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SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
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FORM 8-K
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
December 17, 1999
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(Date of Report - date of earliest event reported)
Virtual Technology Corporation
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(Exact name of registrant as specified in charter)
Minnesota 000-25397 41-1639011
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(State or other jurisdiction of (Commission File No.) (IRS Employer
incorporation or organization) Identification No.)
3100 West Lake Street, Suite 400, Minneapolis, MN 55416
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(Address of principal executive offices)
(612) 915-1122
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(Registrant's telephone number, including area code)
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(Former Name and Address)
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Item 1 and Items 3, 4, 6 and 8 are not applicable and are therefore omitted.
Statements in this Form 8-K that are not purely historical are "forward
looking statements" within the meaning of Section 27A of the Securities Act of
1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as
amended, including statements regarding the Registrant's expectations, hopes,
beliefs, intentions or strategies regarding the future generally, its growth and
acquisition strategies, future sales and anticipated trends in the Companies'
businesses. All forward looking statements included in this Form 8-K are based
on information known to the Registrant on the date hereof, and the Registrant
assumes no obligation to update any such forward looking statements. It is
important to note that actual results could differ materially from those in such
forward looking statements as a result of a number of factors, most of which are
out of the control of the Registrant, including, but not limited to, the
Registrant's early stage of development, its lack of profitability and cash
flows and competition for the sale of hardware and software products both on and
off the Internet. Further, there is no assurance that the Registrant will
successfully or profitably integrate the former Tech Squared Inc. operations
into the Registrant's business or consummate the Compositech Ltd. merger
transaction referred to in this Form 8-K.
Item 2. Acquisition or Disposition of Assets.
On December 17, 1999, the Registrant (through its wholly-owned
subsidiary, T2 Acquisition Corporation) completed its acquisition of
substantially all of the operating assets of Tech Squared Inc. for $1.4 million
in cash and the issuance of a $2.1 million promissory note. The promissory note
was paid in full on December 20, 1999. This transaction summary is qualified in
its entirety by reference to the Asset Purchase Agreement filed as an exhibit
hereto and incorporated herein by reference.
Item 5. Other Events.
On December 13, 1999, the Registrant's Board of Directors appointed
James D. Ross as a member of the Registrant's Board of Directors. Since 1998,
Mr. Ross has been Managing Director of FIMG Capital Management, a private
corporate advisory organization. Between 1995 and 1998, Mr. Ross was Executive
Vice President of Aegon, USA, an insurance company. Mr. Ross was Vice President
and Chief Investment Officer of Shenandoah Life Insurance Company between 1991
and 1995. From 1975 to 1985, Mr. Ross served in various management capacities
with Maccabees Mutual Life Insurance Company, most recently as Vice President
and Treasurer.
On December 24, 1999, the Registrant signed a non-binding letter of
intent to be acquired by Compositech Ltd. in a merger transaction whereby each
share (and each outstanding option, warrant or other right to acquire shares) of
the Registrant's Common Stock would be exchanged for three shares (or three
options, warrants or other rights to acquire shares) of the Common Stock of
Compositech Ltd. The proposed merger is subject to completion of due diligence
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reviews by each company, negotiation and execution of a definitive merger
agreement, SEC review of the companies' joint merger/proxy statements, approval
of the surviving company's continued Nasdaq listing, FTC antitrust review and
approvals of the respective boards of directors and the shareholders of each
company.
On December 29, 1999, CNET, Inc. served the Registrant with a lawsuit
in U.S. District Court for the District of Minnesota seeking to collect $1.6
million of fees (plus interest, attorneys' fees and expenses) that CNET claims
are owed by the Registrant for advertising services previously rendered. The
Registrant intends to vigorously defend against the claim.
Item 7. Exhibits and Financial Statements.
(a) Financial Statements of Businesses Acquired:
(4) The required financial statements and pro forma financial
information relating to the acquisition of substantiallly all of the operating
assets of Tech Squared Inc. will be filed not later than March 3, 2000, being 60
days after the date that this report on Form 8-K is required to be filed with
respect to the transaction.
(c) Exhibits:
10.1. Asset Purchase Agreement dated November 8, 1999 among Tech
Squared Inc., T2 Acquisition Corporation, Charles E. Reese Jr.
and Joel A. Ronning.
99.1. Press Release dated December 27, 1999 relating to proposed
merger with Compositech Ltd.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Dated: December 29, 1999
VIRTUAL TECHNOLOGIES CORPORATION
By: /s/ John L. Harvatine
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John L. Harvatine, Chief Financial Officer
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EXHIBIT 10.1
EXHIBIT 10.1. Asset Purchase Agreement dated November 8, 1999 among Tech Squared
Inc., T2 Acquisition Corporation, Charles E. Reese Jr. and Joel A. Ronning
ASSET PURCHASE AGREEMENT
Dated: November 8, 1999
Parties: Tech Squared Inc. ("Seller")
6690 Shady Oak Road
Eden Prairie, Minnesota 55344
T2 Acquisition Corporation, ("Buyer")
a subsidiary of Virtual Technology Corporation
3100 West Lake Street, Suite 400
Minneapolis, Minnesota 55416
Charles E. Reese Jr. and Joel A. Ronning ("Shareholders")
c/o Tech Squared Inc.
6690 Shady Oak Road
Eden Prairie, Minnesota 55344
RECITALS:
A. Seller is engaged in the business of developing, manufacturing,
distributing and selling various computer related products and services through
its NetDirect distribution sales business and its DTP Direct catalog and
distribution sales business (together, the "Business").
B. The parties mutually desire that Seller shall sell to Buyer all of the
operating assets which Seller uses in the Business upon the terms and subject to
the conditions set forth in this Agreement.
AGREEMENTS:
In consideration of the mutual provisions, representations, warranties,
covenants and agreements contained herein, the parties hereto agree as follows:
ARTICLE 1.
PURCHASE OF ASSETS; ASSUMPTION OF LIABILITIES
1.1. Purchase of Assets from Seller. Subject to the terms and
conditions hereof, Seller agrees on the Closing Date (as hereinafter defined) to
assign, sell, transfer, convey, and deliver to Buyer, and Buyer agrees on the
Closing Date to purchase from Seller, all of the assets and personal property of
Seller (excepting only the assets specifically identified as "Excluded Assets"
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in Section 1.2 herein), wherever the same may be located (collectively referred
to as the "Purchased Assets"), including, without limitation, the following:
(a) All furniture, equipment, machinery, tooling, trade fixtures and
leasehold improvements reflected on Seller's books and records for the
business, including those items identified on Exhibit 1.1(a) ("Equipment");
(b) All cash on deposit with credit card merchant processors to secure
each of Seller's credit card merchant processing accounts and all credit
card receivables for each such account (but excluding the daily
transactional cash deposited into each such account prior to Closing);
(c) All intangible personal property, business records, customer lists
and goodwill ("Intangible Property"), including the following:
(i) All assumed names under which Seller conducts the Business,
including those identified on Exhibit 1.1(c)(i) hereto;
(ii) All tradenames, trademarks or service mark registrations and
applications, common law trademarks, including those identified on
Exhibit 1.1(c)(ii) hereto, and all goodwill associated therewith
("Trademarks");
(iii) Reserved;
(iv) All technology, know-how, trade secrets, manufacturing
processes, formulae, drawings, designs, computer programs, copyrights
(including registrations and applications therefor identified on
Exhibit 1.1(c)(iv) hereto), related to the Business, and all
documentary evidence thereof ("Technology"); and
(v) The internet domain names for "netdirect.com,"
"dtpdirect.com" and "tech2.com;"
(d) All notes receivable, rights to payment and accounts receivable of
the Business as of the Closing Date including those identified on Exhibit
1.1(d) ("Accounts Receivable");
(e) All inventory, including raw materials, supplies, work in process
and finished inventory of the Business as of the Closing Date identified in
Exhibit 1.1(e) ("Inventory");
(f) All permits, licensing approvals and notifications, governmental
or otherwise, relating to the Business ("Licenses and Permits");
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(g) All of Seller's contract rights and benefits under its real estate
leases ("Real Estate Leases") used in the Business, including leases
identified in Exhibit 1.1(g) hereto, subject to the terms and conditions
thereof;
(h) All of Seller's contract rights and benefits under all of its
personal property leases for tangible personal property used in the
Business, including those leases identified in Exhibit 1.1(h) hereto,
subject to the terms and conditions thereof ("Personal Property Leases");
and
(i) All other contract rights related to the Business, subject to the
terms and conditions thereof ("Contracts").
1.2. Excluded Assets. Notwithstanding anything herein to the contrary,
Buyer does not purchase, and Seller does not sell, any of the following assets
("Excluded Assets"):
(a) Seller's corporate minute book and corporate records (provided
that Seller will provide copies thereof relating to the Business to Buyer
upon request by Buyer for reasonable business purposes).
(b) All cash and cash equivalents on hand or on deposit with any
financial institution related to the Business (other than certain cash on
deposit with credit card merchant processors as referred to in Section
1.1(b) above).
1.3. Liabilities and Obligations Assumed. Subject to the terms and
conditions hereof, upon the Closing Date, Seller hereby assigns, transfers, and
conveys to Buyer, and Buyer hereby assumes from Seller and agrees to pay
according to their terms, all of the liabilities and obligations of Seller
related to the Purchased Assets or the operation of the Business, as the same
shall exist on the Closing Date, including all liabilities accruing in the
ordinary course of business after the effective date of this Agreement
(excepting, without limitation, the liabilities specifically identified as
"Excluded Liabilities" in Section 1.4 herein) (collectively referred to herein
as the "Assumed Liabilities"), including only those identified in Exhibit 1.3
hereto.
1.4. Excluded Liabilities and Obligations. Notwithstanding anything herein
to the contrary, without limitation, Buyer does not assume and Seller does not
transfer or assign any of the following liabilities or obligations related to
the Business ("Excluded Liabilities"):
(a) Any fee, extraordinary or retention bonus or incentive payments
payable to key management personnel and other employees of Seller based
upon a successful completion of the transaction contemplated herein;
(b) Any federal, state or local taxes based upon or measured by income
or profits from operation of the Business through the Closing Date;
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(c) Any obligation for accounting, legal or other professional fees
that are related to the consummation of the transaction contemplated herein
or related to Seller's proposed transaction with Digital River, Inc., a
Delaware corporation ("DRI");
(d) Any liability associated with any of the Excluded Assets,
including any liability for funds borrowed from one entity for deposit with
another entity;
(e) Any contingent or other liabilities not otherwise identified in
Exhibit 1.3 hereto; and
(f) Any commission, finders' or broker fee payable to any party in
connection with the transactions contemplated by this Agreement.
1.5. Sales, Use and Deed Taxes. Seller shall be responsible for payment of
any sales, use or deed taxes assessable with respect to the transfer of the
Purchased Assets contemplated herein.
ARTICLE 2.
PURCHASE PRICE AND PAYMENT
2.1. Purchase Price. The purchase price for the Purchased Assets payable at
Closing (the "Purchase Price") shall be the sum of One Million and no/100
Dollars ($1,000,000) plus an amount equal to the net book value of the Purchased
Assets as of Closing as determined pursuant to generally accepted accounting
principles consistently applied (the "Net Book Value"). At July 31, 1999, the
parties agree that the Net Book Value of the Purchased Assets was $1,981,688.
The attached Exhibit 2.1, "Balance Sheet Analysis," sets forth the agreed upon
adjustments leading to the foregoing calculation. The parties agree to use this
method to compute the Net Book Value of the Purchased Assets as of Closing in
determining the Purchase Price.
2.2. Payment of Estimated Purchase Price at Closing. Buyer shall
deliver to Seller at the Closing One Million and no/100 Dollars ($1,000,000)
plus a cash amount equal to the estimated Net Book Value of the Purchased Assets
as described in Section 2.1 above (as computed by Buyer's independent
accountants as of September 30, 1999, but applying the adjustments as described
in Section 2.1 above) by wire transfer to a bank account designated by Seller.
2.3. Post-Closing Adjustment.
(a) The Purchase Price shall be adjusted dollar for dollar
following the Closing Date (the "Purchase Price Post-Closing
Adjustment") to the extent that the Actual Net Book Value (the "Actual
Net Book Value") of the Purchased Assets as determined by Buyer's
independent accountants as of the Closing does not equal the related
payment made by Buyer at the Closing Date. Seller's "Actual Net Book
Value" is the Net Book Value of the Purchased Assets as of the Closing
Date, to be computed as
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described below after the Closing Date at Buyer's expense by Buyer's
independent accountants in accordance with generally accepted
accounting principles consistently applied, but applying the
adjustments as described in Section 2.1 above.
(b) Within seventy five (75) days after the Closing Date,
Buyer shall cause its independent accountants to prepare and deliver to
Seller a determination (the "Determination") of the actual amount of
the Purchase Price Post-Closing Adjustment as of the Closing Date,
including the basis for such Determination. If, within thirty (30) days
after the date on which a Determination is delivered to Seller, Seller
shall not have given written notice to the Buyer setting forth in
detail any objection of Seller to such Determination, then such
Determination shall be final and binding on the parties hereto. In the
event Seller gives written notice of any objection to such
Determination within such 30-day period, Buyer and Seller shall use all
reasonable efforts to resolve the dispute within thirty (30) days
following the receipt by Buyer of the written notice from Seller. If
the parties are unable to reach an agreement within such 30-day period,
the matter shall be submitted to a mutually agreed upon certified
public accounting firm for determination of the Purchase Price
Post-Closing Adjustment, which shall be final and binding upon Buyer
and Seller. If the parties cannot mutually agree on a firm to make such
determination, each shall select a firm and these two firms shall
select together an independent firm of certified public accountants for
the determination of the Purchase Price Post-Closing Adjustment, which
shall be final and binding upon Buyer and Seller. Buyer and Seller
shall contribute equally to all costs (including fees and expenses
charged by the selected firm of certified public accountants) in
connection with the resolution of any such dispute. The amount owing by
either Buyer or Seller following a final determination of the Purchase
Price Post-Closing Adjustment shall be paid by the indebted party
within ten (10) business days of the date the Determination has become
final whether by virtue of Seller's failure to have given written
notice of objection, mutual agreement of the parties or binding
resolution of the dispute.
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ARTICLE 3.
REPRESENTATIONS AND WARRANTIES OF SELLER
3.1. Organization. Seller is a corporation duly organized, validly
existing and in good standing under the laws of the State of Minnesota and has
all requisite power and authority, corporate and otherwise, to own its
properties and assets and to conduct the Business as it is now conducted.
3.2. Qualification. Seller is qualified to do business and is in good
standing as a foreign corporation in all states in which qualification is
required by the nature of the Business and in which the failure to so qualify
and be in good standing would have a material adverse effect on the Business.
3.3. Financial Statements.
(a) Financial Statements. Seller has furnished Buyer with a
true and complete copy of its audited balance sheets, statement of
changes in financial condition and statements of income at and for the
fiscal years ended December 31, 1996, December 31, 1997, December 31,
1998 (collectively, the "Audited Financial Statements") and the same on
an unaudited basis for the six months ended June 30, 1999, together
with all notes and schedules related thereto, all of which are attached
hereto as Exhibit 3.3(a). Prior to Closing, Seller shall furnish Buyer
with interim unaudited financial statements for the nine months ended
September 30, 1999. All the financial statements have were prepared in
conformance with generally accepted accounting principles and
procedures applied on a basis consistent with prior periods and fairly
present in all material respects the financial condition of the
Business as of the represented dates thereof and the results of the
Business' operations for the periods covered thereby. For purposes of
this Agreement the foregoing financial statements and the Audited
Financial Statements shall be deemed to include any notes thereto. To
the Seller's knowledge, the independent accountants who audited the
Audited Financial Statements were "independent" within the meaning of
the Securities Act of 1933, as amended. The interim unaudited financial
statements included (or will include) all adjustments, consisting of
only normal recurring adjustments, necessary to fairly present the
financial position and results of operations of Seller in accordance
with generally accepted accounting principles consistently applied.
(b) Books and Records. Seller's books of account and records
(including customer order files, employment records and production and
manufacturing records) for the Business are complete, true and correct
in all material respects.
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3.4. Tax Reports, Returns and Payment.
(a) Tax Reports and Returns. Except as disclosed in Exhibit
3.4(a) hereto, Seller has accurately prepared and timely filed all
federal and applicable state, local, and foreign tax or assessment
reports and returns of every kind required to be filed by Seller with
relation to the Business, including, without limitation, income tax,
sales and use tax, real estate tax, personal property tax and
unemployment tax, and has duly paid all taxes and other charges
(including interest and penalties) due to or claimed to be due by any
taxing authorities. Where required, timely estimated payments or
installment payments of tax liabilities have been made to all
governmental agencies in amounts sufficient to avoid underpayment
penalties or late payment penalties applicable thereto.
(b) Tax Payments. Except as disclosed in Exhibit 3.4(b)
hereto, the provisions for taxes shown in the Financial Statements are
and will be adequate to cover the aggregate liability of Seller as of
the Closing date for all taxes, duties and charges based on the income,
purchases, sales, business, real estate ownership, capital stock or
surplus, or assets of Seller relating to the Business.
3.5. Title to Assets. Except as disclosed on Exhibit 3.5 hereto, Seller
holds title to the Purchased Assets free and clear of all liens, encumbrances,
licenses or leases.
3.6. Tangible Personal Property. Except as stated in Exhibit 3.6
hereto, all material assets described in Sections 1.1(b), (c) and (f) are in
good repair and operating condition and will be maintained in good repair and
operating condition, ordinary wear and tear excepted, from the date hereof until
the Closing Date. Seller hereby assigns to Buyer as of the Closing Date, to the
extent possible, any and all warranties covering such property existing as of
the Closing Date.
3.7. Trademarks. Seller has good title to the assumed and internet
domain names and the Trademarks listed on Exhibits 1.1(d)(ii), free and clear of
all liens and encumbrances except as set forth on Exhibit 3.5. Except as to a
Consent Agreement dated July 26, 1999, relating to the shared use of the mark
"NetDirect" between Seller and DRI, or as otherwise disclosed in Exhibit 3.7
hereto, such assumed and internet domain names and Trademarks are not licensed
to or licensed from any other person or entity.
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3.8. Patents. Seller neither owns nor licenses any patents or patent
rights.
3.9. Accounts Receivable. Except to the extent reserved against in the
Audited Financial Statements, all accounts receivable, notes or other
receivables of Seller related to the Business are valid, legal, and binding
obligations owing to Seller, enforceable against the parties to be charged
thereby.
3.10. Inventory. The Inventory represents the normal supplies and stock
in trade of Seller on hand as of the close of business on the Closing Date.
Except to the extent reserved against in the Audited Financial Statements, the
Inventory is and will be, as of the Closing Date, good, merchantable and
saleable at customary prices in the ordinary course of business and is and will
be, as of the Closing Date, of a quality, quantity and mix consistent with
Seller's past business practices and the demands of its customers.
3.11. Licenses and Permits. Seller possesses all permits, licenses,
approvals and notifications, governmental or otherwise, the absence of which
would have a material adverse effect on the Business. Except as disclosed in
Exhibit 3.11, all of such licenses and permits are freely assignable and
transferable to Buyer at the Closing and will continue to be in full force and
effect after such transfer.
3.12. Real Property. Exhibit 1.1(i) is an accurate and complete list of
all real property leased by Seller for operation of the Business. Seller has not
received notice of the initiation of any condemnation proceeding with respect to
such real property, or offer of sale in lieu thereof, nor has Seller breached
(or received any claim that it has breached) any of the terms or conditions of
such leases.
3.13. Personal Property Leases. Exhibit 1.1(j) contains an accurate and
complete list of all leases of material personal property necessary in the
operation of the Business. Seller has not breached, nor has it received in
writing any claim or threat that it has breached, any of the terms or conditions
of such personal property leases.
3.14. Agreements, Contracts and Commitments.
(a) Material Contracts. Except as disclosed on Exhibit 3.14(a)
or on other Exhibits attached hereto, Seller is not a party to or bound
by any written agreement listed below relating to the Business:
(i) dealer, distributorship or sales agent agreement,
excluding purchase orders for sales of products in the ordinary
course of business;
(ii) advertising contract;
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(iii) contract, commitment or arrangement for capital
expenditures having a remaining balance in excess of Twenty Five
Thousand and no/100 Dollars ($25,000);
(iv) lease with respect to any property, real or personal;
(v) contract, commitment, or arrangement containing
covenants by Seller not to compete in any lines of business or
with any person or business entity;
(vi) franchise agreement;
(vii) loan, credit, promissory note or other evidence of
indebtedness, including all agreements for any commitments for
future loans, credit, or financial, excluding inter-company loans
and credit extended by the Business to its customers;
(viii) guarantee;
(ix) agreement, contract or commitment for the purchase of
any services, raw materials, supplies or equipment involving
payments of more than One Hundred and no/100 Dollars ($100) per
annum or an aggregate of more than One Thousand and no/100
Dollars ($1,000), excluding of purchase orders for the purchase
of products or services required in the ordinary course of
business; or
(x) agreement, contract or commitment for the sale of the
Business' assets, products or services involving a value
estimated at more than Five Hundred and no/100 Dollars ($500),
excluding purchase orders for the sale of the Business products
in the ordinary course of business.
Except as specifically set forth in Exhibit 3.14(a), each contract,
commitment, or arrangement referred to in such Exhibit is terminable
pursuant to the terms of the contract without penalty, costs, or
liability on notice not exceeding sixty (60) days. Seller is not in
material breach (nor has it received notice of a claim that it is in
material breach) of any contracts identified on Exhibit 3.14(a). All
such contracts, commitments or other arrangements are assignable
without consent of any person other than as listed on Exhibit 3.14(a)
and such consents, if any, as are required shall be obtained by Seller
prior to the Closing.
(b) Employee Plans. Except as set forth on Exhibit 3.14(b)
hereto, Seller does not maintain any "Employee Plans" covering
employees working in the Business. "Employee Plans" mean any pension,
retirement, disability, medical, dental, or other health insurance
plan, life insurance or other death benefit plan, profit sharing,
deferred compensation, stock option, or severance plan including,
without limitation, any "pension
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plan" as defined in Section 3(2) of the Employee Retirement Income
Security Act of 1974, as amended ("ERISA"), and any "welfare plan" as
defined in Section 3(l) or ERISA, whether or not any of the foregoing
is funded.
(c) Union and Employment Contracts and Other Employment Matters.
(i) Except as set forth in Exhibit 3.14(c)(i) hereto,
Seller is not a party to any collective bargaining agreement or
any other written employment agreement with employees working in
the Business, nor is Seller a party to any other written contract
or understanding that contains any severance pay liabilities or
obligations, except for accrued, unused vacation pay or accrued
and unused sick leave pay for employees working in the Business.
(ii) During the last three (3) years Seller has not
experienced any work stoppages, walkouts or strikes or attempts
by employees working the Business to organize a union.
(iii) Except as disclosed in Exhibit 3.14(c)(iii) hereto, in
the past three (3) years no claims have been made against Seller
by any former or present employee who worked in the Business
based on employment discrimination, wrongful discharge, or unfair
labor practices.
(iv) Seller has received no claim asserting (and has no
knowledge of) any failure of Seller to comply with applicable
federal and state laws and regulations relating to employment of
labor, including laws and regulations relating to wages, hours,
collective bargaining, withholding taxes, and employee health and
benefits.
3.15. Predominant Customers. Except as disclosed in Exhibit 3.15
hereto, no single customer of the Business accounted for over five percent (5%)
of the Business' revenues during the fiscal year ending prior to the date of
this Agreement.
3.16. Change In Customers. Except as disclosed in Exhibit 3.16 hereto,
no significant customer has indicated to Seller that it intends to cease doing
business with Seller or materially alter the amount of business with Seller.
3.17. Product Liability Claims. Except as to assembled computer drives,
Seller does not manufacture any products and extends no warranty on products
sold by it except as a pass-through from the applicable manufacturer. As to
computer drive products assembled by Seller, the reserve for claims based upon
an alleged breach of product warranty ("Product Liability Claims") on Seller's
financial statements contained in Exhibit 3.3 hereto is consistent with Seller's
past experience except as set forth on Exhibit 3.17 hereto. During the last
three (3) years, Seller has not received a claim exceeding $25,000 based upon a
Product Liability Claim, whether such products were assembled by Seller or
otherwise.
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3.18. Insurance. Seller has maintained and will continue to maintain
until the Closing Date the insurance described in Exhibit 3.18, including
insurance on Seller's tangible real and personal property and assets, whether
owned or leased, against loss or damage by fire and other casualty, in amounts
equal to or in excess of one hundred percent (100%) of the replacement value
thereof. All such insurance is in full force on the date of this Agreement.
3.19. Litigation, Adverse Claims and Related Matters. Except as
disclosed on Exhibit 3.19 hereto, there is no pending or threatened litigation
(nor, to Seller's knowledge, any claim which may lead to a threat of
litigation), proceeding, or investigation (including any environmental, building
or safety investigation) relating to any material aspect of the Business or the
Purchased Assets, nor is Seller subject to any existing judgment, order or
decree which would prevent, impede, or make illegal the consummation of the
transactions contemplated in this Agreement or which would have a material
adverse effect on the Business.
3.20. Laws and Regulations. Seller has materially complied, and will be
in material compliance on the Closing Date, with all applicable laws, statutes,
orders, rules, regulations and requirements promulgated by governmental or other
authorities relating to the Business or the Purchased Assets, the failure of
which would have a material adverse effect on the Business. Seller has not
received any notice of any sort of alleged violation of any such statute, order,
rule, regulation or requirement.
3.21. Breaches of Contracts; Required Consents. Neither the execution
and delivery of this Agreement by Seller, nor compliance by Seller with the
terms and provisions of this Agreement will:
(a) Conflict with or result in a breach of (i) any of the terms,
conditions or provisions of the Articles of Incorporation, Bylaws or
other governing instruments of Seller; (ii) any judgment, order,
decree or ruling to which the Seller is a party; (iii) any injunction
of any court or governmental authority to which Seller is subject; or
(iv) any agreement, contract, lease or commitment which is material to
the Business; or
(b) Except as disclosed in Exhibit 3.21(b) hereto, require the
affirmative consent or approval of any third party, the absence of
which would have a material adverse effect on the Business.
3.22. Binding Obligation. This Agreement constitutes the legal, valid
and binding obligation of Seller in accordance with the terms hereof. As of the
Closing Date, Seller will have all requisite corporate power and authority,
including the approval of the Shareholders and Board of Directors, to execute,
perform, carry out the provisions of and consummate the transactions
contemplated in this Agreement. Seller is not subject to any charge, mortgage,
lien, lease, agreement, contract, instrument, law, rule, regulation, order,
judgment or decree, or any other restriction of any kind or character which
would prevent the consummation of the transactions contemplated in this
Agreement.
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3.23. Reserved.
3.24. Commissions or Finder's Fees. Except as provided on Exhibit 3.24,
there is no obligation, commission, or fees Seller has incurred or will incur to
any broker or finder in connection with the transactions contemplated herein.
3.25. Completeness of Disclosure. No representation in this Article
contains any untrue statement of a material fact or omits to state any material
facts or omissions of which would be misleading.
ARTICLE 4.
REPRESENTATION AND WARRANTIES OF BUYER
4.1. Organization. Buyer is a corporation duly organized, validly
existing and in good standing under the laws of the State of Minnesota and has
all requisite power and authority, corporate and otherwise, to own its
properties and assets and to conduct the Business as it is now conducted.
4.2. Corporate Authority. Buyer has all requisite power and authority,
including the approval of its Board of Directors, to execute, perform and carry
out the provisions of this Agreement.
4.3. Breaches of Contracts; Required Consents. Neither the execution
nor the delivery of this Agreement by Buyer, nor compliance by Buyer with the
terms and provisions of this Agreement, will:
(a) Conflict with or result in a breach of: (i) any of the
terms, conditions or provisions of the Articles of Incorporation,
Bylaws or other governing instruments of Buyer; (ii) any judgment,
order, decree or ruling to which the Buyer is a party; (iii) any
injunction of any court or governmental authority to which it is
subject; or (iv) any agreement, contract, lease or commitment which is
material to the financial condition of Buyer; or
(b) Require the affirmative consent or approval of any third
party.
4.4. Binding Obligation. This Agreement constitutes the legal, valid
and binding obligation of Buyer in accordance with the terms hereof. Buyer is
not subject to any charge, mortgage, lien, lease, agreement, contract,
instrument, law, rule, regulation, order, judgment or decree, or any other
restriction of any kind or character which would prevent the consummation of the
transactions contemplated in this Agreement.
4.5. Commissions or Finder's Fees. Buyer has no obligation for
commissions or fees to any broker or finder in connection with the transactions
contemplated herein.
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4.6. Completeness of Disclosure. No representation in this Article contains
any untrue statement of a material fact or omits to state any material fact the
omission of which would be misleading.
4.7. Due Diligence. In its due diligence examination of the Seller and its
financial statements to date, Buyer has not found any material facts or
conditions which Buyer knows to be inconsistent with the representations and
warranties of Seller set forth in this Agreement.
ARTICLE 5.
CONDUCT AND TRANSACTIONS OF BUSINESS PRIOR TO CLOSING
5.1. Access to Information. During the period prior to the Closing, Seller
shall continue to give to Buyer and its attorneys, accountants or other
authorized representatives, full access to all of the property, books,
contracts, commitments and records relating to the Business and shall furnish to
Buyer during such period all such information concerning the Business, or the
Purchased Assets as Buyer reasonably may request. Buyer shall have the right to
conduct on site inspections of the Business' premises.
5.2. Restrictions in Operation of the Business. Seller represents and
covenants that during the period from the date of this Agreement to the Closing
(except as Buyer otherwise has consented in writing):
(a) The Business will be conducted only in the usual and ordinary
manner.
(b) Seller will not sell, dispose, transfer, assign or otherwise
remove any of the Purchased Assets, except inventory in the ordinary course
of business and at regular prices.
(c) Seller will timely pay and discharge all bills and monetary
obligations and timely and properly perform all of its obligations and
commitments under all existing contracts and agreements pertaining to the
Business, except as to amounts or obligations which Seller contests in good
faith.
(d) Seller shall use its best efforts to preserve the business
organization and assets of the Business and to keep available to Buyer the
services of the Business' present employees, and not to impair
relationships with suppliers, customers and other having business relations
with the Business.
5.3. No Solicitation of Other Offers. Seller agrees that, prior to the
earlier of (i) the date Buyer notifies Seller in writing of Buyer's intention to
abandon the transactions contemplated hereby (for which Buyer agrees to
immediately notify Seller if Buyer makes such determination) or (ii) the
termination of this Agreement pursuant to Section 6.3, neither Seller nor any of
Seller's representatives will enter into any negotiations with or solicit any
offer,
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inquiry or proposal from any other person with respect to the sale, merger
or other acquisition of the Business. Seller agrees that any breach or
threatened breach of the provisions of this Section 5.3 may be enjoined by a
court of competent jurisdiction. The parties agree that the state and federal
courts located in Minneapolis, Minnesota shall have personal and subject matter
jurisdiction as to any such injunctive action. Despite the above, in the event
Seller's legal counsel advises Seller's Board of Directors that Seller has a
fiduciary obligation to consider an unsolicited offer by another party for all
or substantially all of the Purchased Assets, and if Seller accepts such offer
prior to expiration of the provisions of this Section 5.3, Seller agrees
immediately to pay Buyer a "breakup" fee of One Hundred Thousand and No/Dollars
($100,000.00).
5.4. Confidentiality Agreement.
(a) Definition of Confidential Information. For purposes of this
Section, "Confidential Information" means any information or compilation of
information not generally known, which is proprietary to a business, and
includes, without limitation, trade secrets, inventions, and information
pertaining to development, marketing, sales, accounting and licensing of
the business' products and services, customer information, customer lists,
and any customer information contained in customer records, working papers
or correspondence files and all financial information, including financial
statements, notes thereto and information contained in federal and state
tax returns. Information shall be treated as Confidential Information
irrespective of its source and all information which is identified as being
"confidential", "trade secret", or is identified or marked with any similar
reference shall be presumed to be Confidential Information.
(b) Covenants by Parties. Buyer, on the one hand, and Seller, on the
other, each agree and covenant with respect to all Confidential Information
of the other received or learned by either of them as follows:
(i) It will treat as confidential all Confidential Information
made available to it or any of its employees, agents or
representatives;
(ii) It will maintain the same in a secure place and limit access
to the Confidential information to those employees, agents and
representatives to whom it is necessary to disclose the Confidential
Information in furtherance of the transactions contemplated by this
Agreement;
(iii) It and its employees, agents and representatives will not
copy any Confidential Information, disclose any Confidential
Information to any unauthorized party, or use any Confidential
Information for any purpose including competition with the other party
or solicitation of the other party's customers; and
(iv) It will assume liability for any breach of this Section 5.4
by it or any of its employees, agents or representatives.
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(c) Applicability; Limitations. The obligations imposed by this
Section shall apply (i) to Buyer forever with respect to any
Confidential Information relating to the business or operations of
Seller other than the Business, and until the Closing with respect to
the Business or, if such Closing does not occur, forever with respect
to the Business; and (ii) to Seller, forever with respect to the
operations of Buyer and forever with respect to the Business after the
Closing; provided, however, that the obligations imposed by this
Section 5.4 shall not apply to any Confidential Information:
(i) that was known to the receiving party prior to receipt
from the disclosing party;
(ii) that was publicly divulged prior to receipt from the
disclosing party;
(iii) that, through no act on the part of the receiving
party, thereafter becomes publicly divulged;
(iv) that was received in good faith by the receiving party
from any third party without breach of any obligations of
confidentiality;
(v) that was independently developed (without access to or
use of any Confidential Information of the other party) by an
employee or agent of the receiving party subsequent to receipt of
the Confidential Information under this Agreement; or
(vi) that is publicly disclosed in accordance with
requirements of federal securities laws by Seller or Buyer's
parent, Virtual Technology Corporation, upon advice of their
respective legal counsel.
(d) Injunctive Relief. The parties agree that the nonbreaching
party would not have an adequate remedy at law for any breach or
nonperformance of the terms of this Section 5.4 by the other party or
any of its employees, agents and representatives and that this
Agreement, therefore, may be enforced in equity by specific
performance, temporary restraining order and/or injunction. The
nonbreaching party's right to such equitable remedies shall be in
addition to all other rights and remedies which the nonbreaching party
may have hereunder or under applicable law, including a right to
damages.
(e) Unconditional Obligation. The obligations set forth in this
Section 5.4 to maintain the confidentiality of and not wrongfully use
the Conditional Information are unconditional and shall not be excused
by any conduct on the part of a party except as specifically set forth
in Section 5.4(c).
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ARTICLE 6.
CONDITIONS OF CLOSING; ABANDONMENT OF TRANSACTION
6.1. Conditions to Obligations of Buyer to Proceed on the Closing
Date. The obligations of Buyer to proceed on the Closing Date shall be subject
(at its discretion) to the satisfaction, on or prior to the Closing, of all of
the following conditions:
(a) Truth of Representations and Warranties and Compliance with
Obligations. The representations and warranties of Seller herein shall be
true in all material respects on the Closing Date with the same effect as
though made at such time. Seller shall have performed all material
obligations and complied with all material covenants and conditions prior
to or as of the Closing Date. Seller shall have delivered to Buyer a
certificate of Seller in form and substance satisfactory to Buyer dated as
of the Closing Date and executed by the President of Seller to all such
effects.
(b) Opinion of Counsel. Buyer shall have received a duly executed
opinion letter from Seller's legal counsel dated as of the Closing Date, in
form and substance reasonably satisfactory to Buyer and its counsel, to the
effect that:
(i) Seller is a corporation duly organized and validly existing
and in good standing in the State of Minnesota; has all necessary
corporate power to own the property it now owns and to operate the
Business as it is now operated;
(ii) This Agreement and all collateral documents have been duly
and validly authorized, executed and delivered by Seller, constitute
the valid and binding obligations of Seller and are enforceable in
accordance with their terms, except as limited by bankruptcy and
insolvency laws and by other laws affecting the rights of creditors
generally; and
(iii) Neither the execution nor delivery of this Agreement, nor
the consummation of the transactions contemplated in this Agreement,
will constitute a violation of Seller's Articles of Incorporation or
Bylaws.
In giving such opinion, such counsel may rely, as to matters of fact, upon
certificates of officers of Seller or public officials, and as to matters
of law solely upon the laws of the State of Minnesota.
(c) Assignments. Seller shall have executed and delivered to Buyer
documents assigning all of its right, title and interest in the Real Estate
Leases, Personal Property Leases, Trademarks, Copyrights, Patents and other
Intangible Property to Buyer.
(d) Release Secured Claims and Mortgages. Seller shall have obtained
full and complete releases of all security interest, mortgages or other
encumbrances upon the Purchased Assets, including those set forth in
Exhibit 6.1(e), except to the extent expressly being assumed by Buyer.
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(e) Required Consents. All required consents shall have been received
from governmental agencies whose approval is required to consummate the
transaction contemplated herein and from each person or entity listed on
Exhibit 3.21(b), including Apple Computer, Inc.'s approval of Buyer as a
continuing distributor of Apple's product line.
(f) Delivery of Documents. Seller shall have delivered all documents
required to be delivered at Closing pursuant to Section 7.2 hereof.
(g) Litigation Affecting Closing. No suit, action or other proceeding
shall be pending or threatened by or before any court or governmental
agency in which it is sought to restrain or prohibit or to obtain damages
or other relief in connection with this Agreement or the consummation of
the transaction contemplated by this Agreement, and no investigation that
may result in any suit, action or other proceeding shall be pending or
threatened.
(h) Legislation. No statute, rule, regulation or order shall have been
enacted, entered or deemed applicable by any domestic or foreign government
or governmental or administrative agency or court which would make the
transaction contemplated by this Agreement illegal or otherwise materially
adversely affect the Purchased Assets or the use and operation of the
Business in the hands of Buyer.
(i) Continued Review of Records of the Business. Buyer shall have had
the continued opportunity prior to the Closing Date to review the business
records of the Business and to take such other actions as specified in
Section 5.1. Buyer shall not have discovered during such review any
substantial liabilities relating to the Business which were not previously
disclosed to Buyer prior to execution of this Agreement.
(j) Employment Contracts. Buyer shall have reached agreement or
contracts or commitments of continued employment reasonably satisfactory to
Buyer with Phil Andersen, Steve Roberts, Michael Laven, Peter Rode and
Ronald Smieja.
(k) Approval by Shareholders of Seller. The shareholders of Seller
shall have duly held a special meeting at which the liquidation and
dissolution of Seller is approved by such shareholders.
(l) Financing. Buyer shall have obtained equity or debt financing for
the transactions contemplated by this Agreement in an amount, and on such
terms, as Buyer in its sole discretion shall determine.
(m) Lease. Buyer shall have reached agreement with Seller's existing
landlord to continued occupancy of Seller's Business premises or shall have
entered into a new lease for premises for the Business, in either case on
terms acceptable to Buyer.
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(n) Noncompetition Agreements. Seller and such of its key
employees as Buyer determines shall have entered into agreements
satisfactory to Buyer not to compete with Buyer.
6.2. Conditions to Obligation of Seller to Proceed on the Closing
Date. The obligation of Seller to proceed on the Closing Date shall be subject
(at its discretion) to the satisfaction, on or before the Closing, of the
following conditions:
(a) Truth of Representations and Warranties and Compliance with
Obligations. The representations and warranties of Buyer herein
contained shall be true in all material respects on the Closing Date
with the same effect as though made at such time. Buyer shall have
performed all material obligations and complied with all material
covenants and conditions prior to or as of the Closing Date. Buyer
shall have delivered to Seller a certificate in form and substance
reasonably satisfactory to Seller dated as of the Closing Date and
executed by its President to all such effects.
(b) Delivery of Documents. Buyer shall have delivered all
documents required to be delivered at Closing pursuant to Section 7.3
hereof.
(c) Required Consents. All required consents shall have been
received from governmental agencies whose approval is required to
consummate the transaction contemplated herein and from each person or
entity listed on Exhibit 3.21(b).
(d) Litigation Affecting Closing. No suit, action or other
proceeding shall be pending or threatened by or before any court or
governmental agency in which it is sought to restrain or prohibit or to
obtain damages or other relief in connection with this Agreement or the
consummation of the transaction contemplated by this Agreement, and no
investigation that might eventuate in any such suit, action or other
proceeding shall be pending or threatened.
(e) Legislation. No statute, rule, regulation or other shall have
been enacted, entered or deemed applicable by any domestic or foreign
governmental or governmental or administrative agency or court which
would make the transaction contemplated by this Agreement illegal.
(f) Approval by Shareholders of Seller. The shareholders of
Seller shall have duly held a special meeting at which the liquidation
and dissolution of Seller is approved by such shareholders. The
Shareholders, by their signatures below, hereby represent and warrant
that the Voting Agreement and related Form of Irrevocable Proxy dated
July 11, 1999 entered into by each of them irrevocably binds Perry
Steiner, Robert Strawman and DRI to vote all of each Shareholder's
respective shares of Seller's Common Stock in favor of such liquidation
and dissolution at such special shareholders' meeting. Further,
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both Seller and the Shareholders agree to recommend such liquidation and
dissolution to Seller's shareholders.
(g) Opinion of Counsel. Seller shall have received a duly executed
opinion letter from Buyer's legal counsel dated as of the Closing Date, in
form and substance reasonably satisfactory to Seller and its counsel, to
the effect that:
(i) Buyer is a corporation duly organized and validly existing
and in good standing in the State of Minnesota; has all necessary
corporate power to own the property it now owns and to operate the
Business as it is now operated;
(ii) This Agreement and all collateral documents have been duly
and validly authorized, executed and delivered by Buyer, constitute
the valid and binding obligations of Buyer and are enforceable in
accordance with their terms, except as limited by bankruptcy and
insolvency laws and by other laws affecting the rights of creditors
generally; and
(iii) Neither the execution nor delivery of this Agreement, nor
the consummation of the transactions contemplated in this Agreement,
will constitute a violation of Buyer's Articles of Incorporation or
Bylaws.
(h) Employment Contracts. Buyer shall have reached agreement or
contracts or commitments of continued employment reasonably satisfactory to
Buyer with Phil Andersen, Steve Roberts, Michael Laven, Peter Rode and
Ronald Smieja.
(i) Noncompetition Agreements. Seller and such of its key employees as
Buyer determines shall have entered into agreements satisfactory to Buyer
not to compete with Buyer.
6.3. Termination of Agreement. This Agreement and the transactions
contemplated herein may be terminated at or prior to the Closing Date as
follows:
(a) By mutual written consent of all parties.
(b) By Buyer pursuant to written notice delivered at or prior to the
Closing if Seller has failed in any material respect to satisfy all of the
conditions to Closing set forth in Section 6.1 or if the parties have been
unable after good faith efforts to reach agreement on any issues arising
under paragraph 6.2.
(c) By Seller pursuant to written notice delivered at or prior to the
Closing if Buyer has failed in any material respect to satisfy the
conditions set forth in Section 6.2 or if the parties have been unable
after good faith efforts to reach agreement on any issue arising under
paragraph 6.1.
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(d) By Buyer or Seller if Seller has not obtained its shareholders'
consent to liquidation and dissolution of Seller on or before December 31,
1999.
(e) By Seller in accordance with the provisions of Section 5.3 above
upon payment of the termination fee referred to therein.
6.4. Consequences of Termination. In the event of termination of this
Agreement, each party will return to the other all documents and materials
obtained from the other in connection with the transaction contemplated by this
Agreement and will not use and will keep confidential all Confidential
Information about the other party obtained pursuant to this Agreement pursuant
to the terms of Section 5.4 hereof.
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ARTICLE 7.
CLOSING
7.1. Closing. The closing of the transaction contemplated by this Agreement
("Closing") shall be held at the offices of Messerli & Kramer P.A., 150 South
Fifth Street, Suite 1800, Minneapolis, Minnesota 55402, on December 3, 1999, at
9:00 a.m., or at such earlier or later date or time as the parties may mutually
agree upon in writing. Such date of Closing is referred to herein as the Closing
Date. If mutually agreeable, the closing will occur effective as of November 30,
1999, despite the planned later Closing Date.
7.2. Documents to be Delivered by Seller. Seller agrees to deliver the
following documents, duly executed as appropriate, to Buyer at the Closing:
(a) Articles of Incorporation of Seller certified by the Secretary of
State of Minnesota.
(b) Bylaws of Seller certified by the Seller's Secretary.
(c) Certificate of Good Standing of Seller dated no earlier than three
(3) days prior to the Closing Date.
(d) Certified copies of corporate resolutions of Seller's Board of
Directors and shareholders authorizing it to enter into this Agreement and
to consummate the transactions contemplated herein.
(e) A Bill of Sale for the assignment and transfer of the Purchased
Assets.
(f) Reserved.
(g) Appropriate assignment documents assigning Seller's title and
interest in the Real Estate Leases, Personal Property Leases, Trademarks,
Copyrights and other Intangible Property, including the internet domain
names listed in Section 1.1(c)(v).
(h) Certificate of Seller's President regarding representations and
warranties as required under Section 6.1(a).
(i) Opinion of Seller's Counsel as required under Section 6.1(b).
(j) Documentation of receipt and consents from all persons listed on
Exhibit 3.21(b).
(k) Such other documents as Buyer may reasonably request for the
purpose of assigning, transferring, granting, conveying, and confirming to
Buyer or reducing to its possession any and all of the Purchased Assets.
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7.3. Documents Delivered by Buyer. Buyer agrees to deliver the following
documents, duly executed as appropriate, to Seller at the Closing:
(a) Certified copies of corporate resolutions of Buyer authorizing it
to enter into this Agreement and to consummate the transactions
contemplated herein.
(b) Wire transfer to Seller's bank in the amount of $1,000,000 plus
the estimated Net Book Value of the Purchased Assets as of the Closing
Date.
(c) Certificate of Buyer's President as required under Section 6.2(a).
(d) Opinion of Buyer's counsel as required under Section 6.2(g).
(e) Such other documents as Seller reasonably may request to carry out
the transactions contemplated under this Agreement.
7.4. Assignment and Assumption of Certain Contracts. Effective upon
consummation of all transactions herein on the Closing Date, Seller hereby
assigns to Buyer all of Seller's rights, title and benefit under the Real Estate
Leases described in Exhibit 1.1(i), the Personal Property Leases described in
Exhibit 1.1(j) and the Contracts. Buyer hereby assumes all liabilities or
obligations with respect thereto (except to the extent that such liabilities or
obligations constitute Excluded Liabilities). Seller shall execute such forms of
assignment and provide such other reasonable cooperation as may be necessary to
effect the assignments herein.
ARTICLE 8.
POST CLOSING OBLIGATIONS
8.1. Further Documents and Assurances. At any time and from time to time
after the Closing Date, each party shall, upon request of another party,
execute, acknowledge and deliver all such further and other assurances and
documents, and will take such action consistent with the terms of this
Agreement, as may be reasonably requested to carry out the transactions
contemplated herein and to permit each party to enjoy its rights and benefits
hereunder. If requested by Buyer, Seller further agrees to prosecute or
otherwise enforce in its own name for the benefit of Buyer, any claim, right or
benefit transferred by this Agreement that may require prosecution or
enforcement in Seller's name. Any prosecution or enforcement of claims, rights,
or benefits under this provision shall be solely at Buyer's expense, unless the
prosecution or enforcement is made necessary by a breach of this Agreement on
the part of Seller.
ARTICLE 9.
INDEMNIFICATION
9.1. Indemnification by Seller. Subject to the limitations set forth in
Section 9.2, Seller shall indemnify and hold Buyer harmless at all times from
and after the date of this
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Agreement, against and in respect of all damages, losses, costs and expense
(including reasonably attorneys' fees) which Buyer may suffer or incur in
connection with any of the following matters:
(a) Any claim, demand, action or proceeding asserted by a creditor of
Seller or any other person respecting any liabilities of Seller which are
not expressly assumed by Buyer under this Agreement.
(b) The breach by Seller of any of its representations, warranties or
covenants in this Agreement.
9.2. Seller's Limitation of Liability.
(a) Buyer shall not assert any claim under Section 9.1 unless and
until such claims exceed Fifty Thousand and No/Dollars ($50,000.00) and
Seller shall not be responsible for this first $50,000 of aggregate claims.
Thereafter, Buyer's claims (over and above the initial $50,000) shall be
limited in the aggregate to One Million and No/Dollars ($1,000,000.00),
including costs and expenses. Furthermore, Buyer must assert any claim
hereunder within one (1) year after the Closing Date.
(b) The rights of Buyer with respect to any claims arising under
Section 9.1 shall be limited to recovery of actual losses, costs and
expenses (including reasonable attorneys' fees) net of insurance proceeds
and tax effects, if any, received by Buyer. Seller acknowledges that due to
the net operating loss carryforwards of Buyer's parent company, it is
highly unlikely that Buyer would receive any tax benefit from an uninsured
claim.
9.3. Indemnification by Buyer. Buyer shall indemnify and hold Seller
harmless at all times from and after the date of this Agreement, against and in
respect of all losses, damages, costs and expenses (including reasonable
attorneys fees) which Seller may suffer or incur in connection with any of the
following matters:
(a) The breach by Buyer of any representations, warranties or
covenants in this Agreement.
(b) Any claim, demand, action or proceeding asserted by any person
against Seller relating to any obligation or liability assumed by Buyer
hereunder, or to any obligation or liability relating to the Purchased
Assets or the Business accruing after the Closing Date.
9.4. Buyer's Limitation of Liability.
(a) Seller shall not assert any claim under Section 9.3 unless and
until such claims exceed Fifty Thousand and No/Dollars ($50,000.00) and
Buyer shall not be
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responsible for this first $50,000 of aggregate claims. Thereafter,
Seller's claims (over and above the initial $50,000) shall be limited in
the aggregate to One Million and No/Dollars ($1,000,000.00), including
costs and expenses. Furthermore, Seller must assert any claim hereunder
within one (1) year after the Closing Date.
(b) The rights of Seller with respect to any claims arising under
Section 9.3 shall be limited to recovery of actual losses, costs and
expenses (including reasonable attorneys' fees) net of insurance proceeds
and tax effects, if any, received by Seller.
9.5. Third Party Claims. If a claim by a third party is made against any of
the indemnified parties, and if any of the indemnified parties intends to seek
indemnity with respect to such claim under this Article, such indemnified party
shall promptly notify the indemnifying party of such claim. The indemnifying
party shall have thirty (30) days after receipt of the above-mentioned notice to
undertake, conduct and control, through counsel of such party's own choosing
(subject to the consent of the indemnified party, such consent not to be
unreasonably withheld) and at such party's expense, the settlement or defense of
it, and the indemnified party shall cooperate with the indemnifying party in
connection with such efforts; provide that: (i) the indemnifying party shall not
by this Agreement permit to exist any lien, encumbrance or other adverse charge
upon any asset of any indemnified party, (ii) the indemnifying party shall
permit the indemnified party to participate in such settlement or defense
through counsel chosen by the indemnified party, provided that the fees and
expenses of such counsel shall be borne by the indemnified party, and (iii) the
indemnified party shall agree promptly to reimburse the indemnified party for
the full amount of any loss resulting from such claim and all related expense
incurred by the indemnified party pursuant to this Article. So long as the
indemnifying party is reasonably contesting any such claim in good faith, the
indemnified party shall not pay or settle any such claim. If the indemnifying
party does not notify the indemnified party within thirty (30) days after
receipt of the indemnified party's notice of a claim or indemnity under this
Article that such party elects to undertake the defense of such claim, the
indemnified party shall have the right to contest, settle or compromise the
claim in the exercise of the indemnified party's exclusive discretion at the
expense of the indemnifying party.
ARTICLE 10.
GENERAL
10.1. Counterparts. This Agreement may be executed in counterparts and by
different counterparts with the same effect as if the signatures thereto were on
the same instrument. This Agreement shall be effective and binding upon all
parties hereto as of Closing when all parties have executed a counterpart of
this Agreement.
10.2. Exhibits. Each Exhibits delivered pursuant to the terms of this
Agreement shall be in writing and shall constitute a part of this Agreement.
10.3. Notices. Any notice or other communication required or permitted
hereunder shall in writing and shall be deemed to have been given, when
received, if delivered by hand,
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telegram, telex or telecopy, and, when deposited, if placed in the mails for
delivery by air mail, postage prepaid, addressed to the appropriate party as
specified on the first page of this Agreement; provided, however, that any
notice sent to Seller or the Shareholders shall also be sent to Patrick W.
Weber, Esq., Winthrop & Weinstine, P.A., 60 South Sixth Street, Suite 3000,
Minneapolis, Minnesota 55402; and provided further, that any notice sent to
Buyer shall also be sent to Jeffrey C. Robbins, Esq., Messerli & Kramer P.A.,
150 South Fifth Street, Suite 1800, Minneapolis, Minnesota 55402. Addresses may
be changed by written notice given pursuant to this Section; however, any such
notice shall not be effective, if mailed, until three (3) working days after
depositing in the mails or when actually received, whichever occurs first.
10.4. Successors and Assigns. Neither Seller nor Buyer shall assign or
transfer any of its rights or obligations hereunder without the prior written
consent of the other party which consent shall not be reasonably withheld.
10.5. Expenses. Except as otherwise provided herein, each party hereto
shall each bear and pay for its own costs and expenses incurred by it or on its
behalf in connection with the transactions contemplated hereby, including,
without limitation, all fees and disbursements of attorneys, accountants and
financial consultants incurred through the Closing Date.
10.6. Entire Agreement. This Agreement, together with the Exhibits and the
related written agreements specifically referred to herein, represents the only
agreement among the parties concerning the subject matter hereof and supersedes
all prior agreements whether written or oral, relating thereto.
10.7. Modification and Waiver. No purported amendment, modification or
waiver of any provision hereof shall be binding unless set forth in a written
document signed by all parties (in the case of amendments or modifications) or
by the party to be charged thereby (in the case of waivers). Any waiver shall be
limited to the circumstance or event specifically referenced in the written
waiver document and shall not be deemed a waiver of any other term hereof or of
the same circumstance or event upon any recurrence thereof.
10.8. Publicity. The parties acknowledge that each has disclosure
obligations as public companies and each party represents and warrants to the
other that it will make no announcement to public officials or the press in any
way relating to the transaction described herein without reasonable notice to
the other prior to such announcement and each party will reasonably attempt to
agree upon the written text of any such announcement prior to public
distribution.
10.9. Governing Law. This Agreement and the legal relations between the
parties shall be governed by and construed in accordance with the laws of the
State of Minnesota, exclusive of its conflict of laws rules.
10.10. Knowledge. Knowledge, as used in this Agreement or the instruments,
certificates or other documents required under this Agreement, means actual
knowledge of any individual party or the actual knowledge of the executive
officers of a corporate party, in each case without any requirement for
independent investigation or inquiry.
10.11. Benefit. Nothing in this Agreement, expressed or implied, is
intended to confer on any person other than the parties to this Agreement or
their permitted successors or assigns, any rights, remedies, obligations or
liabilities under or by reason of this Agreement.
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10.12. Dispute Resolution. Unless otherwise agreed to herein or elsewhere
in writing to the contrary by the parties, any dispute, controversy or claim
arising out of or relating to this Agreement or the breach thereof, shall be
settled by binding arbitration, venued in Hennepin County, Minnesota, and
administered by the American Arbitration Association, and judgment or the award
rendered by the arbitrator(s) may be entered in any court having jurisdiction
thereof. Notwithstanding the foregoing, any party to this Agreement shall not be
subject to binding arbitration in the event it is seeking injunctive relief to
enforce its rights under the confidentiality or noncompetition provisions of
this Agreement, in which case such party shall have the right to seek immediate
and direct injunctive relief from any court having jurisdiction thereof.
IN WITNESS WHEREOF, the undersigned have hereunto affixed their signatures.
BUYER: T2 ACQUISITION CORPORATION,
a Minnesota corporation
By: /s/ Gregory A. Appelhof
------------------------------
Its: President
------------------------------
SELLER: TECH SQUARED INC.,
a Minnesota corporation
By: /s/ Charles E. Reese Jr.
-------------------------------
Its: President, CEO
-------------------------------
SHAREHOLDERS (only as to the provisions of Section 6.2(f)):
/s/ Charles E. Reese Jr.
-------------------------------
Charles E. Reese Jr.
/s/ Joel A. Ronning
-------------------------------
Joel A. Ronning
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<PAGE> 1
EXHIBIT 99.1
Exhibit 99.1. Press Release dated December 27, 1999 relating to proposed merger
with Compositech Ltd.
Compositech Ltd. and Netdirect Corporation International Sign Merger Letter
Of Intent
Compositech to Issue Convertible Preferred Shares to Its Present Shareholders
In Connection With Merger
HAUPPAUGE, N.Y. and MINNEAPOLIS, Dec. 27 /PRNewswire/ -- Compositech(TM)
Ltd. (Nasdaq: CTEK - news), developer of high tech laminates for the printed
circuit board industry, and Netdirect Corporation International(TM) (OTC
Bulletin Board: VTCO - news), a leading e-commerce company, formerly Virtual
Technology Corporation, have signed a letter of intent for Compositech to
acquire Netdirect in a merger exchange of Compositech common stock for 100% of
Netdirect common stock at the ratio of three Compositech common shares for each
common share of Netdirect outstanding.
In connection with the merger, Compositech shareholders will receive one
new convertible preferred share for every two common shares presently held by
them, giving them a 90% participation in revenues from sale or licensing of
Compositech technology for five years. Each share of the new preferred stock
would be convertible into one warrant to purchase one share of the common stock
of the merged corporation at an exercise price of $1 per share. These warrants
would be subject to redemption by the merged corporation at a redemption price
of $8 per share.
"We are excited about the prospect of these two companies coming together
and operating as one Nasdaq-listed company. We believe that each brings with it
capabilities and potential that will create greater value for shareholders of
both companies," stated Netdirect president and CEO Greg Appelhof.
"Our relationships with premier manufacturers such as IBM, Apple,
Hewlett-Packard, Hitachi and Sony offer Compositech a new opportunity to realize
maximum value for its leading-edge technology," Appelhof said.
"We believe that Netdirect's growth potential, combined with continuing
participation in our technology through a creative preferred stock issue, offers
great possibilities for Compositech shareholders," said Compositech chairman
Jonas Medney. "Netdirect's strategic relationship with Lycos, along with its
recent significant steps to build a marketing and distribution infrastructure
for technology products, reinforces its position as a global e-commerce leader,"
he noted.
Upon completion of the merger, the new company will be named Netdirect
Corporation International and will apply for a change of its Nasdaq symbol.
Current Netdirect chairman Kenneth Israel will be elected chairman and Greg
Appelhof appointed president and CEO of the combined company. Current
Compositech president and CEO Christopher F. Johnson has accepted an offer to
join a major electronics industry material supplier in January 2000. Jonas
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<PAGE> 2
Medney, Compositech co-founder and co-inventor of CL200+, will continue as a key
member of the company's technical team.
The merger is subject to completion of due diligence reviews by each
company, negotiation and execution of a definitive merger agreement, SEC review
of the companies' joint merger/proxy statements, approval of the surviving
company's continued Nasdaq listing, FTC antitrust review and approvals of the
respective boards of directors and the shareholders of each company.
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