the right to retain its own counsel, but the fees and expenses of such counsel
shall be at the expense of such Indemnified Party unless (x) the Indemnifying
Party and the Indemnified Party shall have mutually agreed to the retention of
such counsel or (y) the named parties of any such proceeding (including any
impleaded parties) include both the Indemnifying Party and the Indemnified Party
and representation of both parties by the same counsel would be inappropriate
due to actual or potential differing interests between them. The Indemnifying
Party shall not, in connection with any proceedings or related proceedings in
the same jurisdiction, be liable for the fees and expenses of more than one such
firm for the Indemnified Party (except to the extent the Indemnified Party
retained counsel to protect its (or the Indemnifying Party's) rights prior to
the selection of counsel by the Indemnifying Party.) If requested by the
Indemnifying Party, the Indemnified Party agrees to cooperate with the
Indemnifying Party and its counsel in contesting any claim or demand which the
Indemnifying Party defends. A claim or demand may not be settled by the
Indemnifying Party without the prior written consent of the Indemnified Party
(which consent will not be unreasonably withheld) unless, as part of such
settlement, the Indemnified Party shall receive a full and unconditional release
reasonably satisfactory to the Indemnified Party.
(b) In the event any Indemnified Party shall have a claim against
any Indemnifying Party hereunder which does not involve a claim or demand being
asserted against or sought to be collected from it by a third party, the
Indemnified Party shall send a Claim Notice with respect to such claim to the
Indemnifying Party.
(c) After delivery of a Claim Notice, so long as any right to
indemnification exists pursuant to this Article VII, the affected parties each
agree to retain all Books and Records related to such Claim Notice. In each
instance, the Indemnified Party shall have the right to be kept fully informed
by the Indemnifying Party and its legal counsel with respect to any legal
proceedings. Any information or documents made available to any
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party hereunder and designated as confidential by the party providing such
information or documents and which is not otherwise generally available to the
public and not already within the knowledge of the party to whom the information
is provided (unless otherwise covered by the confidentiality provision of any
other agreement among the parties hereto, or any of them), and except as may be
required by applicable law, shall not be disclosed to any third Person (except
for the representatives of the party being provided with information, in which
event the party being provided with the information shall request its
representatives not to disclose any such information which is otherwise required
hereunder to be kept confidential).
7.5 Limitation on Indemnification.
(a) The obligation of the Company under Section 7.2 above shall be
limited to an amount equal to the Purchase Price.
(b) The indemnification of the Purchaser as set forth herein by the
Company shall be limited to only those matters specifically provided in Section
7.2 above; Purchaser hereby releases, discharges and acquits the Company from
any other damage, claim, liability, deficiency, loss, cost or expense, known or
unknown incurred by Purchaser arising out of or resulting from any other matter
not specifically covered or provided in Section 7.2 above. The obligation of
Purchaser under Section 7.2 shall be limited to the unpaid portion of the
Promissory Notes and the fair market value as of the date hereof (determined
without discounts for restrictions on marketability) of any stock held in escrow
at the time a claim is tendered, excluding any stock held in escrow pursuant to
the Earn Out Agreement of equal date hereto.
(c) The indemnification of the Company by the Purchaser and TMCI as
set forth herein shall be limited to only those matters specifically provided in
Section 7.3 above; the Company hereby releases, discharges and acquits the
Purchaser from any other damage, claim, liability, deficiency, loss, cost or
expense, known or unknown incurred by the Company arising out of or resulting
from any other matter not specifically covered or provided in Section 7.3 above.
ARTICLE VIII
MISCELLANEOUS
8.1 Expenses. Each of the parties hereto shall pay its own expenses
(including, without limitation, attorney's and accountants' fees and
out-of-pocket expenses) incidental to this Agreement and the transactions
contemplated hereby.
8.2 Further Assurances. At any time and from time to time after the
Closing Date at the request of Purchaser, and without further consideration, the
Company will execute and deliver such other instruments of sale, transfer,
conveyance, assignment and confirmation and take such other action as Purchaser
may reasonably deem necessary or desirable in order to transfer, convey and
assign more effectively to Purchaser, the Assets
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to put Purchaser in actual possession and operating control of the Business and
to assist Purchaser in exercising all rights with respect thereto.
8.3 Notices. All notices, requests, demands and other communications
required or permitted to be given hereunder shall be in writing and shall be
given personally, telegraphed, telexed, sent by facsimile transmission or sent
by prepaid air courier or certified, registered or express mail, postage
prepaid. Any such notice shall be deemed to have been given (a) when received,
if delivered in person, telegraphed, telexed, sent by facsimile transmission and
confirmed in writing within three (3) Business Days thereafter or sent by
prepaid air courier or (b) three (3) Business Days following the mailing
thereof, if mailed by certified first class mail, postage prepaid, return
receipt requested, in any such case as follows (or to such other address or
addresses as a party may have advised the other in the manner provided in this
Section 8.3):
If to TMCI:
TMCI Electronics, Inc.
1875 Dobbin Drive
San Jose, California 95133
Attention: Rolando Loera, CEO
If to the Purchaser:
Touche Electronics, Inc.
1875 Dobbin Drive
San Jose, California 95133
Attention: Rolando Loera, CEO
With a copy to:
Rosenblum, Parish & Isaacs
160 West Santa Clara Street, 15th Floor
San Jose, California 95113
Attention: Thomas Chaffin
If to the Company:
Pen Interconnect, Inc.
2351 South 2300 West
Salt Lake City, Utah 84119
Attention: James S. Pendleton & Wayne R. Wright
With a copy to:
Parsons Behle & Latimer
201 South Main Street, Suite 1800
Salt Lake City, Utah 84111
Attention: Stuart A. Fredman
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8.4 Publicity. No public release or announcement concerning this
Agreement or the transactions contemplated hereby shall be made without advance
approval thereof by Purchaser and the Company; provided, however, that either
party hereto may make any public disclosure it believes in good faith is
required by applicable law or any listing or trading agreement concerning its
publicly-traded securities (in which case the disclosing party will use its
reasonable efforts to advise the other party prior to making the disclosure).
8.5 Entire Agreement. This Agreement (including the Exhibits and
Schedules) and the agreements, certificates and other documents delivered
pursuant to this Agreement contain the entire agreement among the parties with
respect to the transactions described herein, and supersede all prior
agreements, written or oral, with respect thereto.
8.6 Waivers and Amendments. This Agreement may be amended, superseded,
cancelled, renewed or extended, and the terms hereof may be waived, only by a
written instrument signed by the parties or, in the case of a waiver, by the
party waiving compliance. No delay on the party in exercising any right, power
or privilege hereunder shall operate as a waiver thereof. The rights and
remedies of any parties based upon, arising out of or otherwise in respect of
any inaccuracy in or breach of any representation, warranty, covenant or
agreement contained in this Agreement shall in no way be limited by the fact
that the act, omission, occurrence or other state of facts upon which any claim
of any such inaccuracy or breach is based may also be the subject matter of any
other representation, warranty, covenant or agreement contained in this
Agreement (or in any other agreement between the parties as to which there is no
inaccuracy or breach).
8.7 Governing Law. This Agreement shall be governed by and construed
in accordance with the laws of the State of California, without regard to
principles of conflicts of law.
8.8 Binding Effect; No Assignment. This Agreement shall be binding
upon and inure to the benefit of the parties and their respective successors and
permitted assigns. This Agreement is not assignable by any party hereto without
the prior written consent of the other parties hereto, which consent will not be
unreasonably withheld except by operation of law and any other purported
assignment shall be null and void; provided, however, that Purchaser may assign
this Agreement without the consent of the other parties hereto to any lender of
Purchaser.
8.9 Variations in Pronouns. All pronouns and any variations thereof
refer to the masculine, feminine or neuter, singular or plural, as the context
may require.
8.10 Counterparts. This Agreement may be executed by the parties hereto
in separate counterparts, each of which when so executed and delivered shall be
an original, but all such counterparts shall together constitute one and the
same instrument. Each counterpart may constitute a number of copies hereof each
signed by less than all, but together signed by all of the parties hereto.
8.11 Exhibits and Schedules. The Exhibits and Schedules are a part of
this Agreement as if fully set forth herein. All references herein to Sections,
subsections,
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clauses, Exhibits and Schedules shall be deemed references to such parts of this
Agreement, unless the context shall otherwise require.
8.12 Effect of Disclosure on Schedules. Any item disclosed on any
Schedule to this Agreement shall only be deemed to be disclosed in connection
with (a) the specific representation and warranty to which such Schedule is
expressly referenced, (b) any specific representation and warranty which
expressly cross-references such Schedule and (c) any specific representation and
warranty to which any other Schedule to this Agreement is expressly referenced
if such other Schedule expressly cross-references such Schedule.
8.13 Headings. The headings in this Agreement are for reference only,
and shall not affect the interpretation of this Agreement.
8.14 Severability of Provisions. If any provision or any portion of any
provision of this Agreement or the application of such provision or any portion
thereof to any Person or circumstance, shall be held invalid or unenforceable,
the remaining portion of such provision and the remaining provisions of this
Agreement or the application of such provision or portion of such provision as
is held invalid or unenforceable to persons or circumstances other than those as
to which it is held invalid or unenforceable, shall not be affected thereby.
8.15 Arbitration. Any dispute arising under or pursuant to or affecting
the subject matter of this Agreement shall be resolved in arbitration in Santa
Clara County, California under the arbitration provisions of the California Code
of Civil Procedure Sections 1282 through 1284. Any judgment upon the award may
be confirmed and entered in any court having jurisdiction thereof. The
arbitrator(s) shall be required to, in all determinations, apply California law.
Further, the arbitrator(s) are afforded the jurisdiction to provide and order
all provisional remedies, including, without limitation, injunctive relief,
writs for recovery or possession or such similar relief as may be necessary to
protect the interests of either of the parties or their property rights. In the
event that it is determined that the arbitrator(s) do not have the jurisdiction
to grant those remedies conferred upon them by this provision and requested by
the parties, then such remedies shall be reserved to a court of competent
jurisdiction. The prevailing party in said arbitration shall be awarded by the
arbitrator(s) the costs of arbitration (inclusive of the arbitrator(s)' fees and
costs), as allocated by the arbitrator(s). The parties hereto agree to request
that in awarding non-injunctive relief the arbitrator shall submit to the
parties a formal finding of facts and conclusions of law, no less than one (1)
week before the rendering of any final judgment.
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IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
PEN INTERCONNECT,INC.
By: /s/ James S. Pendleton
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Its: Chief Executive Officer
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TMCI ELECTRONICS, INC.
By: /s/ Rolando Loera
--------------------------------------
Its: President
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TOUCHE ELECTRONICS, INC.
By: /s/ Rolando Loera
--------------------------------------
Its: President
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34
