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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended
December 31, 1994
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from _________ to __________
Commission file number 1-8533
DIAGNOSTIC/RETRIEVAL SYSTEMS, INC.
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(Exact name of registrant as specified in its charter)
Delaware 13-2632319
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
16 Thornton Road, Oakland, New Jersey 07436
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(Address of principal executive offices) (Zip Code)
201-337-3800
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(Registrant's telephone number, including area code)
None
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(Former name, former address and former fiscal year,
if changed since last report.)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No __
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date. The number of shares of
Class A Common Stock, $.01 par value, and Class B Common Stock, $.01 par value,
outstanding as of February 8, 1994 was 3,242,324 and 2,119,534, respectively
(exclusive of 432,639 shares of Class A Common Stock and 21,619 shares of Class
B Common Stock held in the treasury).
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<PAGE>
DIAGNOSTIC/RETRIEVAL SYSTEMS, INC. AND SUBSIDIARIES
INDEX
PART I. FINANCIAL INFORMATION
Item 1.
Financial Statements
Condensed Consolidated Balance Sheets - December 31, 1994
and March 31, 1994 ...................................... 3
Condensed Consolidated Statements of Earnings -
Three Months and Nine Months Ended December 31, 1994
and 1993 ................................................ 4
Condensed Consolidated Statements of Cash Flows -
Nine Months Ended December 31, 1994 and 1993 ............ 5
Notes to Condensed Consolidated Financial Statements .... 6-8
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations ..................... 9-13
PART II. OTHER INFORMATION
Item 1. Not Applicable
Item 2. Not Applicable
Item 3. Not Applicable
Item 4. Submission of Matters to a Vote of Security Holders ..... 14
Item 5. Not Applicable
Item 6. Exhibits and Reports on Form 8-K ........................ 14
SIGNATURES ......................................................... 15
2
<PAGE>
DIAGNOSTIC/RETRIEVAL SYSTEMS, INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
(Unaudited)
December 31, March 31,
Assets 1994 1994
------ ----------- -----------
Current assets:
Cash ............................................. $10,292,000 $15,465,000
Accounts receivable .............................. 13,752,000 15,538,000
Inventories, net of progress payments ............ 10,859,000 5,042,000
Other current assets ............................. 2,762,000 2,563,000
----------- -----------
Total current assets ........................... 37,665,000 38,608,000
Property, plant and equipment, less accumulated
depreciation and amortization of $23,797,000
and $23,289,000 at December 31, 1994 and
March 31, 1994, respectively ..................... 8,630,000 8,893,000
Intangible assets, less accumulated amortization
of $3,296,000 and $3,008,000 at December 31,
1994 and March 31, 1994, respectively ............ 8,541,000 8,414,000
Other assets ....................................... 3,037,000 2,921,000
----------- -----------
$57,873,000 $58,836,000
=========== ===========
Liabilities and Stockholders' Equity
------------------------------------
Current liabilities:
Accounts payable and other ....................... $18,739,000 $18,805,000
----------- -----------
Total current liabilities ...................... 18,739,000 18,805,000
Long-term debt, excluding current installments ..... 11,953,000 14,515,000
Deferred income taxes .............................. 4,624,000 4,624,000
Other liabilities .................................. 1,204,000 1,133,000
----------- -----------
Total liabilities .............................. 36,520,000 39,077,000
----------- -----------
Stockholders' equity:
Class A Common Stock, $.01 par value per share
Authorized 10,000,000 shares; issued 3,674,963
shares at December 31, 1994 and March 31, 1994 .. 37,000 37,000
Class B Common Stock, $.01 par value per share
Authorized 20,000,000 shares; issued 2,141,153
shares at December 31, 1994 and 2,105,528
shares at March 31, 1994 ........................ 21,000 21,000
Additional paid-in capital ......................... 13,440,000 12,970,000
Retained earnings .................................. 10,027,000 8,315,000
----------- -----------
23,525,000 21,343,000
Treasury Stock, at cost; 480,139 shares of Class A
Common Stock and 31,619 shares of Class B Common
Stock at December 31, 1994; and 423,419 shares of
Class A Common Stock and 21,440 shares of Class
B Common Stock at March 31, 1994 ................. (1,853,000) (1,579,000)
Unamortized restricted stock compensation .......... (319,000) (5,000)
----------- -----------
Net stockholders' equity ......................... 21,353,000 19,759,000
----------- -----------
$57,873,000 $58,836,000
=========== ===========
See accompanying notes to condensed consolidated financial statements.
3
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DIAGNOSTIC/RETRIEVAL SYSTEMS, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Earnings
(Unaudited)
Three Months Ended Nine Months Ended
December 31, December 31,
------------------------ ------------------------
1994 1993 1994 1993
----------- ----------- ----------- -----------
Revenues ................. $15,742,000 $15,101,000 $47,404,000 $35,369,000
Costs and expenses ....... 14,737,000 14,373,000 44,143,000 33,196,000
----------- ----------- ----------- -----------
Operating income ....... 1,005,000 728,000 3,261,000 2,173,000
Interest and related
expenses ............... (343,000) (397,000) (1,020,000) (1,184,000)
Other income, net 397,000 127,000 613,000 689,000
----------- ----------- ----------- -----------
Earnings before income
taxes ................. 1,059,000 458,000 2,854,000 1,678,000
Income taxes ............. 425,000 192,000 1,142,000 680,000
----------- ----------- ----------- -----------
Net earnings ........... $ 634,000 $ 266,000 $ 1,712,000 $ 998,000
=========== =========== =========== ===========
Earnings per share of
Class A and Class B
Common Stock ............ $ .13 $ .05 $ .34 $ .19
=========== =========== =========== ===========
Weighted average number
of shares of Class A
and Class B Common
Stock outstanding ....... 4,888,662 5,335,170 5,025,586 5,334,121
=========== =========== =========== ===========
See accompanying notes to condensed consolidated financial statements.
4
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DIAGNOSTIC/RETRIEVAL SYSTEMS, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
(Unaudited)
Nine Months Ended
December 31,
---------------------------
1994 1993
----------- -----------
Cash flows from operating activities
Net earnings .................................. $ 1,712,000 $ 998,000
Adjustments to reconcile net earnings
to cash flows from operating activities:
Depreciation and amortization ............... 1,967,000 2,311,000
Other, net .................................. (235,000) (161,000)
Changes in assets and liabilities:
Decrease in accounts receivable ............. 2,265,000 1,444,000
(Increase) decrease in inventories .......... (5,543,000) 1,397,000
(Increase) in other current assets .......... (130,000) (107,000)
(Decrease) in accounts payable and other .... (182,000) (1,110,000)
Other, net .................................. 160,000 246,000
----------- -----------
Net cash provided by operating
activities ............................... 14,000 5,018,000
----------- -----------
Cash flows from investing activities
Capital expenditures .......................... (1,014,000) (541,000)
Cash advanced to company to be acquired ....... -- (1,800,000)
Purchase of businesses, net of cash acquired .. (1,514,000) (602,000)
Other, net .................................... 236,000 14,000
----------- -----------
Net cash used in investing activities ....... (2,292,000) (2,929,000)
----------- -----------
Cash flows from financing activities
Proceeds from short-term debt ................. 75,000 --
Payments on long-term debt .................... (56,000) (51,000)
Retirement of long-term debt .................. (2,639,000) (2,270,000)
Purchase of treasury stock .................... (2,900,000) --
Sale of treasury stock ........................ 2,625,000 --
----------- -----------
Net cash used in financing activities ....... (2,895,000) (2,321,000)
----------- -----------
Net decrease in cash ............................ $(5,173,000) $ (232,000)
Cash, beginning of period ....................... 15,465,000 10,965,000
----------- -----------
Cash, end of period ............................. $10,292,000 $10,773,000
=========== ===========
See accompanying notes to condensed consolidated financial statements.
5
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DIAGNOSTIC/RETRIEVAL SYSTEMS, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(Unaudited)
1) In the opinion of Management, the accompanying unaudited condensed
consolidated financial statements of Diagnostic/Retrieval Systems, Inc. and
subsidiaries (the Company) contain all adjustments (consisting of only
normal and recurring adjustments) necessary for the fair presentation of
the Company's consolidated financial position as of December 31, 1994, the
results of operations for the three months and nine months ended December
31, 1994 and 1993 and cash flows for the nine months ended December 31,
1994 and 1993.
2) The results of operations for the nine months ended December 31, 1994 are
not necessarily indicative of the results to be expected for the full year.
3) Earnings per share of common stock is computed by dividing net earnings by
the weighted average number of shares of Class A and Class B Common Stock
outstanding during each period. Options outstanding to purchase shares of
common stock were not included in the computation of earnings per share
because their effect was not material for all periods presented.
Furthermore, additional shares assumed to be outstanding applicable to the
Company's convertible subordinated debentures also were not included
because their effect on earnings per share was antidilutive for all periods
presented.
4) On October 1, 1993, the Company acquired (through TAS Acquisition Corp., a
wholly-owned subsidiary) a 95.7% equity interest in Technology Applications
and Service Company (TAS), a Maryland corporation, pursuant to a Stock
Purchase Agreement dated as of August 6, 1993. On November 1, 1993,
Articles of Merger were filed in order to merge TAS into TAS Acquisition
Corp. The name TAS Acquisition Corp. was changed to Technology Applications
& Service Company (TAS).
The following unaudited pro forma financial information shows the results
of operations for the nine months ended December 31, 1993 as though the
acquisition of TAS had occurred at the beginning of the period presented.
In addition to combining the historical results of operations of the two
companies, the pro forma calculations include: the amortization of the
excess of cost over the estimated fair value of net assets acquired; the
effect of a reduction in interest expense arising from the assumed
repayment by TAS prior to the acquisition date of its outstanding
borrowings under a bank line of credit; the effect of a reduction in
interest income from the assumed decrease in cash associated with the $1.8
million advanced to TAS prior to the acquisition and the funding of the TAS
operating loss for the period presented; and the adjustment to income taxes
to reflect the effective income tax rate assumed for the Company and TAS on
a combined basis for the pro forma period presented.
------------------------------------------------------------------
Nine Months Ended December 31, 1993
------------------------------------------------------------------
Revenues ........................................... $43,493,000
Net earnings before extraordinary item ............. $ 209,000
Earnings per share before extraordinary item ....... $ .04
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6
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The unaudited pro forma financial information is not necessarily indicative
either of the results of operations that would have occurred had the
acquisition been made at the beginning of the period, or of the future
results of operations of the combined companies.
5. Effective July 20, 1994, the Company entered into an Employment,
Non-Competition and Termination Agreement (the Employment Agreement) and a
Stock Purchase Agreement (the Stock Purchase Agreement) with David E.
Gross, its former President and Chief Technical Officer. Under the terms of
the Employment Agreement, Mr. Gross will receive a total of $600,000 as
compensation for his services under a five-year consulting agreement with
the Company and a total of $750,000 as consideration for a five-year
non-compete arrangement. The payments will be charged to expense over the
term of the Employment Agreement as services are performed and obligations
are fulfilled by Mr. Gross. Mr. Gross will also receive at the conclusion
of such initial five-year period, an aggregate of approximately $1.3
million payable over a nine-year period as deferred compensation. The
approximate present value of the payments to be made to Mr. Gross pursuant
to the deferred compensation portion of the Employment Agreement is
recorded at July 20, 1994, as the amount and terms are similar to the
Company's previous deferred compensation arrangement with Mr. Gross. On
July 28, 1994, pursuant to the Stock Purchase Agreement, the Company
purchased 659,220 shares of Class A Common Stock and 45,179 shares of Class
B Common Stock owned by Mr. Gross for $4.125 and $4.00 per share,
respectively, totaling approximately $2.9 million in cash (the Buy-back).
The Stock Purchase Agreement also provides that (i) the Company has a right
of first refusal with respect to the sale by Mr. Gross of any of the
remaining shares of common stock of the Company held by Mr. Gross in excess
of 20,000 shares, (ii) any shares of common stock of the Company held by
Mr. Gross must be voted pro rata in accordance with the vote of the
Company's other stockholders and (iii) in the event of a change in control
of the Company within three years from the date of the Stock Purchase
Agreement, Mr. Gross will receive a percentage of the difference between
the price per share paid to Mr. Gross pursuant to the Buy-back and the
price per share received by the stockholders of the Company pursuant to the
change of control transaction, less an interest factor, as defined in the
Stock Purchase Agreement, on the aggregate amount paid to Mr. Gross
pursuant to the Buy-back.
6. On October 18, 1994, the Company filed a Registration Statement on Form S-2
and on November 10, 1994, the Company filed Amendment No. 1 to such
Registration Statement (the Registration Statement) with the Securities and
Exchange Commission for the purpose of selling shares of its common stock
purchased by the Company in the Buy-back, as defined in Footnote 5 above.
Pursuant to the Registration Statement, the Company offered to sell 650,000
shares of its Class A Common Stock at a purchase price of between $3.92 per
share and $4.33 per share and 45,000 shares of its Class B Common Stock at
a purchase price of between $3.80 per share and $4.20 per share. As of
December 31, 1994, a total of 602,500 shares of Class A Common Stock were
sold at a price of $4.125 per share and 35,000 shares of Class B Common
Stock were sold at a price of $4.00 per share. The aggregate proceeds from
the sales of the Company's common stock of approximately $2.6 million have
been reflected in Treasury Stock, at cost in the Company's Condensed
Consolidated Balance Sheet at December 31, 1994.
7
<PAGE>
7. On November 17, 1994, Precision Echo, Inc., a wholly-owned subsidiary of
the Company, acquired, through its wholly-owned subsidiary, the net assets
of Ahead Technology Corporation (Ahead) for approximately $1.5 million.
Ahead, located in Los Gatos, California, designs and manufactures a variety
of consumable magnetic head products used in the production of computer
disk drives. Its products include burnish heads, glide heads and specialty
test heads. The acquisition has been accounted for using the purchase
method of accounting. The excess of cost over the estimated fair value of
net assets acquired was approximately $403,000 and will be amortized on a
straight-line basis over 5 years, or approximately $81,000 annually.
8
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Results of Operations
The following table sets forth items in the Condensed Consolidated
Statements of Earnings as a percent of revenues and the percentage increase or
decrease of those items as compared to the prior period.
Percent of Percent of
Revenues Revenues
------------------ ------------------
Three Months Percent Nine Months Percent
Ended December 31, Changes Ended December 31, Changes
------------------ ------- ------------------ -------
1994 1994
vs. vs.
1994 1993 1993 1994 1993 1993
------ ------ ------ ------ ------ ------
Revenues ............. 100.0% 100.0% 4.2% 100.0% 100.0% 34.0%
Costs and expenses ... 93.6 95.2 2.5 93.1 93.9 33.0
------ ------ ------ ------
Operating income ..... 6.4 4.8 38.0 6.9 6.1 50.1
Interest and
related expenses .... (2.2) (2.6) (13.6) (2.2) (3.3) (13.9)
Other income, net .... 2.5 .8 212.6 1.3 1.9 (11.0)
------ ------ ------ ------
Earnings before
income taxes ........ 6.7 3.0 131.2 6.0 4.7 70.1
Income taxes ......... 2.7 1.2 121.4 2.4 1.9 67.9
------ ------ ------ ------
Net earnings ......... 4.0% 1.8% 138.3% 3.6% 2.8% 71.5%
====== ====== ====== ======
9
<PAGE>
Revenues for the three months ended December 31, 1994 were approximately
$15.7 million, representing an increase of $.6 million from revenues generated
during the same period last year. On a year-to-date basis, revenues of $47.4
million for the nine-month period ended December 31, 1994 were $12.0 million
higher than those reported for the comparable period a year ago. The increases
in revenues for the three- and nine-month periods were mainly attributable to
the Company's increased business base in display systems, manufacturing and
technical services and commercial products as a result of acquisitions and a
joint venture entered into during the latter part of fiscal 1994 and 1995.
Revenues on certain data storage, signal processing, trainer and optical systems
programs were also higher during the current fiscal year reflecting shipments
under contracts and progress made on programs awarded during fiscal 1994.
Operating income for the third quarter of fiscal 1995 was $1.0 million,
representing an increase of $.3 million from operating income generated during
the same period last year. Results for the nine months ended December 31, 1994
of $3.3 million reflected an increase of $1.1 million over those achieved in
fiscal 1994. The improvement during the current year was primarily due to the
overall increase in revenues as well as improved operating margins from the
Company's data storage systems programs due to the completion of certain
fixed-price development contracts and the Company's commercial product lines.
Interest and related expenses for the three- and nine-month periods ended
December 31, 1994 decreased approximately $.1 million and $.2 million,
respectively, from the comparable periods a year ago. Reductions from fiscal
1994 in the Company's outstanding long-term debt due to the mandatory sinking
fund payments made on such debt obligations were substantially responsible for
the decreases.
Other income, net for the third quarter of fiscal 1995 increased by
approximately $.3 million from the third quarter a year ago. This increase was
primarily due to a $.2 million gain from the sale of certain fixed assets during
the current year. Other income, net for the nine months ended December 31, 1994
was $.1 million lower than for the same period in the preceding fiscal year. The
results for the nine months ended December 31, 1993 included a gain of $.3
million from the repurchase of the Company's 8 1/2% Convertible Subordinated
Debentures (Debentures) at prices lower than par value. The Debentures purchased
during the nine months ended December 31, 1994 were at prices approximating par
value and were primarily used to satisfy the August 1, 1994 sinking fund
obligation.
The Company's effective tax rates during the three-month periods ended
December 31, 1994 and 1993 were 40% and 42%, respectively. The effective tax
rate for each of the nine-month periods ended December 31, 1994 and 1993 was
40%. The Company records income tax expense based on an estimated full year
effective income tax rate. The effective income tax rate and the components of
income tax expense for the nine months ended December 31, 1994 did not
significantly change from those at March 31, 1994. The provision for income
taxes includes all estimated income taxes payable to federal and state
governments as applicable.
10
<PAGE>
Financial Condition and Liquidity
Cash and Cash Flow: Cash at December 31, 1994 and March 31, 1994
represented approximately 18% and 26%, respectively, of total assets. During the
nine-month period ended December 31, 1994, cash decreased $5.2 million. This
decrease primarily resulted from the use of approximately $2.6 million for the
repurchase of a portion of the Company's outstanding Debentures and $1.5 million
for the acquisition of the net assets of Ahead. Approximately $2.4 million of
the repurchased Debentures were used to satisfy the August 1, 1994 sinking fund
requirement for this obligation.
Capital expenditures were $1.0 million for the nine months ended December
31, 1994 and are expected to approximate $1.1 million for the fiscal year. The
majority of these expenditures are for computer and laboratory-related
equipment.
Accounts Receivable and Inventories: Accounts receivable decreased
approximately $1.8 million during the nine months ended December 31, 1994 due to
collections on outstanding receivables. Generally, there are no contract
provisions for retainage, and all accounts receivable are expected to be
collected within one year. The increase in inventories of $5.8 million during
the nine months ended December 31, 1994 was primarily due to the build-up in
costs to be billed upon delivery and final acceptance of products and those
which will result in future progress billings based on contractual provisions.
------------------------------------------------------------
December 31, March 31,
1994 1994
------------------------------------------------------------
Quick ratio ........................... 1.3 1.6
Current ratio ......................... 2.0 2.1
Liabilities-to-equity ratio ........... 1.7 2.0
Long-term debt, excluding current
installments, to capitalization ...... 35.9% 42.3%
------------------------------------------------------------
Backlog: At December 31, 1994, the Company's backlog of orders was $125
million as compared to $135 million at March 31, 1994. The decrease in backlog
during the nine months ended December 31, 1994 was due to the net effect of
revenues for the period which were partially offset by bookings. New contract
awards during the nine months ended December 31, 1994 totalled approximately
$38.0 million. Significant awards received to date included a $2.9 million
contract from the Naval Air Systems Command to produce additional quantities of
A/U36M-1(V) Weapons Boresight Equipment for the Marine Corps' AH-1W Cobra
helicopters, $6.0 million from the Government Systems Group of Unisys
Corporation to provide portions of the AN/UYQ-70 Advanced Display System and a
$4.9 million contract with the U.S. Navy to provide Readiness Trainer Systems
for the Mobile In-shore Undersea Warfare System Upgrade (MIUW-SU) program. Also
received during the nine months ended December 31, 1994 was a $3.1 million award
from the Naval Air Systems Command for WRR-818 8mm video tape recorders which
will be deployed on the Navy's F/A-18 Hornet carrier-based aircraft.
11
<PAGE>
Postemployment Benefits
In November 1992, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 112, "Employers' Accounting for
Postemployment Benefits" (SFAS 112). The Company adopted SFAS 112 during the
first quarter of fiscal 1995, and its adoption did not have a material impact on
the Company's results of operations or financial position.
Certain Agreements
Effective July 20, 1994, the Company entered into an Employment,
Non-Competition and Termination Agreement (the Employment Agreement) and a Stock
Purchase Agreement with David E. Gross, its former President and Chief Technical
Officer. Under the terms of the Employment Agreement, Mr. Gross will receive a
total of $600,000 as compensation for his services under a five-year consulting
agreement with the Company and a total of $750,000 as consideration for a
five-year non-compete arrangement. The payments will be charged to expense over
the term of the Employment Agreement as services are performed and obligations
are fulfilled by Mr. Gross. Mr. Gross will also receive at the conclusion of
such initial five-year period, an aggregate of approximately $1.3 million
payable over a nine-year period as deferred compensation. The approximate
present value of the payments to be made to Mr. Gross pursuant to the deferred
compensation portion of the Employment Agreement is recorded at July 20, 1994,
as the amount and terms are similar to the Company's previous deferred
compensation arrangement with Mr. Gross. On July 28, 1994, pursuant to the Stock
Purchase Agreement, the Company purchased 659,220 shares of Class A Common Stock
and 45,179 shares of Class B Common Stock owned by Mr. Gross for $4.125 and
$4.00 per share, respectively, totaling approximately $2.9 million in cash (the
Buy-back). The Stock Purchase Agreement also provides that (i) the Company has a
right of first refusal with respect to the sale by Mr. Gross of any of the
remaining shares of common stock of the Company held by Mr. Gross in excess of
20,000 shares, (ii) any shares of common stock of the Company held by Mr. Gross
must be voted pro rata in accordance with the vote of the Company's other
stockholders and (iii) in the event of a change in control of the Company within
three years from the date of the Stock Purchase Agreement, Mr. Gross will
receive a percentage of the difference between the price per share paid to Mr.
Gross pursuant to the Buy-back and the price per share received by the
stockholders of the Company pursuant to the change of control transaction, less
an interest factor, as defined in the Stock Purchase Agreement, on the aggregate
amount paid to Mr. Gross pursuant to the Buy-back.
Stock Registration
On October 18, 1994, the Company filed a Registration Statement on Form S-2
and on November 10, 1994, the Company filed Amendment No. 1 to such Registration
Statement (the Registration Statement) with the Securities and Exchange
Commission for the purpose of selling shares of its common stock purchased by
the Company in the Buy-back. Pursuant to the Registration Statement, the Company
offered to sell 650,000 shares of its Class A Common Stock at a purchase price
of between $3.92 per share and $4.33 per share and 45,000 shares of its Class B
Common Stock at a purchase price of between $3.80 per share and $4.20 per share.
Shares of the Class A Common Stock and Class B Common Stock were sold on a
best-efforts basis through (i) certain of the Company's directors and executive
officers, none of whom received any commissions or other form of compensation,
and each of whom qualified under the safe harbor provisions of Rule 3a4-1 under
the Securities Exchange Act of 1934, as amended, and (ii) certain broker-dealers
who are members of the National Association
12
<PAGE>
of Securities Dealers, Inc. which did not receive a commission from the Company.
As of December 31, 1994, a total of 602,500 shares of Class A Common Stock were
sold at a price of $4.125 per share and 35,000 shares of Class B Common Stock
were sold at a price of $4.00 per share. The aggregate proceeds from the sales
of the Company's common stock of approximately $2.6 million have been reflected
in Treasury Stock, at cost in the Company's Condensed Consolidated Balance Sheet
at December 31, 1994. The shares of Class A and Class B Common Stock were being
sold by the Company to replenish working capital and the Company intends to use
the net proceeds generated for working capital and general corporate purposes.
Acquisition
On November 17, 1994, Precision Echo, Inc., a wholly-owned subsidiary of
the Company, acquired, through its wholly-owned subsidiary, the net assets of
Ahead Technology Corporation (Ahead) for approximately $1.5 million. Ahead,
located in Los Gatos, California, designs and manufactures a variety of
consumable magnetic head products used in the production of computer disk
drives. Its products include burnish heads, glide heads and specialty test
heads. The acquisition has been accounted for using the purchase method of
accounting. The excess of cost over the estimated fair value of net assets
acquired was approximately $403,000 and will be amortized on a straight-line
basis over 5 years, or approximately $81,000 annually.
13
<PAGE>
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
None
Item 6. Exhibits and Reports on Form 8-K
(a)Exhibits
1. Asset Purchase Agreement, dated October 28, 1994, Acquisition
By PE Acquisition Corp., a subsidiary of Precision Echo, Inc.
Of All Of The Assets Of Ahead Technology Corporation
27. Financial Data Schedule
(b) Reports on Form 8-K
None
14
<PAGE>
DIAGNOSTIC/RETRIEVAL SYSTEMS, INC. AND SUBSIDIARIES
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
DIAGNOSTIC/RETRIEVAL SYSTEMS, INC.
Registrant
Date: February 13, 1995 /s/ NANCY R. PITEK
----------------------------------
Nancy R. Pitek
Controller and Treasurer
15
- - - - --------------------------------------------------------------------------------
ASSET PURCHASE AGREEMENT
Acquisition By
PE ACQUISITION CORP., a subsidiary of
PRECISION ECHO, INC.
Of All Of The Assets
Of
AHEAD TECHNOLOGY CORPORATION
OCTOBER 28, 1994
- - - - --------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
Page
----
ARTICLE I
SALE AND PURCHASE OF THE ASSETS ..........................................1
1.1 Sale and Purchase of the Assets ...........................1
1.2 Closing; Purchase Price ...................................1
1.3 Allocation of Purchase Price ..............................2
1.4 Assumption of Liabilities .................................2
ARTICLE II
REPRESENTATIONS AND WARRANTIES ...........................................2
2.1 Representations and Warranties of the Seller,
the Shareholder and Arthur Honegger,
president of the Seller ...................................2
2.1.1 Ownership and Condition of Assets ...........2
2.1.2 Authority for Agreements ....................3
2.1.3 Corporate Status ............................3
2.1.4 Investments .................................3
2.1.5 Capitalization ..............................4
2.1.6 Financial Statements ........................4
2.1.7 Undisclosed Liabilities .....................4
2.1.8 Absence of Changes ..........................4
2.1.9 Taxes .......................................6
2.1.10 Properties ..................................7
2.1.11 Material Contracts ..........................8
2.1.12 Accounts Receivable; Inventories ...........10
2.1.13 Intellectual Property and
Proprietary Information ....................10
2.1.14 Insurance ..................................11
2.1.15 No Compensation ............................11
2.1.16 Litigation .................................11
2.1.17 Environmental Condition and
Governmental Authorizations ................12
2.1.18 Affiliate Transactions .....................13
2.1.19 Employees, Labor Matters, etc ..............13
2.1.20 ERISA ......................................14
2.1.21 Products; Product and Service
Warranties .................................15
2.1.22 Selling Material and Policies ..............15
2.1.23 Brokers, Finders, etc ......................15
2.1.24 Accounts Payable ...........................15
2.1.25 Disclosures ................................15
2.2 Representations and Warranties of the Buyer ....................16
2.2.1 Corporate Status ...........................16
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2.2.2 Authority for Agreements ...................16
2.2.3 Brokers, Finders, etc ......................16
ARTICLE III
COVENANTS ...............................................................17
3.1 Covenants of the Sellers .................................17
3.1.1 Conduct of Business until the
Closing Date ...............................17
3.1.2 No Solicitation ............................18
3.1.3 Access for Due Diligence ...................18
3.1.4 Financials, etc ............................19
3.1.5 Public Announcements .......................19
3.1.6 Filings and Authorizations .................19
3.1.7 Further Assurances .........................19
3.1.8 Access to Tax Information ..................20
3.1.9 Covenant Not to Compete ....................20
3.2 Covenants of the Buyer ...................................21
3.2.1 Public Announcements .......................21
3.2.2 Filings ....................................21
3.2.3 Access to Tax Information ..................21
ARTICLE IV
CONDITIONS PRECEDENT ....................................................21
4.1 Conditions to Obligations of Each Party ..................21
4.1.1 ............................................21
4.1.2 ............................................21
4.1.3 No Injunction, etc .........................22
4.2 Conditions to Obligations of the Buyer ...................22
4.2.1 Representations; Performance ...............22
4.2.2 Tender of All Assets .......................22
4.2.3 U.S. Patent No. 4845816 ....................22
4.2.4 Other Assets ...............................22
4.2.5 Governmental Approvals .....................23
4.2.6 Consents....................................23
4.2.7 Lease.......................................23
4.2.8 Opinion of Counsel..........................23
4.4.9 Proceedings.................................23
4.2.10 Buyer's Responsibility for
Certain Taxes ..............................23
4.2.11 Satisfactory Completion of Due
Diligence ..................................23
4.3 Conditions to Obligations of the Seller ........................24
4.3.1 Representations; Performance ...............24
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4.3.2 Further Agreements .........................24
4.3.3 Opinion of Counsel .........................24
4.3.4 Corporate Proceedings ......................24
ARTICLE V
TERMINATION .............................................................24
5.1 Termination ..............................................24
ARTICLE VI
DEFINITIONS; MISCELLANEOUS ..............................................25
6.1 Definition of Certain Terms ..............................25
6.2 Indemnification ..........................................32
6.3 Survival of Representations and
Warranties, etc. .........................................35
6.4 Representation by Counsel ................................36
6.5 Expenses .................................................36
6.6 Severability .............................................36
6.7 Notices ..................................................36
6.8 Miscellaneous ............................................37
6.8.1 Headings ...................................37
6.8.2 Entire Agreement ...........................37
6.8.3 Counterparts ...............................37
6.8.4 Governing Law ..............................37
6.8.5 Binding Effect .............................38
6.8.6 Assignment .................................38
6.8.7 No Third Party Beneficiaries ...............38
6.8.8 Amendment; Waivers .........................38
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ASSET PURCHASE AGREEMENT
ASSET PURCHASE AGREEMENT, dated as of October 28, 1994, between PRECISION
ECHO ACQUISITION CORP. a Delaware corporation (the "Buyer") and a subsidiary of
Precision Echo, Inc., a Delaware corporation, and AHEAD TECHNOLOGY CORPORATION,
a California corporation (the "Seller"), and a subsidiary of Datec AG, a
Lichtenstein corporation (the "Shareholder").
W I T N E S S E T H:
WHEREAS, the Seller wishes to sell or transfer to the Buyer and the Buyer
wishes to purchase from the Seller all of the Assets on the terms and conditions
and for the consideration described below in this Agreement.
NOW, THEREFORE, in consideration of the mutual promises, covenants,
representations and warranties made herein and of the mutual benefits to be
derived herefrom, the parties hereto agree as follows:
ARTICLE I
SALE AND PURCHASE OF THE ASSETS
1.1 Sale and Purchase of the Assets. Subject to the terms and conditions
hereof, the Seller will sell, transfer, convey, assign and deliver all of the
Assets of Seller to the Buyer and the Buyer will purchase all of the Assets from
the Seller for an aggregate purchase price (the "Purchase Price") payable to the
Seller at the Closing (as such term and other capitalized terms used herein are
defined in section 6.1).
1.2 Closing; Purchase Price. The closing of the sale and purchase of the
Assets (the "Closing") shall take place at the offices of Precision Echo at
10:00 a.m. on November 17, 1994 or such other time and date as the parties may
agree to in writing (the "Closing Date"). At the Closing:
1.2.1 The Seller shall deliver to the Buyer, free and clear of any
Lien, all of the Assets by delivery of instruments of conveyance and such other
documents, certificates and opinions as are specified herein.
1.2.2 The Buyer shall pay to Seller by certified check or wire
transfer of immediately available funds the cash portion of the Purchase Price
of $1,110,434.00.
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1.3 Allocation of Purchase Price. The parties agree to allocate the
aggregate of the Purchase Price among the respective Assets and the covenants
not to compete delineated in Section 3.1.9 below. Buyer shall prepare an
allocation schedule in accordance with Section 1060 of the Code, and the parties
shall cooperate with each other and provide such information as either of them
shall reasonably request. The parties shall each report the federal, state,
local and other Tax consequences of the purchase and sale contemplated hereby in
a manner consistent with such allocation schedule.
1.4 Assumption of Liabilities. Subject to the terms and conditions set
forth herein, at the Closing Buyer will assume and agree to pay or satisfy all
of the following liabilities relating to the Assets and existing at or arising
after the Closing Date (collectively, the "Assumed Liabilities"):
(a) all liabilities, obligations and commitments relating exclusively
to the Assets that are (a) reflected on the Seller's most recent Financial
Statement, defined in Section 2.1.6 below and attached as Schedule 1.4(a)
hereto, or (b) incurred after the date of such balance sheet in the ordinary
course of business consistent with past practice and in accordance with the
terms of this Agreement and are not, individually or in the aggregate, material
to the business conducted with the Assets, but excluding any and all income,
franchise or withholding taxes;
(b) all liabilities, obligations and commitments arising out of the
agreements, contracts and commitments, if any, set forth on Schedule 1.4(b)
hereto, but not including any liabilities in respect of any breach thereof
occurring prior to the Closing Date.
ARTICLE II
REPRESENTATIONS AND WARRANTIES
2.1 Representations and Warranties of the Seller, the Shareholder and
Arthur Honegger, president of the Seller. Seller, the Shareholder and Honegger
jointly and severally represent and warrant to Buyer as follows:
2.1.1 Ownership and Condition of Assets. The Seller has, or at the
Closing will have, good and marketable title to all the Assets, free and clear
of any claim, pledge, lien, security interest, or other encumbrance or
encroachment, whether arising by operation of any law, judgment, decree or
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agreement, except those claims, pledges, liens, security interests or other
encumbrances or encroachments identified in Section 2.1.1 of the Disclosure
Schedule.
2.1.2 Authority for Agreements. The Seller and the Shareholder have
the legal capacity to execute and deliver this Agreement and the assignments of
U.S. Patent No. 4845816 (collectively, the "Transaction Agreements"), and to
perform their obligations under the Transaction Agreements and to consummate the
transactions contemplated by each such Agreement. The Transaction Agreements
constitute the valid and legally binding obligations of the Seller and the
Shareholder. The execution and delivery of the Transaction Agreements and the
consummation of the transactions contemplated by the Transaction Agreements will
not conflict with or result in any violation of or default under any provision
of the certificate of incorporation or bylaws (or comparable documents) of the
Seller or the Shareholder or any mortgage, indenture, lease, agreement or other
instrument, permit, concession, grant, franchise, license, judgment, order,
decree, statute, law, ordinance, rule or regulation applicable to the Seller or
the Shareholder, or any of the properties of the Seller or the Shareholder.
Except as specified in section 2.1.2 of the Disclosure Schedule, no consent,
license, approval, order or authorization of, or registration, declaration or
filing with, any governmental authority is required on the part of the Seller or
the Shareholder in connection with the execution and delivery of this Agreement
or the consummation of the transactions contemplated hereby. Except as specified
in section 2.1.2 of the Disclosure Schedule, no consent of any third party is
required to be obtained by the Seller in connection with the execution, delivery
and performance of this Agreement or the consummation of the transactions
contemplated hereby.
2.1.3 Corporate Status. The Seller is a corporation duly organized,
validly existing and in good standing under the laws of the State of California
with full corporate power and authority to carry on its business as now
conducted and to own or lease and to operate its properties as and in the places
where such business is now conducted and such properties are now owned, leased
or operated. The Seller is duly qualified or licensed to do business and is in
good standing in each of the jurisdictions specified in section 2.1.3 of the
Disclosure Schedule, which includes each jurisdiction in which the nature of its
business or the properties owned or leased by it makes such qualification
necessary and where the failure to so qualify may give rise (individually or in
the aggregate) to a Material Adverse Effect. The Seller has delivered to the
Buyer complete and correct copies of the certificate of incorporation and bylaws
of the Seller, as in effect on the date hereof.
2.1.4 Investments. The Seller has no subsidiaries and does not own any
shares of capital stock or other securities of, or any interest in any Person,
other than items properly includable as cash equivalents on the Seller's balance
sheet and
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the securities listed in section 2.1.4 of the Disclosure Schedule. The
Seller does not own or have any direct or indirect financial interest in any
Person which is, or during the last five years has been, engaged in the design,
development, manufacture or marketing of the Products.
2.1.5 Capitalization. All issued and outstanding shares of the capital
stock of the Seller have been duly authorized and validly issued and are fully
paid and nonassessable. All of such issued and outstanding shares of the Seller
are owned by the Shareholder.
2.1.6 Financial Statements. The Seller has delivered to the Buyer
unaudited financial statements for calendar years 1992 and 1993 and for the
monthly periods ended since the 1993 financial statement (the "Financial
Statements"). The most recent monthly Financial Statement delivered to Buyer
shall be referred to herein as "the most recent Financial Statement." The
Financial Statements have been prepared in accordance with GAAP applied on a
consistent basis throughout the periods covered thereby, except as may be
indicated in the notes thereto. The balance sheets included in the Financial
Statements present fairly the financial position of the Seller as at the
respective dates thereof, and the statements of income and retained earnings and
statements of cash flows included in the Financial Statements present fairly the
results of operations of the Seller for the respective periods indicated.
2.1.7 Undisclosed Liabilities. Except as disclosed in this Agreement
or section 2.1.7 of the Disclosure Schedule or except as disclosed or reserved
against in the Financial Statements, or incurred in the ordinary course of
business of the Seller subsequent to the date of the most recent Financial
Statement and not prohibited by this Agreement, the Seller does not have any
liabilities or obligations of any nature, whether absolute, accrued, contingent
or otherwise.
2.1.8 Absence of Changes. Since May 1, 1994, except as specified in
section 2.1.8 of the Disclosure Schedule, the Seller has not:
(a) undergone any adverse change in its condition (financial or
other), properties, assets, liabilities, business, operations or prospects,
other than changes of a general economic or political nature which do not affect
the Seller uniquely;
(b) declared, set aside, made or paid any dividend or other
distribution in respect of its capital stock or otherwise purchased or redeemed,
directly or indirectly, any shares of its capital stock;
(c) issued or sold any shares of its capital stock of any class
or any options, warrants or conversion or
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other rights to purchase any such shares or any securities
convertible into or exchangeable for such shares;
(d) other than in the ordinary course of business, incurred any
indebtedness for borrowed money, issued or sold any debt securities or prepaid
any debt outstanding as of September 23, 1994;
(e) mortgaged, pledged or subjected to any Lien any of its
properties or assets, tangible or intangible;
(f) acquired or disposed of any assets or properties, or entered
into any agreement or other arrangement for such acquisition or disposition,
except in the ordinary course of business;
(g) forgiven or cancelled any debts or claims, or waived any
rights except in the ordinary course of business;
(h) entered into any agreement, commitment or other transaction
other than agreements involving an expenditure of $5,000 or less in the
aggregate and other than agreements in the ordinary course of business, or
entered into any agreement which, pursuant to its terms, is not cancellable
without penalty on less than 30 days' notice;
(i) paid any bonus to any officer, director or employee or
granted to any officer, director or employee any other increase in compensation
in any form;
(j) adopted or amended in any material respect, any employment,
collective bargaining, bonus, profitsharing, compensation, stock option,
pension, retirement, deferred compensation or other plan, agreement, trust, fund
or arrangement for the benefit of employees (whether or not legally binding);
(k) suffered any damage, destruction or loss (whether or not
covered by insurance) which had or may have (individually or in the aggregate) a
Material Adverse Effect;
(1) suffered any strike or other employment-related problem
which had or may have (individually or in the aggregate) a Material Adverse
Effect;
(m) suffered any loss of employees or customers which had or may
have (individually or in the aggregate) a Material Adverse Effect;
(n) amended its certificate of incorporation or bylaws (or
comparable documents);
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(o) changed in any respect its accounting practices, policies or
principles;
(p) incurred any liability or obligation (whether absolute,
accrued, contingent or otherwise and whether direct or as guarantor or otherwise
with respect to the obligations of others), except in the ordinary course of
business;
(q) granted any rights or licenses under any of its trademarks,
tradenames or patents (or under U.S. Patent No. 4845816) or entered into any
licensing or distributorship agreements; or
(r) made any material changes in policies or practices relating
to selling practices, returns, discounts or other terms of sale or accounting
therefor or in policies of employment.
2.1.9 Taxes. (a) Except as disclosed in section 2.1.9 of the
Disclosure Schedule, the Seller has duly filed all federal, state and local
Returns which are required to be filed by it prior to the date hereof and has
paid all Taxes which are shown thereon to be due and all other Taxes imposed by
law upon it or any of its properties, assets, income, receipts, payrolls,
transactions, capital, net worth or franchises which have become due and
payable. Except as disclosed in section 2.1.9 of the Disclosure Schedule, the
Taxes payable set forth in the Financial Statements are adequate to cover all
liabilities for Taxes of the Seller with respect to all assets held and
activities conducted by the Seller on or prior to the Closing Date, other than
liabilities for Taxes incurred in the ordinary course of business subsequent to
the date of the most recent Financial Statement and permitted by this Agreement.
No transfer, property or other Taxes are or will be payable (including, without
limitation, as a result of an audit or other official inquiry before or after
the Closing) by the Buyer or the Seller in respect of the sale by the Seller. No
tax liens have been filed and neither the Internal Revenue Service nor any other
taxing authority is now asserting or, to the best knowledge of the Seller after
due inquiry, threatening to assert against the Seller any deficiency or claim
for additional Taxes. Except as provided in section 2.1.9 of the Disclosure
Schedule, no Return of the Seller is currently under audit by the Internal
Revenue Service or by the taxing authorities of any other jurisdiction. The
Seller has not granted any waiver of any statute of limitations with respect to,
or any extension of a period for the assessment of any federal, state or local
Tax. Without limiting the foregoing, the Seller has no knowledge of any actual
claim for any additional Tax to be imposed upon the Seller for the periods
ending on or prior to the Closing Date in excess of the accruals of the Seller
set forth in the Financial Statements with respect to Taxes. The federal, state
and local tax returns of the Seller have been examined by the appropriate taxing
authority, or the statutes of limitations with respect to the relevant income or
franchise tax liability
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have expired, for all tax periods through and including
the tax period listed with respect to each such jurisdiction set forth in
section 2.1.9 of the Disclosure Schedule.
(b) No consent or agreement under Section 341(f) of the Code is
in effect with respect to the Seller.
(c) Except as provided in section 2.1.9 of the Disclosure
Schedule, the Seller has not (i) agreed to and is not required to make any
adjustment under Section 481(a) of the Code or Revenue Procedure 87-32 (or any
successor thereto), by reason of a change in method of accounting or otherwise;
(ii) ever been included in a combined or consolidated income tax return; (iii)
ever owned stock representing 50% or more of the voting power or value of
another corporation; (iv) entered into any agreement or arrangement that could
result, separately or in the aggregate, in the payment of any "excess parachute
payments" within the meaning of Section 280G of the Code; (v) consummated any
transaction with another corporation that is owned, directly or indirectly, by
the Seller on other than an arms-length basis within the meaning of Section 482
of the Code and the regulations thereunder; or (vi) entered into any tax sharing
agreements or similar arrangements.
(d) No (i) setting aside, accrual, reservation or entry upon the
books of the Seller or (ii) disclosure on the Disclosure Schedule or pursuant to
this Section 2.1.9 shall affect the express obligations that the Seller
otherwise has under Section 6.2(b), provided that there shall not be any
duplicative payments with respect to the same item.
2.1.10 Properties. (a) Section 2.1.10(a) of the Disclosure Schedule
contains a complete and correct list of all real property and interests therein
owned or leased by the Seller (the "Real Property"). Section 2.1.10(a) of the
Disclosure Schedule contains a complete and correct list of all tangible
personal property having an original cost to the Seller in excess of $5,000 and
reflected in the Financial Statements or acquired after the date of the most
recent Financial Statement (except to the extent disposed of since such date in
the ordinary course of business). The Seller has good and marketable title to
all real and personal property owned by it, and valid leasehold interests in all
real and personal property leased by it, in each case free and clear of all
Liens, except (i) as indicated in section 2.1.10(a) of the Disclosure Schedule,
(ii) liens for current taxes not due and payable, (iii) Statutory liens incurred
in the ordinary course of business which do not have or could not have a
Material Adverse Effect, (iv) encumbrances and easements which do not materially
detract from the value or materially interfere with the use of the
properties affected thereby (the exceptions described in the foregoing clauses
(i), (ii), (iii) and (iv) being referred to as "Permitted Encumbrances").
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(b) Neither the Real Property nor any current use thereof by the
Seller violates any local zoning or similar land use law or other governmental
regulation. No current use by the Seller of any of its properties or assets is
dependent on a nonconforming use or other permit the absence of which would
materially limit the use of such properties or assets in the Seller's business
as now conducted. All structures and all machinery and equipment of the Seller
are fully located within the lines of record title. There do not exist any
unsafe conditions on, material defects in, or need for repair to, any portion of
the Real Property.
(c) Schedule 2.1.10(c) of the Disclosure Schedule contains a
list which is complete and correct in all material respects of all leases and
conditional sales or other title retention agreements involving annual payments
by the Seller in excess of $5,000. The Seller has delivered to the Buyer
complete and correct copies of all leases and other agreements with respect to
the Real Property and all such leases and other agreements are valid, subsisting
and effective in accordance with their terms; and there does not exist
thereunder any default or event or condition which, after notice or lapse of
time or both, would constitute a default thereunder by the Seller or, to the
best knowledge of the Seller after due inquiry, any other party thereto.
(d) Except as specified in section 2.1.10(d) of the Disclosure
Schedule (i) all structures and other improvements located on the Real Property
and all tangible personal property currently in use by the Seller are in good
operating condition and repair, subject to ordinary wear and tear, are suitable
for the purposes for which they are used, are performing the functions for which
they were intended and are not obsolete, (ii) all items of personal property
have performed at commercially reasonable standards since the later of 12 months
prior to the date hereof and the time of their acquisition and are being used by
the Seller as of the date hereof in connection with the business and operations
of the Seller, (iii) no repairs or other expenditures are presently required to
be made on any structure, improvement, machinery or equipment so as to maintain
such asset in its present condition, which repairs or capital expenditures would
in the aggregate involve the expenditure of more than $5,000, and (iv) to the
best of Seller's knowledge after due inquiry, no extraordinary or unusual
capital expenditures in excess of $25,000 in the aggregate will be required in
connection with the business and operations of the Seller in the two years
following the Closing Date to permit such business to be conducted in
substantially the same manner as it has been conducted in the past.
2.1.11 Material Contracts. Section 2.1.11 of the Disclosure Schedule
contains a complete and correct list as of the date hereof of all agreements,
contracts and commitments of the following types, written or oral, to which the
Seller is a
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party or by which the Seller or its properties are bound as of the
date hereof: (a) mortgages, indentures, security agreements, letters of credit,
loan agreements and other agreements, guarantees and instruments relating to the
borrowing of money or extension of credit; (b) employment, consulting, severance
and agency agreements; (c) collective bargaining agreements; (d) bonus,
profit-sharing, compensation, stock option, pension, retirement, deferred
compensation or other plans, trusts or funds for the benefit of employees,
officers, agents and directors (whether or not legally binding); (e) sales
agency, manufacturer's representative or distributorship agreements; (f)
agreements, orders or commitments for the purchase of raw materials, supplies or
finished products exceeding $5,000; (g) agreements, orders or commitments for
the sale of its products exceeding $5,000; (h) licenses of patent, copyright,
tradenames, trademark, transfer of technology or know how and other intellectual
property rights; (i) agreements or commitments for capital expenditures in
excess of $5,000 for any single project (it being warranted that all undisclosed
agreements or commitments for capital projects do not exceed $10,000 in the
aggregate for all projects); (j) brokerage or finder's agreements; (k) joint
venture and partnership agreements; and (1) other agreements, contracts and
commitments which in any case involve payments or receipts of more than $5,000.
The Seller has delivered to the Buyer complete and correct copies of all such
written agreements, contracts and commitments, together with all amendments
thereto, and accurate descriptions of all oral agreements. Such agreements,
contracts and commitments are in full force and effect and, except as disclosed
in section 2.1.11 of the Disclosure Schedule, there does not exist thereunder
any default or event or condition or course of dealing which, after notice or
lapse of time or both, would constitute a default thereunder on the part of the
Seller or, to the best knowledge of the Seller after due inquiry, any other
party thereto or would provide a basis for any creditor of the Seller, or any
party to such agreements, contracts or commitments, to challenge the extent,
validity or priority of the interest of any other party to such agreements,
contracts or commitments. No agreement, contract or commitment to which the
Seller is a party or by which it or any of its properties is bound is unusually
burdensome, restrictive or unfavorable to the Seller or materially and adversely
affects or in the future may (so far as the Seller can now reasonably foresee)
materially and adversely affect the business of Seller. All agreements,
contracts or commitments to which the Seller is a party or by which it or any of
its properties is bound (other than contracts as to which the Seller is the sole
party), including those with affiliates of the Seller, reflect terms no less
favorable to the Seller than could be obtained from unaffiliated third parties.
The Seller has no outstanding powers of attorney, except routine powers of
attorney relating to representation before governmental agencies or given in
connection with qualification to conduct business in another jurisdiction.
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2.1.12 Accounts Receivable; Inventories. The accounts receivable of
the Seller reflected on the most recent Financial Statement (except those
collected since such date) and such additional accounts receivable as are
reflected on the books of the Seller are good and collectible except to the
extent reserved against thereon or as disclosed in section 2.1.12(a) of the
Disclosure Schedule. All such accounts receivable have been generated in the
ordinary course of business and reflect a bona fide obligation for the payment
of goods or services provided by the Seller. The inventories reflected on the
Financial Statements and those inventories owned by the Seller on the date
hereof are in good, merchantable and usable condition and have been reflected on
the Financial Statements at the lower of cost and market (on the first-in
first-out method) in accordance with GAAP. Such inventories include no obsolete
or discontinued items, except to the extent reserved against on the Financial
Statements or except as disclosed in section 2.1.12(c) of the Disclosure
Schedule.
2.1.13 Intellectual Property and Proprietary Information. Section
2.1.13 of the Disclosure Schedule contains a complete and correct list and
accurate summary description of all patents and patent applications (including
all reissues, divisions, continuations, continuations-in-part, substitutions or
extensions thereof) all registered and unregistered trademarks, service marks,
trade names, brand names, fictitious names, certification marks, slogans, names,
letters, marks, logos and symbols, and all applications for registration or
renewal of registration of any of the foregoing, used, owned or claimed by or
licensed to the Seller; all copyright registrations, copyright applications and
material unregistered copyrights, owned by or licensed to the Seller, used in or
necessary to the business of Seller throughout the world; and all similar
property rights (collectively, the "Intellectual Property"). The Seller is the
owner of all of the Intellectual Property and except as set forth in section
2.1.13 of the Disclosure Schedule, the Intellectual Property has been duly
registered with, filed in or issued by, as the case may be, the United States
Patent and Trademark Office or such other government entity, domestic or foreign
to the full extent necessary and, to the extent any ownership of the
Intellectual Property is registrable, the Seller is also the registered owner
thereof, in each case free and clear of all licenses or Liens except as
specified in section 2.1.13 of the Disclosure Schedule. Except as disclosed in
section 2.1.13 of the Disclosure Schedule, the Seller owns, or possesses
adequate rights to use, all the Intellectual Property and all inventions,
processes, designs, formulae, techniques, trade secrets, know-how, confidential
information and other proprietary rights (collectively, the "Proprietary
Information") necessary for or material to the conduct of the business of
Seller, with no conflict with or infringement on the rights of others. Except as
disclosed in section 2.1.13 of the Disclosure Schedule, the Seller has taken all
steps reasonably necessary to preserve the confidential nature of the
Proprietary Information, no third
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party is infringing upon any of the Intellectual Property or
Proprietary Information, no claim exists that any of the Intellectual Property
or Proprietary Information is not valid or enforceable by the Seller and none of
the Intellectual Property or Proprietary Information is subject to any
outstanding order, ruling, decree, judgment or stipulation by or with any court,
arbitrator, or administrative agency. Except as disclosed in section 2.1.13 of
the Disclosure Schedule, the Seller has not taken or omitted to take any action
which would have the effect of waiving any of its rights under any of the
Intellectual Property or Proprietary Information. The Seller has the right to
use, free and clear of any royalties, claims or rights of others, all of the
Intellectual Property and Proprietary Information. The Seller has all
manufacturing instructions, techniques, formulae and processes described in
written documentation necessary for or material to the conduct of the business
of Seller or the manufacture of the products ("Confidential Processes") which a
person reasonably skilled in the art can follow to manufacture the products sold
by the Seller as previously and presently manufactured by the Seller. Without
limiting the generality of the foregoing, the Shareholder's interest in U.S.
Patent No. 4845816 is represented and warranted to be in conformity with the
provisions of this Section 2.1.13, except as may be disclosed in Section 2.1.13
of the Disclosure Schedule.
2.1.14 Insurance. Section 2.1.14 of the Disclosure Schedule contains a
complete and correct list and accurate summary description of all insurance
policies maintained by the Seller. The Seller has delivered to the Buyer
complete and correct copies of all such policies together with all riders and
amendments thereto. Such policies are in full force and effect, and all premiums
due thereon have been paid. The Seller has complied in all material respects
with the terms and provisions of such policies.
2.1.15 No Compensation. There have been no agreements made between
Arthur Honegger and the Seller, the Shareholder or an affiliate thereof to
provide Honegger with a commission, bonus or other form of compensation
contingent upon or related to the negotiation or consummation of the
transactions contemplated hereby or hereunder, nor will Honegger receive any
such compensation.
2.1.16 Litigation. Except as disclosed in section 2.1.16 of the
Disclosure Schedule, there is no judicial or administrative action, suit,
proceeding or investigation pending or, to the best of the Seller's knowledge
after due inquiry, threatened which has or could have a Material Adverse Effect
or result in any liability in an amount in excess of $5,000 in the aggregate on
the part of the Seller, or which involves or could involve the validity of this
Agreement or of any action taken or to be taken in connection herewith; nor has
any such action, suit, proceeding or investigation been pending within the five
(5) years preceding the date hereof. The Seller has delivered or
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made available to the Buyer copies of the files of the Seller
containing all information with respect to (i) complaints relating to product
design, adequacy or performance, and (ii) claims made or threatened which the
Seller has put in the hands of its insurance carriers relating to personal or
other injuries or other damages resulting from the manufacture, sale or use of
any products manufactured or sold by the Seller.
2.1.17 Environmental Condition and Governmental Authorizations. Except
as specified in section 2.1.17 of the Disclosure Schedule:
(a) All Real Property is free from contamination from any
Hazardous Materials. The Seller has not caused or suffered, nor, to the best
knowledge of the Seller after due inquiry, has any other party previously
involved in operations at any Premises caused or suffered, any Environmental
Damages.
(b) There has been no emission, spill, release or discharge of a
Hazardous Material on, at or beneath the Premises.
(c) Neither the Seller nor, to the best of the Seller's
knowledge, any prior owner or occupant of the Premises has received notice of
any alleged violation of Environmental Requirements, or notice of any alleged
liability for Environmental Damages in connection with the Premises; and there
exists no writ, injunction, decree, order or judgment outstanding, nor any
claim, suit, proceeding, citation, fine, penalty, directive, summons or
investigation, pending or threatened, relating to the ownership, use,
maintenance or operation of the Premises by any Person, or to alleged violation
of Environmental Requirements, or to the suspected presence of Hazardous
Material thereon, nor, to the best knowledge of the Seller after due inquiry,
does there exist any basis for such claim, suit, proceeding, citation, fine,
penalty, directive, summons or investigation being instituted or tiled.
(d) The Seller has complied at all times with the release,
discharge and notification requirements of the Hazardous Substance Account Act
(Cal. Health & Safety Code, Section 25300 et seq.) and the Comprehensive
Environmental Response, Compensation and Liability Act (42 U.S.C. Section 9601
et seq.).
(e) There is not constructed, placed, deposited, stored,
disposed of or located on the Real Property any polychlorinated biphenyls
("PCBs") or transformers, capacitors, ballasts, or other equipment or structures
which contain hydrolic or dielectric fluid containing PCBs, or any asbestos
containing materials.
(f) The Seller has no knowledge of any alleged liability for
Environmental Damages of any alleged violation of Environmental Requirements
asserted against any of the
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owners or occupants of any real property located in the vicinity
of any of the Premises.
(g) The Seller has in its possession all Governmental Approvals
required to operate in compliance with all Applicable Laws, and the Seller is
presently in compliance with the terms, conditions and limitations of each such
Governmental Approval.
2.1.18 Affiliate Transactions. Section 2.1.18 of the Disclosure
Schedule contains a complete and correct list of all agreements or arrangements
(whether or not written) between the Seller and any shareholder, officer,
director or employee (or family member thereof) of the Seller currently in
effect or to be performed in the future. Other than such agreements or
arrangements, if any, there has been no transaction between the Seller and any
shareholder, officer, director or employee (or family member of any thereof) of
the Seller in effect within the two-year period immediately preceding the date
hereof which involved payments to, or from, or for the benefit of, any such
shareholder, officer, director or employee (or family member thereof) (other
than (a) salary and bonus paid as part of the employment relationship for
services rendered (including directors' fees) and (b) contributions by the
Seller under any of its Plans). Except as set forth in section 2.1.18 of the
Disclosure Schedule, no shareholder, officer, director or employee (or family
member of any thereof) of the Seller owns, directly or indirectly, on an
individual or joint basis, greater than a 5% interest in, or serves as an
officer, director or employee of, any customer, competitor or supplier of the
Seller or any Person or entity which has a contract or arrangement with the
Seller.
2.1.19 Employees, Labor Matters, etc. (a) Section 2.1.19 of the
Disclosure Schedule contains a complete and correct list of the names of all
directors, officers and salaried employees of the Seller. There is no payment
that has not been paid for more than 30 days past the date on which such payment
would ordinarily be made in the ordinary course of business that is owed by the
Seller to any of its directors, officers, employees, trustees, agents, brokers,
representatives or other personnel, current and former, or any beneficiaries,
dependents or survivors of the foregoing (including, without limitation, expense
reimbursement and severance payments), in accordance with the terms of their
respective employment arrangements or under their employment, severance or
agency agreements, if any.
(b) Except as set forth in section 2.1.19 of the Disclosure
Schedule, there has not been any (i) unfair labor practice complaint against the
Seller before the National Labor Relations Board; (ii) labor strike, dispute, or
work stoppage actually pending or, to the best of the Sellers' knowledge after
due inquiry, threatened against or affecting the Seller; (iii) representation
petition respecting the employees of the Seller
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filed with the National Labor Relations Board; or (iv) arbitration
proceeding arising out of or under collective bargaining agreements pending
against the Seller.
2.1.20 ERISA. (a) Each Plan that is intended to qualify under Section
401(a) of the Code or similar provision of foreign law is so qualified. The
Seller has performed all obligations required to be performed by it by the terms
of the Plans and applicable laws, rules and regulations. The Seller has complied
in all material respects with all applicable laws, rules and regulations
relating to each Plan.
(b) The Seller has not, and the Seller has no knowledge that any
other party in interest (as defined in section 3(14) of ERISA) to any Plan has,
engaged in any transaction with respect to any Plan in connection with which the
Seller or any other party in interest could be subjected to either a civil
penalty assessed pursuant to section 502(i) of ERISA or a tax imposed by Section
4975 of the Code.
(c) No Plan which is a "defined benefit plan" (as defined in
section 3(35) of ERISA) or any trust created under any such Plan has been
terminated since September 2, 1974. No material liability to the Pension Benefit
Guaranty Corporation (the "PBGC"), other than annual premium payments, has been
or is expected by the Seller to be incurred by the Seller with respect to any
Plan. There has been no reportable event (within the meaning of section 4043(b)
of ERISA), which at the time of such event required notification within 30 days
to the PBGC. There has been no other reportable event with respect to any Plan
which could result in a liability to the business of the Seller as a result
thereof. There has been no event or condition which presents a risk of
termination of any such Plan by the PBGC.
(d) Full payment has been made of all amounts which the Seller
is required under the terms of each Plan to have paid as contributions to such
Plan as of the last day of the most recent fiscal year of such Plan ended prior
to the date hereof or, if later, the most recent date as of which such amount is
required to be paid under such Plan (and, with respect to any Plan that is
subject to Section 412(m) of the Code, all payments required to be made have
been paid on or before each required installment due date (as defined in Section
412(m) of the Code) preceding the date hereof), and, with respect to any Plan,
no accumulated funding deficiency (as defined in section 302 of ERISA and
Section 412 of the Code), whether or not waived, exists. There has been no
failure to make any payment due prior to the date hereof that is or could become
a liability of the Company under Section 412(c) of the Code.
(e) The present value as of the date of the most recent
Financial Statement of all accrued benefits under all Plans subject to Section
412 of the Code did not, as of such date, exceed the current value of the assets
of such Plans
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allocable to such accrued benefits. The terms "present value,"
"current value" and "accrued benefit" have the meanings specified in section 3
of ERISA.
(f) No Plan is a Multiemployer Plan and the Seller has not
withdrawn or partially withdrawn from any Multiemployer Plan under circumstances
giving rise to a withdrawal liability under ERISA.
(g) Neither the Seller nor any corporation, trade or business
under common control with the Seller (within the meaning of Sections 414(b),
(c), (m) or (o) of the Code) has engaged in any transaction since January 1,
1986 described in section 4069(a) of ERISA.
(h) No Plan provides for the payment of any welfare benefit (as
defined in section 3(1) of ERISA) to any former or retired employee of the
Seller or any of the Affiliates, except as may be required by Section 4980B of
the Code or section 601 of ERISA.
(i) No Plan provides for the payment of severance benefits upon
termination of employment.
2.1.21 Products; Product and Service Warranties. (a) Section 2.1.21(a)
of the Disclosure Schedule contains a complete and correct list of all the
products currently marketed by the Seller in connection with the business of the
Seller (the "Products").
(b) Section 2.1.21(b) of the Disclosure Schedule sets forth the
standard product and service warranty policies of the Seller in respect of the
business of the Seller.
2.1.22 Selling Material and Policies. The Seller has delivered to the
Buyer copies of all catalogues, brochures or other descriptive material
advertising or promoting the Products and have set forth in section 2.1.22 of
the Disclosure Schedule descriptions of the discount policies, if any, generally
adhered to by the Seller in respect of the business of the Seller.
2.1.23 Brokers, Finders, etc. All negotiations relating to this
Agreement and the transactions contemplated hereby have been carried on without
the participation of any Person acting on behalf of the Seller in such manner as
to give rise to any valid claim against the Seller or the Buyer for any
brokerage or finder's commission, fee or similar compensation.
2.1.24 Accounts Payable. Section 2.1.24 of the Disclosure Schedule
sets forth a complete and accurate list of the Seller's accounts payable as of
the date hereof.
2.1.25 Disclosures. Neither this Agreement nor the Disclosure
Schedule, nor any certificate or other document
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furnished by the Seller to the Buyer or any agent or representative of the Buyer
pursuant hereto, contains any untrue statement of a material fact or omits to
state a material fact necessary to make the statements contained therein and
herein not misleading. There is no fact presently known to the Seller (other
than matters of a general economic or political nature which do not affect the
Seller uniquely) which has, or in the future may have (so far as the Seller can
now reasonably foresee), a Material Adverse Effect, which has not been set forth
herein or in the Disclosure Schedule.
2.2 Representations and Warranties of the Buyer. The Buyer represents and
warrants to the Sellers as follows:
2.2.1 Corporate Status. The Buyer is a corporation duly incorporated,
validly existing and in good standing under the laws of the State of Delaware.
2.2.2 Authority for Agreements. The Buyer has the corporate power and
authority to execute and deliver this Agreement and the Employment Agreement, to
perform its obligations hereunder and thereunder and to consummate the
transactions contemplated by such Agreements. The execution and delivery of this
Agreement, and the consummation of the transactions contemplated hereunder have
been duly authorized by the Board of Directors of the Buyer. This Agreement
constitutes the valid and legally binding obligation of the Buyer. The execution
and delivery of this Agreement and the consummation of the transactions
contemplated hereunder will not conflict with or result in any violation of or
default under any provision of the certificate of incorporation or bylaws of the
Buyer, or any mortgage, indenture, lease, agreement or other instrument, permit,
concession, grant, franchise, license, judgment, order, decree, statute, law,
ordinance, rule or regulation applicable to the Buyer or any of its properties.
No consent, approval, order or authorization of, or registration, declaration or
filing with any governmental authority is required on the part of the Buyer in
connection with the execution and delivery of this Agreement, or the
consummation of the transactions contemplated, except for a filing with the
Securities and Exchange Commission on form 8K, if applicable.
2.2.3 Brokers, Finders, etc. All negotiations relating to this Agreement
and the transactions contemplated hereby have been carried on without the
participation of any Person acting on behalf of the Buyer in such manner as to
give rise to any valid claim against the Seller for any brokerage or finder's
commission, fee or similar compensation.
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ARTICLE III
COVENANTS
3.1 Covenants of the Sellers.
3.1.1 Conduct of Business until the Closing Date. From September 23,
1994 to the Closing Date, except as contemplated by this Agreement or otherwise
consented to by the Buyer in writing, the Seller shall:
(a) carry on its business in, and only in, the usual, regular and
ordinary course in substantially the same manner as heretofore conducted and use
all reasonable efforts to preserve intact its present business organization,
keep available the services of its present officers and significant employees,
and preserve its relationship with customers, suppliers and others having
business dealings with it to the end that its goodwill and going business shall
be in all material respects unimpaired following the Closing Date;
(b) maintain all its material structures, equipment and other
tangible personal property currently in use in good operating condition and
repair, except for ordinary wear and tear;
(c) keep in full force and effect insurance comparable in amount
and scope of coverage to insurance now carried by it;
(d) pay accounts payable and other obligations when they become
due and payable in the ordinary course of business;
(e) perform in all material respects all of its obligations under
agreements, contracts and instruments relating to or affecting its properties,
assets and business;
(f) maintain its books of account and records in the usual,
regular and ordinary manner;
(g) comply in all material respects with all statutes, laws,
ordinances, rules, regulations, judgments, orders, decrees, permits,
concessions, grants, franchises, licenses and other governmental authorizations
or approvals applicable to it or any of its properties;
(h) not amend its certificate of incorporation or bylaws;
(i) not enter into or assume any agreement, contract or
commitment of the character required to be disclosed in section 2.1.11, except
for agreements of the character
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referred to in clauses (f) and (g) thereof in the ordinary course of business;
(j) not merge or consolidate with, or agree to merge or
consolidate with, or purchase substantially all of the assets of, or otherwise
acquire any business or any corporation, partnership, association or other
business organization or division thereof;
(k) not take any action the taking of which would result in a
violation of any of the representations and warranties set forth in clauses (a)
through (j) and (n) through (r) of section 2.1.8;
(1) promptly advise the Buyer in writing of any change which,
individually or in the aggregate, has or could have a Material Adverse Effect on
the Company Business or breach this section 3.1.1;
(m) cooperate with Buyer in order to assure Buyer and its agents
or representatives access to the customers and suppliers of Seller; and
(n) make no distributions, dividends or other payments to the
Shareholder or its affiliates.
3.1.2 No Solicitation. During the term of this Agreement, the Seller
shall not, (i) solicit queries or proposals for, or enter into any discussions
with respect to, the acquisition of the Shares or any other shares of the
Seller's Common Stock or the business or all, or substantially all, of the
assets of the Seller or (ii) furnish or cause to be furnished any nonpublic
information concerning the business of the Seller to any Person (other than the
Buyer and its agents). The Seller shall not sell, transfer or otherwise dispose
of, grant any option or proxy to any Person with respect to, create any Lien
upon, or transfer any interest in, any of the Assets.
3.1.3 Access for Due Diligence. So long as this Agreement remains in
effect, the Seller shall give to the Buyer and the Buyer's accountants, counsel,
environmental consultants, employees and other representatives, full access to
all of its properties, books, contracts, commitments, reports and records and to
furnish the Buyer and its advisors all such documents, records and information
with respect to its properties and business and copies of any work papers
relating thereto as the Buyer shall from time to time reasonably request. In
addition, the Seller shall permit the Buyer and the Buyer's accountants,
counsel, environmental consultants, employees and other representatives
reasonable access to such personnel of the Seller during normal business hours
as may be necessary or useful to the Buyer in its review and testing of the
properties of the Seller, the business of the Seller and the above-mentioned
documents and information. In order to minimize interference with the conduct
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of the business of the Seller, all such access shall be coordinated through the
President of the Seller or a person designated by the President, provided that
the President or his designee shall be reasonably available during the normal
business hours of the Seller for such coordination. The Seller shall keep the
Buyer informed as to the affairs of its business and shall consult with the
officers of the Buyer on important matters pertaining to its business and
properties. The Seller shall use its best efforts to cause its certified public
accountants to give to the Buyer and its advisors reasonable access to their
books, records and work papers relating to the Seller.
3.1.4 Financials, etc. The Seller shall provide the Buyer, as soon as
the same become available, copies of all financial statements in the form of
management reports of the Seller for periods subsequent to the most recent
Financial Statement which become available prior to the Closing Date, in each
case certified as complete and correct by the President of the Company.
3.1.5 Public Announcements. Except as required by law, the Seller
shall not make any public announcement in respect of the transactions
contemplated hereby without the Buyer's prior written consent.
3.1.6 Filings and Authorizations. The Seller shall, as promptly as
practicable, file or supply, or cause to be filed or supplied, all applications,
notifications and information required to be filed or supplied by them pursuant
to Applicable Law in connection with the sale and transfer of the Assets
pursuant to this Agreement and the consummation of the transactions contemplated
hereby, including filings with California environmental authorities. The Seller,
as promptly as practicable, (i) shall make, or cause to be made, all such other
filings and submissions under laws, rules and regulations applicable to them and
give such reasonable undertakings, as may be required for them to consummate the
transfer of the Assets and the other transactions contemplated hereby, (ii)
shall use its best efforts to obtain, or cause to be obtained, all
authorizations, approvals, consents and waivers from all Persons and
Governmental Authorities necessary to be obtained by it in order for it to
consummate such transfer and such transactions, and (iii) shall use its
reasonable efforts to take, or cause to be taken, all other actions necessary,
proper or advisable in order for it to fulfill its obligations hereunder; and
Seller shall coordinate and cooperate with the Buyer in exchanging such
information and supplying such reasonable assistance as may be reasonably
requested by the Buyer in connection herewith.
3.1.7 Further Assurances. Following the Closing Date, the Seller
shall, from time to time, execute and deliver such additional instruments,
documents, conveyances or assurances as reasonably have been requested by the
Buyer to confirm and
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assure the rights and obligations hereinabove set forth. Following the Closing
Date, the Seller shall maintain an account in one of its customary banks with a
balance sufficient to pay all payables retained by it or expected to arise
following the Closing Date.
3.1.8 Access to Tax Information. The Seller shall provide the Buyer
with complete and correct copies of all federal, state and local tax Returns of
the Seller filed for the period beginning on May 3, 1991 and ending on the
Closing Date. After the Closing, the Seller shall consult in good faith and
cooperate fully with the Buyer regarding tax matters and shall make available to
the Buyer as may be reasonably requested, and to any taxing authority, as may be
reasonably requested by the Buyer all information, records or documents relating
to tax liabilities or potential tax liabilities of the Seller for all taxable
periods ending prior to the Closing Date.
3.1.9 Covenant Not to Compete. The Seller recognizes and agrees that
in order to adequately protect the Proprietary Information from disclosure
(whether deliberate or inadvertent) to competitors, a covenant not to compete of
limited duration and scope is necessary and desirable, and that the nature of
Seller's business is such that use of the Proprietary Information anywhere in
the world will harm the business being purchased from Seller pursuant hereto.
The Seller and the Shareholder therefore each agree that for a period of sixty
(60) months after the Closing Date, for any reason whatsoever, neither of them
(nor any of their affiliates) will directly or indirectly, either as an
individual for his own account or enterprise, or as a partner, owner, joint
venturer, officer, director, employee, agent, salesman, independent contractor,
supplier, principal consultant, or 10% or more shareholder of any entity or
third party:
(i) market, sell or manufacturer the Products, or substantially
similar products, or engage in or compete with the business of conducted by the
Buyer in connection with the Assets;
(ii) hire or solicit for employment, directly or indirectly, any
of Buyer's personnel in any capacity whatsoever (which shall be deemed to
include, without limitation, any existing or prospective employee, consultant or
independent contractor of Buyer or any person who is such an employee,
consultant or independent contractor of Buyer as at the Closing Date);
(iii) attempt directly or indirectly to induce any of Buyer's
personnel to leave the employ of, or discontinue such person's consultant,
contractor, or other business association with the Buyer; or
(iv) solicit, directly or indirectly, any client or account or
prospective client or account of Buyer; or
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(v) interfere with, disrupt or attempt to disrupt the business
relationships, contractual or otherwise between the Buyer and any of its (or
those that Buyer will have as a result of the transactions contemplated hereby)
agents, customers, suppliers or employees.
3.2 Covenants of the Buyer.
3.2.1 Public Announcements. Prior to the Closing, except as
required by law, the Buyer shall not make any public announcement in respect of
the transactions contemplated hereby without the prior written consent of the
Sellers.
3.2.2 Filings. The Buyer shall, as promptly as practicable, file
or supply, or cause to be filed or supplied, all applications, notifications and
information required to be filed or supplied by it pursuant to Applicable Law in
connection with its acquisition of the Assets pursuant to this Agreement and the
consummation of the transactions contemplated hereby, including filings with any
California environmental authority. The Buyer shall coordinate and cooperate
with the Seller in exchanging such information and supplying such reasonable
assistance as may be reasonably requested by the Seller in connection with the
foregoing.
3.2.3 Access to Tax Information. After the Closing, the Buyer and
the Seller shall consult in good faith and cooperate fully with the Seller and
shall make available to the Seller, as may reasonably be requested, and to any
taxing authority, as may be reasonably requested by the Seller, all information,
records or documents relating to tax liabilities or potential tax liabilities of
the Seller for all taxable periods ending on or prior to the Closing Date;
provided that the provision of such consultation, information, records or
documents shall not unreasonably interfere with the business or operations of
the Buyer or any affiliate of the Buyer. The Seller shall keep all information,
records and documents relating to tax liabilities or potential tax liabilities
confidential except as necessary or appropriate to prepare any Return involving
Taxes or to defend against any tax audit or governmental claim regarding Taxes.
ARTICLE IV
CONDITIONS PRECEDENT
4.1 Conditions to Obligations of Each Party. The obligations of the Seller
and the Buyer to consummate the transactions contemplated hereby shall be
subject to the fulfillment on or prior to the Closing Date of the following
conditions:
4.1.1 Required governmental filings, if any.
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4.1.2 Compliance with the Bulk Sales laws of the State of California.
4.1.3 No Injunction, etc. Consummation of the transactions
contemplated hereunder shall not have been restrained, enjoined or otherwise
prohibited by any order, injunction, decree or judgment of any court or
Governmental Authority, and no such action or proceeding shall be pending or
threatened by any Governmental Authority or private Person on the Closing Date
before any court or administrative body to restrain, enjoin or otherwise prevent
the consummation of the transactions contemplated hereby or to recover any
damages or obtain other relief as a result of such transactions, and there shall
not have been promulgated, entered, issued or determined by any court or
Governmental Authority to be applicable to this Agreement any law, regulation,
order, injunction, decree or judgment making the consummation of the
transactions contemplated hereunder illegal and no proceeding with respect to
the application of any such law, regulation, order, injunction, decree or
judgment shall be pending.
4.2 Conditions to Obligations of the Buyer. The obligations of the
Buyer to consummate the transactions contemplated hereby shall be subject to the
fulfillment (or waiver by the Buyer) on or prior to the Closing Date of the
following additional conditions, which the Seller agrees to use its best efforts
to cause to be fulfilled:
4.2.1 Representations; Performance. The representations and warranties
of the Seller contained in section 2.1 shall be true and correct at and as of
the date hereof and shall be repeated and shall be true and correct in all
material respects on and as of the Closing Date with the same effect as though
made on and as of the Closing Date except as affected by the transactions
contemplated hereby. The Seller shall have duly performed and complied in all
material respects with all agreements and conditions required by this Agreement
to be performed or complied with by them prior to or on the Closing Date. The
Seller shall have delivered to the Buyer a certificate, dated the Closing Date
and signed by the Seller, to the effect set forth above in this section 4.2.1.
4.2.2 Tender of All Assets. At the Closing, the Sellers shall have
tendered all of the Assets for purchase as provided in section 1.12.
4.2.3 U.S. Patent No. 4845816. Prior to the Closing Date, Seller shall
have received a valid assignment of U.S. Patent No. 4845816. At the Closing,
Seller shall deliver to Buyer a valid assignment of U.S. Patent No. 4845816.
4.2.4 Other Assets. To the extent that Seller does not possess all
right, title and interest in and to any and all of the Assets on the date
hereof, on or prior to the Closing
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Date Seller shall have, by instruments satisfactory to Buyer, acquired all
right, title and interest in and to all of the Assets.
4.2.5 Governmental Approvals. All permits, orders, approvals and
consents of, notices to, and registrations and filings, and other Governmental
Approvals, by or with any Governmental Authority, including, but not limited to,
the United States Environmental Protection Agency and the California
Environmental Protection Agency which are required in connection with the
execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby shall have been obtained or made on terms and
conditions satisfactory to the Buyer and all such permits, orders, approvals and
consents shall be effective and shall not have been suspended, revoked or stayed
by action of any Governmental Authority.
4.2.6 Consents. Any consent to the transactions contemplated by this
Agreement required by any Governmental Authority or under any agreement or
contract to which the Seller is a party or by which it is bound, the withholding
of which would have a Material Adverse Effect, shall have been obtained and
delivered to the Buyer.
4.2.7 Lease. The Seller shall obtain an Estoppel Certificate from its
Landlord with respect to that certain lease for its premises located in Los
Gatos, California, (the "Company Premises"), stating that the Lease is in full
force and effect, and that the Seller is not in default under such lease.
4.2.8 Opinion of Counsel. The Buyer shall have received an opinion,
addressed to it and dated the Closing Date, from counsel for the Seller and
acceptable in form and substance to Buyer's counsel.
4.2.9 Proceedings. All corporate and other proceedings of the Seller
that are required or necessary in connection with the transactions contemplated
by this Agreement, and all documents and instruments incident to such
proceedings, shall be reasonably satisfactory in substance and form to the Buyer
and its counsel, and the Buyer and its counsel shall have received all such
documents and instruments, or copies thereof, certified if requested, as may be
reasonably requested.
4.2.10 Buyer's Responsibility for Certain Taxes. Buyer shall bear full
responsibility for sales taxes arising as a consequence of the transactions
described herein.
4.2.11 Satisfactory Completion of Due Diligence. The Buyer shall have
completed its due diligence inquiry in accordance with the provisions of section
3.1.3 above. The Buyer shall have been satisfied that Seller have complied with
all covenants set forth in section 3.1 above, and that all representations and
warranties contained in section 2.1 above
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remain true and accurate. In the event that the Buyer is not so satisfied, it
shall be relieved of all obligations under this Agreement, including the
obligation to consummate the transactions contemplated hereunder.
4.3 Conditions to Obligations of the Seller. The obligation of the Seller
to consummate the transactions contemplated hereby shall be subject to the
fulfillment (or waiver by the Seller), on or prior to the Closing Date, of the
following additional conditions, which the Buyer agrees to use its best efforts
to cause to be fulfilled:
4.3.1 Representations; Performance. The representations and warranties
of the Buyer contained in section 2.2 hereof shall be true and correct at and as
of the date hereof and shall be repeated and shall be true and correct in all
material respects on and as of the Closing Date with the same effect as though
made at and as of such time, except as affected by the transactions contemplated
hereby. The Buyer shall have duly performed and complied in all material
respects with all agreements and conditions required by this Agreement to be
performed or complied with by it prior to or on the Closing Date. The Buyer
shall have delivered to the Seller a certificate dated the Closing Date and
signed by its President or a Vice President to the effect set forth above in
this section 4.3.1.
4.3.2 Further Agreements. Buyer shall have delivered to Arthur
Honegger, president of Seller, an offer of employment.
4.3.3 Opinion of Counsel. The Seller shall have received an opinion,
addressed to them and dated the Closing Date, from Hannoch Weisman, A
Professional Corporation, counsel for the Buyer and acceptable in form and
substance to Seller's counsel.
4.3.4 Corporate Proceedings. All corporate and other proceedings of
the Buyer in connection with the transactions contemplated by this Agreement,
and all documents and instruments incident thereto, shall be reasonably
satisfactory in substance and form to the Seller and its counsel, and Seller and
its counsel shall have received all such documents and instruments, or copies
thereof, certified if requested, as may be reasonably requested.
ARTICLE V
TERMINATION
5.1 Termination.
(a) Termination of Agreement. Each of the Parties may terminate this
Agreement as provided below:
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(i) the Buyer and the Seller may terminate this Agreement by mutual
written consent at any time prior to the Closing;
(ii) the Buyer may terminate this Agreement by giving written notice
to the Seller at any time prior to the Closing (A) in the event the Seller has
breached any representation, warranty, or covenant contained in this Agreement
and such breach has caused or is reasonably likely to cause a Material Adverse
Effect, or (B) if the Closing shall not have occurred on or before October 31,
1994;
(iii) the Seller may terminate this Agreement by giving written notice
to the Buyer at any time prior to the Closing (A) in the event the Buyer has
breached any representation, warranty, or covenant contained in this Agreement
and such breach has caused or is reasonably likely to cause a Material Adverse
Effect, or (B) if the Closing shall not have occurred on or before October 31,
1994.
(b) Effect of Termination. In the event of the termination of this
Agreement pursuant to the provisions of section 5.1(a), this Agreement shall
become void and have no effect, without any liability on the part of any party
hereto, or any of its directors, officers, employees, agents, consultants,
representatives or stockholders, to any other party to this Agreement in respect
of this Agreement, except for any liability resulting from such party's breach
of this Agreement.
ARTICLE VI
DEFINITIONS; MISCELLANEOUS
6.1 Definition of Certain Terms. The following terms shall have the
following meanings:
Applicable Law: means all applicable provisions of all (i) constitutions,
treaties, statutes, laws, rules, regulations, ordinances, orders or directives
of any Governmental Authority, (ii) Governmental Approvals and (iii) orders,
decisions, judgments, awards and decrees of any Governmental Authority.
Assets means the following:
(i) Machinery and Equipment. All right, title and interest in and to
all machinery and equipment, patterns, furniture, furnishings, fixtures, plant
and office equipment, leasehold improvements, vehicles, supplies and tools and
dies which constitute part of Seller, without limitation, those listed on
Schedule A hereto.
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(ii) Inventory and Receivables. All inventory of raw materials,
work-in-process and finished products of Seller.
(iii) Contracts and Commitments. All right, title and interest of
Seller in and to the agreements, contracts, commitments and leases of real and
personal property and purchase or sale orders related to Seller including,
without limitation, those listed on Schedule 2.1.11 hereto; provided that to the
extent the assignment of any agreement, contract, lease or purchase or sale
order requires the consent of the other party thereto, this Agreement shall not
constitute an agreement to assign the same if an attempted assignment would
constitute a breach thereof, but the Buyer and the Seller agree that the Seller
will use its best efforts to obtain the written consent of the other parties to
such agreements, contracts, leases and purchase and sale orders to the
assignment thereof to the Buyer as soon as practicable, and if such consent is
not obtained, the Seller will cooperate with the Buyer in any reasonable
arrangement (including but not limiting subcontracting, sublicensing or
subleasing) designed to provide for the Buyer the benefits under all such
agreements, contracts, leases and purchase and sale orders, including
enforcement for the benefit and at the expense of the Buyer, of any and all
rights of Seller against any other parties thereto arising out of the breach or
cancellation thereof by any other party thereto.
The Buyer hereby agrees to make all payments under, and comply with
all terms and conditions of, all of the aforesaid contracts and agreements of
Seller even if the Seller has not secured consents necessary to assign said
contracts and agreements to the Buyer on the Closing Date or if any such
contract or agreement is not otherwise transferred pursuant to the terms hereof,
but only to the extent that the Buyer is afforded the benefits of such contracts
and agreements.
(iv) Books and Records.
(A) All books and records, including but not limited to all
correspondence, books, files, documents, sales literature, customer lists,
customer records, engineering drawings and records, research and development
records, operating records, records with respect to intellectual property and
other records, which constitute part of Seller.
(B) The records relating to the Real Property, including but not
limited to all design drawings, surveys, back title information, plot plans,
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building systems drawings for heating, ventilation and air conditioning and the
correspondence files from the Seller's engineering department.
(C) After the Closing, the Buyer shall give the Seller and its
representatives reasonable access to the aforesaid books and records and the
Buyer shall give the Seller written notice prior to the removal or destruction
of such books and records. The notice prior to removal shall contain the new
location where the books and records are to be stored, and shall be given so as
to provide the Seller sufficient time to copy the documents to be removed if the
Seller chooses. The Buyer shall, in the event of a decision to destroy the books
and records, give the Seller the books and records if so requested by the
Seller.
(v) Intellectual Property. All right, title and interest of Seller in
and to all patents, patent applications, trademarks, trademark rights, trade
names, trade name rights, service marks, copyrights, know how, trade secrets,
confidential and proprietary information, processes, technologies and methods
which constitute part of Seller including, without limitation, those listed on
Schedule 2.1.13 hereto, and the goodwill relating to the foregoing. The Seller
shall transfer the patents, patent applications and trademarks referred to in
this subparagraph (v) by executing and delivering to the Buyer at the Closing
the assignments referred to in Section 4.2.3 above.
(vi) Permits. All Federal, state, regional and local permits,
licenses, certificates, approvals and similar authorizations constituting part
of Seller to the extent they are assignable or transferable. To the extent that
any permit, license, certificate, approval or other authorization is not
assignable or transferable, the Seller shall use its best efforts and will
cooperate with the Buyer in order for the Buyer to obtain such permit, license,
certificate, approval or authorization as soon as possible.
(vii) Software. All right, title and interest of the Seller Company in
and to the computer software programs which constitute part of Seller.
(viii) Petty Cash, Etc. All right, title and interest of the Seller in
and to the petty cash and travel and other advances which constitute part of
Seller.
Assumed Liabilities: means all of those and only those liabilities
expressly assumed pursuant to Section 1.4 of this Agreement.
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Buyer: as defined in the first paragraph of this Agreement.
Closing: as defined in section 1.2.
Code: the Internal Revenue Code of 1986, as amended.
Company Business: the condition (financial or other), properties, assets,
liabilities, business, operations or prospects of the Company, taken as a whole.
Confidential Processes: as defined in section 2.1.13.
Disclosure Schedule: the disclosure schedule, dated the date hereof, which
has been delivered to the Buyer by the Seller and initialled by the Seller for
identification.
Environmental Damages: means all claims, judgments, damages, losses,
penalties, fines, liabilities (including strict liability), costs and expenses,
including costs and expenses of defense of any claim and of any settlement of
claims, including, without limitation, reasonable attorneys' fees and
consultants' fees, which are incurred at any time as a result of the existence
of Hazardous Material upon, about or beneath the Premises or migrating or
threatening to migrate to or from the Premises, or arising in any manner
whatsoever out of any violation of Environmental Requirements pertaining to the
Premises and the activities thereon or to the past or present operations of the
Seller or to the future operations of the Seller, including without limitation:
(i) damages for personal injury, or injury to property or natural
resources, including but not limited to claims brought by or on behalf of
employees of the Seller, occurring upon or off of the Premises, whether
foreseeable or unforeseeable, including, without limitation, lost profits,
consequential damages, interest and penalties;
(ii) diminution in the value of the Premises and damages for the loss
of or restriction on the use of or adverse impact on the marketing of rentable
or usable space or of any amenity of the Real Property;
(iii) fees incurred for the services of attorneys, consultants,
contractors, experts, laboratories
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and all other costs and liabilities (including liabilities to indemnify any
Person for costs) incurred in connection with the investigation or remediation
of such Hazardous Materials or violation of Environmental Requirements
including, but not limited to, the preparation of any feasibility studies or
reports or the performance of any cleanup, remedial, removal, containment,
restoration or monitoring work required by any Governmental Authority, or
reasonably necessary to make full economic use of the Premises or any other
property or otherwise expended in connection with such conditions: and
(iv) damages and claims resulting from the off-site disposal of
Hazardous Materials which derived from the use, generation, storage, treatment,
transportation or disposal of Hazardous Materials by the Sellers or the Company.
Environmental Requirements: means requirements, liabilities and obligations
under or by reason of all Applicable Laws relating to the regulation or
protection of health, safety or the environment, including, without limitation:
(i) all requirements pertaining to reporting, licensing, permitting,
registering, investigation or remediation of emissions, spills, discharges,
releases or threatened releases of Hazardous Materials into the air, surface
water, groundwater or land, or relating to the manufacture, processing,
distribution, use, treatment, storage, disposal, transport or handling of
Hazardous Materials; and
(ii) all requirements pertaining to the protection of the health and
safety of employes or the public; and
(iii) all requirements pertaining to natural resources.
ERISA: the Employee Retirement Income Security Act of 1974, as amended.
Financial Statements: the financial statements of the Seller delivered to
Buyer pursuant to Section 2.1.6 above and any additional interim financial
statements in the form of management reports delivered pursuant to section 3.1.4
hereof, certified in each case as complete and correct by the President of the
Seller, including in each case a balance sheet, a statement of income and
retained earnings and a statement of cash flows.
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GAAP: means United States generally accepted accounting principles as in
effect from time to time.
Governmental Approval: means an authorization, consent, approval, permit,
license or exemption of, registration or filing with, or report or notice to,
any Governmental Authority, including, without limitation, the United States
Environmental Protection Agency and California Environmental Protection Agency.
Governmental Authority: means any nation or government, any regional,
state, local or other political subdivision thereof and any entity exercising
executive, legislative, judicial, regulatory or administrative functions of or
pertaining to government, including, without limitation, any government
authority, agency, department, board, commission or instrumentality of the
United States, any State of the United States or any political subdivision
thereof, and any tribunal or arbitrator(s) of competent jurisdiction.
Hazardous Materials: means any chemical substance:
(i) the presence of which requires investigation, removal or
remediation under any Applicable Law; or
(ii) which is or becomes defined as a "hazardous waste" or "hazardous
substance" under any Applicable Law, including, without limitation, the
Comprehensive Environmental Response, Compensation and Liability Act (42 U.S.C.
Section 9601 et seq.), the Resource Conservation and Recovery Act (42 U.S.C.
Section 6901 et seq.); the Hazardous Substance Account Act (Cal. Health & Safety
Code, Section 25300 et seq.) or the Hazardous Waste Control Act (Cal. Health &
Safety Code Section 25100 et seq.); or
(iii) which is toxic, explosive, corrosive, flammable, infectious,
radioactive, carcinogenic, mutagenic, teratogenic or otherwise hazardous and is
or becomes regulated by any Governmental Authority or Applicable Law; or
(iv) the presence of which causes or threatens to cause a nuisance,
whether public or private, upon the Premises or to adjacent properties or poses
or threatens to pose a hazard to the Premises or to the health or safety of any
Person on or about the Premises or poses or threatens to pose a hazard or damage
to the environment or any natural resource; or
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(v) without limitation which contains waste oil, gasoline, diesel fuel
or other petroleum hydrocarbons; or
(vi) without limitation which contains PCBs or asbestos containing
materials.
Indemnified Party: as defined in section 6.2
Intellectual Property: as defined in section 2.1.13.
Lien: any mortgage, pledge, adverse claim, security interest, encumbrance,
title defect, title retention agreement, voting trust agreement, interest,
equity, option, lien or charge of any kind, including, but not limited to, any
lien by a Governmental Authority or other Person under the Comprehensive
Environmental Response, Compensation and Liability Act (42 U.S.C., Section 9601
et seq.), the Hazardous Substance Account Act (Cal. Health & Safety Code,
Section 25300 et seq.) or other Applicable Law.
Material Adverse Effect: an effect which, directly or indirectly, subjects
the Company to any liability, damage, deficiency, loss, cost or expense of
$5,000 or more or which otherwise has or will have a material adverse effect on
the Company Business (other than a matter of general economic or political
nature which does not affect the Company uniquely).
Multiemployer Plan: a "multiemployer plan" within the meaning of section
3(37) of ERISA.
PCBs: as defined in section 2.1.17(c).
Person: any natural person, firm, partnership, association, corporation,
trust or Governmental Authority.
Plan: any pension, retirement, profit sharing, stock bonus or other plan of
deferred compensation, any medical, dental or other health benefit plan, any
life insurance, disability insurance or accident insurance plan, any severance
plan, policy or arrangement, or any other employee benefit plan within the
meaning of Section 3(3) of ERISA an any bonus, incentive, stock option,
restricted stock or other equity based compensation program to which the Seller
is party, to which the Seller contributes or in connection with which the Seller
is or could become liable for contributions, or under which employees of the
Company participate or have a right to receive benefits.
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Premises: means the Real Property and any other real property at any time
owned or leased by the Seller.
Products: as defined in section 2.1.21(a).
Proprietary Information: as defined in section 2.1.13.
Real Property: as defined in section 2.1.10(a).
Returns: all reports, estimates, declarations, information statements and
returns due under all foreign, federal, state or local laws or regulations, as
appropriate, relating to Taxes.
Taxes: means all federal, state, local and foreign taxes, assessments and
governmental charges, of any nature, kind or description (including, without
limitation, all income taxes, franchise taxes, withholding taxes, estimated
taxes, unemployment insurance, social security taxes, payroll taxes, sales and
use taxes, excise taxes, occupancy taxes, real and personal property taxes,
stamp taxes, transfer taxes, workers' compensation and withholding taxes) and
all interest, additions to tax and penalties with respect thereto, whether such
interest, additions or penalties arise before or after the Closing Date.
Transaction Agreements: as defined in section 2.1.2.
6.2 Indemnification. (a) The Seller and the Shareholder jointly and
severally covenant and agree to defend, indemnify and hold harmless the Buyer
and its affiliates, and each of its respective officers, directors, employees
and agents from and against any and all liability, obligation, loss, cost,
deficiency or damage (whether absolute, accrued, conditional or otherwise) and
including reasonable attorneys' fees incurred in the investigation or defense of
any of the same, resulting from or arising out of (i) the incorrectness of any
representation or warranty made by the Sellers herein or in connection herewith
(other than under section 2.1.9, which is dealt with separately under section
6.2(b), and under section 2.1.17, which is dealt with separately under section
6.2(c), (ii) the failure of the Seller to perform any covenant or fulfill any
other obligation contained herein (other than under section 3.1.8, which is
dealt with separately under section 6.2(b)), the conduct of the business of the
Seller after the date hereof and before the Closing Date in violation of the
provisions hereof.
(b) The Seller and the Shareholder jointly and severally covenant and
agree to defend, indemnify and hold harmless the Buyer and its affiliates, and
each of its respective officers, directors, employees and agents against, any or
all
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liabilities of the Seller for Taxes with respect to (i) any taxable year or
any tax period ending on or before the Closing Date or (ii) the period up to and
including the Closing Date for a taxable year or tax period beginning before and
ending after the Closing Date. Taxes for which the Seller shall be liable and
against which the Seller and the Shareholder shall hold Buyer and the Company
harmless under the preceding sentence shall include, without limitation, any
Taxes which are assessed against Buyer the liability for which arises as a
result of an audit or other official inquiry prior to or following the Closing
Date. The Seller and the Shareholder also jointly and severally covenant and
agree to indemnify the Buyer against reasonable attorneys' fees incurred in the
investigation or defense of any claim for Taxes which are assessed against Buyer
with respect to the periods described in the first sentence of this section
6.2(b). The Seller and the Shareholder also jointly and severally covenant and
agree to defend, indemnify and hold harmless the Buyer and its respective
officers, directors, employees and agents from and against any and all
liability, obligation, loss, cost, deficiency or damage (whether absolute,
accrued, conditional or otherwise) and including reasonable attorneys' fees
incurred in the investigation or defense of any of the same resulting from or
arising out of the incorrectness of any representation or warranty made by the
Sellers in section 2.1.9 or breach of the covenants contained in section 3.1.8,
but only to the extent such indemnified persons are not otherwise held harmless
against such breach under the first sentence of this section 6.2(b).
(c) (i) The Seller and the Shareholder further jointly and severally
covenant and agree to indemnify, defend and hold harmless the Buyer from and
against any and all Environmental Damages assessed against or incurred by Buyer
including, without limitation, liability, obligation, damage, loss, judgment or
expense, including reasonable attorneys fees incurred by the Buyer subsequent to
the Closing Date arising out of (w) any failure by Seller to comply fully with
all applicable laws and requirements of any Governmental Authority having
jurisdiction or authority over environmental, health or safety matters,
including, but not limited to, the United States Environmental Protection Agency
and the California Environmental Protection Agency, with regard to the Real
Property; (x) any of Seller's activities as a result of compliance with the
requirements of the United States Environmental Protection Agency or the
California Environmental Protection Agency; (y) the use, generation, storage,
treatment, transportation or disposal of Hazardous Material resulting from
activities or operations of the Seller, any predecessor entities of the Seller
or third parties on the Premises prior to the Closing Date; or (z) the
generation, storage, treatment, transportation or disposal of Hazardous
Materials deriving from the activities or operations of the Seller at any
off-site location prior to the Closing Date.
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(ii) The Buyer indemnifies, defends and holds harmless the Seller
from and against any and all liability, obligation, damage, loss, judgment or
expense, including reasonable attorneys' fees incurred in the investigation or
defense of same, claimed against or incurred by the Seller subsequent to the
Closing Date arising out of the use, generation, storage, treatment,
transportation or disposal of Hazardous Materials as a result of operations or
activities of the Buyer on the Real Property subsequent to the Closing Date.
(iii) In no event shall either the Buyer, or the Seller, be
entitled to indemnification under this section 6.2(c) for any claims for
indemnification under this section 6.2(c) arising after the expiration of a
period of five years commencing on the Closing Date.
(d) The Buyer covenants and agrees to defend, indemnify and hold
harmless the Seller from and against any and all liability, obligation, damage,
loss, cost, deficiency or damage (whether absolute, accrued, conditional or
otherwise) and including reasonable attorneys' fees incurred in the
investigation or defense of any of the same, resulting from or arising out of
(i) the incorrectness of any representation or warranty made by the Buyer herein
or in connection herewith, or (ii) the failure of the Buyer to perform any
covenant or fulfill any other obligation herein.
(e) Any payment made by the Seller to the Buyer Indemnitees, on the
one hand, or by the Buyer to the Seller, on the other hand, pursuant to this
section 6.2 in respect of any claim (i) shall be net of any insurance proceeds
realized by and paid to the indemnified party, and (ii) shall be (A) reduced by
an amount equal to the Tax benefits, if any, attributable to such claim and (B)
increased by an amount equal to the Taxes, if any, attributable to the receipt
of any indemnity payment pursuant to the provisions hereof in respect of such
claim, but only to the extent that such Tax benefits are actually realized, or
such Taxes are actually paid, as the case may be, by the Seller or the Buyer or
any consolidated, combined or unitary group of which the Buyer or the Seller is
or are a member.
(f) In the case of any claim asserted by a third party against a party
entitled to indemnification under this Agreement (the "Indemnified Party"),
notice shall be given by the Indemnified Party to the party required to provide
indemnification (the "Indemnifying party") promptly after such Indemnified Party
has actual knowledge of any claim as to which indemnity may be sought, and the
Indemnified Party shall permit the Indemnifying (at the expense of such
Indemnifying Party) to assume the defense of any claim or any litigation
resulting therefrom, provided that (i) counsel for the Indemnifying Party, who
shall conduct the defense of such claim or litigation, shall be reasonably
satisfactory to the Indemnified Party, and the Indemnified
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Party may participate in such defense, but only at such Indemnified Party's
expense pursuant to this section 6.2, and (ii) the omission by any Indemnified
Party to give notice as provided herein shall not relieve the Indemnifying Party
of its indemnification obligation under this Agreement except to the extent that
such omission results in the a failure of actual notice to the Indemnifying
Party and such Indemnifying Party is damaged as a result of such failure to give
notice. No Indemnifying Party, in the defense of any such claim or litigation,
shall, except with the consent of the Indemnified Party, consent to entry of any
judgment or enter into any settlement which does not include as an unconditional
term thereof the giving by the claimant or plaintiff to such Indemnified Party
of a release from all liability with respect to such claim or litigation. In the
event that the Indemnified Party shall reasonably and in good faith determine
that the conduct of the defense of any claim subject to indemnification
hereunder or any proposed settlement of any such claim by the Indemnifying Party
might be expected to affect adversely the Indemnified Party's tax liability or
ability to conduct its business, the Indemnified Party shall have the right at
all times to take over and assume control over the defense, settlement,
negotiations or lawsuit relating to any such claim at the sole cost of the
Indemnifying Party, provided that if the Indemnified Party does so take over and
assume control, the amount of the indemnity required to be paid by the
Indemnifying Party shall be limited to the amount which the Indemnifying Party
is able to demonstrate that it could have settled the matter for immediately
prior to the time of assumption. In the event that the Indemnified Party does
not accept the defense of any matter as above provided, the Indemnifying Party
shall have the full right to defend against any such claim or demand, and shall
be entitled to settle or agree to pay in full such claim or demand; provided,
however, that the Indemnifying Party shall not accept settlement of any such
claim or demand without the prior written consent of the Indemnified Party,
which consent shall not be unreasonably withheld. In any event, the Seller and
the Buyer shall cooperate in the defense of any action or claim subject to this
section 6.2 and the records of each shall be available to the other with respect
to such defense.
6.3 Survival of Representations and Warranties, etc. The representations
and warranties contained in this Agreement shall survive the execution and
delivery of this Agreement, any examination by or on behalf of the parties
hereto and the completion of the transactions contemplated herein, but only to
the extent specified below:
(a) except as set forth in sections (b) and (c) below, the
representations and warranties contained in sections 2.1 and 2.2 shall
survive for a period of five years following the Closing Date;
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(b) the representations and warranties contained in sections 2.1.1,
2.1.2, 2.1.5 and 2.2.2 shall survive without limitation; and
(c) the representations and warranties contained in section 2.1.9
shall survive 120 days following the date that any tax period covered by
such representations and warranties remains open, in whole or in part, and
subject to audit and/or adjustment including without limitation by reason
of waiver of any statute of limitations.
6.4 Representation by Counsel. Each party hereto has been represented by
separate and independent counsel in connection with the negotiation, preparation
and execution of this Agreement.
6.5 Expenses. The Seller, on the one hand, and the Buyer, on the other
hand, shall bear their respective expenses, costs and fees (including attorneys'
and accountants' fees) in connection with the transactions contemplated hereby,
including the preparation and execution of this Agreement and compliance
herewith, whether or not the transactions contemplated hereby shall be
consummated, provided that the Seller, on the one hand, and the Buyer, on the
other hand, shall pay to the other all such expenses, costs or fees incurred by
the other if such party shall materially breach its obligations hereunder. No
such expenses, costs or fees shall be paid by or charged to the business of
Seller, except that the Seller may, at its option and to the extent permitted by
generally accepted accounting principles, cause a portion of such expenses,
costs and fees to be paid by from the business of Seller on a date at least five
days prior to the Closing Date, provided that all such payments by the Seller
shall be included in determining the Final Net Book Value.
6.6 Severability. If any provision of this Agreement is inoperative or
unenforceable for any reason, such circumstances shall not have the effect of
rendering the provision in question inoperative or unenforceable in any other
case or circumstance, or of rendering any other provision or provisions herein
contained invalid, inoperative, or unenforceable to any extent whatsoever. The
invalidity of any one or more phrases, sentences, clauses, sections or
subsections of this Agreement shall not affect the remaining portions of this
Agreement.
6.7 Notices. All notices, requests, demands and other communications made
in accordance with this Agreement shall be in writing and shall be (a) mailed by
first-class, registered or certified mail, return receipt requested, postage
prepaid, or (b) transmitted by hand delivery, telecopy, telegram or telex,
addressed as follows:
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(i) if to the Buyer,
DRS Precision Echo, Inc.
3105 Patrick Henry Drive
Santa Clara, CA 95054
Attention: Stuart F. Platt, President
with a copy to:
Hannoch Weisman
A Professional Corporation
4 Becker Farm Road
P.O. Box 1040
Roseland, New Jersey 07068-3788
Attention: Nina Laserson Dunn, Esq.
(ii) if to the Seller,
Ahead Technology Corporation
103 Cooper Ct.
Los Gatos, CA 95030
Attention: Arthur Honegger, President
with a copy to:
Campeau & Thomas
A Law Corporation
55 South Market Street
Suite 1660
San Jose, CA 95113
Attention: Scott L. Goodsell, Esq.
or, in each case, at such other address as may be specified in writing to the
other parties hereto.
6.8 Miscellaneous.
6.8.1 Headings. The headings contained in this Agreement are for
purposes of convenience only and shall not affect the meaning or interpretation
of this Agreement.
6.8.2 Entire Agreement. This Agreement, together with the Schedules
and Exhibits hereto, constitutes the entire agreement and supersedes all prior
agreements and understandings, both written and oral, among the parties with
respect to the subject matter hereof and supersedes specifically those certain
letters to Robert Van Houtven and Arthur Honegger dated April 20,1994 and April
1, 1994.
6.8.3 Counterparts. This Agreement may be executed in several
counterparts, each of which shall be deemed an original and all of which shall
together constitute one and the same instrument.
-37-
<PAGE>
6.8.4 Governing Law. This Agreement shall be governed in all respects,
including as to validity, interpretation and effect, by the laws of the State of
California. The Buyer, the Seller and the Shareholder hereby irrevocably submit
to the jurisdiction of the courts of the State of California and the Federal
courts of the United States of America located in the State of California solely
in respect of the interpretation and enforcement of the provisions of this
Agreement and of the documents referred to in this Agreement, and hereby waive,
and agree not to assert as a defense in any action, suit or proceeding for the
interpretation or enforcement hereof or any such document, that it is not
subject thereto or that such action, suit or proceeding may not be brought or is
not maintainable in said courts or that the venue thereof may not be appropriate
or that this Agreement or any of such documents may not be enforced in or by
said courts, and the parties hereto irrevocably agree that all claims with
respect to such action or proceeding shall be heard and determined in such a
California State or Federal court. The Buyer and the Seller hereby consent to
and grant any such court jurisdiction over the person of such parties and over
the subject matter of any such dispute and agree that mailing of process or
other papers in connection with any such action or proceeding in the manner
provided in clause (a) of section 6.7, or in such other manner as may be
permitted by law, shall be valid and sufficient service thereof.
6.8.5 Binding Effect. This Agreement shall be binding upon and inure
to the benefit of the parties hereto and their respective heirs, successors and
permitted assigns.
6.8.6 Assignment. This Agreement shall not be assignable by any party
hereto without the prior written consent of the Buyer and the Seller.
6.8.7 No Third Party Beneficiaries. Nothing in this Agreement shall
confer any rights upon any person or entity other than the parties hereto and
their respective heirs, successors and permitted assigns.
6.8.8 Amendment; Waivers. No amendment, modification or discharge of
this Agreement, and no waiver hereunder, shall be valid or binding unless set
forth in writing and duly executed by the party against whom enforcement of the
amendment, modification, discharge or waiver is sought. Neither the waiver by
any of the parties hereto of a breach of or a default under any of the
provisions of this Agreement, nor the failure by any of the parties, on one or
more occasions, to enforce any of the provisions of this Agreement or to
exercise any right or privilege hereunder, shall be construed as a waiver of any
other breach or default of a similar nature, or as a waiver of any of such
provisions, rights or privileges hereunder.
-38-
<PAGE>
IN WITNESS WHEREOF, the parties have duly executed this Agreement as of the
date first above written.
ATTEST: PRECISION ECHO ACQUISITION CORP.
STEVE CONLISK STUART F. PLATT
_______________________ By:_____________________________
V.P. Stuart F. Platt, President
AHEAD TECHNOLOGY CORPORATION
SCOTT GOODSELL ARTHUR HONEGGER
________________________ By:_____________________________
Arthur Honegger, President
WITNESS:
SCOTT GOODSELL ARTHUR HONEGGER
________________________ ________________________________
Arthur Honegger
-39-
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND> THIS SCHEDULE CONTAINS SUMMARY FINANCIAL
INFORMATION EXTRACTED FROM DIAGNOSTIC/RETRIEVAL
SYSTEMS, INC. FORM 10-Q FOR THE QUARTERLY PERIOD
ENDED DECEMBER 31 1994 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> MAR-31-1995
<PERIOD-START> APR-01-1994
<PERIOD-END> DEC-31-1994
<CASH> 10,292,000
<SECURITIES> 0
<RECEIVABLES> 13,752,000
<ALLOWANCES> 0
<INVENTORY> 10,859,000
<CURRENT-ASSETS> 37,665,000
<PP&E> 32,427,000
<DEPRECIATION> 23,797,000
<TOTAL-ASSETS> 57,873,000
<CURRENT-LIABILITIES> 18,739,000
<BONDS> 11,953,000
0
0
<COMMON> 58,000
<OTHER-SE> 21,295,000
<TOTAL-LIABILITY-AND-EQUITY> 57,873,000
<SALES> 47,404,000
<TOTAL-REVENUES> 47,404,000
<CGS> 44,143,000
<TOTAL-COSTS> 44,143,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,020,000
<INCOME-PRETAX> 2,854,000
<INCOME-TAX> 1,142,000
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,712,000
<EPS-PRIMARY> 0.34
<EPS-DILUTED> 0
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