3
filed with the Securities and Exchange Commission on
December 14, 1998
Registration No. 333-
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM S-3
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
AULT INCORPORATED
(Exact name of registrant as specified in its charter)
Minnesota 41-0842932
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
7300 Boone Avenue North
Minneapolis, Minnesota 55428
(612) 493-1900
(Address, including zip code, and telephone number,
including area code, of registrant's principal executive
office)
Frederick M. Green
President, Chief Executive Officer
Ault Incorporated
7300 Boone Avenue North
Minneapolis, Minnesota 55428
(612) 493-1900
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
COPIES TO:
Richard A. Primuth, Esq.
Lindquist & Vennum P.L.L.P.
4200 IDS Center
80 South Eighth Street
Minneapolis, Minnesota 55402
Telephone: (612) 371-3211
Approximate date of commencement of proposed sale to public:
From time to time after this Registration Statement becomes
effective.
If the only securities being registered on this Form are
being offered pursuant to dividend or interest reinvestment
plans, please check the following box. ( )
If any of the securities being registered on this Form are
to be offered on a delayed or continuous basis pursuant to
Rule 415 under the Securities Act of 1933, other than
securities offered only in connection with dividend or
interest reinvestment plans, check the following box (x)
If this Form is filed to register additional securities for
an offering pursuant to Rule 462(b) under the Securities
Act, please check the following box and list the Securities
Act registration statement number of the earlier effective
registration statement for the same offering: ( )
If this Form is a post-effective amendment filed pursuant to
Rule 462(c) under the Securities Act, check the following
box and list the Securities Act registration statement
number of the earliest effective registration statement for
the same offering: ( )
If delivery of the prospectus is expected to be made
pursuant to Rule 434, please check the following box: ( )
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
Proposed
Maximum Proposed
Offering Maximum
Title of Each Class of Amount to Price Aggregate Amount of
Securities to be be Per Offering Registration
Registered Registered Unit Price Fee
<S> <C> <C> <C> <C>
Common Stock, no par 78,865 $6.5625 $517,552 $144
value (1) (1)
<FN>
(1) Estimated solely for the purpose of determining the
registration fee and based on the closing price of the
Company's Common Stock on the Nasdaq National Market on
December 10, 1998 pursuant to Rule 457(c).
</TABLE>
The registrant hereby amends this registration
statement on such date or dates as may be necessary to delay
its effective date until the registrant shall file a further
amendment that specifically states that this registration
statement shall thereafter become effective in accordance
with Section 8(a) of the Securities Act of 1933 or until the
registration statement shall become effective on such date
as the Commission, acting pursuant to said Section 8(a), may
determine.
AULT INCORPORATED
78,865 Shares of
Common Stock
These shares of the Company's common stock, no par
value (the "Common Stock"), are being sold by LZR
Electronics, Inc., the selling shareholders. The Company
will not receive any part of the proceeds from the sale.
The Company's Common Stock is listed on the Nasdaq
National Market under the symbol "AULT". The reported last
sale price on December 10, 1998, was $6.5625 per share.
This Investment Involves Certain Degrees of Risk and for
this Reason, You Should Purchase Shares Only if You Can
Afford a Complete Loss of the Amounts Invested. See "Risk
Factors" Beginning on Page 3 of this Prospectus.
Neither the Securities and Exchange Commission nor any state
securities commission has approved or disapproved these
securities, or passed upon the accuracy or adequacy of this
Prospectus. Any representation to the contrary is a
criminal offense.
December __, 1998
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by
the more detailed information and financial statements
appearing elsewhere in this Prospectus and in documents
incorporated herein by reference.
About the Company
Ault Incorporated (the "Company") designs,
manufactures, and markets a line of external power
conversion products and is a leading domestic supplier of
such products to original equipment manufacturers (OEMs) of
data communications equipment, telecommunications equipment,
portable medical equipment, and microcomputers and related
peripherals. Ault's product line includes the four major
types of external power conversion products: switching power
supplies, linear power supplies, battery chargers and
transformers. The Company markets its products worldwide,
although primarily to OEMs in the U.S. and Canada. Many of
the Company's larger OEM customers manufacture and sell
their products globally, which serves to extend the
Company's global market presence. The majority of the
Company's revenues are generated from sales of its power
conversion products to OEM's of telecommunications and data
communications equipment, although. significant revenues are
also derived from sales of these products to OEMs of
computer and computer peripheral equipment.
The Company was incorporated in 1961 under the laws of
the State of Minnesota. Its principal executive offices are
located at 7300 Boone Avenue North, Minneapolis, Minnesota
55428 and its telephone number is (612) 493-1900.
The Offering
The Selling Shareholder is offering 78,865 shares of
Common Stock. These Shares may be obtained by the Selling
Shareholder upon conversion of a promissory note dated as of
December 1, 1998 issued by the Company pursuant to a Asset
Purchase Agreement dated November 30, 1998 between the
Company and the Selling Shareholder (the "Agreement").
Common Stock offered by Selling Shareholder 78,865
Common Stock outstanding as of December 14, 1998 4,172,258
Nasdaq National Market Symbol AULT
Use of Proceeds
The Company will not receive any proceeds from the sale of
the Common Stock. See "Use of Proceeds."
Risk Factors
This offering involves substantial investment risk and the
Shares should be purchased with the understanding that loss
of the total amounts invested is a possibility. See "Risk
Factors."
RISK FACTORS
Investors should carefully consider the following matters in
connection with an investment in the Shares in addition to
the other information contained or incorporated by reference
in the Prospectus. Information contained in or incorporated
by reference into this Prospectus contains "forward-looking
statements" within the meaning of the Private Securities
Litigation Reform Act of 1995, which can be identified by
the use of forward-looking terminology such as "may,"
"will," "expect," "anticipate," "estimate" or "continue" or
the negative thereof or other variations thereon or
comparable terminology. The following matters constitute
cautionary statements identifying important factors with
respect to such forward-looking statements, including
certain risks and uncertainties, that could cause actual
results to differ materially from those in such forward-
looking statements.
Technological Change and New Product Development
The electronic equipment market is characterized by rapidly
changing technology and shorter product life cycles. The
Company's future success will continue to depend upon its
ability to enhance its current products and to develop new
products that keep pace with technological developments and
respond to changes in customer requirements. Any failure by
the Company to respond adequately to technological changes
and customer requirements or any significant delay in new
product introductions could have a material adverse effect
on the Company's business and results of operations. In
addition, there can be no assurance that new products to be
developed by the Company will achieve market acceptance.
Dependence on Outside Contractors
The Company currently depends on third parties located in
foreign countries for a significant portion of the
manufacture and assembly of certain of its products. Some of
these countries are economically troubled areas. The
Company's reliance on such outside contractors reduces its
control over quality and delivery schedules. While the
Company takes an active role in overseeing quality control
with its third party manufacturers, the failure by one or
more of these subcontractors to deliver quality products or
to deliver products in a timely manner could have a material
adverse effect on the Company's operations. In addition,
the Company's third-party manufacturing arrangements are
short term in nature and could be terminated with little or
no notice. If this happened, the Company would be compelled
to seek alternative sources to manufacture certain of its
products. There can be no assurance that any such attempts
by the Company would result in suitable arrangements with
new third-party manufacturers.
Dependence on Key Personnel; Management of Growth
The Company's success depends in part upon the continued
services of many of its highly skilled personnel involved in
management, engineering and sales, and upon its ability to
attract and retain additional highly qualified employees.
The loss of service of any of these key personnel could have
a material adverse effect on the Company. The Company does
not have key-person life insurance on any of its employees.
In addition, the Company's future success will depend on the
ability of its officers and key employees to manage growth
successfully and to attract, retain, motivate and
effectively utilize the team approach to manage its
employees. If the Company's management is unable to manage
growth effectively, the Company's business and results of
operations could be adversely affected.
Anti-takeover Considerations
Certain anti-takeover provisions of the Minnesota Business
Corporation Act and the ability of the Board of Directors to
issue preferred stock without stockholder approval under the
Company's Right Plan may have the effect of delaying or
preventing a change in control or merger of the Company.
These provisions could delay, discourage, hinder or preclude
an unsolicited acquisition of the Company, could make it
less likely that stockholders receive a premium for their
shares as a result of any such attempt and could adversely
affect the market price of the Common Stock.
Year 2000 Interruptions
The Company utilizes several microchip based date referenced
systems for its business operations, including the timely
procurement of material and supporting customer
requirements. Because these business matters are also
dependent on support from external sources, the Company
cannot provide any assurance that its ability to provide
service to customers will not be interrupted by the
inability of any supporting microchip-based date referenced
system to timely process data. This situation could have an
adverse material effect on the Company's ability to retain
customers and to generate revenue and profitability.
RECENT DEVELOPMENTS
Recent Acquisition
On December 1, 1998, pursuant to an Asset Purchase Agreement
dated November 30, 1998, Ault Incorporated (the "Company")
purchased the operating assets of the power supply division
of LZR Electronics, Inc., a closely held firm based in
Gaithersburg, Maryland ("LZR"). LZR has no affiliation to
the Company or any of the Company's affiliates. The assets
purchased included inventory, fixed assets, contract and
intellectual property rights and other operating assets.
The Company paid an aggregate purchase price of $3,660,879
consisting of a cash payment of $2,580,879, delivery of a
one year 8.0% convertible promissory note for $500,000 and
an assumption of approximately $580,000 of liabilities. The
convertible promissory note may be converted at the option
of the holder into 78,865 shares of the Company's common
stock. Cash paid by Ault in the transaction was derived
solely from available cash. LZR's 1997 revenues relating to
its power supply division for its calendar year 1997 were
approximately $6,400,000 and the estimated revenues for its
calendar year 1998 are $6,500,000. The Company presently
expects that sales derived from use of the operating assets
purchased will contribute to an increased level of
profitability for its fiscal year ended May 31, 1999.
Year 2000
The Year 2000 issue is the result of computer programs being
written using two digits rather than four to define the
applicable year. The Company's computer equipment, software,
devices and products with imbedded technology that are
time-sensitive may recognize a two digit date field using
"00" as the year 1900 rather than the year 2000. This could
result in a system failure or miscalculations causing
disruptions of operations, including, among other things, a
temporary inability to process transactions, send invoices
or engage in similar normal business activities.
State of Readiness
The Company anticipates that most of its microchip-based
date referenced systems, including computer software and
hardware will be Year 2000 compliant by the end of its
fiscal year ending May 31, 1999. All the Company's business
systems have been tested and verified as Year 2000
compliant. The Company's desktop software have been
evaluated for compliance and implementation of necessary
upgrades are also scheduled to occur at the end of its
fiscal year 1999. The Company's hardware have been assessed
for Year 2000 compliance and all necessary upgrades are
scheduled to occur at the end of its fiscal year 1999.
There are therefore no internal matters that are expected
to affect the Company's ability to process systems
date-referenced information when year 2000 arrives. The
Company does not yet know of the extent to which the current
preparedness of its external business associates and
external infrastructure would affect its business
transactions if they were tested today for year 2000
compliance. As of July 31, 1998, the Company's critical
suppliers were mailed certification notices and risk
assessment audits. The Company is still in the process of
evaluating suppliers' responses to the risk assessments
audits. The Company is communicating with external sources
and its objective is to obtain their commitment, with
reasonable verification, that they, along with the Company
will be Year 2000 compliant by May 31, 1999. The Company
began exhibiting its progress, with continual updates,
towards compliance on its website, www.aultinc.com, during
the fourth quarter of of its fiscal year 1998. Below is a
table showing the Company's progress to date:
<TABLE>
<CAPTION>
TASKS STATUS
Suppliers
<S> <C>
Critical suppliers sent certification notice regarding
Y2K compliance. 06/01/98 Completed
Sent critical suppliers Y2K risk assessment
audit. 07/31/98 Completed
Evaluate risk assessment audit responses. 11/17/98 Completed
Selected site visits to supplier base to ensure Y2K
compliance. 11/30/98 Completed
Restructure supplier base to insure Y2K compliance. 12/31/98 Estimated
Desktop Software
Plan audit of desktop software. 10/01/97 Completed
Audit company wide desktop software. 02/01/98 Completed
Evaluate noncompliance issues. 04/01/98 Completed
Recommend necessary software upgrades to insure
Y2K compliance 07/01/98 Completed
Implement necessary software upgrades. 12/31/98 Estimated
Business Systems
Requested Y2K Compliance information from suppliers. 01/15/98 Completed
Received compliance information from suppliers. 02/23/98 Completed
Tested and verified as Y2K compliant. 04/24/98 Completed
Hardware
Plan audit of network hardware. 10/01/97 Completed
Audit company wide network hardware. 02/01/97 Completed
Evaluate noncompliance issues. 04/01/98 Completed
Recommend necessary hardware upgrades to insure Y2K
compliance 07/01/98 Completed
Implement necessary hardware upgrades. 12/31/98 Estimated
Global Test
Simulation of customer order thru put. 01/15/99 Estimated
Quarterly Re-simulation. 01/15/99 Estimated
Quarterly Re-simulation. 06/15/99 Estimated
Quarterly Re-simulation. 09/01/99 Estimated
Quarterly Re-simulation. 12/01/99 Estimated
</TABLE>
Costs to Address Year 2000 Issues
To date, the Company has not incurred any material
expenditures in connection with identifying or evaluating
Year 2000 compliance issues. The Company presently
estimates the labor costs of its Year 2000 compliance
efforts to be approximately $60,000. With respect to future
costs, the Company estimates it will spend approximately
$50,000 for remediation and validation of products and
programs which the Company presently knows are not compliant
and another $25,000 for future staff time for such
remediation. In addition, the Company estimates that it may
spend no more than another $10,000 on remediation and
validation of products and programs which have not yet been
assessed. The Company believes that these estimates are
reasonable and within its fiscal 1999 budget. Capital
expenditures among these costs will be capitalized in
accordance with generally accepted accounting principles.
All other costs are expensed as period costs as they are
incurred. The Company does not consider that these period
costs will be of any material impact on its operations. At
this time, the Company does not possess the information
necessary to estimate any potential financial impact of Year
2000 compliance issues relating to its business. Any
significant business disruption could have a material
adverse impact on the Company's financial condition and
results of operations.
Risks of Year 2000 Issues
Because the Company is still in the discovery and evaluation
phase of assessing its overall Year 2000 exposure, it cannot
at this time state with certainty that the Year 2000 issues
will not have a material adverse impact on its financial
condition, results of operations and liquidity. Although
the Company considers these events to be unlikely, the
Company believes that the following situations are comprised
of worse case issues that are most likely to result from
any Year 2000 non-compliance.
1. Customer Litigation.
Although the Company believes that its efforts will ensure
no disruption in the business or operations of its
customers, the possibility exists that some customers may
experience problems that may motivate such customers to
commence litigation against the Company for restitution and
damages that may be related to such problems.
2. Disruption of Supply Materials.
Several months ago, the Company began an ongoing process of
surveying its suppliers with regard to their Year 2000
readiness and is now in the process of assessing and
cataloging the first responses to the survey. The Company
received adequate responses from critical vendors and many
non-critical vendors. The Company presently expects to work
with suppliers that need assistance or that provide
inadequate responses, and in many cases expects that survey
results will be improved significantly by such work. Where
survey results necessitate it, the Company will arrange for
back-up vendors before the changeover date.
3. Disruption of the Company's Internal Computer Systems.
The Company has identified the hardware and software
upgrades believed to be necessary to insure the Year 2000
compliance of the Company's internal computer systems.
These upgrades will be implemented at the end of fiscal
1999. Year 2000 testing will occur as the upgrade process
proceeds and, in addition, will continue to occur prior to
the changeover date. For these reasons, the Company
considers that disruption of its internal computer systems
is unlikely.
4. Disruption of the Company's Non-Computer Systems.
The Company is currently conducting a comprehensive
assessment of all non-computer systems, including utility,
telecommunications, delivery and other services. The Company
intends to work with any third party provider of such
services to ensure that there will be no disruption in the
Company's operations. However, if disruptions occur, the
Company anticipates that they will be dealt with promptly.
Contingency Plans
While the Company recognizes the need for contingency
planning, it has not yet developed any specific contingency
plans for potential disruptions. The Company believes that
details of such plans will depend on the Company's final
assessment of the problem as well as the evaluation and
success of its remediation efforts. Future disclosures will
include contingency plans as they become available.
USE OF PROCEEDS
The Company will not receive any portion of the proceeds
from Selling Shareholders of common shares that resulted
from any conversion of the promissory note.
SELLING SHAREHOLDER
The following table sets forth certain information with
respect to the beneficial ownership of the Company's Common
Stock by the Selling Shareholder as of December 11, 1998.
<TABLE>
<CAPTION>
Number of
Shares Maximum
Beneficially Number of Shares to be
Owned Prior Shares to Beneficially
to Offering be Sold After the Offering
Number Percent Number Percent
<S> <C> <C> <C> <S> <C>
LZR Electronics, 78,865 1.9 78,865 -0- *
Inc.
8051 Cessna
Avenue
Gaithersburg, MD
20879
_________________
<FN>
*indicates less
than one percent
</TABLE>
PLAN OF DISTRIBUTION
The Selling Shareholders may offer their shares at various
times in one or more of the following transactions:
1) on the Nasdaq National Market, where the Company's Common
Stock is listed;
2) in the over-the-counter market;
3) in transactions other than on such exchanges or in the over-
the-counter market;
4) in connection with short sales of the Shares;
5) by pledge to secure debts and other obligations;
6) in connection with the writing of non-traded and call
options, in hedge transactions and in settlement of other
transactions in standardized or over-the-counter options; or
7) in a combination of any of the above transactions.
The selling shareholders may sell their shares at market
prices prevailing at the time of sale, at prices related to
such prevailing market prices, at negotiated prices or at
fixed prices.
The selling shareholders may use broker-dealers to sell
their shares. If this happens, broker-dealers will either
receive discounts or commissions from the selling
shareholders, or they will receive commissions from
purchasers of shares for whom they acted as agents.
LEGAL MATTERS
The validity of the issuance of the Common Stock offered
hereby will be passed upon for the Company by Lindquist &
Vennum P.L.L.P., Minneapolis, Minnesota, of which Richard A.
Primuth, Secretary of the Company, is a partner.
EXPERTS
The financial statements incorporated in this prospectus by
reference from the Company's 1998 Annual Report on Form 10-K
have been audited by McGladrey & Pullen, LLP, independent
auditors, as stated in its report, which is incorporated
herein by reference, and has been so incorporated in
reliance upon the report of such firm given upon its
authority as an expert in accounting and auditing.
INDEMNIFICATION
Article XI of the Registrant's Bylaws provides that the
Registrant shall indemnify any person who at any time shall
serve or shall have served as a director, officer or
employee of the Corporation, or of any other enterprise at
the request of the Corporation, and the heirs, executors and
administrators of such person in accordance with, and to the
fullest extent permitted by the provisions of the Minnesota
Business Corporation Act, Minnesota Statutes, Chapter 302A,
as it may be amended from time to time.
Section 302A.521 of the Minnesota Business Corporation Act
provides that a corporation shall indemnify any person made
or threatened to be made a party to a proceeding by reason
of acts or omissions performed in their official capacity as
an officer, director, employee or agent of the corporation
against judgments, penalties, fines, including without
limitation, excise taxes assessed against such person with
respect to an employee benefit plan, settlements, and
reasonable expenses, including attorneys' fees and
disbursements, incurred by such person in connection with
the proceeding if, with respect to the acts or omissions of
such person complained of in the proceeding, such person (i)
has not been indemnified by another organization or employee
benefit plan for the same expenses with respect to the same
acts or omissions; (ii) acted in good faith; (iii) received
no improper personal benefit and Minnesota Statutes, Section
302A.255 (regarding conflicts of interest), if applicable,
has been satisfied; (iv) in the case of a criminal
proceeding, has no reasonable cause to believe the conduct
was unlawful; and (v) in the case of acts or omissions by
persons in their official capacity for the corporation,
reasonably believed that the conduct was in the best
interests of the corporation, or in the case of acts or
omissions by persons in their capacity for other
organization, reasonably believed that the conduct was not
opposed to the best interests of the corporation. In
addition, Section 302A.521, subd. 3, of the Minnesota
Statutes requires payment or reimbursement by the
corporation, upon written request, of reasonable expenses
(including attorneys' fees) incurred by a person in advance
of the final disposition of a proceeding in certain
instances if a decision as to required indemnification is
made by a disinterested majority of the Board of Directors
present at a meeting at which a disinterested quorum is
present, or by a designated committee of the Board, by
special legal counsel, by the shareholders or by a court.
Where You Can Find Information
We file annual, quarterly and special reports, proxy
statements and other information with the SEC. You may read
and copy any document we file at the SEC's public reference
rooms in Washington, DC, New York, New York and Chicago,
Illinois. Please call the SEC at 1-800-SEC-0330 for further
information on the public reference rooms. Our SEC filings
are also available to the public from our web site at or at
the SEC's web site at
The SEC allows us to "incorporate by reference" the
information we file with them, which means that we can
disclose important information to you by referring you to
those documents. The information incorporated by reference
is considered to be part of this prospectus, and later
information that we file with the SEC will automatically
update and supersede this information. We incorporate by
reference the documents listed below and any future filings
made with the SEC under Sections 13(a), 13(c), 14, or 15(d)
of the Securities Exchange Act of 1934 until the Selling
Shareholders sell all the Shares. This prospectus is part
of a registration statement we filed with the SEC
(Registration No. 333-_____).
* Annual Report on Form 10-K for the fiscal year ended
May 31, 1998;
* Quarterly Report on Form 10-Q for the fiscal quarter
ended August 30, 1998;
* Current Report on Form 8-K filed December 10, 1998;
* Proxy Statement dated August 28, 1998 for the 1998
Annual Meeting of
Shareholders on September 28, 1998; and
* The description of the Company's Common Stock as set forth
under "Description of Common Shares" in the Company's
Registration Statement on Form S-1 as filed with the Securities
and Exchange Commission on July 18, 1983 (Registration No. 2-
85224), including any amendment or report filed for the purpose
of updating such description.
You may request a copy of these filings, at no cost, by
writing or telephoning us at the following address:
Chief Financial Officer
Ault Incorporated
7300 Boone Avenue North
Minneapolis, MN 55428
(612) 493-1900
You should rely only on the information incorporated by
reference or provided in this prospectus or any supplement.
We have not authorized anyone else to provide you with
different information. The Selling Shareholder will not
make an offer of these shares in any state where the offer
is not permitted. You should not assume that the
information in this prospectus or any supplement is accurate
as of any date other than the date on the front of those
documents.
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 16. Exhibits
<TABLE>
<CAPTION>
Exhibit No Description
<S> <C>
4.1 Convertible Promissory Note
5.1 Opinion and Consent of Lindquist & Vennum
P.L.L.P., counsel to the Company
10.1 Asset Purchase Agreement by and among the
Company, LZR Electronics, Inc., Shimon
Eliezer and Rami Loya dated as of
November 30, 1998
23.1 Consent of Lindquist & Vennum P.L.L.P. (see
Exhibit 5.1 above)
23.2 Consent of McGladrey & Pullen, LLP, independent
auditors
24.1 Power of Attorney (included on signature page
hereof)
27.1 Financial Data Schedule
</TABLE>
SIGNATURES
Pursuant to the requirements of the Securities Act of
1933, the registrant has duly caused this Form S-3
registration statement to be signed on its behalf by
the undersigned, thereunto duly authorized, in the City
of Minneapolis, State of Minnesota, on the ___th day of
December, 1998.
AULT INCORPORATED
By \s\ Frederick M. Green
Frederick M. Green, President and
Chief Executive Officer
POWER OF ATTORNEY
The undersigned officers and directors of Ault
Incorporated hereby constitute and appoint Frederick M.
Green and Carlos S. Montague, or either of them, with
power to act one without the other, our true and lawful
attorney-in-fact and agent, with full power of
substitution and resubstitution, for us and in our
stead, in any and all capacities to sign any and all
amendments (including post-effective amendments) to
this Registration Statement and all documents relating
thereto, and to file the same, with all exhibits
thereto, and other documents in connection therewith,
with the Securities and Exchange Commission, granting
unto said attorney-in-fact and agent, full power and
authority to do and perform each and every act and
thing necessary or advisable to be done in and about
the premises, as fully to all intents and purposes as
he or she might or could do in person, hereby ratifying
and confirming all that said attorney-in-fact and
agent, or his or her substitutes, may lawfully do or
cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of
1933, as amended, this registration statement has been
signed below by the following persons in the capacities
indicated on December __, 1998.
Signature
\s\ Frederick M. Green
Frederick M. Green, President,
Chief Executive Officer
(Principal Executive Officer) and Director
\s\ Carlos S. Montague
Carlos S. Montague, Vice President,
Treasurer, Chief Financial Officer,
(Principal Financial Officer), Assistant Secretary,
and Controller
\s\ David J. Larkin
David J. Larkin, Director
\s\Mathew A. Sutton.
Matthew A Sutton, Director
\s\ Delbert W. Johnson
Delbert W. Johnson, Director
\s\ John G. Kassakian
John G. Kassakian, Director
\s\ Edward C. Lund
Edward C. Lund, Director
\s\ James M. Duddleston
James M. Duddleston, Director
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER
EITHER THE SECURITIES ACT OF 1933 OR APPLICABLE STATE SECURITIES
LAWS AND MAY NOT BE SOLD, TRANSFERRED, ASSIGNED, OFFERED, PLEDGED
OR OTHERWISE DISTRIBUTED FOR VALUE UNLESS THERE IS AN EFFECTIVE
REGISTRATION STATEMENT UNDER SUCH ACT AND SUCH LAWS COVERING SUCH
SECURITIES, OR THE COMPANY RECEIVES AN OPINION OF COUNSEL
REASONABLY ACCEPTABLE TO THE COMPANY STATING THAT SUCH SALE,
TRANSFER, ASSIGNMENT, OFFER, PLEDGE OR OTHER DISTRIBUTION FOR
VALUE IS EXEMPT FROM THE REGISTRATION AND PROSPECTUS DELIVERY
REQUIREMENTS OF SUCH ACT AND SUCH LAWS.
CONVERTIBLE PROMISSORY NOTE
$500.000 December 1, 1998
FOR VALUE RECEIVED, AULT INCORPORATED, a Minnesota
corporation ("Maker" or "Company"), promises to pay to LZR
ELECTRONICS, INC. ("Payee" or "Holder"), at its principal offices
in Gaithersburg, Maryland or elsewhere as Payee shall hereafter
designate by written notice to Maker, in lawful money of the
United States of America, the sum of Five Hundred Thousand
Dollars ($500,000), together with interest on the unpaid
principal balance from the date hereof until paid as specified
herein.
1. Interest Rate. Interest shall accrue under this
Promissory Note at the rate of eight percent (8%) per annum.
2. Maturity Date. The principal amount of and all accrued
interest under this Promissory Note shall be due and payable on
December 1, 1999 (Maturity Date).
3. Form of Payment; Prepayment. All payments under or
with respect to this Promissory Note shall be made in United
States dollars, by certified check or wire transferred funds, to
an account designated, in writing, by Payee. Payments, when
received, shall be credited first, to accrued interest, with the
balance applied to the reduction of the principal sum.
4. Transferability. This Promissory Note may be
transferred, subject to the following conditions: The Holder of
this Promissory Note, by acceptance thereof, agrees to give
written notice to the Company at least ten (10) days before
transferring this Promissory Note of such Holder's intent to do
so, describing briefly the manner of the proposed transfer.
Promptly upon receiving such written notice, the Company shall
present copies thereof to counsel for the Company. If, in the
opinion of counsel reasonably satisfactory in form and substance
to the Company, the proposed transfer may be effected without
constituting a violation of the applicable federal and state
securities laws, such Holder shall be entitled to transfer this
Promissory Note as contemplated in the notice provided by the
Holder to the Company, provided that an appropriate legend may be
endorsed on this Promissory Note with respect to restrictions on
transfer thereof necessary or advisable in the opinion of counsel
reasonably satisfactory in form and substance to the Company to
prevent further transfers which would be in violation of the
securities laws or adversely affect the exemptions relied upon by
the Company in connection with the issuance of this Promissory
Note. To such effect, the Company may request that the intended
transferee execute an investment and representation letter
reasonably satisfactory in form and substance to the Company.
Upon transfer of this Promissory Note, the transferee, by
acceptance of this Promissory Note, agrees to be bound by the
provisions, terms, conditions and limitations of this Promissory
Note and the investment and representation letter, if any,
required by the Company. If (a) no opinion of counsel referred
to in this Section has been provided to the Company, or (b) in
the opinion of such counsel the proposed transfer of this
Promissory Note described in the Holder's written notice given
pursuant to this Section may not be effected without registration
or without adversely affecting the exemptions relied upon by the
Company in connection with the issuance hereof, the Holder will
limit its activities and restrict its transfer accordingly.
5. Exchange of Promissory Note. At any time at the
request of the Holder of this Promissory Note and upon compliance
with the provisions of Section 4 above and surrender of this
Promissory Note for such purpose to the Company at its principal
office or such other office or agency as it may authorize for
such purpose, the Company at its expense (except for any transfer
tax arising out of the exchange) shall execute and deliver in
exchange therefor a new Promissory Note or Promissory Notes in
integral multiples of $1,000 plus one Promissory Note in a lesser
denomination, if required, as such Holder may request, in an
aggregate principal amount equal to the unpaid portion of the
principal amount of this Promissory Note surrendered and
substantially in the form hereof, dated as of the date of this
Promissory Note so surrendered and payable to or upon the order
of such Holder.
6. Replacement of Promissory Note. Upon receipt of
evidence satisfactory to the Company of the loss, theft,
destruction or mutilation of this Promissory Note and in the case
of any such loss, theft or destruction, upon delivery of a bond
of indemnity reasonably satisfactory to the Company, if requested
by the Company, or in the case of any such mutilation, upon
surrender and cancellation of this Promissory Note, the Company
shall issue a new Promissory Note identical in form to the lost,
stolen, destroyed or mutilated Promissory Note.
7. Conversion of Promissory Note.
(a) Right of Conversion. The Holder of this
Promissory Note shall have the
right, at the Holder's option, at any time prior to the Maturity
Date of this Promissory Note, to convert the principal amount of
this Promissory Note, in whole or in part, into that number of
fully paid and nonassessable shares of Company Common Stock
("Conversion Shares") (calculated as to each conversion to the
nearest share) obtained by dividing the principal amount of this
Promissory Note by the conversion price of $6.34 principal amount
per share (the "Conversion Price") by (i) surrender of this
Promissory Note or (ii) submission of a Conversion Notice, in the
manner provided herein. When the principal amount of this
Promissory Note is converted, in whole or in part, any accrued
interest attributable to the principal amount so converted shall
cease to be payable and shall be deemed canceled.
(b) Conversion by Surrender of Promissory Note. To
exercise the conversion privilege provided herein, the Holder of
this Promissory Note may surrender this Promissory Note to the
Company at its principal office or at such other agency
maintained for such purpose by the Company, and shall give
written notice to the Company at such office or agency that the
Holder elects to convert this Promissory Note specified in said
notice. Unless the shares issuable on commission are to be
issued in the name of Holder, such notice shall also state the
name or names, together with address or addresses and taxpayer
identification number(s), in which the certificate or
certificates for shares of Common Stock which shall be issuable
on such conversion shall be issued. Unless the shares issuable
on conversion are to be issued in the same name as the name of
the Holder, such notice shall also be accompanied by instruments
of transfer, in form reasonably satisfactory to the Company, duly
executed by each Holder or such Holder's duly authorized
attorney. After the surrender of this Promissory Note, as
aforesaid, the Company shall issue and shall deliver at such
office or agency to such Holder, or on such Holder's written
order, a certificate or certificates for the number of full
shares of common stock issuable upon the conversion of this
Promissory Note or portion thereof in accordance with the
provisions of this Section. Any fractional interest in respect
of a share arising upon such conversion shall be settled as
provided in Subsection (d) of this Section.
(c) Conversion by Submission of a Conversion Notice.
The Holder of this Promissory Note may exercise its conversion
privilege by depositing this Promissory Note with the Company at
its principal office or with an agent mutually agreeable to the
Company and the Holder and, at such time as Holder desires to
exercise its conversion privilege in whole or in part, shall give
written notice to the Company at such office or to such agent
that the Holder elects to convert this Promissory Note in whole
or in part by submitting the Conversion Notice in the form of
Exhibit A hereto by facsimile transmission or overnight courier
completed to the reasonable satisfaction of the Chief Financial
Officer of the Company. Unless the shares are to be issued in
the name of the Holder, such Notice shall state the name or
names, together with address or addresses and social security or
taxpayer ID numbers, in which the certificate or certificates for
shares of Common Stock which shall be issuable on such conversion
shall be issued. Unless the shares issuable on conversion are to
be issued in the same name as the name of the Holder, the
Conversion Notice shall be accompanied by instruments of
transfer, in form reasonably satisfactory to the Company, duly
executed by Holder or Holder's duly authorized attorney. After
submission of the Conversion Notice, as aforesaid, the Company
shall issue and shall deliver to Holder, or on Holder's written
order, a certificate or certificates for the number of full
shares of common stock issuable upon the conversion of the
principal amount of the Promissory Note or portion thereof in
accordance with the provisions of this Section and the Conversion
Notice. Any fractional interest in respect of a share arising
upon such conversion shall be settled as provided in Subsection
(d) of this Section.
(d) Fractional Shares. No fractional shares of Common
Stock shall be issued upon conversion of this Promissory Note.
Instead of any fractional interest in a share of capital stock
which would otherwise be deliverable upon the conversion of
Promissory Note, the Company shall make an adjustment therefor to
the nearest 1/100 of a share in cash at the current
market price (as defined below) thereof on the day of conversion.
If more than one Promissory Note shall be surrendered for
conversion at one time by the same Holder, the number of full
shares issuable upon conversion thereof shall be computed on the
basis of the aggregate principal amount of the Convertible
Debentures, or specified portions thereof to be converted, so
surrendered.
8. Mandatory Conversion.
(a) Right of Company to Compel Conversion. The
Company has the option to require the Holder of this Promissory
Note to convert this Promissory Note into Conversion Shares
pursuant to the terms of Section 7 upon written notice given by
the Company to the Holder if (i) the average of the "Daily Mean"
of Company Common Stock reported during any 45 consecutive
"Trading Days" is equal to or exceeds $6.47 per share at any time
following the effectiveness of the Registration Statement
relating to the Conversion Shares and (ii) during at least 30 of
the 45 Trading Days the trading volume for the Company's Common
Stock as reported by Nasdaq was equal to or exceeded 10,000
shares. Upon satisfaction of the foregoing conditions, and the
delivery to Holder of that number of shares into which the
remaining amount of this Promissory Note is convertible, this
Promissory Note shall be deemed converted and shall no longer
represent the right to receive the principal amount of the
promissory amount with interest as otherwise provided for herein.
Upon conversion as aforesaid, Holder shall not be entitled to
receive any accrued interest under this Promissory Note.
(b) Definitions. For purposes of Section 8, the term
"Daily Mean" means the average between the high and low sales
price of Ault common stock as reported on the NASDAQ Stock Market
("Daily Mean") for each business day from the date hereof up to
and including five days before the Maturity Date of this
Promissory in which trading is conducted on the NASDAQ Stock
Market (each a "Trading Day") so long as the Common Stock is
quoted on Nasdaq, and if the Common Stock is listed on a national
securities exchange, Daily Mean shall be determined by reference
to the reported sale prices of the primary exchange on which the
Common Stock is traded.
(c) Notice of Mandatory Conversion. The Company shall
give notice of Mandatory Conversion to the Holder of this
Promissory Note. Notice of Mandatory Conversion shall be given
by overnight courier or by mailing by first-class mail a notice
of such conversion not less than 5 days prior to the date fixed
for conversion. Any notice which is given in the manner herein
provided shall be conclusively presumed to have been duly given,
whether or not the Holder receives the notice. In any case,
failure to give notice, or any defect in such notice, shall not
affect the validity of the conversion of this Promissory Note.
9. Conversion Adjustments. The provisions of this
Promissory Note are subject to adjustment as provided in this
Section 9.
(a) The Conversion Price shall be adjusted from time
to time such that in
case the Company shall hereafter:
(i) pay any dividends on any class of stock of
the Company payable in
Common Stock or securities convertible into Common Stock;
(ii) subdivide its then outstanding shares of
Common Stock into a greater number of shares; or
(iii) combine outstanding shares of Common
Stock, by reclassification or otherwise;
the Holder of this Promissory Note thereafter converted may
receive the number of shares of Capital Stock of the Company
which Holder would have owned immediately following such action
if Holder had converted this Promissory Note immediately prior to
such action. If after an adjustment a Holder of this Promissory
Note upon conversion of it may receive shares of two or more
classes of Capital Stock of the Company, the Company shall
determine the allocation of the adjusted conversion price between
the classes of capital stock. After such allocation, the
conversion privilege and the conversion price of each class of
capital stock, shall, thereafter be subject to adjustment on
terms comparable to those applicable to Common Stock in this
Section.
(b) In case of any consolidation or merger to which
the Company is a party
other than a merger or consolidation in which the Company is the
continuing corporation, or in case of any sale or conveyance to
another corporation of the property of the Company as an entirety
or substantially as an entirety, or in the case of any statutory
exchange of securities with another corporation (including any
exchange effected in connection with a merger of a third
corporation into the Company), there shall be no adjustment under
Subsection (a) of this Section above but the Holder of this
Promissory Note shall have the right to convert such Promissory
Note into the kind and amount of shares of stock and other
securities and property which it would have owned or have been
entitled to receive immediately after such consolidation, merger,
statutory exchange, sale, or conveyance had this Promissory Note
been converted immediately prior to the effective date of such
consolidation, merger, statutory exchange, sale, or conveyance
and in any such case, if necessary, appropriate adjustment shall
be made in the application of the provisions set forth in this
Section with respect to the rights and interests thereafter of
Holder of this Promissory Note, to the end that the provisions
set forth in this Section shall thereafter correspondingly be
made applicable, as nearly as may reasonably be, in relation to
any shares of stock and other securities and property thereafter
deliverable on the exercise of this Promissory Note. The
provisions of this Subsection shall similarly apply to successive
consolidations, mergers, statutory exchanges, sales or
conveyances.
(c) Upon any adjustment of the Conversion Price, then
and in each such case, the Company shall give written notice
thereof, by first-class mail, postage prepaid, addressed to the
Holder of this Promissory Notes as shown on the books of the
Company, which notice shall state the Conversion Price resulting
from such adjustment and the increase or decrease, if any, in the
number of shares of Common Stock purchasable at such price upon
the exercise of this Promissory Note, setting forth in reasonable
detail the method of calculation and the facts upon which such
calculation is based.
11. Acceleration Upon Insolvency. This Promissory Note
shall become immediately due and payable if the Company makes an
assignment for the benefit of creditors, or admits in writing its
inability to pay its debts as they become due, or files a
voluntary petition in bankruptcy, or is adjudicated a bankrupt or
insolvent, or files any petition or answer seeking for itself any
reorganization, arrangement, composition, readjustment,
liquidation, dissolution or similar relief under any present or
future statute, law or regulation, or files any answer admitting
or fails to deny the material allegations of a petition filed
against the Company for any such relief, or seeks or consents to
or acquiesces in the appointment of any trustee, receiver or
liquidator of the Company or all or any substantial part of the
properties of the Company, or the
Company or its directors or majority stockholders take any action
looking to the dissolution or liquidation of the Company.
12. Modification and Waiver. No purported amendment,
modification or waiver of any provision hereof shall be binding
unless set forth in a written document signed by the Company and
the Holder of this Promissory Note (in the case of amendments or
modifications) or by the party to be charged thereby (in the case
of waivers). Any waiver shall be limited to the provision hereof
in the circumstances or events specifically made subject thereto,
and shall not
be deemed a waiver of any other term hereof or of the same
circumstance or event upon any reoccurrence thereof.
13. Notices. All notices under this Agreement must be in
writing, and may be delivered by hand or sent by facsimile
transmission, telex, or certified mail, return receipt requested.
Notices sent by mail will be deemed received on the date of
receipt indicated by the returned verification provided by the
U.S. Postal Service. Notices sent by facsimile transmission or
telex will be deemed received the day on which sent, and will be
conclusively presumed to have been received in the event that the
sender's copy of the facsimile transmission or telex contains the
"answer back" of the other party's facsimile transmission or
telex. Notices must be given, or sent to the parties at the
following addresses:
(a) If to Purchaser, to: Ault Incorporated
7300 Boone Avenue North
Minneapolis, Minnesota 55428
Attn: Frederick M. Green
Phone: 612-493-1900
Facsimile: 612-495-1911
with a copy to: Lindquist & Vennum P.L.L.P.
4200 IDS Center
Minneapolis, Minnesota 55402
Attn: Richard Primuth
Phone: 612-371-3260
Facsimile: 612-371-3207
(b) If to Seller, to: LZR Electronics, Inc.
8051 Cessna Avenue
Gaithersburg, Maryland 20879
Attn: Rami Loya or Shimon
Eliezer
Phone: 301-921-9440
Facsimile: 301-670-0436
with a copy to: West & Feinberg, P.C.
Suite 775N
4550 Montgomery Avenue
Bethesda, Maryland 20814
Attn: Steven Jacobson
Phone: 301-951-1500
Facsimile 301-951-1525
(c) If to Shareholders, to: Rami
Loya
903 Willowleaf Way
Rockville, Maryland 20854
Phone: (301) 340-1359
Facsimile: (301) 279-2596
Shimon Eliezer
6 Cliff Hill Ct.
Rockville, MD 20854
Phone: (301) 762-0068
Any party may designate any other address for notices given it
under this Agreement by written notice to the other parties given
at least ten (10) days prior to the effective date of that
change.
14. Successors and Assigns. All the terms and provisions
of this Promissory Note shall be binding upon and inure to the
benefit of and be enforceable by the respective successors and
assigns of the Company and each Holder of this Promissory Note,
whether or not so expressed.
15. Applicable Law. The laws of the State of Maryland,
without regard to its conflicts of law principles, shall govern
the validity, the construction and the interpretation of the
rights and duties of the Company and each Holder of this
Promissory Note.
16. Waiver of Demand, Presentment and Notice of Dishonor.
Except as otherwise set forth herein, the undersigned and each
endorser or guarantor hereof hereby waives demand, presentment,
protest, notice of protest and notice of dishonor.
17. Jurisdiction; Venue. Maker
agrees to submit to the jurisdiction of the Circuit Court for
Montgomery County, Maryland or the Federal District Court for the
Southern District of Maryland, waiving any and all defenses to
the jurisdiction and/or venue of said courts, and agrees not to
raise any questions or issues as to the jurisdiction or venue of
either or both courts in the event that suit is brought or
judgment entered on this Note.
IN WITNESS WHEREOF, the Company has caused this Promissory
Note to be signed by its duly authorized officer as of the date
first written above.
AULT INCORPORATED
By____________________________
_____
Its President and CEO
EXHIBIT A
CONVERSION NOTICE
TO: Ault Incorporated
7300 Boone Avenue North
Minneapolis, MN 55428-1028
Attention: President and Chief Financial Officer
The undersigned holder of that certain promissory note
issued by Ault Incorporated on December 1, 1998 (the "Promissory
Note") hereby exercises its right to acquire shares of common
stock of Ault Incorporated (the "Company") by conversion in whole
or in part of principal amount of the Promissory Note as follows:
1. Principal Amount of Note Before Conversion $_____________
2. Principal Amount Converted into Shares $_____________
3. Shares to be Issued Upon Conversion (line 2 divided by
$6.34) ______________
4. Principal Amount Remaining After Conversion (line 1 minus
line 2) $_____________
Unless otherwise indicated below under special instruction,
please issue the shares in the name of the undersigned holder and
deliver such shares to ______________________ against receipt
therefore.
LZR ELECTRONICS, INC.
By____________________________
_____
8051 Cessna Avenue
Gaithersburg, Maryland 20879
SPECIAL INSTRUCTIONS
EXHIBIT 5.1
December 11, 1998
Ault Incorporated
7300 Boone Avenue North
Minneapolis, Minnesota 55428
Re: Registration Statement on Form S-3
Ladies and Gentlemen:
In connection with the Registration Statement on
Form S-3 to be filed by Ault Incorporated (the
"Company") with the Securities and Exchange Commission
on December __, 1998 relating to an offering of up to
78,865 shares of Common Stock, no par value, to be
offered by the Selling Shareholder, please be advised
that as counsel to the Company, upon examination of
such corporate documents and records as we have deemed
necessary or advisable for the purposes of this
opinion, it is our opinion that:
1. The Company has been duly
incorporated and is validly existing as
a corporation in good standing under the
laws of the State of Minnesota.
2. The shares of Common Stock being
offered by the Selling Shareholders have
been validly and legally issued and are
fully paid and nonassessable.
We hereby consent to the filing of this opinion as
an exhibit to the Registration Statement, and to the
reference to our firm under the heading "Legal Matters"
in the Prospectus comprising a part of the Registration
Statement.
Very truly yours,
LINDQUIST & VENNUM P.L.L.P.
/s/ Lindquist & Vennum
P.L.L.P.
ASSET PURCHASE AGREEMENT
by and among
LZR ELECTRONICS, INC.
(Seller)
SHIMON ELIEZER AND RAMI LOYA
(Shareholders of Seller)
and
AULT INCORPORATED
(Purchaser)
Dated as of November 30, 1998
TABLE OF CONTENTS
Page
ARTICLE I
PURCHASE AND SALE OF ACQUIRED ASSETS
1.1 Definitions 1
1.2 Purchase and Sale of the Acquired Assets. 4
1.3 Assumption of Certain Liabilities. 4
1.4 Purchase Price. 4
1.5 Payment of Purchase Price. 5
1.6 Post-Closing Purchase Price Adjustment. 5
1.7 Payment of the Post-Closing Purchase Price Adjustment. 6
1.8 Ault Shares. 7
1.9 Escrow. 8
1.10 Allocation of Purchase Price. 8
ARTICLE II
THE CLOSING
2.1 Closing Date. 9
2.2. Transactions To Be Effected at the Closing 9
ARTICLE III
REPRESENTATIONS AND WARRANTIES
OF THE SELLER AND THE SHAREHOLDERS
3.1 Representations and Warranties of the Seller and the
Shareholders 11
3.2 Representations and Warranties of Purchaser 19
ARTICLE IV COVENANTS
4.1 Covenants of Seller Relating to Conduct of Business 20
4.2 Access to Information 21
4.3 Legal Conditions to Closing 21
4.4 Employee Benefit Matters 21
4.5 Indemnification 23
4.6 Seller's Books and Records 23
4.7 Confidential Information 23
4.8 Additional Agreements 24
ARTICLE V
CONDITIONS PRECEDENT
5.1 Conditions to Each Party's Obligation 26
5.2 Conditions to Obligations of Purchaser 26
5.3. Conditions to Seller's Obligations 28
ARTICLE VI
TERMINATION AND WAIVER
6.1. Termination 30
6.2 Return of Documents 30
6.3 Extension; Waiver 30
ARTICLE VII
GENERAL PROVISIONS
7.1 Notices 30
7.2. Interpretation 32
7.3. Counterparts 32
7.4. Entire Agreement; No Third-Party Beneficiaries 32
7.5. Governing Law 32
7.6. Remedies Cumulative 32
7.7. Arbitration 32
7.8. Confidentiality of Negotiations 33
7.9. Assignment 33
7.10 Expenses 33
Schedule Description
1.1(i) Fixed Assets Listing
1.1(s) Seller Statement
1.10 Allocation of Purchase Price (to be added after
Post Closing Purchase Price Adjustment)
3.1(c) List of Financial Statements Delivered
3.1(e) Customer Status
3.1(h) Contracts
3.1(j) Inventory
3.1(k) Lawsuits/Disputes
3.1(l) Intellectual Property
3.1(n) Benefit Plans
4.8(a) Seller's Product Warranty
4.8(f) List of Employees Hired by Ault
Exhibits Description
A Escrow Agreement
B Noncompetition Agreement
C Transition Services Agreement
D Sub-Lease
E Retention Letter
F Form of Convertible Promissory Note
ASSET PURCHASE AGREEMENT dated as of November 30, 1998 by
and among LZR Electronics, Inc., a Maryland corporation
("Seller"), Shimon Eliezer ("Eliezer") and Rami Loya ("Loya" and
together with Eliezer, the "Shareholders") and Ault Incorporated,
a Minnesota corporation ("Purchaser").
WHEREAS, Shareholders own 100% of the outstanding voting
stock of Seller;
WHEREAS, Seller is engaged in the business of developing,
manufacturing, marketing and selling power supplies (herein
referred to as the "LZR Power Supply Business"); and
WHEREAS, Shareholders and Seller wish to sell or cause to be
sold to Purchaser, and Purchaser wishes to purchase from Seller,
substantially all the operating assets of Seller related to the
LZR Power Supply Business, upon the terms and subject to the
conditions of this Agreement, including the assumption of certain
specified liabilities.
NOW, THEREFORE, in consideration of the mutual covenants
herein contained, the parties agree as follows
ARTICLE I
PURCHASE AND SALE OF ACQUIRED ASSETS
1.1 Definitions. As used in this Agreement, the following
terms have the meanings set forth below, and where those meanings
are intended, those terms are capitalized:
(a) "Accounts Payable" means liabilities and
obligations incurred in the ordinary course of the LZR Power
Supply Business determined in accordance with GAAP.
(b) "Acquired Assets" means all the business,
properties, assets, goodwill and rights of Seller used by Seller
in the LZR Power Supply Business, except for the Excluded Assets
(as defined herein), including, without limitation, all
Intellectual Property; all Plans; all Inventory; Prepaid
Expenses; all Fixed Assets; all Acquired Contracts; all Books and
Records; telephone numbers; and, all other assets incidental to
the LZR Power Supply Business, including all fully depreciated
assets currently used or useful in conducting the LZR Power
Supply Business whether or not such assets are reflected on the
Seller Statement.
(c) "Acquired Contracts" means (i) all of the
Contracts which Purchaser will assume the rights and obligations
under which are so designated on Schedule 3.1(h) and (ii) as of
the Closing Date, all purchase orders for products and services
not delivered or rendered as of the Closing Date related to the
LZR Power Supply Business.
(d) "Assumed Liabilities" the term "Assumed
Liabilities" means (i) the liabilities reflected on the Seller
Statement under the categories "Accounts Payable" and
"Commissions" incurred in the ordinary course of the LZR Power
Supply Business as and to the extent such liabilities are
existing at the Closing Date, (ii) all liabilities and
obligations accruing from and after the Closing Date under the
Acquired Contracts, and (iii) one-half of Seller's liability
for rent and pass-throughs due under the lease for Seller's
principal place of business in Gaithersburg, Maryland pursuant to
the lease agreement dated June 30, 1993, as amended on May 23,
1994 and March, 1996 between Seller and C.E.L. Partnership (the
"Lease") to the extent Seller has any continuing liability under
the Lease for the period beginning after the end of the Sublease
(defined in Section 5.2(d) herein) between Seller and Purchaser;
provided that Assumed Liabilities does not include any amount
owed to STS International, Inc.
(e) "Books and Records" means all of Seller's books
and records relating to the Acquired Assets or the LZR Power
Supply Business (other than Seller's tax returns), including
without limitation, lists of customers and suppliers, and records
with respect to pricing, volume, payment history, cost,
inventory, machinery and equipment, mailing lists, distribution
and customer lists, sales, purchasing and materials, and
including any such records which are maintained on computer.
(f) "Commissions" means Seller's liability for
commissions on sales arising prior to the Closing Date with
respect to sales of LZR power supplies determined in accordance
with GAAP consistent with past practice.
(g) "Contracts" means (i) all of Seller's interest in
and to all contracts, commitments and agreements which relate to
the Acquired Assets and/or the LZR Power Supply Business
including agreements with suppliers, distributors, and
representatives, all of which are listed on the Disclosure
Schedule, and (ii) as of the Closing Date, all purchase orders
for products and services not delivered or rendered as of the
Closing Date.
(h) "Excluded Assets" means all of the following:
i. Seller's cash and cash equivalents on hand or
in banks; and
ii. Seller's accounts receivable arising from
sales of products or services to customers in the ordinary course
of Seller's business prior to the Closing Date ("Accounts
Receivable"); and
iii. All of Seller's assets not directly or
indirectly related to the LZR Power Supply Business; and,
iv. All of the corporate records of Seller,
including, without limitation, the minute books, stock ledgers,
tax returns and all business records and files related solely to
the Excluded Assets; and,
v. Vehicles; and,
vi. Leasehold improvements; and
vii. PUP project inventory and PUP contracts
related to sales to STS International; and
viii. Obsolete Finished Goods Inventory and
Obsolete Raw Materials Inventory as defined in Section 3.1(j).
(i) "Fixed Assets" means all of Seller's tangible
assets which are related to the LZR Power Supply Business
(other than Inventory), including, but not limited to furniture,
fixtures, machinery, equipment, tooling, computers and the
software utilized therewith whether owned by Seller or licensed
from others, including fully depreciated assets which may not be
reflected under the category "Fixed Assets" on the Seller's
Statement, and specifically including, but not limited to, the
items listed on Schedule 1.1(i).
(j) "GAAP" means generally accepted accounting
principles.
(k) "Intellectual Property" means all patents, patent
applications, copyrights, trademarks, trade names other than "LZR
Electronics," assumed names, trade secrets, licenses, and know
how, utilized by Seller solely in the operation of the LZR Power
Supply Business."
(l) "Inventory" means all of Seller's parts, supplies,
raw materials, work in process, finished goods and goods held for
sale related to the LZR Power Supply Business .
(m) "Inventory Value" means the value of the Inventory
as of the Closing Date, determined in accordance with GAAP and
applying the valuation methodologies described in Section 3.1(j).
(n) "Liabilities and Obligations" means any
indebtedness, claim, obligation or liability of any kind or
nature whatsoever, whether absolute or contingent, liquidated or
unliquidated, due or to become due, accrued or not accrued, or
otherwise of Seller.
(o) "Plans" means all plans, blueprints, designs,
processes, computer programs and related documents, formulae,
process sheets, drawings, instructions, machine manuals, any non-
expired warranties and guarantees, and similar items used or
required by Seller the LZR Power Supply Business, including, but
not limited to, those items used in production of products,
relating to equipment and its operation, except those items owned
by Seller's customers.
(p) "Prepaid Expenses" means prepaid expenses incurred
in the ordinary course of the LZR Power Supply Business
determined in accordance with GAAP consistent with past practice.
(q) "Net Fixed Assets" means the fixed assets of
Seller on the books and records of the Company on the date
hereof, net of accumulated depreciation, as determined in
accordance with GAAP.
(r) "Net Fixed Asset Value" means the value of the Net
Fixed Assets as of the Closing Date in accordance with GAAP, net
of depreciation consistent with past practice.
(s) "Seller Statement" means the balance sheet of
Seller as of October 31, 1998, a copy of which is attached
hereto.
1.2 Purchase and Sale of the Acquired Assets. Upon the
terms and subject to the conditions of this Agreement, Seller
agrees to sell, assign, transfer, convey and deliver, or cause to
be sold, assigned, transferred, conveyed and delivered to
Purchaser, and Purchaser agrees to purchase, on the Closing Date
(as defined in Section 2.1), all the Acquired Assets. Except as
expressly provided in Section 1.3(a), Purchaser shall acquire
the Acquired Assets free and clear of all Obligations and
Liabilities.
1.3 Assumption of Certain Liabilities.
(a) Assumed Liabilities. Upon the terms and subject to
the conditions of this Agreement, Purchaser shall execute and
deliver to Seller on the Closing Date an agreement pursuant to
which Purchaser shall assume and agree to pay, perform and
discharge, and to indemnify Seller and its affiliates against and
hold them harmless from all obligations and liabilities of Seller
existing on the Closing Date which are Assumed Liabilities.
(b) All Other Liabilities Excluded. Purchaser will
have no responsibility for, and Seller and the Shareholders,
jointly and severally, agree to indemnify and hold Purchaser
harmless from, any Liabilities and Obligations of Seller of any
nature whatsoever which are not specifically included in the
Assumed Liabilities, whether similar or dissimilar to the Assumed
Liabilities, whether now existing or hereafter arising, and
whether known or unknown to Purchaser or Seller, including
without limitation (i) all indebtedness for borrowed money; (ii)
all cost or expense arising under warranty or product liability
claims related to power supply products manufactured by Seller
prior to Closing, including products sold by Purchaser, but
subject to the provisions of Section 4.8(a); and (iii) all
present and future Liabilities and Obligations owed by Seller to
its employees, including, but not limited to any termination
payments, accrued vacation pay, unpaid wages, including such
liabilities as are incurred through the Closing Date.
1.4 Purchase Price. In payment for the Assets, Purchaser
shall pay Seller on the Closing Date in accordance with Section
1.5, a purchase price equal to Three Million Eighty Thousand
Eight Hundred Seventy Nine Dollars ($3,080,879) (the "Purchase
Price"). The Purchase Price is subject to the Post-Closing
Purchase Price Adjustment, as provided in Section 1.6 and the
Resale Market Price Adjustment provisions of Section 1.8.
1.5 Payment of Purchase Price. The Purchase Price to be
paid at Closing shall be as follows:
(a) The delivery at Closing of a Convertible
Promissory Note substantially in the form of Exhibit F hereto in
the principal amount of Five Hundred Thousand Dollars
($500,000). The Promissory Note shall be convertible into shares
of Purchaser Common Stock ("Ault Shares") For purposes of
determining the number of Ault shares into which the Promissory
Note will be convertible, the value of each Ault share for
purposes of the conversion shall be calculated by (i) determining
the mean between the high and low sales price of Ault common
stock as reported on the NASDAQ Stock Market ("Daily Mean") for
each of the trading days beginning on November 16 and ending on
November 30 (the "Pre-Closing Period"); (ii) computing the
average of the Daily Means for the Pre-Closing Period ("Average
Value"); and (iii) multiplying the Average Value by 98%
("Purchase Value"). The total number of Ault Shares to be issued
upon conversion shall be calculated by dividing 500,000 by the
Purchase Value (rounding up to the next whole share); and
(b) The sum of Three Hundred Fifty Thousand Dollars
($350,000) (the "Escrow Amount") to be held in the Escrow
established pursuant to Section 1.9 of this Agreement;
(c) The balance of the Purchase Price, $2,239,879,
paid in cash or wire transfer of good funds at Closing.
1.6 Post-Closing Purchase Price Adjustment.
(a) The Purchase Price is subject to a post-closing
adjustment in an amount equal to the Post-Closing Purchase Price
Adjustment. The "Post-Closing Purchase Price Adjustment" shall be
equal to "Post Closing Net Operating Asset Value" minus
$1,680,879. The term "Post Closing Net Operating Asset Value"
for purposes of this Section 1.6 means (i) the sum of the
Inventory Value, the Net Fixed Asset Value, and Prepaid Expenses
at the Closing Date, minus (ii) the sum of Accounts Payable at
the Closing Date and Commissions at the Closing Date.
(b) Determination of Adjustment Values.
i. Seller and Purchaser shall jointly conduct an
audit of all categories of Acquired Assets and Assumed
Liabilities, including a physical inventory of the Inventory as
of the Closing Date.
ii. Purchaser must, as soon as reasonably
practicable after the Closing Date but not later than 45 days
after the Closing Date, prepare a statement (the "Closing
Statement") setting forth Purchaser's calculation as of the
Closing Date, in reasonable detail, of all categories of Acquired
Assets or Assumed Liabilities.
iii. Within 20 days after receipt of the Closing
Statement, Seller must give Purchaser written notice of any
exceptions to Purchaser's calculation of all relevant categories
of Acquired Assets or Assumed Liabilities.
(1) If Seller has not given Purchaser such
written notice within that 20-day period, then the values set
forth in the Closing Statement will be conclusive and binding on
the parties.
(2) If Seller gives Purchaser such written
notice within that 20-day period, then Purchaser and Seller shall
promptly endeavor to resolve any disputes. If Seller and
Purchaser fail to reach an agreement with respect to such matters
on or before thirty (30) days after Seller receives the Closing
Statement, then, as to such matters remaining in dispute, the
Seller and the Purchaser shall promptly retain an accounting firm
("Firm") acceptable to Purchaser and Seller, which has not
rendered services to either Purchaser or Seller for at least
three years. The Firm shall make an independent determination of
any matters in dispute and deliver an opinion to Purchaser and
Seller within 45 days of the Firm's retention, which
determination will be conclusive and binding on the parties. All
fees and expenses of the Firm must be paid by the party generally
not prevailing on the issues as determined by the Firm, or if the
Firm determines that neither party could be fairly found to be
the prevailing party, then such fees and expenses must be paid
equally Purchaser and Seller.
1.7 Payment of Post-Closing Purchase Price Adjustment;
Adjustment of Escrow.
(a) Positive Post-Closing Purchase Price Adjustment.
If the Post-Closing Purchase Price Adjustment is greater than
zero, then Purchaser shall pay Seller, within five days after
final determination of the Post-Closing Purchase Price
Adjustment, by a wire transfer of good funds or a cashiers check,
the amount of the Post-Closing Purchase Price Adjustment.
(b) Negative Post-Closing Purchase Price Adjustment.
If the Post-Closing Purchase Price Adjustment is less than zero,
then Purchaser may draw from the Escrow the amount of the Post-
Closing Purchase Price Adjustment.
(c) Adjustment of Escrow Amount. Upon completion of
the Post-Closing Purchase Price Adjustment, the Escrow Account
shall be adjusted by payment to Seller of any amount remaining
therein in excess of Two Hundred Thousand Dollars ($200,000).
The $200,000 remaining shall be held pursuant to the terms of
Section 1.9 and the Escrow Agreement pending expiration of all
representations and warranties which expire one year after the
Closing Date or, if later, the resolution of any claim related to
such representations and warranties.
1.8 Registration Obligation in Respect of the Ault Shares.
Following the Closing, Purchaser shall file a Registration
Statement (the "Registration Statement") under the Securities Act
of 1933 with the Securities and Exchange Commission (the "SEC"),
registering for resale the Ault Shares issuable upon conversion
of the Promissory Note. If reasonably necessary, Purchaser shall
also maintain a related "blue sky" registration in Maryland or
other state agreed to by Purchaser. Purchaser agrees to file the
Registration Statement within fifteen (15) days of the Closing
Date. Purchaser agrees to use its best efforts to have the
Registration Statement declared effective by the ninety (90) day
anniversary of the Closing Date. Purchaser shall keep the
Registration Statement effective until the Ault Shares can be
sold under Rule 144 without being subject to any volume
limitation specified therein. Purchaser shall bear all expenses
and pay all fees in connection with the preparation, filing and
modification or amendment of the Registration Statement.
1.9 Escrow. The Escrow Amount shall be placed in an escrow
account with Purchaser's counsel (the "Escrow") pending (i) a
final audit and determination of the Post-Closing Purchase Price
Adjustment following Closing and (ii) expiration of all
representations, warranties and covenants. The Escrow Amount will
be subject to adjustment as provided in Section 1.7(c). Funds
deposited in escrow shall be subject to the terms of the Escrow
Agreement attached hereto as Exhibit A.
1.10 Allocation of Purchase Price. The allocation of the
Purchase Price for tax purposes will be determined by mutual
agreement of the Buyer and Seller following the completion of the
post closing purchase price adjustment described in Sections 1.6
and 1.7 of this Agreement and upon reaching agreement of the
allocation of the Purchase Price, such agreement will be set
forth in a written schedule which shall be incorporated by
reference into this Agreement as Schedule 1.10. It is further
agreed that the allocation of the consideration to the Assets as
set forth in Schedule 1.10 will be binding on Seller and
Purchaser for federal and state income tax purposes and will be
consistently so reflected by Purchaser and Seller on their
respective federal and state income tax returns. If agreement
cannot be reached with respect to allocation of the Purchase
Price for tax purposes, $1.4 million will be allocated to
goodwill (including not more than $10,000 to the Noncompetition
Agreement to be signed by the Shareholders and Seller) and the
balance of the purchase price shall be allocated to the Acquired
Assets as determined by the Firm.
ARTICLE II
THE CLOSING
2.1 Closing Date. The closing of the sale and transfer of
the Acquired Assets (hereinafter called the "Closing") shall take
place at the offices of West & Feinberg, P.C. at 10:00 a.m. on
December 1, 1998, or at such other time, date and place as shall
be fixed by agreement among the parties hereto (such date of the
Closing being hereinafter referred to as the "Closing Date").
2.2. Transactions To Be Effected at the Closing. At the
Closing:
(a) Seller's Deliveries. On the Closing Date, subject
to the terms and conditions set forth in this Agreement, Seller
shall make the following deliveries:
i. A Bill of Sale in a form reasonably
acceptable to Purchaser, and other instruments of conveyance
reasonably requested by Purchaser, duly executed by Seller;
ii. Assignments of all Intellectual Property
reasonably requested by Purchaser;
iii. A UCC, tax and judgment search showing all
liens of record and on file against the Seller's assets dated no
earlier than five (5) business days prior to the Closing Date,
together with appropriate releases or termination statements for
any security interest in the Assets;
iv. A certificate of the Secretary of Seller,
certifying a copy of the resolutions of Seller's Board of
Directors and Shareholders which authorize the execution,
delivery and performance of this Agreement as having been duly
adopted and as being in full force and effect on the Closing
Date.
v. A Noncompetition Agreement, substantially in
the form of Exhibit B (the "Noncompetition Agreement"), duly
executed by Seller and the Shareholders;
vi. The Sublease referred to in Section 5.2(d)
duly signed by Seller;
vii. Employment and/or Retention Agreements
referred to in Section 5.2(e);
viii. The legal opinion of Seller's counsel
described in Section 5.2(j);
ix. The Escrow Agreement referred to in Section
1.9 duly signed by Seller;
x. The Transition Services Agreement
contemplated by Section 4.8(f) of this Agreement duly signed by
Seller; and
xi. All other items or documents reasonably
requested by Purchaser or its counsel.
(b) Purchaser's Deliveries. On the Closing Date,
subject to the terms and conditions set forth in
this Agreement, Purchaser must make the following
deliveries:
i. Payment of the Purchase Price as provided in
Section 1.5;
ii. The Noncompetition Agreement, duly executed
by Purchaser;
iii. An Assignment and Assumption Agreement in a
form reasonably acceptable to Seller, duly executed by Purchaser;
iv. A certificate of the Secretary of Purchaser,
certifying a copy of the resolutions of Purchaser's board of
directors which authorize the execution, delivery and performance
of this Agreement as having been duly adopted and as being in
full force and effect on the Closing Date;
v. The Sublease referred to in Section 5.2 duly
signed by Purchaser;
vi. The Escrow Agreement referred to in Section
1.9 duly signed by Purchaser;
vii. The legal opinion of Purchaser's counsel
referred to in Section 5.3(d) of this Agreement;
viii. Payment or provision for payment of the
sales tax attributable to the purchase of assets hereunder;
ix. The Transition Service Agreement contemplated
by Section 4.8(f) of this Agreement duly signed by Purchaser; and
x. All other items or documents reasonably
requested by Seller or Seller's counsel.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
OF THE SELLER AND THE SHAREHOLDERS
3.1 Representations and Warranties of the Seller and the
Shareholders. The Seller and the Shareholders hereby jointly and
severally represent and warrant to and agree with the Purchaser
as follows, unless otherwise provided in the schedules attached
hereto (collectively the "Disclosure Schedules"):
(a) Organization and Good Standing. The Seller is a
corporation duly organized, validly existing and in good standing
under the laws of Maryland. The Seller has full corporate power
and authority to conduct its business as now conducted and to own
and operate the assets and properties now owned and operated by
it; and is duly qualified to do business and is in good standing
in each jurisdiction wherein the conduct of its business or the
ownership of its assets and properties requires such
qualification.
(b) Authority and Compliance. The Seller and the
Shareholders each have full power and lawful authority to execute
and deliver this Agreement and to consummate and perform the
transactions contemplated hereby. This Agreement has been duly
authorized by all necessary corporate and Shareholder action and
this Agreement has been duly executed and delivered by the Seller
and the Shareholders and constitutes the legal, valid and binding
obligation of the Seller and the Shareholders, enforceable in
accordance with its terms. Neither the execution and delivery of
this Agreement by the Seller or the Shareholders nor the
consummation and performance of the transactions contemplated
hereby (i) will conflict with or violate the articles of
incorporation or by-laws (or other governing instrument) of the
Seller or any agreement to which the Shareholders or the Seller
is a party or by which any one of them is bound, or any federal,
state, local or other governmental law or ordinance or (ii) will
require the authorization, approval or consent by, or any notice
to or filing with, any third party.
(c) Financial Statements. The Seller Statement and
the related statements of income, retained earnings and cash
flows for the fiscal years or other periods then ended listed on
Schedule 3.1(c) and delivered to the Purchaser, present fairly
and accurately the financial position and assets and liabilities
of the LZR Power Supply Business as of such dates, and the
results of the LZR Power Supply Business's operations for the
fiscal years or other periods then ended, in conformity with
generally accepted accounting principles applied on a consistent
basis. All references in this Agreement to the "Balance Sheet
Date" shall refer to October 31, 1998.
(d) Liabilities. As of the date of this Agreement,
Seller is not subject to and does not have any Liabilities and
Obligations, except as disclosed in the Seller Statement, and
except for such Liabilities and Obligations as have arisen in the
ordinary course of business of Seller since the date of said
Seller Statement, none of which newly arisen Liabilities and
Obligations have a material adverse effect upon the Assets, or
Seller, its organization, business, properties or financial
condition.
(e) No Material Change. Since the Balance Sheet Date,
there has not been (a) any adverse change in any of the Acquired
Assets, the operations, or condition (financial or otherwise) of
the LZR Power Supply Business, (b) any damage, destruction or
loss, whether covered by insurance or not, adversely affecting
any of the Acquired Assets, the operations, or condition
(financial or otherwise) of the LZR Power Supply Business,
(c) any actual or threatened trouble or disruption of the LZR
Power Supply Business's relations with its agents, customers or
suppliers, (d) any liability incurred with respect to the LZR
Power Supply Business, other than liabilities incurred in the
ordinary course of business consistent with past practice, or any
lien or encumbrance discharged or satisfied with respect to the
LZR Power Supply Business or any of the Acquired Assets, or any
failure to pay or discharge when due any liability related to the
LZR Power Supply Business or any of the Acquired Assets, (e) any
sale, encumbrance, assignment or transfer of any assets or
properties which would have been included in the Acquired Assets
if the Closing had been held on the Balance Sheet Date or on any
date since then, except in the ordinary course of business
consistent with past practice, (f) any amendment or termination
of any agreement, contract, commitment, lease, plan, permit,
authorization or arrangement to which the Seller is or has been a
party or by or to which it is or was bound or entitled, or any
cancellation, modification or waiver of any substantial debts or
claims held by it or any waiver by it of any rights of
substantial value whether or not in the ordinary course of
business, (g) any commitment or agreement made for capital
expenditures or capital additions or betterments exceeding in the
aggregate $10,000, or (h) any change in the accounts receivable
collection procedures, or material change in any other accounting
principles followed by the Seller or the methods of applying such
principles. Since the Balance Sheet Date, the Seller has
conducted the LZR Power Supply Business only in the ordinary
course consistent with past practice, has not incurred any
liabilities, has not entered into any transaction, contract or
arrangement, or made any payment or distribution except in the
ordinary course of business, consistent with past practice.
(f) Assets and Properties. The Seller has, and at the
Closing will convey to the Purchaser, good, valid and marketable
title to all of the Acquired Assets, free and clear of all liens,
pledges, mortgages, security interests, claims or encumbrances of
any nature whatsoever, except liens for current taxes not yet due
and payable. All of the Acquired Assets are in good operating
condition and repair (subject only to ordinary wear and tear) and
are usable in the ordinary course of the LZR Power Supply
Business consistent with their intended purpose. To the best
knowledge of Sellers, Seller is not in violation of any
applicable building, zoning, anti-pollution, health, safety or
other law, ordinance or regulation in respect of any of its
buildings, plants or structures or its operations.
(g) Assets Complete, Etc. The Assets listed on
Schedule 1.1(i) are complete in all material respects for
conducting the LZR Power Supply Business. No tooling, fixtures
or any manufacturing operation is located other than at the
Seller's principal place of business, except that tooling which
is held by third parties who perform manufacturing operations for
Seller as disclosed by Seller to Purchaser. Those third parties
holding the tooling ("Tooling Holders") have been paid all
amounts owed to them, (other than the Accounts Payable assumed by
Purchaser), or will be paid such amounts on or before Closing, so
that as of the Closing, no amounts will be owed to the Tooling
Holders by Seller. There are no contracts, agreements, or
understanding with the Tooling Holders except as referenced on
Schedule 3.1(h). Promptly after the Closing, Seller will take
such action as may be reasonably required to give Purchaser
ownership and control of the tooling held by the Tooling Holders.
Seller does not lease or otherwise use any property owned by
third parties in its operations.
(h) Contracts. The Schedule 3.1(h) sets forth a list,
as of the date hereof, of each contract, agreement, understanding
or other commitment, whether written or oral (including any and
all amendments thereto), to which the Seller is a party or by
which it is bound relating to the LZR Power Supply Business
(collectively, the "Contracts"), described below:
i. contract with any employee or consultant;
ii. contract to sell or supply special orders in
excess of $10,000;
iii. contract to sell goods to the United States
Government;
iv. representative or sales agency contract or
employee leasing arrangement;
v. contract with any customer providing for a
volume refund, retrospective price adjustment, price guarantee or
rebate program;
vi. commitment by the Seller to guarantee the
obligations of others in connection with the LZR Power Supply
Business or commitment by others to guarantee the obligations of
the LZR Power Supply Business;
vii. equipment lease;
viii. real property lease;
ix. mortgage, indenture, note debenture, bond,
letter of credit agreement, loan agreement or other commitment
for the borrowing or lending of money relating to the Seller;
x. license, franchise, distributorship or other
agreement, including those which relate in whole or in part to
any software, technical assistance or other know-how of or used
in the prior twenty-four months;
xi. commitment or agreement for any capital
expenditure or leasehold improvement in excess of $10,000; or
xii. any contract, agreement or commitment which
is material to the operations of the LZR Power Supply Business
and which is not otherwise required to be disclosed herein.
True and complete copies of such Contracts have been delivered to
Purchaser or will be delivered to Purchaser prior to the Closing
and each Contract is a valid and binding obligation of each of
the parties thereto and is in full force and effect. The Seller
is not in default under any of the Contracts, and no third party
is in default under any of the Contracts. The Disclosure
Schedule will identify each Acquired Contract which is included
in the Acquired Assets that requires any action by or on behalf
of a third party to give the Purchaser all rights under such
Contract following the consummation
(i) Changes in Suppliers and Customers. Seller is not
aware of any facts which indicate that any of the customers of
Seller which individually have purchased Twenty-Five Thousand
Dollars ($25,000) or more of Seller's products during the ten
months ended October 31, 1998 intends to cease being a customer
of Seller (or knows of any reason why any of such customers would
not continue as a customer with Purchaser after the Closing
Date), nor is Seller aware of any facts which indicate that any
supplier to Seller intends to cease doing business with Seller,
(or knows of any reason any of such suppliers would not do
business with Purchaser after the Closing Date), whether as a
result of the transactions contemplated hereby or otherwise.
(j) Inventory. Since the Balance Sheet Date, all
acquisitions and sales by the Seller of inventory items have been
made in the ordinary course of the LZR Power Supply Business
consistent with past practice. Finished goods inventory has been
valued using the "First-in-First-out" (FIFO) method and raw
materials inventory has been valued using the average of the
three most recent purchases of such raw material. Inventory as
of 9/30/98 and 10/31/98 is set forth of Schedule 3.1(j). The
inventory purchased pursuant to this Agreement (the "Purchased
Inventory") shall consist of items of a quality and quantity
usable and salable in the ordinary course of the LZR Power Supply
Business consistent with past practice. In determining whether
particular items of inventory have been or will be included in
Purchased Inventory and satisfies the representation in the
preceding sentence, Obsolete Finished Goods Inventory and
Obsolete Raw Materials Inventory shall not be considered
Purchased Inventory. "Obsolete Finished Goods Inventory" is
defined as finished products which were not sold in the
immediately preceding last 12 months and have little or no
probability of being sold over the next 12 months; provided
further that if the finished products inventory level of an item
on hand is higher than the quantity of such item sold in the last
12 months and the probability of selling more than that which was
sold in the last 12 months is minimal, then the amount of
inventory of such item on hand will be reduced to that which has
been sold in the last 12 months and the quantity over the last 12
months sales will be considered obsolete; provided further,
however, that products that require plug change or minor changes
in order to be sold will not be considered Obsolete Finished
Goods Inventory. "Obsolete Raw Materials Inventory" is defined
as materials that were not used in the immediately preceding 12
months and which have a minimal probability of being used over
the next 12 months. In assessing whether raw materials or
finished goods are considered obsolete, it is assumed there will
not be any major change in the manner of conducting the LZR Power
Supply Business in the future as compared to the manner in which
it has been conducted during the 12 months preceding the Closing
with respect to such matters as discontinuing product lines,
diverting orders to other products and sales and marketing
initiatives.
(k) Legal Proceedings; Compliance with Law. There are
no disputes, claims, actions, suits or proceedings, arbitrations
or investigations pending or threatened against or affecting the
Seller or the Acquired Assets. Neither the Shareholders nor the
Seller has any knowledge of any state of facts that might
reasonably form the basis of any claim, liability or litigation
against the Seller or affecting the Business or the Acquired
Assets. The conduct of the LZR Power Supply Business by the
Seller, and its use of the Acquired Assets, are in compliance
with all applicable federal, state, local or other governmental
laws, ordinances, codes, rules and regulations. The Seller owns
or possesses in the operation of the LZR Power Supply Business
all franchises, licenses, permits, consents, approvals, rights,
waivers and other authorizations, governmental or otherwise,
which are necessary for it to conduct its business as now
conducted; the Seller is not in default, nor has it received any
notice of any claim or default, thereunder or any notice of any
other claim or proceeding or threatened proceeding relating
thereto; and neither the execution or delivery of this Agreement
nor the consummation of the transactions contemplated hereby will
require any notice or consent thereunder or have any material
adverse effect thereon. No representation is made by Seller or
Shareholders with respect to the effect of the transactions
contemplated by this agreement on the foregoing matters following
Closing.
(l) Intellectual Property. In addition to the trade
name "LZR Electronics" which is not included in the Acquired
Assets, the Business utilizes the Intellectual Property set forth
on Schedule 3.1(l). To the best knowledge of Seller and
Shareholders, the Seller does not infringe upon or unlawfully or
wrongfully use any Intellectual Property owned or claimed by any
other person or entity. The Seller is not in default under, and
has not received any notice of any claim of infringement or any
other claim or proceeding relating to any of the Intellectual
Property. Except as set forth above, no present or former
employee of the LZR Power Supply Business and no other person
owns or has any proprietary, financial or other interest, direct
or indirect, in whole or in part, in any of the Intellectual
Property, or in any application therefor, which the Seller owns,
possesses or uses in its operations as now or heretofore
conducted.
(m) Labor and Employment Matters
i. No employees of the Seller are represented by
a labor union and the Seller is not a party to and does not have
any obligation under any collective bargaining agreement.
ii. There are no pending or threatened
representation campaigns, elections or questions concerning union
representation involving any employees of the Seller.
iii. The Seller has no knowledge of any efforts of
any labor union to organize any employees of the Seller nor of
any demands for recognition or collective bargaining, nor of any
labor disputes, strikes or work stoppages of any kind, or threats
thereof, by or with respect to any employees of the Seller and no
such activities occurred during the twenty-four (24) month period
preceding the date hereof.
iv. With respect to any employees other than
clerical or production employees, Seller is not aware that any
employees of Seller intend to cease their employment with Seller,
whether as a result of the transactions contemplated hereby or
otherwise, within the next six (6) months.
(n) Benefit Plans. Set forth on Schedule 3.1(n) the
name and current salary of each employee of the Seller and an
accurate list or description of all employee benefit plans
maintained by the Seller (the "Employee Benefit Plans"). Except
as disclosed on the Disclosure Schedule, no Employee Benefit Plan
is subject to the Employment Retirement Income Security Act of
1974, as amended ("ERISA") and no pension plan is or since 1977
has been sponsored or maintained by the Seller for the benefit of
its employees. The Seller has no liability, actual or
contingent, with respect to any plan that is (a) a defined
benefit pension plan subject to Title IV of ERISA, (b) a multi-
employer pension plan, as that term is defined in section
4001(a)(3) and 3(37) of ERISA, (c) a plan providing health or
medical benefits to retired employees of the Seller or (d) a
welfare benefit fund under section 419 of the Internal Revenue
Code.
(o) Environmental Matters.
i. For purpose of this Section 3.1(o):
"Environmental Laws" as used herein means all Federal, state, and
local laws, regulations, orders, permits, ordinances or other
requirements concerning or related to the protection of human
health, safety, and the environment, all as may be amended from
time to time.
"Hazardous Substances" as used herein means any hazardous or
toxic substance, materials, chemical, pollutant, contaminant or
waste as those terms are defined under any applicable
Environmental Laws (including, without limitation, the
Comprehensive Environmental Response, Compensation and Liability
Act, 42 U.S.C. 9601 et seq. ("CERCLA") and the Resource
Conservation and Recovery Act, 42 U.S.C. 6901 et seq. ("RCRA")
and any solid wastes, polychlorinated biphenys, urea
formaldehyde, asbestos, radioactive materials, radon, explosives,
petroleum products and derivatives or constituents of the above.
"Environmental Claim" shall mean any investigation, notice,
violation, demand allegation, action, suit injunction, judgments,
order, consent, decree, penalty, claims, cost recovery, actions,
environmental or other liens, lawsuits or proceedings (including
any regulatory or governmental actions) arising (a) pursuant to,
or in connection with, an actual or alleged violation of any
Environmental Law, (b) in connection with any Hazardous
Substance, (c) from any abatement, removal, corrective action, or
other response action in connection with a Hazardous Substance,
Environmental Law or requirement of any governmental authority,
of (d) from any actual or allege damage, injury, threat or harm
to health, safety, property, natural resources or the
environment.
ii. Except as set forth on a disclosure schedule,
Seller represents and warrants as follows:
(1) At all times during their ownership or
operation by Seller, Seller's Business, all real property used in
the Business, and the Acquired Assets have been operated in
compliance with all applicable Environmental Laws.
(2) Seller has obtained all permits,
licenses, certificates of compliance, approvals and other
authorizations (collectively "Permits") necessary for operation
of Seller's Business, all real property used in the Business, and
Seller has filed all reports and notifications required to be
filed under and pursuant to all applicable Environmental Laws.
Seller has disclosed and delivered to Purchaser copies of all
Permits, all environmental reports and other investigations which
Seller has obtained or ordered with respect to Seller's Business,
all real property used in the Business and the Acquired Assets.
(3) Seller has not, and has no knowledge of
any other person who has, caused any release, threatened release
or disposal of any Hazardous Substance at any real property used
in the Business ; to Seller's knowledge, the real property used
in the Business is not affected by any release, threatened
release or disposal of any Hazardous Substance originating or
migrating from any other property.
(4) To the best knowledge of Seller and
Shareholders, the real property used in the Business does not
contain any (1) asbestos, (2) landfills or dumps, or (3)
Hazardous Substances regulated under Environmental Laws; no real
property used in the Business is listed or proposed for listing
on the National Priorities List (NPL) promulgated under Federal
Environmental Laws or any similar state-listed superfund sites.
(5) Seller has not owned or operated any
above ground or underground storage tanks in connection with the
Business, the real property used in the Business or the Acquired
Assets.
(6) Seller has not generated, placed,
handled, treated, stored, transported or disposed of, released,
spilled, emitted or discharged any Hazardous Substance from,
upon, within, below, into or on the real property used in the
Business or the Acquired Assets.
(7) Seller has no liability for response or
corrective actions pursuant to Environmental Laws and Seller is
not subject to, has no notice or knowledge of and is not required
to give notice of any Environmental Claim involving the Seller,
the Business or the real property used in the Business; to the
best of Seller's knowledge, there are no conditions or
occurrences at the real property used in the Business caused by
Seller or any third party which could form the basis for any
Environmental Claim against Seller of the real property used in
the Business.
(8) No expenditure will be required with
respect to the real property used in the Business or the Acquired
Assets in order for Purchaser to comply with any Environmental
Laws in effect at the time of Closing.
(p) Plans. The Plans relating to products produced by
Seller are complete and of such quality that competent personnel
by use of such Plans can produce, manufacture and assemble such
products so that they meet the specifications and requirements
applicable thereto.
(q) Consents and Approvals of Governmental
Authorities. No consent, approval or authorization of, or
declaration, filing or registration with, any federal or state
governmental body is required to be made or obtained by the
Seller or the Shareholders or the consummation of the sale of the
Acquired Assets to the Purchaser.
(r) Other Consents. No consent of any natural person,
corporation, partnership, proprietorship, association, trust or
other legal entity is required to be obtained by the Seller or
the Shareholders to the execution, delivery and performance of
this Agreement or the consummation of the sale of the Acquired
Assets to the Purchaser, including without limitation, consents
from parties to leases or other Contracts.
(s) Undisclosed Liabilities. The Seller has no direct
or indirect liability, indebtedness, obligation, expense, claim,
deficiency, guaranty of any obligation of any person or entity or
endorsement by any person or entity (other than endorsements of
notes, bills and checks presented to banks for collection or
deposit in the ordinary course of business) of any type, whether
accrued, absolute, contingent, matured, unmatured or other
("Liabilities"), except:
i. those Liabilities adequately and specifically
set forth or reserved for on the Seller Statement and not
heretofore paid or discharged;
ii. those Liabilities arising in the ordinary
course of business consistent with past practice under any
Contract specifically disclosed in the Disclosure Schedule to
this Agreement or not required to be disclosed therein because of
the type, term or amount involved;
iii. those Liabilities incurred, consistent with
past business practice, in the ordinary course of business since
the date of the Seller Statement and not heretofore paid or
discharged.
(t) Transactions with Affiliates. Other than (a) the
lease for the principal offices of the Seller, the lessor of
which is an entity in which the Shareholders hold a minority
interest, and (b) transactions with LZR Far East Company, Ltd.
all of which occurred prior to 1998 and which do not constitute a
material part of the operations prior thereto, neither the
Seller, nor any affiliate of the Seller, nor any director or
officer of the Seller or any member of his or her immediate
family, owns or has a controlling ownership interest in any
corporation or other entity that is a party to any Contract or
material business arrangement or relationship with respect to the
business of the Seller. All disclosed transactions between the
Seller or an affiliate of the Seller have been on substantially
the same terms and conditions as similar transactions between non-
affiliated parties and are properly recorded on the books and
records of the Seller.
(u) Books of Account. The books, records and accounts
of the Seller accurately reflect in reasonable detail the
transactions and the assets and liabilities of the Seller. The
Seller has not engaged in any transaction, maintained any bank
account or used any funds except for transactions, bank accounts
and funds which have been and are reflected in the normally
maintained books and records of the business.
(v) Backlog. Seller's backlog of orders believed to
be firm at October 31, 1998 is $1,631,069.
(w) Disclosure. No representation or warranty
hereunder or information contained in any Schedule or any
certificate, statement or other document delivered by the Seller
or the Shareholders in connection herewith contains any untrue
statement of fact or omits to state a fact necessary in order to
make the statements contained therein or herein not misleading.
There is no fact known to the Seller or the Shareholders which
might materially and adversely affect the Business, Acquired
Assets, Assumed Liabilities, financial condition, results of
operations or prospects of the Business, which has not been
disclosed to or was previously known by the Purchaser.
3.2 Representations and Warranties of Purchaser. Purchaser
hereby represents and warrants to, and agrees with, Seller as
follows
(a) Organization, Good Standing and Power. Purchaser
is a corporation duly organized, validly existing and in good
standing under the laws of its state of incorporation and has all
requisite corporate power and authority to execute this Agreement
and to consummate the transactions contemplated hereby.
(b) Authority. The execution and delivery of this
Agreement and the consummation of the transactions contemplated
hereby have been duly authorized by all necessary corporate
action on the part of Purchaser and its shareholders. This
Agreement has been duly executed and delivered by Purchaser and
constitutes a valid and binding obligation of Purchaser
enforceable in accordance with its terms except as enforcement
may be limited by bankruptcy, insolvency or other similar laws
affecting the enforcement of creditors' rights generally and
except that the availability of equitable remedies, including
specific performance, is subject to the discretion of the court
before which any proceeding therefor may be brought. The
execution and delivery of this Agreement do not (i) violate any
law, (ii) conflict with any provision of the certificate of
incorporation or By-laws of Purchaser or (iii) require the
consent, approval, order or authorization of, or the
registration, declaration or filing with, any governmental entity
or other person.
ARTICLE IV
COVENANTS
4.1 Covenants of Seller Relating to Conduct of Business.
During the period from the date of this Agreement and continuing
until the Closing, Seller agrees for the benefit of Purchaser
that, except as expressly provided by this Agreement or to the
extent that the other party shall otherwise consent in writing:
(a) Ordinary Course. The LZR Power Supply Business
shall be carried on and the Acquired Assets shall be operated in
the usual, regular and ordinary course in substantially the same
manner as heretofore and Seller shall use all reasonable efforts
to preserve intact the present organization of the LZR Power
Supply Business, keep available to the LZR Power Supply Business
the present services of its officers and employees and preserve
its relationships with customers, suppliers and others having
dealings with Seller related exclusively to the LZR Power Supply
Business to the end that its goodwill and the ongoing business of
the LZR Power Supply Business shall be unimpaired at the Closing.
(b) No Dispositions. Seller shall not sell, lease or
otherwise dispose of, or agree to sell, lease or otherwise
dispose of, or permit the sale, lease or other disposition of any
interest in Seller or in any of the Acquired Assets, except for
sales of inventory in the ordinary course of business consistent
with prior practice.
(c) Material Transactions. Except as otherwise
provided in this Agreement, Seller shall not:
i. enter into any agreement (other than in the
ordinary course of business) materially affecting or in any way
pertaining to the Acquired Assets or Seller's LZR Power Supply
Business; including, without limitation, (A) the incurrence of,
or commitment to incur, any capital expenditures with respect to
Seller's Business in excess of Five Thousand Dollars ($5,000) in
the aggregate, or (B) the incurrence of any indebtedness;
ii. make or permit any material change in
practices of Seller with respect to the manner and timing of
payment of trade and other payables;
iii. make or permit any material change in
practices of Seller with respect to the collection of
receivables;
iv. make or permit any declaration, making or
payment of any dividend of other distribution of non-cash assets
of Seller which are included in the Acquired Assets to any
shareholder or affiliate of Seller; or
v. make or permit any other change that could be
reasonably expected to have a material adverse effect upon the
business, assets, condition (financial or otherwise), operations,
results of operations or prospects of the LZR Power Supply
Business.
(d) Other Actions. Seller shall not take any action
that would or might result in any of the representations and
warranties of Seller set forth in this Agreement becoming untrue
or in any of the conditions of the Closing set forth in Article V
not being satisfied.
4.2 Access to Information. Seller shall afford to
Purchaser and Purchaser's accountants, counsel and other
representatives reasonable access during normal business hours
during the period prior to the Closing to all Seller's
properties, books, contracts, commitments, tax returns and
records and, during such period shall furnish promptly to
Purchaser any information concerning its business, properties and
personnel related exclusively to the Business as Purchaser may
reasonably request.
4.3 Legal Conditions to Closing. Each of Purchaser and
Seller will take all reasonable actions necessary to comply
promptly with all legal requirements which may be imposed on it
with respect to the Closing and will promptly cooperate with and
furnish information to each other in connection with any such
legal requirements. Each of Purchaser and Seller will take all
reasonable actions necessary to obtain (and will cooperate with
each other in obtaining) any consent, authorization, order or
approval of, or any exemption by, any person, required to be
obtained or made by it in connection with any of the transactions
contemplated by this Agreement.
4.4 Indemnification.
(a) Seller hereby agrees to indemnify Purchaser and
its affiliates and their respective officers, directors,
employees, stockholders, agents and representatives against, and
agrees to hold them harmless from any loss, liability, claim,
deficiency, damage or expense (including reasonable legal fees
and expenses), as incurred (payable quarterly upon written
request), for or on account of or arising from or in connection
with or otherwise with respect to (i) any and all liabilities and
obligations of Seller, contingent or otherwise, that are not
assumed and agreed to be paid by Purchaser pursuant to Section
1.3 of this Agreement, including, without limitation, all
liabilities and obligations of Seller and any of Seller's
affiliates for any and all state or federal taxes payable by
Seller; and (ii) any representation or warranty contained herein
as of the date hereof or as of the Closing shall be untrue or
Seller shall breach any covenant contained in this Agreement or
in any agreement related hereto.
(b) Purchaser hereby agrees to indemnify Seller and
its officers, directors, employees, stockholders, agents and
representatives against, and agrees to hold them harmless from,
any loss, liability, claim, deficiency, damage or expense
(including reasonable legal fees and expenses), as incurred
(payable quarterly upon written request), for or on account of or
arising from or in connection with or otherwise with respect to
(i) any and all liabilities and obligations of Seller, that are
expressly assumed and agreed to be paid by Purchaser pursuant to
Section 1.3 hereof, and (ii) any representation or warranty
contained herein as of the date hereof or as of the Closing shall
be untrue or Purchaser shall breach or covenant of Purchaser
contained in this Agreement or in any agreement related hereto.
(c) In order for a party (the "indemnified party"), to
be entitled to any indemnification provided for under this
Agreement in respect of, arising out of or involving a claim made
by any Person against the indemnified party (a "Third-Party
Claim"), such indemnified party must notify the indemnifying
party in writing of the Third-Party Claim within a reasonable
time after receipt by such indemnified party of written notice of
the Third-Party Claim. Thereafter, the indemnified party shall
deliver to the indemnifying party, within a reasonable time after
the indemnified party's receipt thereof, copies of all notices
and documents (including court papers) received by the
indemnified party relating to the Third-Party Claim.
(d) If a Third-Party claim is made against an
indemnified party, the indemnifying party will be entitled to
participate in the defense thereof and, if it so chooses, to
assume the defense thereof with counsel selected by the
indemnifying party; provided such counsel is not reasonably
objected to by the indemnified party. Should the indemnifying
party so elect to assume the defense of a Third-Party Claim, the
indemnifying party will not be liable to the indemnified party
for any legal expenses subsequently incurred by the indemnified
party in connection with the defense thereof. If the
indemnifying party elects to assume the defense of a Third-Party
Claim, the indemnified party will (i) cooperate in all reasonable
respects with the indemnifying party in connection with such
defense, (ii) not admit any liability with respect to, or settle,
compromise or discharge, any Third-Party Claim without the
indemnifying party's prior written consent and (iii) agree to any
settlement, compromise or discharge of a Third-Party Claim which
the indemnifying party may recommend and which by its terms
obligates the indemnifying party to pay the full amount of the
liability in connection with such Third-Party Claim and which
releases the indemnified party completely in connection with such
Third-Party Claim. In the event the indemnifying party shall
assume the defense of my Third-Party Claim, the indemnified party
shall be entitled to participate in (but not control) such
defense with its own counsel at its own expense. If the
indemnifying party does not assume the defense of any such Third-
Party Claim, the indemnified party may defend the same in such
manner as it may deem appropriate, including but not limited to
settling such claim or litigation after giving notice to the
indemnifying party of such terms, and the indemnifying party will
promptly reimburse the indemnified party upon written request for
all cost, expense (including reasonable attorneys' fees), loss,
liability or damage incurred and paid by the indemnified party in
connection with such claim.
(e) Notwithstanding the foregoing, (i) no party to
this Agreement shall be entitled to indemnification pursuant to
this Section 4.4 until the aggregate amount for which
indemnification is sought exceeds $35,000, (ii) any claim for
indemnification must be made on or prior to the one year
anniversary of the Closing Date; and (iii) Purchaser may not
assert any claim to the extent that the amount claimed exceeds
twenty percent (20%) of the Purchase Price; provided, however,
that the limitations contained in the foregoing clauses (i), (ii)
and (iii) shall not apply to (A) claims based upon the Post-
Closing Purchase Price Adjustment under Section 1.6; (B) claims
for indemnification based on fraud or intentional
misrepresentation; or, (c) Seller's representations contained in
Section 3.1(a) and (b) and the first sentence of (f); provided
further, the limitations of clauses (ii) and (iii) shall not
apply to product liability claims arising from or related to
products manufactured by Seller and asserted against Purchaser.
(f) The indemnification obligations of the parties
hereunder relate to indemnification for all losses, injuries,
damages, deficiencies, liabilities, obligations, costs or
expenses to the respective other party or parties hereto,
regardless of whether such loss, injury, damage, deficiency,
liability, obligation, cost or expense arises from a third-party
claim against such indemnitee or otherwise.
4.5 Seller's Books and Records.
(a) Except as provided in this Section, the Acquired
Assets shall include all of Seller's Books and Records reasonably
designated by Purchaser; provided, however, Seller shall retain
all Books and Records that relate to periods before the Closing
Date except for such Books and Records as shall be reasonably
requested by Purchaser, and all Books and Records that pertain to
Seller's corporate organization, regardless, of date.
(b) Each of the parties hereto agrees to maintain all
Books and Records in its possession relating to Seller or the LZR
Power Supply Business or the Acquired Assets for a period of
seven (7) years.
(c) If, in order properly to prepare its tax returns,
other documents or reports required to be filed with any federal
or state governmental entities or its financial statements, it is
necessary that any party hereto be furnished with additional
information relating exclusively to the Acquired Assets or any
other party and such information is in such other party's
possession, the party in possession of that information will use
all reasonable efforts to furnish such information to the
requesting party.
4.6 Confidential Information. Purchaser will maintain
strict confidentiality of all information concerning Seller which
is obtained pursuant to this Agreement (the "Confidential
Information") and will not permit any Confidential Information to
be used other than in connection with the transactions
contemplated by this Agreement.
4.7 Additional Agreements. Seller will use all reasonable
efforts to facilitate and effect the implementation of the
transfer of the Acquired Assets to Purchaser and, for such
purpose but without limitation, Seller promptly will at and after
the Closing Date execute and deliver to Purchaser such
assignments, deeds, bills of sale, consents and other instruments
necessary to effect the transfer of the Acquired Assets to
Purchaser as contemplated hereby, as Purchaser or its counsel may
reasonably request as necessary or desirable for such purpose.
4.8 Post-Closing Covenants.
(a) Warranty and Customer Service. Notwithstanding
the provisions of Section 1.3(b)(ii), Purchaser agrees to provide
ordinary and customary customer service with respect to warranty
claims made on products manufactured by Seller whether sold by
Seller or Purchaser. In this connection Purchaser agrees that in
determining whether or not to honor warranty claims made with
respect to products manufactured by Seller that it will apply the
terms of the Seller's warranty, a copy of which is attached as
Schedule 4.8. Further, Purchaser agrees that before shipping any
products manufactured by Seller or Seller's subcontractors prior
to Closing, Ault will inspect such products based upon MIL STD
105D. The Seller shall indemnify Purchaser for any cost incurred
in providing such customer services, subject to the provisions of
Section 4.4.
(b) Further Assurances. On the Closing Date, and from
time to time thereafter, at the request of Purchaser, Seller will
execute and deliver to Purchaser all such assignments,
endorsements and other documents, and take such other action as
Purchaser may reasonably request in order more effectively to
transfer and assign to Purchaser the Assets transferred to
Purchaser pursuant to this Agreement, to confirm the title of
Purchaser thereto and to assist Purchaser in exercising its
rights with respect thereto and under this Agreement.
(c) Accounts Receivable. Seller agrees that any
actions taken by Seller to collect the Accounts Receivable must
be taken in a manner reasonably intended to minimize problems or
disruption in the ongoing customer relationships of the business
of Purchaser. Purchaser and Seller will reasonably cooperate
with each other in the collection of such accounts receivable.
(d) Acquired Contracts. From and after the Closing
Date, Purchaser shall perform its obligations under the Acquired
Contracts in a manner which will not adversely affect Seller's
ability to collect its accounts receivable applicable to such
Acquired Contracts.
(e) Action by Purchaser. Purchaser will not take or
permit to be taken any action or do or permit to be done anything
in the conduct of its business or otherwise, which would be
contrary to or in breach of any of the terms, conditions or
provisions of this Agreement, or which would cause any of the
representations and warranties of Purchaser to be untrue as of
the Closing Date.
(f) Employment Offers; Leased Employees.
i. Employment Offers. Immediately following the
Closing, subject to passing any tests which Purchaser requires of
all of its new employees, Purchaser shall offer to those
employees listed on Schedule 4.8(f) (the "Continuing Employees")
employment with Purchaser as of the Closing date, which offer, as
to each employee, shall be on such terms and conditions as
Purchaser in its sole discretion determines. The Continuing
Employees shall receive credit following Closing for services
rendered while employed by Seller prior to Closing for all
purposes, including, without limitation, participation in
employee benefit programs of Purchaser or any other term or
condition of employment which varies with seniority. The
Continuing Employees will be terminated by Seller effective as of
the Closing and, concurrently, will be offered employment on the
terms and conditions described above. At the Closing, Seller
will treat Continuing Employees as terminated employees for
purposes of paid time off and will be fully vested in amounts
contributed by Seller under its Profit Sharing Plan. Purchaser
will assume no cost, expense or other responsibility for any paid
time off. Purchaser will assume no employment agreements.
Provided that he remains employed by Purchaser as of June 1, 1999
and December 1, 1999, Seller shall pay retention bonuses to Poldi
Moscovici of $4,250 and $4,250 within ten (10) days after each
such date.
ii. Transition Services. Seller will use its
best efforts to provide Purchaser with the transition services as
are reasonably requested by Purchaser for a transition period as
reasonably requested by Purchaser pursuant to a form of agreement
substantially similar to Exhibit C hereto. Purchaser shall
reimburse Seller the full cost to Seller of providing such
services, including but not limited to wages, employee benefits,
payroll taxes and pension contributions by wire transfer
immediately upon submission of invoices for such costs in
accordance with the terms of the Leased Employee Agreement.
(g) Post Closing Sale of Unneeded Assets. Upon
expiration of the Sublease, Purchaser shall sell, and Seller
shall purchase, such of the Acquired Assets as Purchaser
determines in its sole discretion are not needed for the
continued conduct of its business, for a total purchase price of
One Dollar ($1.00). Such assets shall be conveyed to Seller in
place, as is, but shall be free and clear of any liens, claims
and encumbrances.
(h) Referrals of Inquiries. For a period of two (2)
years after Closing, Purchaser shall use its best efforts to
refer any inquires received through the offices and phone numbers
conveyed hereunder for purchases of products other than power
supplies to such party as is requested by Seller.
(i) Storage of Obsolete Inventory and Unwanted Assets.
For so long as Purchaser occupies the premises currently used by
Seller as its principal place of business, Purchaser shall permit
Seller to store, at Seller's risk, such inventory and other
assets as are currently owned by Seller and which are not
purchased by Purchaser hereunder.
(j) Termination of Lease. At Closing, the parties
shall execute the Sub-lease attached hereto as Exhibit D. In
addition, Seller shall exercise its option to terminate the lease
for its current principal place of business promptly after
Closing such termination to be effective at the earliest possible
time. Further, the parties shall cooperate to be relieved of any
obligations under the Lease for the period of time beginning six
months following Closing, except that the parties shall cooperate
to enable Ault to retain at its expense a portion of the current
leased facilities for activities of the Continuing Employees in
Gaithersburg, Maryland following the six month transition period
or to find comparable space in another facility.
(k) Product Liability. Seller shall cause it product
liability insurance carrier to name Purchaser as an additional
insured on any products liability insurance policy which is in
effect or may be obtained after the Closing with respect to
products manufactured by Seller and sold by Purchaser if and to
the extent such coverage can be extended to Purchaser without
additional expense to Seller or its Shareholders without reducing
the amount of such insurance coverage available for Seller's
benefit.
ARTICLE V
CONDITIONS PRECEDENT
5.1 Conditions to Each Party's Obligation. The obligations
of Purchaser to purchase the Acquired Assets and the obligation
of Seller to sell the Acquired Assets to Purchaser shall be
subject to the satisfaction prior to the Closing Date of the
following conditions:
(a) Approvals. All authorizations, consents, orders
or approvals of, or declarations or filings with, or expirations
of waiting periods imposed by, any Governmental Entity necessary
for the transfer of title to the Acquired Assets shall have been
obtained or filed or shall have occurred.
(b) No Injunctions or Restraints. No temporary
restraining order, preliminary or permanent injunction or other
legal restraint or prohibition preventing the transfer of title
to the Acquired Assets shall be in effect.
(c) No Material Adverse Change. There shall not have
occurred any material adverse change in the Business, the
Acquired Assets, Seller's condition (financial or otherwise),
operations, results of operations or prospects.
5.2 Conditions to Obligations of Purchaser. The obligation
of Purchaser to purchase the Acquired Assets is subject to the
satisfaction on and as of the Closing Date of each of the
following conditions:
(a) Representations and Warranties. The
representations and warranties of Seller set forth in this
Agreement shall be true and correct in all material respects as
of the date of this Agreement and as of the Closing Date as
though made on and as of the Closing Date, except as otherwise
contemplated by this Agreement, and Purchaser shall have received
a certificate signed by a duly authorized officer of Seller to
such effect.
(b) Performance of Obligations of Seller. Seller
shall have performed all obligations required to be performed by
it under this Agreement at or prior to the Closing Date, and
Purchaser shall have received a certificate signed by a duly
authorized officer of Seller to such effect.
(c) Required Consents. Seller shall have delivered to
Purchaser (i) duly executed assignments of all Contracts and (ii)
written consents from any persons necessary to effect such
assignments which consents shall provide that (A) such persons
consent to the transactions contemplated by this Agreement and
(B) such persons release any liens they may have on the Acquired
Assets.
(d) Sublease. Purchaser and Seller shall have entered
into an agreement, and said agreement shall have been consented
to by the lessors of the real property, whereby, effective as of
the Closing, Seller shall sublease to Purchaser for a six (6)
month term all of the facilities currently occupied by Seller in
Gaithersburg, Maryland, at the current rent paid by Seller and
such other portions of Seller's current office space as mutually
acceptable to the parties (the "Sublease").
(e) Employee Retention. Purchaser shall have entered
into employment agreements and other retention agreements in a
form satisfactory to Purchaser in its sole discretion pursuant to
which key employees of Seller will continue in their current
positions as employees of the Purchaser following Closing for
periods of time satisfactory to Purchase in its sole discretion.
(f) Non-Competition Agreements. Purchaser shall have
received a non-competition agreement from each of Seller, Eliezer
and Loya in substantially the form attached hereto as Exhibit B.
(g) Licenses, Etc. Purchaser shall have obtained any
required governmental licenses, authorizations, certificates and
permits required by applicable governmental authorities to permit
Purchaser to acquire the Acquired Assets, to establish and
operate the Business in the manner in which it wasxoperated
immediately prior to the Closing and to use and occupy Seller's
real property.
(h) Releases. Purchaser shall have received releases
from all holders of Seller's indebtedness for borrowed money and
Seller shall have delivered to Purchaser such additional
documentation (including, without limitation, UCC termination
statements) in connection therewith as Purchaser shall request.
(i) Order Backlog. Seller's backlog of orders shall
be not less than $1,304,855.
(j) Opinion of Seller's Counsel. Purchaser shall have
received an opinion dated the Closing Date of West & Feinberg,
PC, counsel to Seller, satisfactory to Purchaser, to the effect
that:
i. Seller is a corporation duly organized,
validly existing and in good standing under the laws of its state
of incorporation and has all requisite corporate power to own the
Acquired Assets and to carry on its business related thereto.
ii. Seller has all requisite corporate power and
authority to execute this Agreement and each document of transfer
contemplated hereby and the non-competition agreements referred
to herein (collectively, the "Documents") and perform its
obligations hereunder; the execution and delivery of this
Agreement and the Documents and the transfer of title to the
Acquired Assets have been duly authorized by all necessary
corporate action on the part of Seller; and each of this
Agreement and the Documents has been duly executed and delivered
by Seller and constitutes a valid and binding obligation of
Seller enforceable in accordance with its terms except as
enforcement may be limited by bankruptcy, insolvency or other
similar laws affecting the enforcement of creditors' rights
generally and except that the availability of equitable remedies,
including specific performance, is subject to the discretion of
the court before which any proceeding therefor may be brought.
iii. The execution and delivery of this Agreement
and the Documents by Seller, and the transfer by Seller of title
to the Acquired Assets will not, (A) violate any Federal law or
any law of the State of Maryland, or (B) conflict with any
provision of the charter documents of Seller or result in the
creation of any lien upon any of the Acquired Assets pursuant to
any mortgage, indenture, lease, agreement or other instrument to
which Seller is a party or by which Seller or any of its property
may be bound, of which such counsel has knowledge after making
inquiry with respect thereto;
iv. Any consent, approval, order or authorization
of, any registration, declaration or filing with, and any waiting
period imposed by, any governmental entity under Federal law or
the law of the State of Maryland, which is required by or with
respect to Seller in connection with the execution and delivery
of this Agreement or the Documents by Seller or the transfer by
Seller of title to the Acquired Assets, has been obtained or made
or, in the case of any such waiting period, has expired, as
specified in such opinion.
v. Such other matters incident to the
transactions contemplated by this Agreement as Purchaser or its
counsel may reasonably request, including addressing the matters
described in Section 7.7.
As to any matter contained in such opinion which involves laws
other than Federal law or the laws of the State of Maryland, such
counsel may rely upon the opinion of local counsel of established
reputation reasonably acceptable to Purchaser and its counsel.
5.3. Conditions to Seller's Obligations. The obligations of
Seller to sell the Acquired Assets is subject to the satisfaction
on and as of the Closing Date of each of the following
conditions:
(a) Representations and Warranties. The
representations and warranties of Purchaser set forth in this
Agreement shall be true and correct in all material respects as
of the date of this Agreement and as of the Closing Date as
though made on and as of the Closing Date, except as otherwise
contemplated by this Agreement, and Seller shall have received a
certificate signed by a duly authorized officer of Purchaser to
such effect.
(b) Performance of Obligations of Purchaser.
Purchaser shall have performed all obligations required to be
performed by it under this Agreement prior to the Closing Date,
and Seller shall have received a certificate signed by a duly
authorized officer of Purchaser to such effect.
(c) Sublease Arrangements. Purchaser and Seller shall
have entered into the Sublease.
(d) Opinion of Purchaser's Counsel. Seller shall have
received an opinion dated the Closing Date of Lindquist & Vennum,
PLLP, counsel to Purchaser, satisfactory to Seller, to the effect
that:
i. Purchaser is a corporation duly organized,
validly existing and in good standing under the laws of its state
of incorporation and has all requisite corporate power and
authority to execute this Agreement and to consummate the
transactions contemplated hereby.
ii. The execution and delivery of this Agreement
and the Assumption Agreement and the consummation of the
transactions contemplated hereby have been duly authorized by all
necessary corporate action on the part of Purchaser and each of
this Agreement and the Assumption Agreement has been duly
executed delivered by Purchaser and constitutes a valid and
binding obligation of Purchaser enforceable in accordance with
its terms except as enforcement may be limited by bankruptcy,
insolvency or other similar laws affecting the enforcement of
creditors' rights generally and except that the availability of
equitable remedies, including specific performance, is subject to
the discretion of the court before which any proceeding therefor
may be brought.
iii. The execution and delivery of this Agreement
and the Assumption Agreement by Purchaser do not, and
consummation by Purchaser of the transactions contemplated hereby
will not, (A) violate my Federal law or any law of the State of
Minnesota or (B) conflict with any provision of the certificate
of incorporation or By-laws of Purchaser
iv. Any consent, approval, order or authorization
of, any registration, declaration or filing with, and any waiting
period imposed by, any Governmental Entity under Federal law or
the law of the State of Minnesota which is required by or with
respect to Purchaser in connection with the execution and
delivery of this Agreement or the Assumption Agreement by
Purchaser or the consummation by it of the transactions
contemplated hereby has been obtained or made, or in the case of
my such waiting period has expired, as specified in such opinion.
v. Such other matters incident to the
transactions contemplated by this Agreement as Seller or its
counsel may reasonably request.
As to any matter contained in such opinion which involves laws
other than Federal law or the laws of the State of Minnesota,
such counsel may rely upon the opinion of local counsel of
established reputation reasonably acceptable to Seller and its
counsel.
ARTICLE VI
TERMINATION AND WAIVER
6.1. Termination. This Agreement may be terminated at any
time prior to the Closing:
(a) by mutual consent of Purchaser and Seller;
(b) by Purchaser if any of the conditions set forth in
Sections 5.1 and 5 2 shall not have been satisfied in any
material respect and shall not have been satisfied (or by its
nature could not have been satisfied) on or before January 5,
1999; or
(c) by Seller if any of the conditions set forth in
Sections 5.1 and 5.3 shall not have been satisfied in any
material respect and shall not have been satisfied (or by its
nature could not have been satisfied) on or before January 5,
1999.
6.2 Return of Documents. Upon the termination of this
Agreement pursuant to Section 6.1, Purchaser will cause the
return to Seller all written data, samples and other tangible
property concerning Seller obtained by Purchaser pursuant to or
in connection with this Agreement.
6.3 Extension; Waiver. At any time prior to the Closing,
the parties hereto, by action taken by their respective Board of
Directors may, to the extent legally allowed, (i) extend the time
for the performance of any of the obligations or other acts of
the other parties hereto, (ii) waive any inaccuracies in the
representations and warranties contained herein or in my document
delivered pursuant hereto and (iii) waive compliance with any of
the agreements or conditions contained herein. Any agreement on
the part of a party hereto to any such extension or waiver shall
be valid only if set forth in a written instrument signed on
behalf of such party.
ARTICLE VII
GENERAL PROVISIONS
7.1 Notices. All notices under this Agreement must be in
writing, and may be delivered by hand or sent by facsimile
transmission, telex, or certified mail, return receipt requested.
Notices sent by mail will be deemed received on the date of
receipt indicated by the returned verification provided by the
U.S. Postal Service. Notices sent by facsimile transmission or
telex will be deemed received the day on which sent, and will be
conclusively presumed to have been received in the event that the
sender's copy of the facsimile transmission or telex contains the
"answer back" of the other party's facsimile transmission or
telex. Notices must be given, or sent to the parties at the
following addresses:
(a) If to Purchaser, to: Ault Incorporated
7300 Boone Avenue North
Minneapolis, Minnesota 55428
Attn: Frederick M. Green
Phone: 612-493-1900
Facsimile: 612-495-1911
with a copy to: Lindquist & Vennum P.L.L.P.
4200 IDS Center
Minneapolis, Minnesota 55402
Attn: Richard Primuth
Phone: 612-371-3260
Facsimile: 612-371-3207
(b) If to Seller, to: LZR Electronics, Inc.
8051 Cessna Avenue
Gaithersburg, Maryland 20879
Attn: Rami Loya or Shimon
Eliezer
Phone: 301-921-9440
Facsimile: 301-670-0436
with a copy to: West & Feinberg, P.C.
Suite 775N
4550 Montgomery Avenue
Bethesda, Maryland 20814
Attn: Steven Jacobson
Phone: 301-951-1500
Facsimile 301-951-1525
(c) If to Shareholders, to: Rami
Loya
903 Willowleaf Way
Potomac, Maryland 20854
Phone: (301) 340-1359
Facsimile: (301) 279-2596
Shimon Eliezer
6 Cliff Hill Ct.
Rockville, MD 20854
Phone: (301) 762-0068
Any party may designate any other address for notices given it
under this Agreement by written notice to the other parties given
at least ten (10) days prior to the effective date of that
change.
7.2. Interpretation. When a reference is made in this
Agreement to a Section, Schedule or Exhibit, such reference shall
be to a Section, Schedule or Exhibit of this Agreement unless
otherwise indicated. The table of contents and headings
contained in this Agreement are for reference purposes only and
shall not affect in any way the meaning or interpretation of this
Agreement. Whenever the words "include", "includes" or
"including" are used in this Agreement, they shall be deemed to
be followed by the words "without limitation". All accounting
terms not defined in this Agreement shall have the meanings
determined by generally accepted accounting principles.
7.3. Counterparts. This Agreement may be executed in two or
more counterparts, all of which shall be considered one and the
same agreement and shall become effective when two or more
counterparts have been signed by each of the parties and
delivered to the other parties, it being understood that all
parties need not sign the same counterpart.
7.4. Entire Agreement; No Third-Party Beneficiaries. This
Agreement (including the documents and instruments referred to
herein) (a) 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 (b) is
not intended to confer upon any person other than the parties
hereto any rights or remedies hereunder.
7.5. Governing Law. This Agreement shall be governed and
construed in accordance with the laws of the State of Maryland
without regard to the rules or principles of any jurisdiction
with respect to conflict of laws.
7.6. Remedies Cumulative. Except as otherwise provided
herein, the rights and remedies provided herein shall be
cumulative and the assertion by a party of a right or remedy
hereunder shall not preclude the assertion by such party of any
other rights or remedies against another party provided herein.
7.7. Arbitration. Any controversy, dispute or claim arising
out of or relating to this Agreement, any breach or alleged
breach hereof, the making of this Agreement or fraud in the
inducement, the transactions contemplated hereby, any
modification or extension of this Agreement or affecting this
Agreement in any way shall be resolved by arbitration in Chicago,
Illinois, in accordance with the then current rules of the
American Arbitration Association, by three independent and
impartial arbitrators, one of whom shall be appointed by Seller
and the Shareholders, one of whom shall be appointed by
Purchaser, and one of whom shall be appointed by the other two
arbitrators; provided however that if the parties shall agree at
the time any dispute hereunder arises, only one arbitrator shall
be appointed. In the event that the dispute concerns any matter
involving accounting issues, at least one of the arbitrators
shall be a mutually agreed upon independent certified public
accountant. Notwithstanding anything to the contrary provided in
this Agreement, the arbitration shall be governed by the United
States Arbitration Act, 9 U.S C. 1 et seq. The decision of the
arbitrators shall be binding on the parties, and judgment upon
the award may be entered in any court having jurisdiction
thereof. Notwithstanding anything to the contrary provided in
this Section 7.7 and without prejudice to the above procedures,
any party may apply to any court of competent jurisdiction for
temporary injunctive or other provisional judicial relief if in
such party's sole judgment such action is necessary to avoid
irreparable damage or to preserve the status quo until such time
as the arbitration award is rendered or the controversy is
otherwise resolved.
7.8. Confidentiality of Negotiations. The parties shall not
disclose the transactions contemplated by this Agreement or issue
any press release or make any public or general statements with
respect to the transaction except as may be mutually agreed to or
required by law. If this Agreement terminates, no party hereto
shall disclose the existence of the negotiations pursuant hereto,
except as may be required by law.
7.9. Assignment. Neither this
Agreement nor any of the rights, interests or obligations
hereunder shall be assigned by any of the parties hereto without
the prior written consent of the other parties, except that
Purchaser may assign, in its sole discretion, any or all of its
rights, interests and obligations hereunder to any direct or
indirect wholly owned Subsidiary of purchaser. Subject to the
preceding sentence, this Agreement will be binding upon, inure to
the benefit of and be enforceable by the parties and their
respective successors and assigns.
7.10 Expenses. Purchaser, Seller and Shareholders will each
bear their respective costs and expenses incurred in connection
with the transaction contemplated by this Agreement, including
the fees and disbursements of all attorneys, accountants,
appraisers and advisors retained by or representing them in
connection with the transaction. With respect to any claim which
any third party may assert against Buyer under legal theories
based upon the failure to consummate or the termination of any
contract which may have existed for the purchase of LZR's assets
or business or upon alleged interference by Buyer with
contractual relations between LZR and such third parties, LZR
agrees that it shall arrange for prompt delivery to Buyer of an
opinion of LZR's counsel to the effect that any such theory is
not supported by applicable law or the preponderance of the
evidence, and LZR further agrees that it shall defend and hold
Buyer harmless in the event that any third party asserts a claim
against Buyer under any such theories and, to the extent Buyer
elects to be separately represented in any such litigation, LZR
shall indemnify Buyer for its costs and damages onto a maximum
indemnification amount of $25,000. It is the understanding of
the parties that there are no brokers who will be entitled to
receive any commissions with respect to the transactions
contemplated by this Agreement.
IN WITNESS WHEREOF, Seller, Shareholders and Purchaser have
caused this Agreement to be signed as of the date first written
above.
AULT INCORPORATED
By
Its
LZR ELECTRONICS, INC.
By
Its
SHAREHOLDERS:
_______________________________ ______________________________
___
Shimon Eliezer Rami Loya
1
EXHIBIT 23.2
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in this
Registration Statement on Form S-3 of our report dated July
8, 1998 which appears in the Annual Report on Form 10-K of
Ault Incorporated and Subsidiary for the year ended May 31,
1998. We also consent to the reference to our Firm under
the caption "Experts" in the aforementioned Registration
Statement.
MCGLADREY & PULLEN, LLP
Minneapolis, Minnesota
December 11, 1998 /s/ McGladrey &
Pullen, LLP
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