SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
QUARTERLY REPORT UNDER SECTION 13
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarter Ended March 31, 1999 Commission File Number
0-12575
Arizona Instrument Corporation
(Exact name of registrant as specified in its charter)
Delaware 86-0410138
(State of Incorporation) (I.R.S. Employer Identification Number)
4114 East Wood Street, Phoenix, Arizona 85040-1941
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code: (602) 470-1414
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities and Exchange Act of 1934
during the preceding 12 months, (or for such shorter period that the registrant
was required to file such reports) and (2) has been subject to such filing
requirements for the past 90 days.
YES [X] NO [ ]
As of May 10, 1999, 1,382,670 shares of Common Stock ($0.01 par value) were
outstanding.
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ARIZONA INSTRUMENT CORPORATION
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION
Item 1 Financial Statements
Consolidated Balance Sheets
March 31, 1999 and December 31, 1998 3
Consolidated Statements of Operations
Three months ended March 31, 1999 and
March 31, 1998 4
Consolidated Statements of Cash Flows
Three months ended March 31, 1999 and
March 31, 1998 5
Notes to Consolidated Financial Statements 7
Item 2 Management's Discussion and Analysis of
Financial Condition and Results of Operations 9
PART II. OTHER INFORMATION
Item 1 Legal Proceedings 11
Item 4 Submission of Matters to a vote of Security Holders 11
Item 5 Other Information 11
Item 6 Exhibits and Reports on Form 8-K 12
2
<PAGE>
ARIZONA INSTRUMENT CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
March 31, 1999 December 31, 1998
-------------- -----------------
ASSETS
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 1,980,624 $ 1,098,846
Receivables, net 1,287,354 2,912,630
Inventories 1,848,117 1,646,804
Deferred Income Tax 625,000 625,000
Prepaid expenses and other current assets 47,130 37,182
----------- -----------
Total current assets 5,788,225 6,320,462
PROPERTY, PLANT AND EQUIPMENT, net 822,688 861,808
GOODWILL, net of accumulated amortization 1,448,252 1,493,494
DEFERRED INCOME TAXES 465,000 465,000
OTHER ASSETS 608,994 638,191
----------- -----------
TOTAL ASSETS $ 9,133,159 $ 9,778,955
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Lines of credit $ 150,000 $ 300,000
Accounts payable 330,103 277,743
Current portion of long-term debt and
capital lease obligations 12,940 12,940
Other accrued expenses 1,232,286 1,683,875
----------- -----------
Total current liabilities 1,725,329 2,274,558
----------- -----------
LONG-TERM DEBT AND CAPITAL LEASE
OBLIGATIONS - less current portions 8,991 11,956
SHAREHOLDERS' EQUITY
Common stock, .01 par value per share:
Authorized, 10,000,000 shares;
Issued, 1,382,698 and 1,372,504 shares 69,135 68,625
Outstanding 1,362,999 and 1,352,805 shares
Preferred stock, $.01 par value per share:
Authorized, 1,000,000 shares
Additional paid-in capital 9,921,624 9,890,416
Accumulated deficit (2,357,138) (2,231,818)
----------- -----------
7,633,621 7,727,223
Less treasury stock, 19,699 shares at cost (234,782) (234,782)
----------- -----------
Total shareholders' equity 7,398,839 7,492,441
----------- -----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 9,133,159 $ 9,778,955
=========== ===========
</TABLE>
See Notes to Consolidated Financial Statements
3
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ARIZONA INSTRUMENT CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Three Months Ended
---------------------------------
March 31, 1999 March 31, 1998
-------------- --------------
NET SALES $ 1,850,832 $ 2,038,807
COST OF GOODS SOLD 671,486 797,419
----------- -----------
Gross margin 1,179,346 1,241,388
----------- -----------
EXPENSES
Marketing 532,489 478,314
General & administrative 394,441 618,205
Research & development 198,636 222,529
Amortization & depreciation 104,450 99,521
----------- -----------
Total Expenses 1,230,016 1,418,569
----------- -----------
OPERATING LOSS (50,670) (177,181)
----------- -----------
OTHER REVENUE (EXPENSE)
Interest income -- --
Interest expense (9,832) (31,727)
Other 4,264 4,978
----------- -----------
Total other (expense) (5,568) (26,749)
----------- -----------
LOSS BEFORE INCOME TAX BENEFIT FROM
CONTINUING OPERATIONS (56,238) (203,930)
INCOME TAXES BENEFIT -- (69,000)
----------- -----------
LOSS FROM CONTINUING OPERATIONS (56,238) (134,930)
(LOSS) INCOME FROM DISCONTINUED OPERATIONS, NET (69,082) 268,000
----------- -----------
NET INCOME $ (125,320) $ 133,070
=========== ===========
NET LOSS PER SHARE FROM CONTINUING
OPERATIONS - BASIC: $ (0.04) $ (0.10)
=========== ===========
NET (LOSS) INCOME PER SHARE FROM
DISCONTINUED OPERATIONS - BASIC: $ (0.05) $ 0.20
=========== ===========
NET (LOSS) INCOME PER SHARE - BASIC: $ (0.09) $ 0.10
=========== ===========
NET LOSS PER SHARE FROM CONTINUING
OPERATIONS - DILUTED: $ (0.04) $ (0.10)
=========== ===========
NET (LOSS) INCOME PER SHARE FROM
DISCONTINUED OPERATIONS- DILUTED: $ (0.05) $ 0.20
=========== ===========
NET (LOSS) INCOME PER SHARE - DILUTED: $ (0.09) $ 0.10
=========== ===========
BASIC SHARES OUTSTANDING (WEIGHTED AVERAGE) 1,361,300 1,343,064
EQUIVALENT SHARES - STOCK OPTIONS -- 26,000
----------- -----------
DILUTED SHARES OUTSTANDING 1,361,300 1,369,064
=========== ===========
See Notes to Consolidated Financial Statements
4
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ARIZONA INSTRUMENT CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
March 31, 1999 March 31, 1998
-------------- --------------
OPERATING ACTIVITIES:
Net (loss) income $ (125,320) $ 133,070
Adjustments to reconcile net (loss)
income to net cash provided (used)
by operating activities:
Depreciation and amortization 149,324 179,257
Decrease in receivables 1,625,276 804,988
(Increase) decrease in inventories (201,313) 348,945
(Increase) decrease in prepaid expenses
and other current assets (5,519) 4,521
Decrease in other assets 1,611 761
Decrease in deferred income tax -- 70,051
Decrease in accounts payable
and other accrued expenses (399,229) (708,428)
----------- ---------
NET CASH PROVIDED BY
OPERATING ACTIVITIES 1,044,830 833,165
----------- ---------
INVESTING ACTIVITIES:
Purchases of capital equipment (41,804) (97,574)
----------- ---------
NET CASH USED BY INVESTING
ACTIVITIES (41,804) (97,574)
----------- ---------
5
<PAGE>
ARIZONA INSTRUMENT CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(continued)
March 31, 1999 March 31, 1998
-------------- --------------
FINANCING ACTIVITIES:
Net payment under lines of credit (150,000) (66,000)
Issuance of common stock pursuant to
stock purchase plan 31,717 31,811
Payments of long-term debt and
capital leases (2,965) (103,617)
----------- ---------
NET CASH USED BY FINANCING
ACTIVITIES (121,248) (137,806)
----------- ---------
NET INCREASE IN CASH AND CASH
EQUIVALENTS 881,778 597,785
CASH AND CASH EQUIVALENTS,
beginning of period 1,098,846 143,173
----------- ---------
CASH AND CASH EQUIVALENTS
end of period $ 1,980,624 $ 740,958
=========== =========
Supplemental cash flow information:
Interest expense $ 9,833
See Notes to Consolidated Financial Statements
6
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ARIZONA INSTRUMENT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. CONSOLIDATED FINANCIAL STATEMENTS
The consolidated balance sheet as of March 31, 1999, and the consolidated
statements of operations and cash flows for the three-month periods ended March
31, 1999 and 1998 have been prepared by the Company without audit. In the
opinion of management, all adjustments (which include only normal recurring
adjustments) necessary to present fairly the financial position at March 31,
1999 and the results of operations and cash flows for the three-month periods
ended March 31, 1999 and March 31, 1998 have been made.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted. These consolidated financial statements should
be read in conjunction with the financial statements and notes thereto included
in the Company's 1998 Report on Form 10-KSB, as amended. The results of
operations for the interim periods are not necessarily indicative of the results
to be obtained for the entire year.
2. INVENTORIES
Inventories consist of the following:
March 31, December 31,
1999 1998
---------- ----------
Finished Goods $ 620,896 $ 480,515
Components 1,227,221 1,166,289
---------- ----------
$1,848,117 $1,646,804
========== ==========
7
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SUBSEQUENT EVENT
In the first quarter of 1999, the Board of Directors and Company management made
the decision to dispose of its Encompass and Soil Sentry lines of business. In
April 1999 the Company sold its Encompass and Soil Sentry operations and certain
assets associated with these lines.
The first quarter operating results of the Encompass and Soil Sentry operations
are reflected as discontinued operations in the accompanying statement of
operations. The pro-forma balance sheet reflecting the disposition as if it had
occurred at March 31, 1999 is as follows:
Pro-forma
adjusted for
As reported Adjustments disposition
----------- ----------- -----------
Assets:
Cash and cash equivalents $1,980,624 $1,061,531 $3,042,155
Receivables, net 1,287,354 -- 1,287,354
Inventories 1,848,117 (876,772) 971,345
Other current assets 47,130 (8,150) 38,980
Property, plant and equipment 822,688 (55,069) 767,619
Goodwill, net 1,448,252 -- 1,448,252
Deferred income taxes 1,090,000 -- 1,090,000
Other assets 608,994 (121,540) 487,454
---------- ---------- ----------
Total assets $9,133,159 $ -- $9,133,159
========== ========== ==========
Liabilities and Shareholders' Equity:
Current liabilities $1,725,329 $ -- $1,725,329
Long term debt 8,991 -- 8,991
Shareholders' equity 7,398,839 -- 7,398,839
---------- ---------- ----------
Total liabilities & shareholders
equity $9,133,159 $ -- $9,133,159
========== ========== ==========
8
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The following discussion should be read in conjunction with, and is qualified in
its entirety by, the Company's Consolidated Financial Statements and Notes
thereto appearing elsewhere herein. Historical results are not necessarily
indicative of trends in operating results for any future period.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS
AND FINANCIAL CONDITION
The statements contained herein regarding management's anticipation of the
Company's future market position, development of additional products, product
introduction and delivery dates, reliability of products, adequate sources of
supplies, acquisition of related product lines or companies, and positive
responses to new developments, constitute "forward-looking" statements within
the meaning of the Private Securities Litigation Reform Act of 1995.
Management's anticipation is based upon assumption regarding levels of
competition, research and development results, product introduction and delivery
schedules, raw material markets, the markets in which the Company operates, and
stability of the regulatory environment. Any of these assumptions could prove
inaccurate, and therefore there can be no assurance that the forward-looking
information will prove to be accurate.
RESULTS OF OPERATIONS:
THREE MONTHS ENDED MARCH 31, 1999 AND MARCH 31, 1998
Net sales from continuing product lines for the three months ended March 31,
1999 decreased 9% or $187,975 to $1,850,832 from $2,038,807 generated for the
first three months of 1998. This decrease was due to decreased sales of the
Company's instruments and decrease of non-recurring sales of miscellaneous tank
testing revenue.
Cost of goods sold for the three months ended March 31, 1999 was $671,486, a
decrease of 16% from the $797,419 incurred for the first three months of 1998.
The decrease in cost of goods sold was primarily due to improved manufacturing
efficiencies and, to a lessor extent, the costs of goods associated with
decreased sales.
Operating expenses for the first quarter of 1999 were $1,230,016, a decrease of
$188,553 or 13% as compared to operating expenses of $1,418,569 for the first
quarter of 1998. Marketing expenses for the first quarter of 1999 were $532,489,
an increase of 11% or $54,175 over the same period in 1998. Increased marketing
expenses were due to a higher level of selling and marketing activity required
to support the Company's domestic and international operations. General and
administrative expenses for the first quarter of 1999 were $394,441, a decrease
of 36% or $223,763 as compared to the first quarter of 1998, due primarily to
reduction in capital leases, property maintenance, insurance costs and other
miscellaneous expenses. Research and development expenses for the first quarter
of 1999 were $198,636, a decrease of 11% or $23,893 compared to the $222,529 of
research and development expenses incurred in the first quarter of 1998.
9
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Other expenses for the first quarter of 1999 were $5,568, a decrease of 79% or
$21,181 from the $26,749 in other expenses incurred for the first quarter of
1998. This decrease was due primarily to a reduction in interest expense due to
lower levels of borrowing by the Company for the first quarter of 1999, as
compared to the first quarter of 1998.
As a result of these changes, loss before taxes on continuing operations for the
first quarter of 1999 was $56,238 as compared to the loss of $203,930 recorded
for the first quarter of 1998. The company made no provisions for a tax benefit
in 1999, as it views its' deferred tax provision as adequate. The company had a
tax benefit of $69,000 in 1998, which was computed using the statutory rate.
Loss from continuing operations for the first quarter of 1999 was $56,238,
compared to a loss of 134,930 recorded for the first quarter of 1998.
For the three months ended March 31, 1999, the Company had a loss from
discontinued operations of $69,082 which was due primarily to expenses incurred
in discontinuing the Company's Soil Sentry and Encompass business, and to a
lesser extent, the loss incurred in operating the Soil Sentry and Encompass
business over the period.
The net loss for the first quarter was $125,320 as compared to the net income of
$133,070 achieved for the first quarter of 1998.
The Company has historically experienced and expects to continue to experience
quarterly fluctuations, potentially in a material amount, in its operating
results. A variety of factors influence the Company's operating results in a
particular period, including economic conditions in the industries served by the
Company, regulatory developments, the timing of significant orders, shipment
delays, specific features requested by the customers, the introduction of new
products by the Company and its competitors, market acceptance of new products
and enhancements of existing products, changes in the cost of materials,
disruptions in the sources of supply, seasonal variations of spending by
customers, the timing of the Company's expenditures in anticipation of future
orders and other factors, many of which are beyond the Company's control.
LIQUIDITY AND CAPITAL RESOURCES:
Working capital at March 31, 1999 was $4,062,896, an increase of $16,992, or
.4%, from the working capital of $4,045,904 as of December 31, 1998. Working
capital increased due to a an increase in cash, as well as due to a reduction on
the line of credit and accrued expenses which offset a reduction in receivables.
As a result, the Company's current ratio as of March 31, 1999 increased to 3.4
from a current ratio of 2.8 as of December 31, 1998.
The Company currently has one line of credit available through a bank,
collateralized by accounts receivable, inventory, and property, plant and
equipment which provides for a maximum commitment of $2,000,000 through June,
1999. Advances can be made against the lines based on qualified levels of
receivables and inventory. At March 31, 1999, $150,000 had been borrowed under
this line of credit.
The Company believes that cash generated from ongoing operations and the
borrowing arrangements described above will satisfy the anticipated cash
requirements of the Company's current operations over the next 12 months, though
there can be no assurance that this will be the case. The Company's ability to
continue funding its planned operations beyond the next 12 months is dependent
upon its ability to generate sufficient cash flow to meet its obligations on a
timely basis, or to obtain additional funds though equity or debt financing, or
from other sources of financing, as may be required.
10
<PAGE>
PART II. OTHER INFORMATION
ITEM 1 LEGAL PROCEEDINGS
Information is incorporated by reference from the Company's Report on Form
10-KSB, as amended, for the year ended December 31, 1998.
ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
a) A special meeting of the stockholders of the Company (the "Meeting") was
held on February 5, 1999. Proxy statements pursuant to Rule 14A of the
Exchange Act were mailed to shareholders on or about January 8, 1999 and
filed with the Securities and Exchange Commission.
b) At the Meeting, the stockholders approved of a reverse stock split of the
issued and outstanding shares of common stock at a ratio to be decided by
the Board of Directors, but not to exceed 5 to 1. There were 6,093,110
votes in favor of the proposed reverse stock split and amendment of the
Certificate of Incorporation accordingly and 257,372 votes against. There
were no abstentions and no broker non-votes.
ITEM 5 OTHER INFORMATION
a) The following information provided herein and elsewhere in this 10 KSB is
in lieu of filing on Form 8-K, item 2.
On April 30, 1999, Arizona Instrument Corp., a Delaware corporation
("AZIC") sold certain assets related to the Encompass Systems and Soil
Sentry Systems line of products to National Environmental Service, Co., an
Oklahoma corporation ("NESCO"), pursuant to an Asset Purchase Agreement
(the "Agreement") dated April 30, 1999, which is filed as an exhibit to
this report. AZIC was paid an adjusted aggregate purchase price of
$1,061,531 in cash for the sale.
The Agreement was negotiated at arm's length between AZIC and NESCO. Prior
to the sale, none of the directors, officers or associates of NESCO, or
their affiliates, were or are affiliated with AZIC, its affiliates, its
directors and officers and their associates.
The principal business sold to NESCO is the marketing, licensing,
distributing, developing, manufacturing, service and operating of the
Encompass Systems and Soil Sentry Stystems and the monitoring services on
behalf of such product users.
George G. Hays, President, stated that the divestiture of the Encompass and
Soil Sentry product lines should enable AZI to better utilize its
technical, marketing, and financial resources. He indicated that AZI's
increased commitment to its historic core businesses, which began in early
1998 as part of the Company's turnaround program, has already borne fruit
with the recent introduction of the Computrac 4000, an instrument designed
to measure the moisture content in edible oils, lubricating/cooling oils,
and heavy fuels.
11
<PAGE>
b) The employment agreement between George G. Hays and the Company effective
as of January 1, 1998 was amended by the Board of Directors effective March
18, 1999. Pursuant to the amendment, the term of the employment contract
was extended to March 31, 2001. The contract was further modified by
granting Mr. Hays his salary for the full term of the contract in the event
the Company sells all or substantially all of its assets or if a change in
control of the Company occurs.
c) The Company currently has a line of credit with Imperial Bank. At March 31,
1999, the Company was in default under certain financial covenants of its
borrowing agreement with the bank. The bank has granted the Company
forbearance from compliance with these covenants, subject to certain
customary conditions including one relating to the Company's affirmation of
its current compliance with all the representations and warranties it made
in the original borrowing agreement. Currently there is no outstanding
balance on the line of credit.
ITEM 6 EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS
2.1 Asset Purchase Agreement dated April 30, 1999 between Arizona
Instrument Corporation and National Environmental Service
Company. Filed herewith.
3.1 Composite Certificate of Incorporation of Registrant as amended
through February 16, 1999. Filed herewith.
10.1 Amendment of Employment agreement between George G. Hays and
Registrant dated March 18, 1999. (Management contract or
compensatory plan)
27 Financial Data Schedule. Filed herewith.
(b) THE FOLLOWING FORM 8-K WAS FILED BY THE REGISTRANT DURING THE QUARTER
ENDING MARCH 31, 1999:
Form 8-K filed February 24, 1998 reporting under Item 5 that on
February 16, 1999 the registrant had effected a reverse stock split of
the outstanding common stock at a 5 to 1 ratio and made amendments to
the registrant's Certificate of Incorporation accordingly.
12
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ARIZONA INSTRUMENT CORPORATION
Date May 14, 1999 /s/ George G. Hays
---------------------------------
George G. Hays, President and CEO
(Authorized officer)
Date May 14, 1999 /s/ Linda J. Shepherd
---------------------------------
Linda J. Shepherd, Controller
(Principal Accounting officer)
13
EXHIBIT 2.1
ASSET PURCHASE AGREEMENT
BETWEEN
ARIZONA INSTRUMENT CORPORATION,
AS SELLER
AND
NATIONAL ENVIRONMENTAL SERVICE CO.,
AS BUYER
<PAGE>
ASSET PURCHASE AGREEMENT
This Asset Purchase Agreement is entered into as of April 30,
1999 (this "Agreement"), by and between National Environmental Service Co., an
Oklahoma corporation ("Buyer"), and Arizona Instrument Corporation, a Delaware
corporation ("Seller").
WHEREAS, on the terms, in the manner and subject to the
conditions reflected below, Seller desires to sell, assign, convey and transfer
to Buyer, and Buyer desires to purchase and acquire from Seller, all of the
Purchased Assets defined below.
NOW, THEREFORE, in consideration of the premises and the
mutual representations, warranties, covenants and agreements herein set forth,
the parties to this Agreement have agreed, and hereby agree subject to the terms
and conditions hereinafter set forth, as follows:
ARTICLE IDEFINITIONS
Capitalized terms used herein shall have the meanings ascribed
to them in this Article I, unless such terms are defined elsewhere in this
Agreement.
Affiliates: of any person means persons who control, are controlled by
or in common control with such person.
Allocation: as defined in Section 2.06.
Assumed Employees: as defined in Section 7.01.
Assumed Liabilities: as defined in Section 2.04.
Assumed Warranty Obligations: as defined in SCHEDULE 2.04.
BP Litigation: as defined in Section 2.04.
Business: as defined in Section 2.02.
Closing: as defined in Section 2.01(b).
Closing Date: as defined in Section 2.01(b).
2
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Closing Payment: as defined in Section 2.03(a).
Delaware Law: the Delaware General Corporation Law, as amended
Encompass System Revenues: as defined in Section 2.03(b).
Excluded Assets: any of the assets of Seller other than those assets
included in Section 2.02, including, without limitation, (i) cash, cash
equivalents and receivables, (ii) real estate or any rights under leases to real
estate, (iii) Seller's business records, corporate minute book and charter
documents, and (iv) all assets of Seller not solely and exclusively necessary to
own and operate the Business in the manner heretofore owned and operated by
Seller.
Excluded Liabilities: as defined in Section 2.04(b).
GAAP: United States generally accepted accounting principles.
Governmental Entity: any court, government, governmental agency,
commission or instrumentality, domestic or foreign.
Legal Requirements: any law, statute, ordinance, decree, requirement,
order, judgment, rule or regulation of, including the terms of any license,
certificate, franchise or permit issued by, the United States, any state,
commonwealth, territory or possession thereof and any political or judicial
subdivision or instrumentality of the foregoing, including, without limitation,
courts, departments, commissions, boards, bureaus or agencies.
Oklahoma Law: the Oklahoma General Corporation Act, as amended.
Purchased Assets: those assets defined in Section 2.02.
Purchase Price: the consideration to be paid by Buyer to Seller for the
Purchased Assets as provided in Article II.
Taxes: all net income, gross income, gross receipts, sales and use, ad
valorem, franchise, profits, licenses, withholding, payroll, excise, severance,
stamp, occupation, property, customs duties or other taxes, fees or charges of
any kind whatsoever imposed by a foreign, federal, state, county or local taxing
authority together with any interest or penalty thereon.
Transaction: the sale and purchase of the Purchased Assets pursuant to,
and the related transactions contemplated by, this Agreement.
Transaction Documents: the documents, instruments, agreements, etc.
referred to in Section 2.01(b).
3
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Year 2000 Compliant: software that is designed to do the following, as
may be applicable to each software, subject to potential deviation that will not
materially and adversely affect the use of such software: (i) handle date
information before, during, and after January 1, 2000, and will correctly
recognize, calculate, process, sequence, store and transmit date data without
error or interruption, including leap years; (ii) function accurately and
without interruption before, during and after January 1, 2000, without any
change in operations associated with the advent of the new century; (iii)
respond to year-date input in a way that resolves any ambiguity as to century in
a defined and predetermined manner; and (iv) store and provide output of date
information in a way that is unambiguous as to century.
ARTICLE II
ASSET PURCHASE AND SALE
2.01 The Transaction. (a) At the Closing, in accordance with
the provisions the terms of this Agreement, Seller shall (or cause its
subsidiaries to) sell assign, convey, transfer and deliver to Buyer the
Purchased Assets, and Buyer shall pay to Seller the Purchase Price for the
Purchased Assets as contemplated by Section 2.03 below.
(b) The consummation of the transaction contemplated by
Section 2.01(a) together with the delivery of the various deeds, bills of sale,
assignments, conveyances, certificates, agreements, assumptions, opinions and
other documents required or contemplated by this Agreement (the "Transaction
Documents") is herein called the "Closing." It is anticipated by the parties
that the Closing shall take place at the offices of Quarles & Brady, One East
Camelback, Suite 400, Phoenix, Arizona, at 10:00 a.m., local time on April 30,
1999 (the "Closing Date").
2.02 Assets to be Acquired . The assets to be acquired by
Buyer shall include all of the right, title and interest of Seller or any of its
subsidiaries in and to all of the assets used by Seller solely and exclusively
in the business of owning, marketing, licensing, distributing, developing,
manufacturing, servicing and operating the Encompass Systems and Soil Sentry
Systems and conducting the monitoring services on behalf of the users of such
products (the "Business") which assets include the following (the "Purchased
Assets"):
(a) Patents and Know-How. All right, title and interest in and
to (i) all patents, patent applications and docketed inventions, domestic and
foreign relating solely and exclusively to the Encompass Systems and Soil Sentry
Systems (the "Patents"), including without limitation those that are listed on
SCHEDULE 2.02(A) hereto, and (ii) all research and development results,
processes, trade secrets, methods, operating techniques, know-how, algorithms,
formulae, specifications, drawings, designs, chip designs, inventions,
engineering information, and quality control, testing, operational, logistical,
maintenance and other technical data and information and technology relating
solely and exclusively to the Encompass Systems and Soil Sentry Systems (the
"Know-How").
4
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(b) Trademarks and Copyrights. All right, title, interest and
goodwill in and to all trademarks, trade names and service marks, and
registrations and applications for such trademarks, trade names and service
marks domestic and foreign, to the extent used solely and exclusively in the
Business (the "Trademarks"), including without limitation those that are listed
on SCHEDULE 2.02(B), and all right, title, and interest in and to all
copyrights, and registrations and applications for such copyrights, domestic and
foreign, to the extent used solely and exclusively in the Business (the
"Copyrights"), including without limitation those that are listed on SCHEDULE
2.02(B).
(c) Equipment. All of the test equipment, computers,
machinery, tools, demonstration units, and other tangible assets listed on
SCHEDULE 2.02(C) (collectively, the "Equipment").
(d) Computer Software. All right, title and interest
(including copyright interests) in and to all computer programs (including
computer modeling programs, design and operational and applications software and
computer source and object codes), firmware, computer data bases, and related
documentation, solely and exclusively developed or used for the use or operation
of (i) the Encompass Systems or Soil Sentry Systems, (ii) the Equipment, (iii)
the Site Trac program or (iv) for design, development, engineering, or
manufacturing purposes, related thereto, (the "Software"), including without
limitation the computer programs identified on SCHEDULE 2.02(D).
(e) Warranties and Other Rights. All rights under or pursuant
to all warranties, representations, guarantees and service contacts made by
suppliers, manufacturers and contractors in connection with products or services
purchased by Seller or any of its subsidiaries affecting the Equipment or the
Software.
(f) Contracts. All contracts, subcontracts, licenses and
sublicenses, distribution, franchise, representative and marketing rights and
agreements and agreements and other arrangements, proposals, bids, quotations,
purchase orders and commitments, sales orders and commitments, and
manufacturing, servicing and monitoring agreements of any kind, whether written
or oral, including joint venture, teaming and partnership agreements solely and
exclusively relating to the Business (the "Contracts"), including without
limitation those Contracts identified on SCHEDULE 2.02(F).
(g) Causes of Action. All causes of action, claims or rights
of action against third parties arising from or based on the infringement,
misappropriation, misuse or unauthorized use of the Patents, the Know-How, the
Software, the Trademarks or the Copyrights.
(h) Other. All right, title and interest of Seller in and to
all licenses and permits solely and exclusively related to the Business and the
Purchased Assets and all customer and supplier lists and sales literature
related solely and exclusively to the Business.
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(i) Inventory. All raw material, work in process, components,
completed Encompass Systems and Soil Sentry Systems products and all other
merchantable inventory as of the date hereof, to the extent solely and
exclusively manufactured and/or held for sale in the Business, as set forth on
SCHEDULE 2.02(I), and updated as of the Closing Date.
2.03 Purchase Price . (a) The purchase price for the Purchased
Assets (the "Purchase Price") shall be $1,000,000, subject to adjustment as
provided in (c) below, payable in cash at the Closing by wire transfer of
immediately available funds (the "Closing Payment") plus the royalty payments
described in Section 2.03(b) below.
(b) As part of the Purchase Price, Buyer shall pay Seller a
royalty payment equal to the percentage indicated below of the revenues realized
by Buyer from its sales and leasing of, and monitoring, enhancement, licensing
and other services and rights relating solely and exclusively to the Encompass
Systems and the patent and other intellectual property rights relating thereto
("Encompass System Revenues"). For the period from the Closing Date until the
second anniversary of the Closing Date, the royalty payment shall equal 5% of
the Encompass System Revenues and, for the period following the second
anniversary of the Closing Date to the fifth anniversary of the Closing Date,
the royalty payment shall be equal to 3% of the Encompass System Revenues.
Encompass System Revenues shall not include any revenues realized by Buyer in
connection with the installation or repair of Encompass Systems but shall
include revenues attributable to monitoring services, software and patent
licensing and enhancements and technical support and other sources generally
attributable to the intellectual property rights in and relating to the
Encompass Systems and which are included in the Purchased Assets.
Notwithstanding anything in the foregoing to the contrary, Encompass System
Revenues realized by Buyer shall not include or shall be reduced by, as the case
may be:
(i) the amount of any sales taxes, use taxes, ad
valorem or other personal property taxes, and any other taxes,
fees or assessments payable to any governmental or
quasi-governmental authority or agency in connection with
Encompass Systems or any services, rights or interests related
thereto other than federal, state or local income taxes
payable by Buyer in respect of the revenues it receives which
are attributable to the Encompass Systems;
(ii) any commissions, fees, remuneration and expense
reimbursements paid to any independent sales representatives
by Buyer in connection with any sales, services or rights
giving rise to Encompass System Revenues; and
(iii) any rebates, returns, allowances, discounts,
set-offs, refunds or recoveries paid or granted by Buyer in
connection with any sales, services or rights giving rise to
Encompass System Revenues.
The royalty payments due Seller on Encompass System Revenues pursuant to this
Section 2.02(b) shall be paid by Buyer on or before the last business day of the
month following the calendar quarters ending each March 31, June 30, September
30 and December 31 for each such calendar quarter and on or before the 30th day
following the fifth anniversary of the Closing Date for the period covered
thereby. Buyer shall provide a report containing an itemization of its Encompass
System Revenues applicable to each period with its payment.
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Seller or its designated agent shall be provided access to
such books and records of Buyer as may be necessary to determine or audit, with
respect to any period covering no more than four calendar quarters prior to the
date of such request, the correctness of payments made or due under this
Agreement, or to obtain information about payments under this Agreement. Such
examination shall be during reasonable business hours. If Seller or its
designated agent, through an audit or otherwise, shall have any objections to
any amount of royalties paid Seller hereunder, it will deliver a written report
to Buyer within forty-five days after the date of Seller's written notice above
describing in detail Seller's objections. Each of Buyer and Seller will use its
commercially reasonable efforts to resolve any such objections. If Buyer does
not dispute Seller's report, it shall pay any additional royalties due Seller
within five days of its receipt of Seller's report. In the event Seller and
Buyer are unable to resolve any disputed amount owed hereunder within fourteen
(14) days after Buyer has received the report of Seller's objections, Buyer and
Seller shall select a mutually acceptable independent accounting firm (the
"Auditor") will resolve any unresolved objections. The Auditor shall have access
to such books and records of Buyer, including all purchase orders and agreements
with respect to the Encompass Systems, as it deems necessary to determine the
amount of royalties due hereunder. The Auditor shall determine the amount of
royalties due with respect to the period(s) under review and communicate the
determination to Buyer and Seller in writing, not later than thirty (30) days
following the date of its receipt of such dispute, such determination to
constitute the final amount due with respect to such period. Any additional
royalties due Seller pursuant to the Auditor's report shall be paid by Buyer
within five days of its receipt of the Auditor's report. If any determination by
the Auditor shows that royalties were underpaid by Buyer by an amount of five
percent (5%) or more, the Buyer shall promptly pay all fees and expenses of the
Auditor. In the event the Auditor's determination shows that royalties to Seller
were underpaid by Buyer by an amount of less than five percent (5%), Seller
shall promptly pay all fees and expenses of the Auditor and bear all of Seller's
expenses in connection with its examination pursuant hereto.
(c) The Purchase Price is subject to adjustment, upwards or
downwards, based on a physical inventory of the Purchased Assets to be taken
immediately prior to Closing. Immediately before the Closing, representatives of
Seller and Buyer shall conduct a complete physical inventory of the Purchased
Assets. Before the final Purchase Price is determined, a report of this physical
inventory shall be prepared and signed by the authorized representatives of both
Seller and Buyer, which report shall be final and binding on other parties for
all purposes. The report shall be as specific as possible in identifying each
asset by serial number, stock number or other identifying mark. The adjustment
in the Purchase Price shall equal the amount by which the value of the Purchased
Assets is greater or lesser than $1,000,000, and such adjustment will be
reflected in the Closing Payment. The inventory and intangible assets included
in the Purchased Assets shall be valued at the Seller's depreciated book value
maintained in accordance with GAAP. All other assets included in the Purchased
Assets shall be valued at an amount agreed upon by Buyer and Seller prior to
Closing.
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2.04 Assumption of Assumed Liabilities . (a) As additional
consideration to Seller included in the Purchase Price and in exchange for the
performance by Seller of its obligations hereunder, effective as of the Closing
Date, Buyer hereby assumes and agrees to pay, discharge and perform as and when
due, (i) all liabilities and obligations (including all obligations with respect
to performance) arising under each of the Contracts after the Closing Date,
except for such post-Closing liabilities that are expressly set forth as
Excluded Liabilities in Section 2.04(b) below, and (ii) those additional
liabilities and obligations expressly set forth on SCHEDULE 2.04. The
liabilities and obligations described in the preceding sentence are referred to
herein as the "Assumed Liabilities."
(b) Subject to the other provisions of this Agreement, it is
understood and agreed that Seller shall retain all liability for, and Buyer
shall not assume or have any obligation with respect to, the following
obligations or liabilities of Seller (all such obligations and liabilities being
herein referred to as the "Excluded Liabilities"):
(i) any and all obligations of Seller arising under
law or contract with respect to any individual in connection
with his or her employment by Seller before or after the
Closing including obligations arising in connection with
Seller's termination of his or her employment with Seller at
any time, regardless of whether such obligations would have
arisen had Buyer chosen to employ any such employee following
Closing, including, without limitation, obligations under any
and all of Seller's severance benefits, medical or other
insurance coverages, retirement benefits or any other benefit
or obligation of Seller of whatsoever nature, arising out of
the employment relationship between Seller and such employee;
(ii) the occupancy, ownership, use or operation of the
Purchased Assets or the operation of the Business on or prior
to the Closing Date including, without limitation, taxes
attributable to the period on and before Closing but not due
and payable as of the Closing;
(iii) any liability, obligation or expense heretofore
or which may hereafter be incurred with respect to the
Encompass Systems and Soil Sentry Systems placed in service by
Seller prior to Closing based on such systems not being Year
2000 Compliant or incurred with respect to such systems to
render them Year 2000 Complaint; and
(iv) any liability, obligation or expense heretofore
or which may hereafter be incurred by Seller in connection
with lawsuit filed against Seller by BP Oil Company in the
United States District Court in the Northeast District of Ohio
(the "BP Litigation").
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(c) Buyer hereby agrees to indemnify, defend and hold harmless
Seller with respect to any claims, damages or liability arising with respect to
the Assumed Liabilities and, after Closing, with respect to the Purchased Assets
and the Business. Seller hereby agrees to indemnify, defend and hold harmless
Buyer with respect to any claims, damages or liability arising with respect to
the Excluded Liabilities.
2.05 Excluded Assets. Seller shall not sell, and
Buyer is under no obligation to buy, the Excluded Assets.
2.06 Allocation of Purchase Price. Buyer and Seller
agree that the Purchase Price shall be allocated to the
Purchased Assets in accordance with SCHEDULE 2.06 hereto (the
"Allocation"). Buyer and Seller shall report the sale and
purchase of the Purchased Assets for all income tax purposes
in a manner consistent with the Allocation and hereby
acknowledge that the Allocation was determined pursuant to
arm's length bargaining between them regarding the fair market
value for the Purchased Assets.
2.07 Treatment of Accounts Receivable . All accounts
receivable of Seller arising prior to the Closing shall remain
the property of Seller, and Seller shall have the right to
pursue collection of such receivables through reasonable
methods after the Closing Date. Seller shall be entitled to
retain (and if received by Buyer, Buyer shall remit to Seller
within five (5) business days after receipt) all payments made
on receivables after Closing until such time as the
pre-Closing receivables have been paid in full. Buyer shall be
entitled to retain (and if received by Seller, Seller shall
remit to Buyer within five (5) business days after receipt)
all payments made on receivables of Buyer. At or immediately
after Closing, Seller shall provide Buyer a true and accurate
schedule of accounts receivable related to the Business as of
the Closing Date.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF SELLER
Seller hereby represents and warrants to Buyer as follows:
3.01 Organization, Good Standing and Corporate Power . Seller
is a corporation duly organized, validly existing and in good standing under the
laws of the State of Delaware and has the requisite corporate power and
authority to carry on its business as it is now being conducted. Seller is duly
qualified as a foreign corporation to do business, and is in good standing, in
each jurisdiction where the character of the properties owned or leased by it,
or the nature of its activities, is such that qualification as a foreign
corporation in that jurisdiction is required by law, except those jurisdictions,
if any, in which the failure to so qualify would not have a material adverse
effect on the Purchased Assets or the Business or in Seller's ability to perform
its covenants and commitments hereunder and to otherwise consummate the
Transaction in the manner and to the extent contemplated hereby.
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3.02 Authorization . Seller has all requisite corporate power
and authority to enter into and perform all of its obligations under this
Agreement and to consummate the transactions contemplated hereby. The execution
and delivery of this Agreement by Seller and the consummation and performance by
Seller of the transactions contemplated hereby have been duly authorized by all
necessary corporate action on the part of Seller. This Agreement has been duly
executed and delivered by Seller and constitutes the legal, valid and binding
obligation of Seller and is enforceable in accordance with its terms except as
enforceability may be subject to (i) any applicable bankruptcy, insolvency,
reorganization or other law relating to or affecting creditors' rights generally
and (ii) general principles of equity (regardless of whether such enforceability
is considered in a proceeding in equity or at law).
3.03 No Breach or Violation . (a) Neither the execution and
delivery of this Agreement by Seller nor the consummation of the transactions
contemplated hereby to be performed by Seller will (i) violate or conflict with
any provision of the Certificate of Incorporation or Bylaws of Seller, as
currently in effect, or (ii) violate or conflict with any provision of any law,
rule, regulation, order, permit, certificate, writ, judgment, injunction,
decree, determination, award or other decision of any Governmental Entity, other
regulatory or self-regulatory body or association or arbitrator binding upon
Seller or any of its properties, except where such violations or conflicts would
not in the aggregate have a material adverse effect on the Business, or the
Purchased Assets or on the ability of Seller to consummate the transactions
contemplated hereby.
(b) Neither the execution and delivery of this Agreement nor
the consummation of the transactions contemplated hereby to be performed by
Seller will result in a breach of or constitute a default (or with notice or
lapse of time or both result in a breach of or constitute a default) under, or
give rise to a right of termination, cancellation, acceleration or repurchase of
any obligation or a right of first refusal with respect to any material property
or asset or a loss of a material benefit or the imposition of a material penalty
under, any of the terms, conditions or provisions of
(i) any mortgage, indenture, loan or credit agreement
or any other agreement or instrument evidencing indebtedness
for money borrowed to which Seller is a party or by which it
or any of its properties is bound or affected, or pursuant to
which Seller has guaranteed the indebtedness or preferred
stock of any person or entity, or
(ii) any lease, license, tariff, contract or other
agreement or instrument to which Seller is a party or by which
it or any of its properties is bound or affected, except in
the case of each of clauses (i) and (ii) above,
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(x) for any such breaches, defaults,
rights, losses or penalties that do not have a
material adverse effect on the Purchased Assets or the
business, financial condition or results of operations
of Seller or on the ability of Seller to consummate
the transactions contemplated hereby, and
(y) for such third party consents as will
be obtained prior to the Closing.
(c) Neither the execution and delivery by Seller of this
Agreement nor the consummation of the transactions contemplated hereby to be
performed by Seller will result in, or require, the creation or imposition of
any mortgage, deed of trust, pledge, lien, security interest or other charge or
encumbrance of any nature upon or with respect to any of the Purchased Assets.
3.04 Consents. No consent, approval, order, certificate or
authorization of, or registration, declaration or filing with, any Governmental
Entity is required by or with respect to Seller in connection with the execution
and delivery of this Agreement by Seller or the consummation by Seller of the
transactions contemplated hereby.
3.05 Contracts and Agreements. (a) Before the Closing, Seller
will provide Buyer access to and the right to copy all the Contracts during
normal business hours.
(b) Seller has complied in all material respects with the
provisions of all the Contracts. Seller is not in material breach or default
under any Contract. The Contracts are in full force and effect and constitute
legal, valid and binding obligations of the respective parties thereto in
accordance with their terms. There has been no amendment or modification of any
of the Contracts, except such amendments that have been delivered to Buyer.
3.06 Trademarks and Copyrights . SCHEDULE 2.02(B) sets forth a
complete and accurate list of each trademark, trade name, and each trademark and
trade name registration or application, and copyright registration and
application for copyright registration, and each license or licensing agreement
for each trademark and copyright license, held or employed by Seller or any of
its subsidiaries relating solely and exclusively to the Purchased Assets or the
Business (each such trademark, trade name, copyright, application and license or
licensing agreement hereafter referred to as the "Trademarks and Licenses"). To
Seller's knowledge, the use of the Trademarks and Licenses does not conflict
with, infringe upon or violate any proprietary right of any other person,
corporation or other entity. There are no outstanding or, to Seller's knowledge,
threatened proceedings or disagreements which challenge the rights of Seller
with respect to the Trademarks and Licenses.
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3.07 Patents and Know-How. SCHEDULE 2.02(A) sets forth a
complete and accurate list of each patent, patent application and docketed
invention, by date and germane case or docket number and country of origin, and
each license or licensing agreement, by date, term and the parties thereto, for
each patent, patent application, invention, trade-secret, rights to know-how,
processes, computer programs or use of technology, held or employed by Seller
and any of its subsidiaries relating solely and exclusively to the Purchased
Assets or the Business (each such patent, patent application, license or
licensing agreement listed thereon hereinafter termed the "Patents and
Licenses"). Except as set forth on SCHEDULE 2.02(A), with respect to the Patents
and Licenses and with respect to all other technology, processes, trade secrets,
methods, operating techniques, know-how, specifications, drawings, designs, chip
designs, mask works, inventions, discoveries and engineering information, and
other technical data and information and technology of Seller relating solely
and exclusively to the Business ("Seller's Technology"), to Seller's knowledge,
the use of the Patents and Licenses and the Seller's Technology does not
conflict with, infringe upon or violate any patent, patent license, patent
application, or any pending application relating thereto, or any trade secret,
know-how, programs or processes of any third person, entity or corporation.
3.08 Title. Seller has good and marketable title to all of the
Purchased Assets to be assigned by it to the Buyer, tangible and intangible,
free and clear of all mortgages, liens, pledges, charges and encumbrances of any
nature whatsoever except for those liabilities which are being specifically
assumed by Buyer.
3.09 Reserved.
3.10 Software. Except as set forth in SCHEDULE 2.02(D), the
Software constitutes all necessary proprietary computer programs, firmware,
computer data bases and related documentation used solely and exclusively with
respect to the use and operation of the Encompass Systems and Soil Sentry
Systems. The Software does not include, and this representation does not apply
to, software used in other aspects of Seller's business that may also be used in
connection with the Business, such as Windows NT software, accounting software
and other software of general applicability. As a courtesy, and without
representation or warranty, Seller shall provide Buyer a list of software Seller
believes is necessary for the operation of the Business but that is not included
in the Software. All Software used in the operation of the Encompass Systems is
Year 2000 Compliant, and the Software used in the Soil Sentry Systems is not
Year 2000 Compliant.
3.11 Customers and Suppliers. A list of all customers and
suppliers of the Business is set forth on SCHEDULE 3.11.
3.12 Taxes. There are no federal, state or local tax liens
upon any of the Purchased Assets.
3.13 Employee Matters. SCHEDULE 3.13 hereto is a complete and
correct list of all personnel employed by Seller in the operation of the
Business including each employee's name, title or position, current
compensation, years of service, and Social Security Number. Except as set forth
in SCHEDULE 3.13, all of the personnel employed by Seller in the Business are
"at will" employees. SCHEDULE 3.13 contains a written description of all
director, officer and employee retirement, welfare or other benefit plans,
agreements, practices, programs or arrangements available to employees of the
Business ("Employee Benefit Plans").
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3.14 Litigation. Except as disclosed in SCHEDULE 3.14 hereto:
(a) There is no claim, action, suit, proceeding, arbitration,
investigation or inquiry now pending or, to the knowledge of Seller, threatened
against, relating to or affecting any of the Purchased Assets or the Business or
that questions the validity of this Agreement or affects the transactions
contemplated herein; nor is there any basis for any such claim, action, suit,
proceeding, arbitration, investigation or inquiry.
(b) Neither Seller nor any of its officers, directors or
employees has been permanently or temporarily enjoined or prohibited by order,
judgment or decree of any Governmental Entity, other regulatory or
self-regulatory body or association, or arbitrator from engaging in or
continuing any conduct or practice in connection with the Business.
(c) There is not in existence any order, judgment or decree of
any Governmental Entity, other regulatory or self-regulatory body or association
or arbitrator enjoining or prohibiting Seller from taking, or requiring Seller
to take, any action of any kind which the Purchased Assets or Business are
subject or bound.
3.15 Brokers and Finders. No broker or finder has acted on
behalf of Seller in connection with this Agreement and the transactions
contemplated hereby. No person has a valid claim for a brokerage commission,
finder's fee or other like payment against Seller in connection with the
transactions contemplated by this Agreement.
3.16 Compliance with Laws. Seller has not received notice of
any noncompliance or alleged noncompliance with any Legal Requirement relating
or applicable to the Purchased Assets or to the operation of the Business, the
existence or enforcement of which would have a material adverse effect on the
Buyer's ability to operate them on the same basis as currently conducted and
operated or which would require the payment of refunds, fines, penalties or
restitution in respect of matters occurring prior to the Closing.
3.17 Permits. SCHEDULE 3.17 sets forth all permits, licenses,
certificates, authorizations, orders and approvals granted by any Governmental
Entity to Seller solely and exclusively in connection with the ownership, use or
operation of the Purchased Assets and the operation of the Business in the
manner heretofore operated by Seller, other than sales tax permits, certificates
of occupancy, and certificates of corporate authority (the "Scheduled Permits").
Except as set forth on SCHEDULE 3.17, the Scheduled Permits are in full force
and effect, all fees and other payments due and owing in connection with the
Scheduled Permits have been paid in full, and there are no unpaid fees or other
payments that could cause the lapse or revocation of any of the Scheduled
Permits.
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3.18 Bills and Invoices. Except for items included in the
Assumed Liabilities, all bills and other payments due and payable by Seller with
respect to the Purchased Assets and the Business have been or will be paid in
full in the ordinary course of business, and no labor, material or services have
been provided or performed with respect to the Purchased Assets that have not
been or will not be paid in full.
3.19 Inventories. Set forth on SCHEDULE 2.02(I) is a complete
list of the inventories of Seller included as a part of the Purchased Assets,
including a description thereof. All inventories are of a nature and quality
equal to the inventory historically held by and sold by Seller in the ordinary
course of the Business.
3.20 Untrue Statements. This Agreement and the exhibits,
schedules and appendices hereto, and the financial statements furnished by
Seller or any of its affiliates or representatives to Buyer or its
representatives pursuant hereto or in connection herewith, do not include and
will not include any untrue statement of a material fact or omit to state any
material fact necessary to make the statements made herein and therein, in light
of the circumstances in which they are made, not misleading.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF BUYER
Buyer hereby represents and warrants to Seller as follows:
4.01 Organization, Good Standing and Corporate Power. Buyer is
a corporation, duly organized, validly existing and in good standing under the
laws of Oklahoma and has all requisite corporate power and authority to carry on
its business as now being conducted.
4.02 Authorization. (a) Buyer has all requisite corporate
power and authority to enter into and perform all of its obligations under this
Agreement and to consummate the transactions contemplated hereby. The execution
and delivery of this Agreement by Buyer and the consummation and performance by
Buyer of the transactions contemplated hereby have been duly authorized by all
necessary corporate action on the part of Buyer. This Agreement has been duly
executed and delivered by Buyer and constitutes the legal, valid and binding
obligation of Buyer, enforceable against Buyer in accordance with its terms
except as enforceability may be subject to (i) any applicable bankruptcy,
insolvency, reorganization or other law relating to or affecting creditors'
rights generally and (ii) general principles of equity (regardless of whether
such enforceability is considered in a proceeding in equity or at law).
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4.03 No Breach or Violation. (a) Neither the execution and
delivery of this Agreement by Buyer nor the consummation of the transactions
contemplated hereby to be performed by Buyer will (i) violate or conflict with
any provision of the Certificate of Incorporation or Bylaws of Buyer, as
currently in effect, or (ii) violate or conflict with any provision of any law,
rule, regulation, order, permit, certificate, writ, judgment, injunction,
decree, determination, award or other decision of any Governmental Entity, other
regulatory or self-regulatory body or association or arbitrator binding upon
Buyer or any of its properties, except where such violations or conflicts would
not in the aggregate have a material adverse effect on the business, financial
condition or properties of Buyer or on the ability of Buyer to consummate the
transactions contemplated hereby and except for violations that will be cured,
waived or terminated prior to the Closing.
(b) No consent, approval, order or authorization of, or
registration, declaration or filing with, any Governmental Entity is required by
or with respect to Buyer in connection with the execution and delivery of this
Agreement by Buyer or the consummation by Buyer of the transactions contemplated
hereby other than such filings or registrations which, if not made, and such
authorizations, consents or approvals which, if not received, would not have any
material adverse effect on the business, financial condition, or properties of
Buyer or on the ability of Buyer to consummate the transactions contemplated
hereby.
4.04 Brokers and Finders. No broker or finder has acted on
behalf of Buyer in connection with this Agreement and the transactions
contemplated hereby. No person has a valid claim for a brokerage commission,
finder's fee or other like payment against Buyer in connection with the
transactions contemplated by this Agreement.
ARTICLE V
COVENANTS OF SELLER
5.01 Confidentiality. Seller acknowledges that Buyer would be
irreparably damaged if confidential information concerning the Purchased Assets
or Buyer were disclosed to or utilized by any person to the detriment of Buyer.
Consequently, during the five-year period immediately following the Closing,
Seller shall not, at any time directly or indirectly, without the prior written
consent of Buyer, make use of or divulge, or permit any of its affiliates,
employees or agents to make use of or divulge, any information concerning the
Purchased Assets, the Business, or the financial condition or other affairs of
Buyer that could be used to the detriment of Buyer, including without
limitation, customer information, Patents and Licenses and Seller=s Technology,
except to the extent Seller reasonably deems disclosure of any such items to be
necessary or prudent under applicable securities laws, or if required by law or
in order to preserve or enforce its rights under this Agreement. Seller's
obligations hereunder shall not apply with respect to any confidential
information which (i) is disclosed in a printed publication which is generally
available to the public or becomes publicly known through no wrongful act on the
part of Seller, (ii) becomes known to Seller through disclosure from a
third-party source which, after reasonable inquiry, Seller believes that such
source has a right to disclose without a breach of any contractual or fiduciary
obligation by such source to Buyer, or (iii) is disclosed with the written
approval of Buyer.
5.02 Covenant Not to Compete. (a) Except as set forth in
Section 5.02(d) below, Seller agrees that it will not, and will cause Seller=s
subsidiaries not to, engage or participate, directly or indirectly, as
principal, agent, employee, employer, consultant or in any other individual or
representative capacity whatever, in the conduct or management of, or own
(legally or beneficially), or have the right or option to acquire, any direct or
indirect interest in any business which engages, directly or indirectly, in any
business competitive with the Business, in the United States and Europe, for a
period of five (5) years following the Closing Date.
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(b) Seller agrees that the covenants set forth herein are
appropriate and reasonable when considered in light of the nature and extent of
the Business and Purchased Assets acquired by Buyer hereunder, which includes
the goodwill of the Business. Seller acknowledges that (i) Buyer has a
legitimate interest in protecting the Business and Purchased Assets acquired
from Seller, (ii) the covenants set forth herein are not oppressive to the
Seller and contain reasonable limitations as to time, scope, geographical area
and activity, (iii) the covenants do not harm in any manner whatsoever the
public interest, (iv) the Seller has received and will receive substantial
consideration for agreeing to such covenants, (v) the Seller is agreeing to such
covenants in order, among other things, to induce Buyer to enter into this
Agreement and (vi) Seller will derive substantial benefits from the consummation
of the transactions contemplated by this Agreement, including, but not limited
to, the payment of the consideration for the Purchased Assets and of future
royalties in accordance with this Agreement.
(c) In the event Seller violates the foregoing covenant not to
compete or any other covenants set forth in this Agreement (collectively, the
"Covenants"), then, in addition to any other rights and remedies available,
Buyer shall have the right and remedy to have the applicable Covenant provisions
specifically enforced by any court of competent jurisdiction by way of an
injunction or other legal equitable relief, it being agreed that any breach of
the applicable Covenant would cause irreparable injury to Buyer and damages
would be an inadequate remedy.
(d) Notwithstanding anything in this Section 5.02 or in any
other provision of this Agreement to the contrary, Seller shall have the right
to use the "Soil Sentry Twelve - X" technology (the "Technology") at any future
time, as long as Seller does so in strict accordance with this Section 5.02(d).
Seller can use the Technology in conjunction with any business conducted by
Seller as long as that business does not involve in the monitoring of
aboveground or underground storage tanks of alcohol or petroleum based fuels or
oils. Further, Seller's right to use the Technology shall not entitle Seller to
use the name "Soil Sentry Twelve - X."
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ARTICLE VI
RESERVED
16
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ARTICLE VII
COVENANTS OF BUYER AND SELLER
7.01 Employees of Seller. Buyer agrees to offer employment
only to those employees of the Business specified by Buyer on or before the
Closing on SCHEDULE 7.01 (the "Assumed Employees"). Seller agrees to terminate
the employment of all Assumed Employees effective upon Closing and agrees not to
rehire any Assumed Employees unless they are either terminated by Buyer or have
been out of Buyer's employment for a period of at least six (6) months. Seller
shall retain and perform any and all obligations to (i) the Assumed Employees
incurred prior to the Closing or by reason of such termination of employment and
(ii) all other employees employed by Seller in connection with the Business
incurred prior to or after the Closing, including without limitation in the case
of both (i) and (ii) obligations pursuant to any employment agreement, any
severance, bonus, vacation, deferred compensation, stock purchase, stock option,
profit sharing, pension, retirement or other employee benefit plan, policy or
agreement, or any laws or regulations governing wages, employee benefit plans,
withholding, plant closings and employee notification.
7.02 Further Assurances. Seller and Buyer shall each use their
commercially reasonable efforts to take all actions necessary, proper, or deemed
by them advisable, to fulfill promptly their obligations hereunder and to
consummate the transactions contemplated by this Agreement. Seller and Buyer
will coordinate and cooperate with each other in exchanging such information and
supplying such reasonable assistance as may be requested by the other in
connection with the foregoing. From time to time after the Closing, Seller will
at its own expense, execute and deliver, or cause to be executed and delivered,
such documents to Buyer as Buyer may reasonably request, and from time to time
after the Closing, Buyer will, at its own expense, execute and deliver such
documents to Seller as Seller may reasonably request, in order to more
effectively consummate the transactions contemplated by this Agreement.
ARTICLE VIII
RESERVED
ARTICLE IX
RESERVED
ARTICLE X
RESERVED
ARTICLE XI
AMENDMENTS AND WAIVER
11.01 Amendment. This Agreement may not be amended except by
an instrument in writing signed on behalf of each of the parties hereto.
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11.02 Waiver. Any term or provision of this Agreement may be
waived in writing at any time by Buyer, if it is entitled to the benefits
thereof, or by Seller, if it is entitled to the benefits thereof.
ARTICLE XII
OTHER AGREEMENTS; SURVIVAL
OF REPRESENTATIONS AND WARRANTIES
12.01 Confidentiality. Except as may be required to comply
with applicable law and regulations or to obtain required regulatory approvals
to consummate this transaction, whether state, federal or foreign, each of the
parties hereto will use its best efforts to keep confidential any and all
information relating to this transaction and to one another and will instruct
its officers, employees and other representatives having access to such
information of such obligation of confidentiality. In the event the transactions
contemplated herein are not consummated, each of the parties hereto shall return
all documents, including any copies thereof, to the party which provided the
same.
12.02 Public Announcements. None of the parties hereto will
make any public announcement without prior approval of the other, except as may
otherwise be required by law.
12.03 Additional Agreements. Subject to this Agreement, each
of the parties agrees to use its best efforts to take, or cause to be taken, all
action and to do, or cause to be done, all things necessary, proper or advisable
under applicable laws and regulations to consummate and make effective the
transactions contemplated by this Agreement. If at any time after the Closing
any further action is necessary or desirable to carry out the purposes of this
Agreement, the proper officers and directors of each corporation that is a party
to this Agreement will take all such necessary action.
12.04 Available Remedies. Each party expressly agrees that,
consistent with its intention and agreement to be bound by the terms of this
Agreement and to consummate the transactions contemplated hereby, subject only
to the performance or satisfaction of conditions precedent, the remedy of
specific performance shall be available to a non-breaching and non-defaulting
party to enforce performance of this Agreement by a breaching or defaulting
party, including, without limitation, to require the consummation of the Closing
pursuant to Section 2.01.
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12.05 Survival of Representations and Warranties;
Indemnification. All representations, warranties, covenants and obligations in
this Agreement, and in the schedules hereto, will survive the Closing and the
consummation of the transactions contemplated hereby; provided, however, that
the representations and warranties of Seller contained in Section 3.12 shall
survive until 90 days after the date on which the applicable period on
limitation of assessment of tax has expired, and the representations and
warranties of Seller contained elsewhere in Article III and the representations
of Buyer contained in Article IV shall survive for a period of six months
following Closing. No claim for the recovery of indemnifiable damages based upon
the inaccuracy of the Article III or Article IV representations and warranties
may be asserted by a party after such representations and warranties shall be
thus extinguished; provided, however, that claims first asserted in writing
within the applicable period shall not be barred. The right to payment of
damages or other remedy based on such representations, warranties, covenants,
and obligations will not be affected by any investigation conducted with respect
to, or any knowledge acquired (or capable of being acquired) at any time,
whether before or after the execution and delivery of this Agreement or the
Closing, with respect to the accuracy or inaccuracy of or compliance with, any
such representation, warranty, covenant, or obligation. The waiver of any
condition based on the accuracy of any representation or warranty, or on the
performance of or compliance with any covenant or obligation, will not affect
the right to indemnification, payment of damages, or other remedy based on such
representations, warranties, covenants, and obligations.
12.06 Actions of the Parties after the Closing. The parties
hereto agree that after the Closing, they will take the actions described in
this Section 12.06.
(a) Seller acknowledge and agree that from and after the
Closing, Buyer will be entitled to originals of all title documents and copies
of all other documents, books, records (including tax records), agreements, and
financial data of any sort relating to the Business and Purchased Assets.
(b) In the event and for so long as (i) Seller is a party to
the BP Litigation or (ii) either party actively is contesting or defending
against any action, suit, proceeding, hearing, investigation, charge, complaint,
claim, or demand in connection with (A) any transaction contemplated under this
Agreement or (B) any fact, situation, circumstance, status, condition, activity,
practice, plan, occurrence, event, incident, action, failure to act, or
transaction on or prior to the Closing Date involving the Business or the
Purchased Assets, the other party will to the extent reasonably practicable
cooperate with the contesting or defending party and its counsel in the contest
or defense, make available its personnel, and provide such testimony and access
to its books and records as shall be necessary in connection with the contest or
defense, all at the sole cost and expense of the contesting or defending party.
In particular, and without limiting the preceding sentence, Buyer shall make
available any of the Assumed Employees, as reasonably requested by Seller, in
order to assist Seller in the BP Litigation. However, with respect to any such
information as to which the contesting or defending party may reasonably assert
that the disclosure pursuant hereto would waive a privilege, the parties will
use their reasonable efforts to develop procedures to maintain such privilege.
(c) Seller will not take any action that is designed or
intended to have the effect of discouraging any lessor, licensor, customer,
supplier, or other business associate of the Business from maintaining the same
business relationships with Buyer after the Closing as it maintained with the
Seller prior to the Closing. The Seller will refer all customer inquiries
relating to the Business to Buyer from and after the Closing.
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(d) Promptly after Closing, Seller shall use its commercially
reasonable efforts to obtain the consents necessary, if any, to convey, transfer
and assign to Buyer the Contracts. Without limiting the obligation set forth in
the immediately preceding sentence, if any consent necessary to convey, transfer
and assign the Contracts has not been obtained prior to the Closing Date, Seller
shall use its commercially reasonable efforts to afford Buyer the benefits under
each such Contract and Seller's protection from the obligations under each such
Contract, to the extent Seller may do so without breaching or violating the
terms of any such Contract.
(e) It is the parties' intent that all of the Purchased Assets
be conveyed to Buyer at the Closing. Accordingly, if either party determines
that less than all of the Purchased Assets have been conveyed (whether due to
the failure to identify all of the Purchased Assets at Closing, the failure to
include all Purchased Assets in any applicable assignment or bill of sale, the
failure to obtain all required consents to assignment or otherwise), such party
shall promptly notify the other of such fact and the parties will take all
appropriate action and execute any additional documents, instruments or
conveyances of any kind which may be reasonably necessary to carry out the
foregoing intent.
ARTICLE XIII
MISCELLANEOUS
13.01 Severability. If any term, provision, condition or
covenant of this Agreement or the application thereof to any party or
circumstances shall be held to be unenforceable to any extent in any
jurisdiction, then the remainder of this Agreement and the application of such
term, provision, condition or covenant in any other jurisdiction or to persons
or circumstances other than those as to whom or which it is held to be invalid
or unenforceable, shall not be affected thereby, and each term, provision,
condition and covenant of this Agreement shall be valid and enforceable to the
fullest extent permitted by law.
13.02 Expenses. Except as otherwise provided herein, each
party hereto will pay its own costs and expenses incurred in connection with
this Agreement and the transactions contemplated hereby. Seller will pay all
state and local real estate transfer, documentary, stamp and other similar Taxes
arising from the transfer of the real property included within the Purchased
Assets. In addition, Seller agree that the purchase price includes all
applicable state and local sales, use, transfer, retailer occupation and other
similar Taxes due with respect to the transfer of the Purchased Assets.
13.03 Notices. All notices and other communications hereunder
shall be in writing and shall be deemed to have been given if delivered
personally or sent by telex, facsimile transmission, a nationally recognized
overnight delivery service or registered or certified mail (return receipt
requested), postage prepaid, to the parties to this Agreement at the following
addresses or at such other address for a party as shall be specified by like
notice:
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If to Buyer: National Environmental Service Co.
12331 East 60th Street
Tulsa, Oklahoma 74133-3621
Telefax No.: (918) 250-1418
Attention: Eddy Patterson
with a copy to: Conner & Winters, A Professional Corporation
15 East 5th Street, Suite 3700
Tulsa, Oklahoma 74103
Telefax No.: (918) 596-8548
Attention: Lynnwood R. Moore, Jr.
If to Seller: Arizona Instrument Corporation
4114 East Wood Street
Phoenix, Arizona 85040
Telefax No.:
Attention: George G. Hays
with a copy to: Quarles & Brady
One East Camelback, Suite 400
Phoenix, AZ 85012
Telefax No.: (602) 230-5598
Attention: Robert S. Bornhoft
All such notices and communications shall be deemed to have been received on the
date of delivery or on the third business day after the mailing thereof.
13.04 Time. Time is of the essence of this Agreement.
13.05 Entire Agreement. This Agreement (including the
schedules, documents and instruments referred to herein) constitutes the entire
agreement between the parties with respect to the subject matter hereof and
supersedes all prior agreements and undertakings, written and oral, including,
but not limited to, the letter of intent between the parties, dated April 8,
1999; provided, however, this Agreement shall not constitute a waiver of
termination of any right a party may have against the other party for any breach
of the binding provisions of such letter of intent prior to the Closing.
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13.06 Binding Effect; Benefits. This Agreement shall be
binding upon and inure to the benefit of the parties to this Agreement and their
respective successors and permitted assigns. Nothing expressed or implied in
this Agreement is intended to or shall be construed to give any person other
than the parties to this Agreement or their respective successors or permitted
assigns any legal or equitable right, remedy or claim under or in respect of
this Agreement, it being the intention of the parties to this Agreement that
this Agreement shall be for the sole and exclusive benefit of such parties or
such successors or assigns and for the benefit of no other person.
13.07 Assignment. Neither this Agreement nor any right,
remedy, obligation or liability arising hereunder or by reason hereof shall be
assignable by any party to this Agreement without the prior written consent of
the other parties.
13.08 Applicable Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of Oklahoma applicable to
contracts made and to be performed within that State, without regard to the
principles of conflicts of laws thereof.
13.09 Article and Section Headings. The article, section and
other headings contained in this Agreement are for reference purposes only and
shall not affect the meaning or interpretation of this Agreement.
13.10 Counterparts. This Agreement may be executed in any
number of counterparts, each of which shall be deemed to be an original and all
of which together shall be deemed to be a single agreement.
13.11 Knowledge. Whenever the phrase Ato Seller's knowledge@
or similar such words are used in this Agreement, the phrase shall mean the
current, actual knowledge of George G. Hays, President of Seller, with respect
to the matter as of the Closing Date, without any investigation.
IN WITNESS WHEREOF, the parties to this Agreement have caused
this Agreement to be duly executed as of the date first written above.
NATIONAL ENVIRONMENTAL
SERVICE CO.
By: /s/ Albert A. McCutchan
Albert A. McCutchan,
Executive Vice President
ARIZONA INSTRUMENT
CORPORATION
By: /s/ George G. Hays
George G. Hays, President
22
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Following is a list identifying the exhibits and schedules to this Agreement
which are not being filed with the Securities and Exchange Commission. The
Registrant agrees to furnish supplementally a copy of such exhibits and
schedules to the Securities and Exchange Commission upon request.
Exhibit A - Form of Assignment and Bill of Sale
Exhibit B - Legal Opinion of Sellers' Counsel
Exhibit C - Legal Opinion of Buyer=s Counsel
SCHEDULE 2.02(A) -- Patents and Know-How
SCHEDULE 2.02(B) -- Trademarks and Copyrights
SCHEDULE 2.02(C) -- Equipment
SCHEDULE 2.02(D) -- Software
SCHEDULE 2.02(F) -- Contracts
SCHEDULE 2.02(H) -- Accounts Receivable
SCHEDULE 2.02(I) -- Inventory
SCHEDULE 2.04 -- Assumed Liabilities
SCHEDULE 2.06 -- Allocation of Purchase Price
SCHEDULE 3.08 -- Leases and Other Agreements
SCHEDULE 3.13 -- Employees and Employee Benefit Plans
SCHEDULE 3.14 -- Litigation
SCHEDULE 3.17 -- Scheduled Permits
SCHEDULE 7.01 -- Assumed Employees
Exhibit 3.1
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
ARIZONA INSTRUMENT CORPORATION
1. Name. The name of the Corporation is Arizona Instrument
Corporation.
2. Registered Office and Agent. The name and address of the
registered office and registered agent of the Corporation is The Corporation
Trust Company, Corporation Trust Center, 1209 Orange Street, Wilmington, New
Castle County, Delaware.
3. Purpose. The purpose for which this Corporation is
organized is the transaction of any or all lawful activity for which
corporations may be organized under the General Corporation Law of Delaware, as
it may be amended from time to time ("GCL").
4. Initial Business. The Corporation initially intends to
conduct this business of developing, manufacturing and marketing various
moisture and other test control equipment.
5. Authorized Capital. The total number of shares of stock
which the Corporation shall have authority to issue is 11,000,000 shares,
consisting of 10,000,000 shares of Common Stock, having a par value of $0.01 per
share (the "Common Stock") and 1,000,000 shares of Preferred Stock, having a par
value of $.01 (the "Preferred Stock").
The Board of Directors is authorized, subject to
limitations prescribed by law and the provisions of Article 5, to provide for
the issuance of the shares of Preferred Stock in series, and by filing a
certificate pursuant to the applicable law of the State of Delaware, to
establish from time to time the number of shares to be included in each such
series, and to fix the designation, powers, preferences and rights of the shares
of each such series and the qualifications, limitations or restrictions thereof.
The authority of the Board with respect to each
series shall include, but not be limited to, determination of the following:
(a) The number of shares constituting that series and
the distinctive designation of that series;
(b) The dividend rate on the shares of that series,
whether dividends shall be cumulative, and if so, from which date or dates, and
the relative rights of priority, if any, of payment of dividends on shares of
that series;
(c) Whether that series shall have voting rights, in
addition to the voting rights provided by law, and, if so, the terms of such
voting rights;
<PAGE>
(d) Whether that series shall have conversion
privileges, and, if so, the terms and conditions of such conversion rate in such
events as the Board of Directors shall determine.
(e) Whether or not the shares of that series shall be
redeemable, and, if so, the terms and conditions of such redemption, including
the date or dates upon or after which they shall be redeemable, and the amount
per share payable in case of redemption, which amount may vary under different
conditions and at different redemption dates;
(f) Whether that series shall have a sinking fund for
the redemption or purchase of shares of that series, and, if so, the terms and
amount of such sinking fund;
(g) the rights of the shares of that series in the
event of voluntary or involuntary liquidation, dissolution or winding up of the
Corporation, and the relative rights of priority, if any, of payment of shares
on that series; and
(h) Any other relative rights, preferences and
limitations of that series.
6. Classifications and Terms of Directors. The business and
affairs of the Corporation shall be managed by or under the direction of the
Board of Directors consisting of not less than two directors nor more than ten
directors, the exact number of directors to be determined from time to time by
resolution adopted by the Board of Directors. The directors shall be divided
into three classes, designated Class I, Class II and Class III. Each class shall
consist, as nearly as may be possible, of one-third of the total number of
directors constituting the entire Board of Directors. The terms of the initial
Class I directors shall terminate on the date of the 1989 annual meeting of
stockholders; the term of the initial Class II directors shall terminate on the
date of the 1990 annual meeting of stockholders; and the term of the initial
Class III directors shall terminate on the date of the 1991 annual meeting of
stockholders. At each annual meeting of stockholders beginning in 1989,
successors to the class of directors whose terms expires at that annual meeting
shall be elected for a three-year term. If the number of directors is changed,
any increase or decrease shall be apportioned among the class so as to maintain
the number of directors in each class as nearly equal as possible, and any
additional directors of any class elected to fill a vacancy resulting from an
increase in such class shall hold office for a term that shall coincide with the
remaining terms of that class, but in no case will a decrease in the number of
directors shorten the term of any incumbent director. A director shall hold
office until the annual meeting for the year in which his term expires and until
his successor shall be elected and shall qualify, subject, however, to prior
death, resignation, retirement, disqualification or removal from office. Any
vacancy on the Board of Directors, howsoever resulting (including without
limitation newly created directorships) may be filled by a majority of the
directors then in office, even if less than a quorum, or by a sole remaining
director. Any director elected to fill a vacancy shall hold office for a term
that shall coincide with the term of the class to which such director shall have
been elected.
<PAGE>
Notwithstanding the foregoing, whenever the holders
of any one or more classes or series of Preferred Stock issued by the
Corporation shall have the right, voting separately by class or series, to elect
directors at an annual or special meeting of stockholders, the election, term of
office, filling of vacancies and other features of such directorships shall be
governed by the terms of this Certificate of Incorporation or the resolution or
resolutions adopted by the Board of Directors pursuant to Article Five
applicable thereto, and such directors so elected shall not be divided into
classes pursuant to this Article Six unless expressly provided by such terms.
7. Removal of Directors. Subject to the rights, if any, of the
holders of shares of Preferred Stock then outstanding, any or all of the
directors of the Corporation may be removed from office at any time, with or
without cause and only by the affirmative vote of the holders of a majority of
the outstanding shares of the Corporation then entitled to vote generally in the
election of directors, considered for purposes of this Article 7 as one class.
8. Election of Directors. Elections of directors at an annual
or special meeting of stockholders shall be by written ballot unless the Bylaws
of the Corporation shall otherwise provide. Advance notice of stockholder
nominations for the election of directors shall be given in the manner provided
by the Bylaws of the Corporation.
9. Action by Consent of Stockholder. Any action required or
permitted to be taken by the stockholders must be effected at a duly called and
noticed annual or special meeting of such stockholders and may not be effected
by any consent in writing by such stockholders.
10. Special Meetings. Special meetings of the stockholders of
the Corporation for any purpose or purposes may be called at any time only by
the President, or the Board of Directors pursuant to a resolution approved by a
majority of the whole Board of Directors, or at the request in writing of
shareholders owning 10% or more in amount of the capital stock issued and
outstanding and entitled to vote.
11. Special Voting Requirements.
(a) Except as set forth in Section (b) of this Article 11, the
affirmative vote of the holders of 75% of the outstanding stock of the
Corporation entitled to vote shall be required for:
(1) any merger or consolidation to which the
Corporation, or any of its subsidiaries, and an Interested Person (as
hereinafter defined) are parties;
(2) any sale or other disposition by the Corporation,
or any of its subsidiaries, of all or substantially all of its assets to an
Interested Person;
<PAGE>
(3) any purchase or other acquisition by the
Corporation, or any of its subsidiaries, of all or substantially all of the
assets or stock of an Interested Person; and
(4) any other transactions with an Interested Person
which requires the approval of the stockholders of the Corporation under the
GCL, as in effect from time to time.
(b) The provisions of Section (a) of this Article 11 shall not
be applicable to any transaction described therein if such transaction is
approved by resolution of the Corporation's Board of Directors, provided that a
majority of the members of the Board of Directors voting for the approval of
such transaction are Continuing Directors. The term "Continuing Directors" shall
mean any member of the Board of Directors of the Corporation who is not the
Interested Person, and not an affiliate, associate, representative or nominee of
the Interested Person or of such an affiliate or associate, that is involved in
the relevant transaction, and (A) was a member of the Board of Directors prior
to the date that the person, firm or corporation, or any group thereof, with
whom such transaction is proposed, became an Interested Person or (B) whose
initial election as a director of the Corporation succeeds a Continuing Director
or is a newly created directorship, and in either case was recommended by a
majority vote of the Continuing Directors then in office.
(c) As used in this Article 11, the term "Interested Person"
shall mean any person, firm or corporation, or any group thereof, acting or
intending to act in concert, including any person directly or indirectly
controlling or controlled by or under direct or indirect common control with
such person, firm or corporation or group, which owns of record or beneficially,
directly or indirectly, five percent (5%) or more of any class of voting
securities of the Corporation.
12. Indemnification of Officers and Directors.
A. The Corporation shall indemnify to the full extent
authorized or permitted by law (as now or hereafter in effect) any person made,
or threatened to be made, a defendant or witness to any action, suit or
proceeding (whether civil or criminal or otherwise) by reason of the fact that
he, his testator or intestate, is or was a director or officer of the
Corporation by reason of the fact that such director or officer, at the request
of the Corporation, is or was serving any other corporation, partnership, joint
venture, trust, employee benefit plan or other enterprise, in any capacity.
Nothing contained herein shall affect any rights to indemnification to which
employees other than directors and officers may be entitled by law. No amendment
or repeal of this Section A of Article 12 shall apply to or have any effect on
any right to indemnification provided hereunder with respect to any acts or
omissions occurring prior to such amendment or repeal.
B. No director of the Corporation shall be personally liable
to the Corporation or its stockholders for monetary damages for any breach of
fiduciary duty by such a director as a director. Notwithstanding the foregoing
sentence, a director shall be liable to the extent provided by applicable law
(i) for any breach of the director's duty of loyalty to the Corporation or its
stockholders, (ii) for acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of the law, (iii) pursuant to
Section 174 of the GCL, or (iv) for any transaction from which such director
derived an improper personal benefit. No amendment to or repeal of this Section
B of Article 12 shall apply to or have an effect on the liability or alleged
liability of any director of the Corporation for or with respect to any acts or
omissions of such director occurring prior to such amendment or repeal.
<PAGE>
C. In furtherance and not in limitation of the powers
conferred by statute:
(i) the Corporation may purchase and maintain
insurance on behalf of any person who is or was a director, officer, employee or
agent of the Corporation, or is serving at the request of the Corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust, employee benefit plan or other enterprise against any liability
asserted against him and incurred by him in any such capacity or arising out if
his status as such, whether or not the Corporation would have the power to
indemnify him against such liability under the provisions of law; and
(ii) the Corporation may create a trust fund, grant a
security interest and/or use other means (including, without limitation, letters
of credit, surety bonds and/or other similar arrangements), as well as enter
into contracts providing indemnification to the full extent authorized or
permitted by law and including as part thereof provisions with respect to any or
all of the foregoing to ensure the payment such amounts as may become necessary
to effect indemnification as provided therein, or elsewhere.
13. Bylaws. In furtherance and not in limitation of the powers
conferred by statute, the Board of Directors is expressly authorized by majority
vote of the whole Board of Directors to adopt, repeal, alter, amend or rescind
the bylaws of the Corporation. In addition, the Bylaws of the Corporation may be
adopted, repealed, altered, amended or rescinded by the affirmative vote of 75%
of the outstanding stock of the Corporation entitled to vote thereon; provided,
if the Continuing Directors, as defined in Article 11 shall by a two thirds
favorable vote of such Continuing Directors have adopted a resolution approving
the amendment or repeal proposal and have determined to recommend it for
approval by the holders of stock entitled to vote thereon, then the vote
required shall be the affirmative vote of the holders of at least a majority of
the outstanding shares entitled to vote thereon.
14. Certificate. The corporation specifically elects not to be
governed by Section 203 of the GLC. The Corporation reserves the right to amend,
alter, change or repeal any provision contained in this Certificate of
Incorporation in the manner now or hereafter prescribed by statute and the
Certificate of Incorporation, and all rights conferred on stockholders herein
are granted subject to the reservations in Article 14. Provided, however, the
affirmative vote of the holders of at least 75% of the voting power of the
outstanding stock of the Corporation entitled to vote thereon, shall be required
to alter, amend, or adopt any provision inconsistent with or repeal Articles 6,
7, 8, 9, 10, 11, 12 and 13 and this Article 14; provided, if the Continuing
Directors, as defined in Article 11 shall by a two thirds favorable vote of such
Continuing Directors have adopted a resolution approving the amendment or repeal
proposal and have determined to recommend it for approval by the holders of
stock entitled to vote thereon, then the vote required shall be the affirmative
vote of the holders of at least a majority of the outstanding shares entitled to
vote thereon.
<PAGE>
15. Incorporator. The name and address of the sole
incorporator is as follows:
John Hudnall
1100 East University Drive
Tempe, Arizona 85281
THE UNDERSIGNED, being the sole incorporator hereinbefore
named, for the purpose of forming a corporation pursuant to the General
Corporation Law of the State of Delaware does make this certificate, hereby
declaring and certifying that this is his act and deed and the facts herein
stated are true, and accordingly has hereunto set forth his hand this 10th day
of June, 1988.
/s/ John Hudnall
--------------------------------
John Hudnall
Exhibit 10.1
May 13, 1999
George G. Hays
6227 East Sunnyside Drive
Scottsdale, Arizona 85254
Dear George:
This letter confirms the agreement reached by the Compensation
Committee of Arizona Instrument Corporation at its meeting of February 26, 1999.
The term of your Employment Agreement which was effective as
of January 1, 1998 has been extended until March 31, 2001.
The Employment Agreement is further modified by adding the
following clause:
In the event that the Company sells all or substantially all
of its assets or if a change in control of the Company occurs, then at the
occurrence of either event the entire base salary for the remainder of the
contract term shall become due and payable to you.
If this correctly sets forth our agreement, please sign the
enclosed copy of this letter and return it to me.
Yours truly, Accepted and Agreed
/s/S. Thomas Emerson, PhD. /s/George G. Hays
- -------------------------------- -------------------------
S. Thomas Emerson, PhD George G. Hays
Chairman
Compensation Committee
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THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH FINANCIAL STATEMENTS.
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<CIK> 724904
<NAME> ARIZONA INSTRUMENT CORPORATION
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<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
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0
0
<COMMON> 69,135
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<CGS> 671,486
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<INCOME-PRETAX> (125,320)
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<INCOME-CONTINUING> (56,239)
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