SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
Date of Report (date of earliest event reported): November 4, 1996
COMMUNICATIONS SYSTEMS, INC.
(Exact name of Registrant as specified in its charter)
Minnesota 0-10355 41-0957999
(State or other jurisdiction (Commission File Number) (I.R.S. Employer
of incorporation) Identification No.)
213 South Main Street
Hector, Minnesota 55342
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (320) 848-6231
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Item 1 -- Not Applicable.
Item 2. Acquisition or Disposition of Assets.
Sale of Assets.
On November 4, 1996, the Registrant sold substantially all of the
assets of Zercom Corporation, a wholly-owned subsidiary of Registrant
("Zercom"), to Nortech Systems Incorporated ("Nortech") pursuant to the terms of
an Asset Purchase Agreement, dated September 30, 1996 (the "Purchase
Agreement"). The assets sold to Nortech (the "Zercom Assets"), which are located
in Aitken and Merrifield, Minnesota, include inventory, real estate and plant
and equipment.
The purchase price paid by Nortech for the Zercom Assets was $6.5
million (subject to certain post-closing adjustments). The purchase price was
determined through arms'-length negotiations between the Registrant and Nortech.
On November 4, 1996, Nortech paid the Registrant $1.5 million in cash and
delivered two secured promissory notes, totaling $5.0 million, for the remaining
balance of the purchase price.
Items 3 through 6 -- Not Applicable.
Item 7. Financial Statements and Exhibits.
(a) Financial Statements of Business Acquired.
Not applicable.
(b) Pro Forma Financial Information.
Financial statements and proforma financial information
required by Rule 3-05(b) and Article 11 of Regulation S-X will
be filed on or before January 18, 1997.
(c) Exhibits.
2.1 Purchase Agreement dated effective September 30,
1996 between the registrant, Zercom and Nortech.
2.2 Amendment No. 1 to Asset Purchase Agreement dated
effective November 4, 1996 between registrant,
Zercom and Nortech.
Item 8 -- Not Applicable.
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SIGNATURE
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.
COMMUNICATIONS SYSTEMS, INC.
By /s/ Curtis A. Sampson
Its President, Chairman and Chief Executive Officer
Dated: November 18, 1996
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Exhibit 2.1
ASSET PURCHASE AGREEMENT
This Asset Purchase Agreement (the "Agreement"), made effective as of
September 30, 1996, is among Nortech Systems Incorporated, a Minnesota
corporation ("Purchaser"), Zercom Corporation, a Minnesota corporation
("Seller") and Communications Systems, Inc., a Minnesota corporation which is
the sole shareholder of Seller (the "Shareholder").
W I T N E S S E T H:
WHEREAS, Seller owns and operates the plant located in Merrifield,
Minnesota and leases and operates the plant in Aitken, Minnesota (collectively,
the "Plant"); and
WHEREAS, Purchaser desires to purchase and assume, and Seller desires
to sell and transfer, all of the Assets and all of the Assumed Liabilities (each
as defined in this Agreement), upon the terms and conditions set forth in this
Agreement.
NOW, THEREFORE, in consideration of the purchase and sale of the Assets
and the transfer and assumption of the Assumed Liabilities, and mutual promises,
covenants and conditions set forth below, Seller and Shareholder, jointly and
severally, and Purchaser, hereby agree as follows:
1. Definitions. As used in this Agreement, the following terms have
the meanings set forth below, and where those meanings are intended,
those terms are capitalized:
a. "Acquired Contracts" means (i) all of the Contracts which
Purchaser will assume the rights and obligations under which
are designated as such on Schedule 1.5 and (ii) as of the
Closing Date, all purchase orders for products and services
not delivered or rendered as of the Closing Date.
b. "Assets" means all of the assets of Seller, except the
Excluded Assets.
c. "Assumed Liabilities" means (i) all liabilities and
obligations accruing from and after the Closing Date under the
Acquired Contracts, (ii) all warranty obligations associated
with all products sold by Purchaser prior to the Closing Date
except for any LCF40 products shipped, or sold, by Purchaser
prior the Closing Date, and (iii) all accrued vacation earned
by Seller's employees through the Closing Date, up to a
maximum dollar amount equal to the Closing Date Purchase Price
Adjustment (as defined in Section 2.2(A))
d. "Books and Records" means all of Seller's books and records
relating to the Assets or Seller's business (other than
Seller's tax returns), including without limitation, lists of
customers and suppliers, and records with respect to pricing,
volume, payment history, cost, inventory, machinery and
equipment, mailing lists, distribution and customer lists,
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sales, purchasing and materials, and including any such
records which are maintained on computer.
e. "Contracts" means (i) all of Seller's interest in and to all
contracts, commitments and agreements which relate to the
Assets or Seller's business, all of which are listed on an
Schedule 1.5, and (ii) as of the Closing Date, all purchase
orders for products and services not delivered or rendered as
of the Closing Date.
f. "Equipment" means all of Seller's tangible Assets (other than
Inventory and the Real Estate), including, but not limited to
furniture, machinery, equipment, tooling, computers and the
software utilized therewith, and vehicles, specifically
including, but not limited to, the items listed on Schedule
1.6.
g. "Excluded Assets" means all of the following:
i. Seller's cash; and
ii. Seller's accounts receivable arising from sales
of merchandise or services to customers in the
ordinary course of Seller's business ("Accounts
Receivable"); and
iii. Clearwater Classic Zercom Marine finished goods
inventory up to an amount equal to $352,558 (the
"Clearwater Inventory"); and
iv. All rights of Seller to income tax refunds; and
v. All of the corporate records of Seller, including,
without limitation, the minutes books, stock ledgers,
tax returns and all business records and files
related to the Excluded Assets.
h. "Fixed Assets" means the fixed assets of Seller, without
regard to accumulated depreciation, as determined in
accordance with GAAP.
i. "GAAP" means generally accepted accounting principles,
consistently applied with prior periods.
j. "Intellectual Property" means all patents, copyrights,
trademarks, trade names, trade secrets, and know how, utilized
by Seller in solely the operation of the Assets, but excluding
all intellectual property referred to in Section 1.7.
k. "Inventory" means all of Seller's parts, supplies, raw
materials, work in process, finished goods and goods held for
sale to customers, but does not include the Clearwater
Inventory (as defined in Section 1.7(C)).
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l. "Inventory Value" means the value of the Inventory as of
the Closing Date, determined in a manner consistent with
the calculation of the "Total Net Inventory" line item
shown on the Seller Statement.
m. "Liabilities and Obligations" means any indebtedness, claim,
obligation or liability of any kind or nature whatsoever,
whether absolute or contingent, liquidated or unliquidated,
due or to become due, accrued or not accrued, or otherwise of
Seller.
n. "Plans" means all plans, blueprints, designs, processes,
computer programs and related documents, formulae, process
sheets, drawings, instructions, machine manuals, any
non-expired warranties and guarantees, and similar items used
or required by Seller in its business, including, but not
limited to, those items used in production of products,
relating to equipment and its operation, and relating to the
building and improvements on the Real Estate, except those
items owned by Seller's customers.
o. "Net Fixed Assets" means the fixed assets of Seller, net
of accumulated depreciation, as determined in accordance
with GAAP.
p. "Net Fixed Asset Value" means the value of the Net Fixed
Assets as of the Closing Date.
q. "Real Estate" means the real property owned by Seller and more
particularly described on Schedule 1.17, including buildings
and improvements located thereon, also as more particularly
described on Schedule 1.17.
r. "Seller Statement" means the balance sheet of Seller as of
August 31, 1996, a copy of which has been provided to
Purchaser.
2. Assumption of Liabilities.
a. Assumed Liabilities. From and after the Closing Date,
Purchaser must assume and become liable for, and must pay and
satisfy as they become due, all obligations under the Assumed
Liabilities.
b. Excluded Liabilities. Purchaser will have no responsibility
for, and Seller and the Shareholder, jointly and severally,
agree to indemnify and hold Purchaser harmless from, any
Liabilities and Obligations of Seller of any nature whatsoever
which are not specifically included in the Assumed
Liabilities, whether similar or dissimilar to the Assumed
Liabilities, whether now existing or hereafter arising, and
whether known or unknown to Purchaser or Seller, including
without limitation:
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i. Purchaser has no obligation to hire any of Seller's
employees. Seller shall be responsible for any and
all Liabilities and Obligations owed to its employees,
including but not limited to any termination payments,
accrued vacation pay, unpaid wages, including those for
the current week, and otherwise, through the Closing Date.
All such obligations of Seller to employees must be
satisfied, or arrangements for the satisfaction thereof
acceptable to Purchaser must be made, on or before the
Closing Date. With regard to accrued vacation, Seller must
determine, immediately prior to the Closing, the amount
of accrued vacation earned by Seller's employee through the
Closing Date and the amount of the accrued vacation will
equal the amount of an adjustment to the Purchase Price
(the "Closing Date Purchase Price Adjustment").
ii. All Liabilities and Obligations that Seller has to
suppliers for products delivered or services rendered
or to creditors must be promptly paid and satisfied
by Seller, on or before the Closing Date, so as to
avoid any adverse impact upon the business related to
the Assets in the hands of Purchaser.
III. Purchase and Sale.
a. Purchase Price. In payment for the Assets, Purchaser must pay
Seller on the Closing Date a purchase price equal to
$6,500,000 (the "Purchase Price"), payable in accordance with
Section 3.2. The Purchase Price is subject to the Closing Date
Purchase Price Adjustment, as provided in Section 2.2(A), and
the Post-Closing Purchase Price Adjustment, as provided in
Sections 3.3 and 3.4.
b. Payment of Purchase Price. At the Closing, Purchaser must pay
Seller the Purchase Price as follows:
i. A payment, in the form of a cashier's or certified
check or by wire transfer, in the amount of $1,500,000,
subject to the Closing Date Purchase Price Adjustment
set forth in Section 2.2(A); and
ii Delivery of a duly executed non-negotiable promissory
note of Purchaser in the amount of $5,000,000,
substantially in the form of Exhibit B (the "Note").
c. Post-Closing Purchase Price Adjustment.
i. The Purchase Price is subject to a post-closing
adjustment in an amount equal to the Post-Closing
Purchase Price Adjustment. The "Post-Closing Purchase
Price Adjustment" equals the sum of
(1) the Inventory Value, less $3,587,364; plus
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(2) the Net Fixed Asset Value, less $2,359,509, plus
one-half of the deprecation expense associated
with the Fixed Assets between August 31, 1996 and
the Closing Date.
ii. Determination of Adjustment Values.
(1) Promptly after the Closing Date, Seller and
Purchaser must jointly conduct a physical
inventory of the Inventory as of the Closing
Date.
(2) Purchaser must, as soon as reasonably
practicable after the Closing Date but not
later than 45 days after the Closing Date,
prepare a statement (the "Closing Statement")
setting forth Purchaser's calculation, in
reasonable detail, of the Inventory Value and
the Net Fixed Asset Value.
(3) Within 20 days after receipt of the Closing
Statement, Seller must give Purchaser written
notice of any exceptions to Purchaser's
calculation of the Inventory Value or the Net
Fixed Asset Value.
(a) If Seller has not given Purchaser such written
notice within that 20-day period, then the
Inventory Value and the Net Fixed Asset Value
set forth in the Closing Statement will be
conclusive and binding on the parties.
(b) If Seller gives Purchaser such written notice
within that 20-day period, then Purchaser and
Seller must promptly endeavor to resolve
the matters. If Seller and Purchaser fail to
reach an agreement with respect to such
matters on or before the thirtieth day after
Seller receives the Closing Statement, then,
as to such matters remaining in dispute, the
Seller and the Purchaser must promptly retain
an audit partner from a Big Six national
accounting firm acceptable to Purchaser and
Seller, which has not rendered services to
either Purchaser or Seller for at least three
years. That partner must make an independent
determination of such matters and deliver an
opinion to Purchaser and Seller within 20 days
of that partner's retention, which
determination will be conclusive and binding
on the parties. All fees and expenses of the
audit partner must be paid by the party
generally not prevailing on the issues,
or if the audit partner determines that
neither party could be fairly found to be the
prevailing party, then such fees and expenses
must be paid equally Purchaser and Seller.
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d. Payment of the Post-Closing Purchase Price Adjustment.
i. Positive Post-Closing Purchase Price Adjustment.
If the Post-Closing Purchase Price Adjustment is greater than
zero, then Purchaser must deliver, within five days after
final determination of the Post-Closing Purchase Price
Adjustment, a substitute promissory note (the "Greater Note")
for the Note with a principal amount equal to the $5,000,000
plus the amount of the Post-Closing Purchase Price
Adjustment plus an amount equal to (i) 6%, divided by (ii) 365,
multiplied by (iii) the number of days between the Closing
Date and the date of delivery of the Net Fixed Asset Value, and
multiplied by (iv) the Post-Closing Purchase Price Adjustment.
Upon delivery of the Net Fixed Asset Value, Seller must
immediately mark the Note "Cancelled" and promptly deliver the
cancelled Note to Purchaser.
ii. Negative Post-Closing Purchase Price Adjustment.
If the Post-Closing Purchase Price Adjustment is less than
zero, then Purchaser must deliver, within five days after
final determination of the Post-Closing Purchase Price
Adjustment, a substitute promissory note (the "Lesser Note")
for the Note with a principal amount equal to the $5,000,000
less the amount of the Post-Closing Purchase Price Adjustment
less an amount equal to (i) 6%, divided by (ii)365, multiplied
by (iii) the number of days between the Closing Date and the
date of delivery of the Lesser Note, and multiplied by (iv)
the Post-Closing Purchase Price Adjustment. Upon delivery of
the Lesser Note, Seller must immediately mark the Note
"Cancelled" and promptly deliver the cancelled Note to
Purchaser.
e. Allocation of Purchase Price.
The Purchaser and the Seller agreed that the Assets are being sold
and purchased at their fair market values. Therefore, consideration
paid by the Purchaser to the Seller in exchange for the Assets
has been allocated as set forth in Schedule 3.5 pursuant to arms'
length negotiation, and such allocation properly reflects the
respective fair market values of the Assets. It is further agreed
that the allocation of the consideration to the Assets as set forth
in Schedule 3.5 will be binding on Seller and Purchaser for federal
and state income tax purposes and will be consistently so
reflected by Purchaser and Seller on their respective federal
and state income tax returns. Once the Closing Date Purchase
Price Adjustment and the Post-Closing Purchase Price Adjustment
is determined, the amount of the Closing Date Purchase Price
Adjustment and the amount of the Post-Closing Purchase Price
Adjustment must be allocated to the specific items shown on
Schedule 3.5 in on a pro rata basis.
4. Closing. The closing of the transactions contemplated under this
Agreement (the "Closing") will take place at the offices of Phillips
& Gross, P.A., 5420 Norwest Center, 90 South Seventh Street,
Minneapolis, Minnesota 55402 on the October 31, 1996 (the "Closing
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Date") at 10:00 a.m., or at such other place as may be mutually agreed
upon in writing by Purchaser and Seller.
5. Real Estate Matters.
a. Title Insurance and Survey. Not less than fifteen (15) days before
the Closing Date, Seller will deliver to Purchaser: (i) an ALTA
1987 Form B, 1990 Revision, commitment for an owner's policy of
title insurance issued by Commercial Partners Title LLC, as agent
for Chicago Title Insurance Company, naming Purchaser as the
proposed insured, in the amount of $1,300,000; and, (ii) a survey
of the Property prepared, at Seller's expense, by a Minnesota
Registered Land Surveyor which shall be certified to Seller, to
Purchaser, and to Commercial Partners Title LLC, as agent for
Chicago Title Insurance Company, and shall show the location of
all buildings and parking areas on the Property, all access roads
to the Property, any encroachments, and all easements affecting
the Property. Said commitment shall cover pending and levied
special assessments and shall be prepared at Seller's expense.
The premiums for the policy of title insurance shall be paid for
by Purchaser. Seller shall pay for the fees and costs for issuing
the title commitment.
b. Purchaser's Objections. Purchaser shall be allowed ten (10) days
after receipt of said title insurance commitment and said survey
for the examination thereof and the making of any objections to
the marketability of title, such objections must be made in
writing within that 10-day period or all objections are deemed to be
waived. If any objections are so made, Seller shall be allowed
sixty (60) days to make such title marketable. If such defects
are cured within said sixty (60) day period, Purchaser shall be
notified in writing of the curing of said defects, and Purchaser
then shall be allowed ten (10) days after receipt of such notice
to perform in accordance with the terms of this Agreement. If
such title is not marketable and not made so within said sixty (60)
day period and Purchaser does not waive, by written notice given
to Seller within ten (10) days after the end of said sixty (60)day
period, the curing of said defects, this Agreement shall be null
and void, in which event neither Purchaser nor Seller shall be
liable for damages hereunder to the other. If Purchaser elects to
waive said objections, it shall be allowed ten (10) days after it
so notifies Seller to perform in accordance with the terms of
this Agreement.
c. Prorations, Etc. Seller and Purchaser agree to the following
prorations and allocation of costs in connection with this
Agreement and the transactions contemplated hereby:
i. Real estate taxes and installments of special assessments due
and payable in the year prior to the year in which the closing
occurs and in all prior years shall be paid by Seller on or
before the Closing Date. The real estate taxes and
installments of special assessments due and payable in the year
of closing shall be prorated between Seller and Purchaser as
of the Closing Date so that Seller pays that part of the real
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estate taxes and installments of special assessments due and
payable in the year of closing which is equal to a fraction
which has as a denominator the number "365" and which has as a'
numerator a number equal to the number of days which have passed
in the calendar year of closing to, and including, the Closing
Date, and so that Purchaser pays the remainder thereof.
ii. All other operating costs of the Assets, such as but not limited
to utilities, shall be allocated between Seller and Purchaser
based upon the Closing Date, such that Seller shall pay that
portion of the operating costs pertaining to that period of time
up to and including the Closing Date, and Purchaser shall pay
that portion of the operating costs from and after the actual
Closing Date. Prepaid license fees or permit fees, if any,
relating to licenses or permits assigned to Purchaser as provided
above shall be prorated and credited to Seller and paid for by
Purchaser as of the Closing Date.
iii. Real estate transfer and deed taxes shall be paid by Seller.
Recording fees shall be paid by Purchaser.
6. Deliveries of Seller.
a. Seller's Deliveries. On the Closing Date, subject to the terms
and conditions set forth in this Agreement, Seller must make the
following deliveries:
i. A Bill of Sale, Assignment and Assumption Agreement in a
form reasonably acceptable to Purchaser certificates of
title, and other instruments of conveyance reasonably
requested by Purchaser, duly executed by Seller;
ii. Assignments of all Intellectual Property;
iii. A certified search showing all financing statements on
file against the Assets dated no earlier than 10 business
days prior to the Closing Date, together with appropriate
releases or termination statements for any security
interests in the Assets;
iv. A Non-Compete Agreement, substantially in the form of
Exhibit A (the "Non-Compete Agreement"), duly executed
by Seller and the Shareholder;
v. A general warranty deed conveying good and marketable
title to the Real Estate, free and clear of all liens,
charges and encumbrances except title defects waived by
Purchaser pursuant to Section 5.2;
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vi. A standard seller's affidavit, certifying that there
are no judgments, bankruptcies, tax liens, mechanic's
liens, parties in possession, unrecorded interests,
encroachment and boundary line questions or related
matters affecting the Real Estate, duly executed by
Seller;
vii. A "non-foreign person affidavit" sufficient in form and
substance to Purchaser and its counsel establishing that
this transaction is exempt from the withholding
requirements of the Foreign Investment Real Property Tax
Act;
viii. A Security Agreement, substantially in the form of
Exhibit C (the "Security Agreement"), duly executed by
Purchaser; and
ix. All other items or documents reasonably requested by
Purchaser.
b. Purchaser's Deliveries. On the Closing Date, subject to the
terms and conditions set forth in this Agreement, Purchaser
must make the following deliveries:
i. Payment of the Purchase Price as provided in Section 3.2;
ii. The Non-Compete Agreement, duly executed by Purchaser;
iii. A Bill of Sale, Assignment and Assumption Agreement in a
form reasonably acceptable to Seller, duly executed by
Seller;
iv. A certificate of the Secretary of Purchaser, certifying
a copy of the resolutions of Purchaser's board of
directors which authorize the execution, delivery and
performance of this Agreement as having been duly adopted
and as being in fullforce and effect on the Closing Date;
v. The Security Agreement, duly executed by Purchaser;
vi. A mortgage in a form satisfactory to Seller; and
vii. All other items or documents reasonably requested by
Seller.
7. Investigation.
a. From and after the date hereof and through the Closing Date,
Seller shall afford to the officers and representatives of
Purchaser free access to the properties and records of Seller,
including, without limitation, the Plans, in order that
Purchaser may have full opportunity to make such investigation
at reasonable times as it shall desire of the assets and of
the affairs of Seller, and Seller shall provide to Purchaser
reasonable assistance in the conduct of said investigation by
Purchaser.
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b. Without limiting the generality of the foregoing, Purchaser,
and its representatives and consultants, shall be permitted
access to the Real Estate prior to Closing in order to, at
Purchaser's sole expense, inspect the same, conduct soil
borings, environmental inspections and tests, which
environmental inspections and tests may include, without
limitation, soil tests, chemical tests, and installation of
such monitoring wells as may be appropriate in Purchaser's
opinion, and prepare a survey and take measurements. During
such access, such personnel shall not cause any unreasonable
interference with Seller' s operations or damage to Assets,
except as may be necessary to conduct an environmental
inspection, provided Purchaser shall promptly repair any such
damage and restore the Assets to their condition immediately
prior to such damage. As part of such investigations,
Purchaser or its representatives or consultants shall be
permitted access to the building and other improvements
located on the Real Estate.
8. Representations and Warranties of the Seller and Shareholder. Seller
and Shareholder, jointly and severally, represent and warrant to
Purchaser that, except as specifically set forth on the Schedules
attached to this Agreement, the following statements are true and
correct as of the date of this Agreement and will be true and correct
on the Closing Date as if made on the Closing Date:
a. Seller. Seller is a corporation duly organized and existing
and in good standing under the laws of the state of Minnesota
and is entitled to own or lease its properties and to carry
on its business as and in the places where such properties
are now owned, leased or operated, or such business is now
conducted. Seller has full power and authority to sell,
convey, assign transfer and deliver the Assets as herein
provided, and all corporate and other proceedings necessary
to be taken by Seller in connection with the transactions
provided for by this Agreement and necessary to make the same
effective have been duly and validly taken, and this Agreement
has been duly and validly executed and delivered by each of
Seller and Shareholder and constitutes a valid and binding
obligation of each of Seller and Shareholder enforceable in
accordance with its terms. Seller is qualified to do business
as a foreign corporation in all jurisdictions in which the
nature of Seller's business, the location of its assets
or other factors require it to be so qualified. Shareholder
constitutes the sole shareholder of Seller, and no other
persons or entities hold stock or other equity interests in
Seller. Seller does not have any subsidiaries, nor does it
have any equity interest in any entity.
b. Title. Except as set forth on Schedule 8.2 and except title
defects waived by Purchaser pursuant to Section 5.2, Seller
has good and marketable title to the Assets, free and clear of
any mortgages (other than the Plant located in Aitken,
Minnesota), liens, security interests, pledges, easements
or encumbrances of any kind or nature whatsoever. At the
Closing, Seller will convey good and marketable title to the
Assets to be sold hereunder, free and clear of any and all
mortgages, liens, security interests, pledges, easements,
or encumbrances of any kind or nature whatsoever, except
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title defects set forth on Schedule 8.2, with respect to
personal property, and title defects waived by Purchaser
pursuant to Section 5.2.
c. Financial Statements. The Seller Statement is true, complete
and correct and has been prepared in accordance with generally
accepted accounting principles consistently followed
throughout the periods indicated. The Seller Statement fairly
presents the financial condition and assets and liabilities
(whether accrued, absolute, contingent or otherwise) of Seller
as of the date indicated.
d. Liabilities. Except as and to the extent reflected or
reserved against in the Seller Statement, or as otherwise
disclosed herein, Seller had, as of the date of Seller
Statement, no other material Liabilities and Obligations.
As of the date of this Agreement, Seller is not subject to
and does not have any Liabilities and Obligations, except as
disclosed in the Seller Statement, and except for such
Liabilities and Obligations as have arisen in the ordinary
course of business of Seller since the date of said Seller
Statement, none of which newly arisen Liabilities and
Obligations have a material adverse effect upon the Assets,
or Seller, its organization, business, properties or
financial condition.
e. Other Operations. During the past five (5) years, neither
Seller nor Shareholder, nor any subsidiaries or affiliated or
controlled entities of Seller or Shareholder, have sold
companies or businesses selling products which compete with
the products produced by Seller, other than the sale of CSE
and Berry Electronic.
f. Non-Breach, Etc. The execution and delivery of this Agreement
and the consummation of the transactions contemplated hereby
by Seller and Shareholder will not (a) result in a breach of
any of the terms or conditions of, or constitute a default
under, any mortgage, note, bond, indenture, agreement, license
or other instrument or obligation, including the Contracts, to
which Seller or Shareholder is now a party or by which it or
any of its properties or assets may be bound or affected, or
(b) violate any order, writ, injunction or decree of any
court, administrative agency or governmental body.
g. Contracts.
i. Except as listed in Schedule 1.5 and except for any
outstanding purchase orders, Seller is not a party to any
written or oral:
(1) contract, agreement or understanding for the
employment of any officer, consultant, director or
employee;
(2) contract, agreement or understanding with any labor
union;
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(3) contract, agreement or understanding for the sale of
products or performance of services;
(4) license or franchise agreement, either as licensor or
licensee or franchiser or franchisee, including any
related to Intellectual Property, or distributor,
dealership or sales agency contract, agreement or
understanding;
(5) lease for real or personal property under which Seller
is a lessor or lessee, or contract, agreement or
understanding to purchase or sell real property or a
material amount of personal property;
(6) pension, profit-sharing, bonus, deferred compensation,
retirement or stock option or stock purchase plan in
effect with respect to employees or others;
(7) contract or agreement granting to any person the right
to use any property or property right of Seller,
including any trademark or patent licensing
agreement, contract or understanding;
(8) plan or contract or other arrangement providing for
insurance for any officer, director or employee or
member of their families;
(9) construction contract;
(10) contract or agreement containing covenants by Seller
not to compete in any line of business or with any
person;
(11) joint venture contract or partnership or
arrangement or other agreement involving a sharing
of profits; or
(12) contract or agreement relating to the borrowing or
lending of money by Seller, providing for letters of
credit, or providing for any mortgage, lien or
security interest upon any of the Assets; or
(13) any guaranties or indemnifications by Seller, excep
for Seller's obligations resulting from the
endorsement of checks deposited for collection;
(14) any contracts calling for payments by Seller in
excess of Ten Thousand and no/100 Dollars
($10,000.00);
(15) other material contract, agreement or understanding.
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ii. Seller has provided to Purchaser true, current,
correct and complete copies of all of the Contracts,
including all items specified in Section 8.7(A), and
will provide Purchaser will true, correct and
complete copies of all purchase orders outstanding at
any time between the date of this Agreement and the
Closing Date.
iii. Seller has performed all obligations required to be
performed by it to date under each of the Contracts,
and Seller and, to Seller's and Shareholder's
knowledge, each other party to each Contract is not
in default under any of the Contracts, all of which
are in full force and effect. Except as stated on
Schedule 1.5 each of Acquired Contracts are
assignable without consent.
h. Equipment. Except as may be set forth on Schedule 1.6,
all items included in the Equipment are located on the Real
Estate, and are in good condition and repair, ordinary wear
and tear excepted.
i. Real Estate.
i. Seller has good and marketable title in fee simple to
Real Estate, including the buildings and improvements
thereon, free and clear of all encumbrances, charges,
easements, restrictions, rights and conditions,
except title defects waived by Purchaser pursuant to
Section 5.2.
ii. Seller's present use of the Real Estate, and the
other Assets located thereon, complies with all
federal, state and local laws, regulations, zoning
and other ordinances, and private restrictions which
are applicable to the Real Estate and the other
Assets located thereon.
iii. To Seller's and Shareholder's knowledge, there are no
pending, proposed or threatened changes in any zoning
ordinances which apply to the Real Estate. If Seller
becomes aware of any pending, proposed or threatened
zoning changes before Closing, it will immediately
notify Purchaser of such zoning changes.
iv. Except as set forth on Schedule 8.2, to Seller's and
Shareholder's knowledge, no condition exists and no
activity has ever been conducted at the Real Estate
which has given rise to, or may give rise to, any
liability under any applicable federal, state or
local environmental protection, health, safety or
similar law, statutory or common.
v. There are no public improvements (water, sewer,
sidewalk, street, alley, curbing, etc.) or
condemnation actions affecting the Real Estate or
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other Assets thereon which have been completed or are
in progress and for which assessments may be levied
after closing. Neither Seller nor Shareholder have
any knowledge of any planned improvements which may
result in assessments or condemnation actions. If
Seller becomes aware of any planned improvements or
condemnation actions before Closing, it will promptly
notify Purchaser of such planned improvements or
condemnation actions.
vi. All utilities, including, but not limited to,
telephone, city sewer, city water, electricity, gas
and any other utilities necessary for the operations
of the Assets, are available, connected and
operational, and adequate for conducting the
operations of the Real Estate and the other Assets as
those operations are being conducted by Seller.
vii. No portion of the Real Estate is the subject of
any lease or leasehold interest contract or
agreement for use of the Real Estate.
viii. The Real Estate has direct legal access to, abuts,
and is served by a publicly dedicated and maintained
road. This road provides a valid means of ingress and
egress to and from the Real Estate, sufficient for
the present operation of the Real Estate and the
Assets thereon.
ix. The building, structures and improvements included in
the Real Estate are in good condition and repair,
ordinary wear and tear excepted, and there is no
material defect or wear and tear to any such
building, structure or improvement, or any other
deterioration, damage or defect, which would prohibit
or impair the continued use of such buildings,
structures or improvements for the purposes for which
they are now employed, or which would require any
material expenditure for repair or replacement.
x. Any existing easements, including, but not limited
to, those upon, above or below the Real Estate,
do not interfere with the present use of the Real
Estate and the Assets thereon.
xi. To Seller's and Shareholder's knowledge, there are
no underground tanks on the Real Estate, nor are
their any transformers, capacitors or other
appliances in use or stored upon the Real Estate
which contain PCBs. There is no urea-formaldehyde
insulation and no asbestos on the Real Estate.
To Seller's and Shareholder's knowledge, there is
no hazardous substance or hazardous waste
(hereinafter a "Hazardous Substance"), as defined in
the Comprehensive Environmental Response Compensation
and Liability Act of 1980 ("CERCLA"), or the Resource
Conservation and Recovery Act of 1976 ("RCRA")or the
Minnesota Environmental Response and Liability Act,
Minn. Stat. CL 115A ("MERLA"), or the so-called
"Minnesota Superfund Bill," Minnesota Statutes
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Chapter 115B (1984) or any other applicable federal,
state or local environmental laws, statutes or
regulations or as defined in 42 U.S.C. 3251, as
amended, located anywhere in or on the Real Estate.
To Seller's and Shareholder's knowledge, no condition
exists, and no activity has ever been conducted at
the Real Estate which has given rise to, or may give
rise to, any liability or obligation under any
applicable federal, state or local environmental
protection, health, safety, or similar law, whether
statutory or common law.
xii. Except in the ordinary course of its own business
where Seller has complied with the legal
requirements applicable thereto, Seller has not
engaged in the business of generating, transporting,
storing, treating or disposing of Hazardous
Substances in or on the Real Estate. The Seller
has not used the Real Estate for the storing or
disposal of waste or for the storing or disposal of
Hazardous Substances during the period that Seller
has been an owner of the Real Estate. To Seller's
and Shareholder's knowledge, neither the Real
Estate nor any of its various components contains,
is composed of, or emits any hazardous, toxic, or
contaminated chemicals, substances, materials or
pollutants or other Hazardous Substances.
xiii. Seller is not a party to, and is not currently
threatened with, any legal action or other proceeding
before any court or administrative agency relating to
or affecting the Real Estate or any portion thereof.
Seller has not been charged with, and, to Seller's
and Shareholder's knowledge, is not under
investigation regarding any violation of any law or
administrative regulation, federal, state or local
concerning the Real Estate.
j. Assets Complete, Etc. No tooling, fixtures or any
manufacturing operation is located other than at the Plant,
except that tooling which is held by third parties who perform
manufacturing operations for Seller as disclosed by Seller
to Purchaser. Those third parties holding the tooling
("Tooling Holders") have been paid all amounts owed to
them, or will be paid such amounts on or before Closing, so
that as of the Closing, no amounts will be owed to the Tooling
Holders by Seller. There are no contracts, agreements, or
understandings with the Tooling Holders except as
referenced on Schedule 1.5. Promptly after the Closing,
Seller will send notices to the Tooling Holders advising them
that the Tooling is the property of Purchaser, and will take
such other actions as may be reasonably required to give
Purchaser ownership and control of the tooling held by the
Tooling Holders. Seller does not lease or otherwise use any
property owned by third parties in its operations, except
as may occur under leases disclosed on Schedule 1.5.
k. Litigation. There are no claims, actions, suits, proceedings
or investigations (whether or not purportedly on behalf of
Seller) pending or, to Seller's and Shareholder's knowledge,
threatened against or affecting Seller or the Assets, at
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law or in equity or admiralty or before or by any federal,
state, municipal or other governmental department, commission,
board, agency or instrumentality, domestic or foreign, nor
has any such action, suit, proceeding or investigation been
pending during the sixty (60) month period preceding the
date of this Agreement; and, to Seller's and Shareholder's
knowledge, Seller is not operating under or subject to, or
in default with respect to, any order, writ, injunction or
decree of any court or federal, state, municipal or other
governmental department, commission, board, agency or
instrumentality, domestic or foreign.
l. Compliance with Laws. Seller has substantially complied with,
and, to Seller's and Shareholder's knowledge, the Assets
substantially comply with, all applicable laws, regulations
and orders applicable, including without limitation CERCLA,
RCRA, MERLA, the Occupational Safety & Health Act, the Clean
Air Act, the Clean Water Act, the Toxic Substances Control
Act, the Safe Drinking Water Act, and the Refuse Act, and the
present uses by Seller of the Assets do not violate any such
laws, regulations and orders.
m. Intellectual Property. Schedule 8.13 lists all service marks,
patents, trademarks, trade names, trademark and trade name
registrations, brand names, copyright registrations and all
pending applications for any of the foregoing used or owned
by Seller solely for the operation of the Assets and all
licenses granted by or to Seller which relate, in whole or in
part, to Intellectual Property. Seller owns, or has a license
to use, all Intellectual Property. The use by Seller of the
Intellectual Property, and the conduct by Seller of its
business, does not infringe on the intellectual property
rights of any third party, and no claim has been asserted to
such effect or otherwise affecting the Intellectual Property.
The Intellectual Property to be assigned, transferred or
conveyed to Purchaser under this Agreement constitutes all the
Intellectual Property used by Seller in the operation of the
Assets.
n. Labor Controversies. There are no controversies pending or, to
the best knowledge of Seller and Shareholder, threatened,
between Seller and (i) any union or (ii) any of Seller's
employees. Seller is not currently subject to (A) any threats
of strikes or work stoppages, or (B) any organizational
efforts or demands for collective bargaining or any union
organization. Seller is in substantial compliance with
applicable labor laws. Seller is not party to any collective
bargaining agreements.
o. Pension and Profit Sharing Plans; Benefits. All of Seller's
employee benefit plans, including, but not limited to, any
disability, medical, dental, workers compensation, health
insurance, life insurance, vacation, benefits plans, incentive
plans, fringe benefit plans, pension or profit sharing plans,
and any other material plans, programs, agreements or
arrangements which provide benefits to any current or former
employee of Seller are disclosed on Schedule 8.15. All the
accrued obligations of Seller, whether arising by operation
of law, by contract or by past custom, for payments by it to
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trust or other funds or any governmental agency with respect
to unemployment compensation benefits, social security
benefits or any other benefits for employees of Seller shall
have been paid prior to Closing or, if due after Closing,
shall be paid when due under applicable laws, regulations, or
provisions of benefit plans or policies as the case may be.
All accrued vacation benefits payable to employees of Seller
shall have been paid prior to or contemporaneously with
Closing. All other accrued benefits, and all other reasonably
anticipated obligations of Seller, whether arising by
operation of law, by contract or by past custom, for holiday
pay, bonuses or other forms of compensation or benefits which
are and may become payable to employees of Seller shall
be paid in accordance with the provisions of applicable laws,
regulations, benefit plans or policies, as the case may be. In
no event shall Purchaser assume or be responsible for past or
future obligations of Seller to any employee, including any
obligations to pay salary, benefits, severance pay, vacation
pay or other benefits to any employee, regardless of whether
such employees are hired by Purchaser.
p. Changes in Suppliers and Customers. Seller is not aware of any
facts which indicate that any of the customers of Seller
intends to cease being a customer of Seller (or intends to not
continue as a customer with Purchaser after the Closing Date),
nor is Seller aware of any facts which indicate that any
supplier to Seller intends to cease doing business with
Seller, or to not do business with Purchaser after the Closing
Date, whether as a result of the transactions contemplated
hereby or otherwise.
q. Conduct of Business. Except as disclosed on Schedule 8.17,
between the date of the Seller Statement and the Closing Date,
Seller has not and will not have
i. incurred any Liabilities and Obligations (absolute or
contingent), except for Liabilities and Obligations
disclosed in the Seller Statement or in the
Schedules, and except for Liabilities and Obligations
which have arisen in the ordinary course of business
of Seller, none of which newly arisen Liabilities and
Obligations have a material adverse effect upon
Seller, the Assets, or Seller's organization,
business, properties, or financial condition;
ii. mortgaged, pledged or subjected to any lien, charge
or other encumbrance, any of the Assets, tangible
or intangible;
iii. sold or transferred any assets included in the
Assets, other than sales of inventory or utilization
of supplies in the ordinary course of business;
iv. sold, assigned or transferred any Intellectual
Property, or other intangible assets of Seller or
relating to the Assets or Seller's business, or
included in the Assets;
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v. suffered any extraordinary losses or waived any
rights of substantial value relating to Seller's
business or the Assets;
vi. suffered any material damage, destruction r loss to
any Assets, whether or not covered by insurance;
vii. entered into any transaction involving or relating
to Seller's business or the Assets other than in the
ordinary course of business;
viii. increased the compensation payable, or to become
payable by Seller to any of its employees, other
than increases consistent with past practices,
including, but not limited to, any bonus payment or
deferred compensation;
ix. made or suffered any amendment or termination of any
of the Contracts;
x. increased any benefits to employees of Seller under
pension, insurance or other employee benefit
programs, other than increases consistent with past
practices;
xi. changed its methods of accounting in any material
respect;
xii. acquired a significant portion of the assets or
stock of any person or business entity; or
xiii. suffered a termination of, or amended, any license
or permit.
r. Employees. Seller is not aware that any employees of Seller
intend to cease their employment with Seller, whether as a
result of the transactions contemplated hereby or otherwise.
s. Licenses and Permits. All licenses, permits, franchises,
approvals and governmental authorizations required for the
Assets, or their operations, are listed on Schedule 8.19. No
other licenses, permits, franchises, approvals or other
governmental authorizations are required for the Assets, or
their operations, as heretofore conducted by Seller. True,
current, correct and complete copies of such licenses,
permits, franchises, approvals, and governmental
authorizations have been delivered by Seller to Purchaser.
Seller has performed in all material respects all obligations
required to be performed by it to date under all, and is not
in default under any, such licenses, permits, franchises,
approvals, or governmental authorizations or the laws,
regulations and requirements of the licensing and permit
authorities. All such licenses, permits, franchises,
approvals, and governmental authorizations are in full force
and effect. Except as set forth on Schedule 8.19, all such
licenses, permits, franchises, approvals, and governmental
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authorizations will be assigned to Purchaser at the Closing,
to the extent permitted by law.
t. Plans. The Plans relating to products produced by Seller are
complete and of such quality that competent personnel by use
of such Plans can produce, manufacture and assemble such
products so that they meet the specifications and requirements
applicable thereto.
u. Suppliers. Schedule 8.21 lists all significant suppliers of
products or services to Seller.
v. Material Change. Since the date of the Seller Statement,
there has been no material change in the condition, financial
or otherwise, of Seller, Seller's business, or the Assets
from that shown in the Seller Statement, except changes
occurring in the ordinary course of business, which changes
have not materially adversely affected the Assets or the
business related to the Assets. To Seller's and
Shareholder's knowledge, no statute, order, judgment, writ,
injunction, decree, permit, rule or regulation of any court
or governmental or regulatory body has been adopted or
entered, or is proposed to be adopted or entered, which may
materially and adversely affect Seller, the Assets or the
business of Seller. To Seller's and Shareholder's knowledge,
there has been no event or occurrence affecting Seller, the
Assets, or the business of Seller which may have a material
adverse effect upon Seller's Assets.
w. Disclosure. No representation or warranty made by Seller or
Shareholder in this Agreement, or in any agreements,
certificates or documents delivered to Purchaser in connection
with this Agreement, contains any untrue statement of a
material fact or omits to state a material fact necessary to
make such representation or warranty not misleading.
x. Broker. Seller has not used, and has not incurred, and the
making of this Agreement and the closing of the transactions
contemplated hereby will not give rise to, any obligation of
Purchaser to pay any fee to any broker, finder, agent or
similar person.
9. Representations and Warranties by Purchaser. Purchaser represents and
warrants to Seller and Shareholder that the following statements are
true and correct as of the date of this Agreement and will be true and
correct on the Closing Date as if made on the Closing Date:
a. Organization and Standing. Purchaser is a corporation duly
organized, validly existing and in good standing under the
laws of the State of Minnesota and has the requisite corporate
power to own its properties and to carry on its business as it
is now being conducted.
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b. No Conflict. Neither the execution and delivery of this
Agreement nor the consummation of the transactions
contemplated under this Agreement will (a) result in a breach
of any of the terms or conditions of, or constitute a
default under, any mortgage, note, bond, indenture,
agreement, license or other instrument or obligation to which
Purchaser is a party or by which it or any of its properties
or assets may be bound or affected, or (b) violate any order,
writ, injunction or decree of any court, administrative agency
or governmental body, or (c) conflict with or result in the
breach of the terms, conditions or provisions of the
Articles of Incorporation or Bylaws of the Purchaser.
c. Authority. Purchaser has full power and authority to enter
into this Agreement and to carry out the transactions
contemplated hereby, and all corporate and other proceedings
required to be taken by Purchaser in connection with this
Agreement and the transactions contemplated hereby and
necessary to make the same effective have been duly and
validly taken. This Agreement constitutes a valid and binding
obligation of Purchaser, has been executed and delivered by a
duly authorized officer of Purchaser, and is enforceable
against Purchaser in accordance with its terms.
d. Consents and Approvals. No consent, authorization, order or
approval of or filing or registration with, any governmental
authority or other person is required for the execution and
delivery of this Agreement and the consummation by Purchaser
of the transactions contemplated by this Agreement, except as
provided under Section 25.
e. Broker. Purchaser has not used, and has not incurred, and the
making of this Agreement and the closing of the transactions
contemplated hereby will not give rise to, any obligation of
Seller or Shareholder to pay any fee to any broker, finder,
agent or similar person.
f. Litigation. There are no claims, actions, suits, inquiries,
investigations, or proceedings pending, or to the knowledge of
Purchaser, threatened which question or challenge the validity
of this Agreement or seek to restrain or enjoin any action
taken or to be taken by Purchaser pursuant to this Agreement
or in connection with the transactions contemplated hereby.
10. Covenants of the Seller.
a. Action by Seller. Seller will not take or permit to be taken
any action or do or permit to be done anything in the conduct
of its business or otherwise, which would be contrary to or in
breach of any of the terms, conditions or provisions of this
Agreement, or which would cause any of the representations and
warranties of Seller to be untrue as of the Closing Date.
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b. Fees. Seller shall pay all fees and disbursements of counsel
and accountants for Seller arising in connection with this
Agreement and the transactions contemplated hereby.
c. Further Assurances. On the Closing Date, and from time to time
thereafter, at the request of Purchaser, Seller will execute
and deliver to Purchaser all such assignments, endorsements
and other documents, and take such other action as Purchaser
may reasonably request in order more effectively to transfer
and assign to Purchaser the Assets transferred to Purchaser
pursuant to this Agreement, to confirm the title of Purchaser
thereto and to assist Purchaser in exercising its rights with
respect thereto and under this Agreement.
d. Accounts Receivable. Seller agrees that any actions taken
by Seller to collect the Accounts Receivable must be taken in
a manner reasonably intended to minimize problems or
disruption in the ongoing customer relationships of the
business of Seller.
e. Change of Name. Seller agrees to amend its articles of
incorporation effective on or before the Closing Date to
change its name to a name distinguishable from and not
confusingly similar to "Zercom Corporation".
11. Covenants of Purchaser
a. Acquired Contracts. From and after the Closing Date, Purchaser
shall perform its obligations under the Acquired Contracts in
a manner which will not adversely affect Seller's ability to
collect its accounts receivable applicable to such Acquired
Contracts.
b. Action by Purchaser. Purchaser will not take or permit to be
taken any action or do or permit to be done anything in the
conduct of its business or otherwise, which would be contrary
to or in breach of any of the terms, conditions or provisions
of this Agreement, or which would cause any of the
representations and warranties of Purchaser to be untrue as of
the Closing Date.
c. Fees. Purchaser shall pay all fees and disbursements of
counsel and accountants for Purchaser arising in connection
with this Agreement and the transactions contemplated hereby.
12. Conditions Precedent of Purchaser. The obligation of Purchaser to
consummate the transactions contemplated by this Agreement is subject
to all of the following conditions:
a. Representations and Warranties True at Closing. The
representations and warranties of Seller and Shareholder
contained in this Agreement or in any certificate or document
required to be delivered pursuant to the provisions of this
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Agreement must be true on and as of the Closing Date as though
such representations and warranties were made at and as of
such date.
b. Compliance with the Agreement. Seller and Shareholder must
have performed and complied with all agreements and conditions
in this Agreement which are to be performed or complied with
by Seller and Shareholder prior to or at the Closing Date.
c. Deliveries. The documents required to be delivered by
Seller under Section 6.1 must be tendered by Seller for
delivery to Purchaser at the Closing.
d. Injunction. On the Closing Date, there must not be an
effective injunction, writ, preliminary restraining order
or any order of any nature issued by a court of competent
jurisdiction directing that the transactions provided for
herein or any of them not be consummated as herein provided.
e. Casualty. Prior to the Closing Date, none of the Assets, or
any portion thereof, shall have been adversely affected in
any material way as a result of any fire, accident, flood or
other casualty or act of God or the public enemy.
f. Adverse Development. There shall have been no developments
in the business of Seller, or in the Assets, between the date
of the Seller Statement and the Closing Date which would have
a materially adverse effect on Seller's business or the
Assets.
g. Real Estate. All requirements relating to the Real Estate
must have been satisfied.
h. Lenders' Approvals. Purchaser must have obtained approval
from its lending institutions for the transactions
contemplated hereby.
i. Investigations. Purchaser must be satisfied with the results
of its legal, accounting, business, environmental and other
due diligence review of Seller's business and the Assets.
Without limiting the generality of the foregoing, if Purchaser
chooses to conduct an environmental inspection of the Real
Estate and the Assets prior to the Closing Date, the results
of that inspection must be satisfactory to Purchaser, in its
sole discretion.
j. Assignment of Lease. Purchaser must have received an
assignment of Seller's leasehold interest in the land and
building located at Aitken, Minnesota, where a portion of
Seller's business is conducted, together with the Landlord's
consent to such assignment, without any material changes to
the associated lease.
13. Conditions Precedent of the Seller. The obligation of Seller to
consummate the transaction contemplated by this Agreement is subject
to all of the following conditions:
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a. Representations and Warranties True at Closing. The
representations and warranties of Purchaser contained in this
Agreement or in any certificate or document required to be
delivered pursuant to the provisions of this Agreement must be
true on and as of the Closing Date as though such
representations and warranties were made at and as of such
date.
b. Purchaser's Compliance with the Agreement. Purchaser must have
performed and complied with all agreements and conditions in
this Agreement which are to be performed or complied with by
Purchaser prior to or at the Closing Date.
c. Deliveries. The documents required to be delivered by
Purchaser under Section 6.2 must be tendered by Purchaser for
delivery to Seller at the Closing.
d. Injunction. On the Closing Date, there must not be an
effective injunction, writ, preliminary restraining order
or any order of any nature issued by a court of competent
jurisdiction directing that the transactions provided for
herein or any of them not be consummated as herein provided.
14. Survival and Indemnification.
a. Survival. The representations, warranties, covenants and
indemnification provisions contained in this Agreement, and in
any certificate delivered pursuant to this Agreement at the
Closing, will survive the Closing.
b. Purchaser's Indemnification Covenants. Purchaser must
indemnify Seller and Shareholder, and each of them, from and
against all liability, demands, claims, actions or causes of
action, assessments, losses, fines, penalties, costs,
damages and expenses, including reasonable attorneys' fees,
sustained or incurred by Seller or Shareholder as a result of
or arising out of or by virtue of: (i) any inaccuracy in a
representation or warranty made by Purchaser to Seller or
Shareholder in this Agreement; (ii) the failure of Purchaser
to comply with, or the breach by Purchaser of, any of the
covenants in this Agreement to be performed by Purchaser; and
(iii) Purchaser's failure to honor, discharge, pay or fulfill
when due any Acquired Contract.
c. Seller's and Shareholder's Indemnification Covenants. Seller
and Shareholder, jointly and severally, must indemnify
Purchaser from and against all liability, demands, claims,
actions or causes of action, assessments, losses, fines,
penalties, costs (including investigation and remediation
costs), damages and expenses, including reasonable attorneys'
fees, sustained or incurred by the Purchaser (collectively,
"Losses" or, individually, a "Loss") as a result of or arising
out of or by virtue of: (i) any inaccuracy in a representation
or warranty made by Seller or Shareholder to Purchaser in this
Agreement; (ii) the failure of Seller or Shareholder to
comply with, or the breach by Seller or Shareholder of,
any of the covenants in this Agreement to be performed
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by Seller or Shareholder; and (iii) the failure of Seller or
Shareholder to state or disclose to Purchaser a known material
fact necessary to make the statements made in this Agreement
not misleading.
d. Notice and Opportunity to Defend. Promptly after the receipt
by any party to this Agreement of any notice of any claim
or the commencement of any action or of any proceeding
(a "Claim") by a third party (i.e. a party who is not a party
to this Agreement), the party receiving such notice must,
if a claim might be made against any party obligated to
provide indemnification pursuant to Section 14.2 or 14.3
(an "Indemnifying Party"), give such Indemnifying Party
written notice of the Claim. In the case of a Claim asserted
by a third party, such Indemnifying Party has the right, at
its option to compromise or defend, at its own expense and by
its own counsel, any such matter involving the asserted
liability of the party seeking such indemnification (the
"Indemnified Party") so long as such settlement does not
include any admission of liability on the part of the
Indemnified Party or the assumption of any obligation by such
Indemnified Party not paid for in full by the Indemnifying
Party. If any Indemnifying Party undertakes to compromise or
defend any such asserted liability, it must promptly notify
the Indemnified Party of its intention to do so, and the
Indemnified Party agrees to fully cooperate in good faith with
the Indemnifying Party and its counsel in the compromise of,
or defense against, any such asserted liability. In this
event, the Indemnified Party and Indemnifying Party have
the right to participate in the defense of such asserted
liability and to approve any compromise or settlement, which
approval may not be unreasonably withheld.
e. Limitation on Indemnification. An Indemnified Party is not
entitled to any recovery for Losses under Section 14.3 until
the total amount of all Losses exceed $25,000. If the total
amount of all Losses exceed $25,000, then the Indemnified
Party is entitled to recover that portion of the total amount
of all Losses which exceeds $25,000 but which is less than the
Purchase Price.
f. Termination of Indemnification Obligations. On October 31,
2001, the parties will be released from the agreements of
indemnification contained in Sections 14.2 and 14.3 in respect
of any claims under those Sections which have not been made
prior to that date All agreements of indemnification under
Sections 14.2 and 14.3 shall remain effective in respect of
claims made in writing by giving notice, as provided in
Section 15, prior to October 31, 2001 until such claims are
finally determined and satisfied in full.
15. Notices. All notices required or permitted to be given under this
Agreement must be in writing and are deemed given when delivered in
person, or three business days after being deposited in the United
States mail, postage prepaid, registered or certified, addressed as
set forth below, or on the next business day after being deposited with
a nationally- recognized overnight courier service addressed as set
forth below, or upon dispatch if sent by facsimile with telephonic
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confirmation of receipt from the intended recipient to the telecopy
number set forth below:
1. To the Seller or Shareholder, addressed to:
Communication Systems, Inc.
223 South Main Street
Hector, Minnesota 55342
Attention: Jeffrey Berg
Facsimile No. (320) 848-3114
with a copy to:
Lindquist & Vennum P.L.L.P.
80 South 8th Street
4200 IDS Center
Minneapolis, Minnesota 55402
Attention: Richard A. Primuth
Facsimile No. (612) 371-3207
2. To Purchaser:
Nortech Systems Incorporated
641 East Lake Street, Suite 244
Wayzata, Minnesota 55391
Attention: Quentin E. Finkelson
Facsimile No. (612) 473-2514
with a copy to:
Phillips & Gross, P.A.
5420 Norwest Center
90 South Seventh Street
Minneapolis, Minnesota 55402
Attention: Bert M. Gross
Facsimile No. (612) 349-2824
or to such other address or to such other person as Purchaser or Seller
shall have last designated by notice given in accordance with the
provisions of this Section 15, except that any notice of a change of
address will not be deemed effective until actually received by the
party to whom notice is directed.
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16. Modification. This Agreement, and the Exhibits and Schedules
attached to and made a part of this Agreement, contains the entire
agreement between the parties with respect to the transactions
contemplated by this Agreement and may not be modified or amended
except by an instrument in writing signed by all of the parties.
17. Expenses. Whether or not the transactions contemplated hereby are
consummated, each of the parties shall pay its own expenses incurred in
connection with the authorization, preparation, execution or
performance of this Agreement and all transactions contemplated hereby,
including without limitation all fees and expenses of agents,
representatives, counsel and accountants. Seller shall be responsible
for any costs or expenses required to obtain the landlord's consent to
Seller's assignment to Purchaser of the lease for the real estate at
Aitken, Minnesota.
18. Assignment. This Agreement is not assignable by any party without the
prior written consent of the other parties.
19. Minnesota Law to Govern. This Agreement shall be governed by and
construed and enforced in accordance with the internal laws of the
State of Minnesota, without regard to the conflicts of laws provisions.
20. Counterparts. This Agreement may be executed in any number of
counterparts, each of which is an original but all of which together
constitute one and the same instrument.
21. Headings and Captions. The descriptive headings and captions within
this Agreement are inserted for convenience only and do not constitute
a part of this Agreement.
22. Access to Books and Records. Under the terms of this Agreement,
Purchaser is receiving some of the books and records which relate to
Seller's business relating to the Assets, while Seller is retaining
other records. Each party agrees that for a period of five (5) years
commencing on the Closing Date, said party shall preserve any books
and records relating to the Assets and the related business, and
that during such period it will afford to the other party reasonable
access to all such books and records at reasonable business hours and
upon reasonable notice and a reasonable opportunity to copy such books
and records from time to time. After the termination of that five
(5) year period, each party shall be free to dispose of any such
records in such form as it pleases, unless the other party has
requested said records. If the other party has made such a request, the
party receiving the request either shall give to the requesting party
the originals or copies of such records, or may retain such records
subject to the requesting party's continuing right to inspect the same.
23. Joint and Several Liability. All agreements, covenants,
representations, warranties and obligations of Seller and Shareholder
hereunder shall be joint and several obligations of Seller and
Shareholder.
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24. Zercom Marine Product Line. If any of the Zercom Marine product line
inventory acquired by Purchaser remains unsold by the second
anniversary of the Closing Date, the Purchase Price and the Note (or,
the Greater Note or the Lesser Note, as the case may be) must be
reduced by the value of such inventory, provided Purchaser uses its
best efforts to utilize that inventory. But, in no event shall the
reduction exceed $300,000. The value of that inventory must be
determined in a manner consistent with the valuation method used to
determine the Inventory Value as set forth in Section 1.12.
25. MarCum, ERT and Waterstrike Agreements.
a. Assignment. Between the date of this Agreement and the
Closing Date, Purchaser and Seller will each use their best
efforts to obtain the assignment of all obligations and rights
under (i) that certain Agreement between Seller, Ray Marzean
and Duane Cummings (d/b/a MarCum Enterprises) dated
June 7, 1993 (as amended on January 6, 1994), (ii) tha
certain Consent to Contract Assignment between Seller, MarCum
Enterprises and Emerging Recreational Technologies, Inc.
("ERT") dated November 1, 1995, (iii) that certain Exclusive
Marketing and Distribution Agreement and Option to Purchase
between Seller and ERT dated November 1, 1995, and (iv) that
certain Asset Purchase Agreement between Waterstrike
Incorporated and Seller dated January 1, 1995 (collectively,
the "License and Distribution Agreements") to Purchaser.
b. Non-Assignment. To the extent the parties are unsuccessful in
obtaining such assignments (in whole or in part) by the
Closing Date, Purchaser will cooperate with and, using the
assets and property conveyed hereby, will assist Seller in
performing its obligations under the License and Distribution
Agreements consistent with the terms of such contracts and
consistent with the financial benefits available under such
contracts.
26. Miscellaneous
a. Third Parties. Nothing in this Agreement, whether expressed or
implied, is intended to confer any rights or remedies under or
by reason of this Agreement on any other person other than the
parties to this Agreement and their respective successors and
assigns, nor is anything in this Agreement intended to relieve
or discharge the obligation or liability of any third person
to any party to this Agreement, nor does any provision give
any third party any right of subrogation or actions over or
against either party to this Agreement. This Agreement is not
intended to and does not create any third party beneficiary
rights whatsoever.
b. Non-Waiver. The failure in any one or more instances of a
party to insist upon performance of any of the terms,
covenants or conditions of this Agreement, to exercise any
right or privilege in this Agreement conferred, or the waiver
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by said party of any breach of any of the terms, covenants or
conditions of this Agreement, must not be construed as a
subsequent waiver of any such terms, covenants, conditions,
rights or privileges, but the same will continue and remain in
full force and effect as if no such forbearance or waiver had
occurred. No waiver is effective unless it is in writing and
signed by an authorized representative of the waiving party.
c. Severability. The invalidity of any provision of this
Agreement or portion of a provision will not affect the
validity of any other provision of this Agreement or the
remaining portion of the applicable provision.
d. Non-exclusivity. The rights, remedies, powers and privileges
provided in this Agreement are cumulative and not exclusive
and shall be in addition to any and all rights, remedies,
powers and privileges granted by law, rule, regulation or
instrument.
e. No Warranty. NEITHER SELLER NOR SHAREHOLDER MAKE ANY EXPRESS
WARRANTY REGARDING THE INVENTORY, INCLUDING, WITHOUT
LIMITATION, ANY WARRANTY REGARDING THE QUALITY OR SALABILITY
OF THE INVENTORY. PURCHASER ACKNOWLEDGES THAT THERE ARE NO
IMPLIED WARRANTIES REGARDING THE INVENTORY, INCLUDING, BUT NOT
LIMITED TO, ANY IMPLIED WARRANTIES OF MERCHANTABILITY OR
FITNESS FOR A PARTICULAR PURPOSE AND NO WARRANTY REGARDING
PERFORMANCE, QUALITY OR ABSENCE OF HIDDEN DEFECTS, IS MADE.
SELLER TAKES THE INVENTORY "AS IS" AND "WITH ALL FAULTS".
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IN WITNESS WHEREOF, the parties have duly executed this Agreement as of
the date first above written.
NORTECH SYSTEMS INCORPORATED
By:/s/ Q.E. Finkelson
Its: Chief Executive Officer
ZERCOM CORPORATION
By:/s/ Curtis A. Sampson
Its: President
COMMUNICATIONS SYSTEMS, INC.
By:/s/ Curtis A. Sampson
Its: President, Chairman
and Chief Executive Officer
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List of Exhibits and Schedules
Exhibit A Non-Compete Agreement
Exhibit B Note
Exhibit C Security Agreement
Schedule 1.5 Contracts
Schedule 1.6 Equipment
Schedule 1.17 Real Estate
Schedule 3.5 Purchase Price Allocation
Schedule 8.2 Title
Schedule 8.13 Intellectual Property
Schedule 8.15 Employee Benefits
Schedule 8.17 Conduct of Business
Schedule 8.19 Licenses and Permits
Schedule 8.21 Major Suppliers
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Exhibit A
NON-COMPETE AGREEMENT
AGREEMENT dated November 4, 1996 between Nortech Systems Incorporated,
a Minnesota corporation ("Purchaser"), Zercom Corporation, a Minnesota
corporation ("Seller"), and Communications Systems, Inc., a Minnesota
corporation and the sole shareholder of Seller ("Shareholder").
WITNESSETH:
WHEREAS, Purchaser and Seller and shareholder are parties to that
certain Asset Purchase Agreement (the "Purchase Agreement") dated September 30,
1996, pursuant to which Purchaser is acquiring from Seller substantially all of
the assets of Seller, as defined in the Purchase Agreement.
WHEREAS, Seller, directly, and Shareholder as the sole shareholder of
Seller, will be financially benefitted by the Purchase Agreement.
WHEREAS, as a condition to closing the Purchase Agreement and in order
to satisfy a requirement set forth therein, Purchaser desires to receive
Seller's and Shareholder's covenant not to compete and other agreements set
forth herein.
NOW, THEREFORE, in consideration of the premises and the mutual
covenants hereinafter set forth, Purchaser and Seller and Shareholder agree as
follows:
ARTICLE I
Non-Compete Covenant
In order to satisfy a condition of the Purchase Agreement, during the
ten (10) year period commencing with the date of this Agreement, Seller and
Shareholder shall not, anywhere within the United States directly or indirectly,
own, manage, control, operate, be employed by or an agent for, participate in,
or be connected in any material manner with the ownership, management, operation
or control of any business which is competitive with the business of Purchaser.
For these purposes, the business of manufacturing and selling the following
products and parts of those products shall be deemed to be a business
competitive with the business of Purchaser:
(a) Contract manufacturing of printed circuit boards and
electromechanical assemblies for any third party and
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(b) The manufacture of the following proprietary products:
- In-dash engine displays
- Intercon 1
- Marine fishing products
- Remote radio broadcasting equipment
ARTICLE II
Non-Disclosure Covenant
During and after the term of this Agreement, Seller and Shareholder
shall not communicate, divulge or use, any secret, confidential information,
confidential customer list, or trade secrets which relate to the assets acquired
by Purchaser under the Purchase Agreement to or on behalf of any person or
entity, except as designated by Purchaser. This obligation shall apply with
respect to any such item until such item ceases (other than due to Seller or
Shareholder) to be secret or confidential.
ARTICLE III
Remedies
In the event of any actual threatened breach of the provisions of
Articles I or II hereof by Seller, Purchaser shall be entitled to all rights and
remedies available at law or in equity, including without limitation the right
to obtain damages for such breach or non-adherence and the right to enjoin
Seller and Shareholder or any person or entity in or threatening breach or
non-adherence from commencing or continuing, and to remedy, the activities which
constitute such breach or non-adherence.
ARTICLE IV
Consideration
Seller acknowledges that under the Purchase Agreement, and Shareholder
acknowledges that as the sole shareholder of Seller, each will be benefitted by
the Purchase Agreement, and each is entering into this Agreement to satisfy a
condition of said Purchase Agreement.
ARTICLE V
Miscellaneous
5.1 Entire Agreement; Use of Terms. This Agreement, together with the
Purchase Agreement, contains the entire agreement among the parties, superseding
in all respects any and all prior oral or written agreements or understandings
pertaining to the subject matter hereof and transactions contemplated hereby,
and shall be amended or modified only by a written instrument signed by all of
the parties hereto. Unless the context clearly requires otherwise, terms
employed herein shall have the same meaning as set forth in the Purchase
Agreement.
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5.2 Waiver. No waiver by any party of any condition, or of the breach
of any term, covenant, representation or warranty contained in this Agreement,
whether by conduct or otherwise, in any one or more instances shall be deemed to
be or construed as a further and continuing waiver of any such condition or
breach or a waiver of any other condition or breach of any other term, covenant,
representation, or warranty of this Agreement, or the agreements and documents
executed in connection herewith.
5.3 Binding Effect; Assignment. This Agreement shall be binding upon,
and shall inure to the benefit of and be enforceable by, the parties hereto and
their respective heirs, successors and assigns, but this Agreement shall not be
assignable by Seller.
5.4 General. This Agreement may be executed in several counterparts,
each of which shall be deemed to be an original, but all of which shall
constitute one and the same instrument. The section headings contained herein
are for reference purposes only and shall not in any way affect the meaning or
interpretation of this Agreement. This Agreement shall be governed, enforced and
construed under the laws of the State of Minnesota.
5.5 Joint and Several Liability. All agreements, covenants,
representations, and warranties of Seller and Shareholder hereunder shall be
joint and several obligations of Seller and Shareholder.
NORTECH SYSTEMS INCORPORATED
By:
Its:
ZERCOM CORPORATION
By:
Its:
COMMUNICATIONS SYSTEMS, INC.
By:
Its:
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Exhibit B-1
PROMISSORY NOTE
$4,000,000.00 Minneapolis, Minnesota
November 4, 1996
FOR VALUE RECEIVED, the undersigned Nortech Systems Incorporated
("Maker") , a Minnesota corporation, hereby promises to pay to the order of
Zercom Corporation ("Payee") , a Minnesota corporation, at Hector, Minnesota, or
at such other place as may be designated from time to time in writing by the
holder hereof, the principal sum of Four Million Dollars ($4,000,000.00) with
simple interest on the outstanding principal balance beginning on the date
hereof at a rate equal to the prime or reference rate established from time to
time by First Bank Minneapolis.
Principal in the amount of One Hundred Sixty Thousand Dollars
($160,000.00) or more per installment shall be payable semiannually commencing
May 1, 1997, and continuing on the first day of every November and May
thereafter for a total of five (5) years, at which time all remaining principal
and accrued interest, if not sooner paid, shall be paid in full.
This Note is given to evidence the unpaid balance of the purchase price
owed by Maker to Payee for the purchase of the assets of Payee, pursuant to the
terms of that certain Asset Purchase Agreement (the "Asset Purchase Agreement")
dated 1996, between Maker and Payee. This Note is subject to and governed by the
terms and provisions of the Asset Purchase Agreement, including rights of offset
as set forth therein. This Note is secured by that certain Security Agreement of
even date herewith.
Each payment (including prepayments, if made) hereunder shall be
applied first to payment of accrued interest, and the balance to payment of
principal. Prepayments can be made at any time, and from time to time, at the
election of Maker, without penalty. If default is made in the payment of any
installment of this Note, and such payment is not made within fifteen (15) days
after notice from the Note holder of non-payment, the Note holder may declare
the entire unpaid principal balance of this Note and all accrued interest due
and payable without further notice.
In the event that the holder hereof shall institute any action for the
enforcement or collection of this Note, there shall be immediately due from the
Maker, in addition to the unpaid balance, all reasonable costs and expenses of
said action, including reasonable attorneys' fees.
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IN WITNESS WHEREOF, the undersigned has caused this Note to be executed
on the date first above written.
NORTECH SYSTEMS INCORPORATED
By
Its
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Exhibit B-2
THE INDEBTEDNESS EVIDENCED BY THIS NOTE IS SECURED BY A COMBINATION MORTGAGE,
ASSIGNMENT OF RENTS AND LEASES, SECURITY AGREEMENT AND FIXTURE FINANCING
STATEMENT (THE AMORTGAGE@) OF EVEN DATE HEREWITH, ON LAND IN CROW WING COUNTY,
MINNESOTA, AND REFERENCE IS MADE TO THE MORTGAGE FOR RIGHTS AS TO ACCELERATION
OF THE INDEBTEDNESS EVIDENCED BY THIS NOTE.
PROMISSORY NOTE
$1,000,000.00 Minneapolis, Minnesota
November 4, 1996
FOR VALUE RECEIVED, the undersigned Nortech Systems Incorporated
("Maker") , a Minnesota corporation, hereby promises to pay to the order of
Zercom Corporation ("Payee") , a Minnesota corporation, at Hector, Minnesota, or
at such other place as may be designated from time to time in writing by the
holder hereof, the principal sum of One Million Dollars ($1,000,000.00) with
simple interest on the outstanding principal balance beginning on the date
hereof at a rate equal to the prime or reference rate established from time to
time by First Bank Minneapolis.
Principal in the amount of Forty Thousand Dollars ($40,000.00) or more
per installment shall be payable semiannually commencing May 1, 1997, and
continuing on the first day of every November and May thereafter for a total of
five (5) years, at which time all remaining principal and accrued interest, if
not sooner paid, shall be paid in full.
This Note is given to evidence the unpaid balance of the purchase price
owed by Maker to Payee for the purchase of the assets of Payee, pursuant to the
terms of that certain Asset Purchase Agreement (the "Asset Purchase Agreement")
dated 1996, between Maker and Payee. This Note is subject to and governed by the
terms and provisions of the Asset Purchase Agreement, including rights of offset
as set forth therein.
Each payment (including prepayments, if made) hereunder shall be
applied first to payment of accrued interest, and the balance to payment of
principal. Prepayments can be made at any time, and from time to time, at the
election of Maker, without penalty. If default is made in the payment of any
installment of this Note, and such payment is not made within fifteen (15) days
after notice from the Note holder of non-payment, the Note holder may declare
the entire unpaid principal balance of this Note and all accrued interest due
and payable without further notice.
In the event that the holder hereof shall institute any action for the
enforcement or collection of this Note, there shall be immediately due from the
Maker, in addition to the unpaid balance, all reasonable costs and expenses of
said action, including reasonable attorneys' fees.
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IN WITNESS WHEREOF, the undersigned has caused this Note to be executed
on the date first above written.
NORTECH SYSTEMS INCORPORATED
By:
Its:
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Exhibit C
Security Agreement
THIS AGREEMENT, made effective as of November 4, 1996, is by and
between Nortech Systems Incorporated ("Debtor"), a Minnesota corporation, and
Zercom Corporation ("Secured Party"), a Minnesota corporation, a wholly-owned
subsidiary of Communication Systems, Inc., a Minnesota corporation.
W I T N E S S E T H:
WHEREAS, Debtor has agreed to purchase certain assets of Secured Party
pursuant to that certain Asset Purchase Agreement (the "Purchase Agreement"),
dated effective September 30, 1996;
WHEREAS, Pursuant to the Purchase Agreement, Debtor has agreed to
deliver to Secured Party a Promissory Note (the "Note") in the amount of
$5,000,000.00 and Debtor has agreed to grant Secured Party a security interest
(the "Security Interest") in the purchased assets in order to secure Debtor's
performance of obligations under the Note and Purchase Agreement; and
WHEREAS, Pursuant to the Purchase Agreement, the Purchase Price is
subject to a Post-Closing Purchase Price Adjustment (each as defined in the
Purchase Agreement) and, pursuant to such adjustment, the Note must be cancelled
and replace by a promissory note (the "Substitute Note") that is has a principal
amount which is either greater or less than the principal amount of the Note,
depending upon the magnitude of the Post-Closing Purchase Price Adjustment.
NOW, THEREFORE, in consideration of the premises and the mutual
undertakings herein contained, the parties agree as follows:
ARTICLE 1.
SECURITY INTEREST AND COLLATERAL
To secure the payment and performance of each and every debt,
liability, and obligation which Debtor may now or at any time hereafter owe to
Secured Party under the Purchase Agreement (whether such debt, liability, or
obligation now exists or is hereafter created or incurred, and whether it is or
may be direct or indirect, due or to become due, absolute or contingent, primary
or secondary, liquidated or unliquidated, or joint, several, or joint and
several; all such debts, liabilities and obligations herein collectively
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referred to as the "Obligations"), Debtor hereby grants Secured Party a security
interest (the "Security Interest") in the following property (the "Collateral"):
All of the Assets (as defined in the Purchase Agreement) purchased by
Debtor from Secured Party pursuant to the Purchase Agreement;
together with all substitutions and replacements for and products of any of the
foregoing property, all proceeds of any and all of the foregoing property and,
in the case of all tangible Collateral, together with all (i) accessions, (ii)
accessories, attachments, parts, equipment, and repairs now or hereafter
attached or affixed to or used in connection with any such goods, and (iii)
warehouse receipts, bills of lading, and other documents of title now or
hereafter covering such goods.
ARTICLE 2.
REPRESENTATIONS, WARRANTIES, AND AGREEMENTS
Debtor represents, warrants, and agrees that:
27. Debtor is a Minnesota corporation in good standing in Minnesota.
28. The Collateral will be used for business purposes.
29. If any part or all of the tangible Collateral will become so related to
particular real estate as to become a fixture, the real estate
concerned is as described in Exhibit 1 attached hereto, and the Debtor
is the record owner of any such real estate.
30. Debtor's chief executive office is located at 641 East Lake Street,
Suite 234, Wayzata, Minnesota 553431.
31. Debtor will keep each item of Collateral free and clear of all
security interests, liens and encumbrances, except the Security
Interest and the lien of the Secured Party and its successors and
assigns, and will defend the Collateral against all claims or demands
of all persons other than Secured Party and its assigns. Debtor will
not sell, mortgage, encumber, or otherwise dispose of the Collateral
or any interest therein without the prior written consent of Secured
Party, except that Debtor may sell any Inventory (as defined in the
Purchase Agreement) constituting Collateral to buyers in the ordinary
course of business, unless, upon the occurrence of an Event of Default
(as defined in Article 5 herein), Secured Party revokes Debtor's right
to do so.
32. The officer executing this Agreement has authority to act for Debtor.
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33. Debtor will not permit any tangible Collateral to be located in any
state (and, if county filing is required, in any county) in which a
financing statement covering such Collateral is required to be, but has
not in fact been, filed in order to perfect the Security Interest.
34. Each right to payment and each instrument, document, chattel paper, and
other agreement constituting or evidencing Collateral is (or will be
when arising or issued) the valid, genuine, and legally enforceable
obligation, subject to no defense, set off, or counterclaim (other
than those arising in the ordinary course of business) of the account
debtor or other obligor named therein or in Debtor's records
pertaining thereto as being obligated to pay such obligation. Debtor
will not agree to any material modification or amendment nor agree
to any cancellation of any such obligation outside of Debtor's
ordinary course of business without Secured Party's prior written
consent, and will not subordinate any such right to payment to claims
of other creditors of such account debtor or other obligor.
35. Debtor must:
a. Keep all tangible Collateral in good repair, working order
and condition, normal depreciation excepted, and will, from
time to time, replace any worn, broken or defective parts
thereof;
b. Promptly pay all taxes and other governmental charges levied
or assessed upon or against any Collateral or upon or against
the creation, perfection, or continuance of the Security
Interest;
c. Keep all Collateral free and clear of all security interests,
liens, and encumbrances except the Security Interest and
blanket lien of Secured Party and liens or other
encumbrances permitted by the Secured Party;
d. At all reasonable times, permit Secured Party or its
representatives to examine or inspect any Collateral wherever
located, and to examine, inspect, and copy Debtor's books and
records pertaining to the Collateral and its business and
financial condition and to discuss with account debtors and
other obligors requests for verifications of amounts owed to
Debtor;
e. Keep accurate and complete records pertaining to the
Collateral and pertaining to Debtor's business and financial
condition and submit to Secured Party such periodic reports
concerning the Collateral and Debtor's business and financial
condition as Secured Party may from time to time reasonably
request;
f. Promptly notify Secured Party of any material loss of or
material damage to any Collateral or of any adverse change,
known to Debtor, in the prospect of payment of any sums due on
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or under any instrument, chattel paper, or account
constituting Collateral;
g. If Secured Party at any time so requests, and after the
occurrence of an Event of Default, promptly deliver to Secured
Party any instrument, document, or chattel paper constituting
Collateral, duly endorsed or assigned by Debtor;
h. At all times keep all tangible Collateral insured against
risks of fire (including so-called extended coverage), theft,
collision (in case of Collateral consisting of motor
vehicles), and such other risks and in such amounts as Secured
Party may reasonably request, with any loss payable to Secured
Party to the extent of its interest;
i. From time to time execute such financing statements as Secured
Party may reasonably require in order to perfect the Security
Interest and, if any Collateral consists of motor vehicles,
execute such documents as may be required to have the Security
Interest properly noted on a certificate of title;
j. Pay when due or reimburse Secured Party on demand for all
reasonable costs of collection of any of the Obligations and
all other reasonable out-of-pocket expenses (including in each
case all reasonable attorneys' fees) incurred by Secured Party
in connection with the creation, perfection, satisfaction,
protection, defense, or enforcement of the Security Interest
or the creation, continuance, protection, defense, or
enforcement of this Agreement or any or all of the
Obligations, including expenses incurred in litigation or
bankruptcy or insolvency proceedings;
k. Execute, deliver or endorse any and all instruments,
documents, assignments, security agreements, and other
agreements and writings which Secured Party may at any time
reasonably request in order to secure, protect, perfect, or
enforce the Security Interest and Secured Party's rights under
this Agreement;
l. Not use or keep any Collateral, or permit it to be used or
kept, for any unlawful purpose or in violation of any foreign,
federal, state, or local law, statute, rule, or ordinance;
m. Permit Secured Party, after an Event of Default has occurred,
to send requests to account debtors or other obligors for
verification of amounts owed to Debtor; and
n. Not permit any tangible Collateral to become part of or to be
affixed to any real property without first assuring to the
reasonable satisfaction of Secured Party that the Security
Interest will be prior and senior to any interest or lien then
held or thereafter acquired by any mortgagee or encumbrancer
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of such real property or the owner or purchaser of any
interest therein.
If Debtor at any time fails to perform or observe any agreement contained in
this Section 9 of Article 2, and if such failure shall continue for a period of
ten (10) calendar days after Secured Party gives Debtor written notice thereof
(or, in the case of the agreements contained in subsections (h) and (i) of this
Section 9 of Article 2, immediately upon the occurrence of such failure, without
notice or lapse of time), Secured Party may (but need not) perform or observe
such agreement on behalf and in the name, place, and stead of Debtor (or, at
Secured Party's option, in Secured Party's own name) and may (but need not) take
any and all other actions which Secured Party may reasonably deem necessary to
cure or correct such failure (including without limitation, the payment of
taxes, the satisfaction of security interests, liens, or encumbrances, the
performance of obligations under contracts or agreements with account debtors or
other obligors, the procurement and maintenance of insurance, the execution of
financing statements, the endorsement of instruments, and the procurement of
repairs, transportation or insurance); and, except to the extent that the effect
of such payment would be to render any loan or forbearance of money usurious or
otherwise illegal under any applicable law, Debtor shall thereupon pay Secured
Party on demand the amount of all moneys expended and all costs and expenses
(including reasonable attorneys' fees) incurred by Secured Party in connection
with or as a result of Secured Party's performing or observing such agreements
or taking such actions, together with interest thereon from the date expended or
incurred by Secured Party at the highest rate permitted by law. To facilitate
the performance or observance by Secured Party of such agreements of Debtor,
Debtor hereby irrevocably appoints (which appointment is coupled with an
interest) Secured Party, or its delegate, as the attorney-in-fact of Debtor with
the right (but not the duty) from time to time to create, prepare, complete,
execute, deliver, endorse, or file, in the name of and on behalf of Debtor, any
and all instruments, documents, financing statements, applications for
insurance, and other agreements and writings required to be obtained, executed,
delivered, or endorsed by Debtor under this Section 9 of Article 2.
ARTICLE 3.
COLLECTION RIGHTS OF SECURED PARTY
Secured Party may at any time after the occurrence of any Event of
Default notify any account debtor, or any other person obligated to pay any
amount due, that such chattel paper, account, or other right to payment has been
assigned or transferred to Secured Party for security and shall be paid directly
to Secured Party. If Secured Party so requests at any time, Debtor will notify
such account debtors and other obligors in writing and will indicate on all
invoices to such account debtors or other obligors that the payment due is
payable directly to Secured Party. At any time after Secured Party or Debtor
gives such notice to an account debtor or other obligor, Secured Party may (but
need not), in its own name or in Debtor's name, demand, sue for, collect or
receive any money or property at any time payable or receivable on account of,
or securing, any such chattel paper, account, or other right to payment, or
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grant any extension to, make any compromise or settlement with or otherwise
agree to waive, modify, amend, or change the obligations (including collateral
obligations) of any such account debtor or other obligor.
ARTICLE 4.
ASSIGNMENT OF INSURANCE
Debtor hereby assigns to Secured Party, as additional security for the
payment of the Obligations, any and all moneys (including but not limited to
proceeds of insurance and refunds of unearned premiums) due or to become due
under, and all other rights of Debtor under or with respect to, any and all
policies of insurance covering the Collateral, and Debtor hereby directs the
issuer of any such policy to pay any such moneys directly to Secured Party. Both
before and after the occurrence of an Event of Default, Secured Party may (but
need not), in its own name or in Debtor's name, execute and deliver proofs of
claim, receive all moneys, endorse checks and other instruments representing
payment of such moneys, and adjust, litigate, compromise, or release any claim
against the issuer of any such policy.
ARTICLE 5.
EVENTS OF DEFAULT
Each of the following occurrences constitute an event of default under
this Agreement (herein call "Event of Default"):
1. Debtor fails to pay any or all of the Obligations when due or
(if payable on demand) on demand;
2. Debtor fails to observe or perform any covenant or agreement in this
Security Agreement, the Purchase Agreement, or the Note (or the Substitute Note)
binding on Debtor and such failure continues for ten (10) days after notice of
such failure delivered by Secured Party;
3. Any representation or warranty by Debtor set forth in this
Security Agreement, the Purchase Agreement, or the Note (or the Substitute Note)
proves to be materially false or misleading;
4. A garnishment summons or a writ of attachment is issued against or
served upon the Secured Party for the attachment of any property of the Debtor
or any indebtedness owing to Debtor.
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ARTICLE 6.
REMEDIES UPON EVENT OF DEFAULT
Subject to the terms of the Purchase Agreement and applicable laws,
upon the occurrence of an Event of Default under Article 5 and at any time
thereafter, Secured Party may exercise any one or more of the following rights
and remedies:
1. Declare all unmatured Obligations to be immediately due and payable,
and the same shall thereupon be immediately due and payable, without
presentment or other notice or demand;
2. Exercise and enforce any or all rights and remedies available upon
default to a secured party under the Uniform Commercial Code, as
adopted by the State of Minnesota, including but not limited to the
right to take possession of any Collateral, proceeding without judicial
process or by judicial process (without a prior hearing or notice
thereof, which Debtor hereby expressly waives), and the right to sell,
lease or otherwise dispose of any or all of the Collateral, and in
connection therewith, Secured Party may require Debtor to assemble
the Collateral and make it available to Secured Party at a place to be
designated by Secured Party which is reasonably convenient to both
parties, and if notice to Debtor of any intended disposition of
Collateral or any other intended action is required by law in a
particular instance, such notice shall be deemed commercially
reasonable if given (in the manner specified in Article 7) at least
ten (10) calendar days prior to the date of intended disposition or
other action;
3. Exercise or enforce any and all other rights or remedies available to
Secured Party by law or agreement against the Collateral, against
Debtor, or against any other person or property.
Secured Party is hereby granted a nonexclusive, world-wide and royalty-free
license to use or otherwise exploit all trademarks, trade secrets, and
franchises of Debtor that Secured Party deems necessary or appropriate to the
disposition of any collateral.
ARTICLE 7.
MISCELLANEOUS
This Agreement can be waived, modified, amended, terminated, or
discharged, and the Security Interest can be released, only explicitly in a
writing signed by Secured Party. A waiver signed by Secured Party shall be
effective only in the specific instance and for the specific purpose given. Mere
delay or failure to act shall not preclude the exercise or enforcement of any of
Secured Party's rights or remedies. All rights and remedies of Secured Party
shall be cumulative and may be exercised singularly or concurrently, at Secured
Party's option, and the exercise or enforcement of any one such right or remedy
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shall neither be a condition to nor bar the exercise or enforcement of any
other. All notices to be given to Debtor shall be deemed sufficiently given if
delivered or mailed by registered or certified mail, postage prepaid, to Debtor
at its address set forth above or at the most recent address shown on Secured
Party's records. Secured Party's duty of care with respect to Collateral in its
possession (as imposed by law) shall be deemed fulfilled if Secured Party
exercises reasonable care in physically safekeeping such Collateral or, in the
case of Collateral in the custody or possession of a bailee or other third
person, exercises reasonable care in the selection of the bailee or other third
person, and Secured Party need not otherwise preserve, protect, insure or care
for any Collateral. Secured Party shall not be obligated to preserve any rights
Debtor may have against prior parties, to realize on the Collateral at all or in
any particular manner or order, or to apply any cash proceeds of Collateral in
any particular order of application. This Agreement shall be binding upon and
inure to the benefit of Debtor and Secured Party and their respective heirs,
representatives, successors and assigns and shall take effect when signed by
Debtor and delivered to Secured Party, and Debtor waives notice of Secured
Party's acceptance hereof. Secured Party may execute this Agreement if
appropriate for the purpose of filing, but the failure of Secured Party to
execute this Agreement shall not affect or impair the validity or effectiveness
of this Agreement. A carbon, photographic, or other reproduction of this
Agreement or of any financing statements signed by Debtor shall have the same
force and effect as the original for all purposes of a financing statement.
Except to the extent otherwise required by law, this Agreement shall be governed
by the internal laws of the State of Minnesota. If any provision or application
of this Agreement is held unlawful or unenforceable in any respect, such
illegality or unenforceability shall not affect other provisions or applications
which can be given effect, and this Agreement shall be construed as if the
unlawful or unenforceable provision or application had never been contained
herein or prescribed hereby. All representations and warranties contained in
this Agreement shall survive the execution, delivery, and performance of this
Agreement and the creation and payment of the Obligations.
SECURED PARTY:
ZERCOM CORPORATION
By
Its
DEBTOR:
NORTECH SYSTEMS INCORPORATED
By
Its
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Exhibit 2.2
AMENDMENT NO. 1 TO
ASSET PURCHASE AGREEMENT
This Amendment, made effective as of November 4, 1996, is by and
between Zercom Corporation, a Minnesota corporation ("Zercom"), Nortech Systems
Incorporated, a Minnesota corporation ("Nortech"), and Communications Systems,
Inc., a Minnesota corporation ("CSI").
WHEREAS, Zercom, Nortech and CSI are parties to that certain Asset
Purchase Agreement dated effective as of September 30, 1996 (the "Purchase
Agreement"); and
WHEREAS, Zercom, Nortech and CSI believe it is in their best interests
to amend the Purchase Agreement as provided in this Amendment.
NOW, THEREFORE, in consideration of the above premises and other good
and valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, the parties agree as follows:
1. The parties wish to amend and restate in its entirety Section
3.2 of the Purchase Agreement as follows:
3.2 Payment of Purchase Price. At the Closing, Purchaser must
pay Seller the Purchase Price as follows:
(A) A payment, in the form of a cashier's or certified
check or by wire transfer, in the amount of
$1,500,000, subject to the Closing Date Purchase
Price Adjustment set forth in Section 2.2(A); and
(B) Delivery of a duly executed non-negotiable promissory
note of Purchaser in the amount of $4,000,000,
substantially in the form of Exhibit B-1 (the
"$4,000,000 Note").
(C) Delivery of a duly executed non-negotiable promissory
note of Purchaser in the amount of $1,000,000,
substantially in the form of Exhibit B-2 (the
"$1,000,000 Note").
2. The parties wish to amend and restate in its entirety Section
3.4 of the Purchase Agreement as follows:
3.4 Payment of the Post-Closing Purchase Price Adjustment.
(A) Positive Post-Closing Purchase Price Adjustment.
If the Post-Closing Purchase Price Adjustment is
greater than zero, then Purchaser must deliver,
within five days after final determination of the
Post-Closing Purchase Price Adjustment, a substitute
promissory note (the "Greater Note") for the
$4,000,000 Note with a principal amount equal to the
$4,000,000 plus the amount of the Post-Closing
Purchase Price Adjustment plus an amount equal to
(i) 6%, divided by (ii) 365, multiplied by (iii) the
number of days between the Closing Date and the
date of delivery of the Net Fixed Asset Value, and
multiplied by (iv) the Post-Closing Purchase Price
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Adjustment. Upon delivery of the Net Fixed Asset
Value, Seller must immediately mark the
$4,000,000 Note "Cancelled" and promptly deliver the
cancelled $4,000,000 Note to Purchaser.
(B) Negative Post-Closing Purchase Price Adjustment.
If the Post-Closing Purchase Price Adjustment is less
than zero, then Purchaser must deliver, within
five days after final determination of the
Post-Closing Purchase Price Adjustment, a
substitute promissory note (the "Lesser Note") for
the $4,000,000 Note with a principal amount equal to
the $4,000,000 less the amount of the Post-Closing
Purchase Price Adjustment less an amount equal to
(i) 6%, divided by (ii) 365, multiplied by (iii) the
number of days between the Closing Date and the
date of delivery of the Lesser Note, and
multiplied by (iv) the Post-Closing Purchase Price
Adjustment. Upon delivery of the Lesser Note, Seller
must immediately mark the $4,000,000 Note "Cancelled"
and promptly deliver the cancelled $4,000,000 Note
to Purchaser.
3. The parties wish to amend and restate in its entirety Section
24 of the Purchase Agreement as follows:
24. Zercom Marine Product Line. If any of the Zercom Marine
product line inventory acquired by Purchaser remains unsold by
the second anniversary of the Closing Date, the Purchase Price
and the $4,000,000 Note (or, the Greater Note or the Lesser
Note, as the case may be) must be reduced by the value of such
inventory, provided Purchaser uses its best efforts to utilize
that inventory. But, in no event shall the reduction exceed
$300,000. The value of that inventory must be determined in a
manner consistent with the valuation method used to determine
the Inventory Value as set forth in Section 1.12.
4. The parties wish to add a new Section 26.6 and a new Section
26.7 of the Purchase Agreement to read as follows:
26.6 Mortgage. The owner's title insurance policy relating to the
Real Estate and the mortgage registration tax associated with
the mortgage referred to in Section 6.2(F) must be paid by
Purchaser.
26.7 Letters of Credit. Purchaser acknowledges that there are two
outstanding letters of credit issued by First Bank Minnesota
(letter nos. MPL000133, in the amount of $235,042.30 and dated
September 23, 1996, and MPL000134, in the amount of
$225,745.70 and dated September 23, 1996). Such letters of
credit are in the name of Suttle Apparatus Corporation, a
wholly-owned subsidiary of Shareholder ("Suttle"). Purchaser
warrants and agrees that
(A) Purchaser must not make any purchases or place any
orders subsequent to the Closing which may result in
a draw against either of those letters of credit,
(B) Purchaser must promptly reimburse Suttle for any
draws made against either of those letters of credit
which occur subsequent to the Closing for orders
placed by Seller prior to the Closing, and
(C) Purchaser must promptly arrange for substitute
letters of credit in Purchaser's name.
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5. Except as modified by this Amendment No. 1, all of the terms
of the Purchase Agreement shall remain in full force and effect.
IN WITNESS WHEREOF, this Amendment No. 1 is made effective as of the
day and year first written above.
ZERCOM CORPORATION COMMUNICATIONS SYSTEMS, INC.
By /s/ Curtis A. Sampson By /s/ Curtis A. Sampson
Its President Its President, Chairman and
Chief Executive Officer
NORTECH SYSTEMS INCORPORATED
By /s/ Q.E. Finkelson
Its Chief Executive Officer
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