UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
FOR ANNUAL AND TRANSITION REPORTS PURSUANT TO SECTIONS 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934 (FEE REQUIRED)
FOR THE FISCAL YEAR ENDED JUNE 30, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT 1934 (NO FEE REQUIRED)
FOR THE TRANSITION PERIOD FROM ____ TO ____
Commission File Number 0-22709
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TRANSITION ANALYSIS COMPONENT TECHNOLOGY, INC.
----------------------------------------------
(Exact name of small business issuer as specified in its charter)
<TABLE>
<CAPTION>
<S> <C>
California 13-3391820
- -------------------------------------------------- ------------------------------------
(State or other jurisdiction or organization) (I.R.S. Employer Identification No.)
22700 Savi Ranch Parkway, Yorba Linda CA 92657
- -------------------------------------------------- ------------------------------------
(Address of principal executive officers) (Zip Code)
</TABLE>
Registrant's telephone number, including area code (714) 974-7676
--------------
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class on which registered
------------------- ---------------------
Securities registered pursuant to Section 12(g) of the Act: Common Stock, par
value $.01 per share.
Check whether the registrant (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the past 12
months (or for such shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for the past 90
days. Yes: X No:
--- ---
The aggregate market value of the voting common stock held by non-affiliates of
the registrant, computed by reference to the average of bid and asked price of
the stock as of September 22, 1997 was $460,988.
Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B contained in this form, and no disclosure will be contained, to
the best of registrant's knowledge, in definitive proxy or information statement
incorporated by reference in Part III of this Form 10-KSB or any amendment to
this Form 10-KSB. [X]
State issuer's revenues for its most recent fiscal year: $2,206,000
The number of shares of common stock, $.01 par value, outstanding as of
September 22, 1997 was 598,734. .
Transitional small business disclosure format Yes No X
--- ---
Exhibit List on Page 26
<PAGE>
TABLE OF CONTENTS
-----------------
Part I
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Item 1 - Description of Business ..................................................3
Item 2 - Description of Property ..................................................8
Item 3 - Legal Proceedings ........................................................8
Item 4 - Submission of Matters to a Vote of Security Holders ......................8
Part II
Item 5 - Market for Registrant's Common Stock and Related Matters .................8
Item 6 - Management's Discussion and Analysis of Financial Condition and
Results of Operations.....................................................9
Item 7 - Financial Statements ....................................................13
Item 8 - Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure.................................................25
Part III
Item 9 - Directors and Executive Officers of the Registrant ......................25
Item 10 - Executive Compensation...................................................25
Item 11 - Security Ownership of Certain Beneficial Owners and Management...........25
Item 12 - Certain Relationships and Related Transactions...........................25
PART IV
Item 13 - Exhibits and Reports on Form 8-K.........................................26
SIGNATURES.............................................................................27
</TABLE>
2
<PAGE>
PART I
ITEM 1 - DESCRIPTION OF BUSINESS
General
- -------
Transition Analysis Component Technology, Inc. ("TACTech" or the
"Company") was incorporated in Delaware in 1987 and was owned 90% by Zing
Technologies, Inc. ("Zing") until such 90% interest was spun off to Zing's
shareholders on June 30, 1997. TACTech is a semiconductor information service
company which licenses proprietary computer software tools combined with
electronic semiconductor availability libraries and data bases that are utilized
by various segments of the Department of Defense, the defense/aerospace
industry, and industrial users of high reliability semiconductors and
manufacturers and distributors of high reliability and military grade
semiconductors. When accessed by customers, the libraries and data bases provide
subscribers with valuable tools for determining semiconductors availability
showing the manufacturers actively producing the subject semiconductor and the
projected life cycle (obsolescence) of such semiconductors. The system
identifies functionally interchangeable devices, when available, from various
manufacturers. At present, the Company's libraries and data bases are utilized
by its customers primarily in connection with designing, engineering,
manufacturing and maintaining of electronic systems for high reliability
applications. As of June 30, 1997, TACTech services were subscribed to by
ninety-five (95) customers located in the United States, one (1) customer
located in Canada and ten (10) customers located outside the continental United
States. Approximately 95% of the Company's revenues are derived from military
projects, primarily through government contractors and subcontractors.
Government agencies themselves account for less than 10% of the Company's
revenues in the aggregate.
The TACTech data bases and libraries contain the nomenclature and
general description for over 121,000 individual military semiconductor devices
and over 111,000 commercial /industrial devices (the portion of the TACTech
library consisting of information on commercial/industrial devices is hereafter
referred to as the "Commercial Library"). TACTech's military library generally
includes all standard microcircuits and discrete devices with military
specifications. The data bases are instantly updated at TACTech's headquarters
and delivered on a real-time, on-line basis. TACTech software provides a
description and general specifications of each microcircuit and discrete device
in the TACTech library, thereby allowing the user to identify functionally
interchangeable devices from various manufacturers and to upgrade and rank
devices according to packaging, quality levels, projected production life cycle
and availability based on changes in technology and sources of supply. All
semiconductors listed in TACTech's library are ranked by reference to such
factors.
TACTech has developed proprietary analysis procedures and software to
provide a production life cycle projection assessment rating for each device
type (microcircuit, diode and
3
<PAGE>
transistor) contained in its library. TACTech's production life cycle
projections are determined by tracking specific device-type attribute values
such as speed, density, packaging, manufacturing process, design-in acceptance
and available sources of supply.
TACTech's proprietary software allows its customers to receive
information from TACTech's library in useable formats through a personal
computer with modem access or through the Internet. The system allows for device
type information searches to be conducted on a form, fit and function equivalent
basis and/or alternate technology basis. Updates to TACTech's information
library are available to TACTech's customers on a real-time, on-line basis.
Information searches can be conducted by the customer on a base number search,
through parametric product description and by generic part number
identification. TACTech provides an automatic electronic discontinuance
notification service through its built-in software, which automatically notifies
the subscriber of changes in semiconductor availability with reference to the
specific subscriber's bill(s) of materials. In addition, the TACTech systems
allow contractors and designers to screen out obsolete semiconductors and
provide for the more predictable manufacturing and better maintenance of
equipment, thus helping to ensure a longer operational life of equipment.
TACTech also maintains a "where used" library which contains the
semiconductor content of over 2,000 unclassified military electronic system
variations. A user can access this "where used" library to determine which
specific device types are incorporated within specific systems or to determine
how many electronic military systems use a given semiconductor.
TACTech provides an information service that allows the user to convert
most military specification semiconductors to their closest industrial
equivalent. The conversion is based on electrical functionality as well as
packaging availability.
The Company generates revenues primarily through license agreements for
its data base services pursuant to which it receives subscription fees. These
agreements are generally for terms of 12 months, but may be canceled by either
party upon 30 days' notice.
On September 22, 1997, the Company issued 44,904 shares of its common
stock for all the issued shares of Research Analysis Corporation ("RAC"). In
addition, each of the two RAC selling shareholders received three-year
employment agreements with the Company and stock options. Each employment
agreement provides for an annual base salary and certain employee benefits up to
an aggregate of $200,000; and an incentive bonus up to $100,000 annually,
measured by the Company achieving certain targeted sales goals. Options for
44,904 shares of the Company common stock in the aggregate were also granted to
the RAC selling shareholders at an exercise price of $3.00 per share which vest
over a three-year period at the rate of 14,968 shares per year. The right to
exercise these options is subject to incremental vesting as (and if) the Company
achieves certain targeted sales goals. These options were not granted pursuant
to the Company's 1997 Option Plan.
The Company believes that it can achieve synergies as a result of the
application of RAC's search engine technology (which accounted for approximately
65% of RAC's revenues in RAC's
4
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1997 fiscal year) to the Company's military and commercial systems componentry
data bases and search engine technology, and that the RAC acquisition should
enable the Company to offer improved data retrieval services to the Company's
customers.
Competition
- -----------
TACTech competes with many data service companies which possess greater
financial and human resources and which offer a greater variety of services than
does TACTech. However, TACTech believes that it offers its customers a unique
set of information services that have been specially developed to assist the
military/aerospace market in solving problems relating to the management of
diminishing sources of supply and technological obsolescence, as they pertain to
high reliability semiconductor devices.
TACTech believes it is the only commercially available, continuously
updated, real-time, on-line information service company which has focused all
its resources on providing such highly specialized services, thus giving it an
advantage in competing favorably with other information service organizations
who provide data services designed for more general application.
Marketing, Sales and Licensing
- ------------------------------
TACTech maintains marketing, customer service and customer training
representatives in its Yorba Linda, California headquarters and marketing
representatives located in Orlando, Florida, New Orleans, Louisiana and
Valhalla, New York. TACTech markets its data services through highly trained and
highly specialized marketing personnel who contact prospective customers
directly. TACTech also promotes its services and identifies prospective
customers through participation in conferences and conventions dedicated
predominantly or exclusively to the issue of shrinking availability of military
products due to a diminishing number of manufacturing sources for military
specified products, or due to technological obsolescence. Video sales aids and
literature describing TACTech's data services are also utilized in its marketing
program.
TACTech licenses its proprietary software and data services under
written license agreements with subscribers. Although TACTech provides customer
support to its subscribers to facilitate efficient use of its data services,
TACTech does not warrant the data provided to its subscribers.
Many of the Company's customers access the Company services by a
modem-to-modem connection using the customers' own computers. The Company also
emphasizes delivery of its services through the Internet and World Wide Web
rather than modem-to-modem distribution.
Subscribers for the Company's services can access the TACTech home page
at "www.tactech.com"; and the Company is seeking ways to realize greater
efficiencies for delivering its services through the Internet and World Wide Web
by augmenting and simplifying the use of its existing graphical user interface
accessible on the Internet and World Wide Web. The Company
5
<PAGE>
plans to pursue the entry into marketing alliances aimed at penetrating the
commercial/industrial market.
In the fiscal year ended June 30, 1997, sales to no customer of the
Company exceeded 10% of the Company's revenue. Sales to the Company's five
largest customers in fiscal 1996 and 1997 accounted for approximately 21 percent
and 27 percent, respectively, of the Company's revenues. Pursuant to its
agreement with Arrow Electronics, Arrow Electronics is the sole electronic
component distributor that is permitted to use the Company's services. The
Company's management believes that if the Company were to lose Arrow Electronics
as a customer, the Company would be able to replace the business lost from Arrow
Electronics with business from other electronic component distributors.
TACTech's sales outside the United States are as follows:
<TABLE>
<CAPTION>
Fiscal 1996 Fiscal 1997
----------- -----------
<S> <C> <C>
Canada................................. $ 20,000 $ 24,000
Europe................................. 21,000 92,900
Mid East (Israel)...................... 36,000
Far East (Japan)....................... 4,800
-------- --------
Total.................................. $ 41,000 $157,700
======== ========
</TABLE>
Customer Support and Warranty
- -----------------------------
TACTech's license agreements with its customers include in the base
subscription price free on-site training for two representatives of the
customer. The training program runs for two days and covers three areas;
operational and conceptual understanding of the software program's capability
and application training for integrating TACTech's service into the subscriber's
system. Once on line, a subscriber may call TACTech for technical assistance, at
the subscriber's cost, or use e-mail to obtain assistance. TACTech's license
agreements expressly disclaim any warranty, express or implied, for the accuracy
of its data bases.
Security Measures
- -----------------
TACTech has adopted a number of security measures and techniques. To
protect against a natural disaster, the Company engages in daily system data
backups and weekly full system data backups. Independent library tapes are
maintained and off-site data storage is utilized which contains a full system
data backup of library information and private customer files. To protect
against unauthorized usage, the Company maintains a dual access code security
system. The Company controls system access and allows its clients to apply a
second level of security codes that protect their private files. All data is
maintained in an encrypted state, only the password protected security codes
controlled by the Company and the Company's customers can open the files and
permit system usage. All entries to utilize the Company's services are recorded
on a hard copy trail and are
6
<PAGE>
reviewed daily for proper authorization clearance. Safeguards are programmed
into the entry codes that shut down the system after five attempts are made to
enter the system with faulty access codes. The Company believes that these
safeguards are sufficient to prevent the unauthorized use of its data base
services by subscribers and to frustrate penetration of its system and theft of
its data bases and programs by outsiders. TACTech meets the Pentagon's Orange
Book standards for security in its industry. TACTech is in compliance with a G-2
level which is the highest security level for a networking service.
Source of Data Bases
- --------------------
Information for TACTech's data bases and libraries is acquired from the
private and governmental sectors, including semiconductor manufacturers, defense
contractors and the unclassified records of the U.S. Government and its
agencies. Approximately two-thirds of TACTech's information for its data bases
comes from numerous companies in the private sector which generally make such
information available to persons having a recognized need for such information.
The remaining information is obtained from governmental sources which can be
accessed pursuant to the Freedom of Information Act.
Copyrights, Trademarks and Licenses
- -----------------------------------
TACTech maintains copyright protection for its computer software and
related data base service and claims proprietary trade secret protection through
customer licensing agreements. "TACTech" is a registered trademark of the
Company. The Company does not hold any patents to any of the technology
incorporated in its software or data services.
Research and Development
- ------------------------
TACTech's research and development efforts principally focus on
augmenting TACTech's existing customer interface design (the GUI on the Internet
and World Wide Web), new information products, the further development of the
Commercial Library, system security and the programming and maintaining of
TACTech's hardware and software.
Employees
- ---------
As of June 30, 1997, TACTech employed thirty-four (34) persons --
sixteen (16) persons in software development, data base maintenance and computer
maintenance personnel; five (5) persons in data processing; five (5) persons in
sales, marketing and customer support; and eight (8) persons in administrative
roles. None of TACTech's employees are covered by a collective bargaining
agreement.
7
<PAGE>
ITEM 2 - DESCRIPTION OF PROPERTY
At June 30, 1997, TACTech was leasing a facility in Yorba Linda,
California from Arrow Electronics on a month-to-month basis at a cost of $3,500
per month. Substantially all of TACTech's facility is in productive use. The
Company has leased a new facility of approximately 11,500 square feet in Yorba
Linda commencing on October 1, 1997 for a period of five (5) years. Pursuant to
the non-cancelable lease, the annual lease rental rate for each of the five
years is approximately $79,000, $83,000, $87,000, $93,000 and $97,000. In
addition, the Company bears its allocable portion of the property's common area
maintenance which cannot exceed 106% of the previous year's common area
maintenance charge.
ITEM 3 - LEGAL PROCEEDINGS
The Company is not party to any material pending legal proceedings nor,
to the Company's knowledge, is any material legal proceeding threatened.
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
PART II
ITEM 5 - MARKET FOR REGISTRANT'S COMMON STOCK
AND RELATED STOCK HOLDER MATTERS
The Common Stock of the Company is traded in the over-the-counter
market for securities that do not meet the Nasdaq Small Cap Market listing
requirements under the symbol "TRZA." The following table sets forth the high
and low closing prices of the Company's Common Stock (after only limited
trading) since the first day of trade on July 25, 1997:
<TABLE>
<CAPTION>
High Low
---- ---
<S> <C> <C>
Fiscal Year Ending June 30, 1998
First Quarter, (July 25, 1997 -
September 22, 1997) $ 2.50 $ 0.93
</TABLE>
As of September 22, 1997, there were 598,734 shares of Common Stock
outstanding and 898 beneficial owners, including 81 holders of record.
8
<PAGE>
No cash dividends have been paid on the Company's Common Stock for the
fiscal years ended June 30, 1997. The present policy of the Company is to retain
earnings to provide funds for the operations and expansion of its business.
ITEM 6 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The discussion and analysis below should be read in conjunction with
the Financial Statements of the Company and the Notes thereto included elsewhere
in this report. In addition to historical information, the following discussion
and analysis contains forward-looking statements that involve risks and
uncertainties within the meaning of Section 27A of the Securities Act and
Section 21E of the Exchange Act, which are intended to be covered by the safe
harbors created thereby. Although the Company believes that the assumptions
underlying these forward-looking statements are reasonable, there can be no
assurance that they will prove to be accurate. Therefore, the inclusion herein
of information should not be regarded as a representation by the Company or any
other person that the objectives and plans of the Company will be achieved.
Analysis of Financial Condition and Results of Operations covers the
fiscal years ended June 30, 1997 and June 30, 1996.
The following table expresses certain items from the Company's income
statements as a percentage of net sales for the periods indicated:
<TABLE>
<CAPTION>
Year Ended June 30,
1996 1997
---- ----
<S> <C> <C>
Revenues............................................... 100.0% 100.0%
Selling, general and administrative expenses........... 88.1 84.5
Depreciation .......................................... 2.1 1.8
----- -----
Income before income taxes ............................ 9.8 13.7
Charges in lieu of income taxes........................ 3.1 4.7
----- -----
Net Income............................................. 6.7 9.0
===== =====
</TABLE>
Results of Operations - Fiscal Year Ended June 30, 1997
Compared to Fiscal Year Ended June 30, 1996
TACTech generates revenues primarily through license agreements for its
data base services. These agreements are generally for terms of 12 months, but
may be canceled by either party upon 30 days notice. The number of subscriber
licenses generating revenues was greater by approximately 30% at June 30, 1997
as compared to June 30, 1996. The following data indicates the licensing
activity for each period:
9
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<TABLE>
<CAPTION>
Year Ended June 30,
1996 1997
---- ----
<S> <C> <C>
Subscribers at beginning of period..................... 60 73
Subscribers who did not renew.......................... (14) (12)
Subscribers added during period including
renewal subscription ................................ 27 34
--- ---
Subscribers at end of period........................... 73 95
=== ===
</TABLE>
TACTech earned net income of $199,000 or $.36 per share for the fiscal
year ended June 30, 1997 as compared to net income of $107,000 or $.19 per share
for the fiscal year ended June 30, 1996 (calculated on a pro forma basis as if
the Company was a stand-alone company).
Revenues for the fiscal year ended June 30, 1997 were $2,206,000, as
compared to $1,601,000 for the comparable 1996 period. This represented an
increase of 38%.
This increase in revenue is primarily attributed to a combination of a
larger subscription base and a general increase in subscription services as
subscribers renew. In fiscal 1997 and fiscal 1996, the renewal rate of the
Company's subscribers was approximately 80% and 81%, respectively.
Selling and general and administrative expenses during fiscal year 1997
increased to approximately $1,863,000 from $1,410,000 for the prior comparable
period. The increase is attributable primarily to increases in personnel costs
as demonstrated by the following table:
<TABLE>
<CAPTION>
Number of Employees
Year Ended June 30,
1996 1997
---- ----
<S> <C> <C>
Sales, marketing, training and customer service........ 5 5
Software development, data base maintenance
and computer maintenance........................... 9 16
Data processing........................................ 3 5
General and administrative............................. 5 8
-- --
Total.................................................. 22 34
== ==
</TABLE>
Charges in lieu of income taxes in fiscal 1997 amounted to $103,000,
representing an effective tax rate of 34%, as compared to $50,000, with an
effective tax rate of 32% for fiscal 1996.
Results of Operations - Fiscal Year 1996 Compared to Fiscal Year 1995
- ---------------------------------------------------------------------
TACTech's revenues from subscriber licenses increased by approximately
31% from $1,225,000 to $1,601,000 during the fiscal year ended June 30, 1996 as
compared to the fiscal year ended June 30, 1995.
10
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The following data reflects TACTech's subscription history for the
fiscal periods indicated:
<TABLE>
<CAPTION>
Fiscal Year Fiscal Year
1995 1996
---- ----
<S> <C> <C>
Subscribers at beginning of period..................... 47 60
Subscribers who did not renew.......................... (7) (14)
Subscribers added during period including renewal
subscribers.......................................... 20 27
-- ---
Subscribers at end of period........................... 60 73
== ===
</TABLE>
In Fiscal 1996 subscriber gains were approximately 50% more than the
losses and in Fiscal 1995 the ratio was approximately 33%. Approximately 81% of
the subscriber licenses expiring were renewed as compared to 77% in Fiscal 1995.
TACTech earned net income of $107,186, or $0.19 per share (after giving
effect to the Stock Split), for the Fiscal Year ended June 30, 1996, compared to
$38,325, or $0.07 per share (after giving effect to the Stock Split), for the
Fiscal Year ended June 30, 1995.
Revenues for the Fiscal Year ended June 30, 1996 were $1,601,255 as
compared to $1,224,656 for the Fiscal Year ended June 30, 1995. This represents
an increase of 31% over the prior comparable period.
Selling, marketing, software development and maintenance expenses and
depreciation increased to $1,444,000 for the Fiscal Year ended June 30, 1996 as
compared to $1,170,000 for the Fiscal Year ended June 30, 1995. The increase is
primarily attributable to a $200,000 increase in personnel costs as a result of
the Company's expanded operations. The following schedule demonstrates the
growth in personnel additions by functional area:
<TABLE>
<CAPTION>
Number of Employees
As of the Fiscal Year Ended
-------------------------------
June 30, 1995 June 30, 1996
------------- -------------
<S> <C> <C>
Sales, marketing, training and customer service........ 3 5
Software development, data base maintenance
and computer maintenance............................ 7 9
Data processing ..................................... 2 3
General and administrative............................. 4 5
-- --
Total.................................................. 16 22
== ==
</TABLE>
11
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Trends
TACTech's intention is to position itself to capitalize on the need for
more efficient design service as the Department of Defense budget contracts.
Although a declining U.S. military budget may result in a reduction in the total
number or dollar value of military projects, TACTech believes that Department of
Defense imperatives aimed at design efficiency for those projects will make
TACTech's services more valuable as a means of reducing the incidence of
technological obsolescence and assisting designers in identifying the best
available military industrial practices.
Liquidity and Capital Resources
In fiscal 1996 and 1995, the Company used most of its cash generated
from operations for the acquisition of computers and computer related equipment,
and for the reduction of its obligations to Zing and generally for business
growth and development.
Internal cash flow generated by the operations of the Company, together
with borrowings under the Company's $1.5 million credit facility, should be
sufficient for the Company to meet its short-term working capital requirements
and capital expenditure requirements. TACTech's management is currently
contemplating an expansion program for the Company which would include, among
other things, expanding its direct sales force, establishing marketing and
selling relationships both domestically and internationally, developing its
Commercial Library, and developing and offering additional value-added services
to its customers. In addition, other than with respect to the recently
consummated acquisition of RAC, there are no present understandings, commitments
or agreements with respect to any acquisition or of other businesses, products
or technologies or any strategic alliances. The Company may from time to time
evaluate potential acquisitions of businesses, products and technologies or
strategic alliances and may in the future issue securities or require additional
equity or debt financings to consummate such potential acquisitions or strategic
alliances.
Impact of Inflation
In fiscal 1997 and fiscal 1996, inflation did not have a significant
impact on the operations of the Company. Since the Company's licensing contracts
with its customers are for relatively short periods, inflation may have an
adverse effect on the Company's revenues and pricing structure.
12
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ITEM 7 - FINANCIAL STATEMENTS
Transition Analysis Component Technology, Inc.
Index to Financial Statements
June 30, 1997
<TABLE>
<CAPTION>
Page No.
--------
<S> <C>
Report of Independent Auditors .........................................14
Balance Sheets..........................................................15
Statements of Income....................................................16
Statements of Stockholders' Equity......................................17
Statements of Cash Flows................................................18
Notes to Financial Statements...........................................19
</TABLE>
13
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REPORT OF INDEPENDENT AUDITORS
Stockholders and Directors
Transition Analysis Component Technology, Inc.
Yorba Linda, CA
We have audited the accompanying balance sheets of Transition Analysis
Component Technology, Inc. ("TACTech") as of June 30, 1997 and 1996, and the
related statements of income, stockholders' equity and cash flows for the years
then ended. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of TACTech at June 30,
1997 and 1996 and the results of its operations and its cash flows for the years
then ended in conformity with generally accepted accounting principles.
/s/ ERNST & YOUNG LLP
September 22, 1997
White Plains, New York
14
<PAGE>
Transition Analysis Component Technology, Inc.
Balance Sheets
<TABLE>
<CAPTION>
June 30,
1996 1997
-------------------------------
<S> <C> <C>
Assets
Current Assets:
Cash................................................................ $ 133,855 $ 132,908
Accounts receivable, less allowances
of $5,000 in 1997 and 1996...................................... 322,324 419,331
Prepaid expenses and other current assets........................... --- 10,700
--------- ---------
Total current assets.................................................... 456,179 562,939
Equipment .............................................................. 347,257 500,086
Less: accumulated depreciation.......................................... 270,375 309,937
--------- ---------
76,882 190,149
--------- ---------
Total assets............................................................ $ 533,061 $ 753,088
========= =========
Liabilities and stockholders' equity
Current liabilities:
Accrued compensation expense........................................ $ 39,021 $ 98,306
Accrued income taxes due former parent company...................... 66,415 169,815
Accrued legal and audit expenses.................................... 36,000 26,513
Accrued expenses - other............................................ 16,252 26,428
Deferred income..................................................... 58,985 79,905
--------- ---------
Total current liabilities............................................... 216,673 400,967
Due to former parent.................................................... 609,242 ---
Contingencies (Note 7)
Stockholders' equity (deficiency):
Common stock (par value $.01 per share; authorized
50,000 shares as of June 30,1996 and 5,000,000 shares
as of June 30, 1997; issued and outstanding 15,200 shares
as of June 30,1996 and 553,830 shares as of June 30,1997)......... 152 5,538
Additional paid-in capital.......................................... 848 440,967
Accumulated deficit................................................. (293,854) (94,384)
--------- ---------
Total stockholders' equity (deficiency)................................. (292,854) 352,121
--------- ---------
Total liabilities and stockholders' equity (deficiency)................. $ 533,061 $ 753,088
========= =========
</TABLE>
See accompanying notes.
15
<PAGE>
Transition Analysis Component Technology, Inc.
Statements of Income
<TABLE>
<CAPTION>
Year ended June 30,
1996 1997
-------------------------------
<S> <C> <C>
Revenues.............................................................. $ 1,601,255 $ 2,205,679
Selling, general and administrative expenses.......................... 1,409,921 1,863,247
Depreciation of equipment............................................. 34,133 39,562
----------- -----------
Income before income taxes............................................ 157,201 302,870
Charges in lieu of income taxes....................................... 50,015 103,400
----------- -----------
Net income............................................................ $ 107,186 $ 199,470
=========== ===========
Net income per common share........................................... $ .19 $ .36
----------- -----------
Number of shares used in computation.................................. 553,830 553,830
=========== ===========
</TABLE>
See accompanying notes.
16
<PAGE>
Transition Analysis Component Technology, Inc.
Statements of Stockholders' Equity
<TABLE>
<CAPTION>
Total
Additional Stockholders'
Common Paid-in Accumulated Equity
Stock Capital Deficit (Deficiency)
---------------------------------------------------------------------
<S> <C> <C> <C> <C>
Balance at June 30, 1995 $152 $848 $(401,040) $(400,040)
Net income --- --- 107,186 107,186
---------------------------------------------------------------------
Balance at June 30, 1996 152 848 (293,854) (292,854)
Net income --- --- 199,470 199,470
Capital contribution of
former parent --- 553,723 --- 553,723
---------------------------------------------------------------------
Balance at June 30, 1997
prior to distribution 152 554,571 (94,384) 460,339
Stock split 5,386 (5,386) --- ---
Costs in connection with
distribution of stock --- (108,218) --- (108,218)
---------------------------------------------------------------------
Balance at June 30, 1997 $ 5,538 $ 440,967 $ (94,384) $ 352,121
=====================================================================
</TABLE>
See accompanying notes.
17
<PAGE>
Transition Analysis Component Technology, Inc.
Statements of Cash Flows
<TABLE>
<CAPTION>
Year Ended June 30
1996 1997
----------------------------
<S> <C> <C>
Operating activities
Revenues ..................................................................... $ 107,186 $ 199,470
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization.......................................... 34,133 39,562
Changes in operating assets and liabilities:
Accounts receivable.................................................. (97,052) (97,007)
Prepaid expenses and other current assets............................ 14,674 (10,700)
Accrued compensation expense......................................... 12,516 59,285
Accrued taxes due former parent company.............................. 50,015 103,400
Accrued legal and audit expenses..................................... 17,500 (9,487)
Accrued expenses - other............................................. 7,595 10,176
Deferred income...................................................... 18,668 20,920
----------------------------
Net cash provided by operating activities..................................... 165,235 315,619
Investing activities
Purchase of equipment......................................................... (49,573) (152,829)
----------------------------
Net cash used in investing activities......................................... (49,573) (152,829)
----------------------------
Financing activities
Decrease in amounts due to former parent...................................... (48,400) (55,519)
Costs in connection with distribution of stock................................ --- (108,218)
----------------------------
Net cash used in financing activities......................................... (48,400) (163,737)
----------------------------
Net increase (decrease) in cash .............................................. 67,262 (947)
Cash at beginning of year..................................................... 66,593 133,855
----------------------------
Cash at end of year........................................................... $ 133,855 $ 132,908
============================
</TABLE>
See accompanying notes.
18
<PAGE>
Transition Analysis Component Technology, Inc.
Notes to Financial Statements
June 30, 1997
1. Organization and Summary of Significant Accounting Policies
Organization
Prior to June 30, 1997, Transition Analysis Component Technology, Inc.
("TACTech" or the "Company") was a 90% owned subsidiary of Zing Technologies,
Inc. ("Zing"), the Company's former parent, and the remaining 10% was owned by
one officer of the Company. TACTech is located in Yorba Linda, California.
The Company filed a registration statement on Form SB-1, which became effective
June 30, 1997, for the purpose of distributing the Common Stock of the Company
which was owned by Zing to the shareholders of Zing (the "Distribution"). In
connection with the Distribution, the Common Stock authorized and outstanding
was split on approximately a 36.436-for-one basis.
Also, in connection with the Distribution, intercompany advances (excluding
income taxes) as of the effective date of the Distribution were converted to
equity and, accordingly, were included within additional paid-in capital.
As of the date of the Distribution, the Company engaged certain employees of
Zing (with the permission of Zing) on a part-time basis to render to the Company
the following services for a cost not to exceed $100,000 per year including: to
advise in the development of the Company's business plan, to advise the Company
with respect to and to negotiate agreements on the Company's behalf, to
coordinate communications with the Company's stockholders, to advise the Company
with respect to and to negotiate acquisitions and financing, to prepare and file
the Company's tax returns and reports required by applicable securities laws and
rules of applicable stock exchanges, to review and supervise the Company's
accounting department and systems from time to time and suggest revisions and
changes thereto, and to perform such further services as such employees may
agree.
General Business Description
TACTech is a semiconductor information service provider which licenses
proprietary computer software tools combined with electronic semiconductor
availability libraries and data bases that are utilized by various segments of
the Department of Defense, the defense/aerospace industry, and industrial users
of high reliability semiconductors and manufacturers and distributors of high
reliability and military grade semiconductors.
19
<PAGE>
Transition Analysis Component Technology, Inc.
Notes to Financial Statements (continued)
1. Organization and Summary of Significant Accounting Policies (continued)
Revenue Recognition and Concentration of Credit Risk
The Company recognizes revenue on a monthly basis with substantially all
contracts cancelable on 30 days notice.
Equipment
Equipment is stated at cost and is depreciated using the straight-line method
over five years.
Net Income Per Common Share
Net income per common share is based on the weighted average number of shares of
Common Stock outstanding during the year, adjusted to reflect the stock split
referred to above for all periods presented.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts reported in the financial statements and accompanying notes.
Actual results could differ from those estimates.
Fair value of Financial Instruments
The carrying amounts of cash, accounts receivable, accounts payable and accrued
expenses reasonably approximate fair value due to the short maturity of these
items.
Recent Accounting Pronouncement
The Financial Accounting Standard Board issued Statement of Financial Accounting
Standards ("SFAS") No. 121, "Accounting for the Impairment of Long-Lived Assets
to Be Disposed Of." The Company adopted SFAS No. 121 in fiscal 1997, and there
was no impact.
Agreements
In April 1993, TACTech entered into a three-year exclusive licensing agreement
with a distributor of electronic components at an annual rate of $108,000 and
this agreement was amended in May 1993 with an expiration date of June 1998. The
annual rate was amended to $200,000 effective July 1995.
20
<PAGE>
Transition Analysis Component Technology, Inc.
Notes to Financial Statements (continued)
1. Organization and Summary of Significant Accounting Policies (continued)
TACTech agreed that during the term of this agreement it would not grant or
authorize any other party access to its data bases or services if such party
were in the business of distributing electronic component parts. The agreement
may be renewed for successive one-year periods by mutual written consent of the
parties.
2. Charges in Lieu of Income Taxes
The Company filed its federal income taxes on a consolidated basis for fiscal
years ended 1996 and 1997 with its former parent, Zing. Income taxes are
computed on a separate company basis pursuant to the liability method. Taxes
payable as of June 30, 1997 and 1996 aggregated to $169,815 and $66,415,
respectively, and are due to the former parent company.
The Company records taxes under the liability method of accounting for income
taxes. Under this method, any deferred tax assets and liabilities are measured
using the enacted tax rates and laws that will be in effect when the differences
are expected to reverse. Deferred tax assets of $28,000 and valuation reserves
of $28,000 related thereto have been recorded at June 30, 1997.
The difference between the effective tax rate and the federal tax rate of 34% is
due to the effect of the graduated federal tax rate schedule and state taxes.
3. Employee Benefit Plans
Zing has a deferred compensation program for all employees, which is qualified
under Section 401(k) of the Internal Revenue Code under which the Company's
eligible employees were entitled to participate in the 1996 fiscal year and 1997
fiscal year. Under the program, contributions to be made by the Company are at
the discretion of the Board of Directors of the Company. The Company contributed
$1,600 in fiscal 1997 and $2,800 in fiscal 1996. Upon the distribution by Zing
of its Company shares to Zing shareholders, the Company established its own
deferred compensation plan for employees qualified under Section 401(k) of the
Internal Revenue Code. The Company does not maintain post-retirement benefit
plans.
4. Leases
In fiscal year 1997, TACTech rented facilities in Yorba Linda, California on a
month-to-month basis. Lease expense for the years ended June 30, 1997 and 1996
was $ 46,000 and $44,000, respectively.
21
<PAGE>
Transition Analysis Component Technology, Inc.
Notes to Financial Statements (continued)
4. Leases (continued)
The Company has leased a new facility of approximately 11,500 square feet in
Yorba Linda commencing on October 1, 1997 for a period of five (5) years.
Pursuant to the new non-cancelable lease, the annual lease rental rate for each
of the five years is approximately $79,000, $83,000, $87,000, $93,000 and
$97,000. In addition, the Company bears its allocable portion of the property's
common area maintenance which cannot exceed 106% of the previous years' common
area maintenance charge.
5. Stockholders' Equity
The Company's Board of Directors adopted and the Company's stockholders approved
the Transition Analysis Component Technology, Inc. 1997 Stock Option Plan (the
"Plan"). Under the Plan, options to purchase up to 60,000 shares of Company
common stock are available for grant from time to time for key employees of and
consultants to the Company. No options have been granted under the Plan.
In connection with the Distribution, the Company amended its Certificate of
Incorporation to increase its authorized capital to 10,000,000 shares of capital
stock, of which 5,000,000 shares are designated as common stock, $.01 par value,
and 5,000,000 shares as preferred stock, $.01 par value.
6. Related Parties
The Company has been allocated a portion of Zing's corporate administrative
expenses which amounted to $100,000 in fiscal 1997 and $75,000 in fiscal 1996
and are included in selling, general and administrative expenses.
The President and Chief Executive Officer of the Company (also an officer of
Zing) has an employment agreement expiring on June 30, 2000, entitling him to a
salary of $80,000 per annum. There is no contractual entitlement to any bonus.
The Executive Vice President and General Manager has an employment agreement
expiring on May 1, 1999, entitling him to a base salary of $120,000 per annum
plus five percent (5%) of the Company's collected revenues, except that for
revenues attributable to another commissioned member, the commission rate is two
and one-half percent.
In December 1996, Zing loaned $100,000 to the Company's Executive Vice President
in exchange for his secured promissory note. The promissory note, which matured
on June 29, 1997, was secured by a first priority security interest in all of
his shares of common stock of the Company. In fiscal 1997, $46,000 was repaid
and the balance of $54,000 remains outstanding as an advance to such executive
from Zing.
22
<PAGE>
Transition Analysis Component Technology, Inc.
Notes to Financial Statements (continued)
7. Contingencies
Pursuant to an indemnification agreement entered into between the Company and
Zing in connection with the distribution by Zing of its TACTech shares of Common
Stock to Zing's stockholders (the "Distribution"), the Company agreed to
indemnify and save harmless Zing and its directors, officers, employees, agents
and/or affiliates for any claims incurred or suffered, directly or indirectly,
by them resulting from or attributable to, among other things (i) the operation
of the Company from and after the Distribution (ii) any claim, suit or other
type of proceeding based upon, arising out of or in connection with the
operation of the Company's business (other than Zing's business) prior to the
Distribution, and (iii) any claims, suit or other type of proceeding based upon
arising out of or in connection with any information concerning the Company in
the Prospectus relating to the Distribution or any information furnished by the
Company concerning the Company for inclusion in such Prospectus. Although the
Company is not aware of any pending or threatened material liability for which
it anticipates becoming obligated to make payments in connection with its
obligations to indemnify the Zing, there can be no assurance that such
indemnification obligations could not arise or that such indemnification
obligations would not be material to the Company. Under the Indemnification
Agreement, Zing is required to indemnify the Company in certain circumstances,
which obligation may counterbalance the indemnification obligations owed by the
Company to Zing.
The net assets transferred at June 30, 1997 in TACTech were as follows:
<TABLE>
<CAPTION>
<S> <C>
Current Assets $ 671,000
Non-Current Assets $ 190,000
Liabilities $ (401,000)
----------
Net Assets $ 460,000
==========
</TABLE>
8. Subsequent Events
On August 28, 1997, the Company entered into a $1,500,000 revolving credit
facility with a commercial bank (the "Bank") to be used for working capital and
equipment acquisitions. The facility has a three year term and is guaranteed by
Zing. Interest on all borrowings is at a variable rate tied to the Bank's prime
rate. All of the Company's personal property collateralizes borrowings under
such facility.
On September 22, 1997, the Company issued 44,904 shares of its common stock for
all the issued shares of Research Analysis Corporation ("RAC"). In addition,
each of the two RAC selling shareholders received three-year employment
agreements with the Company and stock options. Each employment agreement
provides for an annual base salary and certain employee benefits up to an
aggregate of $200,000; and an incentive bonus up to $100,000 annually, measured
by the Company achieving certain targeted sales goals.
23
<PAGE>
Transition Analysis Component Technology, Inc.
Notes to Financial Statements (continued)
8. Subsequent Events (continued)
Options to purchase 44,904 shares of the Company common stock in the aggregate
were also granted to the RAC selling shareholders at an exercise price of $3.00
per share which vest over a three-year period at the rate of 14,968 per year.
The right to exercise these options is subject to incremental vesting as (and
if) the Company achieves certain targeted sales goals. These options were not
granted pursuant to the Company's 1997 Option Plan.
The Company believes that it can achieve synergies as a result of the
application of RAC's search engine technology (which accounted for approximately
65% of RAC's revenues in RAC's 1997 fiscal year) to the Company's military and
commercial systems componentry data bases and search engine technology, and that
the RAC acquisition should enable the Company to offer improved data retrieval
services to the Company's customers.
A summary RAC balance sheet and operations data as of August 31, 1996 and for
the RAC fiscal year then ended is as follows:
Unaudited Balance Sheet Data
<TABLE>
<CAPTION>
<S> <C>
Current assets.................................................... $ 232,000
Non current assets................................................ 9,000
----------
Total assets...................................................... 241,000
Current liabilities............................................... 92,000
----------
Shareholders' equity.............................................. $ 149,000
==========
Unaudited Operations Data
Revenues .................................................... $ 668,000
----------
Direct Costs...................................................... 405,000
Selling, general and administrative expenses...................... 266,000
----------
Net loss.......................................................... $ (3,000)
==========
</TABLE>
The RAC acquisition was accounted for pursuant to the purchase method of
accounting and is effective as of September 1, 1997.
24
<PAGE>
ITEM 8 - CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE.
None.
PART III
To be filed by amendment on Form 10-KSB on or before the 120th day following the
end of the Company's most recently completed fiscal year.
25
<PAGE>
PART IV
ITEM 13 - EXHIBITS LIST AND REPORTS ON FORM 8-K
The following exhibits are filed with this registration statement, and this
list constitutes the exhibit index.
(a) Exhibits List.
<TABLE>
<CAPTION>
Exhibit No. Description
- ----------- -----------
<S> <C>
3.1 Form of Certificate of Incorporation (amended/restated - Delaware)*
3.2 Form of By-laws (amended/restated)*
4 Common Stock Certificate*
10.1 Malcolm Baca Employment Contract*
10.2 Robert E. Schrader Employment Contract*
10.4 Indemnification Agreement*
10.6 Option Plan*
10.7 Escrow and Distribution Agreement*
10.8 Merger Agreement and Plan of Reorganization among the Company, Research
Analysis Corporation, Research Technology Analysis Corp., Bruce L. Blackford
and Jeff Hanser, dated as of September 1, 1997.
10.9 Option Agreement dated September 22, 1997 between the Company and Jeff
Hanser.
10.10 Option Agreement dated September 22, 1997 between the Company and Bruce
L. Blackford
10.11 Employment Agreement dated as of September 1, 1997 between the Company
and Jeff Hanser
10.12 Employment Agreement between the Company and Bruce L. Blackford dated as
of September 1, 1997
10.13 Credit Agreement between the Company and Fleet Bank dated August 28, 1997
10.14 Commercial Purpose Master Note from the Company in favor of Fleet Bank
dated August 28, 1997.
10.15 Security Agreement between Fleet Bank and the Company dated August 28, 1997.
11 Statement Re: Computation of Per Share Earnings. (See Note 1 to Financial
Statements on Page 20 of this Report).
27 Financial data schedule
99.1 Letter Agreement, dated July 7, 1995 between Transition Analysis Component
Technology, Inc. and Arrow Electronics, Inc.*
99.2 Form of License Agreement and Rider to Agreement, dated May 19, 1993
between Transition Analysis Component Technology, Inc. and Arrow Electronics,
Inc.*
</TABLE>
(b) Reports on Form 8-K - Not Applicable
- ---------------------------------
* Incorporated by reference from the Company's Registration Statement on Form
SB-1 (No. 333-20709).
26
<PAGE>
SIGNATURES
Pursuant to the requirement of Section 13 or 15(d) of Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized on the 6th day of
October, 1997.
Transition Analysis Component Technology, Inc.
By: /s/ Robert E. Schrader
------------------------------------------
Robert E. Schrader
President, Chief Executive Officer and
Chairman of the Board
Each person whose signature appears below constitutes and appoints
Robert E. Schrader and Martin S. Fawer, or either of them, each with the power
of substitution, his or her true and lawful attorney-in-fact to sign any
amendments to this report and to file the same, with exhibits thereto and other
documents in connection therewith, with the Securities and Exchange Commission,
hereby ratifying and confirming all that each said attorney-in-fact, or his or
her substitute, may do or choose to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Robert E. Schrader President, Chief Executive October 6, 1997
- --------------------------- Officer and Chairman of the Board
Robert E. Schrader (Principal Executive Officer)
/s/ Martin S. Fawer Treasurer and Director October 6, 1997
- --------------------------- (Principal Financial Officer)
Martin S. Fawer
/s/ Deborah J. Schrader Secretary and Director October 6, 1997
- ---------------------------
Deborah J. Schrader
</TABLE>
27
MERGER AGREEMENT
AND
PLAN OF REORGANIZATION
DATED AS OF SEPTEMBER 1, 1997
BY AND AMONG
TRANSITION ANALYSIS COMPONENT TECHNOLOGY, INC.,
RESEARCH TECHNOLOGY ANALYSIS CORP.,
RESEARCH ANALYSIS CORPORATION,
JEFF HANSER,
AND
BRUCE L. BLACKFORD
<PAGE>
MERGER AGREEMENT AND PLAN OF REORGANIZATION
MERGER AGREEMENT AND PLAN OF REORGANIZATION, dated as of September 1,
1997 (the "Agreement"), by and among Transition Analysis Component Technology,
Inc., a Delaware corporation ("Parent"), Research Technology Analysis Corp., a
California corporation and a wholly owned Subsidiary of Parent ("Acquisition
Co."), Research Analysis Corporation, a California corporation (the "Company"),
and the Company's shareholders listed on the signature page to this Agreement
(the "Shareholders").
RECITALS
--------
WHEREAS, the boards of directors of Parent, Acquisition Co. and the
Company have approved (a) the merger of Acquisition Co. with and into the
Company pursuant to this Agreement (the "Merger") and (b) the transactions
contemplated hereby upon the terms and subject to the conditions set forth
herein; and
WHEREAS, it is intended that Parent, Acquisition Co. and the Company
and their respective Shareholders (except to the extent such Shareholders
receive cash in lieu of fractional shares) will recognize no gain or loss for
Federal income tax purposes under the Internal Revenue Code of 1986, as amended
(the "Code") and the regulations promulgated thereunder as a result of the
consummation of the Merger;
NOW, THEREFORE, in consideration of the premises and the
representations, warranties, covenants and agreements contained herein, the
parties hereto, intending to be legally bound hereby, agree as follows:
DEFINITIONS ARTICLE
For purposes of this Agreement, the following terms have the following
respective meanings:
"Accounts Receivable" means all trade and other accounts receivable and
notes and loans receivable related to or generated by the business of the
Company, excluding credits, returns, and rebates.
"Acquisition Co." means Research Technology Analysis Corp., a
California corporation.
<PAGE>
"Acquisition Co. Common Stock" has the meaning set forth in Section 3.2
below.
"Adjusted Merger Consideration" has the meaning set forth in Section
3.1(b)(ii) below.
"Affiliate" has the meaning set forth in Rule 12d-2 under the
Securities Exchange Act of 1934, as amended.
"Books and Records" has the meaning set forth in Section 4.11(g) below.
"California Code" means the California General Corporation Law.
"Closing" has the meaning set forth in Section 3.5 below.
"Closing Date" has the meaning set forth in Section 3.5 below.
"Code" has the meaning set forth in the second Recital of this
Agreement.
"Company" means Research Analysis Corporation, a California
corporation.
"Company Common Stock" has the meaning set forth in Section 3.1(a)
below.
"Company Intellectual Property" has the meaning set forth in Section
4.26 below.
"Default" means an event of default as defined in any contract,
document, agreement, or instrument, or any event which, with passage of time or
the giving of notice or both, would constitute an event of default or other
breach under such contract, document, agreement, or instrument.
"Effective Time" has the meaning set forth in Section 1.2 below.
"Employment Agreements" means agreements, understandings, contracts or
arrangements, written or oral, with any Person to which the Company is a party
relating to employment, non-competition, management or consulting, including
with respect to the payment of bonuses or incentives.
"End-User Licenses" has the meaning set forth in Section 4.26 below.
"Environmental Laws" means, any federal, state, local or foreign laws
(including without limitation the common law), ordinance, rule, regulation,
Order, demand letter, request for information, or schedule or time table set
forth in any Federal, state, local or foreign law (including, without
limitation, the common law), ordinance, rule, regulation, Order, demand letter
or request for information issued, promulgated, approved or entered thereunder
relating to pollution or protection of the environment or to occupational health
or safety, including, without limitation, laws relating to emissions,
discharges, releases or threatened releases of pollutants, contaminants,
chemicals, or
2
<PAGE>
industrial, toxic or hazardous substances or wastes into the environment
(including, without limitation, ambient air, surface water, ground water, land,
surface or subsurface strata), or otherwise relating to the manufacture,
processing, distribution, use, treatment, storage, disposal, transport, or
handling of pollutants, contaminants, chemicals, or industrial, toxic or
hazardous substances or wastes.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"ERISA Affiliate" means all trades or businesses (whether or not
incorporated) which are members of a group of which the Company is a member and
which are under common control within the meaning of Code Section 414(b) or (c).
"Financial Statements" means the unaudited (a) balance sheet of the
Company as at August 31, 1996 and 1995, respectively, and statement of income,
statement of retained earnings and statement of cash flows of the Company for
the three years ended August 31, 1996 and 1995, respectively and (b) the Interim
Statements, in each case prepared in accordance with GAAP.
"GAAP" means generally accepted accounting principles applied in the
preparation of the Financial Statements of the Company and (a) shall be
consistent with the then effective principles promulgated or adopted by the
Financial Accounting Standards Board and its predecessors and successors and (b)
shall be applied on a consistent basis in accordance with past practices
applicable to the Company.
"Governmental Body" means any federal, state, provincial, municipal or
other governmental department, commission, board, bureau, authority, court,
agency or instrumentality, domestic or foreign.
"Government Contract" has the meaning set forth in Section 4.19 below.
"Hazardous Substance" means any substance or material regulated by any
Environmental Law, and in the regulations adopted and publications promulgated
pursuant thereto and include, without limitation, any flammable explosives,
radioactive materials, hazardous materials, hazardous wastes, toxic substances,
asbestos or any material containing asbestos.
"Holdback" has the meaning set forth in Section 3.6 below.
"Holdback Payment Date" has the meaning set forth in Section 3.6 below.
"Indemnification Notice" has the meaning set forth in Section 8.4(a)
below.
"Indemnified Party" has the meaning set forth in Section 8.4(a) below.
"Indemnifying Party" has the meaning set forth in Section 8.4(a) below.
3
<PAGE>
"Interim Statements" has the meaning set forth in Section 4.10 below.
"Market Value" means, with respect to the Parent Common Stock, the
average of the closing bid prices for Parent Common Stock in the
over-the-counter market (or on the NASDAQ) for the ten (10) trading days (on
which Parent Common Stock actually traded) prior to the date on which Market
Value is being determined; provided, that if Parent Common Stock has not traded
in the over-the-counter market (or on the NASDAQ) on at least ten separate dates
during the twenty business day period ending with the business day immediately
prior to the date on which Market Value is being determined, then "Market Value"
shall mean, with respect to the Parent Common Stock, the average of the closing
bid prices for Parent Common Stock in the over-the-counter market (or on the
NASDAQ) for the twenty (20) business day period ending with the business day
immediately prior to the date on which Market Value is being determined
regardless of the number of days during such period Parent Common Stock was
actually traded.
"Material Adverse Effect" means a material adverse effect on the
business, prospects, assets, operations, properties or condition (financial or
otherwise) of the Company (or, after the Effective Time, the Surviving
Corporation; or, in the case of Section 5.5(b) above, the Parent), or an effect
which could reasonably foreseeably impair the ability of a Person to perform any
obligation under this Agreement.
"Merger Consideration" has the meaning set forth in Section 3.1(b)(ii)
below.
"Options" has the meaning set forth in Section 3.1(b)(ii) below.
"Order" means any order, writ, injunction, decree, judgment, award,
determination, direction, stipulation or demand of a Governmental Body.
"Parent" means Transition Analysis Component Technology, Inc., a
Delaware corporation.
"Parent Common Stock" has the meaning set forth in Section 3.1(b)(i)
below.
"Parent Employment Agreements" means the employment agreements between
the Parent and each Shareholder effective after the Effective Time, in the form
attached hereto as Exhibit A.
"Person" means any natural person, corporation, limited liability
company, limited liability partnership, firm, trust, partnership, business
trust, joint venture, association, Governmental Body, or any other entity
whether acting in an individual, fiduciary or other capacity.
"Plan" has the meaning set forth in Section 4.17 below.
"Several Representations and Covenants" means, with respect to a
Shareholder and as pertains solely to such Shareholder, such Shareholder's
representations and warranties set forth in Sections 4.2 and 4.5 and such
Shareholder's covenants set forth in Sections 6.8 and 6.9.
4
<PAGE>
"Share Consideration" has the meaning set forth in Section 3.1(b)(i)
below.
"Shareholders' Knowledge" means the actual knowledge or awareness after
the inquiry, of any Shareholder.
"Subsidiary" means (a) any corporation or other entity with respect to
which another Person, directly or indirectly, has the power to vote or direct
the voting of securities sufficient to elect a majority of the directors or
other managers or (b) any corporation or other entity with respect to which
another corporation or entity, direct or indirectly, owns fifty percent (50%) or
more of the aggregate equity interest therein.
"Surviving Corporation" has the meaning set forth in Section 1.1 below.
"Taxes" means all types of Federal, state, local, foreign or other
taxes, changes, fees and similar items of any kind, including, without
limitation, income, franchise, gross receipt, transfer, value added, sales, use,
wage and/or employment or unemployment, excise, disability, real and personal
property, superfund, capital or other taxes, levies, imports, duties, license
and registration fees, assessments, and governmental charges of any nature
whatsoever relating to any of the foregoing, together with any interest,
penalties, fines, assessments, additions and deficiencies related thereto for
which the Company may have any direct or indirect liability.
"Term", when used in Section 6.8 and Section 6.9 below with respect to
a Shareholder's obligations thereunder, means the "Term" as defined in such
Shareholder's Parent Employment Agreement.
ARTICLE I
THE MERGER
SECTION 1.1 The Merger. Upon the terms and subject to the conditions of
this Agreement, at the Effective Time in accordance with the California Code,
Acquisition Co. shall be merged with and into the Company and the separate
existence of Acquisition Co. shall thereupon cease. The Company shall be the
surviving corporation in the Merger (hereinafter sometimes referred to as the
"Surviving Corporation").
SECTION 1.2 Effective Time of the Merger. The Merger shall become
effective at such time (the "Effective Time") as an Agreement of Merger and an
Officer's Certificate of Approval of the Agreement of Merger of each of the
Company and Acquisition Co., in the forms set forth as Exhibit B hereto, are
filed with the Secretary of State of the State of California (collectively, the
"Merger Filing"); The Merger Filing shall be made simultaneously with the
Closing.
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ARTICLE II
ORGANIZATIONAL MATTERS
SECTION 2.1 Certificate of Incorporation. Immediately following the
Effective Time, the Surviving Corporation's Certificate of Incorporation shall
be as set forth in the Merger Filing.
SECTION 2.2 By-Laws. The By-Laws of Acquisition Co. as in effect
immediately prior to the Effective Time shall be the By-Laws of the Surviving
Corporation after the Effective Time, and thereafter may be amended in
accordance with their terms and as provided by the Certificate of Incorporation
of the Surviving Corporation and the California Code.
SECTION 2.3 Directors. The Board of Directors of Acquisition Co.
immediately prior to the Effective Time shall constitute the Board of Directors
of the Surviving Corporation, until such time as such Board of Directors and the
composition thereof shall be changed in accordance with the Certificate of
Incorporation and By-Laws of the Surviving Corporation as in effect from time to
time after the Effective Time.
ARTICLE III
CONVERSION OF SHARES
SECTION 3.1 Conversion of Company Common Stock in the Merger. At the
Effective Time, by virtue of the Merger and without any action on the part of
any holder of any capital stock of the Company:
(a) each share of Common Stock of the Company ("Company Common
Stock") owned by the Company or by a Subsidiary of the Company immediately prior
to the Effective Time shall be canceled and shall cease to exist from after the
Effective Time;
(b) each remaining issued and outstanding share of Company
Common Stock shall, subject to Sections 3.3 and 3.6 and Article VIII hereof, be
converted into the right to receive, and become exchangeable for,
(i) 0.212133 shares (the "Share Consideration") of validly
issued, fully paid and nonassessable common stock, $0.01 par value per
share, of Parent ("Parent Common Stock"); and
(ii) options (in the form attached hereto as Exhibit D,
the "Options") to purchase 0.212133 shares of Parent Common Stock (the
Share Consideration and the Options, collectively the "Merger
Consideration" and, after any adjustments pursuant to Section 3.6 and
Article VIII below, the "Adjusted Merger Consideration"); and
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(c) each unexpired option and other right to purchase Company
Common Stock that is outstanding at the Effective Time shall automatically and
without any action on the part of the holder thereof be canceled and shall cease
to exist from and after the Effective Time.
SECTION 3.2 Conversion of Acquisition Co. Shares. At the Effective
Time, by virtue of the Merger and without any action on the part of any holder
of any capital stock of Acquisition Co., each issued and outstanding share of
Common Stock of Acquisition Co. ("Acquisition Co. Common Stock") shall be
converted into one share of common stock, of the Surviving Corporation.
SECTION 3.3 Exchange of Certificates.
(a) Subject to the terms of this Agreement, from and after the
Effective Time, each holder of an outstanding certificate which immediately
prior to the Effective Time represented shares of Company Common Stock shall be
entitled to receive in exchange therefor, upon surrender thereof to the Parent,
a certificate or certificates representing the number of whole shares of Parent
Common Stock to which such holder is entitled pursuant to Section 3.1(b)(i), any
cash in lieu of fractional shares of Parent Common Stock pursuant to Section
3.4, and the Options which such holder is entitled to pursuant to Section
3.1(b)(ii).
(b) From and after the Effective Time, Acquisition Co. shall
be entitled to treat outstanding certificates which immediately prior to the
Effective Time represented shares of Acquisition Co. Common Stock, as evidencing
the ownership of the number of full shares of Common Stock of the Surviving
Corporation which the holder of the shares of Acquisition Co. Common Stock
represented by such certificates is entitled to receive pursuant to Section 3.2,
and the holder of such certificates shall not be required to surrender such
certificates for exchange. Shares of Common Stock of the Surviving Corporation
which the holder of shares of Acquisition Co. Common Stock is entitled to
receive in the Merger shall be deemed to have been issued at the Effective Time.
SECTION 3.4 No Fractional Securities. Notwithstanding any other
provision of this Agreement to the contrary, no certificates or script for
fractional shares of Parent Common Stock shall be issued in the Merger and no
Parent Common Stock dividend, stock split or interest shall relate to any
fractional security, and such fractional interests shall not entitle the owner
thereof to vote or to any other rights of a security holder. In lieu of any such
fractional shares, each holder of Company Common Stock who would otherwise have
been entitled to receive a fraction of a share of Parent Common Stock upon
surrender of certificates evidencing Company Common Stock for exchange pursuant
to this Article III shall be entitled to receive from Parent a cash payment
equal to such fraction multiplied by $3.00.
SECTION 3.5 Closing. The closing (the "Closing") of the transactions
contemplated by this Agreement shall take place at the offices of Morrison Cohen
Singer & Weinstein, LLP, 750
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Lexington Avenue, New York, New York 10022, 8th Floor on the date hereof (the
"Closing Date") at 10:00 a.m. New York City Time.
SECTION 3.6 Holdback. At the Closing, the aggregate Merger
Consideration less 10,000 shares of Parent Common Stock (the "Holdback") shall
be paid and issued in accordance with this Agreement. Subject to any setoffs to
which the Surviving Corporation is entitled hereunder and pursuant to Article
VIII hereof, (i) one-half of the Holdback shall be paid on the first anniversary
of the Closing Date and (ii) the balance of the Holdback shall be paid on the
second anniversary of the Closing Date. Each such payment date is referred to
herein as a "Holdback Payment Date". Subject to the Shareholders' right to pay
amounts in cash to the Surviving Corporation on or before the next Holdback
Payment Date pursuant to Section 8.5 below, to the extent that the Surviving
Corporation is entitled to indemnification under Article VIII, an appropriate
amount shall be deducted from the Holdback. Amounts payable out of the Holdback
pursuant to this Section 3.6 and/or Article VIII below shall be paid from the
Holdback where such shares of Parent Common Stock shall be valued at the greater
of (X) $3.00 per share and (Y) their then current Market Value. With respect to
the shares of Parent Common Stock in the Holdback, during the term of the
Holdback, the Shareholders shall be entitled (1) to any dividends paid on such
shares, and (2) to exercise all voting rights in respect of such shares. Any
rights of the Shareholders in respect of such shares pursuant to this Agreement
shall not be assignable.
SECTION 3.7 Value of Options. The parties hereto agree and acknowledge
that, based on (a) the recent trading range of Parent Common Stock, (b) the
exercise price of the Options, (c) the contingencies which must be satisfied in
order for portions of the Options to become vested in accordance with their
terms, and (d) the prospects of the Parent, the value of the Options is $.10 per
each share of Parent Common Stock underlying the Options. No party hereto shall
file any Tax returns (or treat any item thereon) or make any other statement or
submission to the Internal Revenue Service, or any comparable state agency, or
any court or Governmental Body, which is inconsistent, in whole or part, with
the valuation of the Options expressed in this Section 3.7; provided that the
obligations under this Section 3.7 shall not be effective to the extent that any
such obligation is inconsistent with the final determination of a taxing
authority upon completion of an audit.
ARTICLE IV
REPRESENTATIONS, WARRANTIES AND COVENANTS
OF THE COMPANY AND SHAREHOLDERS
The Company and each of the Shareholders hereby, jointly and severally,
represent, warrant and covenant to the Parent and Acquisition Co. as follows:
SECTION 4.1 Organization and Authorization. The Company is a
corporation duly organized, validly existing and in good standing under the laws
of California, the jurisdiction of its incorporation. The Company is qualified
to do business and in good standing in each state where
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the character of the real properties owned or held under lease or the nature of
business transacted by the Company makes qualification therein by the Company as
a foreign corporation necessary or where the failure to be so qualified or to be
in good standing therein could reasonably be expected to have a Material Adverse
Effect.
SECTION 4.2 Enforceable Obligation. Except as set forth on Disclosure
Schedule 4.2 attached hereto, the execution, delivery and performance of this
Agreement and all agreements, instruments and documents to be delivered by the
Company and each of the Shareholders hereunder, (a) are within the power and
authority of the Company and such Shareholder, (b) do not require the consent or
approval of or filing with any Governmental Body or any other Person other than
as otherwise provided herein, (c) will not conflict with, result in the breach
of, or constitute a Default under, any of the terms, conditions or provisions of
the certificate of incorporation or by-laws of the Company, (d) will not violate
any law, statute, rule, regulation or Order of any Governmental Body, (e) will
not conflict with, result in the breach of, or constitute a Default under any
indenture, mortgage, deed of trust, lease, agreement, contract or other
instrument to which the Company or such Shareholder is a party or by which it or
any of its or his property is bound, and (f) will not result in the creation or
imposition of any lien upon any of the property of the Company or such
Shareholder, other than as contemplated by this Agreement and the agreements,
instruments and documents executed in connection with the transactions
contemplated hereby. This Agreement has been duly authorized, executed and
delivered by such Shareholder and constitutes the legal, valid and binding
obligation of each Shareholder enforceable against him in accordance with its
terms, except that (x) such enforcement may be subject to bankruptcy,
insolvency, reorganization, fraudulent conveyance, moratorium or other similar
laws now or hereafter in effect relating to creditors' rights generally and (y)
the remedy of specific performance and injunctive and other forms of equitable
or legal remedies may be subject to equitable defenses, equitable principles and
to the discretion of the court before which any proceeding therefor may be
brought. The agreements and other documents and instruments attached as Exhibits
and Disclosure Schedules hereto to which the Company or such Shareholder is a
signatory have been duly authorized, executed and delivered by the Company or
such Shareholder and constitute the legal, valid and binding obligations of the
Company and such Shareholder, enforceable against each of them in accordance
with their respective terms, except that (x) such enforcement may be subject to
bankruptcy, insolvency, reorganization, fraudulent conveyance, moratorium or
other similar laws now or hereafter in effect relating to creditors' rights
generally and (y) the remedy of specific performance and injunctive and other
forms of equitable or legal remedies may be subject to equitable defenses,
equitable principles and to the discretion of the court before which any
proceeding therefor may be brought.
SECTION 4.3 Capitalization. The authorized capital stock of the Company
consists solely of 10,000,000 shares of Common Stock, of which 211,684 shares of
Common Stock are issued and outstanding. All issued and outstanding shares of
the authorized capital stock of the Company are validly issued, fully paid,
nonassessable and free of preemptive rights. Except as set forth on Disclosure
Schedule 4.3 there are no voting trust agreements or any other contracts,
agreements, arrangements, commitments, plans or understandings restricting or
otherwise relating to voting or dividend rights with respect to any shares of
the capital stock of the Company or with
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respect to the transfer of any such shares. Except as set forth in Disclosure
Schedule 4.3, the Company does not control, alone or in combination with others,
any Person. Except as set forth in Disclosure Schedule 4.3, there do not exist
any options, warrants, calls, subscriptions, convertible or exchangeable
securities, rights, agreements, commitments or arrangements obligating the
Shareholders, the Company, or any of them, to issue, transfer or sell any shares
of the capital stock of the Company or any other securities convertible into,
exchangeable for, or evidencing the right to subscribe for, any such shares of
capital stock. Except as set forth in Disclosure Schedule 4.3, the Company has
no liabilities of any nature whatsoever to any of the Shareholders, whether or
not accrued, and whether fixed or contingent, or due or to become due, or
liquidated or unliquidated. There exist no preemptive rights arising with
respect to any capital stock of the Company, or of any Person which was, at any
time, directly or indirectly, a Subsidiary of the Company, whether under
provision of law, its respective certificate of incorporation, or any agreement
or instrument to which the Company or any such Subsidiary is a party.
SECTION 4.4 Governing Instruments. True and complete copies of the
certificate of incorporation and by-laws of the Company, as amended up until the
Effective Time, and true and correct copies of all minutes of meetings of the
directors and Shareholders, and of all consents in lieu thereof of the Company
have been delivered to the Parent. To the extent such copies of minutes are
delivered unsigned, they are identical to duly executed copies thereof.
SECTION 4.5 Clear Title to Shares. Each of the Shareholders is on the
date hereof the lawful record and beneficial owner of his shares of Company
Common Stock, free and clear of all claims, mortgages, pledges, liens,
encumbrances, security interests and adverse interests of every nature
whatsoever, and the Shareholders collectively own, beneficially and of record,
all issued and outstanding shares of capital stock of the Company, and, upon
consummation of the Merger, no other Person shall have any claim to the Merger
Consideration or the right to contest the Merger.
SECTION 4.6 Title to Assets; Condition; Possession under Lease; Assets.
-----------------------------------------------------------
(a) The Company has good and marketable title to, or valid
leasehold interests in, all its assets, subject to no liens, mortgages, pledges,
charges, security interests, options to purchase or other encumbrances of any
kind or character except: (i) as shown on its Financial State ments, (ii) liens
for current Taxes not yet due and payable, (iii) liens, imperfections of title
and easements which do not, either individually or in the aggregate, materially
detract from the value of, or interfere with the present use of, the properties
subject thereto or affected thereby, or otherwise impair the operations of the
Company, (iv) mechanics', carriers', workers', repairmens', and other similar
liens arising or incurred in the ordinary course of its business, securing
amounts not yet due and payable, (v) rights of customers with respect to
inventory and work-in-process in amounts included within accounts payable in the
Financial Statements, (vi) encumbrances consisting of leases with third parties
as set forth on Disclosure Schedule 4.6 and (vii) as otherwise reflected on
Disclosure Schedule 4.6.
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(b) The assets constitute all of the properties, assets,
rights, contracts, leases, easements, permits, licenses and real and personal
property heretofore utilized by the Company in the conduct of its operations.
(c) The real and personal property owned or leased by the
Company, including, without limitation, all equipment and machinery of the
Company, are in good order and proper repair and, to the Shareholders'
Knowledge, meet all standards, clearances and ratings in effect on the date
hereof in respect of those rules and regulations promulgated by any Governmental
Body applicable thereto, except for (i) minor items of machinery and equipment
which will require replacement or repair in the ordinary course of business, the
temporary lack of use of which will not materially disrupt normal business, and
(ii) minor defects which do not interfere in a material way with the continued
use thereof.
(d) Disclosure Schedule 4.6 hereto identifies all real
property owned by the Company and all improvements located thereon, all
unexpired options held by the Company or contractual obligations on its part to
purchase or sell any interest in real property, and all mortgages held by the
Company (other than investment securities). There exists no event constituting a
Default under any such mortgage and no notice of deficiency has been issued with
respect thereto except as set forth on Disclosure Schedule 4.6. The real
property identified on such Disclosure Schedule 4.6 as owned by the Company is
the same as the real property owned by the Company on June 30, 1997, and the
condition thereof, including the improvements thereon, has not deteriorated
since such date, reasonable wear and tear excepted.
(e) Each lease or license of an Asset is a valid and
subsisting obligation enforceable in accordance with its terms, except (i) that
such enforcement may be subject to bankruptcy, insolvency, reorganization,
moratorium or similar laws now or hereafter in effect, or to legal or equitable
principles, relating to or limiting creditors' rights and (ii) that the remedy
of specific performance and injunctive and other forms of equitable or legal
relief are subject to certain equitable defenses or equitable principles and to
the discretion of the court before which any proceeding therefor may be brought.
(f) Except as set forth on Disclosure Schedule 4.6, none of
the Shareholders nor any third party owns or has any rights in any assets or
property used to carry on the business or operations of the Company.
(g) Such of the assets as constitute inventory on the date
hereof is in good and merchantable condition and usable for its intended
purpose, and, as to finished goods inventory, saleable at its normal gross
profit margins experienced over the last twelve (12) months. Except as set forth
on Disclosure Schedule 4.6, no item of inventory, whether of raw material,
work-in-process or finished goods, is damaged, obsolete or in excess of the
Company's reasonable requirements based on its business experience.
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(h) Disclosure Schedule 4.6 hereto is a true and correct list
of all of the machinery and equipment owned or leased by the Company as of a
date no earlier than 10 days prior to the date hereof having an initial cost
exceeding $10,000 or requiring annual lease payments exceeding $10,000, and, as
to each item under lease or license, a brief description of the material terms
of such lease. Except as provided in Section 4.6 (a), the Company has good and
marketable title to the machinery and equipment, merchandise, materials,
supplies and other property of every kind, tangible or intangible, which are
shown as assets on the most recent Financial Statements, or which, whether or
not shown on the Financial Statements, were acquired directly or indirectly by
the Company through the purchase of assets or stock from or through merger,
consolidation or other transaction with, another Person, except for machinery
and equipment and other assets which have been consumed, sold or disposed of in
the ordinary course of business since the date of those Financial Statements or
such acquisition, free and clear of all claims, liens, mortgages, pledges,
security interests, encumbrances or charges of any kind, except (i) as set forth
on Disclosure Schedule 4.6 hereto and (ii) liens, encumbrances, and charges
which are incurred to finance the purchase of the property subject thereto,
which do not cover any other property and which secure indebtedness therefor in
an amount, unless set forth on said Disclosure Schedule 4.6, which is no greater
than the initial cost of such property and which is reflected in the Financial
Statements and which, absent a foreclosure of such liens, do not impose any
restrictions on the operation of such property contrary to the use thereof in
the operation of the Company's business.
(i) The Company has complied with all obligations under all
material leases to which it is a party or to which it has succeeded by merger or
acquisition of stock or assets of any other Person and under which it is in
occupancy and all such leases are in full force and effect. The Company enjoys
peaceful and undisturbed possession under such leases; and, to the Shareholders'
Knowledge, no other party to any such lease is in material default thereunder.
(j) The assets, facilities, rights and property (including,
without limitation, all Intellectual Property) owned, leased and/or in use by
the Company in the operation of its business evidenced in the Books and Records
and in the Financial Statements constitute all of the assets, rights,
properties, interests, leases, easements, permits, licenses and real and
personal property heretofore utilized by the Company in the operations of the
Company's business.
SECTION 4.7 Litigation; Observance of Statutes, Regulations and Orders.
-----------------------------------------------------------
(a) Litigation. Except as set forth on Disclosure Schedule 4.7
attached hereto, there is no litigation, at law or in equity, or proceeding
before any Governmental Body or any arbitration pending, or, to Shareholders'
knowledge, threatened against or relating to any of the Shareholders or the
Company, which is likely to involve any material risk of any judgment or
liability not covered by insurance, which, if adversely decided, could or is
reasonably likely to have a Material Adverse Effect, or which seeks to enjoin
the consummation of, or questions the validity of, any of the transactions
contemplated hereby, or which would question the validity or enforceability or
impair the validity or enforceability of or the ability of the Shareholders to
perform their respective obligations under this Agreement or any agreement
contemplated hereby or which
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would question the validity or enforceability or impair the ability of the
Company to perform its obligations under any instrument, document or agreement
contemplated hereby, and no Order of any Governmental Body or arbitrator has
been issued against or binds any of the Shareholders or the Company which has,
or could have, a Material Adverse Effect. To the Shareholders' knowledge, no
basis exists for the commencement of any such litigation or proceeding.
(b) Governmental Order Violations. Neither any of the
Shareholders nor the Company is in violation of or Default with respect to any
Order of any arbitrator or Governmental Body where such violation or Default is
reasonably likely to have a Material Adverse Effect, and, to Shareholders'
Knowledge, there is no basis for there to be declared any such violation or
Default.
(c) Statutory Violations. Neither any of the Shareholders nor
the Company is in violation of any statute or any rule or regulation of any
Governmental Body (including, without limitation, Environmental Laws) the
violation of which could reasonably be expected to have a Material Adverse
Effect. Neither the Company nor any of its officers, directors, employees,
agents, Shareholders or representatives has made, directly or indirectly, with
respect to the business of the Company, any illegal political contributions,
payments from corporate funds not recorded in the Books and Records of the
Company, payments from corporate funds that were falsely recorded on the Books
and Records of the Company, payments from corporate funds to governmental
officials in their individual capacities for the purpose of affecting their
action or the action of the government they represent to obtain special
concessions or illegal payments from corporate funds to obtain or retain
business.
SECTION 4.8 Licenses, Permits, Etc. The Company possesses adequate
licenses, clearances, ratings, permits and franchises, and all rights with
respect thereto, to conduct its business substantially as now and heretofore
conducted, and, to the Shareholders' Knowledge, except as otherwise set forth on
Disclosure Schedule 4.8 hereof, without any conflict with the rights of others
in any such license, clearance, rating, permit or franchise. Except for
instances previously remedied, neither the Company nor any of the Shareholders
has knowledge or has received notice of termination, revocation or limitation
of, or of the pendency or threatened commencement of any proceeding to
terminate, revoke or limit any such licenses, clearances, ratings, permits or
other approvals by the Governmental Body or other Person issuing same.
SECTION 4.9 Taxes and Tax Returns.
(a) [Intentionally Left Blank]
(b) Except as disclosed on Disclosure Schedule 4.9, (i) all
returns and reports of every kind with respect to Taxes, which are due to have
been filed in accordance with any applicable law on or before the date hereof,
have been duly filed and are true, correct and complete in all material
respects; (ii) all Taxes (including, without limitation, all Tax deposits and
estimated Taxes) for which the Company has any liability and which are required
to have been paid on or before the date hereof have been paid in full; (iii) the
amounts accrued as liabilities for Taxes
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(whether accrued as currently payable or deferred Taxes) on the Books and
Records of the Company and reflected in the Financial Statements are adequate to
satisfy all unpaid liabilities for Taxes of the Company through the date hereof,
including Taxes accruable upon income earned through the date hereof; (iv) there
are no extensions of time in effect with respect to the dates on which any
returns or reports of Taxes were or are due to be filed; (v) all deficiencies
asserted as a result of any examination of any return or report of Taxes have
been paid in full, accrued on the books of the Company or finally settled, and
no issue has been raised in any such examination which, by application of the
same or similar principles, reasonably could be expected to result in a proposed
deficiency for any other period through the date hereof not so examined; (vi) no
Tax claims have been or are being asserted or proposed, and, to the
Shareholders' Knowledge, no proposals or deficiencies for any Taxes are being
threatened, and no audit or investigation of any return or report of Taxes is
currently underway, pending or threatened and; (vii) the Company has not entered
into any waivers or agreements for the extension of time for the assessment of
any Taxes or deficiencies thereof, nor are there any requests for rulings, nor
are there any outstanding subpoenas or requests for information, notices of
proposed reassessment of any property owned or leased by the Company or any
other matter pending between the Company and any taxing authority; and (G) there
are no liens for Taxes upon any property or assets of the Company, except liens
for current Taxes not yet due.
(c) The Company has disclosed on its Tax returns all positions
taken therein that could reasonably give rise to a "substantial understatement
of income tax" within the meaning of Code ss. 6662 or any similar provision of
state, local, foreign or other law.
(d) The Company has delivered to Parent true and complete
copies of all Federal, state, local and foreign income Tax returns (together
with any revenue agent's reports) filed by the Company relating to its
operations for the taxable years ended August 31, 1996, 1995 and 1994. All Tax
returns from the taxable years ended prior to August 31, 1994 have been audited
or closed by the applicable statute of limitations. No power of attorney has
been granted by the Company that is currently in force with respect to any
matter relating to Taxes.
(e) The Company has not filed a consent pursuant to Section
341(f) of the Code, and neither it nor any predecessor in interest has filed, or
may be deemed to have filed, any election under Section 338 of the Code.
(f) The Company has not made (and shall not as of and after
the Effective Time be required to make) any payment which constitutes an "excess
parachute payment" within the meaning of Section 280G of the Code, and no
payment by it required to be made under any contract or otherwise will, if made,
constitute an "excess parachute payment" within the meaning of Section 280G of
the Code.
(g) The Company has never been, and currently is not, bound by
or subject to any obligation under any agreement relating to the sharing of any
liability for, or payment of, Taxes with any other Person.
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(h) Disclosure Schedule 4.9 sets forth all jurisdictions in
which the Company has filed within the last ten years, or will file income,
franchise, sales or use Tax returns for any taxable period, or portion thereof,
ending on or before the Closing Date.
(i) Except as set forth on Disclosure Schedule 4.9, the
Company has withheld or will withhold, and has paid over or will pay over to
applicable taxing authorities all amounts required from its employees and has
filed or will file all federal, foreign, state, and local returns and reports
required with respect to employee income tax withholding and social security and
unemployment Taxes for all periods (or portions thereof) ending on or before the
Closing Date, in compliance with the provisions of the Code and any other
applicable Federal, foreign, state or local laws.
(j) The Company has previously made available to Parent all
information relating to circumstances under which the Company could reasonably
be expected to have exposure for additional Taxes.
(k) The Company is not a "United States real property holding
corporation" (within the meaning of Section 897 of the Code) and has not been so
at any time during the five year period preceding the Closing Date. The Company
has so certified to Parent by delivery of a writing which complies with the
requirements of Treasury Regulations ss.1.897-2(h) and ss.1.1445-2(c)(3) not
more than 30 days prior to the Closing Date.
(l) The Company is not an "investment company" as defined in
Section 368(1)(2)(F) of the Code, and is not under the jurisdiction of a court
in a title II or similar case within the meaning of Section 368(a)(3)(A) of the
Code.
(m) The Company is not and has never been a part of a
consolidated group for Tax purposes or Tax reporting purposes.
SECTION 4.10 Financial Statements of the Company. The Financial
Statements have been reviewed by an independent certified public accounting
firm, and such Financial Statements, accompanied by the related opinion of such
firm, have been furnished to Parent, are true, correct and complete and present
fairly the financial condition of the Company as of the date thereof and its
results of operations for the periods indicated in accordance with GAAP. The
Financial Statements, as of the date thereof, include the assets of the Company
owned by it and the amounts reflected with respect to such assets are stated in
accordance with GAAP and reflect all assets that are required, in accordance
with such principles, to be reflected in such Financial Statements. Except as
set forth on Disclosure Schedule 4.10, since June 30, 1997 and until the
Effective Time, there has been no Material Adverse Effect. All Accounts
Receivable reflected in the Financial Statements or since accrued are
enforceable obligations of the account debtors thereof arising from bona fide
sales, and, to the Shareholders' Knowledge, no facts or other information exists
that indicate that the reserves and accruals reflected in the Financial
Statements are inadequate or were inadequate as of the date thereof. The Company
has furnished the Parent with the Company's unaudited financial statements
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consisting of a balance sheet and income statement as of and for the quarter
ended June 30, 1997 (collectively, the "Interim Statements"). The Financial
Statements have been prepared in accordance with GAAP (except, in the case of
the Interim Statements, for the absence of footnote disclosures or changes that
would reflect normal year end adjustments), and are true, correct and complete
and present fairly the financial condition of the Company as of the date thereof
and the Company's results of operations for the periods indicated.
SECTION 4.11 Conduct of the Business. From and after June 30, 1997 and
until the Effective Time:
(a) the Company has continued to be operated in the usual and
ordinary manner in which its business has been conducted in the past; during
such period, except as set forth on Disclosure Schedule 4.11, the Company has
not made any expenditures or entered into any commitments which, when compared
to past operations of its business are unusual or extraordinary or outside the
scope of the normal course of routine operations;
(b) the Company has kept in a normal state of repair and
operating efficiency all tangible personal property used in the operation of its
business;
(c) the Company has used its best efforts to maintain the good
will associated with its business, and the existing business relationships with
its agents, customers, key employees and consultants, suppliers and other
Persons having relations with it;
(d) the Company has not entered into any contract, agreement
or transaction, or relinquished or released any rights or privileges under any
contracts or agreements, the performance, violation, relinquishment or release
of which could, on the date on which such contract or agreement was entered
into, or such rights or privileges were relinquished or released, reasonably be
expected to have a Material Adverse Effect;
(e) the Company has not sold, leased, licensed or otherwise
disposed of any assets or created or permitted to exist any lien, restriction or
other encumbrance on its assets except (x) in the Company's ordinary course of
business consistent with its past practice and which could not, on the date of
such sale, disposition, creation or permission, have a Material Adverse Effect
or (y) as otherwise permitted by this Agreement;
(f) the Company has notified Parent in writing of any Material
Adverse Effect;
(g) the Company has kept true, complete and correct books and
records of account ("Books and Records") with respect to its business, in which
entries have made of all transactions up to the Effective Time in the Company's
ordinary course of business on a basis consistent with past practices and in
accordance with GAAP;
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(h) the Company has paid current liabilities as and when they
became due and has paid or incurred only those fees and expenses not in the
ordinary course of its business approved in writing or ratified in writing by
Parent, (including, without limitation, statements of fees for legal and
accounting services, only on a time basis at regular hourly rates). Except as
set forth in Disclosure Schedule 4.11, no such fees have been paid or incurred
in respect of services performed in connection with the negotiation, preparation
or execution of any documents, instruments, Exhibits, Disclosure Schedules,
Schedules or any other matter relating to the transactions contemplated hereby;
(i) there has been no declaration, setting aside or payment of
any dividend or other distribution (whether in assets, stock, cash, property or
otherwise) in respect of any capital stock of the Company other than customary
and reasonable salaries, in the ordinary course of business consistent with past
practice;
(j) the Company has not redeemed, repurchased, or otherwise
acquired any of its capital stock or securities convertible into or exchangeable
for its capital stock or entered into any agreement to do so;
(k) the Company has not made any sale of Accounts Receivable;
and
(l) except as set forth in Disclosure Schedule 4.11 and except
for normal annual increases or increases resulting from the application of
existing formulae under existing plans, agreements or policies relating to
employee compensation, there has neither been any material increase in the rate
of compensation payable or to become payable to the Company's officers,
employees or consultants in the aggregate or any material increase in the
amounts paid or payable to such officers, consultants or employees in the
aggregate under any bonus, insurance, pension, Employment Agreement or other
benefit plan or any arrangements therefor made for or with any of said officers,
consultants or employees nor any payment of a bonus to an officer, employee or
consultant outside the Company's ordinary course of business consistent with
past practice.
SECTION 4.12 Officers and Directors. The duly elected, qualified and
acting officers and directors of the Company (and the compensation paid to them
in the last fiscal year of the Company and their current levels of compensation)
are as set forth in Disclosure Schedule 4.12 hereto.
SECTION 4.13 Liabilities.
(a) The Company has no liabilities or obligations, whether
known or unknown, due or not yet due, fixed or variable, absolute or contingent,
or otherwise, other than (i) liabilities and obligations which are stated or
provided for in the Financial Statements and which continue to exist on the date
hereof, (ii) liabilities and obligations incurred by the Company in the ordinary
course of business consistent with its past practices subsequent to the date of
the Financial Statements and prior to the date hereof which do not have a
Material Adverse Effect, and (iii)
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liabilities and obligations specifically referred to or disclosed on Disclosure
Schedule 4.13 attached hereto.
(b) Except as set forth in Disclosure Schedule 4.13, since June 30,
1997 and until the Effective Time, the Company has not:
(i) incurred or become subject to, or agreed to incur or
become subject to, any material obligation or liability, (including,
without limitation, any loan transaction with an institutional lender),
absolute or contingent, except liabilities incurred in the Company's
ordinary course of business consistent with past practice;
(ii) mortgaged, pledged or subjected to lien, charge or other
encum brance, or agreed to do so, any assets, tangible or intangible,
other than purchase money liens on equipment used in the conduct of the
business of the Company incurred to finance the purchase price of the
equipment involved;
(iii) engaged in any transactions affecting its business or
properties not in the Company's ordinary course of business consistent
with past practice except as contemplated hereby, or suffered any
extraordinary losses or waived any rights of substantial value except
in the ordinary course of business; or
(iv) granted or agreed to grant, or paid or agreed to pay, any
increase in the rate of wages, salaries, bonuses or other remuneration
of any employee or consultant or become a party to any Employment
Agreement with any of its directors, officers, consultants or employees
(other than ordinary wage increases granted to hourly employees) or
become a party to any Employment Agreement with any officer, employee
or consultant providing for bonuses, profit sharing payments, severance
pay or retirement benefits.
SECTION 4.14 Collectibility of Accounts Receivable; Net Current Assets.
---------------------------------------------------------
(a) As at August 31, 1997, the balance sheet of the Company
prepared by the Company pursuant to Section 6.5 below in accordance with GAAP
applied on a basis consistent with those applied in the preparation of the
Financial Statements will show current assets of at least $133,000 comprised of
approximately $45,500 in cash and cash equivalents and $88,000 of Accounts
Receivable net of bad debt allowance ("Collectible Accounts Receivable") and
will show liabilities (whether known or unknown, due or not yet due, fixed or
variable, absolute or contingent, or otherwise) not in excess of $85,000
comprised of $60,000 in the aggregate owed by the Company as current
contributions due to its Profit Sharing Plan and its Money Purchase Pension Plan
and up to $25,000 of other liabilities constituting ordinary and necessary
business costs or expenses incurred in the ordinary course of the Company's
business conducted consistent with past practice.
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(b) The Collectible Accounts Receivable will be fully
collected by the Surviving Corporation no later than November 30, 1997.
SECTION 4.15 No Default or Event of Default. Except as set forth on
Disclosure Schedule 4.15 hereto, there exists no event or condition which
constitutes a Default under any mortgage, indenture, lease, contract, agreement,
license, instrument or Order to which the Company is a party or to which it has
succeeded by merger or acquisition of the stock or assets of another Person or
by which it or any of its properties is bound. Provided that Shareholders and
the Company obtain the consents which may be required to consummate the Merger
which consents are set forth on Disclosure Schedule 4.15, no such mortgage,
indenture, lease, contract, agreement, license, instrument or Order limits in
any material way the freedom of any Person acquiring control of the Company,
whether directly or indirectly, or from performing this Agreement in accordance
with its terms. Neither the Company nor any of the Shareholders has received any
notice from any party to any such contract with respect to such party's
unwillingness or inability to perform thereunder.
SECTION 4.16 No Right of Action. The execution and delivery of this
Agreement and the other agreements, documents and instruments contemplated
hereby and the completion of the transactions contemplated hereby and thereby,
shall not cause Parent, the Surviving Corporation, or any of their respective
affiliates to be liable for damages to any other Person or give such Person any
equitable right against any of them or the Company or any of their respective
assets.
SECTION 4.17 ERISA Compliance.
(a) Disclosure Schedule 4.17 contains a list and adequate
description of each pension, profit sharing, thrift or other retirement plan,
employee stock ownership plan, deferred compensation, stock option, stock
purchase, performance share, bonus, Employment Agreement, or other incentive
plan, severance plan, health, group insurance or other welfare plan, or other
similar plan, agreement, policy or understanding, including without limitation,
any "employee benefit plan" within the meaning of Section 3(3) of ERISA, under
which the Company or any ERISA Affiliate has any current or future obligation or
liability or under which any employee of the Company or any ERISA Affiliate has
any current or future right to benefits (each such plan, agreement, policy or
understanding being hereinafter referred to individually as a "Plan"). The
Company has delivered to Parent true and complete copies of (i) each Plan, (ii)
the latest actuarial report, if any, prepared for each Plan, (iii) the summary
plan description, if any, for each Plan, (iv) the most recent Internal Revenue
Service determination letter with respect to each Plan, if applicable, (v) the
latest annual report (Form 5500 or 5500-C) for the past three (3) years, if any,
which has been filed with the Internal Revenue Service for each Plan, and (vi)
copies of any related materials that have been furnished to participants or
beneficiaries of each Plan or to any Governmental Body.
(b) Each Plan is in compliance in all material respects with
the provisions of ERISA, the Code and all other applicable federal and state
laws and the rules and regulations promulgated thereunder interpreting or
applying these laws, and each Plan (and related trust or funding vehicle, if
any) has at all times been administered and maintained in accordance with its
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terms and applicable law, including, without limitation, all rules and
regulations concerning participation, coverage, and vesting under Code Sections
401, 410 and 411, and the filing of all applicable reports.
(c) Except as set forth in Disclosure Schedule 4.17, with
respect to each Plan intended to be qualified under Section 401(a) of the Code,
a favorable determination letter has been received from the Internal Revenue
Service stating that the Plan is so qualified and that the related trust is
exempt from federal income taxation under Section 501 of the Code.
(d) With respect to each Plan, all reports required under
ERISA or any other law or regulation to be filed by the Company or any ERISA
Affiliate with the relevant governmental authority, the failure of which to file
would result in liability of the Company or such ERISA Af filiate, have been
duly filed and all such reports are true and correct in all material respects as
of the date given.
(e) Except as set forth on Disclosure Schedule 4.17, no Plan
has been termi nated nor has any accumulated funding deficiency (as defined in
Code Section 412(a)) been incurred (without regard to any waiver granted under
Code Section 412), nor has any funding waiver from the Internal Revenue Service
been received or requested.
(f) The Company or its ERISA Affiliate, as the case may be,
has made or shall make all contributions required to be made by the Company and
all of its ERISA Affiliates under each Plan for all periods through and
including the Closing Date, or adequate accruals therefor have been or shall be
provided therefor.
(g) As of the Effective Time, the fair market value of the
assets of each Plan equaled or exceeded the present value of the vested accrued
benefits of each such Plan as of the most recent valuation date using Plan
actuarial assumptions as in effect for such Plan year.
(h) There are no pending or threatened claims, lawsuits or
actions (other than routine claims for benefits in the ordinary course) asserted
or instituted, and, to the Shareholders' Knowledge, there exists no basis in
fact for a claim, suit or action, against (A) the assets of any Plan or trust or
any fiduciary of any Plan with respect to the operation of such Plan, or (B) the
assets of any employee welfare benefit plan within the meaning of ERISA Section
3(a) or any fiduciary thereof with respect to the operation of any such Plan
which, if adversely determined, would have a Material Adverse Effect. Except as
set forth in Disclosure Schedule 4.17, any bonding required by ERISA with
respect to any Plan has been obtained and is in full force and effect.
(i) Neither the Company nor any ERISA Affiliate (A) has ever
participated in or been required to contribute to any plan subject to Title IV
of ERISA, or (B) has incurred, or shall incur, any liability under Title IV of
ERISA to the Pension Benefit Guarantee Corporation, to any Plan subject to Title
IV of ERISA or to any other Person.
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(j) Neither the Company nor any ERISA Affiliate maintains or
has established any welfare benefit plan within the meaning of ERISA Section
3(1) which provides for continuing benefits or coverage for any participant or
beneficiary of a participant after such participant's termination of employment,
except as may be required by the Consolidated Omnibus Budget Reconciliation Act
of 1985, as amended ("COBRA") and the regulations thereunder and at the expense
of the participant or the beneficiary of the participant.
(k) The Company and each ERISA Affiliate which maintains a
welfare benefit plan within the meaning of ERISA Section 3(1) have complied with
the notice and continuation coverage requirements of COBRA and the regulations
thereunder.
(l) No Plan has participated in, engaged in or been a party to
any "prohibited transaction" (as defined in ERISA or the Code) and the Company
has not incurred, and does not reasonably expect to incur, any liability under
Chapter 43 of the Code or under ERISA Section 502 with respect to any Plan.
(m) There has been no mass layoff or plant closing as defined
by the Worker Adjustment and Retraining Notification Act or any similar state or
local "plant closing" law with respect to the employees of the Company.
(n) Except as disclosed on Disclosure Schedule 4.17, there is
no requirement that Parent or Surviving Corporation make any further
contributions to any Plan after the Closing Date, and each Plan which provides
benefits to or on behalf of employees or former employees of the Surviving
Corporation may be terminated by Surviving Corporation in its sole discretion on
or after the Closing Date without liability of any kind or description
whatsoever to Parent, Surviving Corporation, any of Surviving Corporation's
ERISA Affiliates, or any other Person.
(o) Except as set forth on Disclosure Schedule 4.17, the
Company is not a party to or obligated under any agreement, plan, contract or
other arrangements that will result, separately or in the aggregate, in the
payment of any "excess parachute payment" within the meaning of Section 280G of
the Code.
SECTION 4.18 Investment Company Act; Public Utility Holding Company
Act. The Company is not, and is not directly or indirectly controlled by, or
acting on behalf of, any Person which is an "investment company" within the
meaning of the Investment Company Act of 1940, as amended. The Company is not a
"holding company" as that term is defined in or is otherwise subject to
regulation under, the Public Utility Holding Company Act of 1935, as amended.
SECTION 4.19 Agreements. Except as set forth on Disclosure Schedule
4.19 hereto, the Company is not a party to any agreement, loan, credit, lease,
sublease, franchise, license, contract, commitment or instrument or subject to
any corporate restriction (a) that has (or had) or the perfor mance or violation
of which could have a Material Adverse Effect, (b) which has a term in excess of
one year, or (c) is for consideration of more than $25,000. Disclosure Schedule
4.19 hereto
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identifies every loan or credit agreement, and every fully or partially
executory agreement or purchase order pursuant to which the Company is obligated
to deliver goods or perform services, pay for goods, services or other property,
or repay any loan in an amount in excess of $25,000. True, correct and complete
copies of all such agreements have been delivered to Parent and initialed by the
Shareholders. Except as set forth on Disclosure Schedule 4.19, (x) the Company
is not in Default under any such agreement, loan, credit, lease, sublease,
franchise, license, contract, commitment, instrument or restriction and (y) all
such agreements, loans, credits, leases, contracts, subleases, franchises,
commitments, instruments and restrictions under which the Company derives a
benefit is in full force and effect and is enforceable against the other parties
thereto in accordance with their terms. Disclosure Schedule 4.19 accurately and
completely describes how the Company accounts for all of its software, hardware,
consulting, licensing, distribution and other similar agreements and contracts
under which the Company provides services or sells or distributes goods or
equipment. Disclosure Schedule 4.19 identifies all agreements ("Government
Contracts") with the Company's vendors where the Company is an approved vendor
with the United States Department of Defense or other applicable Governmental
Authority.
SECTION 4.20 Environmental Liability. Except as set forth on Disclosure
Schedule 4.20 hereto, (a) the Company has obtained all permits, licenses and
other authorizations which are required with respect to its operation under
Environmental Laws; (b) the Company is in compliance with the terms and
conditions of the required permits, licenses and authorizations required by the
Environmental Laws; (c) there is no civil, criminal or administrative action,
suit, demand, claim, hearing, notice of violation, proceeding, notice or demand
letter pending relating to the Company or threatened against it relating in any
way to any Environmental Laws or any regulation, code, plan or Order issued,
entered, promulgated or approved thereunder; (d) to the Shareholders' Knowledge,
there are no investigations or internal or non-public agency proceedings pending
regarding the Company relating in any way to any Environmental Laws or any
regulation, code, plan or Order issued, entered, promulgated or approved
thereunder; and (e) there has been no generation, production, refining,
processing, manufacturing, use, storage, disposal, treatment, shipment,
emission, receipt or release of a Hazardous Substance or petroleum or petroleum
by-product on, in or under such of the assets of the Company constituting real
property which would subject the owner or operator of the real property or
business, or any past or future owner or operator of the real property to
liability for the removal, remediation or cleanup of the Hazardous Substance,
petroleum or petroleum by-product under the Environmental Laws or common law.
The Company has delivered to Parent true and complete copies of all
environmental studies made in the last ten years relating to the Company's real
property or the business of the Company. Except as set forth on Disclosure
Schedule 4.20, no Hazardous Substance has ever been spilled, released, leaked,
poured, leached, dumped, discharged, placed or disposed of, or otherwise caused
to be located at any property which has at any time been owned, leased or used
by the Company in violation of any Environmental Law and all Hazardous
Substances have been handled in compliance with Environmental Laws.
SECTION 4.21 Insurance. The Company maintains such insurance, to such
extent and against such risks, including products liability, fire and other
risks insured against by extended
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coverage, as is customary with companies similarly situated and in the same or
similar businesses, and public liability insurance as is necessary. Disclosure
Schedule 4.21 hereto includes a true and correct list of all policies or binders
of insurance of the Company in force as of the date hereof, specifying the
insurer, policy number (or covering note number with respect to binders), amount
thereof and describing each pending claim thereunder. Such policies are in full
force and effect. The Company is not in Default with respect to any provisions
contained in any such policy or binder, nor has it failed to give any notice or
present any claim under any such policy or binder in due and timely fashion.
There are no outstanding unpaid claims under any such policy or binder, or
claims for worker's compensation except as reflected on Disclosure Schedule
4.21. The Company has not received notice of cancellation or non-renewal of any
such policy or binder. The Company has never been, and is not now, the subject
of any claim relating to damage or injury in excess of the Company's
then-current product liability policy limits or which has been disclaimed by the
Company's insurer.
SECTION 4.22 Employment Agreements. Other than those which are
identified on Disclosure Schedule 4.22 attached to this Agreement, there are no
Employment Agreements pursuant to which the Company or any Subsidiary thereof
has any direct or indirect liability, contingent or otherwise.
SECTION 4.23 Labor Disputes. There is neither pending nor, to the
Shareholders' Knowledge, threatened any labor dispute, strike or work stoppage
involving employees of the Company (or otherwise) which affects or which may
affect the Company's business or which may interfere with its continued
operations. There are no union organization efforts relating to employees of the
Company or any representation question involving recognition as a collective
bargaining agent for any employees of the Company. There is not pending or
threatened any charge or complaint against the Company by the National Labor
Relations Board or any representative thereof. There have been no strikes,
walkouts or work stoppages involving employees of the Company in the last five
years.
SECTION 4.24 Collective Bargaining Agreements. The Company is not a
party to any collective bargaining agreements and its relations with its
employees are satisfactory.
SECTION 4.25 Subsidiaries. There are no subsidiaries of the Company.
Except as set forth on Disclosure Schedule 4.25, the Company owns no voting or
other capital stock in any other Person nor does it have any proprietary
interest or voting rights therein.
SECTION 4.26 Intellectual Property.
(a) Except as set forth on Disclosure Schedule 4.26, the
Company owns, or is licensed or otherwise possesses legally enforceable rights
to use, all patents, trademarks, trade names, service marks, copyrights, and any
applications therefor, maskworks, net lists, schematics, technology, knowhow,
computer software programs or applications (in both source code and object code
form), and tangible or intangible proprietary information or material that are
used in the
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business of the Company as currently conducted or as proposed to be conducted by
the Company (the "Company Intellectual Property Rights").
(b) Disclosure Schedule 4.26 sets forth a complete list of all
patents, registered and material unregistered trademarks, registered copyrights,
trade names and service marks, and any applications therefor, included in the
Company Intellectual Property Rights, and specifies, where applicable, the
jurisdictions in which each such Company Intellectual Property Right has been
issued or registered or in which an application for such issuance and
registration has been filed, including the respective registration or
application numbers and the names of all registered owners. Disclosure Schedule
4.26 also sets forth a complete list of all licenses, sublicenses and other
agreements as to which the Company is a party and pursuant to which the Company
or any other Person is authorized to use any Company Intellectual Property Right
(excluding object code end-user licenses granted to end-users in the Company's
ordinary course of business consistent with past practice that permit use of
software products without a right to modify, distribute or sublicense the same
("End-User Licenses")) or trade secret of the Company, and includes the identity
of all parties thereto, a description of the nature and subject matter thereof,
the applicable royalty or other fees and the term thereof. The execution and
delivery of this Agreement by the Company and the Shareholders, and the
consummation of the transactions contemplated hereby, will neither cause the
Company to be in violation or default under any such license, sublicense or
agreement, nor entitle any other party to any such license, sublicense or
agreement to terminate or modify such license, sublicense or agreement. Except
as set forth in Disclosure Schedule 4.26, the Company is the sole and exclusive
owner of, with all right, title and interest in and to (free and clear of any
liens or encumbrances), the Company Intellectual Property Rights, and has sole
and exclusive rights (and is not contractually obligated to pay any compensation
to any third party in respect thereof) to the use thereof or the material
covered thereby in connection with the services or products in respect of which
the Company Intellectual Property Rights are being used. All Company
Intellectual Property Rights constituting computer software ("Computer
Software") was developed exclusively by employees of the Company and/or by
independent contractors who have assigned in writing all right, title and
interest therein to the Company. To the extent any third party software,
ordinary computer interpreters or other tools were used in the development of
Company Software, the Company was fully and validly licensed to use such third
party software, and said use did not and does not violate the term of any
license thereto, such licenses remain in full force and effect, and such
licenses do not impose on the Company any royalty or other payment obligation
relating to the marketing or use of Company Software.
(c) No claims with respect to the Company Intellectual
Property Rights have been asserted or are, to the Shareholders' Knowledge,
threatened by any Person, nor, to the Shareholders's Knowledge, are there any
valid grounds for any bona fide claims (i) to the effect that the manufacture,
sale, licensing or use of any of the products of the Company infringes on any
copyright, patent, trade mark, service mark, trade secret or other proprietary
right, (ii) against the use by the Company of any trademarks, services marks,
trade names, trade secrets, copyrights, maskworks, patents, technology, know-how
or computer software programs and applications used in the Company's business as
currently conducted or as proposed to be conducted by the Company,
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or (iii) challenging the ownership by the Company, validity or effectiveness of
any of the Company Intellectual Property Rights. All registered trademarks,
service marks and copyrights held by the Company are valid and subsisting. The
Company has not infringed, and the business of the Company as currently
conducted or as proposed to be conducted does not infringe, on any proprietary
right of any third party. There is no material unauthorized use, infringement or
misappropriation of any of the Company Intellectual Property Rights by any third
party, including, without limitation, any employees, former employee,
Shareholder or former Shareholder of the Company. No Company Intellectual
Property Right or product of the Company or any of its subsidiaries is subject
to any outstanding Order restricting in any manner the licensing thereof by the
Company. Each employee, consultant or contractor of the Company has executed a
proprietary information and confidentiality agreement substantially in the
Company's standard forms, copies of which are listed on Disclosure Schedule 4.19
and Disclosure Schedule 4.26, and have been furnished to the Parent. Neither
Shareholder owns or has any rights to any Intellectual Property used or useful
in the Company's business.
SECTION 4.27 Books and Records; Audits and Investigations. The Company
has delivered to Parent all responses to auditors' inquiry letters received in
the past four years and all letters to the Company from the auditors during such
period. Disclosure Schedule 4.27 hereto identifies all correspondence received
from a Governmental Body in the past four years relating to regulatory
compliance reviews, audits or investigations. The Company has maintained its
Books and Records in accordance with GAAP and same are true, correct and
complete. The Company has delivered to Parent all of its minute books.
SECTION 4.28 Bank Accounts. Disclosure Schedule 4.28 hereto contains a
true and complete list as of the date hereof of all banks, trust companies and
savings and loan associations in which the Company maintains an account or safe
deposit vault and the account numbers and the names of all Persons authorized to
draw thereon.
SECTION 4.29 Finders and Investment Bankers. The Company has not
employed any broker or finder or financial consultant or incurred any liability
for any brokerage fees, commissions or finders' fees in connection with the
transactions contemplated hereby.
SECTION 4.30 Margin Stock. The Company owns no "margin stock" as such
term is defined in Regulation U, as amended (12 C.F.R. Part 221) of the Federal
Reserve Board.
SECTION 4.31 Investment Representation. All material requested by each
of the Shareholders regarding Parent has been furnished to each such Shareholder
prior to the date of the execution and delivery of this Agreement and has been
carefully reviewed by each Shareholder. Each such Shareholder has been granted
the opportunity (i) to ask questions of, and receive answers from,
representatives and management of Parent concerning the affairs and business of
Parent, and (ii) to obtain additional information which the Parent possesses or
can acquire without unreasonable effort or expense that is necessary or
desirable to verify the accuracy of the material furnished to each Shareholder
regarding Parent. The Company and the Shareholders are familiar with the
affairs,
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business and prospects of Parent, and have been furnished with a copy of the
Prospectus (as defined in Section 5.5(a) below). Each Shareholder understands
that the shares of Parent Common Stock have not been registered under the
Securities Act of 1933, as amended (the "Act"), or any state securities acts,
and are being offered and sold under an exemption from registration provided by
Section 4(2) of the Act and exemptions for private offerings under state law.
Such shares are being acquired by the Shareholders solely for their own account,
for investment purposes only, and are not being purchased with a view to, or in
connection with, any resale, distribution, subdivision or fractionalization.
Each Shareholder shall bear the economic risk of the investment in the shares of
Parent Common Stock for an indefinite period of time because of the limitations
on transfer under applicable securities laws (including, without limitation,
Rule 144 promulgated under the Act).
SECTION 4.32 Full Disclosure. No financial statement, Exhibit,
Disclosure Schedule, Schedule or document required by this Agreement to be
prepared or furnished by or on behalf of the Company or any Shareholder to the
Parent and/or Acquisition Co. in connection with this Agreement or any agreement
contemplated hereby or delivered pursuant hereto, contained or contains any
material misstatement of fact or omits to state any material fact necessary to
make the statements therein, in the light of the circumstances under which they
were made, not misleading. The Shareholders, and each of them, shall notify the
Surviving Corporation promptly of the occurrence of any event or the discovery
of any fact to the contrary. The representations and warranties set forth in
this Article IV in the aggregate (a) are true and correct even without the
materiality exceptions or qualifications contained therein except for such
exceptions and qualifications which, in the aggregate, for all such
representations and warranties, are not and could not reasonably be expected to
result in a Material Adverse Effect and (b) do not contain any material
misstatement of fact or omit to state any material fact necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading.
ARTICLE V
REPRESENTATIONS, WARRANTIES AND COVENANTS
OF THE PARENT
The Parent represents, warrants and covenants to the Company and each
of the Shareholders as follows:
SECTION 5.1 Organization and Authorization. Except as set forth on
Schedule 5.1, the Parent and Acquisition Co. are corporations duly organized and
validly existing and in good standing under the laws of Delaware and California,
respectively, and each has all requisite power and authority to enter into this
Agreement and the agreements contemplated hereunder and to con summate the
transactions contemplated hereby.
SECTION 5.2 Litigation; Observance of Orders. There are no actions,
suits or proceedings pending or threatened, nor, to the knowledge of Parent, is
there any basis therefor
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against or affecting the Parent or Acquisition Co. in any court or before an
arbitrator of any kind or before or by any Governmental Body, which involve the
possibility of materially and adversely affecting the transactions contemplated
by this Agreement or which in any way might adversely affect the validity or
enforceability of this Agreement or any other agreement or instrument to which
the Parent or Acquisition Co. is or is to be a party relating to the
transactions contemplated hereby.
SECTION 5.3 Transactions are Legal and Authorized; Enforceable
Obligation. The execution, delivery and performance of this Agreement and the
documents, instruments and agreements contemplated hereunder to be executed by
the Parent and Acquisition Co. and the compliance with all the provisions hereof
and thereof (a) are within the power and authority of the Parent and Acquisition
Co., (b) will not conflict with or result in the breach of any of the provisions
of, or constitute a Default under, or result in the creation of any lien or
encumbrance upon any property of the Parent or Acquisition Co. under its
certificate of incorporation or by-laws, or any agreement or other instrument to
which it is a party or by which it or any of its property is bound, or of any
license, law, statute, ordinance, governmental law or regulation or Order
applicable to it, (c) have been duly authorized by all necessary action on the
part of the Parent and Acquisition Co., (d) will not conflict with, result in
the breach of, or constitute a Default under, any indenture, mortgage, deed of
trust, lease, agreement, or other instrument to which the Parent or Acquisition
Co. is a party or by which it or any of its property is bound, and (e) do not
require the consent or approval of or filing with any Governmental Body or any
other Person other than as otherwise specifically provided herein. This
Agreement, and the other agreements, documents and instruments contemplated
hereunder to which the Parent or Acquisition Co. is a party have been duly
executed and delivered by it and constitutes its legal, valid and binding
obligations enforceable against it in accordance with their respective terms,
except as (x) such enforcement may be subject to bankruptcy, insolvency,
reorganization, moratorium or other similar laws now or hereafter in effect, or
by legal or equitable principles, relating to or limiting creditors' rights, and
(y) the remedy of specific performance and injunctive and other forms of
equitable or legal relief are subject to certain equitable defenses, equitable
principles and to the discretion of the court before which any proceeding
therefor may be brought.
SECTION 5.4 Governmental Consents. Except for the filing of the Merger
Filing, no consent, approval or authorization of, or filing, registration or
qualification with, any Governmental Body on the part of the Parent or
Acquisition Co. in connection with the execution, delivery and performance of
this Agreement or any other instrument, document or agreement contemplated
hereunder to which it is a signatory.
SECTION 5.5 Registration Statement; Conduct of Parent's Business;
Information Regarding Spinoff.
(a) None of the information contained in the final prospectus
(the "Prospectus") dated June 30, 1997 included in Parent's registration
statement on Form SB-1 (No. 333-20709), as amended contains any untrue statement
of a material fact or omits to state a material fact required to be stated
therein or necessary to make the statements made therein, in light of the
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circumstances under which they were made, not misleading. The final audited
financial statements and unaudited interim financial statements of Parent
included in the Prospectus (the "Parent Financial Statements") have been
prepared in accordance with generally accepted accounting principles
consistently applied in accordance with Parent's past practice and fairly
present the financial position of Parent as of the dates thereof and the results
of operations and changes in financial position for the periods then ended,
subject, in the case of the unaudited interim financial statements, to the
absence of footnotes, and to normal year-end and audit adjustments and any other
adjustments described therein.
(b) Since the date of the Prospectus (or the last amendment or
supplement thereto if an amendment or supplement thereto has been filed with the
Securities and Exchange Commission and circulated to the public), (i) no
Material Adverse Effect has occurred and (ii) Parent has conducted its business
in the ordinary course consistent with its past practice.
(c) Parent has (i) furnished the Company and each Shareholder
with all information requested by the Company and the Shareholders prior to the
date hereof in writing with respect to Parent's business, prospects, assets,
operations, properties and condition (financial and otherwise) which Parent
possesses or which can be obtained by Parent without unreasonable expense or
effort and which is necessary to value the shares of Parent Common Stock as of
the date hereof; and (ii) made its management and representatives available to
the Company and the Shareholders to answer all of the Company's and the
Shareholders' questions concerning the Parent's business, prospects, assets,
operations, properties and condition (financial and otherwise) which are
necessary to value the shares of Parent Common Stock as of the date hereof.
SECTION 5.6 Capitalization. The authorized capital stock of Parent
consists of 10,000,000 shares of capital stock, of which 5,000,000 shares are
designated as Parent Common Stock, and 5,000,000 shares are designated as
preferred stock. There are 553,830 shares of Parent Common Stock issued and
outstanding. All issued and outstanding shares of the authorized capital stock
of the Company are validly issued, fully paid, nonassessable and free of
preemptive rights. Other than as evidenced in this Agreement and the employment
agreement of the Executive Vice President of Parent, there are no voting trust
agreements or any other contracts, agreements, arrangements, commitments, plans
or understandings restricting or otherwise relating to voting or dividend rights
with respect to any shares of the capital stock of Parent or with respect to the
transfer of any such shares. Other than the Options, there are no outstanding
options, warrants, calls, subscriptions, convertible or exchangeable securities,
rights, agreements, commitments or arrangements obligating Parent to issue,
transfer or sell any shares of the capital stock of Parent or any other
securities convertible into, exchangeable for, or evidencing the right to
subscribe for, any such shares of capital stock. The authorized capital stock of
Acquisition Co. consists of 200 shares of common stock, of which all of the
issued and outstanding shares are owned by Parent. All issued and outstanding
shares of the authorized capital stock of Acquisition Co. are validly issued,
fully paid, nonassessable and free of preemptive rights. There are no voting
trust agreements or any other contracts, agreements, arrangements, commitments,
plans or understandings restricting or otherwise relating to voting or dividend
rights with respect to any shares of the capital stock of Acquisition Co.
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or with respect to the transfer of any such shares. There are no outstanding
options, warrants, calls, subscriptions, convertible or exchangeable securities,
rights, agreements, commitments or arrangements obligating Acquisition Co. to
issue, transfer or sell any shares of the capital stock of Acquisition Co. or
any other securities convertible into, exchangeable for, or evidencing the right
to subscribe for, any such shares of capital stock.
ARTICLE VI
COVENANTS
SECTION 6.1 Tax Treatment. The Parent, Acquisition Co., Company,
Surviving Corporation and each of the Shareholders agree that, for Federal
income tax purposes (and for corresponding state corporate, income or franchise
tax purposes to the extent permissible) they shall treat the Merger as a
reorganization within the meaning of Section 368(a)(i)(A) of the Code pursuant
to which no gain or loss is recognized except to the extent of cash in lieu of
fractional shares received. In accordance therewith, the parties hereto agree to
take or cause to be taken all actions reasonably necessary to give effect to
such treatment; and from and after the Closing Date, each party shall cooperate
with the other parties in the preparation of any Tax return and the conduct of
any audit or other proceeding involving the Merger. The parties believe that the
value of the aggregate Merger Consideration to be received in the Merger is
equal to the value of the shares of Company Common Stock to be surrendered in
exchange therefor.
SECTION 6.2 Employee Benefits. Prior to the Effective Time, the Company
shall have: (a) amended its Profit Sharing Plan and Money Purchase Plans
(collectively the "Subject Plans") effective as of the date of the Closing to
provide for the termination of the Subject Plans; and (b) obtained the consent
of the Subject Plans' trustees to continue in office until all the Subject Plans
assets shall have been distributed in accordance with the terms thereof. The
termination of the Subject Plans shall be at the sole cost and expense of the
Shareholders.
SECTION 6.3 Expenses. All costs and expenses incurred in connection
with the preparation and negotiation of this Agreement and the transactions
contemplated hereby shall be paid by the party incurring such expenses; provided
that expenses incurred by the Company shall be deemed to be incurred by the
Shareholders.
SECTION 6.4 Securities Exchange Act of 1934, as amended Compliance.
Parent shall use commercially reasonable efforts timely to file all periodic
reports required to be filed by the Securities Exchange Act of 1934, as amended
and the rules and regulations promulgated thereunder.
SECTION 6.5 August 31, 1997 Company Balance Sheet.
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(a) As soon as reasonably practical after the Closing, but in
no event more than sixty (60) days after the Closing Date, the Surviving
Corporation shall prepare and deliver to the Shareholders a balance sheet of the
Company as of the close of business on the August 31, 1997 (the "Closing Date
Balance Sheet"). The Closing Date Balance Sheet shall be prepared in accordance
with GAAP.
(b) Within twenty (20) business days after receipt of the
Closing Date Balance Sheet, the Shareholders, by written notice to the Surviving
Corporation, may object to the Closing Date Balance Sheet setting forth in such
notice ("Object Notice") their objections in reasonable detail and their
proposal or proposals with respect to the Closing Date Balance Sheet.
(c) For thirty (30) days following timely delivery of the
Objection Notice, such thirty (30) days to be calculated beginning the day
following the receipt of the Objection Notice, the Surviving Corporation and the
Shareholders shall attempt, in good faith, to resolve all disputes between them
contained in the Objection Notice. If the Surviving Corporation and the
Shareholders cannot resolve all such disputes within such thirty (30) day
period, then the matters in dispute shall be determined by a nationally
recognized accounting firm (the "Arbiter") mutually satisfactory to the
Surviving Corporation and the Shareholders. Promptly, but not later than thirty
(30) days after the acceptance of its appointment, the Arbiter shall determine
(based solely on presentations by the Shareholders and the Surviving Corporation
to the Arbiter and not by independent review) only those items in dispute and
shall render a report as to its resolution of such items. In resolving any
disputed item, the Arbiter may not assign a value to such item greater than the
greatest value for such item claimed by either party or less than the lowest
value for such item claimed by either party. The Surviving Corporation and the
Shareholders shall cooperate with the Arbiter in making the Arbiter's
determination and such determination shall be conclusive and binding upon the
Surviving Corporation and the Shareholders. The Surviving Corporation (on the
one hand) and the Shareholders (on the other hand) shall share equally all costs
and fees related to such determination by the Arbiter, including without
limitation, the costs relating to any negotiations with the Arbiter with respect
to the terms and conditions of such Arbiter's engagement, and the Surviving
Corporation (on the one hand) and the Shareholders (on the other hand) shall
each be severally liable for one-half (1/2) of any amounts paid as a result of
any indemnification required by the Arbiter as a condition to its engagement or
the performance of such engagement.
(d) If the Shareholders do not timely deliver an Objection
Notice, then they shall be deemed to have accepted the Closing Date Balance
Sheet.
SECTION 6.6 Commercial Library Development and Staffing. Parent agrees
that for the one year period commencing with the Closing Date Parent shall use
its commercially reasonable efforts to maintain its current staffing (the
"Staffing Obligation") with respect to the development of a commercial parts
library that is intended ultimately to include at least 80% of all current
global wide semiconductor products (diodes, transistors, and microcircuits) and
of at least 70% of all global wide semiconductor products discontinued since
1994 with identical or very similar information as the Military "Real Time"
Libraries of the Parent (such proposed commercial library, the
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"Commercial Library"). The parties recognize and agree that it is more likely
than not that the Commercial Library cannot be developed to include the number
of semiconductor products discussed above in this Section 6.6; and the parties
agree that (X) the failure to so develop the Commercial Library, whether during
such one-year period or thereafter, (Y) the failure by the Parent to use greater
than commercially reasonable efforts in order to satisfy the Staffing Obligation
and/or (Z) the Parent's failure to use commercial reasonable or other efforts to
develop such Commercial Library after the expiration of the one-year duration of
the Staffing Obligation, shall not result in any liability to any Shareholder,
Parent, Acquisition Co., Surviving Corporation, and any of their respective
officers, directors, Shareholders, employees, agents, successors and assigns. In
the event that the Shareholders so request, Parent shall retain (without written
employment agreements) two current employees of the Company as employees of the
Surviving Corporation, provided that (a) such employment shall be on the terms
as set forth on Schedule 6.6 hereto, (b) the job description of such employees
shall be as set forth on Schedule 6.6 hereto, and (c) this sentence shall not
create any rights of employment (or to participate in any employee benefit plans
or other perquisites) of any person and any such prospective employees shall not
be third party beneficiaries of the sentence.
SECTION 6.7 Tax Indemnification. Pursuant to the provisions of Section
8, the Shareholders shall jointly and severally indemnify and hold harmless the
Parent and the Surviving Corporation from and against all Taxes of the Company
attributable to its assets or operations for any taxable year or period ending
on or before the Closing Date, to the extent such Taxes exceed the reserves
therefor on the Financial Statements. The Surviving Corporation shall indemnify
and hold harmless the Shareholders from and against any and all liability for
Taxes attributable to the assets or operations of the Surviving Corporation for
any period beginning on and after the Closing Date.
SECTION 6.8 Lock-Up of Parent Common Stock. Each Shareholder hereby (a)
represents that he has not purchased, sold, exchanged or otherwise disposed of
Company Common Stock prior to the date hereof either in contemplation of or as
part of the Merger or otherwise; (b) represents that he does not have any plan
or intention to sell, exchange or otherwise dispose of a number of shares of
Parent Common Stock to be received by such Shareholder pursuant to the Merger
that would reduce his ownership of shares of Parent Common Stock to a number of
shares having a value, as of the Effective Time, of less than 50% of the value
of all formerly outstanding shares of Company Common Stock held by him as of
immediately prior to the Effective Time; and (c) agrees that he will not offer,
sell, contract to sell, grant any option to sell, transfer or otherwise dispose
of, directly or indirectly, any shares of Parent Common Stock received in the
Merger or pursuant to the exercise of an Option (i) during the period commencing
with the date hereof through the first anniversary of the Closing Date and (ii)
subject to the compliance with applicable securities laws, during the period
commencing after such first anniversary and ending on the second anniversary of
the Closing Date in an amount in excess of twenty-five percent (25%) of the
shares of Parent Common Stock such Shareholder is entitled to receive pursuant
to this Agreement, in each case, other than with the prior written consent of
Parent; provided that such Shareholder shall have no such restriction with
respect to Parent Common Stock after the date upon which the Term expires other
than as a result of such Shareholder's resignation of employment under his
Parent Employment Agreement. The undersigned agrees and consents to the entry of
stop transfer instructions with the
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Parent's transfer agent against the transfer of shares of Parent Common Stock
held by such Shareholder except in accordance with the terms hereof.
SECTION 6.9 Shareholder Restrictive Covenants.
(a) Parent and each Shareholder recognize and agree that,
although the Shareholder's employment skills are not short-lived, the
Shareholder's services to be provided pursuant to his Parent Employment
Agreement are special and unique, and that for these reasons a covenant on each
Shareholder's part not to compete anywhere in the continental United States or
via the Internet during the Term and for a reasonable period after any
termination of the Term is essential to protect the business of the Parent and
give the Parent the benefit of the Parent's bargain under this Agreement. In
light of the foregoing, and because of the proprietary or confidential
information to be obtained by or disclosed to each Shareholder (including both
in his capacity as an employee under the Parent Employment Agreement and as a
person selling his interest in a business), and as a material inducement for the
Parent to enter into the Parent Employment Agreements and this Agreement and to
pay each Shareholder the Merger Consideration as well as the consideration as
provided for in the Parent Employment Agreements, each Shareholder covenants and
agrees that, from and after the date hereof and until the Designated Date (as
hereinafter defined), he shall not:
(i) directly or indirectly engage in or
assist others to engage in any Competitive Activity (as
hereinafter defined), whether such engagement shall be as an
officer, director, shareholder, consultant, agent, lender or
security holder (except nothing contained herein shall prevent
or be construed as preventing the Shareholder from holding or
purchasing up to one percent (1%) in the aggregate or less of
any class of stock or securities of a corporation which is
listed on a national securities exchange or regularly traded
in the over-the-counter market);
(ii) solicit customers, suppliers or other
business relations of the Parent (and/or its affiliates or
subsidiaries) for the purpose of encouraging them to terminate
their relationship with the Parent (and/or its Affiliates or
Subsidiaries) or to do business with an entity or person other
than the Parent (and/or its Affiliates or Subsidiaries); or
(iii) encourage other employees or
consultants of the Parent, the Company or the Surviving
Corporation (and/or its Affiliates or Subsidiaries) to
terminate their employment or consultancy with the Parent, the
Company or the Surviving Corporation (and/or its Affiliates or
Subsidiaries); or solicit any person (or entity) who was a
consultant to or employee of the Parent, the Company or the
Surviving Corporation (and/or its Subsidiaries or Affiliates)
within one year of the subject solicitation to do business
indirectly or directly with any Shareholder.
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(b) As used herein, the term "Competitive Activity" shall mean
and include the business of (i) providing data bases consisting of information
with respect to semiconductors and other electronic components, obsolescence of
such components and replacement parts for such components and (ii) developing
and making available search engines for such data bases, as well as businesses
which are the same or similar to the business activities carried on by or
proposed to be carried on by Parent and its Subsidiaries and Affiliates in the
continental United States or via the Internet.
(c) As used in this Section 6.9, with respect to a
Shareholder, the "Designated Date" shall mean the following:
(i) if the Term shall have been terminated
as a result of such Shareholder's dismissal from his
employment by the Parent under his Parent Employment Agreement
without Cause (as defined in Section 8(b) of his Parent
Employment Agreement), then the Designated Date shall mean the
date of such termination, provided that upon such termination
if the Parent shall have exercised its option to continue to
pay such Shareholder his then current base salary pursuant to
Section 8(c)(i) of his Parent Employment Agreement for a
period of one year after such termination, then the Designated
Date shall be the one year anniversary of such termination; or
(ii) if the Term shall have been terminated
(or has expired) for any reason other than the Parent's
termination of the Term without Cause, then the "Designated
Date" shall mean the third anniversary of the termination of
the Term.
(d) It is acknowledged and agreed that the restrictions
contained in this Section 6.9, including, without limitation, the time periods
and the geographical areas of the restrictions, are fair and reasonable and do
not place any undue hardship on any Shareholder and are reasonably required for
the protection of the goodwill, the business and the interests of the Parent and
its Affiliates and Subsidiaries and their respective officers, directors and
employees.
(e) It is the desire and intent of the parties that the
provisions of this Section 6.9 shall be enforced to the fullest extent
permissible under the laws and public policies applied in each jurisdiction in
which enforcement is sought. Accordingly, if any particular provision of this
Section 6.9 shall be adjudicated to be invalid or unenforceable, such provision
shall be deemed amended to delete therefrom the portion thus adjudicated to be
invalid or unenforceable. Such deletion shall apply only with respect to the
operation of such provisions of this Section 6.9 in the particular jurisdiction
in which such adjudication is made. In addition, if the scope of any restriction
contained in this Section 6.9 is too broad to permit enforcement thereof to its
fullest extent, then such restriction shall be enforced to the maximum extent
permitted by law, and each Shareholder hereby consents and agrees that such
scope may be judicially modified in any proceeding brought to enforce such
restriction.
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(f) Each Shareholder agrees and acknowledges that his
obligations under this Section 6.9 have been undertaken in consideration of (i)
the compensation payable to the Shareholder under the Parent Employment
Agreement and (ii) the Parent's execution, delivery and performance of this
Agreement. In the event of a breach or threatened breach by any Shareholder of
the provisions of this Section 6.9, the Parent shall be entitled to an
injunction and such other equitable relief as may be necessary or desirable to
enforce the restrictions contained herein. Nothing herein contained shall be
construed as prohibiting the Parent from pursuing any other remedies available
for such breach or threatened breach or any other breach of this Agreement.
ARTICLE VII
THE CLOSING
SECTION 7.1 Documents to be Delivered at Closing by Shareholders and
the Company.
The Company and the Shareholders shall deliver to Parent and
Acquisition Co. the following at Closing (all of which shall be in form and
substance satisfactory to Parent and its counsel):
(a) Shareholders' Certificate. A Certificate executed by each
of the Shareholders, dated as of the Closing Date, (i) stating that all of the
representations, warranties and covenants made by Shareholders and the Company
are true and correct and fully performed and complied with in all material
respects and (ii) certifying to the incumbency and signatures of the Company's
officers. Such Certificate shall annex the resolutions or written consents
authorizing the negotiation and execution of this Agreement and all other
collateral agreements or instruments required hereunder to which the Company or
a Shareholder is party, and authorizing the performance of the terms thereof.
(b) Good Standing Certificate. A certificate of the
appropriate officials, as of a recent date, of the qualification and the good
standing to do business and tax standing of the Company in California and in
each jurisdiction wherein the conduct of its business or the ownership of
operation of assets requires the Company to maintain qualification as a foreign
corporation.
(c) Opinion of the Company's and the Shareholders' Counsel. A
favorable Opinion of Counsel from Gray Cary Ware & Freidenrich, a professional
corporation, counsel for each of the Shareholders and the Company, at the
expense of Shareholders, dated as of the Closing Date, substantially similar to
the form thereof annexed hereto as Exhibit E.
(d) Delivery of Shares and Options. Certificates for the
shares of Company Common Stock and agreements evidencing the Options, duly
signed by each Shareholder.
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(e) Stock Powers. Stock powers, duly executed in favor of
Parent and dated in blank, with respect to the shares of Parent Common Stock
portion of the Holdback.
(f) Unanimous Participation Obtained. This Agreement, duly
executed by the Shareholders and the Company.
(g) Parent Employment Agreements. The Parent Employment
Agreements by and between Parent and the respective employees thereunder, duly
executed by such employees.
(h) Holdback. The Holdback to be held by Surviving Corporation
pursuant to Section 3.6 above and Article VIII below.
(i) Merger Filing. The Merger Filing, duly executed by the
Company.
(j) Novation Agreements. All novation agreements necessary or,
in the discretion of Parent, desirable to give the Surviving Corporation the
benefits of the Government Contracts after the Closing, duly executed by the
United States Department of Defense.
(k) Certification of Non-Foreign Status. Certification of
non-foreign status in accordance with Treasury Regulations ss. 1.1445-2(b)(2).
SECTION 7.2 Documents to be delivered by Parent.
Parent shall deliver the following at Closing to Shareholders (which
shall be in form and substance satisfactory to Shareholders, the Company and
their counsel):
(a) Payment of Merger Consideration. Subject to Section 3.6
above and Article VIII below, the Merger Consideration (less the Holdback).
(b) Opinion of Parent's Counsel. A favorable Opinion, dated
the date hereof, from Morrison Cohen Singer & Weinstein, LLP, general counsel
for Parent and Acquisition Co., substantially similar to the form thereof
annexed hereto as Exhibit F.
(c) Representations and Warranties. An Officer's Certificate
from the Chief Executive Officer of Parent and Acquisition Co. dated as of the
Closing Date, stating that to the best of his knowledge, all of the
representations, warranties and covenants made by Parent and Acquisition Co. in
Section 5 above are true and correct and fully performed and complied with in
all material respects on and as of the such date.
(d) Delivery of Options. The Options, duly signed by the
Parent.
(e) Merger Filing. The Merger Filing duly executed by
Acquisition Co.
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(f) Parent Employment Agreements. The Parent Employment
Agreements by and between Parent and the employees party thereto, duly executed
by the Surviving Corporation.
ARTICLE VIII
INDEMNIFICATION
SECTION 8.1 Indemnification by Shareholders. Shareholders, jointly and
severally, agree to indemnify and hold harmless the Parent, Acquisition Co. and
Surviving Corporation from and against, without duplication, all costs, fees,
liabilities, Taxes, charges, claims, expenses, losses and damages, including
reasonable legal expenses and costs of investigation (both of those incurred in
connection with the defense or prosecution of an indemnifiable claim and those
incurred in connection with the enforcement of this provision), as and when
actually incurred or as and when actually paid by the Parent, Acquisition Co.
and Surviving Corporation or any of their respective subsidiaries, or any of
their respective officers, employees, directors, agents or affiliates, arising
out of or in connection with any action or proceeding (collectively "Survivor
Losses") as a result of or arising in connection with:
(a) the breach of any of the Company's or any Shareholder's
representations, warranties or agreements contained in this Agreement or in any
agreement, certification, Disclosure Schedule, Schedule, Exhibit, document,
instrument or writing delivered pursuant hereto, provided, however, the
indemnification obligation of each Shareholder shall be several (and not joint)
with respect to the Several Representations and Covenants but shall nevertheless
be joint and several with respect to such representations and warranties in such
subsections as pertain to the Company;
(b) the commencement and/or prosecution of any action brought
against Parent or Surviving Corporation by a Shareholder (or equity interest
holder) or former Shareholder (or equity interest holder) of the Company, or any
predecessor thereof or any Person acquired thereby, arising out of or relating
to the purchase of all or a portion of such Person's capital stock or the
acquisition of all or substantially all of the assets of the entity the capital
stock of which was owned by such Person or, in each case, any direct or indirect
Shareholder of any of the foregoing;
(c) the actual or threatened commencement of any proceeding,
suit or action against Parent, Surviving Corporation or any direct or indirect
Subsidiary thereof, or any director, officer, agent or employee of any of them,
which, if determined adversely thereto (regardless of the actual determination
thereof) would result in a Survivor Loss (any such pending or threatened suit or
action being a "Survivor Covered Action"); or
(d) any and all actions, suits or proceedings, claims or
demands incident to any of the foregoing or such indemnities; provided, however,
that no Shareholder shall be required to make any payment in respect of a
Survivor Loss until the aggregate amount of all Survivor Losses,
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other than Non-Basket Losses (as hereinafter defined), exceed $10,000 (the
"Basket"), whereupon the Shareholders shall be required to pay in full Survivor
Losses (including the Survivor Losses constituting the Basket), and provided,
further, that Shareholders shall be obligated to pay all amounts of Non-Basket
Losses without regard to whether the aggregate of all other Survivor Losses
exceed the Basket. "Non-Basket Losses" means Survivor Losses arising from: (A)
intentional or "Knowing" (as hereinafter defined) misrepresentations or breaches
of any warranty or condition, (B) intentional breaches of any covenant, or (C)
any misrepresentation or breach of representation and warranty, agreement, or
covenant contained in Sections 4.1 through 4.5 inclusive, 4.9, 4.14 and 4.17,
the covenants contained in Section 6.2, Section 6.7, Section 6.9, and the
representation and warranty of the Company and the Shareholders set forth in the
last paragraph of Schedule 6.6 attached hereto. As used in this Section 8.1(d),
"Knowing" means actual, and not constructive, knowledge.
SECTION 8.2 Indemnification by Surviving Corporation. Surviving
Corporation agrees to indemnify and hold harmless each Shareholder from and
against, without duplication, all costs, fees, liabilities, losses, charges,
claims, expenses and damages, including reasonable legal expenses and costs of
investigation, as and actually incurred or as and actually paid by such
Shareholder (collectively "Shareholder Losses") as a result of:
(a) the breach of any of Parent's or Acquisition Co.'s
representations, warranties or agreements contained herein or in any agreement,
document, instrument, certification, Disclosure Schedule, Schedule, Exhibit or
writing delivered pursuant hereto;
(b) the actual or threatened commencement of any proceeding,
suit or action against such Shareholder which (i) is not indemnifiable by such
Shareholder pursuant to Section 8.1 above, (ii) is based upon Section 8.2(a)
above or the operations of the Surviving Corporation after the Closing, and
(iii) if determined adversely to him (regardless of the actual determination
thereof) would result in a Shareholder Loss (any such pending or threatened suit
or action being a "Shareholder Covered Action"); or
(c) any and all actions, suits or proceedings, claims or
demands incident to any of the foregoing;
provided, however, that the Surviving Corporation shall not be required to make
any payment in respect of a Shareholder Loss until the aggregate amount of all
Shareholder Losses, other than Shareholder Non-Basket Losses (as hereinafter
defined), exceed the Basket, whereupon the Surviving Corporation shall be
required to pay in full all Shareholder Losses (including the Shareholder Losses
constituting the Basket), and provided, further, that the Surviving Corporation
shall be obligated to pay Non-Basket Losses without regard to whether the
aggregate of all other Shareholder Losses exceed the Basket. "Shareholder
Non-Basket Losses" means Shareholder Losses arising from: (A) intentional or
Knowing misrepresentations or breaches of any warranty or condition, (B)
intentional breached of any covenant, or (C) any misrepresentation or breach of
representations and warranties, agreement or covenant contained in Sections 5.1
through 5.3 inclusive.
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SECTION 8.3 "Losses" and "Covered Actions". Survivor Losses and
Shareholder Losses are referred to collectively as "Losses". Survivor Covered
Actions and Shareholder Covered Actions are referred to collectively as "Covered
Actions".
SECTION 8.4 Loss Indemnity Procedure.
(a) Upon learning of the commencement of a Covered Action or
the actual receipt by the party claiming a right of indemnification (the
"Indemnified Party") of information relating to the purported existence of facts
or circumstances which could result in the commencement of a Covered Action or
other incurrence of Loss, the Indemnified Party shall promptly, but no later
than fifteen (15) days after learning of such commencement or receipt, give
notice ("Indemnification Notice") thereof, with reasonable specificity of the
facts as then known to the party having the indemnification obligation (the
"Indemnifying Party"); provided, however, failure to give timely such notice
shall not release the Indemnifying Party of its obligations hereunder except,
and only, to the extent the Indemnifying Party suffers actual prejudice as a
proximate result of such failure.
(b) The Indemnifying Party shall have the right to assume the
defense of any such Covered Action by giving written notice (the "Assumption
Notice") to the Indemnified Party within 20 days after notice given pursuant to
Section 8.4(a) above, which Assumption Notice shall state that (i) it agrees
that the claimant is entitled to indemnification hereunder and that any
resulting Loss is a Survivor Loss or a Shareholder Loss, as the case may be, for
which it is or they are liable; and (ii) it agrees or they agree to assume the
defense thereof in the name and on behalf of the Indemnified Party with counsel
reasonably satisfactory to the Indemnified Party, in either event at the sole
cost and expense of the Indemnifying Party; provided, however, (x) all such
costs and expenses of the foregoing counsel, if not paid by the Indemnifying
Party and instead paid by the Indemnified Party shall be Losses for which the
Indemnified Party is indemnified under Section 8.1 or Section 8.2 above, as the
case may be, (y) the Indemnified Party, notwithstanding the timely delivery of
an Assumption Notice, may participate in such Covered Action through counsel
separately selected and paid for by the Indemnified Party, and (z) if no
Assumption Notice is timely given, or despite the giving of the Assumption
Notice the defendants in any Covered Action include both the Indemnified Party
and the Indemnifying Party, and the Indemnified Party shall have reasonably
concluded that there may be legal defenses available to it which are different
from or additional to those available to the Indemnifying Party, or if there is
a conflict of interest which would prevent counsel for the Indemnifying Party
from also representing the Indemnified Party, the Indemnified Party shall have
the right to select one separate counsel to conduct the defense of such action
on its behalf, and all such costs and expenses shall be paid by the Indemnifying
Party and, if paid by the Indemnified Party, shall be Losses under Section 8.1
or 8.2 above, as the case may be. The Indemnified Party may take such action
with respect to a Covered Action as it may deem appropriate to protect against
further damage or default, including obtaining an extension of time to answer
the complaint or other pleading or filing an answer thereto.
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<PAGE>
(c) In no event shall a Shareholder (where a Shareholder is
the Indemnifying Party or where the Shareholders are Indemnifying Parties)
consent to the entry of any judgment or enter into any settlement without the
written consent of Surviving Corporation, which shall not be unreasonably
withheld or delayed. Subject to Section 8.4(b) above, Surviving Corporation
shall not consent to the entry of any judgment or enter into any settlement
relating to a Survivor Loss without the written consent of both Shareholders,
which shall not be unreasonably withheld or delayed.
SECTION 8.5 Holdback Offset Procedure.
(a) All Survivor Losses and the amount which Surviving
Corporation in good faith believes may result in a Survivor Loss in the future
from all events which have occurred but which have not theretofore resulted in a
Survivor Loss ("Anticipated Losses"), including, without limitation, those for
which Shareholders may be severally and not jointly liable, shall be reimbursed
initially by suspending (and, after adjudication, resolution or conclusive
determination of the Survivor Loss and/or Anticipated Losses, offsetting)
against amounts of shares otherwise transferable by the Surviving Corporation
under the Holdback in accordance with this Section 8.5; provided, however, that
if either of the Shareholders provides written notice to Parent that he disputes
any Survivor Loss and/or Anticipated Losses within twenty (20) days of receipt
of notice of such Survivor Loss and/or Anticipated Losses pursuant to Section
8.4(a) above, no offset shall be made until the amount of such Survivor Loss
and/or Anticipated Losses, if any, shall be adjudicated, resolved, or otherwise
conclusively determined (it being understood suspension of an amount of shares
of Parent Common Stock in the Holdback equal in value to the claimed Survivor
Losses and/or Anticipated Losses may be made by Parent pending such
adjudication, resolution or conclusive determination in accordance with this
Section 8.5). On each Holdback Payment Date, Surviving Corporation may suspend
the transfer of an amount of shares of Parent Common Stock remaining under the
Holdback equal in value to the subject Survivor Losses and/or Anticipated Losses
(any such loss, a "Subject Payment Obligation"). Any such suspension or offset
shall be made against the shares of Parent Common Stock in the Holdback where
Parent Common Stock is valued at the greater of (X) $3.00 per share and (Y) its
then Market Value. Surviving Corporation shall, concurrently with the filing of
an Indemnification Notice, provide written notice to Shareholders specifying (i)
the realized Survivor Losses and Anticipated Losses, (ii) the basis therefor,
and (iii) the amounts of shares suspended (or to be suspended) from the Holdback
as a result thereof. The amount of shares in the Holdback to be suspended
pursuant to this Section 8.5 shall be reduced by any cash payment made by the
Shareholders toward any Subject Payment Obligation (which cash payment shall be
accompanied by a written notice specifying and describing in reasonable detail
the Subject Payment Obligation in respect of which the cash payment was made)
after the Shareholders receipt of the subject Indemnification Notice and on or
before the next Holdback Payment Date following receipt of such Indemnification
Notice (it being understood that the Shareholders' option to pay cash in respect
of a Subject Payment Obligation pursuant to this sentence in lieu of having
shares in the Holdback suspended shall not be deemed, as between the parties,
(I) to reduce the amount of a Subject Payment Obligation beyond the amount of
cash so paid or (II) otherwise to settle any disputed portion of the Subject
Payment Obligation not satisfied in cash). The balance of any Subject Payment
Obligation due on a Holdback Payment Date, after the
39
<PAGE>
foregoing deductions and after making appropriate adjustment as between the
Shareholders to give effect to any and all indemnification obligations satisfied
from the Holdback arising from a breach of any of the Several Representations
and Covenants, shall be paid on such Holdback Payment Date.
(b) Upon the adjudication, resolution or other conclusive
determination of the amount of Survivor Losses, if any, sustained in respect of
the events underlying an Indemnification Notice, Surviving Corporation shall
offset any such Survivor Loss against the amount of shares then suspended from
the Holdback. To the extent that the aggregate amount of all Survivor Losses
sustained in respect of the events underlying an Indemnification Notice are
determined to be less than the amount of shares previously suspended from
transfer in respect of such Indemnification Notice, Surviving Corporation shall
promptly transfer the balance due to the Shareholders.
SECTION 8.6 No Claim Against Surviving Corporation/Company. In no event
following Closing may any Shareholder seek or assert any claim whatsoever,
whether for contribution or otherwise, against Surviving Corporation arising out
of any facts or any action or failure to act by the Company or a Shareholder
existing or occurring prior to or as of the Closing, including, without
limitation, based upon any breach of any representation, warranty, covenant or
condition herein by the Company or a Shareholder, whether by way of contribution
based upon the gross negligence or willful misconduct of the Company or a
Shareholder, or otherwise. If, notwithstanding the foregoing, it is judicially
determined that the Surviving Corporation is liable to any Shareholder in
respect of such breach, then each of the Shareholders shall contribute to the
Surviving Corporation the amount for which Surviving Corporation has been held
liable multiplied by the percentage of the aggregate Merger Consideration
received by such Shareholder.
SECTION 8.7 Accounts Receivable. If any claim by Surviving Corporation
for indemnification arises out of a failure to collect a Collectible Account
Receivable within the time period set forth in Section 4.14, the Surviving
Corporation shall continue to use reasonable efforts to collect said receivable,
and, if the Surviving Corporation subsequently receives any payment from the
account debtor on such account, such payment shall be credited, net of costs of
collection (which costs shall be a Survivor Loss), against aggregate Survivor
Losses or, if the Shareholders have previously and actually paid an
indemnification claim to Surviving Corporation with respect thereto, the payment
received from the account debtor on such account shall be paid over to the
Shareholders upon receipt thereof by the Surviving Corporation. To the extent
Shareholders have actually paid an indemnification claim to Surviving
Corporation due to the failure to collect a Collectible Account Receivable
within the time period set forth in Section 4.14(b), the Shareholders, acting
together, may request that the subject Account Receivable be assigned to the
Shareholders for collection.
SECTION 8.8 Payment by Indemnified Party. The Indemnifying Party shall
be entitled to receive payment from the Indemnified Party of an amount equal to
any Tax reductions or refund actually realized, or insurance proceeds actually
paid to the Indemnified Party solely as a result of the Indemnified Party having
incurred such Loss; provided, that the Indemnifying Party shall have paid to the
Indemnified Party the full amount of such Losses. Nothing herein shall obligate
the
40
<PAGE>
Indemnified Party, in the exercise of his/its good faith reasonable business
judgment, to make any claim for a Tax refund or an insurance recovery.
SECTION 8.9 Duration of Indemnification. Liability for indemnification
under this Article VIII shall expire as provided in Section 9.4 below except
with respect to claims for indemnification asserted pursuant to this Article
VIII prior to the dates set forth in Section 9.4, in which event such liability
shall survive until such claim is finally determined and any indemnification
payment due is made.
ARTICLE IX
MISCELLANEOUS
SECTION 9.1 Confidentiality; Public Announcements. Except for public
disclosures required by applicable securities laws, no party shall issue any
press release or make any reference to the closing or to the transactions
contemplated hereby to any third party except with the prior written consent of
the other parties. The parties shall coordinate and cooperate the announcement
of the Closing and the filing of Parent's Current Report on Form 8-KSB in
connection therewith, as to both the manner and content thereof.
SECTION 9.2 Notices. All notices and other communications hereunder
will be in writing and will be given by delivery in person, telegram, telex,
facsimile or other standard form of telecommunications, by reputable overnight
courier, or by registered or certified mail, return receipt requested, to the
parties as follows:
Parent and Surviving Transition Analysis Component Technology, Inc.
Corporation 22700 Savi Ranch Parkway
Yorba Linda, California 92657
Attn: Malcolm A. Baca
With copy to: Morrison Cohen Singer & Weinstein, LLP
750 Lexington Avenue
New York, NY 10022
Attn: Henry A. Singer, Esq.
and
Martin S. Fawer
c/o Zing Technologies, Inc.
115 Stevens Avenue
Valhalla, NY 10585
41
<PAGE>
If to Shareholders: Jeff Hanser
Bruce L. Blackford
3465 Camino del Rio South, Suite 430
San Diego, CA 92108
With copy to: Gray Cary Ware & Freidenrich
4365 Executive Drive, Suite 1600
San Diego, California 92121-2189
Attention: Knox Bell, Esq.
Notice given by mail shall be deemed given three business days after deposit
with the United States Postal Service and one business day after delivery into
the custody and control of an overnight courier service for next day delivery.
SECTION 9.3 Rights Confined to Parties. Nothing expressed or implied
herein is intended or shall be construed to confer upon or give to any Person,
other than the parties hereto, and their successors and assigns as permitted
hereunder, any right, remedy, or claim under or by reason of this Agreement or
of any term, covenant, or condition hereto, and all the terms, covenants, condi
tions, promises, and agreements contained herein shall be for the sole and
exclusive benefit of the parties hereto and their successors and assigns as
permitted hereunder.
SECTION 9.4 Survival. Except as otherwise specifically provided herein
all representa tions, warranties and covenants shall survive the Closing,
regardless of any inspection or discovery, whether by reason of due diligence or
otherwise, for a period of two years from Closing, except that
(a) (i) representations, warranties and covenants with respect
to ERISA, title to assets and the Company Common Stock, and the authorization,
enforceability and validity of the execution and performance of this Agreement,
and (ii) agreements between the Shareholders (and no other party or parties)
shall survive indefinitely and
(b) representations, warranties and covenants with respect to
Taxes shall survive for the maximum duration of the applicable statute of
limitations.
SECTION 9.5 Entire Agreement. This Agreement, together with the
agreements entered into in accordance with the terms hereof and contemplated
hereby and the Exhibits, Disclosure Schedules, and Schedules hereto, constitute
the entire understanding between the parties hereto with respect to the subject
matter hereof and supersede any and all prior agreements between the parties
hereto with respect to the subject matter hereof, including, without limitation,
that certain letter of intent dated July 10, 1997 among the Shareholders, the
Company and Parent.
SECTION 9.6 Assignment. This Agreement is not assignable and any
purported assignment shall be null and void and of no effect, provided that the
Surviving Corporation shall be
42
<PAGE>
free to assign its rights, duties and obligations under this Agreement without
the prior consent of any Shareholder or other Person.
SECTION 9.7 Severability. Any provision of this Agreement which is
prohibited or unenforceable in any jurisdiction shall not affect the validity or
enforceability of any other provision in such jurisdiction or the validity or
enforceability of such provision in any other jurisdiction.
SECTION 9.8 Effect of Headings. The Article, Section and subsection
headings contained herein are for convenience only and shall not affect the
construction hereof.
SECTION 9.9 Governing Law; Jurisdiction. The provisions of this
Agreement, and all the rights and obligations of the parties hereunder, shall be
governed by and construed in accordance with the laws of the State of New York
applicable to agreements made and to be performed wholly within such State.
SECTION 9.10 Counterparts. This Agreement may be executed in multiple
counterparts, each of which shall be deemed to be an original, and all such
counterparts shall constitute but one instrument.
SECTION 9.11 Spouse's Interest in Stock.
(a) Although each Shareholder's spouse is not a record owner
of any outstanding stock of the Company, such spouse may have an interest in the
shares standing in the name of a Shareholder by reason of the California
community property laws, or otherwise. The parties intend that this Agreement
shall apply to any such interest which may exist without determining either the
existence or extent of any such interest, and the spouse of each Shareholder
agrees to be bound by all of the terms and conditions of this Agreement and
shall execute the signature page of this Agreement.
(b) Each Shareholder's spouse by her signature below consents
to the terms of this Agreement and will take all action necessary to carry out
its terms. This consent is given with knowledge that said shares which are the
subject of this Agreement held in each Shareholder's name may constitute
community property over which community property Shareholder's spouse has equal
management and control with the Shareholder.
43
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their respective officers or other representatives thereunto duly
authorized, as of the date first above written.
TRANSITION ANALYSIS
COMPONENT TECHNOLOGY, INC.
By: /s/ Martin S. Fawer
--------------------------------------
Name: Martin S. Fawer
Title: Chief Financial Officer
RESEARCH TECHNOLOGY ANALYSIS CORP.
By: /s/ Martin S. Fawer
--------------------------------------
Name: Martin S. Fawer
Title: Chief Financial Officer
/s/ Jeff Hanser
-----------------------------
Jeff Hanser, Shareholder
-----------------------------
/s/ Bruce L. Blackford
-----------------------------
Bruce L. Blackford, Shareholder
-----------------------------
RESEARCH ANALYSIS CORPORATION
By: /s/ Jeff Hanser
-------------------------
Name: Jeff Hanser
Title: President
44
<PAGE>
TABLE OF CONTENTS
DEFINITIONS ARTICLE............................................................1
ARTICLE I
THE MERGER..................................................................5
SECTION 1.1 The Merger....................................................5
SECTION 1.2 Effective Time of the Merger..................................5
ARTICLE II
ORGANIZATIONAL MATTERS......................................................6
SECTION 2.1 Certificate of Incorporation..................................6
SECTION 2.2 By-Laws.......................................................6
SECTION 2.3 Directors.....................................................6
ARTICLE III
CONVERSION OF SHARES........................................................6
SECTION 3.1 Conversion of Company Common Stock in the Merger.............6
SECTION 3.2 Conversion of Acquisition Co. Shares..........................7
SECTION 3.3 Exchange of Certificates......................................7
SECTION 3.4 No Fractional Securities......................................7
SECTION 3.5 Closing. .....................................................7
SECTION 3.6 Holdback......................................................8
SECTION 3.7 Value of Options..............................................8
ARTICLE IV
REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE COMPANY AND
SHAREHOLDERS................................................................8
SECTION 4.1 Organization and Authorization................................8
SECTION 4.2 Enforceable Obligation........................................9
SECTION 4.3 Capitalization................................................9
SECTION 4.4 Governing Instruments........................................10
SECTION 4.5 Clear Title to Shares........................................10
SECTION 4.6 Title to Assets; Condition; Possession under Lease; Assets...10
SECTION 4.7 Litigation; Observance of Statutes, Regulations and Orders...12
SECTION 4.8 Licenses, Permits, Etc.......................................13
SECTION 4.9 Taxes and Tax Returns........................................13
SECTION 4.10 Financial Statements of the Company..........................15
SECTION 4.11 Conduct of the Business......................................16
SECTION 4.12 Officers and Directors.......................................17
SECTION 4.13 Liabilities..................................................17
<PAGE>
SECTION 4.14 Collectibility of Accounts Receivable; Net Current Assets....18
SECTION 4.15 No Default or Event of Default...............................19
SECTION 4.16 No Right of Action...........................................19
SECTION 4.17 ERISA Compliance.............................................19
SECTION 4.18 Investment Company Act; Public Utility Holding Company Act. .21
SECTION 4.19 Agreements...................................................21
SECTION 4.20 Environmental Liability......................................22
SECTION 4.21 Insurance....................................................22
SECTION 4.22 Employment Agreements........................................23
SECTION 4.23 Labor Disputes...............................................23
SECTION 4.24 Collective Bargaining Agreements.............................23
SECTION 4.25 Subsidiaries. ...............................................23
SECTION 4.26 Intellectual Property........................................23
SECTION 4.27 Books and Records; Audits and Investigations................25
SECTION 4.28 Bank Accounts................................................25
SECTION 4.29 Finders and Investment Bankers...............................25
SECTION 4.30 Margin Stock.................................................25
SECTION 4.31 Investment Representation....................................25
SECTION 4.32 Full Disclosure. ............................................26
ARTICLE V
REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE PARENT....................26
SECTION 5.1 Organization and Authorization...............................26
SECTION 5.2 Litigation; Observance of Orders.............................26
SECTION 5.3 Transactions are Legal and Authorized; Enforceable
Obligation...................................................27
SECTION 5.4 Governmental Consents........................................27
SECTION 5.5 Registration Statement; Conduct of Parent's Business;
Information Regarding Spinoff. ..............................27
SECTION 5.6 Capitalization...............................................28
ARTICLE VI
COVENANTS..................................................................29
SECTION 6.1 Tax Treatment................................................29
SECTION 6.2 Employee Benefits. ..........................................29
SECTION 6.3 Expenses.....................................................29
SECTION 6.4 Securities Exchange Act of 1934, as amended Compliance. .....29
SECTION 6.5 August 31, 1997 Company Balance Sheet........................29
SECTION 6.6 Commercial Library Development and Staffing. ................30
SECTION 6.7 Tax Indemnification..........................................31
SECTION 6.8 Lock-Up of Parent Common Stock...............................31
SECTION 6.9 Shareholder Restrictive Covenants............................32
ARTICLE VII
THE CLOSING................................................................34
<PAGE>
SECTION 7.1 Documents to be Delivered at Closing by Shareholders and
the Company..................................................34
SECTION 7.2 Documents to be delivered by Parent..........................35
ARTICLE VIII
INDEMNIFICATION............................................................36
SECTION 8.1 Indemnification by Shareholders..............................36
SECTION 8.2 Indemnification by Surviving Corporation.....................37
SECTION 8.3 "Losses" and "Covered Actions"...............................38
SECTION 8.4 Loss Indemnity Procedure. ..................................38
SECTION 8.5 Holdback Offset Procedure. ..................................39
SECTION 8.6 No Claim Against Surviving Corporation/Company...............40
SECTION 8.7 Accounts Receivable..........................................40
SECTION 8.8 Payment by Indemnified Party.................................40
SECTION 8.9 Duration of Indemnification..................................41
ARTICLE IX
MISCELLANEOUS..............................................................41
SECTION 9.1 Confidentiality; Public Announcements........................41
SECTION 9.2 Notices......................................................41
SECTION 9.3 Rights Confined to Parties...................................42
SECTION 9.4 Survival.....................................................42
SECTION 9.5 Entire Agreement.............................................42
SECTION 9.6 Assignment...................................................42
SECTION 9.7 Severability.................................................43
SECTION 9.8 Effect of Headings...........................................43
SECTION 9.9 Governing Law; Jurisdiction..................................43
SECTION 9.10 Counterparts.................................................43
SECTION 9.11 Spouse's Interest in Stock...................................43
EXHIBITS
Exhibit A - Parent Employment Agreements
Exhibit B - Certificate of Merger
Exhibit C - Certificate of Incorporation
Exhibit D - The Options
Exhibit E - Opinion of Company's and Shareholders' Counsel
Exhibit F - Opinion of Parent's Counsel
<PAGE>
DISCLOSURE SCHEDULES
Schedule 4.2 - Enforceable Obligation
Schedule 4.3 - Capitalization
Schedule 4.6 - Title to Assets; Condition, Possession under Lease; Assets
Schedule 4.7 - Litigation; Observance of Statutes, Regulations and Orders
Schedule 4.8 - Licenses, Permits, Etc.
Schedule 4.9 - Taxes and Tax Returns
Schedule 4.10 - Financial Statements of the Company
Schedule 4.11 - Conduct of the Business
Schedule 4.12 - Officers and Directors
Schedule 4.13 - Liabilities
Schedule 4.15 - No Default or Event of Default
Schedule 4.17 - ERISA Compliance
Schedule 4.19 - Agreements
Schedule 4.20 - Environmental Liability
Schedule 4.21 - Insurance
Schedule 4.22 - Employment Agreements
Schedule 4.25 - Subsidiaries
Schedule 4.26 - Intellectual Property
Schedule 4.27 - Books and Records; Audits and Investigations
Schedule 4.28 - Bank Accounts
OTHER SCHEDULES
Schedule 5.1 - Organization and Authorization
Schedule 6.6 - Terms of Employment
TRANSITION ANALYSIS COMPONENT TECHNOLOGY, INC.
22700 Savi Ranch Parkway
Yorba Linda, CA 92686
September 22, 1997
Jeff Hanser
2573 Grandview Street
San Diego, CA 92110
Re: Option to Purchase Shares of Common Stock of Transition
Analysis Component Technology, Inc. (the "Company" or "TACTech")
----------------------------------------------------------------
Dear Mr. Hanser:
Reference is made to the Company, its issued and outstanding shares of
Common Stock, $.01 Company's agreement to grant to you an option to purchase
from the Company up to 22,452 shares of Common Stock (the "Option"). The Option
shall be on the terms set forth in this letter agreement and the grant of the
Option shall be made in consideration for the terms and covenants set forth
herein.
1. Agreement to Grant Options. The Company hereby grants the Option to
you in consideration for your exchange of shares of common stock of Research
Analysis Corporation for shares of Common Stock pursuant to the agreement by and
among Research Analysis Corporation, you, Bruce L. Blackford, Research
Technology Analysis Corp., and the Company of even date herewith, and other good
and valuable consideration, the receipt of which is hereby acknowledged.
2. Terms of Options. The Options shall have the following terms:
(a) Exercise Date. Subject to the limitations on vesting set forth
below, the Option may be exercised by you in whole or in part at any time after
the date hereof and prior to 5:00 p.m. New York City time on September 22, 2002
(the "Termination Date").
<PAGE>
(b) Exercise Price. The exercise price payable in respect of the
Option shall equal $3.00 per share (the "Exercise Price").
(c) Exercise of Option. You may exercise the Option with
respect to all or any part of the shares then exercisable under the Option by
giving the Company written notice, as provided below, of such exercise. Such
notice shall specify the number of shares as to which the Option is being
exercised and shall be accompanied by payment in cash of an amount equal to the
aggregate Exercise Price of such shares. Such Exercise Price shall be paid in
full upon the exercise of the Option (or any portion thereof). If exercised in
part, the Option shall remain exercisable with respect to the shares of Common
Stock as to which the Option was not exercised, subject to expiration on the
Termination Date and as otherwise provided herein. As soon as practicable after
receipt of the notice and payment referred to above, the Company shall deliver
to you at the office of the Secretary of the Company, or at such other place as
may be mutually acceptable to the Company and you, a certificate or certificates
representing such shares; provided, however, that the time of such delivery may
be postponed by the Company for such period of time as the Company may require
to comply with any applicable registration requirements of any national
securities exchange and/or other law or regulation applicable to the issuance or
transfer of the subject shares. If you fail for any reason to accept delivery of
all or any part of the number of shares specified in such notice upon tender of
delivery thereof, your right to purchase such undelivered shares may be
terminated by the Company by notice to you and refund to you of your payment of
the aggregate Exercise Price therefor. Prior to or concurrently with the
delivery by the Company to you of a certificate(s) representing such shares, you
shall (i) upon notification of the amount due, pay to the Company promptly any
amount necessary to satisfy applicable federal, state or local tax withholding
requirements imposed on the Company, and (ii) if such shares are not then
registered under the Securities Act of 1933, as amended, give assurance
satisfactory to the Company that such shares are being purchased for investment
and not with a view to the distribution thereof, and you shall give such other
assurance and take such other action as the Company shall require to secure
compliance with any federal or state securities law applicable to the issuance
of the subject shares; provided that out-of-pocket expenses of such registration
or compliance shall be borne by the Company.
(d) Vesting Limitations. The Option (and any portion thereof) may
not be exercised until it has been vested in accordance with the terms of this
letter agreement. The Option shall vest as follows:
On each of the first three anniversaries of the date hereof (each an
"Anniversary Date"), that portion of your Option to purchase "X" shares of
Common Stock shall vest where "X" equals the product of (A) 7,484 and (B) a
fraction the numerator of which is the lesser of (i) the applicable Target (as
defined below) for such period and (ii) the amount of "Net Revenues" for the 12-
month period immediately preceding such Anniversary Date, and the denominator of
which is the applicable Target for such period. Notwithstanding the foregoing,
no portion of this Option shall vest on such Anniversary Date if Net Revenues
for the 12-month period immediately preceding such Anniversary Date were less
than 80% of the applicable Target (such 80%
<PAGE>
amount, the "Minimum Target"). To the extent this Option does not vest on an
Anniversary Date, the unvested portion of this Option shall automatically expire
and cannot vest after such Anniversary Date. To the extent that Options do not
vest on an Anniversary Date, such Options shall automatically expire and cannot
vest after such Anniversary Date. To the extent that the Minimum Target is
exceeded for any such 12-month period (an "Achieved Year"), such excess shall be
carried forward and added to the 12-month period immediately following such
Achieved Year if (and only if) the Net Revenues achieved in such following
12-month period exceed 120% of the Net Revenues achieved in the Achieved Year.
For purposes hereof, "Net Revenues" means TACTech's gross revenues less any
rebates or credits given by TACTech to any of its customers for sales booked
after the Closing. "Net Revenues" shall be determined by TACTech's chief
financial officer calculated in accordance with GAAP on a consolidated basis.
Such determination shall be final and binding, absent manifest error. TACTech
shall use its commercially reasonable efforts to furnish the optionees with
written evidence of the determination of "Net Revenues" required in order to
determine an applicable Target within 135 days after the end of each applicable
Anniversary Date. For purposes hereof, "Target" in respect of an Anniversary
Date means the amount of Net Revenues for the corresponding 12-month period set
forth below:
12 months 12 months 12 months
immediately preceding immediately preceding immediately preceding
First Anniversary Date Second Anniversary Date Third Anniversary Date
- ---------------------- ----------------------- ----------------------
Target - $3,780,000 Target - $5,280,000 Target - $7,400,000
3. Termination of Option; Exercise of Option upon Termination of
Employment
(a) If your employment with the Company shall be terminated by the
Company for cause (as defined in your Employment Agreement with the Company) or
you resign from your employment, (i) any vested portion of this Option must be
exercised within two (2) business days following such termination or resignation
and (ii) after such two business day period, this Option shall forthwith
terminate.
(b) If you shall die or become permanently and totally
disabled within the meaning of Section 22(e)(iii) of the Internal Revenue Code
of 1986, as amended, the Option may be exercised as set forth herein by your
guardian or legal representative; provided that the Option shall be exercisable
only (i) during the three month period commencing with the Anniversary Date
immediately following such death or disability and (ii) with respect to the
portion of the Option which is vested and exercisable pursuant to Sections 2(c)
and 2(d) above on such Anniversary Date.
<PAGE>
(c) If you are terminated without cause, your Option may be
exercised at any time according and subject to the other terms and conditions of
this Option.
4. Acceleration of Vesting. Notwithstanding anything to the
contrary set forth in Section 2(d) above, in the event of a (a) dissolution or
liquidation of the Company, or the merger or consolidation of the Company (in
which the Company is not the surviving entity), (b) the sale of all or
substantially all of the assets of the Company, (c) a sale to the public in an
underwritten offering (which shall not include the spinoff of all Common Stock
owned by Zing Technologies, Inc. to the extent such spinoff occurs on or after
the date hereof) pursuant to an effective registration statement under the
Securities Act of 1933, as amended, of shares of TACTech owned by an Affiliate
(as defined under the Securities Act of 1933, as amended) of TACTech (other than
you or Mr. Bruce L. Blackford), provided that this paragraph (c) shall not
result in accelerated vesting if Mal Baca, Robert Schrader or another Affiliate
of TACTech does not participate as a selling shareholder in the offering; (d)
the acquisition of 80% or more of the issued and outstanding shares of Common
Stock by a Person, group of Persons or their Affiliates other than Robert E.
Schrader, a family member of Robert E. Schrader or an Affiliate of either such
Person, or (e) if your employment with TACTech shall be terminated by TACTech
without cause, then the previously unvested portion of the Option, if any, shall
become vested as of the time immediately preceding such event; provided that in
no event shall any portion of this Option which did not vest as a result of the
failure to achieve an applicable Target or a Minimum Target become vested
pursuant to this Section 4. "Affiliate" shall mean, with respect to any person
or entity (a "Person"), any other Person who, directly or indirectly, controls,
is controlled by or under common control with the subject Person. For the
purposes of the preceding sentence the word "control" (including the terms
"controlling", "controlled by" and "under common control with") shall mean the
possession, direct or indirect, of the power to direct or cause the direction of
the management and policies of a Person, whether through the ownership of voting
securities, by contract, or otherwise.
5. Assignment. Your rights under this letter agreement shall not
be assignable (other than by will or the laws of descent and distribution) by
you without the prior written consent of the Company, and any purported
assignment in contravention of this Section 6 shall be null and void and of no
effect.
6. Counterparts. This letter agreement may be executed in any
number of counterparts and by different parties hereto in separate counterparts,
each of which when so executed and delivered shall be deemed an original, but
all such counterparts together shall constitute but one and the same instrument.
7. Choice of Law. This letter agreement shall be governed by and
construed in accordance with the laws of the State of Delaware without regard to
such State's conflicts of law principles.
<PAGE>
8. Amendments; Waivers. This letter agreement may be amended,
modified, superseded, canceled, renewed or extended, and the terms or covenants
hereof may be waived, only by a written instrument executed by the parties
hereto, or in the case of a waiver, by the party waiving compliance. The failure
of any party at any time or times to require performance of any provision hereof
shall in no manner affect its right at a later time to enforce the same. No
waiver by any party of the breach of any term or covenant contained in this
letter agreement, whether by conduct or otherwise, in any one or more instances,
shall be deemed to be, or con strued as, a further or continuing waiver of any
breach, or a waiver of the breach of any other term or covenant contained
herein.
9. Notices. Any notice to the Company provided for in this letter
agreement shall be addressed to the Company in care of its Secretary, 22700 Savi
Ranch Parkway, Yorba Linda, California 92686 with copy to Mr. Martin Fawer c/o
Zing Technologies, Inc. , 115 Stevens Avenue, Valhalla, New York 10585, and any
notice to you shall be addressed to you at your address now on file with the
Company, or such other address as either party may have informed the other by
notice herein provided. Any notice so addressed shall be deemed to be given on
the fourth business day after mailing, by registered or certified mail, return
receipt requested, at a post office or branch post office within the United
States.
10. Adjustments. In the event of any change in the Common Stock
subject to this Option, by reason of any stock dividend, split-up,
recapitalization, merger, consolidation, combination or exchange of shares,
spinoff, reorganization, liquidation or the like, such adjustment shall be made
in the number of shares of Common Stock subject to this Option and the Exercise
Price to give proper effect to such event. Such adjustment shall be made by the
Company which, absent manifest error, shall be binding upon the parties hereto.
<PAGE>
Please indicate your agreement with the foregoing by executing one copy of
this letter agreement in the space provided below and returning a fully executed
copy to the Company.
Very truly yours,
TRANSITION ANALYSIS COMPONENT
TECHNOLOGY, INC.
By: /s/ Martin S. Fawer
------------------------------
Name: Martin S. Fawer
Title: Chief Financial Officer
AGREED AND ACCEPTED:
By: /s/ Jeff Hanser
- -------------------------------
Name: Jeff Hanser
TRANSITION ANALYSIS COMPONENT TECHNOLOGY, INC.
22700 Savi Ranch Parkway
Yorba Linda, CA 92686
September 22, 1997
Bruce L. Blackford
6717 Acqueduct Court
San Diego, CA 92119
Re: Option to Purchase Shares of Common Stock of Transition
Analysis Component Technology, Inc. (the "Company" or "TACTech")
----------------------------------------------------------------
Dear Mr. Blackford:
Reference is made to the Company, its issued and outstanding shares of
Common Stock, $.01 Company's agreement to grant to you an option to purchase
from the Company up to 22,452 shares of Common Stock (the "Option"). The Option
shall be on the terms set forth in this letter agreement and the grant of the
Option shall be made in consideration for the terms and covenants set forth
herein.
1. Agreement to Grant Options. The Company hereby grants the Option to
you in consideration for your exchange of shares of common stock of Research
Analysis Corporation for shares of Common Stock pursuant to the agreement by and
among Research Analysis Corporation, you, Jeff Hanser, Research Technology
Analysis Corp., and the Company of even date herewith, and other good and
valuable consideration, the receipt of which is hereby acknowledged.
2. Terms of Options. The Options shall have the following terms:
(a) Exercise Date. Subject to the limitations on vesting set forth
below, the Option may be exercised by you in whole or in part at any time after
the date hereof and prior to 5:00 p.m. New York City time on September 22, 2002
(the "Termination Date").
<PAGE>
(b) Exercise Price. The exercise price payable in respect of the
Option shall equal $3.00 per share (the "Exercise Price").
(c) Exercise of Option. You may exercise the Option with respect
to all or any part of the shares then exercisable under the Option by giving the
Company written notice, as provided below, of such exercise. Such notice shall
specify the number of shares as to which the Option is being exercised and shall
be accompanied by payment in cash of an amount equal to the aggregate Exercise
Price of such shares. Such Exercise Price shall be paid in full upon the
exercise of the Option (or any portion thereof). If exercised in part, the
Option shall remain exercisable with respect to the shares of Common Stock as to
which the Option was not exercised, subject to expiration on the Termination
Date and as otherwise provided herein. As soon as practicable after receipt of
the notice and payment referred to above, the Company shall deliver to you at
the office of the Secretary of the Company, or at such other place as may be
mutually acceptable to the Company and you, a certificate or certificates
representing such shares; provided, however, that the time of such delivery may
be postponed by the Company for such period of time as the Company may require
to comply with any applicable registration requirements of any national
securities exchange and/or other law or regulation applicable to the issuance or
transfer of the subject shares. If you fail for any reason to accept delivery of
all or any part of the number of shares specified in such notice upon tender of
delivery thereof, your right to purchase such undelivered shares may be
terminated by the Company by notice to you and refund to you of your payment of
the aggregate Exercise Price therefor. Prior to or concurrently with the
delivery by the Company to you of a certificate(s) representing such shares, you
shall (i) upon notification of the amount due, pay to the Company promptly any
amount necessary to satisfy applicable federal, state or local tax withholding
requirements imposed on the Company, and (ii) if such shares are not then
registered under the Securities Act of 1933, as amended, give assurance
satisfactory to the Company that such shares are being purchased for investment
and not with a view to the distribution thereof, and you shall give such other
assurance and take such other action as the Company shall require to secure
compliance with any federal or state securities law applicable to the issuance
of the subject shares; provided that out-of-pocket expenses of such registration
or compliance shall be borne by the Company.
(d) Vesting Limitations. The Option (and any portion thereof) may
not be exercised until it has been vested in accordance with the terms of this
letter agreement. The Option shall vest as follows:
On each of the first three anniversaries of the date hereof (each an
"Anniversary Date"), that portion of your Option to purchase "X" shares of
Common Stock shall vest where "X" equals the product of (A) 7,484 and (B) a
fraction the numerator of which is the lesser of (i) the applicable Target (as
defined below) for such period and (ii) the amount of "Net Revenues" for the 12-
month period immediately preceding such Anniversary Date, and the denominator of
which is the applicable Target for such period. Notwithstanding the foregoing,
no portion of this Option shall vest on such Anniversary Date if Net Revenues
for the 12-month period immediately preceding such Anniversary Date were less
than 80% of the applicable Target (such 80%
<PAGE>
amount, the "Minimum Target"). To the extent this Option does not vest on an
Anniversary Date, the unvested portion of this Option shall automatically expire
and cannot vest after such Anniversary Date. To the extent that Options do not
vest on an Anniversary Date, such Options shall automatically expire and cannot
vest after such Anniversary Date. To the extent that the Minimum Target is
exceeded for any such 12-month period (an "Achieved Year"), such excess shall be
carried forward and added to the 12-month period immediately following such
Achieved Year if (and only if) the Net Revenues achieved in such following
12-month period exceed 120% of the Net Revenues achieved in the Achieved Year.
For purposes hereof, "Net Revenues" means TACTech's gross revenues less any
rebates or credits given by TACTech to any of its customers for sales booked
after the Closing. "Net Revenues" shall be determined by TACTech's chief
financial officer calculated in accordance with GAAP on a consolidated basis.
Such determination shall be final and binding, absent manifest error. TACTech
shall use its commercially reasonable efforts to furnish the optionees with
written evidence of the determination of "Net Revenues" required in order to
determine an applicable Target within 135 days after the end of each applicable
Anniversary Date. For purposes hereof, "Target" in respect of an Anniversary
Date means the amount of Net Revenues for the corresponding 12-month period set
forth below:
12 months 12 months 12 months
immediately preceding immediately preceding immediately preceding
First Anniversary Date Second Anniversary Date Third Anniversary Date
- ---------------------- ----------------------- ----------------------
Target - $3,780,000 Target - $5,280,000 Target - $7,400,000
3. Termination of Option; Exercise of Option upon Termination of
Employment
(a) If your employment with the Company shall be terminated by the
Company for cause (as defined in your Employment Agreement with the Company) or
you resign from your employment, (i) any vested portion of this Option must be
exercised within two (2) business days following such termination or resignation
and (ii) after such two business day period, this Option shall forthwith
terminate.
(b) If you shall die or become permanently and totally disabled
within the meaning of Section 22(e)(iii) of the Internal Revenue Code of 1986,
as amended, the Option may be exercised as set forth herein by your guardian or
legal representative; provided that the Option shall be exercisable only (i)
during the three month period commencing with the Anniversary Date immediately
following such death or disability and (ii) with respect to the portion of the
Option which is vested and exercisable pursuant to Sections 2(c) and 2(d) above
on such Anniversary Date.
<PAGE>
(c) If you are terminated without cause, your Option may be
exercised at any time according and subject to the other terms and conditions of
this Option.
4. Acceleration of Vesting. Notwithstanding anything to the contrary
set forth in Section 2(d) above, in the event of a (a) dissolution or
liquidation of the Company, or the merger or consolidation of the Company (in
which the Company is not the surviving entity), (b) the sale of all or
substantially all of the assets of the Company, (c) a sale to the public in an
underwritten offering (which shall not include the spinoff of all Common Stock
owned by Zing Technologies, Inc. to the extent such spinoff occurs on or after
the date hereof) pursuant to an effective registration statement under the
Securities Act of 1933, as amended, of shares of TACTech owned by an Affiliate
(as defined under the Securities Act of 1933, as amended) of TACTech (other than
you or Mr. Jeff Hanser), provided that this paragraph (c) shall not result in
accelerated vesting if Mal Baca, Robert Schrader or another Affiliate of TACTech
does not participate as a selling shareholder in the offering; (d) the
acquisition of 80% or more of the issued and outstanding shares of Common Stock
by a Person, group of Persons or their Affiliates other than Robert E. Schrader,
a family member of Robert E. Schrader or an Affiliate of either such Person, or
(e) if your employment with TACTech shall be terminated by TACTech without
cause, then the previously unvested portion of the Option, if any, shall become
vested as of the time immediately preceding such event; provided that in no
event shall any portion of this Option which did not vest as a result of the
failure to achieve an applicable Target or a Minimum Target become vested
pursuant to this Section 4. "Affiliate" shall mean, with respect to any person
or entity (a "Person"), any other Person who, directly or indirectly, controls,
is controlled by or under common control with the subject Person. For the
purposes of the preceding sentence the word "control" (including the terms
"controlling", "controlled by" and "under common control with") shall mean the
possession, direct or indirect, of the power to direct or cause the direction of
the management and policies of a Person, whether through the ownership of voting
securities, by contract, or otherwise.
5. Assignment. Your rights under this letter agreement shall not be
assignable (other than by will or the laws of descent and distribution) by you
without the prior written consent of the Company, and any purported assignment
in contravention of this Section 6 shall be null and void and of no effect.
6. Counterparts. This letter agreement may be executed in any number of
counterparts and by different parties hereto in separate counterparts, each of
which when so executed and delivered shall be deemed an original, but all such
counterparts together shall constitute but one and the same instrument.
7. Choice of Law. This letter agreement shall be governed by and
construed in accordance with the laws of the State of Delaware without regard to
such State's conflicts of law principles.
<PAGE>
8. Amendments; Waivers. This letter agreement may be amended, modified,
superseded, canceled, renewed or extended, and the terms or covenants hereof may
be waived, only by a written instrument executed by the parties hereto, or in
the case of a waiver, by the party waiving compliance. The failure of any party
at any time or times to require performance of any provision hereof shall in no
manner affect its right at a later time to enforce the same. No waiver by any
party of the breach of any term or covenant contained in this letter agreement,
whether by conduct or otherwise, in any one or more instances, shall be deemed
to be, or con strued as, a further or continuing waiver of any breach, or a
waiver of the breach of any other term or covenant contained herein.
9. Notices. Any notice to the Company provided for in this letter
agreement shall be addressed to the Company in care of its Secretary, 22700 Savi
Ranch Parkway, Yorba Linda, California 92686 with copy to Mr. Martin Fawer c/o
Zing Technologies, Inc. , 115 Stevens Avenue, Valhalla, New York 10585, and any
notice to you shall be addressed to you at your address now on file with the
Company, or such other address as either party may have informed the other by
notice herein provided. Any notice so addressed shall be deemed to be given on
the fourth business day after mailing, by registered or certified mail, return
receipt requested, at a post office or branch post office within the United
States.
10. Adjustments. In the event of any change in the Common Stock subject
to this Option, by reason of any stock dividend, split-up, recapitalization,
merger, consolidation, combination or exchange of shares, spinoff,
reorganization, liquidation or the like, such adjustment shall be made in the
number of shares of Common Stock subject to this Option and the Exercise Price
to give proper effect to such event. Such adjustment shall be made by the
Company which, absent manifest error, shall be binding upon the parties hereto.
<PAGE>
Please indicate your agreement with the foregoing by executing one copy of
this letter agreement in the space provided below and returning a fully executed
copy to the Company.
Very truly yours,
TRANSITION ANALYSIS COMPONENT
TECHNOLOGY, INC.
By: /s/ Martin S. Fawer
--------------------------------
Name: Martin S. Fawer
Title: Chief Financial Officer
AGREED AND ACCEPTED:
By: /s/ Bruce L. Blackford
- ---------------------------------------
Name: Bruce L. Blackford
EMPLOYMENT AGREEMENT
EMPLOYMENT AGREEMENT, dated as of September 1, 1997 by and between
TRANSITION ANALYSIS COMPONENT TECHNOLOGY, INC. (the "Employer"), a Delaware
corporation with offices at 22700 Savi Ranch Parkway, Yorba Linda, California,
and Jeff Hanser, an individual residing at 2573 Grandview Street, San Diego,
California (the "Employee").
W I T N E S S E T H :
- - - - - - - - - - -
WHEREAS, the Employer desires that the Employee enter into this Agreement
and the Employee desires to enter into this Agreement and to provide his
services to the Employer, all on the terms and subject to the conditions
hereinafter set forth;
NOW, THEREFORE, in consideration of the premises and the mutual covenants
and obligations hereinafter set forth, the parties hereto agree as follows:
1. Definitions. Except as otherwise defined in this Agreement, as
used herein, the following terms shall have the meanings hereinafter set forth:
(a) "Minimum Target" shall have the meaning ascribed to such term
in Schedule A attached hereto.
(b) "Net Revenues" shall have the meaning ascribed to such term in
Schedule A attached hereto.
(c) "Target" shall have the meaning ascribed to such term in
Schedule A attached hereto.
(d) "Term" has the meaning set forth in Section 4 below.
(e) "Year" shall mean the period commencing on the date hereof and
ending on the first anniversary of the date hereof, and each twelve (12) month
period thereafter during the Term.
2. Employment. The Employer hereby employs the Employee as Senior
Vice President of the Employer. During the Term, the Employee shall devote all
of his business time, attention, energies and effort to the business of the
Employer and shall use his diligent and reasonable best efforts to promote the
business of the Employer. Employee shall work from the Employer's or the
Employer's Research Analysis Corporation subsidiary's office in San Diego
County, California; provided that Employee shall, at the direction of the
Employer's Board of
<PAGE>
Directors, Chief Executive Officer and/or Executive Vice President, devote time
elsewhere, as work requirements dictate, such as at the offices of the Employer
located in Yorba Linda, California and at various other customer locations, each
as may be designated by the Employer's Board of Directors, Chief Executive
Officer and/or Executive Vice President. The Employee hereby accepts such
employment and agrees to serve the Employer in such capacity, subject to and
upon the terms and conditions set forth in this Agreement.
3. Employee's Duties. Subject to the direction of the Board of
Directors, Chief Executive Officer and/or Executive Vice President of the
Employer, the Employee shall perform such duties as are assigned to him in
connection with the strategic planning, marketing, sales, engineering, software
program development, and management of the day to day operations of Employer.
The Employee shall abide by all rules, regulations and policies established by
the Employer's Board of Directors. The Employee shall carry out all reasonable
duties and activities assigned to him by the Board of Directors, Chief Executive
Officer and/or Executive Vice President of the Employer which are consistent
with the Employee's position as an executive employee of the Employer.
4. Term of Employment. The Employee shall be employed hereunder
for a term commencing as of the date hereof and terminating on the third
anniversary of the date hereof (the "Term"). Notwithstanding the foregoing, the
Term and the Employee's employment hereunder shall be subject to earlier
termination pursuant to the provisions set forth in Section 8 of this Agreement.
5. Employee's Compensation. For performing the services
hereunder, the employee shall receive the following consideration:
(a) Subject to applicable withholding for federal income tax,
FICA, state and local income taxes and other appropriate charges, the Employee
shall be entitled to (i) a base salary ("Base Salary") amounting to $194,000 per
annum payable not less often than bi-weekly, and (ii) a bonus in respect of each
Year during the Term ("Annual Bonus") equal to the product obtained by
multiplying (A) $100,000 by (B) a fraction the numerator of which is the actual
Net Revenues of Employer for such Year (provided, however, such numerator shall
not exceed the applicable Target for such Year and such numerator shall be zero
if actual Net Revenues are not at least equal to 80% of the Target for such
Year) and the denominator of which shall be the Target for such Year. Each such
Annual Bonus shall be payable within sixty (60) days after the end of each Year.
(b) The Employee shall be entitled to be reimbursed for reasonable
business expenses necessarily incurred by him in the performance of his duties
hereunder, upon presentation of vouchers indicating the amount and business
purpose of each expenditure, with such back-up documentation as the Employer
shall reasonably require to comply with the requirements of the Internal Revenue
Service regarding substantiation of travel, entertainment and other business
expenditures. Unless such expenses have been included in a budget or budgets
previously approved by the Board of Directors, Chief Executive Officer and/or
Executive Vice President of the Employer,
2
<PAGE>
the same shall be subject to review and approval by the Board of Directors,
Chief Executive Officer and/or Executive Vice President of Employer, which
approval shall not be unreasonably withheld or delayed.
(c) The Employee shall be eligible to participate in all pension,
group health, life insurance, hospital and medical plans and in all other
employee "fringe" benefits of the Employer which are generally provided to
employees of the Employer and as may be altered from time to time. The "fringe"
benefits of the Employer which are currently available to employees are set
forth on Schedule B attached hereto. The Employee shall be fully eligible to
participate in the Employer's 1997 Stock Option Plan, subject, however, to the
terms and conditions thereof.
(d) In as much as the Employee has been an employee for more than
ten (10) years of a corporate entity which is now a subsidiary of the Employer,
the Employee shall be treated as having had ten (10) years of prior service with
the Employer for all purposes of fringe benefits which are dependent upon time
of employment.
(e) To the extent not set forth on Schedule B attached hereto, the
Employee shall be given a car allowance of $500 per month.
(f) To the extent not set forth on Schedule B attached hereto, the
Employee shall be permitted to contribute amounts to the Employee's account in
the Employer's 401K retirement plan for so long as (i) such plan exists and is
used for other executives of the Employer and (ii) such amounts do not exceed
the amount permitted by law. Nothing herein obligates the Employer to maintain
such plan.
(g) If the Employee and the Employer mutually agree for any
additional fringe benefits which are not also given to the Employer's other
executive employees, then the costs of such additional fringe benefits shall be
deducted from the Base Salary.
6. Confidential Information; Assignment of Property Rights.
(a) All memoranda, notes, records, and other documents made or
compiled by the Employee or made available to him, in any form whatsoever,
during or prior to the Term concerning the business of the Employer, Research
Analysis Corporation or any subsidiary or affiliate of the Employer or Research
Analysis Corporation shall be the Employer's property and shall be delivered to
the Employer on the expiration or termination of the Term. The Employee shall
not use for himself or others, or divulge to others, any proprietary or
confidential information of the Employer or any subsidiary or affiliate of the
Employer obtained as a result of his employment with Employer or, prior to the
date hereof, his employment with Research Analysis Corporation, unless
authorized by the Employer. For purposes of this Section 6, the term
"proprietary or confidential information" shall include, but not be limited to,
all information which relates to specific matters such as trade secrets,
customers, potential customers, vendor lists, pricing and credit techniques,
3
<PAGE>
research and development activities, private processes, technical know-how and
expertise, products, discoveries, ideas (or the expression thereof), algorithms,
methods, concepts, formulae, programs, titles, business plans, technical
information, books and records, and any other information which the Employer or
its subsidiaries or affiliates is obligated to keep confidential pursuant to the
Employer's or such subsidiaries' or affiliates' contractual obligations to third
parties, as they may exist from time to time, or which the Employee may have
acquired or obtained by virtue of work heretofore or hereafter performed for or
on behalf of Research Analysis Corporation or the Employer, its subsidiaries or
affiliates, and their respective predecessors, or which may be acquired or may
have been acquired during the performance of said work, and which is not known
to others or readily available to others from sources other than the Employee,
Employer, employees of the Employer or of the Employer's subsidiaries or
affiliates, or is not in the public domain. The parties acknowledge that the
Employer may (but it is not obligated to) establish written guidelines and
procedures identifying proprietary or confidential information; provided that
the parties agree and acknowledge that the Employer's failure to do so shall in
no way prejudice the Employer.
(b) With respect to Inventions (as hereinafter defined, including
but not limited to software) made or conceived by the Employee, whether or not
during the hours of his employment or with the use of the Employer's facilities,
materials or personnel, either solely or jointly with others during the Term and
without the payment to the Employee of a royalty or any other consideration:
(i) The Employee shall inform the Employer promptly and
fully of such Inventions by written report, setting forth in detail
the procedures employed and results achieved. A report shall be
submitted by the Employee upon completion of any studies or research
projects undertaken on the Employer's behalf whether or not in the
Employee's opinion a given project has resulted in an Invention.
(ii) The Employee shall apply, at the Employer's request and
expense, for the United States and/or foreign letters patent or
other registrations, including but not limited to copyrights
(collectively, the "Other Registrations"), either in the Employer's
name or otherwise, as the Corporation shall desire.
(iii) The Employee hereby assigns and agrees to assign to the
Employer all of his right and interest to any and all such
Inventions, and at the Employer's expense, to make applications for
United States and/or foreign letters patent or Other Registrations
granted upon such Inventions.
(iv) The Employee shall acknowledge and deliver promptly to
the Employer, without charge to the Employer, but at its expense,
such written instruments and do such other acts in support of his
inventorship, as may be necessary in the opinion of the Employer to
obtain and maintain United States and/or foreign letters patent or
Other Registrations and to vest the entire right in such Inventions,
patents, patent applications and Other Registrations in the
Employer.
4
<PAGE>
(v) The Employer shall also have the royalty-free right to
use in its business, and to make, use, and sell products and/or
services derived from any Inventions, discoveries, concepts and
ideas, whether or not patentable or copyright able, including, but
not limited to applications, methods, formulas and techniques, as
well as improvements or know-how, whether or not within the scope of
Inventions, but which are obtained, created or made by the Employee
during the Term or with the use or assistance of the Employer's
facilities, materials or personnel.
(vi) For the purposes of this Agreement, "Inventions" mean
discoveries, concepts and ideas, whether patentable or copyrightable
or not, including but not limited to processes, methods, formulas
and techniques as well as improvements or know-how concerning any
present or prospective activities of the Employer's which the
Employee has become acquainted as a result of his employment by the
Employer or any related work product of any kind.
(vii) As to any Invention disclosed by the Employee within one
year after any termination of the Term (except for a termination by
the Employer prior to the end of the Term without Cause), there
shall be a rebuttable presumption that such Invention was made or
conceived during the Term, and the provisions of this Section 6
shall be applicable to such Invention.
(c) Employee agrees and acknowledges that his obligations under
this Section 6 have been undertaken in consideration of (i) the compensation
payable to Employee under this Agreement and (ii) Employer's execution, delivery
and performance of that certain Merger Agreement and Plan of Reorganization (the
"Merger Agreement") dated as of an even date herewith by and among Employer,
Employee and certain other parties thereto pursuant to which Employee disposed
of his interest in Research Analysis Corporation to Employer. In the event of a
breach or a threatened breach by the Employee, of the provisions of this Section
6, the Employer shall be entitled to an injunction, without being required to
post any bond, restraining the Employee from disclosing, in whole or in part,
the aforementioned proprietary or confidential information, from using
Inventions for the benefit of any person or entity other than the Employer, or
from rendering any services to any person, firm, corporation, association, or
other entity to whom such proprietary or confidential information, in whole or
in part, has been disclosed or is threatened to be disclosed. Nothing contained
herein shall be construed as prohibiting the Employer from pursuing any other
remedies available to the Employer for such breach or threatened breach,
including the recovery of damages from the Employee.
7. Restrictive Covenants.
(a) The Employer and the Employee recognize and agree that,
although Employee's skills are not short-lived, the Employee's services are
special and unique, and that for these reasons a covenant on the Employee's part
not to compete anywhere in the continental United States or via the Internet
during the Term and for a reasonable period after any termination of the
5
<PAGE>
Term is essential to protect the business of the Employer. In light of the
foregoing, and because of the proprietary or confidential information to be
obtained by or disclosed to the Employee, and as a material inducement for the
Employer to enter into the Merger Agreement and this Agreement and to pay the
Employee the compensation as provided herein, the Employee covenants and agrees
that, from and after the date hereof and until the Designated Date (as
hereinafter defined), he shall not:
(i) directly or indirectly engage in or assist others to
engage in any Competitive Activity (as hereinafter defined), whether
such engagement shall be as an officer, director, employee,
consultant, agent, lender or security holder (except nothing
contained herein shall prevent or be construed as preventing the
Employee from holding or purchasing up to one percent (1%) in the
aggregate or less of any class of stock or securities of a
corporation which is listed on a national securities exchange or
regularly traded in the over-the-counter market);
(ii) solicit customers, suppliers or other business relations
of the Employer (and/or its affiliates or subsidiaries) for the
purpose of encouraging them to terminate their relationship with the
Employer (and/or its affiliates or subsidiaries) or to do business
with an entity or person other than the Employer (and/or its
affiliates or subsidiaries); or
(iii) encourage other employees or consultants of the Employer
or Research Analysis Corporation (and/or its affiliates or
subsidiaries) to terminate their employment or consultancy with the
Employer or Research Analysis Corporation (and/or its affiliates or
subsidiaries); or solicit any person (or entity) who was a
consultant to or employee of the Employer or Research Analysis
Corporation (and/or its subsidiaries or affiliates) within one year
of the subject solicitation to do business indirectly or directly
with Employee.
(b) As used herein, the term "Competitive Activity" shall mean and
include the business of (i) providing data bases consisting of information with
respect to semiconductors and other electronic components, obsolescence of such
components and replacement parts for such components and (ii) developing and
making available search engines for such data bases, as well as businesses which
are the same or similar to the business activities carried on by or proposed to
be carried on by Employer and its subsidiaries and affiliates in the continental
United States or via the Internet.
(c) As used in this Section 5, the "Designated Date" shall mean
the following:
(i) if the Term shall have been terminated as a result of
Employee's dismissal by Employer without Cause (as defined in
Section 8(b) below), then the Designated Date shall mean the date of
such termination, provided that upon such termination Employer shall
have the option to continue to pay Employee his then current Base
Salary in accordance with Section 5 above for a period of one year
6
<PAGE>
after such termination and, if Employer exercises such option, then
the Designated Date shall be the one year anniversary of such
termination; or
(ii) if the Term has been terminated (or has expired) for any
reason other than Employer's termination of the Term without Cause,
then the "Designated Date" shall mean the third anniversary of the
termination of the Term.
(d) It is acknowledged and agreed that the restrictions contained
in this Section 7, including, without limitation, the time periods and the
geographical areas of the restrictions, are fair and reasonable and do not place
any undue hardship on the Employee and are reasonably required for the
protection of the goodwill, the business and the interests of the Employer
(including, without limitation, those pertaining to Research Analysis
Corporation, which company was acquired from Employee pursuant to the Merger
Agreement) and its affiliates, subsidiaries and their respective officers,
directors and other employees.
(e) It is the desire and intent of the parties that the provisions
of this Section 7 shall be enforced to the fullest extent permissible under the
laws and public policies applied in each jurisdiction in which enforcement is
sought. Accordingly, if any particular provision of this Section 7 shall be
adjudicated to be invalid or unenforceable, such provision shall be deemed
amended to delete therefrom the portion thus adjudicated to be invalid or
unenforceable. Such deletion shall apply only with respect to the operation of
such provisions of this Section 7 in the particular jurisdiction in which such
adjudication is made. In addition, if the scope of any restriction contained in
this Section 7 is too broad to permit enforcement thereof to its fullest extent,
then such restriction shall be enforced to the maximum extent permitted by law,
and the Employee hereby consents and agrees that such scope may be judicially
modified in any proceeding brought to enforce such restriction.
(f) The Employee agrees and acknowledges that his obligations
under this Section 7 have been undertaken in consideration of (i) the
compensation payable to Employee under this Agreement and (ii) Employer's
execution, delivery and performance of the Merger Agreement. In the event of a
breach or threatened breach by the Employee of the provisions of this Section 7,
the Employer shall be entitled to an injunction and such other equitable relief
as may be necessary or desirable to enforce the restrictions contained herein.
Nothing herein contained shall be construed as prohibiting the Employer from
pursuing any other remedies available for such breach or threatened breach or
any other breach of this Agreement.
8. Termination of Employment.
(a) The Term shall terminate upon the earliest of the dates
specified below:
(i) the third anniversary of the date hereof;
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(ii) the close of business on the date as of which the
Employee shall resign from his employment hereunder (which shall
constitute a breach by Employee of the terms of this Agreement); and
(iii) the close of business on the date as of which the
Employer shall have given the Employee written notice of the
termination of his employment for Cause or without Cause.
(b) Termination for "Cause" shall mean that any one of the
following conditions exists or any one of the following events has occurred in
which the Employee (i) dies, (ii) becomes disabled where "disabled" means that
by reason of a physical or mental illness which has continued for more than six
(6) consecutive months or for shorter periods which have aggregated more than
six (6) months in any consecutive twelve (12) month period, the Employee has
been substantially unable to render services of the character contemplated by
this Agreement, (iii) fails to perform any material duties or obligations
required by this Agreement, and the Employee does not cure such failure within
ten (10) days after receiving written notice of such failure from Employer, (iv)
commits a dishonest act, which is materially detrimental to Employer, (v)
breaches a fiduciary duty to Employer where such breach results (or is
reasonably likely to result) in a substantial adverse effect to the business,
assets, properties, prospects, results of operations or condition (financial or
otherwise) of the Employer or Research Analysis Corporation, (vi) commits a
felony, or (vii) fails to meet the performance criteria of at least 80% of the
Minimum Target in respect of a Year.
9. Effect of Termination.
(a) In the event that the Term is terminated for any reason (other
than (x) a termination by Employer without Cause or (y) a termination resulting
from Employee's death or disability), then Employer shall be liable only for
that portion of the Base Salary provided for in Section 5(a)(i) hereof as to
which the Employee shall be entitled through the date of termination of the
Term; provided that if the termination of the Term is the result of the
expiration of the Term on the third anniversary of the date hereof, then
Employee shall also be entitled to receive his Annual Bonus in respect of the
then most recently completed Year in accordance with Section 5(a) above.
(b) In the event that the Term is terminated (i) by Employer
without Cause or (ii) as a result of the death or disability of the Employee,
then the Employer shall be liable only for (x) the portion of the Base Salary
provided for in Section 5(a)(i) hereof as to which Employee shall be entitled
through the date of termination of the Term and (y) a Pro Rata Portion of the
Annual Bonus (as defined below) in respect of the then current Year. "Pro Rata
Portion of the Annual Bonus" means a portion of the Annual Bonus which Employee
would have received in respect of the then current Year if the Employee had
remained employed by the Employer for such entire Year where such portion is
based on the number of days in such Year which the Employee was actually
employed by Employer. Any Pro Rata Portion of an Annual Bonus shall be
calculated by Employer and paid in accordance with Section 5 above.
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<PAGE>
(c) The Employer shall pay any funds to which the Employee is
entitled and as set forth in this Section 9 to the Employee, his estate or legal
representative, as the case may be.
(d) Employer and Employee acknowledge that, under the terms of
that certain option agreement executed and delivered by the Employee and the
Employer on the date hereof, in the event that the Term is terminated by
Employer without Cause, then the vesting of the options under such option
agreement shall accelerate in accordance with the terms of such option
agreement.
10. Arbitration.
10.1 Disputes Determined by Arbitration. Subject to Sections 6(c)
and 7(f) above, any and all disputes and controversies arising out of or in
connection with this Agreement or with respect to the construction and
interpretation hereof, or concerning the rights of any one or more parties
hereto or the respective obligations of each party hereto to each other party
hereto, shall be determined by arbitration in the County of San Diego,
California, in accordance with and pursuant to the then existing rules of the
American Arbitration Association. The decision of a single arbitrator chosen by
said Association shall be binding upon the parties hereto with the same force
and effect as a decision or judgment of any court of competent jurisdiction. Any
party hereto shall be entitled to have a judgment based upon the decision of
said arbitrator entered by a court of competent jurisdiction.
10.2 Notice. Any party seeking arbitration shall serve ten (10)
days' notice by certified mail, return receipt requested, upon the other party
hereto, setting forth the difference or differences that he or it desires to
arbitrate. Any party hereto shall be entitled to compel arbitration hereunder.
10.3 Expenses. The expenses charged by the arbitrator and the
American Arbitration Association for such arbitration shall initially be borne
equally between or among the parties seeking the arbitration. However, the
prevailing party in such arbitration shall be entitled to recover from the
losing party all of the reasonable attorney fees and costs incurred by the
prevailing party.
11. Effective Date. This Agreement shall become effective as of
the date hereof and, from and after that time, shall extend to and shall be
binding upon and inure to the benefit of and be enforceable by the parties
hereto, their respective successors and assigns, executors, administrators or
other legal representatives and their respective legatees and distributees.
12. Notices. Any notice required or permitted by this Agreement
shall be given by registered or certified mail, return receipt requested,
addressed to the Employer at its then principal office or to the Employee at his
residence address, or to any party hereto at such other address or addresses as
it or he may from time to time specify for the purpose in a notice similarly
given to the other party.
9
<PAGE>
13. Applicable Law. This Agreement is made and delivered in the
State of California and shall be construed and enforced in accordance with the
laws of the State of California without regard to such State's principles of
conflicts of laws.
14. Entire Understanding. This instrument contains the entire
agreement of the parties relating to the subject matter hereof, and there are no
agreements, representations or warranties relating to the subject matter not
herein set forth. This Agreement supersedes any prior written or oral agreement
or understandings relating to the subject matter hereof. No modification of this
Agreement shall be valid unless in writing and signed by the parties hereto. A
waiver of the breach of any term or condition of this Agreement shall not be
deemed to constitute a waiver of any subsequent breach of the same or any other
term or condition.
15. Unenforceability. If any provision of this Agreement shall to
any extent be held invalid or unenforceable, such invalidity and
unenforceability shall not affect the remaining provisions hereof which shall
remain in full force and effect.
16. No Prohibiting Agreement. The Employee warrants and represents
that there is no other agreement in force which prohibits him from entering into
this Agreement or otherwise performing services for the Employer, or which will
be violated in any way by his entering into this Agreement.
17. Employer's Books and Records. The Employer agrees to make and
keep full and accurate books and records describing all activities under this
Agreement in sufficient detail to enable all compensation payable to the
Employee hereunder to be determined.
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<PAGE>
IN WITNESS WHEREOF, the parties have duly executed and delivered this
Agreement as of the day and year first above written.
TRANSITION ANALYSIS COMPONENT
TECHNOLOGY, INC., Employer
WITNESS:
By: /s/ Martin S. Fawer
-----------------------------------
/s/ Robert Londin Name: Martin S. Fawer
- ------------------------------- Title: Chief Financial Officer
/s/ Jeff Hanser
-----------------------------------
Jeff Hanser, Employee
WITNESS:
/s/ Melissa Stone
- -------------------------------
<PAGE>
Schedule A - Certain Definitions
"GAAP" means generally accepted accounting principles applied in the
preparation of the financial statements of the Employer and (a) shall be
consistent with the then effective principles promulgated or adopted by the
Financial Accounting Standards Board and its predecessors and successors and (b)
shall be applied on a consistent basis in accordance with past practices
applicable to the Employer.
"Minimum Target" means, in respect of a Year, 80% of the Target for such
Year.
"Net Revenues" means Employer's gross consolidated revenues less any
rebates, allowances or credits given by Employer to any of its customers for
sales booked after the date of this Agreement. "Net Revenues" shall be
determined by Employer's chief financial officer calculated in accordance with
GAAP on a consolidated basis; provided that (a) an amount equal to the revenues
of any business hereinafter acquired (directly or indirectly) by Employer (by
purchase of assets, stock purchase, merger or otherwise) shall not be included
when computing Net Revenues if the then current revenues of such after acquired
business would have otherwise been included in the computation of Net Revenues,
and (b) if the Minimum Target is exceeded in respect of a Year (an "Achieved
Year"), then the amount by which the Net Revenues achieved in such Achieved Year
exceed the Minimum Target shall be carried forward and added to the Net Revenues
for the Year immediately following such Achieved Year if (and only if) the Net
Revenues (calculated before any adjustment pursuant to this clause (b)) achieved
in such following Year exceed 120% of the Net Revenues achieved in the Achieved
Year. Such determination shall be final and binding upon Employer and Employee,
absent manifest error.
"Target" in respect of a Year means the following respective amount of Net
Revenues:
$3,780,000 for the first Year of the Term;
$5,280,000 for the second Year of the Term; and
$7,400,000 for the third Year of the Term.
<PAGE>
Schedule B
Transition Analysis Component Technology, Inc.
1997 Employee "Fringe" Benefits
EMPLOYMENT AGREEMENT
EMPLOYMENT AGREEMENT, dated as of September 1, 1997 by and between
TRANSITION ANALYSIS COMPONENT TECHNOLOGY, INC. (the "Employer"), a Delaware
corporation with offices at 22700 Savi Ranch Parkway, Yorba Linda, California,
and Bruce L. Blackford, an individual residing at 6716 Acqueduct Court, San
Diego, Calfornia (the "Employee").
W I T N E S S E T H :
- - - - - - - - - - -
WHEREAS, the Employer desires that the Employee enter into this Agreement
and the Employee desires to enter into this Agreement and to provide his
services to the Employer, all on the terms and subject to the conditions
hereinafter set forth;
NOW, THEREFORE, in consideration of the premises and the mutual covenants
and obligations hereinafter set forth, the parties hereto agree as follows:
1. Definitions. Except as otherwise defined in this Agreement, as
used herein, the following terms shall have the meanings hereinafter set forth:
(a) "Minimum Target" shall have the meaning ascribed to such term
in Schedule A attached hereto.
(b) "Net Revenues" shall have the meaning ascribed to such term in
Schedule A attached hereto.
(c) "Target" shall have the meaning ascribed to such term in
Schedule A attached hereto.
(d) "Term" has the meaning set forth in Section 4 below.
(e) "Year" shall mean the period commencing on the date hereof and
ending on the first anniversary of the date hereof, and each twelve (12) month
period thereafter during the Term.
2. Employment. The Employer hereby employs the Employee as Senior
Vice President of the Employer. During the Term, the Employee shall devote all
of his business time, attention, energies and effort to the business of the
Employer and shall use his diligent and reasonable best efforts to promote the
business of the Employer. Employee shall work from the Employer's or the
Employer's Research Analysis Corporation subsidiary's office in San Diego
County, California; provided that Employee shall, at the direction of the
Employer's Board of
<PAGE>
Directors, Chief Executive Officer and/or Executive Vice President, devote time
elsewhere, as work requirements dictate, such as at the offices of the Employer
located in Yorba Linda, California and at various other customer locations, each
as may be designated by the Employer's Board of Directors, Chief Executive
Officer and/or Executive Vice President. The Employee hereby accepts such
employment and agrees to serve the Employer in such capacity, subject to and
upon the terms and conditions set forth in this Agreement.
3. Employee's Duties. Subject to the direction of the Board of
Directors, Chief Executive Officer and/or Executive Vice President of the
Employer, the Employee shall perform such duties as are assigned to him in
connection with the strategic planning, marketing, sales, engineering, software
program development, and management of the day to day operations of Employer.
The Employee shall abide by all rules, regulations and policies established by
the Employer's Board of Directors. The Employee shall carry out all reasonable
duties and activities assigned to him by the Board of Directors, Chief Executive
Officer and/or Executive Vice President of the Employer which are consistent
with the Employee's position as an executive employee of the Employer.
4. Term of Employment. The Employee shall be employed hereunder
for a term commencing as of the date hereof and terminating on the third
anniversary of the date hereof (the "Term"). Notwithstanding the foregoing, the
Term and the Employee's employment hereunder shall be subject to earlier
termination pursuant to the provisions set forth in Section 8 of this Agreement.
5. Employee's Compensation. For performing the services
hereunder, the employee shall receive the following consideration:
(a) Subject to applicable withholding for federal income tax,
FICA, state and local income taxes and other appropriate charges, the Employee
shall be entitled to (i) a base salary ("Base Salary") amounting to $194,000 per
annum payable not less often than bi-weekly, and (ii) a bonus in respect of each
Year during the Term ("Annual Bonus") equal to the product obtained by
multiplying (A) $100,000 by (B) a fraction the numerator of which is the actual
Net Revenues of Employer for such Year (provided, however, such numerator shall
not exceed the applicable Target for such Year and such numerator shall be zero
if actual Net Revenues are not at least equal to 80% of the Target for such
Year) and the denominator of which shall be the Target for such Year. Each such
Annual Bonus shall be payable within sixty (60) days after the end of each Year.
(b) The Employee shall be entitled to be reimbursed for reasonable
business expenses necessarily incurred by him in the performance of his duties
hereunder, upon presentation of vouchers indicating the amount and business
purpose of each expenditure, with such back-up documentation as the Employer
shall reasonably require to comply with the requirements of the Internal Revenue
Service regarding substantiation of travel, entertainment and other business
expenditures. Unless such expenses have been included in a budget or budgets
previously approved by the Board of Directors, Chief Executive Officer and/or
Executive Vice President of the Employer,
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<PAGE>
the same shall be subject to review and approval by the Board of Directors,
Chief Executive Officer and/or Executive Vice President of Employer, which
approval shall not be unreasonably withheld or delayed.
(c) The Employee shall be eligible to participate in all pension,
group health, life insurance, hospital and medical plans and in all other
employee "fringe" benefits of the Employer which are generally provided to
employees of the Employer and as may be altered from time to time. The "fringe"
benefits of the Employer which are currently available to employees are set
forth on Schedule B attached hereto. The Employee shall be fully eligible to
participate in the Employer's 1997 Stock Option Plan, subject, however, to the
terms and conditions thereof.
(d) In as much as the Employee has been an employee for more than
ten (10) years of a corporate entity which is now a subsidiary of the Employer,
the Employee shall be treated as having had ten (10) years of prior service with
the Employer for all purposes of fringe benefits which are dependent upon time
of employment.
(e) To the extent not set forth on Schedule B attached hereto, the
Employee shall be given a car allowance of $500 per month.
(f) To the extent not set forth on Schedule B attached hereto, the
Employee shall be permitted to contribute amounts to the Employee's account in
the Employer's 401K retirement plan for so long as (i) such plan exists and is
used for other executives of the Employer and (ii) such amounts do not exceed
the amount permitted by law. Nothing herein obligates the Employer to maintain
such plan.
(g) If the Employee and the Employer mutually agree for any
additional fringe benefits which are not also given to the Employer's other
executive employees, then the costs of such additional fringe benefits shall be
deducted from the Base Salary.
6. Confidential Information; Assignment of Property Rights.
--------------------------------------------------------
(a) All memoranda, notes, records, and other documents made or
compiled by the Employee or made available to him, in any form whatsoever,
during or prior to the Term concerning the business of the Employer, Research
Analysis Corporation or any subsidiary or affiliate of the Employer or Research
Analysis Corporation shall be the Employer's property and shall be delivered to
the Employer on the expiration or termination of the Term. The Employee shall
not use for himself or others, or divulge to others, any proprietary or
confidential information of the Employer or any subsidiary or affiliate of the
Employer obtained as a result of his employment with Employer or, prior to the
date hereof, his employment with Research Analysis Corporation, unless
authorized by the Employer. For purposes of this Section 6, the term
"proprietary or confidential information" shall include, but not be limited to,
all information which relates to specific matters such as trade secrets,
customers, potential customers, vendor lists, pricing and credit techniques,
3
<PAGE>
research and development activities, private processes, technical know-how and
expertise, products, discoveries, ideas (or the expression thereof), algorithms,
methods, concepts, formulae, programs, titles, business plans, technical
information, books and records, and any other information which the Employer or
its subsidiaries or affiliates is obligated to keep confidential pursuant to the
Employer's or such subsidiaries' or affiliates' contractual obligations to third
parties, as they may exist from time to time, or which the Employee may have
acquired or obtained by virtue of work heretofore or hereafter performed for or
on behalf of Research Analysis Corporation or the Employer, its subsidiaries or
affiliates, and their respective predecessors, or which may be acquired or may
have been acquired during the performance of said work, and which is not known
to others or readily available to others from sources other than the Employee,
Employer, employees of the Employer or of the Employer's subsidiaries or
affiliates, or is not in the public domain. The parties acknowledge that the
Employer may (but it is not obligated to) establish written guidelines and
procedures identifying proprietary or confidential information; provided that
the parties agree and acknowledge that the Employer's failure to do so shall in
no way prejudice the Employer.
(b) With respect to Inventions (as hereinafter defined, including
but not limited to software) made or conceived by the Employee, whether or not
during the hours of his employment or with the use of the Employer's facilities,
materials or personnel, either solely or jointly with others during the Term and
without the payment to the Employee of a royalty or any other consideration:
(i) The Employee shall inform the Employer promptly and
fully of such Inventions by written report, setting forth in detail
the procedures employed and results achieved. A report shall be
submitted by the Employee upon completion of any studies or research
projects undertaken on the Employer's behalf whether or not in the
Employee's opinion a given project has resulted in an Invention.
(ii) The Employee shall apply, at the Employer's request and
expense, for the United States and/or foreign letters patent or
other registrations, including but not limited to copyrights
(collectively, the "Other Registrations"), either in the Employer's
name or otherwise, as the Corporation shall desire.
(iii) The Employee hereby assigns and agrees to assign to the
Employer all of his right and interest to any and all such
Inventions, and at the Employer's expense, to make applications for
United States and/or foreign letters patent or Other Registrations
granted upon such Inventions.
(iv) The Employee shall acknowledge and deliver promptly to
the Employer, without charge to the Employer, but at its expense,
such written instruments and do such other acts in support of his
inventorship, as may be necessary in the opinion of the Employer to
obtain and maintain United States and/or foreign letters patent or
Other Registrations and to vest the entire right in such Inventions,
patents, patent applications and Other Registrations in the
Employer.
4
<PAGE>
(v) The Employer shall also have the royalty-free right to
use in its business, and to make, use, and sell products and/or
services derived from any Inventions, discoveries, concepts and
ideas, whether or not patentable or copyright able, including, but
not limited to applications, methods, formulas and techniques, as
well as improvements or know-how, whether or not within the scope of
Inventions, but which are obtained, created or made by the Employee
during the Term or with the use or assistance of the Employer's
facilities, materials or personnel.
(vi) For the purposes of this Agreement, "Inventions" mean
discoveries, concepts and ideas, whether patentable or copyrightable
or not, including but not limited to processes, methods, formulas
and techniques as well as improvements or know-how concerning any
present or prospective activities of the Employer's which the
Employee has become acquainted as a result of his employment by the
Employer or any related work product of any kind.
(vii) As to any Invention disclosed by the Employee within one
year after any termination of the Term (except for a termination by
the Employer prior to the end of the Term without Cause), there
shall be a rebuttable presumption that such Invention was made or
conceived during the Term, and the provisions of this Section 6
shall be applicable to such Invention.
(c) Employee agrees and acknowledges that his obligations under
this Section 6 have been undertaken in consideration of (i) the compensation
payable to Employee under this Agreement and (ii) Employer's execution, delivery
and performance of that certain Merger Agreement and Plan of Reorganization (the
"Merger Agreement") dated as of an even date herewith by and among Employer,
Employee and certain other parties thereto pursuant to which Employee disposed
of his interest in Research Analysis Corporation to Employer. In the event of a
breach or a threatened breach by the Employee, of the provisions of this Section
6, the Employer shall be entitled to an injunction, without being required to
post any bond, restraining the Employee from disclosing, in whole or in part,
the aforementioned proprietary or confidential information, from using
Inventions for the benefit of any person or entity other than the Employer, or
from rendering any services to any person, firm, corporation, association, or
other entity to whom such proprietary or confidential information, in whole or
in part, has been disclosed or is threatened to be disclosed. Nothing contained
herein shall be construed as prohibiting the Employer from pursuing any other
remedies available to the Employer for such breach or threatened breach,
including the recovery of damages from the Employee.
7. Restrictive Covenants.
----------------------
(a) The Employer and the Employee recognize and agree that,
although Employee's skills are not short-lived, the Employee's services are
special and unique, and that for these reasons a covenant on the Employee's part
not to compete anywhere in the continental United States or via the Internet
during the Term and for a reasonable period after any termination of the
5
<PAGE>
Term is essential to protect the business of the Employer. In light of the
foregoing, and because of the proprietary or confidential information to be
obtained by or disclosed to the Employee, and as a material inducement for the
Employer to enter into the Merger Agreement and this Agreement and to pay the
Employee the compensation as provided herein, the Employee covenants and agrees
that, from and after the date hereof and until the Designated Date (as
hereinafter defined), he shall not:
(i) directly or indirectly engage in or assist others to
engage in any Competitive Activity (as hereinafter defined), whether
such engagement shall be as an officer, director, employee,
consultant, agent, lender or security holder (except nothing
contained herein shall prevent or be construed as preventing the
Employee from holding or purchasing up to one percent (1%) in the
aggregate or less of any class of stock or securities of a
corporation which is listed on a national securities exchange or
regularly traded in the over-the-counter market);
(ii) solicit customers, suppliers or other business relations
of the Employer (and/or its affiliates or subsidiaries) for the
purpose of encouraging them to terminate their relationship with the
Employer (and/or its affiliates or subsidiaries) or to do business
with an entity or person other than the Employer (and/or its
affiliates or subsidiaries); or
(iii) encourage other employees or consultants of the Employer
or Research Analysis Corporation (and/or its affiliates or
subsidiaries) to terminate their employment or consultancy with the
Employer or Research Analysis Corporation (and/or its affiliates or
subsidiaries); or solicit any person (or entity) who was a
consultant to or employee of the Employer or Research Analysis
Corporation (and/or its subsidiaries or affiliates) within one year
of the subject solicitation to do business indirectly or directly
with Employee.
(b) As used herein, the term "Competitive Activity" shall mean and
include the business of (i) providing data bases consisting of information with
respect to semiconductors and other electronic components, obsolescence of such
components and replacement parts for such components and (ii) developing and
making available search engines for such data bases, as well as businesses which
are the same or similar to the business activities carried on by or proposed to
be carried on by Employer and its subsidiaries and affiliates in the continental
United States or via the Internet.
(c) As used in this Section 5, the "Designated Date" shall mean
the following:
(i) if the Term shall have been terminated as a result of
Employee's dismissal by Employer without Cause (as defined in
Section 8(b) below), then the Designated Date shall mean the date of
such termination, provided that upon such termination Employer shall
have the option to continue to pay Employee his then current Base
Salary in accordance with Section 5 above for a period of one year
6
<PAGE>
after such termination and, if Employer exercises such option, then
the Designated Date shall be the one year anniversary of such
termination; or
(ii) if the Term has been terminated (or has expired) for any
reason other than Employer's termination of the Term without Cause,
then the "Designated Date" shall mean the third anniversary of the
termination of the Term.
(d) It is acknowledged and agreed that the restrictions contained
in this Section 7, including, without limitation, the time periods and the
geographical areas of the restrictions, are fair and reasonable and do not place
any undue hardship on the Employee and are reasonably required for the
protection of the goodwill, the business and the interests of the Employer
(including, without limitation, those pertaining to Research Analysis
Corporation, which company was acquired from Employee pursuant to the Merger
Agreement) and its affiliates, subsidiaries and their respective officers,
directors and other employees.
(e) It is the desire and intent of the parties that the provisions
of this Section 7 shall be enforced to the fullest extent permissible under the
laws and public policies applied in each jurisdiction in which enforcement is
sought. Accordingly, if any particular provision of this Section 7 shall be
adjudicated to be invalid or unenforceable, such provision shall be deemed
amended to delete therefrom the portion thus adjudicated to be invalid or
unenforceable. Such deletion shall apply only with respect to the operation of
such provisions of this Section 7 in the particular jurisdiction in which such
adjudication is made. In addition, if the scope of any restriction contained in
this Section 7 is too broad to permit enforcement thereof to its fullest extent,
then such restriction shall be enforced to the maximum extent permitted by law,
and the Employee hereby consents and agrees that such scope may be judicially
modified in any proceeding brought to enforce such restriction.
(f) The Employee agrees and acknowledges that his obligations
under this Section 7 have been undertaken in consideration of (i) the
compensation payable to Employee under this Agreement and (ii) Employer's
execution, delivery and performance of the Merger Agreement. In the event of a
breach or threatened breach by the Employee of the provisions of this Section 7,
the Employer shall be entitled to an injunction and such other equitable relief
as may be necessary or desirable to enforce the restrictions contained herein.
Nothing herein contained shall be construed as prohibiting the Employer from
pursuing any other remedies available for such breach or threatened breach or
any other breach of this Agreement.
8. Termination of Employment.
--------------------------
(a) The Term shall terminate upon the earliest of the dates
specified below:
(i) the third anniversary of the date hereof;
7
<PAGE>
(ii) the close of business on the date as of which the
Employee shall resign from his employment hereunder (which shall
constitute a breach by Employee of the terms of this Agreement); and
(iii) the close of business on the date as of which the
Employer shall have given the Employee written notice of the
termination of his employment for Cause or without Cause.
(b) Termination for "Cause" shall mean that any one of the
following conditions exists or any one of the following events has occurred in
which the Employee (i) dies, (ii) becomes disabled where "disabled" means that
by reason of a physical or mental illness which has continued for more than six
(6) consecutive months or for shorter periods which have aggregated more than
six (6) months in any consecutive twelve (12) month period, the Employee has
been substantially unable to render services of the character contemplated by
this Agreement, (iii) fails to perform any material duties or obligations
required by this Agreement, and the Employee does not cure such failure within
ten (10) days after receiving written notice of such failure from Employer, (iv)
commits a dishonest act, which is materially detrimental to Employer, (v)
breaches a fiduciary duty to Employer where such breach results (or is
reasonably likely to result) in a substantial adverse effect to the business,
assets, properties, prospects, results of operations or condition (financial or
otherwise) of the Employer or Research Analysis Corporation, (vi) commits a
felony, or (vii) fails to meet the performance criteria of at least 80% of the
Minimum Target in respect of a Year.
9. Effect of Termination.
----------------------
(a) In the event that the Term is terminated for any reason (other
than (x) a termination by Employer without Cause or (y) a termination resulting
from Employee's death or disability), then Employer shall be liable only for
that portion of the Base Salary provided for in Section 5(a)(i) hereof as to
which the Employee shall be entitled through the date of termination of the
Term; provided that if the termination of the Term is the result of the
expiration of the Term on the third anniversary of the date hereof, then
Employee shall also be entitled to receive his Annual Bonus in respect of the
then most recently completed Year in accordance with Section 5(a) above.
(b) In the event that the Term is terminated (i) by Employer
without Cause or (ii) as a result of the death or disability of the Employee,
then the Employer shall be liable only for (x) the portion of the Base Salary
provided for in Section 5(a)(i) hereof as to which Employee shall be entitled
through the date of termination of the Term and (y) a Pro Rata Portion of the
Annual Bonus (as defined below) in respect of the then current Year. "Pro Rata
Portion of the Annual Bonus" means a portion of the Annual Bonus which Employee
would have received in respect of the then current Year if the Employee had
remained employed by the Employer for such entire Year where such portion is
based on the number of days in such Year which the Employee was actually
employed by Employer. Any Pro Rata Portion of an Annual Bonus shall be
calculated by Employer and paid in accordance with Section 5 above.
8
<PAGE>
(c) The Employer shall pay any funds to which the Employee is
entitled and as set forth in this Section 9 to the Employee, his estate or legal
representative, as the case may be.
(d) Employer and Employee acknowledge that, under the terms of
that certain option agreement executed and delivered by the Employee and the
Employer on the date hereof, in the event that the Term is terminated by
Employer without Cause, then the vesting of the options under such option
agreement shall accelerate in accordance with the terms of such option
agreement.
10. Arbitration.
------------
10.1 Disputes Determined by Arbitration. Subject to Sections 6(c)
and 7(f) above, any and all disputes and controversies arising out of or in
connection with this Agreement or with respect to the construction and
interpretation hereof, or concerning the rights of any one or more parties
hereto or the respective obligations of each party hereto to each other party
hereto, shall be determined by arbitration in the County of San Diego,
California, in accordance with and pursuant to the then existing rules of the
American Arbitration Association. The decision of a single arbitrator chosen by
said Association shall be binding upon the parties hereto with the same force
and effect as a decision or judgment of any court of competent jurisdiction. Any
party hereto shall be entitled to have a judgment based upon the decision of
said arbitrator entered by a court of competent jurisdiction.
10.2 Notice. Any party seeking arbitration shall serve ten (10)
days' notice by certified mail, return receipt requested, upon the other party
hereto, setting forth the difference or differences that he or it desires to
arbitrate. Any party hereto shall be entitled to compel arbitration hereunder.
10.3 Expenses. The expenses charged by the arbitrator and the
American Arbitration Association for such arbitration shall initially be borne
equally between or among the parties seeking the arbitration. However, the
prevailing party in such arbitration shall be entitled to recover from the
losing party all of the reasonable attorney fees and costs incurred by the
prevailing party.
11. Effective Date. This Agreement shall become effective as of
the date hereof and, from and after that time, shall extend to and shall be
binding upon and inure to the benefit of and be enforceable by the parties
hereto, their respective successors and assigns, executors, administrators or
other legal representatives and their respective legatees and distributees.
12. Notices. Any notice required or permitted by this Agreement
shall be given by registered or certified mail, return receipt requested,
addressed to the Employer at its then principal office or to the Employee at his
residence address, or to any party hereto at such other address or addresses as
it or he may from time to time specify for the purpose in a notice similarly
given to the other party.
9
<PAGE>
13. Applicable Law. This Agreement is made and delivered in the
State of California and shall be construed and enforced in accordance with the
laws of the State of California without regard to such State's principles of
conflicts of laws.
14. Entire Understanding. This instrument contains the entire
agreement of the parties relating to the subject matter hereof, and there are no
agreements, representations or warranties relating to the subject matter not
herein set forth. This Agreement supersedes any prior written or oral agreement
or understandings relating to the subject matter hereof. No modification of this
Agreement shall be valid unless in writing and signed by the parties hereto. A
waiver of the breach of any term or condition of this Agreement shall not be
deemed to constitute a waiver of any subsequent breach of the same or any other
term or condition.
15. Unenforceability. If any provision of this Agreement shall to
any extent be held invalid or unenforceable, such invalidity and
unenforceability shall not affect the remaining provisions hereof which shall
remain in full force and effect.
16. No Prohibiting Agreement. The Employee warrants and represents
that there is no other agreement in force which prohibits him from entering into
this Agreement or otherwise performing services for the Employer, or which will
be violated in any way by his entering into this Agreement.
17. Employer's Books and Records. The Employer agrees to make and
keep full and accurate books and records describing all activities under this
Agreement in sufficient detail to enable all compensation payable to the
Employee hereunder to be determined.
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<PAGE>
IN WITNESS WHEREOF, the parties have duly executed and delivered this
Agreement as of the day and year first above written.
TRANSITION ANALYSIS COMPONENT
TECHNOLOGY, INC., Employer
WITNESS:
By: /s/ Martin S. Fawer
--------------------------------------
/s/ Robert Londin Name: Martin S. Fawer
- ----------------------------- Title: Chief Financial Officer
/s/ Bruce L. Blackford
-----------------------------------------
Bruce L. Blackford, Employee
WITNESS:
/s/ Melissa Stone
- -----------------------------
<PAGE>
Schedule A - Certain Definitions
"GAAP" means generally accepted accounting principles applied in the
preparation of the financial statements of the Employer and (a) shall be
consistent with the then effective principles promulgated or adopted by the
Financial Accounting Standards Board and its predecessors and successors and (b)
shall be applied on a consistent basis in accordance with past practices
applicable to the Employer.
"Minimum Target" means, in respect of a Year, 80% of the Target for such
Year.
"Net Revenues" means Employer's gross consolidated revenues less any
rebates, allowances or credits given by Employer to any of its customers for
sales booked after the date of this Agreement. "Net Revenues" shall be
determined by Employer's chief financial officer calculated in accordance with
GAAP on a consolidated basis; provided that (a) an amount equal to the revenues
of any business hereinafter acquired (directly or indirectly) by Employer (by
purchase of assets, stock purchase, merger or otherwise) shall not be included
when computing Net Revenues if the then current revenues of such after acquired
business would have otherwise been included in the computation of Net Revenues,
and (b) if the Minimum Target is exceeded in respect of a Year (an "Achieved
Year"), then the amount by which the Net Revenues achieved in such Achieved Year
exceed the Minimum Target shall be carried forward and added to the Net Revenues
for the Year immediately following such Achieved Year if (and only if) the Net
Revenues (calculated before any adjustment pursuant to this clause (b)) achieved
in such following Year exceed 120% of the Net Revenues achieved in the Achieved
Year. Such determination shall be final and binding upon Employer and Employee,
absent manifest error.
"Target" in respect of a Year means the following respective amount of Net
Revenues:
$3,780,000 for the first Year of the Term;
$5,280,000 for the second Year of the Term; and
$7,400,000 for the third Year of the Term.
<PAGE>
Schedule B
Transition Analysis Component Technology, Inc.
1997 Employee "Fringe" Benefits
CREDIT AGREEMENT
FLEET BANK (called the "Bank") and TRANSITION ANALYSIS COMPONENT
TECHNOLOGY, INC., a corporation organized under the laws of the State of
Delaware with its principal place of business at 22700 Savi Ranch Parkway, Yorba
Linda, California 92657 called (the "Borrower"), agree that the following terms
and conditions shall apply to all loans, notes and obligations of any kind of
Borrower to Bank now existing or hereafter arising or created, including without
limitation direct or indirect, absolute or contingent, and any sums which Bank
receives and is obligated by a Bankruptcy Court or other legal authority to
repay (called the "Obligations"). The Obligations under this Agreement are
without limitation as to amount, unless specifically restricted or limited in
the Special Provisions section of this Agreement. The Addendum (the "Addendum")
attached to this Agreement is made a part hereof and is incorporated herein by
reference. The Addendum may be amended from time to time in writing executed by
the parties to this Agreement.
Article I - BORROWER'S REPRESENTATIONS AND AGREEMENTS
A. Organization and Power. The Borrower is and will continue to be: (1)
validly existing and in good standing under the laws of the state of its
organization, and (2) duly qualified to transact business and in good standing
in all states and countries where such qualification is required. The Borrower
has and will continue to have full power and authority to own its properties, to
carry on its business as being conducted, to execute and perform this Agreement,
and to borrow hereunder. Except for the acquisition (by purchase of assets,
stock purchase, merger or otherwise) of Research Analysis Corporation ("RAC"),
which acquisition the Bank expressly consents to (the "RAC Acquisition"), the
Borrower will not create or acquire any new Affiliates after the date of this
Agreement without the prior written consent of the Bank. For purposes of this
Agreement, "Affiliates" are defined as entities directly or indirectly
controlling, controlled by or under common control with the Borrower by means of
voting securities, contract, ownership, or otherwise.
B. Proceedings of Borrower. The execution, delivery, and performance of
this Agreement and of any related notes, assignments, mortgages, security
agreements, guarantees, or other agreements and documents have been duly
authorized by all necessary parties. All of the same, when executed and
delivered: (1) are or will be valid and enforceable in accordance with their
respective terms, (2) will not violate any provision of law or the Borrower's
Certificate of Incorporation, Bylaws, or other organizational and governing
documents and (3) will not violate, result in a breach of, or constitute a
default under any agreement, decree, or order affecting the Borrower or by which
any of its properties is bound. No consent or approval of any court or
governmental instrumentality is required in connection with the authorization,
execution, delivery or performance of this Agreement or any related notes,
assignments, mortgages, security agreements, guarantees or other agreements. If
requested by the Bank, the Borrower will deliver to the Bank the certificate of
its corporate officers or general partners as to the matters described herein,
in form and substance satisfactory to the Bank.
C. Litigation. At the date of this Agreement, there is no litigation or
proceeding before any court or governmental body pending or, to its knowledge,
threatened in writing against
<PAGE>
the Borrower which, if adversely determined, would have a material adverse
effect on the financial condition or normal manner of doing business of the
Borrower. The Borrower will immediately notify the Bank of the future
commencement of any such action or proceeding. The Borrower is not and will not
be in material violation of any court or governmental order.
D. Financial Statements. All historical financial statements furnished
by the Borrower to the Bank are complete and correct, have been prepared in
accordance with generally accepted accounting principles consistently followed
throughout the period indicated, and fairly present the financial condition of
the Borrower as of the respective dates thereof and the results of its
operations for the respective periods covered thereby. Since March 31, 1997, in
the case of the Borrower, and March 31, 1997, in the case of the Guarantor,
there has been no adverse change in the assets, liabilities, financial
condition, operations or business of the Borrower or Guarantor, respectively.
The Borrower will furnish to the Bank as soon as available, but in any
event, within the time required by the Addendum, copies of annual financial
statements of Borrower in reasonable detail satisfactory to the Bank, prepared
in accordance with generally accepted accounting principles and in the form
required by the Addendum. Borrower also will furnish to the Bank unaudited
financial statements prepared in accordance with generally accepted accounting
principles, in form satisfactory to the Bank, within the time required by the
Addendum. Each financial statement submitted shall be certified to be true and
correct to the best of his knowledge by the designated officer primarily
responsible for the financial affairs of Borrower, shall contain a certification
that Borrower is not in default of any of its Obligations, and shall include a
computation of applicable financial covenants.
E. Taxes. The Borrower has filed and will continue to file all tax
returns required by applicable authorities. The Borrower has paid and will
continue to pay all taxes and governmental charges upon Borrower, its income and
property to the extent that such taxes and charges have become due; provided,
however, that Borrower may in good faith diligently contest any tax prior to the
time at which levies, executions, or other enforcement actions may occur if
appropriate reserves are maintained.
F. Properties. The Borrower has and will continue to have good and
marketable title to all of its properties and assets. Borrower also has
undisturbed peaceable possession under all leases to which it is a party, and
all such leases are in full force and effect. The Borrower will maintain its
property, plant, equipment, vehicles, and other tangible property in good
condition and will make all reasonably needed repairs, replacements, and
additions so that its business is not materially and adversely affected at any
time.
G. Indebtedness. The Borrower has and will continue to have no
outstanding obligations for borrowed money, indebtedness, and the like, other
than: (1) indebtedness to the Bank, (2) indebtedness for borrowed money to Zing
Technologies, Inc. in an amount not in excess of $185,000 and (3) obligations
permitted by the Addendum or otherwise agreed to in writing by Bank.
-2-
<PAGE>
H. Insurance. The Borrower will maintain insurance with responsible
insurance companies in types and amounts reasonably satisfactory to Bank.
Borrower will provide to the Bank, within ten (10) days of its request, evidence
of insurance. All insurance policies shall name the Bank as additional insured
and mortgagee/loss payee as its interests may appear, and shall provide for
prior notice to the Bank of cancellation.
If Borrower fails to pay any premiums with respect to any insurance
when due, the Bank may pay such premiums and add the amount so advanced to the
principal indebtedness owed on the Obligations.
I. Mortgages and Liens. The Borrower is not and will not be a party to
negative pledges except in favor of the Bank. The Borrower will not create, or
allow to exist, voluntarily or involuntarily, any mortgage, pledge, lien,
security interest, or other encumbrance of any kind (including the charge upon
property purchased under conditional sales or other title retention agreements)
upon any of its property whether now owned or hereafter acquired, excluding only
(i) interests held by the Bank, (ii) taxes, assessments, governmental charges
not yet due or diligently contested in good faith by appropriate proceedings
prior to levies, executions, or other enforcement actions occurring and for
which appropriate reserves are maintained and (iii) interests permitted by the
Addendum. The Borrower will not discount or sell any of its accounts receivable.
J. Loans, Investments, Contingent Liabilities. The Borrower will not
assume, guarantee, endorse, contingently agree to purchase, or otherwise become
liable upon or a surety for any obligation, contingent or otherwise, whether
funded or current, of any other person or entity except for endorsement of
negotiable instruments for deposit or collection or similar transactions in the
ordinary course of business. The Borrower will not make loans or advances to, or
investments (other than any investment in a wholly-owed subsidiary (the
"Acquisition Subsidiary") to be merged with RAC in the RAC Acquisition) of any
kind in, any person or other entity whatsoever, excluding only investments in
obligations issued or fully guaranteed by the United States or the State of New
York or certificates of deposit and the like issued by the Bank.
K. Mergers, Sales, and Acquisitions. Except for the RAC Acquisition
(but, in the event where the RAC Acquisition is by way of merger between the
Borrower and RAC, but only if the Borrower is the surviving entity), the
Borrower will not enter into any merger or consolidation, or acquire all or
substantially all the stock or assets of any person or other entity, enter into
sale-leaseback arrangements, or sell, lease, transfer, or otherwise dispose of
any of its assets except for inventory dispositions in the ordinary course of
business and disposition of assets no longer used or useful in the conduct of
its business. Except for the merger agreement required in connection with the
RAC Acquisition to which Borrower and the Acquisition Subsidiary shall be a
party (the "Merger Agreement") the Borrower will not enter into transactions
with Affiliates less favorable than third party arms' length transactions.
L. Dividends, Stock Distributions, and Salaries. Except for the
Borrower's entitlement to reclaim shares of its capital stock otherwise issuable
pursuant to the Merger Agreement but for the breach of representation or
warranties by RAC and its shareholders under
-3-
<PAGE>
the Merger Agreement (the "Holdback Provisions"), the Borrower will not: (1)
declare any dividends on any of its capital stock, (2) apply any of its property
or assets to the purchase, redemption or other retirement of any of its capital
stock or (3) make any other distribution of any kind with respect to any of its
capital stock.
The Borrower will not permit withdrawals, salaries, or compensation of
any kind to be paid in any manner to any person, except in amounts reasonably
related to the services performed and except for incentives paid to employees to
the extent approved by a majority of the Board of Directors of the Borrower.
M. Franchises, Permits, Laws. The Borrower has done, and will cause to
be done, all things necessary (i) to obtain, preserve and keep in full force and
effect all franchises, permits, licenses, trademarks, tradenames, copyrights,
patents, and other authority as are necessary to enable it to conduct its
business as being conducted without known conflict with others, and (ii) to
comply in all material respects with all laws and regulations now in effect or
hereafter promulgated by any properly constituted governmental authority having
jurisdiction.
N. ERISA. No action, event, or transaction has occurred, and Borrower
will not permit any of the same to occur, which could give rise to a lien or
encumbrance on Borrower's assets as a result of the application of relevant
provisions of the Employee Retirement Income Security Act of 1974 ("ERISA"), and
Borrower has and will continue to comply in all material respects with the
requirements of ERISA.
O. Material Changes, Judgments. The Borrower will not make or permit
any material change to be made in the general character of its business as
carried on at the date of execution of this Agreement (it is agreed that the
continuation by Borrower of a business carried on by RAC as of the date of the
execution of this Agreement after the RAC Acquisition is completed will not be
deemed a material change to the general character of Borrower's business), or in
its capital structure, ownership interests, management, or form of organization
or organization documents, without the Bank's prior written consent.
Borrower will notify the Bank immediately of any default under any
existing contract or any acceleration of indebtedness or of any material adverse
change in its financial condition (including the filing of any liens or of any
suits or judgments which could, if adversely determined, materially affect its
business or financial condition). Borrower will immediately notify the Bank of
any change in its name, identity, ownership, organizational structure,
management or principal place of business.
P. Margin Securities. No proceeds of any loan or advance made by the
Bank have been or will be used for the purpose of carrying margin securities
within the meaning of Regulation U of the Board of Governors of the Federal
Reserve except in compliance with such Regulation.
Q. Fees and Taxes. The Borrower will promptly pay all filing fees,
taxes, and assessments related to the Obligations and the perfection of any
collateral security required.
-4-
<PAGE>
R. Other Reports and Inspections. The Borrower will furnish to the Bank
such additional information, including, without limitation, certificates of no
default, as the Bank may reasonably request. The Borrower shall permit any
person designated by the Bank to make inspections of the property, assets, loan
collateral, books and records of the Borrower (and to make copies thereof), and
will discuss its affairs and finances with the Bank, as often and at such times
as may be reasonably requested.
S. Opinion of Counsel. At closing, the Borrower shall deliver an
opinion of its legal counsel covering such matters as may be reasonably
requested by the Bank.
T. Collateral. If the Bank at any time is of the opinion that any
collateral for the Obligations is insufficient or has declined, or is reasonably
projected to decline in value, or if the Bank otherwise deems itself insecure,
the Bank may call for additional security satisfactory to it, and Borrower
hereby promises to furnish such security forthwith.
U. Overdrafts. In the event the Bank, in its sole discretion, chooses
to honor any Borrower overdraft on any account held by Bank, the Borrower shall
pay the amount of the overdraft to the Bank forthwith. The Bank, at its option,
may treat the overdraft as a loan, payable on demand, and may, if it chooses,
add the amount of the overdraft to any existing Obligation.
V. Requests/Payments. The Bank is hereby authorized to honor borrowing
requests from Robert Schrader or Martin Fawer and no other person. Requests must
be in writing, which may include facsimile transmissions. The Bank's crediting
of the Borrower's account with the amount requested shall conclusively establish
the Borrower's obligation to repay the amount advanced. The Borrower hereby
authorizes the Bank to debit the Borrower's accounts for payments due to the
Bank, but nothing contained herein shall release Borrower from responsibility
for assuring that payments are made when due.
W. Environmental Matters. For purposes of this Section, all property
owned or used by the Borrower, now, in the past, or in the future, shall be
called the "Borrower Property". "Hazardous Substances" means, without
limitation, any explosives, radon, radioactive materials, asbestos, urea
formaldehyde foam insulation, polychlorinated biphenyls, petroleum and petroleum
products, methane, hazardous materials, hazardous wastes, hazardous or toxic
substances and any other material defined as a hazardous substance in any
Environmental Law. "Environmental Laws" means all federal, state and local
environmental, land use, zoning, health, chemical use, safety and sanitation
laws, statutes, ordinances, regulations, codes, rules, policies, guidelines,
procedures, interpretations, decisions, orders, or directives, whether existing
as of the date hereof, previously enforced or subsequently enacted relating to
the protection of the environment and/or governing the use, storage, treatment,
generation, transportation, processing, handling, production or disposal of
Hazardous Substances. "Environmental Permits" means all licenses, permits,
approvals, authorizations, consents or registrations required by any applicable
Environmental Laws and applicable judicial and administrative orders in
connection with ownership, lease, purchase, transfer, closure, use and/or
operation of Borrower Property and/or as may be required for the storage,
treatment, generation, transportation, processing, handling, production or
disposal
-5-
<PAGE>
of Hazardous Substances. "Environmental Report" means any written report
prepared for Borrower or Bank by an environmental consulting or environmental
engineering firm. "Release" has the same meaning as given to that term in
Section 101(22) of the Comprehensive Environmental Response, Compensation and
Liability Act of 1980, as amended from time to time, 42 U.S.C. Section 9601(22),
and the regulations promulgated thereunder.
The Borrower:
(a) has kept and shall keep, and shall cause all operators,
tenants, subtenants, licensees and occupants of the Borrower
Property to keep the Borrower Property free of all Hazardous
Substances and shall not cause or permit the Borrower Property
or any part thereof to be used for the storage, treatment,
generation, transportation, processing, handling, production
or disposal of any Hazardous Substances except in compliance
with all Environmental Laws;
(b) has complied with and shall comply with, and shall cause all
operators, tenants, subtenants, licensees and occupants of the
Borrower Property to comply in all material respects with all
applicable Environmental Laws and shall obtain and comply
with, and shall cause all operators, tenants, subtenants,
licensees and occupants of the Borrower Property to obtain and
comply with, all Environmental Permits;
(c) shall promptly provide Bank with a copy of all notifications
which it gives or receives with respect to any past or present
Release or the threat of a Release of any Hazardous Substance
on, at, or from the Borrower Property or any property adjacent
to the Borrower Property;
(d) shall undertake and complete all investigations, studies,
sampling and testing and all removal and other remedial
actions required by law to contain, remove and clean up all
Hazardous Substances that are determined to be present at the
Borrower Property in accordance with all applicable
Environmental Laws and all Environmental Permits;
(e) shall at all times allow the Bank and its officers, employees,
agents, representatives, contractors and subcontractors
reasonable access, after reasonable prior notice, to the
Borrower Property for the purposes of ascertaining site
conditions, including, but not limited to, subsurface
conditions;
(f) shall deliver promptly to Bank: (i) copies of any documents
received from the United States Environmental Protection
Agency (the "EPA") or any state, county or municipal
environmental or health agency concerning Borrower's
operations or Borrower Property; and (ii) copies of any
documents submitted by Borrower to EPA or any state, county or
municipal environmental or health agency concerning its
operations or the Borrower Property; and
-6-
<PAGE>
(g) agrees that if at any time Bank obtains any reasonable
evidence or information which suggests that a material
potential environmental problem may exist at Borrower
Property, and/or at any time after an Event of Default, Bank
may require that a full or supplemental environmental
inspection and audit report with respect to Borrower Property
of a scope and level of detail reasonably satisfactory to Bank
be prepared by an environmental engineer or other qualified
person acceptable to Bank at Borrower's expense. If such audit
report indicates the presence of any Hazardous Substance or a
Release or the threat of a Release of any Hazardous Substance
on, at, or from the Borrower Property, Borrower shall promptly
undertake and diligently pursue to completion all necessary,
appropriate and legally authorized investigative, containment,
removal, clean up and other remedial actions, using methods
recommended by the engineer or other person who prepared said
audit report and acceptable to the appropriate federal, state
and local agencies or authorities.
The Borrower agrees to indemnify, defend, and hold harmless the Bank
and its agents, employees, contractors, and representatives from and against any
and all liabilities, claims, damages, penalties, expenditures, losses,
expenditures for the protection of mortgaged property or other collateral, or
charges, including, but not limited to, all costs of investigation, monitoring,
legal representation, remedial response, removal, restoration or permit
acquisition of any kind whatsoever, which may now or in the future be
undertaken, suffered, paid, awarded, assessed, or otherwise incurred by the Bank
or any of its employees, agents or representatives relating to, resulting from
or arising out of (a) the presence of, or a Release or the threat of a Release
of, any Hazardous Substance on, at, or from Borrower Property, (b) a violation
of any applicable Environmental Law, (c) non-compliance with any Environmental
Permit or (d) a material misrepresentation or inaccuracy in any representation
or warranty or a material breach of or failure to perform any covenant made by
Borrower in this Agreement.
Notwithstanding anything to the contrary contained herein, the
Borrower's liability shall survive the discharge, satisfaction or assignment of
this Agreement by the Bank until all of the following conditions are satisfied
in full:
(a) all of the Obligations are paid in full and the Bank has no
remaining commitments to Borrower;
(b) neither Bank nor any affiliate of Bank has at any time or in
any manner participated in the management or control of, taken
possession of or title to the Borrower Property or any portion
thereof, whether by foreclosure of mortgages, deed in lieu of
foreclosure or otherwise, or had the capacity or ability to
participate in the decisions or actions of the Borrower as the
same relate to Hazardous Substances;
(c) between the date of this Agreement and the date on which the
Obligations are paid in full, as provided in clause (a) above,
there has been no change in any applicable Environmental Law
which would make a lender or mortgagee liable in respect of
any of the indemnified matters contained in this Section
notwithstanding the fact
-7-
<PAGE>
that no event, circumstance or condition of the nature
described in clause (b) above ever occurred; and
(d) there exist no indemnified matters which are then pending.
The Borrower agrees that the Bank shall not be liable in any way for
the completeness or accuracy of any Environmental Report or the information
contained therein. The Borrower further agrees that the Bank has no duty to warn
the Borrower or any other person or entity about any actual or potential
environmental contamination or other problem that may have become apparent or
may become apparent to the Bank.
X. Other Agreements. The Borrower shall be bound by such other
covenants and agreements as are contained in the Addendum, and such other
documents or agreements as may be executed between Borrower and Bank from time
to time.
Article II - DEFAULTS
A. Defaults. The following events (called "Events of Default")
constitute defaults under any Obligation of Borrower:
1. Nonpayment. Failure by the Borrower to make any payment (a) of
principal of the Obligations when due, or (b) any other
Obligations (including without limitation any payment of
interest, or fees) for five days following notice that the
same is due.
2. Non-Compliance With Bank Agreements. Failure by Borrower to
comply with any other term of this Agreement or failure by
Borrower or Zing Technologies, Inc. ("Zing") to make any
payment of any kind to the Bank or to comply with any term in
any agreement with or obligation to the Bank for ten (10) days
after notice, or such additional period of time, not to exceed
90 days, as shall be required, with the exercise of due
diligence, to cure such default.
3. Representations. Any information furnished by the Borrower or
Zing to Bank having been false or misleading in any material
respect as of the date furnished.
4. Changes. Dissolution, cessation of business, or transfer of a
material part of assets of the Borrower.
5. Financial Difficulties. (i) Institution of bankruptcy
proceedings or other proceedings of any kind for the relief or
collection of debts by the Borrower or Zing or (ii)
institution of involuntary bankruptcy or similar proceedings
against the Borrower or Zing which are not dismissed for 90
days. For purposes of this paragraph, bankruptcy, debt
collection and similar proceedings shall include, without
limitation assignments for the benefit of creditors,
appointment of trustees, receivers, or custodians for a
material part of assets, levies upon or attachments of
-8-
<PAGE>
assets, or filing of judgments not fully insured or bonded or
removed within thirty days, and filing of tax liens.
6. Other Material Obligations. Default by Borrower or Zing with
respect to any material obligation to or contract with the
Bank or any other person or entity beyond the expiration of
applicable notice and/or grace periods thereunder.
7. Condemnation. Condemnation, seizure, or appropriation of a
material part of Borrower's, Zing's or any other guarantor of
any of the Obligations' assets by a court or governmental
authority.
8. Litigation. Filing of litigation or proceedings before any
court or governmental entity against Borrower, Zing or any
guarantor of any of the Obligations, not fully covered by
insurance and which if adversely determined would have a
material adverse effect on the financial condition or normal
manner of doing business of the Borrower, Zing or guarantor.
9. Zing Defaults. Zing (i) becomes or is declared insolvent,
dissolves, liquidates, allows or permits a merger,
consolidation or other change of its organizational structure,
(ii) suspends its usual business or (iii) transfers or permits
the transfer or permits the transfer of a material portion of
its assets.
B. Remedies. If any one or more Events of Default occur, the Bank may,
at its option, take any or all of the following actions at the same or different
times: (i) terminate any further commitments or obligations of the Bank, (ii)
accelerate all or part of the Obligations such that the same become forthwith
due and payable without presentment, demand, protest, or other notice of any
kind, all of which are hereby expressly waived and (iii) increase the rate of
interest on the Obligations to a rate four percent (4%) above the rate otherwise
in effect, which increased rate shall remain in effect until payment in full of
the Obligations or written waiver of such default held by the Bank.
In case any such Events of Default shall occur, the Bank shall be
entitled to use any legal remedy. Without limitation, the Bank shall be entitled
to recover judgment against the Borrower either before, or after, or during the
pendency of any proceedings for the enforcement of any security interests,
mortgages or guarantees. In the event of realization of any funds from any
security or guarantee and application thereof to the payment of the Obligations,
the Bank shall be entitled to enforce payment of and recover judgment for all
amounts remaining due and unpaid upon such Obligations. The Bank may proceed to
protect and enforce its rights by any other appropriate proceedings, including
action for the specific performance of any covenant or agreement contained in
this Agreement and other agreements held by the Bank.
Article III - MISCELLANEOUS
A. Expenses. Borrower shall promptly pay any fees, expenses, and
disbursements, including reasonable attorneys' fees of Bank related to this
Agreement and any Obligations.
-9-
<PAGE>
Among others, Borrower shall promptly pay (i) any cost of perfection of interest
of Bank in collateral, search fees, appraisal fees and the like, and (ii) any
expenses, reasonable attorneys' fees, costs, or disbursements in connection with
collection of any Obligation or enforcement of any of Bank's rights hereunder or
under any security agreement, guarantee, or other agreement given by Borrower to
the Bank. This obligation shall survive the payment of any notes executed by
Borrower. Bank may apply any payments of any nature received by it first to the
payment of Obligations under this section, notwithstanding any conflicting
provision contained in any other agreement with Borrower.
B. Waiver. No course of dealing, delay or failure of the Bank to
exercise any right, remedy, power or privilege hereunder or under any other
agreement with Borrower shall impair the same or be construed to be a waiver of
the same or of any Event of Default or an acquiescence therein. No single or
partial exercise of any right, remedy, power, or privilege shall preclude other
or further exercise thereof by the Bank. All rights, remedies, powers, and
privileges herein conferred upon the Bank shall be deemed cumulative and not
exclusive of any others available.
C. Security/Setoff. The Bank shall have a security interest in and
right of setoff with respect to all deposits or other sums credited by or due
from the Bank to the Borrower and a security interest in all securities or other
property of the Borrower in the Bank's possession for safekeeping or otherwise.
The Bank's security interest shall secure payment of the Obligations and the
payment and performance of all other obligations of the Borrower to the Bank,
whether direct or indirect, absolute or contingent, due or to become due, now
existing or hereafter arising. In the event of any demand or Event of Default
with respect to the Obligations, regardless of the adequacy of collateral,
without any demand or notice, except as required by applicable law, the Bank may
apply or setoff such deposits or other sums (including without limitation
amounts held in joint accounts and trust or agency accounts) and may sell or
dispose of any or all of such securities or other property and may exercise any
and all rights it may have under the New York Uniform Commercial Code, as in
effect from time to time. The rights of the Bank under this Agreement are in
addition to, and not exclusive of, any other rights it may have with respect to
such deposits, sums, securities, or other property under other agreements or
applicable principles of law. The Bank shall have no duty to take steps to
preserve rights against prior parties as to such securities or other property.
D. Business Days. Whenever any payment is due, or obligation is to be
performed hereunder on a Saturday, Sunday or holiday on which the Bank is
authorized to close, such payment may be made or obligation performed on the
next succeeding business day. Such extension of time shall, in such case, be
included in the computation of any interest or fees.
E. Amendments. This Agreement is intended to be continuing and shall
not be changed, terminated, or amended without the express written agreement of
both the Borrower and the Bank.
F. Participations. It is understood and agreed that the Bank may sell
participations in the Obligations to other banking institutions without giving
notice to the Borrower. Such other
-10-
<PAGE>
institutions shall be entitled to the same rights and remedies as the Bank has
hereunder or with respect to any Obligations.
G. Parties in Interest. All the terms and provisions of this Agreement
shall inure to the benefit of and be binding upon and be enforceable by the
respective legal representatives, successors and assigns of the parties hereto.
H. Governing Law. This Agreement, together with all of the rights and
obligations of the parties hereto, shall be construed, governed, and enforced in
accordance with the laws of the State of New York. Borrower consents to
jurisdiction and service of process, which may be effected by certified mail, in
the courts of the State of New York and in the courts of the United States
having jurisdiction thereof.
I. Trial By Jury. THE BORROWER WAIVES TRIAL BY JURY OF ANY CLAIMS OR
PROCEEDINGS WITH RESPECT TO THIS AGREEMENT, OR THE OBLIGATIONS, TO THE FULLEST
EXTENT ALLOWED BY LAW.
J. Termination. This Agreement may be terminated only (i) by a written
agreement of the Bank, or (ii) upon written request of Borrower at such time as
the Obligations have been satisfied in full and the Bank has no remaining
commitments to Borrower of any kind.
K. Severability. Any partial invalidity of the provisions of this
Agreement or any notes, agreements, or documents related hereto or to the
Obligations shall not invalidate the remaining portions hereof or thereof.
L. Counterparts. This Agreement may be executed in one or more
counterparts.
IN WITNESS WHEREOF, the parties have caused this Agreement (inclusive
of the terms contained in the Addendum) to be executed by their duly authorized,
respective officers.
TRANSITION ANALYSIS COMPONENT FLEET BANK
TECHNOLOGY, INC.
By: /s/ Martin S. Fawer By: /s/ Michael J. DiSalvo
--------------------------------------- -------------------------------
Name: Martin S. Fawer Name: Michael J. DiSalvo
Title: Chief Financial Officer Title: Vice President
Date: As of August 28, 1997 Date: As of August 28, 1997
-11-
<PAGE>
THE UNDERSIGNED, GUARANTOR, AGREES TO THE TERMS OF THIS AGREEMENT (INCLUSIVE OF
THE TERMS CONTAINED IN THE ADDENDUM)
ZING TECHNOLOGIES, INC.
By: /s/ Martin S. Fawer
---------------------------------
Name: Martin S. Fawer
Title: Chief Financial Officer
-12-
<PAGE>
STATE OF NEW YORK )
)ss.:
COUNTY OF WESTCHESTER )
On the 28th day of August, 1997, before me personally came Martin S.
Fawer to me known, who, being by me duly sworn, did depose and say that he has
an address at 115 Stevens Avenue, Valhalla, New York; that he is the Chief
Financial Officer of TRANSITION ANALYSIS COMPONENT TECHNOLOGY, INC., the
corporation described in and which executed the foregoing instrument; and that
he signed his name thereto by order of the board of directors of said
corporation.
/s/ Mary Langan-Krajca
-----------------------------------
Notary Public
STATE OF NEW YORK )
)ss.:
COUNTY OF WESTCHESTER )
On the 28th day of August, 1997, before me personally came Michael J.
DiSalvo, to me known, who, being by me duly sworn, did depose and say that he
has an address at No. 1051 Union Avenue, Newburgh, New York 12550; that he is
the Vice President of FLEET BANK, the corporation described in and which
executed the foregoing instrument; and that he signed his name thereto by order
of the board of directors of said corporation.
/s/ Mary Langan-Krajca
-----------------------------------
Notary Public
-13-
<PAGE>
ADDENDUM TO CREDIT AGREEMENT (THE "CREDIT AGREEMENT") DATED AS
OF AUGUST 28, 1997 BETWEEN TRANSITION ANALYSIS COMPONENTS
TECHNOLOGY, INC. AND FLEET BANK
Any default in the observance or performance of any other obligation of
the Borrower or Zing Technologies, Inc. ("Zing") owing to the Bank shall
constitute a default under the terms of this Agreement and the Note (as defined
below). All terms contained in the Note are hereby incorporated herein and made
a part hereof.
Section 1. AVAILABILITY; TERMINATION:
--------------------------
(a) The maximum amount of advances outstanding under the Note at any
time shall not exceed, in the aggregate, $1,500,000 (the "Credit Amount").
(b) The Borrower shall have the right to terminate the Credit Amount at
any time, provided that: (i) the Borrower shall give the Bank at least ten (10)
business days notice of such termination in the manner provided in this
Agreement and (ii) such termination of the Credit Amount is accompanied by the
repayment of all outstanding advances and accrued and unpaid interest then due
under the Note. The Credit Amount, once terminated, may not be reinstated.
Section 2. PURPOSE:
--------
The proceeds of this Agreement and the Note shall be used (i) for
equipment purchases and (ii) for general corporate purposes of the Borrower, and
for no other purpose.
Section 3. BORROWING PROCEDURES:
---------------------
The Borrower may, on any business day prior to but excluding June 30,
2000 (the "Termination Date") request advances hereunder in accordance with the
provisions of Article I (V) of the Credit Agreement in amounts not less than
$25,000 upon written or telephonic notice. If the Bank receives a request for an
advance prior to 11:00 a.m. on a business day, the Borrower may request such
advance be made available to the Borrower on the same business day. Written
notices by the Borrower shall be in the form of Exhibit A duly executed (an
"Advance Request"), and may be delivered by facsimile transmission. All
telephonic notices shall be confirmed promptly in writing by delivery of an
Advance Request. The principal amount owing from time to time may be recorded by
the Bank on the Commercial Purpose Master Note dated as of August 28, 1997 made
by the Borrower and payable to the order of the Bank (the "Note") or on any
schedule annexed thereto by the Bank or on any replacement of the Note.
Section 4. COLLATERAL:
-----------
The Obligations shall be secured by a first priority perfected security
interest in all assets (exclusive of real estate owned), and personal property
(exclusive of titled motor vehicles) of the Borrower, including, without
limitation all accounts, inventory, equipment, documents, and
<PAGE>
general intangibles, whether now owned or hereafter acquired or arising, and all
income and proceeds thereof and replacements thereto.
Section 5. FINANCIAL REPORTING:
--------------------
The Borrower shall furnish to the Bank:
1. Promptly after filing or sending thereof, copies of Borrower's
Annual Report on Form 10-K and Quarterly Report on Form 10-Q
(together with all exhibits thereto), and in no event later
than one hundred twenty (120) days after the end of each
fiscal year in the case of the Form 10-K, and sixty (60) days
after the end of each fiscal quarter in the case of the Form
10-Q.
2. Promptly after filing or sending thereof, copies of Zing's
Annual Report on Form 10-K and Quarterly Report on Form 10-Q
(together with all exhibits thereto), and in no event later
than one hundred twenty (120) days after the end of each
fiscal year in the case of the Form 10-K, and sixty (60) days
after the end of each fiscal quarter in the case of the Form
10-Q.
3. Within sixty (60) days after the end of each fiscal quarter, a
non-default certificate which shall include a schedule showing
the calculation of all Financial Covenants and which shall be
signed by the chief financial officer of the Guarantor.
4. As and when filed, copies of all reports filed by the Borrower
and/or Guarantor with the Securities Exchange Commission.
5. Such other information regarding the operations, business
affairs and financial condition of the Borrower and the
Guarantor as the Bank may reasonably request.
Section 6. NEGATIVE COVENANTS:
-------------------
The Borrower will not, directly or indirectly, without the prior
written consent of the Bank:
1. Incur, create or permit to exist any mortgage, pledge, lien,
charge or other encumbrance of any of the Borrower's assets
other than (i) liens in favor of the Bank contemplated by this
Agreement, (ii) pledges or deposits in connection with or to
secure worker's compensation and unemployment insurance, (iii)
tax liens which are being contested in good faith with the
prior written consent of the Bank and against which, if
requested by the Bank, Borrower shall maintain reserves in an
amount and in form (book, cash, bond or otherwise)
satisfactory to the Bank or (iv) those specifically permitted,
in writing, by the Bank.
-2-
<PAGE>
2. Incur, create or permit to exist any indebtedness or
contingent liability other than (i) the advances under the
Note or (ii) guarantees or other obligations owed to the Bank.
3. Guarantee or otherwise in any way become, or be responsible
for, indebtedness or obligations (including working capital
maintenance, take-or-pay contracts, etc.) of any other person,
contingently or otherwise, except for the endorsement of
negotiable instruments by the Borrower in the ordinary course
of business.
4. Lend or advance money, credit, or property to any person, or
invest (other than Borrower's formation and acquisition of the
Acquisition Subsidiary (as defined in the Credit Agreement))
in (by capital contribution or otherwise) or (other than the
exercise of the Holdback Provisions) purchase or repurchase
the stock or indebtedness, or all or a substantial part of the
assets or properties, of any person and except for customary
collection arrangements for accounts receivable.
5. Sell, transfer, discount or otherwise dispose of notes,
accounts receivable or other rights to receive payment with or
without recourse, except for collection in the ordinary course
of business.
6. A. Sell, lease, transfer or otherwise dispose of its
properties or assets except in the ordinary course of
business and in arm's length transactions, or,
B. Except for the RAC Acquisition (as defined in the Credit
Agreement) (but in the event where the RAC Acquisition is
by way of merger between the Borrower and Research
Analysis Corporation ("RAC"), only if the Borrower is the
surviving entity), consolidate with or merge into any
other corporation or permit any other corporation to merge
into it or acquire all or substantially all of the
property or assets of any other person; provided, however,
prior to the consummation of the RAC Acquisition, the
Borrower provides evidence to the Bank, satisfactory to
the Bank, that all UCC-1 filings naming RAC and the
Acquisition Subsidiary, as debtor, in any jurisdiction
where RAC and the Acquisition Subsidiary conduct business
or are organized are terminated.
7. Materially alter the nature of the business of the Borrower
(its is agreed that the continuation by Borrower of a business
conducted by RAC as of the date of the execution of this
Addendum after the RAC Acquisition (as defined in the Credit
Agreement) is completed will not be deemed to materially alter
the nature of Borrower's business).
8. Pay any dividend or distribution.
9. Permit any changes in management from those existing on the
date of the execution and delivery of the Note and Agreement
(other than entering into
-3-
<PAGE>
employment agreements with two shareholders of RAC (Messrs.
Blackford and Hauser) in connection with the consummation of
the RAC Acquisition).
Section 7. FINANCIAL COVENANTS:
--------------------
The Borrower shall comply or cause the Guarantor to comply with the
following covenant, tested as at the end of each fiscal quarter of the
Guarantor:
Tangible Net Worth. The Guarantor shall maintain a Net Worth
(defined as total assets less total liabilities, each as
determined in accordance with generally accepted accounting
practices) in (i) cash and currently on hand and on deposit,
demand deposits and checks held, (ii) short term, highly
liquid investments that are readily convertible to known
amounts of cash and (iii) marketable securities, in an amount,
in the aggregate, not less than $3,000,000.
Section 8. FEES. (a) The Borrower shall pay to the Bank a commitment fee on the
daily average of the Unused Commitment for the period from and including the
date of this Agreement to the earlier of the date the Credit Amount is
terminated or the Termination Date at a rate per annum equal to 1/4 of one
percent, calculated on the basis of a year of 360 days for the actual number of
days elapsed. The accrued commitment fee shall be due and payable in arrears
upon any reduction or termination of the Credit Amount and on the first such day
of each January, April, July and October, commencing on the first such date
after the execution and delivery of this Agreement. The term "Unused Commitment"
means, on any date, the amount of the Credit Amount less the amount of all
outstanding advances under the Note.
(b) The Borrower shall pay to the Bank the sum of Three
Thousand Seven Hundred Fifty and no/100 Dollars ($3,750.00) in consideration of
the Bank entering into this Agreement with the Borrower payable on the date this
Agreement is executed by the Borrower.
Section 9. MISCELLANEOUS:
--------------
1. The Borrower shall maintain or cause its Affiliates, as
required by the Bank, to maintain a satisfactory banking
relationship with the Bank as reasonably determined by the
Bank.
2. All financial statements of the Borrower and Guarantor shall
be prepared in accordance with, and all Financial Covenants
set forth herein shall be calculated on the basis of,
Generally Accepted Accounting Principles.
-4-
<PAGE>
EXHIBIT A
FORM OF ADVANCE REQUEST
, 19
-------------------- ---- ---
Fleet Bank
1051 Union Avenue
Newburgh, New York 12550-0911
Re: Credit Agreement dated as of August __, 1997 Transition
Analysis Component Technology, Inc. and Fleet Bank (the
"Agreement")
Gentlemen:
Pursuant to Section 3 of the Addendum to the Agreement (the
"Addendum"), the undersigned hereby confirms its request made on
_________________ ____, 19___ for an advance in the amount of
$__________________ (the "Advance") to be made on _____________ ____, 19___.
The representations and warranties contained or referred to in Article
I of the Agreement are true and accurate on and as of the effective date of the
Advance as though made at and as of such date (except to the extent that such
representations and warranties expressly relate to an earlier date); and no
Default or Event of Default has occurred and is continuing or will result from
the Advance.
TRANSITION ANALYSIS COMPONENT
TECHNOLOGY, INC.
By:
---------------------------------
Name:
Title:
COMMERCIAL PURPOSE MASTER NOTE
$1,500,000.00 As of August 28, 1997
FOR VALUE RECEIVED, the undersigned ("Borrower"), if more than one
jointly and severally, hereby promises to pay to the order of FLEET BANK (the
"Bank"), at any of its banking offices, or at such other places as Bank may
specify in writing to Borrower, the principal sum of ONE MILLION FIVE HUNDRED
THOUSAND AND 00/100 DOLLARS ($1,500,000.00), or if less, the aggregate unpaid
principal amount of all advances made by Bank to Borrower. Bank shall maintain a
record of amounts of principal and interest payable by Borrower from time to
time, and the records of Bank maintained in the ordinary course of business
shall be prima facie evidence of the existence and amounts of the Borrower's
obligations recorded therein. In addition, Bank may mail or deliver periodic
statements to Borrower indicating the date and amount of each advance hereunder
(but any failure to do so shall not relieve Borrower of the obligation to repay
any advance). Unless Borrower questions the accuracy of an entry on any periodic
statement within fifteen business days after such mailing or delivery by Bank,
Borrower shall be deemed to have accepted and be obligated by the terms of each
such periodic statement as accurately representing the advances hereunder. In
the event of transfer of this Note, or if the Bank shall otherwise deem it
appropriate, Borrower hereby authorizes Bank to endorse on this Note the amount
of advances and payments to reflect the principal balance outstanding from time
to time. Bank is hereby authorized to honor borrowing and other requests
received from purported representatives of Borrower orally, by telecopy, in
writing, or otherwise. Oral requests shall be conclusively presumed to have been
made by an authorized person and Bank's crediting of Borrower's account with the
amount requested shall conclusively establish Borrower's obligation to repay the
amount advanced.
Interest
- --------
This Note shall bear interest on outstanding principal balances, calculated on
the basis of a 360 day year and using the actual number of days elapsed, at a
rate per annum equal to the rate of interest established by Bank from time to
time as a guide for determining actual lending rates to its customers, which is
not necessarily the lowest rate charged to any specific customer (the "Prime
Rate"). Changes in the rate of interest hereunder due to a change in the Prime
Rate shall occur automatically without notice as of the effective date of the
change of such Prime Rate by Bank.
Interest shall continue to accrue after maturity at the rate required by this
Note until this Note is paid in full. At the option of Bank, the rate of
interest on this Note may be increased to a rate of four percent (4%) above the
rate otherwise in effect upon the happening of any Event of Default hereunder.
Such increased rate shall remain in effect until payment in full of this Note or
written waiver of such default by Bank. The right of Bank to receive such
increased rate of interest shall not constitute a waiver of any other right or
remedy of Bank.
<PAGE>
Payments
- --------
Unless sooner accelerated, Borrower shall pay all accrued interest hereunder on
the 1st day of each month commencing on September 1, 1997, and shall pay all
remaining principal and interest on June 30, 2000.
All payments shall be in lawful money of the United States in immediately
available funds. Unless cancelled in writing by Borrower, Borrower authorizes
Bank to debit its accounts at Bank to make payments due hereunder, but such
authority shall not relieve Borrower of the obligation to assure that payments
are made when due.
Late Charge
- -----------
If the entire required amount of principal and/or interest is not paid in full
within ten (10) days after the same is due, Borrower shall pay to Bank a late
fee equal to five percent (5%) of the required amount. Such late charge shall be
in addition to interest.
Maximum Rate
- ------------
At no time shall Borrower be obligated or required to pay interest under this
Note at a rate which exceeds the maximum rate permitted by applicable law or
regulation. If by the terms of this Note Borrower is at any time required or
obligated to pay interest at a rate in excess of such maximum rate, the rate of
interest under this Note shall be deemed to be immediately reduced to such
maximum rate and each payment of interest that exceeds such maximum rate shall
be deemed a voluntary prepayment of principal.
Prepayment
- ----------
This Note is freely prepayable in whole, or in part in aggregate multiples of
$25,000 (or, if less, the entire unpaid principal balance), at any time without
payment of any prepayment charge, but with accrued interest on amounts prepaid.
If, at any time, the aggregate principal amount of all advances outstanding
under this Note shall exceed $1,500,000, the Borrower shall, if required by the
Bank, immediately prepay so much of the outstanding principal balance, together
with accrued interest on the portion of the advance prepaid, as shall be
necessary in order that the unpaid principal balance, after giving effect to
such prepayments, shall not be in excess of $1,500,000. Any prepayment will, at
the option of the Bank, be applied first to the payment of all costs and
expenses incurred by the Bank and arising out of the Agreement, this Note or any
document or agreement executed in connection with this Note and which has not
been paid or reimbursed to the Bank, then to accrued interest to the date of the
prepayment and the remainder to the outstanding principal.
Holidays
- --------
If this Note or any payment hereunder becomes due on a Saturday, Sunday or other
holiday on which the Bank is authorized to close, the due date of this Note or
payment shall be extended to
-2-
<PAGE>
the next succeeding business day, but any interest or fees shall be calculated
based upon the actual time of payment.
Purpose
- -------
Borrower represents that the proceeds of this Note will be used solely for the
purposes set forth in the Credit Agreement between Borrower and Bank bearing
even date herewith (the "Credit Agreement").
Financial Statements
- --------------------
Borrower shall furnish Bank with all financial statements and other information
required to be furnished by Borrower pursuant to the terms of the Credit
Agreement.
Events of Default
- -----------------
At Bank's option, this Note shall become immediately due and payable in full,
without further presentment, protest, notice, or demand, upon the happening of
any of the following events ("Events of Default"): (i) failure by Borrower to
make any payment (including without limitation any payment of interest) when
due; (ii) failure by Borrower or any guarantor of this Note to comply with any
other term of this Note or any other agreement with or obligation to Bank; (iii)
any information furnished by Borrower or any guarantor of this Note to Bank
having been false or misleading in any material respect as of the date
furnished; (iv) dissolution, cessation of business, transfer of a material part
of assets, death, or legal incapacity of Borrower or any guarantor of this Note;
(v) institution of bankruptcy proceedings or other proceedings of any kind for
the relief or collection of debts by or against Borrower or any guarantor of
this Note (including without limitation assignments for the benefit of
creditors, appointment of trustees, receivers, or custodians for a material part
of Borrower's or any guarantor's assets, levies upon or attachment of assets,
filing of judgments not fully insured, bonded or removed within thirty days or
filing of tax liens); (vi) default by Borrower or any guarantor of this Note
with respect to any obligation of any type (whether direct or indirect or
absolute or contingent) now or hereafter owed by any of them to the Bank, (vii)
default by Borrower or any guarantor of this Note with respect to any material
obligation to or contract with any other person or entity, (viii) condemnation,
seizure, or appropriation of a material part of Borrower's or any guarantor of
this Note's assets by a court or governmental authority, (ix) filing of
litigation or proceedings before any court or governmental entity against
Borrower or any guarantor of this Note, not fully covered by insurance and which
if adversely determined would have a material adverse effect on the financial
condition or normal manner of doing business of Borrower or guarantor; or (x)
Bank shall, for reasonable cause, consider the prospect of timely repayment to
be impaired.
Security
- --------
Bank shall have a security interest in and right of setoff with respect to all
deposits or other sums credited by or due from Bank to Borrower and a security
interest in all securities or other property of Borrower in Bank's possession
for safekeeping or otherwise. Bank's security interest shall
-3-
<PAGE>
secure payment of this Note and the payment and performance of all other
obligations of Borrower to Bank, whether direct or indirect, absolute or
contingent, due or to become due, now existing or hereafter arising. In the
event of any demand or Event of Default under this Note, regardless of the
adequacy of collateral, without any demand or notice, except as required by
applicable law, Bank may apply or setoff such deposits or other sums (including
without limitation amounts held in joint accounts and trust or agency accounts)
and may sell or dispose of any or all of such securities or other property and
may exercise any and all rights it may have under the New York Uniform
Commercial Code, as in effect from time to time. The rights of Bank under this
Note are in addition to, and not exclusive of, any other rights it may have with
respect to such deposits, sums, securities, or other property under other
agreements or applicable principles of law. The Bank shall have no duty to take
steps to preserve rights against prior parties as to such securities or other
property. The Bank shall also have security interest in the Collateral as
defined in the Security Agreement dated the date of this Note executed and
delivered by Borrower to the Bank.
Modification of Terms
- ---------------------
The terms of this Note cannot be changed, nor may this Note be discharged in
whole or in part, except by a writing executed by Bank. In the event that Bank
demands or accepts partial payments of this Note, such demand or acceptance
shall not be deemed to constitute a waiver of the right to demand the entire
unpaid balance of this Note at any time in accordance with the terms hereof. Any
delay or omission by Bank in exercising any rights hereunder shall not operate
as a waiver of such rights.
Collection Costs
- ----------------
Borrower on demand shall pay all expenses of Bank, including without limitation
reasonable attorneys' fees, in connection with enforcement and collection of
this Note.
Miscellaneous
- -------------
To the fullest extent permissible by law, Borrower waives presentment, demand
for payment, protest, notice of nonpayment, and all other demands or notices
otherwise required by law in connection with the delivery, acceptance,
performance, default, or enforcement of this Note. Borrower consents to
extensions, postponements, indulgences, amendments to notes and agreements,
substitutions or releases of collateral, and substitutions or releases of other
parties primarily or secondarily liable herefor, and agrees that none of the
same shall affect Borrower's obligations under this Note which shall be
unconditional.
Laws
- ----
Borrower agrees that this Note shall be governed by the laws of the State of New
York. Borrower consents to jurisdiction and service of process, which may be
effected by certified mail, in the courts of the State of New York and in the
courts of the United States having jurisdiction thereof.
-4-
<PAGE>
TRIAL BY JURY
Borrower waives trial by jury of any claims or proceedings with respect to this
Note, or the obligations related hereto, to the fullest extent allowed by law.
TRANSITION ANALYSIS COMPONENT
TECHNOLOGY, INC.
By: /s/ Martin S. Fawer
--------------------------------------
Name: Martin S. Fawer
Title: Chief Financial Officer
Address: 22700 Savi Ranch Parkway
Yorba Linda, CA 92657
-5-
<PAGE>
STATE OF NEW YORK )
)ss.:
COUNTY OF WESTCHESTER )
On the 28th day of August, 1997, before me personally came Martin S.
Fawer, to me known, who, being by me duly sworn, did depose and say that he has
an address at 115 Stevens Avenue, Valhalla, NY; that he is the Chief Financial
Officer of TRANSITION ANALYSIS COMPONENT TECHNOLOGY, INC. the corporation
described in and which executed the foregoing instrument; and that he signed his
name thereto by order of the board of directors of said corporation.
/s/ Mary Langan-Krajca
-------------------------------
Notary Public
-6-
<PAGE>
<TABLE>
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<CAPTION>
INTERNAL USE ONLY SECTION (This section of the Note is for Bank internal use only. The contents of this section are not deemed to be
part of, or amendments/modifications to, the above Note.)
<S> <C> <C> <C> <C>
N $:_____________ PRO:__________
Closed By:_________________________________ __________ ________________ R $:______________ Prepay Fee: None ___ YES___
(Print First Initial, Last Name) (Initials) Pri. Coll. Code
Auto Debit: ________________________________ ______________ _____________ __________________________________
(Account #) (Setup-By) (Date) Verified By (Date)
Setup By: _________________________________ __________ ________________ ________________ ______________________
(Print First Initial, Last Name) (Initials) (Date) Obligation # Future # Verified By/Date
Comments: ________________________________________________________________________________________________
________________________________________________________________________________________________
====================================================================================================================================
====================================================================================================================================
| | | | Initials of Person
Date | Advance Borrowed | Principal Repaid | Outstanding Balance | Making Notation
| | | |
- ------------------------------------------------------------------------------------------------------------------------------------
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</TABLE>
-7-
SECURITY AGREEMENT
THIS AGREEMENT, dated August 28, 1997 is made between FLEET BANK
("Bank") and TRANSITION ANALYSIS COMPONENT TECHNOLOGY, INC. a Delaware
corporation ("Grantor") with its chief executve office at 22700 Ravi Ranch
Parkway, Yorba Linda, California.
1. DEFINITIONS
Unless otherwise indicated in this Agreement, all terms shall have the
same meanings as given to them in the Uniform Commercial Code of the State of
New York as amended from time to time.
(a) "Debtor" means Grantor.
(b) "Collateral" means all assets and property, including without limitation
all goods, tangible property, machinery, equipment, furniture, fixtures,
vehicles, parts, leasehold improvements, accounts, inventory, chattel paper,
documents, chose in action, general intangibles, deposits and deposit accounts,
good will, and intellectual property (including amount others operating systems,
patents, copyrights, trademarks, tradenames, licenses, trade secrets, know-how,
franchises, and proprietary and other rights in data, engineering, technical
plans, drawings, information, methods, systems, processes, inventions, formulas,
applications, software, programs, manuals, and technology, and all other
technology and proprietary rights of Grantor and all applications to acquire
such rights, and in all rights and interests in any of them), of any kind or
nature in which the Grantor has an interest now or in the future, and which are
now existing or hereafter created or acquired, together with all additions,
replacements, accessions, products, and proceeds in any form thereof, including
without limitation any items described in the Schedule attached to this Security
Agreement.
(c) "Liabilities" mean all indebtedness, liabilities, and obligations of every
kind or nature, whether absolute or contingent (including liability pursuant to
any guarantee or endorsement), primary or secondary, direct or indirect, joint
or several, and whether heretofore or hereafter created, arising, or existing or
at any time due and owing from Grantor or Debtor to Bank including without
limitation the payment of all bills, notes, checks, drafts, trade acceptances,
and other evidences of debt upon or by reason of which Grantor or Debtor may or
shall be obligated to Bank as maker, drawer, endorser, acceptor, or otherwise in
any manner whatsoever. Among others, the Liabilities include all sums expended
by the Bank for protection of its interests such as payments made for taxes and
insurance and expenses of collection.
2. SECURITY INTEREST. The Grantor hereby grants to the Bank a security interest
in the Collateral to secure the payment and performance of the Liabilities. This
security interest is specifically intended to be a continuing interest and shall
cover Collateral in which the Grantor acquires an interest after the date of
this Agreement as well as Collateral in which the Grantor now has an interest.
This security interest shall continue until terminated as described in this
Agreement even if all Liabilities are paid in full from time to time. The Bank
shall have the right to apply the Collateral and any proceeds therefrom to all
or any part of the Liabilities as and in the order the Bank may elect, whether
such Liabilities are otherwise secured and whether due or not.
3. LOCATIONS OF GRANTOR AND COLLATERAL. The principal office of the Grantor is
at the address shown in the preamble to this Agreement. All locations at which
the Collateral will be kept or at which the Grantor does business are indicated
on the Schedule attached to and made a part of this Agreement. Grantor will not
change the locations at which any of the Collateral is kept and will notify the
Bank immediately of any new or changed locations at which any of the Collateral
is kept or the Grantor does business, and of any change in the name of the
Grantor. The Collateral will remain personalty and will not be affixed to real
estate without the prior consent of the Bank. If any of the Collateral is or
will be a fixture, Grantor will provide legal descriptions and the names of
record owners of the premises to which the Collateral will be affixed sufficient
for perfection of the security interests of the Bank. The Grantor will provide
disclaimers of interest and removal agreements, in form satisfactory to the
Bank, signed by all parties other than Grantor having interest in premises at
which any Collateral is located.
4. FIRST LIEN. Except for the security interest granted hereby and any other
interests to which Bank has consented in writing, Grantor is the owner of the
Collateral free from all liens, encumbrances, and security interests. Grantor
will not sell or transfer
<PAGE>
the Collateral or any interest therein (including, without limitation, a
security interest) without the prior written consent of the Bank except for
sales of inventory and collection of accounts in the ordinary course of business
and prior to an Event of Default. Grantor will defend the Collateral against the
claims and demands of all persons, and will cause the immediate removal and
termination of any levy, execution, judgment or other lien, or similar claim of
third persons to the Collateral.
5. PERFECTION OF SECURITY INTEREST. Grantor will executed and deliver to Bank
such financing statements, security agreements, assignments (including without
limitation assignments of specific accounts and chattel paper), and other
papers, as Bank may at any time or from time to time reasonably request. Grantor
hereby authorizes Bank to execute and file financing statements with or without
the signature of the Grantor from time to time as Bank may deem necessary or
desirable. If the Collateral is a motor vehicle required to be titled under
applicable law, Grantor warrants that Bank's security interest will be recorded
on the title certificates covering the Collateral and will deliver such
certificates or other evidence of ownership to Bank as the Bank requests.
Grantor hereby appoints Bank as its attorney in fact to execute and deliver
notices of lien, financing statements, assignments, and any other documents,
notices, and agreements necessary for the perfection of Bank's security
interests in the Collateral. Grantor agrees to pay the costs of filing or
perfection of the Bank's security interests, searches of the public records, and
releases or assignments of the Bank's interests.
The Grantor will provide disclaimers of interest and removal agreements,
in form satisfactory to the Bank, signed by all parties other than Grantor
having an interest in premises at which any Collateral is located.
6. USE AND MAINTENANCE OF COLLATERAL. Grantor will not use the Collateral in
violation of law or any policy of insurance thereon. Grantor may sell its
inventory, use and consume raw materials and supplies, and collect its accounts,
but only in the ordinary course of its business and prior to an Event of
Default. Bank or its nominee may inspect the Collateral and Grantor's records
regarding the same at any reasonable time, wherever located, and amy make
extracts therefrom and copies thereof. Grantor will keep the Collateral in good
order and repair except for normal wear and tear in the ordinary course of
business.
7. TAXES. Grantor will pay promptly, when due, all taxes and assessments upon
the Collateral or its use or operation, or upon this Agreement.
8. INSURANCE. Grantor at all times will keep the Collateral insured in such
amounts, with such insurance companies chosen by Grantor, and against such
risks, all as are satisfactory to the Bank. In any event and without specific
request by Bank, Grantor will insure the Collateral against fire, including
so-called extended coverage, and theft. All insurance policies shall name Bank
as an additional insured and shall provide for losses covered thereby to be
payable to Bank and Grantor as their respective interests may appear. The
endorsements on any insurance policy shall be in a form satisfactory to Bank and
all policies of insurance shall provide for not less than thirty (30) days'
prior notice of cancellation to the Bank. Grantor will deliver certificates and
policies evidencing required insurance to the Bank upon its request and in any
event at least annually.
After any Event of Default hereunder, the Bank may, but need not, (i) cancel, in
accordance with applicable law, any insurance contract covering the Collateral
or its ownership, (ii) demand and receive any return premiums, unearned premium
refunds and dividends payable in respect thereof (the Grantor hereby irrevocably
designating, constituting and appointing Bank as its true and lawful agent so to
do) and (iii) apply any and all sums received by the Bank as a result of such
cancellation, after deducting therefrom any and all expenses incident thereto,
toward payment of the Liabilities. Grantor will notify insurer and Bank in the
event of any loss, damage, or other casualty affecting the Collateral. Grantor
hereby assigns to Bank any and all monies which may become due and payable under
any policy insuring the Collateral, directs any such insurance company to make
payments directly to Bank, and authorizes Bank to apply such monies in payment
on account of the Liabilities, whether or not due, and to remit any surplus to
Grantor. Grantor hereby irrevocably appoints Bank as its attorney in fact, with
full power of substitution, to (i) make and adjust claims, (ii) receive all
proceeds and payments including the return of unearned premiums, (iii) execute
proofs of claim, (iv) endorse drafts and other instruments for the payment of
money, (v) execute releases, (vi) negotiate settlements, (vii) cancel any
insurance referred to in this contract, and (viii) do all other things necessary
and required to effect a settlement under or to realize the benefits of any
insurance policy.
-2-
<PAGE>
9. PROTECTION OF BANK'S INTEREST. Seven or more days after the day the Bank
mails the Grantor notice, upon failure of the Grantor to (i) remove liens or
interests prohibited by Section 4 of this Agreement, (ii) pay taxes or
assessments as required by Section 7 of this Agreement, or (iii) provide
evidence satisfactory to the Bank of insurance as required by Section 8 of this
Agreement, the Bank in its discretion may discharge any such liens or interest,
pay taxes or assessments, and obtain insurance coverage on the Collateral. Bank
also may pay any costs of perfection, searches, releases, or assignments
pursuant to Section 5 of this Agreement. Grantor agrees to reimburse Bank on
demand for any and all expenditures so made, and until paid the amount thereof
also, shall be part of the Liabilities secured by the Collateral. Bank shall
have no obligation to Grantor or Debtor to make any such expenditures nor shall
be making thereof relieve any default hereunder.
10. REPRESENTATIONS REGARDING COLLATERAL. Grantor represents and warrants to
Bank, and so long as this Agreement remains in effect shall be deemed to
continue to represent and warrant that: (i) the collateral is genuine and what
it purports to be; (ii) each account and chattel paper represents a bona fide
transaction and is enforceable according to the contract underlying the account
or the writings constituting the chattel paper; (iii) amount shown on Grantor's
books and on any invoice or statement delivered to the Bank with respect to
accounts, chattel paper, and appropriate general intangibles is correct and duly
owing to Grantor; (iv) no set-off or counterclaim to any account or chattel
paper exists, and other discounts or deductions given in the ordinary course of
business and fully disclosed on the books and records of the Grantor and on
financial statements given to the Bank; and (v) no agreement has been made with
any person under which any deduction or discount may be claimed, except regular
discounts allowed by Grantor for prompt payments of accounts.
11. GRANTOR'S COVENANTS. So long as this Agreement remains in effect Grantor
will; (i) furnish Bank at such intervals as Bank may prescribe with a
certificate (in such form as Bank may from time to time specify) containing such
information with respect to the Collateral as Bank may require including without
limitation inventory listings and accounts agings; (ii) keep accurate and
complete records of the Collateral in accordance with generally accepted
accounting principles consistently applied.
Grantor also will, if requested by the Bank: (a) give Bank assignments, in form
acceptable to Bank, of specific accounts, chattel paper or general intangibles;
(b) mark its records evidencing the Collateral in a manner satisfactory to the
Bank so as to indicate the security interest of the Bank hereunder; (c) furnish
to the Bank any chattel paper, invoices, documents, schedules, purchase orders,
delivery receipts, contracts or other documents representing or relating to any
of the collateral; (d) promptly reflect in its books, records, and reports to
the Bank the rejection of goods, delay in delivery or performance, or claims
made, in regard to any Collateral and after an Event of Default inform the Bank
immediately of any of the same; (e) furnish to the Bank all information received
by Grantor affecting the financial standing of any account debtor, debtor under
any general intangible, or obligor under any chattel paper; (f) immediately
notify the Bank if any of the Collateral arises out of contracts for the
improvement of real property, deals with a public improvement or is with the
United States, any state, or any department, agency or instrumentality thereof,
and execute any instruments and take any steps required by the Bank in order
that all moneys due or to become due under any such contract shall be assigned
to the Bank and notice thereof be given as required by law; (g) furnish to the
Bank such financial statements, reports, certificates, lists of account debtors
(showing names, addresses and amounts owing) and other data concerning the
Collateral and other matters as Bank may, from time to time, specify; and (h)
fully cooperate with the Bank in its rights and methods for verification of the
Collateral.
12. DEFAULT. The following events or conditions shall be an "Event of Default"
under this Agreement: (a) the occurrence and continuation beyond applicable
notice and/or grace periods, of any Event of Default under the Credit Agreement
made between Grantor and Bank bearing even date herewith, (b) any failure, to
comply with any term of this Agreement for ten days after notice or such
additional period of time, not to exceed 90 days, as is required, with the
exercise of due diligence, to cure such default, (c) any representation or
warranty made to Bank by Grantor in this Agreement proving false or misleading
in any material respect as of the date made, (d) loss, theft, material damage or
destruction of the Collateral, or (e) material or reasonably projected material
decline in the value of the Collateral. These Events of Default are not intended
to affect in any way any Liability payable on demand and shall not prejudice the
Bank's rights to demand payment of any such Liabilities at any time.
13. REMEDIES. Upon the occurrence of an Event of Default, the Bank may declare
all of the Liabilities to be immediately due and payable and Bank shall have the
rights and remedies of a secured party under the Uniform Commercial Code of the
State
-3-
<PAGE>
of New York as amended from time to time in any jurisdiction where enforcement
of this Agreement is sought in addition to all other rights and remedies at law
or in equity. Among other remedies, the Bank may take immediate possession of
the Collateral and for that purpose Bank may, so far as Grantor can give
authority therefor, enter upon any premises on which the Collateral or any part
thereof may be situated and secure or remove the same therefrom. Upon request of
the Bank, Grantor will assemble and make the Collateral available to the Bank,
at a reasonable place and time designated by the Bank. Grantor's failure to take
possession of any Collateral at any time and place reasonably specified by the
Bank in writing to the Grantor shall constitute an abandonment of such property.
Grantor and Debtor agree that notice of the time and place of public sale of any
of the Collateral or of the time after which any private sale thereof is to be
made or of other disposition of the Collateral shall be deemed reasonable notice
seven days after such notice is deposited in the mail or otherwise delivered to
Grantor and Debtor at the addresses shown in the preamble and Section 1 of this
Agreement respectively.
In addition to its other rights, the Bank may but shall not be obligated
to notify any parties which are obligated to pay Grantor any Collateral or
proceeds thereof, to make all payments directly to Bank. Grantor authorizes such
parties to make such payments directly to Bank and to rely on notice from the
Bank without further inquiry. Bank may demand and take all necessary or
desirable steps to collect such Collateral in either Bank's or Grantor's name,
with the right to enforce, compromise, settle, or discharge any of the
foregoing. Bank may endorse Grantor's name on any checks, commercial paper,
instruments, and the like pertaining to the foregoing.
The Bank shall not be responsible to Grantor for loss or damage resulting
from the Bank's failure to enforce or collect any Collateral or any monies due
or to become due under any Liability of Debtor or Grantor to Bank. Bank shall
have no obligation to take, and Grantor shall have the sole responsibility for
taking, any and all steps to preserve rights against any and all prior parties
to any Collateral, whether or not in Bank's possession.
After an Event of Default, the Grantor (i) will make no change in any
account (or the contract underlying such account), chattel paper, or general
intangible, and (ii) shall receive as the sole property of the Bank and hold in
trust for the Bank all monies, checks, notes, drafts, and other property
(collectively called "items of payment") representing the proceeds of any
Collateral. After an Event of Default, the Bank may but shall be under no
obligation to: (a) notify all appropriate parties that the Collateral, or any
part thereof, has been assigned to the Bank; (b) collect any or all accounts,
chattel paper or general intangibles in its or Debtor's name, apply any such
collections against such Liabilities as the Bank may select; (c) take control of
any cash or non-cash proceeds of any item of the Collateral; (d) compromise,
extend or renew any account, chattel paper, general intangible document, or deal
with the same as it may deem advisable; and (e) make exchanges, substitutions or
surrenders of items compromising the Collateral.
The rights of the Bank are cumulative, and the Bank may enforce its rights
under this Agreement irrespective of any other collateral, guaranty, right, or
remedy it may have. The exercise of all or a part of its rights or remedies
hereunder shall not prevent the Bank from exercising at the same or any other
time any other right or remedy with respect to the Liabilities. The Grantor
authorizes the Bank in its sole discretion to direct the order or manner of the
disposition of the Collateral.
From the proceeds realized from the Collateral the Bank shall be entitled
to retain all sums secured hereby as well as its reasonable expense of
collection including without limitation those of retaking, holding,
safeguarding, accounting for, preparing for sale, selling, and reasonable
attorneys' fees and legal expenses. If the proceeds realized from the Collateral
are not sufficient to defray said expenses and to satisfy the balance due on the
Liabilities, the Grantor shall remain liable for such expenses and Debtor shall
remain liable for such expenses and any deficiency with respect to the
Liabilities. Any payments or proceeds from realization on the Collateral may be
applied to the Liabilities in whatever order or manner the Bank elects.
14. ADDITIONAL SECURITY/SETOFF. The Bank shall have a security interest in and
right of setoff with respect to all deposits or other sums credited by or due
from Bank to Grantor and a security interest in all securities or other property
of Grantor in Bank's possession for safekeeping or otherwise. Bank's Security
interest shall secure payment of the Liabilities. In the event of any Event of
Default under this Agreement, regardless of the adequacy of collateral, without
any demand or
<PAGE>
notice, except as required by applicable law, Bank may apply or setoff such
deposits or other sums and may sell or dispose of any or all of such securities
or other property and may exercise any and all rights it may have under the New
York Uniform Commercial Code, as in effect from time to time. The rights of Bank
under this Agreement are in addition to, and not exclusive
-4-
<PAGE>
of, any other rights it may have with respect to such deposits, sums,
securities, or other property under other agreements or applicable principles of
law. Bank shall have not duty to take steps to preserve rights against prior
parties as to such securities or other property.
15. CONTINUING AGREEMENT/TERMINATION. This is a continuing Agreement, and no
notice of the creation or existence of the Liabilities, renewal, extension or
modification thereof need be given to Grantor. This security interest shall
continue in effect notwithstanding that from time to time no Liabilities may
exist. This Agreement may be terminated only (i) by a written agreement of the
Bank, or (ii) upon written request of Grantor at such time as the Liabilities
have been satisfied in full and the Bank has no remaining commitments to Debtor
of any kind.
16. NO WAIVER. Grantor agrees that no representation, promise, or agreement made
by the Bank or by any officer or employee of Bank, at prior, or subsequent to
the execution and delivery of this Agreement shall modify, alter, limit, or
otherwise abridge the rights and remedies of Bank hereunder unless agreed by
Bank in writing. None of the rights and remedies of Bank hereunder shall be
modified, altered, limited, or otherwise abridged or waived by any
representation, promise, or agreement hereafter made or by any course of conduct
hereafter pursued by the Bank. No delay or omission on the part of the Bank in
exercising any right hereunder shall operate as a waiver of such right or of any
other right under this Agreement, and waiver of any right shall not be deemed
waiver of any other right unless expressly agreed by the Bank in writing.
17. JOINT AND SEVERAL LIABILITY. if there are more than one Grantor hereunder,
their representations, warranties, liabilities, and obligations hereunder shall
be joint and several.
18. LAWS/WAIVER OF JURY TRIAL. The validity, construction, and performance of
this Agreement shall be governed by the laws of the State of New York. Grantor
consents to jurisdiction and service of process, which may be effected by
certified mail, in the courts of the State of New York and in the courts of the
United States having jurisdiction hereof. THE GRANTOR WAIVES TRIAL BY JURY OF
ANY CLAIMS OR PROCEEDINGS WITH RESPECT TO THIS AGREEMENT, OR THE LIABILITIES, TO
THE FULLEST EXTENT ALLOWED BY LAW.
19. PARTIES IN INTEREST. All of the terms and provisions of this Agreement shall
inure to the benefit of, be binding upon and be enforceable by the respective
heirs, executors, legal representatives, successors, and assigns of the parties
hereto.
20. SEVERABILITY. Any partial invalidity of the provisions of this Agreement
shall not invalidate the remaining portions hereof or thereof.
21. MISCELLANEOUS. Grantor hereby expressly waives demand, presentment, protest,
or notice of dishonor on any and all of the Liabilities and with respect to the
Collateral.
Grantor: TRANSITION ANALYSIS COMPONENT
TECHNOLOGY, INC.
By: /s/ Martin S. Fawer
--------------------------
Name: Martin S. Fawer
Title: Chief Financial Officer
WARNING: IT IS A CRIMINAL OFFENSE IN NEW
YORK STATE FOR A DEBTOR TO KNOWINGLY SELL OR
OTHERWISE DISPOSE OF COLLATERAL IN
CONTRAVENTION OF THE TERMS OF A SECURITY AGREEMENT.
-5-
<PAGE>
STATE OF NEW YORK )
)ss.:
COUNTY OF WESTCHESTER )
On the 28th day of August, 1997, before me personally came MARTIN S.
FAWER to me known, who, being by me duly sworn, did depose and say that he has
an address at 115 Stevens Avenue, Valhalla, NY; that he is the Chief Financial
Officer of TRANSITION ANALYSIS COMPONENT TECHNOLOGY, INC., the corporation
described in and which executed the foregoing instrument; and that he signed his
name thereto by order of the board of directors of said corporation.
/s/ Mary Langan-Krajca
--------------------------------
Notary Public
-6-
<PAGE>
SCHEDULE A TO ACCOUNTS SECURITY AGREEMENT
I. This Security Agreement applies to the following specific Collateral:
All Collateral as defined in Section 1
II. All of the locations at which the Collateral is located or at which the
Grantor maintains a place of business are listed below. If any of the Collateral
is a fixture, the record owner of the location at which the Collateral is kept
is indicated.
Address County
115 Stevens Avenue Westchester
Valhalla, New York
5850 T.G. Blvd.
Orlando, Florida
122 Ayshire Ct. St. Tammany (Parish)
Slidell, Lousianna
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> Jun-30-1997
<CASH> 132,807
<SECURITIES> 0
<RECEIVABLES> 424,331
<ALLOWANCES> (5,000)
<INVENTORY> 0
<CURRENT-ASSETS> 562,939
<PP&E> 500,086
<DEPRECIATION> (309,937)
<TOTAL-ASSETS> 753,088
<CURRENT-LIABILITIES> 400,967
<BONDS> 0
5,538
0
<COMMON> 0
<OTHER-SE> 346,583
<TOTAL-LIABILITY-AND-EQUITY> 753,088
<SALES> 2,205,679
<TOTAL-REVENUES> 2,205,679
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 302,870
<INCOME-TAX> (103,400)
<INCOME-CONTINUING> 199,470
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 199,470
<EPS-PRIMARY> .36
<EPS-DILUTED> 0
</TABLE>
