SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[X] Preliminary Proxy Statement
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Section 240.14a-11(c) or
Section 240.14a-12
[ ] Confidential for Use of the Commission Only (as permitted by
Rule 14a-6(e)(2))
Technology 80 Inc.
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(Name of Registrant as Specified In Its Charter)
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(Name of Person(s) Filing Proxy Statement, if other than the
Registrant)
Payment of Filing Fee (Check the appropriate box):
[ ] $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1) or
14a-6(i)(2) or Item 22(a)(2) of Schedule 14A.
[ ] $500 per each party to the controversy pursuant to Exchange
Act Rule 14a-6(i)(3)
[X] Fee computed on table below per Exchange Act Rules 14a-6(i)(4)
and 0-11
1) Title of each class of securities to which transaction
applies:
Common Stock, $.01 par value
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2) Aggregate number of securities to which transaction applies:
1,810,858
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3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which
the filing fee is calculated and state how it was determined):
$5.75 (estimated maximum consideration to be paid for each share)
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4) Proposed maximum aggregate value of transaction:
$10,412,433.50
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5) Total fee paid:
$2,082.49
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[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration
statement number, or the Form or Schedule and the date of its filing:
1) Amount Previously Paid: _________________________________________
2) Form, Schedule or Registration Statement No.: ___________________
3) Filing Party: ___________________________________________________
4) Date Filed: _____________________________________________________
PRELIMINARY COPY
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TECHNOLOGY 80 INC.
658 Mendelssohn Avenue North
Minneapolis, Minnesota 55427
Notice of Special Meeting of Shareholders
To Be Held On _________, 1999
To the Shareholders of Technology 80 Inc.:
NOTICE IS HEREBY GIVEN that a Special Meeting of
Shareholders (the "Special Meeting") of Technology 80 Inc., a
Minnesota corporation ("Tech 80"), will be held on __________,
_________, 1999, at 10:00 a.m., local time, at the offices of
Tech 80, 658 Mendelssohn Avenue North, Minneapolis, Minnesota for
the following purposes:
(1) To consider and vote upon a proposal to approve an
Agreement and Plan of Merger and Reorganization, attached
hereto as Appendix A, dated as of January 27, 1999 (the
"Merger Agreement"), among Tech 80, Duane Markus, Jack
Pagel, Tom Gould, ACS Electronics, Ltd. ("ACS") and Tech 80
Acquisition Corp. ("TAC"). Pursuant to the Merger Agreement,
(i) TAC will be merged with and into Tech 80, which will be
the surviving corporation in the merger (the "Merger"); (ii)
each issued and outstanding share of Common Stock, $.01 par
value, of Tech 80 (the "Shares") (other than Shares held by
any holder who properly exercises dissenters' rights under
Minnesota law) will be converted into the right to receive
in cash an amount (the per share "Consideration") determined
by a formula that is based on a total purchase price to be
paid by ACS with further adjustment as described in the
accompanying Proxy Statement; and (iii) each issued and
outstanding share of Common Stock, $.01 par value, of TAC
will be converted into and exchanged for one newly issued
share of Common Stock of Tech 80. The total purchase price
to be paid by ACS is a base price as adjusted for the amount
of certain assets and liabilities of Tech 80 shown on
closing date balance sheet of Tech 80. Based on numerous
assumptions, it is estimated that the per share
Consideration will be from $5.25 to $5.75. However, no
assurances can be made regarding the actual Consideration
that will result from the application of the formula. The
actual Consideration may be significantly less than such
estimates. A vote to approve the Merger will be a vote to
approve the actual Consideration that will result from the
application of the formula, whether more or less than such
estimates of the per share Consideration.
As a result of the Merger, ACS will become the sole
shareholder of Tech 80. In connection with the Merger, each
option outstanding at the effective time of the Merger will
be converted into the right to receive in cash, for each
share of Common Stock subject thereto, the per share
Consideration less the per share exercise price of such
option (the "Net Consideration").
The terms of the Merger are more fully described in the
accompanying Proxy Statement. The Merger will be effective
on or immediately following the closing date, which Tech 80
currently anticipates to be [March 31], 1999. The per share
Consideration for the Shares (other than Shares held by any
holder who properly exercises dissenters' rights under
Minnesota law) will be available after the total purchase
price to be paid by ACS is determined. It is estimated that
it will take several weeks after the closing date for the
Merger to finally determine the total purchase price.
(2) To transact such other business as may properly
come before the Special Meeting or any adjournment or
postponement thereof.
Only shareholders of record at the close of business on
February ____, 1999, the record date for the Special Meeting, are
entitled to receive notice of, and to vote at, the Special
Meeting and any adjournment or postponement thereof.
Record and beneficial holders of Shares have the right to
dissent from the Merger and obtain payment for the "fair value"
of their Shares by following the procedures prescribed in
Sections 302A.471 and 302A.473 of the Minnesota Business
Corporation Act which are summarized under "Rights of Dissenting
Shareholders" in the accompanying Proxy Statement. A copy of the
provisions is attached as Appendix C. If the holders of more
than 15% of the outstanding number of Shares properly notify Tech
80 of their intention to dissent from the Merger, ACS may
terminate the Merger Agreement.
To ensure that your vote will be counted, please complete,
sign and date the enclosed proxy (printed on blue paper) and
return it promptly in the enclosed prepaid envelope, whether or
not you plan to attend the Special Meeting. Your proxy may be
revoked in the manner described in the accompanying Proxy
Statement at any time before it has been voted at the Special
Meeting.
By Order of the Board of Directors,
Duane Markus
President and Chief Executive Officer
Minneapolis, Minnesota
__________, 1999
PLEASE COMPLETE, SIGN, DATE AND RETURN THE ENCLOSED PROXY
(PRINTED ON BLUE PAPER) PROMPTLY, WHETHER OR NOT YOU INTEND TO BE
PRESENT AT THE SPECIAL MEETING. PLEASE DO NOT RETURN ANY STOCK
CERTIFICATES AT THIS TIME. THE BOARD OF DIRECTORS HAS
UNANIMOUSLY APPROVED THE MERGER AGREEMENT AND RECOMMENDS THAT
SHAREHOLDERS VOTE FOR THE MERGER.
TABLE OF CONTENTS
Page
----
ADDITIONAL INFORMATION 4
SUMMARY 5
GENERAL INFORMATION 14
Voting Rights and Vote Required 14
Proxies 15
THE MERGER 17
General 17
The Consideration 17
Tech 80's Estimates of the Consideration 23
Background of and Reasons for the Merger 27
Recommendation of the Board of Directors 28
Opinion of Financial Advisor to Tech 80 28
Effects Of The Merger 32
Interests of Certain Persons in the Merger 33
Effective Time; Closing Date 34
Exchange of Shares 34
Conditions 35
Covenants and Certain Agreements 35
Indemnification by the Principals 36
Termination and Amendment of the Merger Agreement 37
Fees and Expenses 37
Federal Income Tax Consequences 38
RIGHTS OF DISSENTING SHAREHOLDERS 40
MARKET PRICES AND DIVIDENDS 43
SELECTED FINANCIAL DATA 44
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS 44
Results of Operations - 1998 vs. 1997 44
Results of Operations - First Quarter 1999 vs. First Quarter 1998 45
Liquidity and Capital Resources 45
Year 2000 Issue 46
Cautionary Statement 47
BUSINESS OF TECH 80 48
General 48
Industrial Control Products 48
Customers 48
Competition 49
Suppliers 49
Backlog 50
Employees 50
Patents and Licenses 50
Research and Development 50
Marketing, Sales and Distribution 51
Description of Property 51
MANAGEMENT 52
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT 53
DESCRIPTION OF ACS 55
DESCRIPTION OF TAC 55
LEGAL MATTERS 55
INDEPENDENT PUBLIC ACCOUNTANTS 55
OTHER BUSINESS 55
FINANCIAL STATEMENTS 56
APPENDICES:
Appendix A: Agreement and Plan of Merger and Reorganization
Appendix B: Opinion of Schmidt Financial, Inc.
Appendix C: Sections 302A.471 and 302A.473 of Minnesota Business
Corporation Act, Regarding Rights of Dissenting
Shareholders
TECHNOLOGY 80 INC.
PROXY STATEMENT
for
SPECIAL MEETING OF SHAREHOLDERS
to be held
_________, 1999
This Proxy Statement is being furnished to shareholders of
Technology 80 Inc., a Minnesota corporation ("Tech 80" or the
"Company"), in connection with the solicitation of proxies by the
Board of Directors of Tech 80 from holders of outstanding shares
of Common Stock, $.01 par value, of Tech 80 (the "Shares"). The
proxies are solicited for use at a Special Meeting of
Shareholders (the "Special Meeting") of Tech 80 to be held on
__________, 1999, and at any adjournment or postponement thereof.
The purpose of the Special Meeting is to consider and vote upon
an Agreement and Plan of Merger and Reorganization, dated as of
January 27, 1999 (the "Merger Agreement") among Duane Markus,
Jack Pagel, and Tom Gould (collectively, the "Principals"), Tech
80, Tech 80 Acquisition Corp., a Minnesota corporation ("TAC")
and ACS Electronics, Ltd., an Israeli corporation and the sole
shareholder of TAC ("ACS"). Pursuant to the Merger Agreement,
TAC will be merged with and into Tech 80, which will be the
surviving corporation in the merger (the "Merger"), and ACS will
become the sole shareholder of Tech 80. This Proxy Statement is
first being mailed to holders of Shares on or about __________,
1999.
Pursuant to the Merger Agreement, upon effectiveness of the
Merger, (i) TAC will be merged with and into Tech 80, and Tech 80
will be the surviving corporation in the Merger, (ii) each Share
(other than Shares held by any holder who properly exercises
dissenters' rights under Minnesota law) will be converted into
the right to receive in cash an amount (the per share
"Consideration") determined by a formula that is based on a total
purchase price to be paid by ACS with further adjustments as
described below; and (iii) each issued and outstanding share of
Common Stock, $.01 par value, of TAC will be converted into and
exchanged for one newly issued share of Common Stock of Tech 80.
The total purchase price to be paid by ACS is a base price as
adjusted for the amount of certain assets and liabilities of Tech
80 shown on closing date balance sheet of Tech 80. As a result
of the Merger, ACS will become the sole shareholder of Tech 80.
By virtue of the Merger, each option to purchase Tech 80 Common
Stock outstanding at the effective time of the Merger (the
"Options") will be converted into the right to receive in cash,
for each share of Common Stock subject thereto, the per share
Consideration less the per share exercise price of such option
(the "Net Consideration").
The cost of soliciting proxies, including the cost of
preparing, assembling and mailing proxies and soliciting
material, as well as the cost of forwarding such material to the
beneficial owners of stock will be borne by Tech 80 (and will be
taken into account in determining the total purchase price to be
paid by ACS). Directors, officers and regular employees of Tech
80 may, without compensation other than their regular
compensation, solicit, personally or by telephone, proxies on
behalf of the Board in favor of the Board of Director's
recommendation.
Any shareholder giving a proxy may revoke it at any time
prior to its use at the Special Meeting by giving written notice
of such revocation to Tech 80's President and Chief Executive
Officer (Mr. Duane Markus) or Secretary (Mr. Thomas Gould), or by
filing a new written proxy with any of the persons holding these
offices. The enclosed proxy, when properly signed and returned
to Tech 80, will be voted by the proxy holders at the Special
Meeting as directed or if no direction is given, will be voted in
favor of the Merger.
UNDER THE MINNESOTA BUSINESS CORPORATION ACT (THE "MBCA"),
THE AFFIRMATIVE VOTE OF THE HOLDERS OF A MAJORITY OF THE
OUTSTANDING SHARES ENTITLED TO VOTE AT THE SPECIAL MEETING IS
NECESSARY TO APPROVE THE MERGER AGREEMENT (THE "MBCA REQUIRED
APPROVAL").
The presence at the Special Meeting in person or by proxy of
the holders of 30% of the outstanding shares of Tech 80's Common
Stock entitled to vote shall constitute a quorum for the
transaction of business. If a shareholder abstains from voting
as to any matter, then the Shares held by such shareholder shall
be deemed present at the Special Meeting for purposes of
determining a quorum and for purposes of calculating the vote
with respect to such matter, but shall not be deemed to have been
voted in favor of such matter. If a broker returns a "non-vote"
proxy, indicating a lack of authority to vote on such matter,
then the Shares covered by such non-vote shall be deemed present
at the Special Meeting for purposes of determining a quorum but
shall not be deemed to be represented at the meeting for purposes
of calculating the vote with respect to such matter, a result
equivalent to a vote against the Merger. PROXIES WHICH ARE
SIGNED BUT WHICH LACK ANY SPECIFICATION WILL BE VOTED FOR THE
MERGER AND DEEMED TO CONFER AUTHORITY ON THE PROXIES TO VOTE ON
OTHER MATTERS WHICH PROPERLY COME BEFORE THE MEETING. FAILURE TO
ATTEND THE MEETING, IN PERSON OR BY PROXY, THE RETURN OF A BROKER
"NON-VOTE" PROXY OR ABSTENTION FROM VOTING ON THE MERGER IS THE
EQUIVALENT OF VOTING AGAINST THE MERGER FOR PURPOSES OF THE MBCA
REQUIRED APPROVAL.
IN ADDITION TO THE MBCA REQUIRED APPROVAL, PURSUANT TO THE
MERGER AGREEMENT, A CONDITION TO THE CLOSING IS THAT THE MERGER
BE APPROVED BY THE AFFIRMATIVE VOTE OF THE HOLDERS OF A MAJORITY
OF THE SHARES REPRESENTED IN PERSON OR BY PROXY AT THE SPECIAL
MEETING WITH AUTHORITY TO VOTE ON THE MATTER AND WHICH ARE
BENEFICIALLY OWNED BY SHAREHOLDERS OTHER THAN BY THE PRINCIPALS
(THE "NON-PRINCIPAL SHAREHOLDER APPROVAL"). For purposes of the
Non-Principal Shareholder Approval, Shares beneficially owned
other than by the Principals and covered by a proxy granted to
one or more of the Principals shall be deemed voted by the
beneficial owner as directed on the form of proxy or, if no
direction is given, shall be deemed voted by the beneficial owner
in favor of the Merger (and such Shares, solely by reason of such
proxy, shall not be deemed Shares beneficially owned by the
Principals for purposes of the Non-Principal Shareholder
Approval). Further, for purposes of the Non-Principal Shareholder
Approval, if a broker returns a "non-vote" proxy, indicating a
lack of authority to vote on such matter, then the Shares covered
by such non-vote shall not be taken into account. SEE "GENERAL
INFORMATION--Voting Rights and Vote Required."
THE BOARD OF DIRECTORS HAS UNANIMOUSLY APPROVED THE MERGER
AGREEMENT AND RECOMMENDS THAT SHAREHOLDERS VOTE FOR THE MERGER.
THIS TRANSACTION HAS NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED
UPON THE FAIRNESS OR MERITS OF SUCH TRANSACTION NOR UPON THE
ACCURACY OR ADEQUACY OF THE INFORMATION CONTAINED IN THIS
DOCUMENT. ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL.
No person has been authorized to give any information or
make any representations other than those contained herein and,
if given or made, such information or representations must not be
relied upon as having been authorized by Tech 80, ACS, TAC, or
any of their representatives.
All information contained in this Proxy Statement with
respect to Tech 80 has been supplied by Tech 80. All information
contained in the Proxy Statement with respect to ACS and TAC has
been supplied by ACS and TAC.
Tech 80 has the following business address and telephone
number: 658 Mendelssohn Avenue North, Minneapolis, Minnesota
55413; (612) 542-9545. ACS has the following business address and
telephone number: Industrial Park, P.O.B. 5668, Migdal Ha'Emek
10500, Israel 10500l, 011-972-6-6546-440. TAC has the same
business address and telephone number as ACS.
ADDITIONAL INFORMATION
Tech 80 is subject to the informational requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act").
In accordance with the Exchange Act, Tech 80 files periodic
reports, proxy statements and other information with the
Securities and Exchange Commission (the "SEC") relating to its
business, financial statements and other matters. Such reports,
proxy statements and other information filed by Tech 80 may be
inspected and copied, at prescribed rates, at the public
reference facilities maintained by the SEC at Room 1024,
Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549,
and are also available at the regional offices of the SEC located
at Citicorp Center, 500 W. Madison Street, Suite 1400, Chicago,
Illinois 60661, and 7 World Trade Center, New York, New York
10048. The SEC also maintains an Internet site at
"http://www.sec.gov" that contains reports, proxy and information
statements, and other information regarding issuers, like Tech
80, that file electronically with the SEC.
SUMMARY
The following is a brief summary of certain information relating
to the Merger of TAC into Tech 80 contained elsewhere in this
Proxy Statement and in the documents incorporated herein by
reference. This summary is qualified in its entirety by the more
detailed information contained elsewhere in this Proxy Statement
and the Appendices hereto. Capitalized terms not otherwise
defined below have the meanings ascribed to them elsewhere in
this Proxy Statement. Shareholders are urged to read this Proxy
Statement and the Appendices hereto in their entirety.
Parties to the Merger
- ---------------------
Tech 80 was incorporated under the laws of the State of Minnesota
on February 12, 1980. It is engaged in the business of
developing, manufacturing, marketing and selling computer-related
products. Tech 80 designs, manufactures, and markets industrial
control products, with an emphasis on motion control
applications. Tech 80's products consist primarily of add-in
boards for various types of industry standard micro computers.
See "BUSINESS OF TECH 80."
ACS was incorporated under the laws of Israel on June 9, 1985.
ACS develops and produces motion control products. The common
stock of ACS is traded on the Nasdaq SmallCap Market under the
symbol "ACSEF." See "DESCRIPTION OF ACS."
TAC was incorporated under the laws of the State of Minnesota on
January 12, 1999 for the purpose of effecting the Merger. It has
no material assets and has not engaged in any activities except
in connection with the proposed Merger. See "DESCRIPTION OF
TAC."
Time, Place and Date of the Special Meeting of Shareholders;
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Record Date
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The Special Meeting will be held at 10:00 a.m., local time, on
________, __________, 1999 at the offices of Tech 80, 658
Mendelssohn Avenue North, Minneapolis, Minnesota, 55427. Only
holders of record of shares of Tech 80 Common Stock, $.01 par
value (the "Shares"), at the close of business on __________,
1999 (the "Record Date") are entitled to notice of, and to vote
at, the Special Meeting. See "GENERAL INFORMATION--Voting Rights
and Vote Required."
Purpose of the Meeting
- ----------------------
The purpose of the Special Meeting is to consider and vote upon a
proposal to approve the Merger Agreement attached hereto as
Appendix A. As a result of the Merger, ACS will become the sole
shareholder of Tech 80, and all outstanding Shares held by the
shareholders of Tech 80 will be converted into the right to
receive the per share Consideration.
Quorum
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At the Record Date there were [1,683,483] Shares outstanding and
entitled to vote, held by approximately [161] holders of record.
Under Tech 80's Bylaws, thirty percent of the Shares entitled to
vote, represented in person or by proxy at the Special Meeting,
shall constitute a quorum at the Special Meeting.
MBCA Required Approval
- ----------------------
The Minnesota Business Corporation Act ("MBCA") requires the
affirmative vote of the holders of a majority of the Shares
outstanding and entitled to vote to approve the Merger Agreement
(the "MBCA Required Approval"). See "GENERAL INFORMATION--Voting
Rights and Vote Required."
Non-Principal Shareholder Approval
- ----------------------------------
In addition to the MBCA Required Approval, the Merger Agreement
requires that the Merger be approved by the affirmative vote of
the holders of a majority of the Shares represented in person or
by proxy at the Special Meeting which are beneficially owned by
shareholders other than the Principals (the "Non-Principal
Shareholder Approval"). See "GENERAL INFORMATION--Voting Rights
and Vote Required."
Rights of Dissenting Shareholders
- ---------------------------------
Holders of Shares who do not vote to approve the Merger Agreement
may dissent from the Merger and elect to have the "fair value" of
their Shares determined as of the time immediately prior to the
effectiveness of the Merger, based on all relevant factors, and
paid to them in cash. Such shareholders must deliver to Tech 80
a written notice of intent to demand the fair value of their
Shares prior to the taking of the vote on the Merger Agreement
and comply with the other requirements of Sections 302A.471 and
302A.473 of the MBCA (copies of which are attached to this Proxy
Statement as Appendix C). Any deviation by a shareholder in
meeting such requirements may result in forfeiture of the
shareholder's dissenters' rights. Dissenting shareholders are
entitled to receive only the fair value of their Shares, which
may be more than, the same as, or less than the amount of cash
they would be entitled to in the Merger. If the holders of more
than 15% of the outstanding shares of Tech 80 Common Stock
properly notify Tech 80 of their intention to dissent from the
Merger, ACS may terminate the Merger Agreement. See "RIGHTS OF
DISSENTING SHAREHOLDERS."
The Merger
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At the Special Meeting, holders of Shares will be asked to
consider and vote upon a proposal to approve the Merger Agreement
among Tech 80, Duane Markus, Jack Pagel, Tom Gould, ACS and TAC.
A copy of the Merger Agreement is attached hereto as Appendix A.
Pursuant to the Merger Agreement, upon effectiveness of the
Merger, (i) TAC will be merged with and into Tech 80, and Tech 80
will be the surviving corporation in the Merger, (ii) each Share
(other than Shares held by any holder who properly exercises
dissenters' rights under Minnesota law) will be converted into
the right to receive in cash the per share Consideration. As a
result of the Merger, ACS will become the sole shareholder of
Tech 80. See "THE MERGER--General."
The Consideration
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In the Merger, each Share (other than Shares held by any holder
who properly exercises dissenters' rights under Minnesota law)
will be converted into the right to receive in cash the per share
Consideration, and each option to purchase Tech 80 Common Stock
outstanding at the effective time of the Merger will be converted
into the right to receive in cash, for each share of Common Stock
subject thereto, the per share Consideration less the per share
exercise price of such option (the "Net Consideration"). See
"THE MERGER--The Consideration."
Tech 80's Estimates of the Consideration
- ----------------------------------------
Based on numerous assumptions, Tech 80 estimates that the per
share Consideration will be from $5.25 to $5.75. Among the
assumptions that Tech 80 has made are (without limitation): the
date on which Closing will occur; the results of Tech 80's
operations until the Closing Date; the gains or losses that Tech
80 will realize when it liquidates its investments prior to
Closing; and the amount of employee loans that will be repaid
prior to Closing. No assurances can be made regarding the actual
Consideration that will result from the application of the
formula. The actual Consideration may be significantly less than
such estimates. A vote to approve the Merger will be a vote to
approve the actual Consideration that will result from the
application of the formula, whether more or less than such
estimates of the per share Consideration. See "THE MERGER--Tech
80's Estimates of the Consideration."
The Formula
- -----------
The per share Consideration will be determined by a formula. The
formula used to determine the per share Consideration is
(x) the sum of
(1) the Total Purchase Price plus
(2) the Total Options Exercise Price minus
(3) the Shareholder Fund Administrative Expenses,
divided by
(y) the sum of
(1) the total number of Shares outstanding at the Effective
Time of the Merger plus
(2) the total number of Shares issuable upon exercise of
all Options to acquire Common Stock outstanding at the
Effective Time of the Merger.
The Total Purchase Price; Other Terms
- -------------------------------------
The Total Purchase Price is the amount of cash that ACS will pay
for the Shares and Options. The "Total Purchase Price" is equal
to the sum of (1) a base price of $6,353,000 plus (2) the
Portfolio Position minus (3) the Shortfall Amount. The
"Portfolio Position" is the amount of Tech 80's cash, cash
equivalents and investments as of the Closing Date. The
"Shortfall Amount" is the amount, if any, by which Tech 80's
Adjusted Net Book Value as of the Closing Date is less than
$1,840,000. Tech 80's "Adjusted Net Book Value" is the sum of
the book value (as shown on the Closing Date Balance Sheet) of
Tech 80's (x) plant and equipment, receivables (other than
interest from employees and money due-loans), inventory, prepaid
assets and Adjusted Tax Assets, less (y) total liabilities shown
on such Closing Date Balance Sheet.
The "Total Options Exercise Price" is the total exercise price
payable under all Options outstanding at the Effective Time.
The "Shareholder Fund Administrative Expenses" includes out-of-
pocket expenses that the Principals may incur in connection with
finalizing the Total Purchase Price, in administering the
Shareholder Fund (as defined below) and in otherwise performing
their duties under Article II of the Merger Agreement. The
Principals will not be paid any fees or compensation for
performing such duties. See "THE MERGER--The Consideration."
Payments at Closing; Finalization of the Total Purchase Price
- -------------------------------------------------------------
The per share Consideration will be available for payment after
the Total Purchase Price is finally determined. Prior to the
Closing, Tech 80 will prepare an estimate of the Total Purchase
Price, and ACS will pay the amount of such estimate into a bank
account (the "Shareholder Fund") that will be for the benefit of
all holders of Shares and Options, but which will be administered
by the Principals. After Closing, Tech 80's accountants will
prepare a Closing Date Balance Sheet and will determine the Total
Purchase Price, which will become final unless either the
Principals or ACS disputes the determination. If either so
disputes the accountant's determination, the Total Purchase Price
will be determined by mutual agreement, or by an independent
accountant pursuant to dispute resolution procedures. See "THE
MERGER--The Consideration."
Adjusting Payments; Availability Date
- -------------------------------------
Within seven days after the final determination of the Total
Purchase Price, any adjusting payments are to be made (the
"Availability Date"), and payment of the Consideration can then
be made to holders of Shares. The Availability Date is not
expected to occur until approximately forty days after the
Closing Date, and may occur substantially thereafter if there are
disputes regarding finalization of the Total Purchase Price. See
"THE MERGER--The Consideration."
Interest
- --------
Any interest earned on the Shareholder Fund from the Closing Date
until the Availability Date will accrue to the benefit of holders
of Shares and Option Agreements; interest thereafter will accrue
to the benefit of ACS. See "THE MERGER--The Consideration."
Background of and Reasons for the Merger
- ----------------------------------------
Tech 80's discussions with ACS regarding a potential merger began
in July 1998. These discussions resulted in execution of the
Merger Agreement as of January 27, 1999. Among the reasons why
the Board of Directors approved the Merger Agreement are (without
limitation): the illiquid nature of the market for Tech 80's
stock; consolidation in Tech 80's industry that created
opportunities for a possible sale of Tech 80; and favorable
consideration being offered by ACS. See "THE MERGER--Background
of and Reasons for the Merger."
Opinion of Financial Advisors
- -----------------------------
Schmidt Financial, Inc. has delivered to Tech 80's Board of
Directors its written opinion that, as of February 11, 1999, the
Consideration to be received by Tech 80 shareholders in the
Merger is fair to such shareholders from a financial point of
view. A copy of Schmidt Financial's opinion is attached hereto
as Appendix B. See "THE MERGER--Opinion of Financial Advisors."
Exchange of Shares for Cash
- ---------------------------
In order to receive the per share Consideration or the Net
Consideration following the consummation of the Merger, each
holder of a certificate or certificates representing Shares
(other than those who have properly dissented) and each holder of
an Option Agreement will be required to surrender his or her
stock certificate or certificates or Option Agreement, together
with a duly executed and properly completed letter of transmittal
and any other required documents, to Tech 80. Instructions will
be sent to shareholders and holders of Options with regard to the
procedure for surrendering certificates and Option Agreements,
together with a letter of transmittal and any other required
documents as promptly as practicable after the Effective Time.
After Tech 80 has confirmed compliance with the procedures, Tech
80 will notify the Principals. On and after the Availability
Date, the Principals will pay from the Shareholder Fund the
Consideration payable to holders of Shares (other than those who
have properly dissented) who have returned the appropriate
documents, or the Net Consideration payable to holders of an
Options who have returned the appropriate documents, plus each
holder's pro rata share of any interest earned up through the
Availability Date. See "THE MERGER--Exchange of Shares."
Conditions to the Merger
- ------------------------
The consummation of the Merger is subject to the fulfillment of
certain conditions. It is a condition to the obligations of both
Tech 80 and ACS that the MBCA Required Approval and the Non-
Principal Shareholder Approval be obtained. The obligation of
ACS to complete the Merger is subject to the conditions, among
others, that ACS is satisfied with the disclosure schedules that
Tech 80 is to deliver in advance of the Closing and that there is
no breach of the representations and warranties made by Tech 80
and the Principals in the Merger Agreement. In addition, the
obligations of all parties to the Merger are subject to certain
other conditions as set forth in the Merger Agreement. See "THE
MERGER--Conditions."
Covenants and Certain Agreements; Fees and Expenses
- ---------------------------------------------------
Tech 80 has agreed to operate the business in the ordinary course
until the Closing Date. Further, prior to termination of the
Merger Agreement, Tech 80 has also agreed that it will not
initiate, encourage or solicit another offer to acquire Tech 80.
The Board of Directors can withdraw its favorable recommendation
of the Merger if independent legal counsel advises that such
action is required for the Board of Directors to comply with its
fiduciary duties to shareholders imposed by law. If the Board so
withdraws its recommendation, and ACS terminates the Merger
Agreement, Tech 80 will become obligated to pay $400,000 to ACS.
If ACS terminates the Merger Agreement as a result of Tech 80's
material adverse changes, ACS will become obligated to reimburse
Tech 80 for up to $50,000 in legal fees. See "THE MERGER--
Covenants and Certain Agreements" and "THE MERGER--Fees and
Expenses."
Indemnification by the Principals
- ---------------------------------
The Principals have agreed to indemnify and hold harmless ACS and
Tech 80 (as the Surviving Corporation) and certain others for a
period of one year for up to $300,000 of expenses and losses
incurred as a result of a breach of the representations,
warranties and agreements made by Tech 80 and the Principals in
the Merger Agreement and related agreements. See "THE MERGER--
Indemnification by the Principals."
Termination
- -----------
The Merger Agreement may be terminated (among other reasons): by
mutual consent of Tech 80 and ACS; by ACS if more than 15% of the
outstanding Shares properly notify Tech 80 of their intention to
dissent from the Merger; by either Tech 80 or ACS acting alone if
any condition to its obligations is not satisfied as required by
the Merger Agreement; or by either Tech 80 or ACS if the Merger
is not effective by May 15, 1999. See "THE MERGER--Covenants and
Conditions" and "THE MERGER--Termination and Amendment of the
Merger Agreement."
Interests of Certain Persons in the Transaction
- -----------------------------------------------
At Closing, Duane Markus, Tech 80's President and Chief Executive
Officer, will enter into a severance and non-competition
agreement, and Jack Pagel and Tom Gould, both directors of Tech
80, will enter into severance agreements, with the Surviving
Corporation. Such agreements will provide for the payment of
$400,000 to Duane Markus and $50,000 each to Jack Pagel and Tom
Gould, and the cost thereof will be borne directly or indirectly
by ACS. Such amounts will not affect the Total Purchase Price to
be paid by ACS, or the per share Consideration. The Merger
Agreement contemplates that prior to Closing Tech 80 may pay Jack
Pagel an additional $100,000 consulting fee for services rendered
in connection with the Merger, which fee would reduce the Total
Purchase Price to be paid by ACS. The Merger Agreement also
contemplates that prior to or on the Closing Date, the Principals
or their affiliates may purchase receivables or other assets from
Tech 80 for cash, which purchase, if any, should not decrease,
and may increase, the Total Purchase Price otherwise payable by
ACS. See "THE MERGER--Interests of Certain Persons in the
Transaction."
Federal Income Tax Consequences of the Merger
- ---------------------------------------------
Assuming that a shareholder of Tech 80 holds his or her Shares as
a capital asset, the holder will recognize capital gain or loss
equal to the difference between the Consideration received and
the holder's basis in Tech 80 Shares, and will recognize ordinary
income on any interest received. Under the federal income tax
backup withholding rules, unless an exemption applies,
withholding will be required for 31% of all payments to which a
holder or other payee is entitled pursuant to the Merger, unless
the holder or other payee provides or has provided a tax
identification number (social security number, in the case of an
individual, or employer identification number in the case of
other Tech 80 shareholders). Any amounts withheld will be
allowed as a credit against the holder's Federal income tax
liability. It should be noted that the parties have not
obtained, and will not obtain, a ruling from the Internal Revenue
Service or an opinion of tax counsel regarding the matters
described herein. For a description of certain federal income
tax consequences of the Merger, see "THE MERGER--Federal Income
Tax Consequences."
Recent Prices of Tech 80 Common Stock
- -------------------------------------
Tech 80's Common Stock is traded on the Minneapolis over-the-
counter market under the NASD Bulletin Board symbol "TKAT." The
average of the bid and asked trading prices for each of the 10
trading days immediately preceding the public announcement of the
proposed Merger was $3 7/8 per Share. On __________, 1999, the
last full trading day prior to the printing of this Proxy
Statement, the average of the bid and asked prices was $______
per Share. Tech 80 shareholders are urged to obtain current
market quotations for their Shares. Tech 80 has never paid a
dividend with respect to its Common Stock. See "MARKET PRICES
AND DIVIDENDS."
GENERAL INFORMATION
This Proxy Statement is furnished in connection with the solicitation by
the Board of Directors of Tech 80 of proxies to be voted at the Special Meeting
to be held on __________, 1999.
At the Meeting, Tech 80 shareholders will be asked to consider and vote
upon the approval of the Merger Agreement, providing for the merger of TAC,
which is wholly owned and controlled by ACS, with and into Tech 80. A copy of
the Merger Agreement is attached as Appendix A to this Proxy Statement.
The Board of Directors of Tech 80 has unanimously approved the Merger
Agreement and recommends that shareholders of Tech 80 vote to approve the
Merger Agreement. The Board of Directors and sole shareholder of TAC have
previously approved the Merger Agreement. The Board of Directors of ACS has
previously approved the Merger Agreement.
Pursuant to the Merger Agreement, upon effectiveness of the Merger, each
outstanding Share (other than Shares held by any holder who properly exercises
dissenters' rights under Minnesota law) will be converted into the right to
receive the per share Consideration. Further, holders of any Options
outstanding at the Effective Time of the Merger will be entitled to receive the
Net Consideration.
Voting Rights and Vote Required
The Tech 80 Board has fixed February ____, 1999 as the Record Date for the
determination of Tech 80 shareholders entitled to notice of and to vote at the
Special Meeting. Accordingly, only holders of record of Shares on the Record
Date will be entitled to notice of and to vote at the Special Meeting. At the
Record Date, there were [1,683,483] Shares outstanding and entitled to vote.
Such outstanding Shares at the Record Date were held by approximately [161]
holders of record. Each holder of record of Shares on the Record Date is
entitled to cast one vote per Share on each proposal properly submitted for the
vote of Tech 80 shareholders. Holders of Shares may vote in person or by
properly executed proxy at the Special Meeting.
MBCA Required Approval
- ----------------------
Under the Minnesota Business Corporation Act, the affirmative vote of the
holders of a majority of the outstanding Shares entitled to vote at the Special
Meeting is necessary to approve the Merger Agreement (the "MBCA Required
Approval").
The presence at the Special Meeting in person or by proxy of the holders
of 30% of the outstanding Shares of Tech 80's Common Stock entitled to vote
shall constitute a quorum for the transaction of business. If a shareholder
abstains from voting as to any matter, then the Shares held by such shareholder
shall be deemed present at the meeting for purposes of determining a quorum and
for purposes of calculating the vote with respect to such matter, but shall not
be deemed to have been voted in favor of such matter. If a broker returns a
"non-vote" proxy, indicating a lack of authority to vote on such matter, then
the Shares covered by such non-vote shall be deemed present at the meeting for
purposes of determining a quorum but shall not be deemed to be represented at
the meeting for purposes of calculating the vote with respect to such matter, a
result equivalent to a vote against the Merger. PROXIES WHICH ARE SIGNED BUT
WHICH LACK ANY SPECIFICATION WILL BE VOTED FOR THE MERGER AND DEEMED TO CONFER
AUTHORITY ON THE PROXIES TO VOTE ON OTHER MATTERS WHICH PROPERLY COME BEFORE
THE MEETING. FAILURE TO ATTEND THE MEETING, IN PERSON OR BY PROXY, THE RETURN
OF A BROKER "NON-VOTE" PROXY OR ABSTENTION FROM VOTING ON THE MERGER IS THE
EQUIVALENT OF VOTING AGAINST THE MERGER FOR PURPOSES OF THE MBCA REQUIRED
APPROVAL.
Tech 80 has assumed that all of the Shares beneficially owned by the
Principals may be voted by them and taken into account as shares entitled to
vote at the Special Meeting for purposes of the MBCA Required Approval. It is
possible that as a result of the possible application of the Minnesota control
share acquisition statute, MBCA Section 302A.671 ("Control Share Acquisition
Law"), some of the Shares that they beneficially own may not be entitled to
vote. The application of the Control Share Acquisition Law to transactions in
which the Principals acquired their Shares is difficult due to a lack of clear
authority as to how courts would interpret this complex law in the context of
the Principals' acquisitions of Shares, many of which were acquired by them
over ten years ago. However, Tech 80 believes that if the Non-Principal
Shareholder Approval is obtained, and in light of the Principals' stated
intentions to vote any Shares which they are entitled to vote in favor of the
Merger, the number of Shares possibly affected by the Control Share Acquisition
Law should not affect whether or not the MBCA Required Approval has been
obtained.
Non-Principal Shareholder Approval
- ----------------------------------
IN ADDITION TO THE MBCA REQUIRED APPROVAL, THE MERGER AGREEMENT REQUIRES
THAT THE MERGER BE APPROVED BY THE AFFIRMATIVE VOTE OF THE HOLDERS OF A
MAJORITY OF THE SHARES REPRESENTED IN PERSON OR BY PROXY AT THE SPECIAL MEETING
WITH AUTHORITY TO VOTE ON THE MATTER AND WHICH ARE BENEFICIALLY OWNED BY
SHAREHOLDERS OTHER THAN THE PRINCIPALS (THE "NON-PRINCIPAL SHAREHOLDER
APPROVAL").
For purposes of the Non-Principal Shareholder Approval, Shares
beneficially owned other than by the Principals and covered by a proxy granted
to one or more the Principals shall be deemed voted by the beneficial owner as
directed on the form of proxy or, if no direction is given, shall be deemed to
have affirmatively voted in favor of the Merger (and such Shares, solely by
reason of such proxy, shall not be deemed Shares beneficially owned by the
Principals for purposes of the Non-Principal Shareholder Approval). Further, if
a broker returns a "non-vote" proxy, indicating a lack of authority to vote on
such matter, then the Shares covered by such non-vote shall not be taken into
account for purposes of the Non-Principal Shareholder Approval.
Proxies
This Proxy Statement is being furnished to holders of Shares in connection
with the solicitation of proxies by Tech 80 and on behalf of the Board for use
at the Special Meeting.
Any proxy given pursuant to this solicitation may be revoked by the person
giving it at any time before it is voted. Proxies may be revoked by (i) filing
with the President and Chief Executive Officer, Duane Markus, or Secretary, Tom
Gould, of Tech 80 at or before the taking of the vote at the Special Meeting, a
written notice of revocation bearing a later date than the proxy, or (ii) duly
executing a subsequent proxy relating to the same Shares and delivering it to
the President and Chief Executive Officer or Secretary of Tech 80 before the
Special Meeting. Unless special procedures to obtain proxies are undertaken by
the beneficial owners of Shares held in street name, proxies for such Shares
may be given or revoked only by the record (street name) holders. Attendance
at the Special Meeting will not in and of itself constitute a revocation of a
proxy. Any written notice of revocation or subsequent proxy should be sent to:
Technology 80 Inc., 658 Mendelssohn Avenue North, Minneapolis, Minnesota 55427,
Attention: Duane Markus, President and Chief Executive, or hand delivered to
Mr. Markus or Tech 80's Secretary, Tom Gould, at or before the taking of the
vote at the Special Meeting.
All expenses of this solicitation, including the cost of preparing and
mailing this Proxy Statement, will be borne by Tech 80. In addition to
solicitation by use of the mails, proxies may be solicited in person or by
telephone, telegram or other means of communication by directors, officers and
employees of Tech 80 on behalf of the Board in favor of the Board of Directors'
recommendation. Such directors, officers and employees will not be
additionally compensated, but may be reimbursed for out-of-pocket expenses in
connection with such solicitation. Arrangements will also be made with
custodians, nominees and fiduciaries for forwarding of proxy solicitation
materials to beneficial owners of Shares held of record by such custodians,
nominees and fiduciaries, and Tech 80 may reimburse such custodians, nominees
and fiduciaries for reasonable expenses incurred in connection therewith.
Holders of the Shares have the right to demand payment of the "fair value"
of their Shares by following the procedures prescribed in Sections 302A.471 and
302A.473 of the Minnesota Business Corporation Act, which are summarized under
"Rights of Dissenting Shareholders" in this Proxy Statement. A copy of such
Sections is attached as Appendix C. Failure to take any of the steps required
under Sections 302A.471 and 302A.473 on a timely basis may result in the loss
of dissenters' rights. If the holders of more than 15% of the outstanding
Shares properly notify Tech 80 of their intention to dissent from the Merger,
TAC may terminate the Merger Agreement prior to the consummation of the Merger.
TECH 80 SHAREHOLDERS SHOULD NOT SEND ANY STOCK
CERTIFICATES WITH THEIR PROXY CARDS
THE MERGER
Set forth below is a brief description of certain terms of the Merger
Agreement and related matters. The description does not purport to be complete
and is qualified in its entirety by reference to the Merger Agreement, which is
attached hereto as Appendix A and incorporated herein by reference.
Capitalized terms not otherwise defined below have the meanings ascribed to
them elsewhere in this Proxy Statement.
General
Tech 80, ACS and TAC have entered into the Merger Agreement, which
provides that TAC will be merged with and into Tech 80. Pursuant to the Merger
Agreement, at the effective time of the Merger, each Share (other than Shares
held by any holder who properly exercises dissenters' rights under Minnesota
law) will be converted into the right to receive in cash an amount determined
by a formula based principally on a base price as adjusted for the amount of
certain items set forth on the balance sheet of Tech 80 as of the Closing Date
for the Merger (the per share "Consideration"), and each issued and
outstanding share of Common Stock, $.01 par value, of TAC will be converted
into and exchanged for one newly issued share of Common Stock of Tech 80. By
virtue of the Merger, ACS will become the sole shareholder of Tech 80. In
addition, each outstanding Option will be converted into the right to receive
in cash, for each share of Common Stock subject thereto, an amount equal to the
Net Consideration.
The Consideration
The Formula
- -----------
The formula is based on a base price (the Total Purchase Price) which is
subject to adjustment for, among other things, the amount of certain assets and
liabilities set forth on Tech 80's Closing Date Balance Sheet. The Total
Purchase Price is the total amount of cash that ACS will pay in the Merger. The
per share Consideration is then based on such Total Purchase Price and the
following other items: the total exercise price of all Options outstanding at
the time of the Merger, the Shareholder Fund Administrative Expenses, the
number of Shares of Company Common Stock and the number of Shares of Common
Stock issuable upon exercise of all Options outstanding at the Closing.
Specifically, the formula is as follows:
The per share Consideration is equal to
(x) the sum of
(1) the Total Purchase Price, plus
(2) the Total Options Exercise Price minus
(3) the Shareholder Fund Administrative Expenses
divided by
(y) the sum of
(1) the number of Shares outstanding at the Effective Time of the Merger,
plus
(2) the number of Shares issuable upon exercise of all Options
outstanding at the Effective Time of the Merger.
The Total Purchase Price
- ------------------------
The Total Purchase Price is the total amount of cash that ACS will pay in
the Merger. All other components of the formula used to determine the per
share Consideration affect the amount to be divided among holders of Shares or
Options, but do not affect the total cash paid by ACS in the Merger.
The Total Purchase Price is a base price, adjusted for the amount of
certain assets and liabilities set forth on the Closing Date Balance Sheet of
Tech 80. Specifically, the Total Purchase Price is an amount equal to the sum
of (1) the Base Price plus (2) the Portfolio Position minus (3) the Shortfall
Amount.
The "Base Price" has been fixed at $6,353,000. This amount was partially
dependent on Tech 80's sales during the period from November 1, 1998 until
January 31, 1999, which amounted to $1,160,952.18.
The "Portfolio Position" is the sum of Tech 80's cash, cash equivalents
and short-term and other investments as of the Closing Date as set forth on the
Closing Date Balance Sheet. The greater the amount of the Portfolio Position,
the greater the amount of the Total Purchase Price. The Portfolio Position
will be determined in accordance with generally accepted accounting principles
applied on a basis consistent with the accounting principles applied in the
preparation of Tech 80's August 31, 1998 audited financial statements.
The "Shortfall Amount" is the amount by which Tech 80's Adjusted Net Book
Value as of the Closing Date is less than $1,840,000. The greater the amount
of the Shortfall Amount, the lesser the amount of the Total Purchase Price.
The Shortfall Amount cannot be less than $0 (even if the Adjusted Net Book
Value is more than $1,840,000).
The "Adjusted Net Book Value" of Tech 80 is the total amount by which the
Closing Date book value of Tech 80's property and equipment, receivables (with
certain exclusions), inventory, prepaid assets and the Adjusted Tax Assets
exceeds the total Closing Date liabilities of Tech 80. However, the amount of
receivables will exclude Tech 80's interest from employees and money due-loans.
"Adjusted Tax Assets" means an amount equal to (1) all of Tech 80's tax credits
which would be available to Tech 80 following the Merger, plus (2) an amount
equal to the estimated tax refund (including interest) that Tech 80 could
receive from using any net capital losses of Tech 80 incurred during the
current fiscal year (including, without limitation, as a result of the
liquidation of Tech 80's investments) in connection with taxes paid on any net
capital gains of Tech 80 in prior fiscal years.
Since the Adjusted Net Book Value is subtracted from $1,840,000 in
determining the Shortfall Amount, the lesser the amount of Tech 80's Adjusted
Net Book Value, the lesser the Total Purchase Price otherwise payable.
Further, since the Shortfall Amount cannot be less than $0, the Total Purchase
Price will not be increased if the Adjusted Net Book Value exceeds $1,840,000.
Payment at Closing
- ------------------
Prior to Closing, Tech 80 will prepare in good faith a pro forma Closing
Date Balance Sheet and an estimate of the Total Purchase Price as of the
Closing Date. The computation of the estimated Total Purchase Price will be
set forth on a pro forma "Total Purchase Price Certificate" that Tech 80 will
provide to ACS prior to Closing. At Closing, ACS will pay in cash the amount
of the estimated Total Purchase Price shown on such pro forma Total Purchase
Price Certificate into the Shareholder Fund. The cash paid into the
Shareholder Fund will be used to pay the Shareholder Fund Administrative
Expenses and the Consideration and Net Consideration to be paid to the holders
of Shares and Options after the Total Purchase Price is finally determined and
any adjusting payments are made.
Final Determination of the Total Purchase Price
- -----------------------------------------------
After Closing and after payment of the estimated Total Purchase Price into
the Shareholder Fund, Tech 80's independent certified public accountants will
prepare the Closing Date Balance Sheet and the Total Purchase Price
Certificate. Tech 80's independent certified public accountant (the
"Accountant") is the firm of Lurie, Besikof, Lapidus & Co., LLP.
The Accountant is to prepare the Closing Date Balance Sheet and the Total
Purchase Price Certificate in accordance with the Merger Agreement. ACS and
Tech 80 have agreed that the Accountant will use the review procedures and
policies set forth in the Accountant's engagement letter. Further, in general,
the assets and liabilities set forth in the Closing Date Balance Sheet are to
be determined using the same accounting methods, policies, principles,
practices and procedures, with consistent classification, judgments and
estimation methodology, as used in determining assets and liabilities included
in Tech 80's most recent audited financials dated as of August 31, 1998. The
Closing Date Balance Sheet is to be prepared without giving effect to the
consummation of the transactions contemplated by the Merger Agreement and any
assets, liabilities, revenues or expenses of TAC, including, without
limitation, the total of $500,000 to be paid by the Surviving Corporation under
non-competition and severance agreements with the Principals (and thus, the
cost thereof will be borne directly or indirectly by ACS). See "THE MERGER--
Interests of Certain Persons in the Merger." The Closing Date Balance Sheet is
to include, without limitation, all liabilities related to the consummation of
the transaction contemplated by the Merger Agreement to the extent incurred but
not paid by Tech 80 at the Effective Time (except to the extent that the Merger
Agreement provides for payment by ACS or TAC), and all accrued but unpaid tax
liabilities of Tech 80 at the Effective Time.
The Merger Agreement provides that the Accountant is to prepare the
Closing Date Balance Sheet and the Total Purchase Price Certificate within
twenty-one days after Closing. The Accountant has indicated that it believes
that such schedule can be met if the required records are made available to the
Accountant at or before Closing. Prior to finalization of the Closing Date
Balance Sheet and the Total Purchase Price Certificate, ACS and the Principals
are to have the ability to review and comment on drafts in order that they
might resolve potential disputes prior to finalizing such documents. When the
Accountant has finished its preparation of the Closing Date Balance Sheet and
Total Purchase Price Certificate, the Accountant will provide copies to ACS and
the Principals.
Unless disputed, the Closing Date Balance Sheet and Total Purchase Price
Certificate prepared by the Accountant will become final and binding on all
parties ten business days after they are delivered by the Accountant. Either
the Principals or ACS may dispute any items shown on the Accountant's Closing
Date Balance Sheet and Total Purchase Price Certificate within ten business
days after delivery, provided that the Principals may only dispute items that
are inconsistent with the pro forma Total Purchase Price Certificate and
Closing Date Balance Sheet provided at Closing by Tech 80.
If either ACS or the Principals disputes the Accountant's Closing Date
Balance Sheet or the Total Purchase Price Certificate within ten business days
after delivery, the dispute will be subject to additional procedures until
final resolution in accordance with the terms of the Merger Agreement. The
Principals, ACS and the Accountant may resolve a dispute at any time by mutual
agreement. Upon reaching any mutual agreement of a dispute, they may modify
the final Total Purchase Price Certificate. If they do not mutually resolve
the dispute within fifteen days after a notice of dispute, either may submit
the dispute to an independent accountant (the "Arbiter"). After providing the
Principals, ACS and the Accountant with an opportunity to present information,
the Arbiter is to make a determination of any items in dispute and to make a
final and binding determination of the Total Purchase Price Certificate. The
Merger Agreement calls for the Arbiter to make a decision within thirty days
after the dispute has been submitted to the Arbiter.
The fees of the Arbiter will be shared based on the final determination of
the items in dispute. Specifically, the Arbiter's fees will be borne by ACS in
the proportion that the aggregate dollar amount of the disputed items so
submitted that are unsuccessfully disputed by ACS bears to the aggregate dollar
amount of such items so submitted, and will be paid by the Principals from the
Shareholder Fund (as a Shareholder Fund Administrative Expense) in the
proportion that the aggregate dollar amount of such disputed items so submitted
that are successfully disputed by ACS bears to the aggregate dollar amount of
such items so submitted.
All three Principals are anticipated to be involved in the final
determination of the Total Purchase Price. However, with respect to any matter
in which there is not agreement among the three Principals, decisions for these
purposes are to be made by Duane Markus as the holder of a majority of all
Shares held by all three Principals. The fees, costs and expenses incurred by
the Principals in determining the final Total Purchase Price will be a
Shareholder Fund Administrative Expense.
Adjusting Payments; Availability Date
- -------------------------------------
Within seven days after the final determination of the Total Purchase
Price Certificate, adjusting payments are to be made. The Total Purchase Price
Certificate will be finally determined (i) ten business days after delivery by
the Accountant if neither the Principals or ACS disputes any amounts within
such period; (ii) as of the date that the Principals and ACS mutually resolve
any disputes made within such period; or (iii) as of the date that the Arbiter
makes a final determination after submission of any disputes to the Arbiter.
To the extent that the estimated Total Purchase Price is less than the final
Total Purchase Price, ACS is to pay the deficit (with interest) to the
Shareholder Fund within seven days. To the extent that the estimated Total
Purchase Price is more than the final Total Purchase Price, the Principals are
to pay the excess from the Shareholder Fund (with interest) to ACS within seven
days.
The date on which the adjusting payments are made is the "Availability
Date." The Availability Date is to be within seven days after final
determination of the Total Purchase Price Certificate. The Availability Date
is the first date on which the Consideration and the Net Consideration can be
paid from the Shareholder Fund by the Principals to the holders of Shares and
Options, respectively.
If ACS does not make an adjusting payment of any deficit (if any) within
seven days after final determination of the Total Purchase Price Certificate,
the Availability Date will be the seventh day after final determination of the
Total Purchase Price Certificate. Thereafter, ACS will owe interest at the
rate of 1-1/2% per month on the amounts not paid when due. The Principals may
seek legal action to enforce performance of ACS's obligations. Any expenses
incurred by the Principals in connection with such enforcement (to the extent
not paid or reimbursed by ACS) will be a Shareholder Fund Administrative
Expense.
Although an earlier Availability Date is possible with mutual cooperation
and agreement, Tech 80 believes that the Availability Date is not likely to
occur less than forty days after the Closing Date, and the Availability Date
may occur several weeks thereafter if there is a dispute. The Merger Agreement
provides that the Accountant will have twenty-one days after the Closing Date
to prepare a Closing Date Balance Sheet and the Total Purchase Price
Certificate. Once delivered and assuming no disputes, the Accountant's
Closing Date Balance Sheet and the Total Purchase Price Certificate will not be
final until ten business days thereafter. Once final, the Principals and ACS
have up to seven days to make any adjusting payments. If either the Principals
or ACS disputes any items in the Accountant's Closing Date Balance Sheet and
Total Purchase Price Certificate, the dispute may take several weeks to
resolve. The Merger Agreement provides that a dispute may not be submitted to
the Arbiter until fifteen days after notice of a dispute, and then the Arbiter
will have up to thirty days thereafter to make a final determination.
Interest
- --------
Any interest earned by the funds held in the Shareholder Fund from the
Closing Date until the Availability Date will accrue to the benefit of all
holders of Shares and Options. The holders of Shares and Options will share
pro rata in such interest pro rata among them. Any interest earned on the
Shareholder Fund from and after the Availability Date will no longer accrue to
the benefit of the holders of Shares or Options, but instead will accrue to the
benefit of Tech 80. Six months after the Closing, any undistributed funds
remaining in the Shareholder Fund, including interest earned after the
Availability Date, are to be returned to Tech 80 (as the Surviving Corporation
in the Merger).
The Shareholder Fund
- --------------------
At Closing, ACS will pay the estimated Total Purchase Price into the
Shareholder Fund. The Shareholder Fund will be an interest-bearing account
that will be established at a bank or other financial institution. The Merger
Agreement provides that the Shareholder Fund will be deemed to be owned by, and
be an asset of, all holders of Shares and Options but will be administered by
the three Principals. The Principals anticipate that the Shareholder Fund will
be established at Western Bank located in Edina, Minnesota, but it may be
established at another bank or financial institution selected by them.
Withdrawals from the Shareholder Fund will require the approval of at least two
of the three Principals. Withdrawals from the Shareholder Fund will be made to
pay Shareholder Fund Administrative Expenses and to pay the Consideration and
Net Consideration to holders of Shares and Options, respectively.
Shareholder Fund Administrative Expenses
- ----------------------------------------
Shareholder Fund Administrative Expenses are certain expenses that will
reduce the amount of cash available for payment out of the Shareholder Fund to
holders of Shares and Options. The amount of the Shareholder Fund
Administrative Expenses are subtracted from the Total Purchase Price (which is
the cash paid by ACS) in determining the per share Consideration. The
Principals are authorized by the Merger Agreement to pay the Shareholder Fund
Administrative Expenses from the Shareholder Fund.
The Shareholder Fund Administrative Expenses are the out-of-pocket
expenses that the Principals may pay or incur in fulfilling their duties under
Article II of the Merger Agreement, as well as the Arbiter's fees (if any) to
be paid out of the Shareholder Fund. The Principals' duties under Article II
of the Merger Agreement include, without limitation, establishing and
administering the Shareholder Fund, finalizing the determination of the Total
Purchase Price, enforcing ACS's and TAC's obligations under the Merger
Agreement, providing the transmittals to holders of Shares and Options, paying
from the Shareholder Fund the Consideration and Net Consideration and complying
with tax reporting requirements. The types of out-of-pocket costs that they
may incur include, without limitation, legal and accounting fees, bank charges,
printing costs and mailing charges and consultant fees. Further, under the
Merger Agreement, the Principals have agreed to indemnify ACS and certain
others for any claims brought against such indemnified parties arising out of
the breach of the Principals' duties under Article II of the Merger Agreement.
To the extent that the Principals incur any expenses in connection with such
indemnity, other than expenses arising from the breach of the Principal's
duties, such expenses may be deemed Shareholder Fund Administrative Expenses.
The Principals will not be paid any fees or compensation for fulfilling their
duties under Article II of the Merger Agreement, and the Shareholder
Administrative Fund Expenses will not include any such fees or compensation for
the Principals.
All holders of Shares and Options will bear a pro rata share of the
Shareholder Fund Administrative Expenses, and the amount of such expenses will
be determined by the Availability Date for purposes of computing the
Consideration and Net Consideration. However, in recognition of the fact that
the Principals will incur expenses after the Availability Date in connection
with the performance of their duties under Article II of the Merger Agreement,
the Merger Agreement provides that the Principals may establish a reserve for
such expenses. Except for interest earned on the Shareholder Fund after the
Availability Date, after the Availability Date the Principals will not be
entitled to payment of their expenses in excess of such reserve. In
conjunction with the payment to Tech 80 (as the Surviving Corporation) of any
undistributed funds in the Shareholder Fund six months after the Closing, the
Principals may elect to either pay any unused reserves for Shareholder Fund
Administrative Expenses to Tech 80 or to a charity exempt under Section
501(c)(3) of the Internal Revenue Code.
Outstanding Shares and Options
- ------------------------------
The number of Shares outstanding, as well as the number of Shares subject
to any outstanding Options, at the Effective Time of the Merger will be taken
into account in determining the per share Consideration. The total number of
Shares outstanding and issuable upon exercise of Options is part of the
denominator used to determine the per share Consideration. The Total Options
Exercise Price is also taken into account in determining the per share
Consideration insofar as the Total Options Exercise Price is part of the
numerator of such formula. The "Total Options Exercise Price" is an amount
equal to the total exercise price payable under all Options outstanding at the
Effective Time of the Merger, assuming all Options were fully exercised.
Neither the number of Options outstanding at the Effective Time nor the
number of Options exercised before the Effective Time should affect the per
share Consideration payable to holders of Shares. If any or all of the Options
outstanding prior to such time are exercised prior to the Effective Time, the
amount of cash otherwise available to Tech 80 should increase, thereby
increasing the Portfolio Position and, in turn, the Total Purchase Price. The
Total Options Exercise Price should decrease by an equal amount, with result
that the total dollar amount of the numerator should not change. Further, in
such a case, for purposes of the denominator, the number of Shares of Common
Stock issuable upon exercise of the Options will decrease, but the number of
outstanding Shares will also increase by an equal number. Thus, the total
number used in the denominator should not change. To the extent that any
Options are outstanding at the Effective Time of the Merger, the exercise price
of such Options will be taken into account in determining the Net Consideration
payable to holders of such Options.
As of the Record Date, Tech 80 had outstanding a total of [1,683,483]
Shares, and had outstanding Options to acquire a total of [127,375] shares of
Tech 80 Common Stock. The Total Options Exercise Price of such Options was
$[148,442.91].
Tech 80's Estimates of the Consideration
As of the date of this Proxy Statement, Tech 80 estimates that the likely
range of Consideration to be paid to holders of Shares in the Merger will be
from $5.25 to $5.75 per share. However, these are only estimates, and no
assurances can be given that the actual Consideration will be within such
range. Based on a total of 1,810,858 shares of Common Stock outstanding and
issuable upon exercise of outstanding Options at Closing, every $181,085
reduction in such assumed Total Purchase Price (or any of its components) will
reduce the per share Consideration by $0.10 per share. Depending on the Total
Purchase Price as finally determined (including based on the final Closing Date
Balance Sheet), the actual Consideration may be significantly less than $5.25
per share. A vote to approve the Merger will be a vote to approve the actual
Consideration that will result from the application of the formula, whether
more or less than Tech 80's estimates.
As discussed in more detail below, Tech 80's estimates of the
Consideration are based on a Base Price of $6,353,000 and on numerous
assumptions regarding the amounts of the other components of the formula used
to determine the per share Consideration. Such assumptions may not prove to be
accurate. The assumptions are not based on any source other than Tech 80. Any
variation from assumptions could have a material adverse effect on the
Consideration payable. In addition, the estimates and assumptions are subject
to significant uncertainties and contingencies that are beyond Tech 80's
control. While Tech 80 has made such estimates and assumptions in good faith,
there can be no assurance that the actual Consideration will be within such
range, and the actual Consideration may be significantly less than estimated.
Because of the limitations of these estimates, holders of Shares and Options
are cautioned about placing undue reliance thereon.
The assumptions made by Tech 80 in making its estimates of the
Consideration include (without limitation) the following:
Closing Date
- ------------
For purposes of making the estimates of the Consideration, Tech 80 has assumed
that the Closing Date will occur on [March 31], 1999. The actual Closing Date
could occur prior to or after such date. The actual Closing Date will have an
effect on the actual Consideration payable. In particular, the actual results
of operations (including, without limitation, sales generated and expenses
incurred) through and including the Closing Date could have a material affect
on the Closing Date Balance Sheet and the amount of the Portfolio Position and
the Shortfall Amount.
Portfolio Position
- ------------------
The Portfolio Position is the amount of Tech 80's cash, cash equivalents
and investments as of the Closing Date.
As of August 31, 1998, the Portfolio Position was an estimated $3,672,088,
of which $2,004,746 represented investments. As of December 31, 1998, the
Portfolio Position was an estimated $3,565,753, of which $1,780,755 represented
investments. In accordance with the terms of the Merger Agreement, Tech 80 is
obligated to liquidate all of its investments into cash or cash equivalents at
least five days prior to the Closing Date. As of December 31, 1998, Tech 80
had investments in common and preferred stocks of approximately 18 companies.
The actual amount of the Portfolio Position as of the Closing Date will be
significantly affected by the market prices for Tech 80's investments at the
time of liquidation of such investments. Any significant reduction in the
market prices for such investments since December 31, 1998 would substantially
reduce the amount of the Portfolio Position at Closing. Tech 80 makes no
assurances regarding the market prices that it will be able to obtain for its
investments upon their liquidation. Further, while the amount of cash and cash
equivalents on hand at Closing should not be materially affected by market
prices, the amount of cash and cash equivalents will be affected by the actual
amount of expenses and liabilities paid prior to or at Closing. The amount of
expenses and liabilities actually paid could be in excess of Tech 80's current
assumptions.
For purposes of Tech 80's estimates of the Consideration, Tech 80 has
assumed that there will not be material changes in the estimated amount of the
Portfolio Position as of December 31, 1998. However, for the reasons noted
above, the actual amount of the Portfolio Position at Closing could be
substantially less than the estimated December 31, 1998 amount.
Shortfall Amount; Adjusted Net Book Value
- -----------------------------------------
The Shortfall Amount is the amount, if any, by which the Adjusted Net Book
Value as of the Closing is less than $1,840,000. The Adjusted Net Book Value is
the book value of Tech 80's property and equipment, receivables (with certain
exclusions), inventory, prepaid assets and Adjusted Tax Assets, less the amount
of liabilities, shown on the Closing Date Balance Sheet.
The Adjusted Net Book Value includes the amount of Tech 80's property and
equipment on the Closing Date. Tech 80's property and equipment as of August
31, 1998 was $116,571, and as of December 31, 1998 was $105,982. Except for
normal depreciation, Tech 80 has assumed that the amount of Tech 80's property
and equipment as of the assumed Closing Date will not be materially different
from the amount at December 31, 1998. However, the actual amount of the
property and equipment will depend on any acquisitions or dispositions of
property and equipment prior to or on the Closing Date.
The Adjusted Net Book Value also includes the amount of Tech 80's
receivables (with certain exclusions) and inventory. The exclusions from the
receivables are Tech 80's interest from employees and money due-loans. As of
August 31, 1998, the amount of Tech 80's receivables (net of such exclusions)
and inventory in total was an estimated $2,095,834, and as of December 31,
1998, the amount of such assets in total was an estimated $1,882,958. Tech 80
has assumed that the amount of Tech 80's receivables (net of such exclusions)
and inventory in total as of the Closing Date will not be materially different
from the amount estimated as of December 31, 1998. However, the actual amount
will depend on several factors, including the amount of Tech 80's sales during
the period up to and including the Closing Date. If Tech 80's actual sales are
less than Tech 80's assumptions, it is likely that the amount of Tech 80's
receivables and inventory would be lower than Tech 80's current assumptions.
Excluded from the computation of the Adjusted Net Book Value will be the
amount of interest from employees and money due-loans. As of August 31, 1998,
the amount of such exclusions was an estimated $183,605, and as of December 31,
1998, the amount of such exclusions was an estimated $203,804. Tech 80 has
assumed that all or substantially all of such amounts will be repaid in full by
or at Closing. To the extent that any such amounts are paid, the amount of
cash of Tech 80 will be increased over what it otherwise would be. There can
be no assurances that any amounts owed by employees or other obligors
(including the Principals) will be repaid in full by or at Closing.
The Adjusted Net Book Value also includes the amount of Tech 80's Adjusted
Tax Assets. Tech 80's Adjusted Tax Assets are all of Tech 80's tax credits
which would be available to Tech 80 following the Merger, plus an amount equal
to the estimated tax refund (including interest) that Tech 80 could receive
from using any net capital losses of Tech 80 incurred during the current fiscal
year (including, without limitation, as a result of the liquidation of Tech
80's investments) in connection with taxes paid on any net capital gains of
Tech 80 in prior fiscal years. Tech 80 has assumed that the amount of Tech
80's Adjusted Tax Assets will be approximately $100,000, but the computation
thereof is complex and will depend in part on the actual gains or losses that
Tech 80 may realize upon liquidation of its investments.
The amount of Tech 80's liabilities will reduce the Adjusted Net Book
Value. Tech 80's liabilities as of August 31, 1998 were an estimated $847,934,
and as of December 31, 1998 were an estimated $189,167. Tech 80 has assumed
that the amount of the liabilities at the Closing will not be materially
different than the estimated amount of liabilities as of December 31, 1998.
However, the actual amount will depend on numerous factors, including the
results of Tech 80's operations in the period up to and including the Closing
Date.
Results of Operations
- ---------------------
The results of Tech 80's operations through the Closing Date could
materially affect the Total Purchase Price. The results of operations,
including sales and expenses incurred (including expenses incurred related to
the Merger), will impact the amount of cash on hand as of Closing, particularly
cash generated from operations. Further, the results of operations will impact
the amount of inventory, receivables and liabilities shown on the Closing Date
Balance Sheet and, thus, the Shortfall Amount. Tech 80 has assumed that its
revenues and expenses during the period from the date of this Proxy Statement
until the Closing will be consistent with those reported for the fiscal quarter
ended November 30, 1998. See "MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS--Results of Operations - First
Quarter 1999 vs. First Quarter 1998." The actual results from operations could
be significantly different from such assumptions. In particular, if the level
of sales were to decline, the amount of cash on hand, as well as inventory and
receivables, could decrease, thereby decreasing the Total Purchase Price.
Certain Payments to and Transactions with the Principals
- --------------------------------------------------------
Any fees or compensation that Tech 80 pays or agrees to pay to the
Principals will affect the Total Purchase Price otherwise payable, except that
the $500,000 to be paid to the Principals at Closing in connection with
severance and non-competition agreements will not affect the Total Purchase
Price.
For purposes of its estimates of the per share Consideration, and
consistent with the covenants imposed by the Merger Agreement, Tech 80 has
assumed that the Principals will continue to receive fees and compensation at
levels and formulas consistent with past practices, including salary and bonus
to Duane Markus and consulting fees to Jack Pagel and Tom Gould. However, such
fees and compensation may be paid on or before the Closing Date in light of the
expected termination of their relationships with Tech 80 as of the Closing Date
even if paid at the end of the fiscal year in prior years. Further, as
contemplated by the Merger Agreement, Tech 80 has assumed that Jack Pagel may
also receive an additional consulting fee of $100,000 for additional services
rendered in connection with the Merger. Such additional consulting fees would
reduce the Total Purchase Price otherwise payable.
The Merger Agreement contemplates that the Principals or their affiliates,
at their and Tech 80's option, might purchase receivables in cash for the face
amount of such receivables. Any such purchase should not decrease, and may
increase, the Total Purchase Price otherwise payable by ACS. No consent of ACS
is required in connection with any such purchase (but ACS's consent would be
required for the purchase of other assets). Since the amount of the Adjusted
Net Book Value in excess of $1,840,000 is not taken into account in determining
the Total Purchase Price, the Principals have indicated that they would
consider purchasing (but are not obligated to purchase) receivables to reduce
the Adjusted Net Book Value to $1,840,000 (if the Adjusted Net Book Value would
otherwise exceed $1,840,000). Any receivables purchased by the Principals
would decrease the amount of the Adjusted Net Book Value, but would increase
the amount of cash that is included in the computation of Portfolio Position
(for which there is no limitation on the amount thereof in determining the
Total Purchase Price). Tech 80 has assumed that the Principals would purchase
receivables if the Adjusted Net Book Value would otherwise exceed $1,840,000.
However, the Principals are not obligated to purchase receivables and Tech 80
can provide no assurances regarding whether or not such purchases will be made.
Shareholder Fund Administrative Expenses
- ----------------------------------------
The Shareholder Fund Administrative Expenses reduce the per share
Consideration payable to holders of Shares. For purposes of Tech 80's
estimates of the per share Consideration, Tech 80 has assumed that the
Shareholder Fund Administrative Expenses will be less than $20,000. However,
Tech 80 has had limited experience on which to base the estimates of the
Shareholder Fund Administrative Expenses. The actual amount of the Shareholder
Fund Administrative Expenses could be significantly more or less than such
estimates, particularly if there are disputes regarding the computation of the
Total Purchase Price, if the Principals incur expenses to enforce ACS's
obligations or if the Principals incur expenses related to their indemnity
obligations to the extent not related to breaches of their duties under Article
II of the Merger Agreement.
Background of and Reasons for the Merger
In connection with consolidation occurring in the computer board
manufacturing industry in 1997 and 1998, Tech 80 received two preliminary
offers before beginning discussions with ACS. In July and August, 1997, a
company initiated discussions with Tech 80 in connection with the possible
purchase of Tech 80 in a stock transaction. These discussions terminated in
August 1997 as a result of Tech 80's inability to reach agreement with the
interested company regarding the valuation of their stock.
In January 1998, another company expressed interest in discussing a
possible acquisition of Tech 80. Discussions with this party continued in
February and March of 1998, but ultimately terminated when the company withdrew
its offer as a result of its inability to obtain financing and changing
industry conditions.
In mid-1998, economic troubles in the Asian markets appeared to exert a
depressing effect upon industry valuations. Nevertheless, when ACS began
discussions with Tech 80 in July 1998, the Board believed that the valuations
discussed continued to be favorable for Tech 80 and its shareholders. ACS's
early discussions with Tech 80 focused on a proposal to acquire only the stock
of Tech 80 held by the Board members and a few other shareholders. In
response, the Board required that ACS make an offer that would result in the
acquisition of all of Tech 80's outstanding common stock, not just those shares
held by the Board members and certain other shareholders. Discussions
continued until late September 1998, at which time ACS ceased further
conversations due to the inability of ACS and Tech 80 to agree on acceptable
terms. Conversations resumed in early November and resulted in the execution
of a letter of intent on December 10, 1998. Tech 80 and ACS made a public
announcement of the proposed merger on December 11, 1998. Thereafter, Tech 80
and ACS negotiated the terms of the Merger Agreement attached hereto as
Appendix A. The Merger Agreement was approved by the Tech 80 Board of
Directors on January 27, 1999, the date of the Merger Agreement.
In its approval of the Merger Agreement, on January 27, 1999, the Board of
Directors discussed the following reasons for approving the Merger:
The Board reviewed and discussed the public market for Tech 80's stock.
The Board recognized that the market for Tech 80's stock was relatively
illiquid, and that any shareholder with a significant number of shares of Tech
80's stock would have difficulty disposing of the shares in the public market
without adversely affecting the market price. The Board also discussed its
belief that the public market may not fairly value Tech 80's stock.
The Board reviewed and discussed the recent changes in the computer board
manufacturing industry including the consolidation that was occurring in 1997
and 1998 and more recent decreases in valuations due to economic troubles in
Asian markets. The Board concluded that changing industry conditions may make
it difficult to obtain valuations as high as that offered by ACS in the future.
The Board stated its belief that the consideration being offered by ACS is
favorable to the shareholders of Tech 80 and that ACS's offer would be
favorable for Tech 80's business, employees and other stakeholders.
The Board also noted that as set forth in the Agreement and Plan of Merger
and Reorganization negotiated with ACS, the Merger is conditioned upon approval
of the Merger by a majority of the votes cast by shareholders other than the
Board members at a special meeting called to approve the Merger, and is also
conditioned upon receipt of a fairness opinion regarding the fairness of the
consideration.
Recommendation of the Board of Directors
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS APPROVAL OF THE MERGER
AGREEMENT BY THE SHAREHOLDERS OF TECH 80.
Opinion of Financial Advisor to Tech 80
Schmidt Financial, Inc. ("Schmidt Financial") was retained by Tech 80's
Board of Directors to render its opinion on the fairness from a financial point
of view of the Consideration to be received by Tech 80's shareholders in the
Merger. Schmidt Financial is a financial consulting firm that performs
security valuation in connection with mergers and acquisitions, disposition of
business units, litigation support, estate planning and other purposes.
Schmidt Financial was selected as Tech 80's financial advisor based on its
expertise in such matters. Schmidt Financial did not assist in soliciting
offers for the purchase of Tech 80 and it did not recommend a specific per
share price to be paid pursuant to the Merger. Schmidt Financial was only
asked to express an opinion to the fairness from a financial point of view to
Tech 80's shareholders regarding the Consideration.
In connection with its engagement, Schmidt Financial delivered its oral
opinion to Tech 80's Board of Directors on February 3, 1999 to the effect that,
as of such date, the Consideration was fair to Tech 80's shareholders from a
financial point of view. Schmidt Financial subsequently delivered its written
opinion on February 11, 1999, which is attached as Appendix B hereto. Schmidt
Financial's opinion as to the fairness of the Consideration from a financial
point of view does not constitute a recommendation to any shareholder as to
whether such shareholder should vote in favor of the Merger.
Schmidt Financial performed valuation analyses of the common stock and
evaluated the Consideration, but was not asked to and did not recommend a
specific price to be paid pursuant to the Merger. Schmidt Financial's opinion
does not address the tax consequences of the Merger to any of Tech 80's
shareholders. Further, Schmidt Financial was not requested to analyze and its
opinion specifically does not address the relative merits of the proposed
Merger as compared to any other current or future strategies that might exist
for Tech 80 or the effect of any other transactions in which Tech 80 might
engage. Finally, Schmidt Financial did not independently evaluate or appraise
the assets and liabilities of Tech 80 and has not been provided with any such
evaluation or appraisal. The full text of Schmidt Financial's written opinion,
which specifies the assumptions, procedures, information considered and
limitations of its review in connection with the analysis, is included as
Appendix B and is incorporated by reference herein. TECH 80'S SHAREHOLDERS ARE
URGED TO, AND SHOULD, READ THE OPINION IN ITS ENTIRETY.
Schmidt Financial, in performing its analysis connected with delivering
the fairness opinion related to the proposed Merger, considered information
that it deemed appropriate for this particular transaction. Information that
Schmidt Financial considered to be material to its opinion included:
1. The Merger Agreement;
2. Audited financial statements for Tech 80 for the five years ended
August 31, 1998, and the unaudited financial statements for the four
months ended December 31, 1998;
3. Historical and current pricing of Tech 80's Common Stock and its
trading activity;
4. Financial and securities pricing data for certain publicly traded
companies that Schmidt Financial considered to be generally
comparable to Tech 80;
5. Data regarding pricing of other acquisitions and transactions that
Schmidt Financial considered relevant;
6. Data regarding premiums paid in recent transactions;
7. Discussions with Tech 80 management regarding historical and current
operations, financial condition, and future prospects for Tech 80;
8. Discussion with Tech 80 management regarding the negotiating process
for the proposed Merger;
9. Discussion with representatives of the buyer regarding the
negotiating process in arriving at the proposed purchase price;
10. Relevant economic and industry data; and
11. A visit to Tech 80's headquarters.
Schmidt Financial's Opinion is predicated on the general economic, market,
industry, financial and other conditions as they existed on the date hereof and
on the information made available to Schmidt Financial through such date.
Schmidt Financial has relied on the accuracy and completeness of the financial
and other information made available to it and did not undertake any actions to
independently verify such information. Schmidt Financial has assumed, and
management has represented, that the information provided by Tech 80 has a
reasonable basis and accurately reflects the historical and current operations
of Tech 80. Schmidt Financial also relied on management's representations that
they were not aware of any information or fact that would make the information
provide to Schmidt Financial incomplete or misleading. The Board of Directors
did not, and Tech 80 did not, impose any limitations on the scope of Schmidt
Financial's analysis or the procedures to be followed in forming its opinion.
Schmidt Financial has no obligation to update its opinion for events occurring
after the date of the fairness opinion, events that could materially impact the
assumptions made in preparing such opinion.
Schmidt Financial performed a variety of financial and comparative
analyses in preparing its fairness opinion, including:
1. Discounted cash flow (DCF) analysis;
2. Guideline public company analysis;
3. Guideline transaction analysis;
4. Premium analysis; and
5. Stock trading analysis.
The summary of Schmidt Financial's analyses outlined below is not a complete
description of the analyses underlying the fairness opinion. The preparation
of a fairness opinion is a complex process that involves subjective judgments,
and is not generally cannot be reduced to partial analysis or summary
description. Schmidt Financial did not attribute any particular weight to any
analysis or factor it considered, but made qualitative judgments as to the
significance and relevance of each analysis and factor. It is therefore the
opinion of Schmidt Financial that its analyses must be considered as a whole.
Selecting portions of the analyses performed by Schmidt Financial without
considering all of the analyses and factors could create a misleading or
incomplete view of the methodologies and processes utilized in arriving at its
opinion.
Following is a summary of the analyses that have been performed by Schmidt
Financial in arriving at its opinion:
1. Discounted Cash Flow (DCF) Analysis. Using DCF analysis, based on
historical results and on information obtained from Tech 80
management regarding expected future performance, Schmidt Financial
discounted to present value the future cash flows that Tech 80 is
projected to generate through 2006, assuming that Tech 80 performs in
accordance with the projections. These projected cash flows are
discounted to present value based on Tech 80's estimated cost of
capital. Schmidt Financial has discounted these cash flows at
varying discount rates to reflect the varying assumptions regarding
Tech 80's cost of capital. Schmidt Financial has also estimated the
terminal value of Tech 80 by capitalizing (dividing) the estimated
cash flow in 2007 by the capitalization rate (discount rate minus
estimated growth rate). The terminal value is also discounted to
present value at Tech 80's estimated cost of capital. Based on this
analysis, Schmidt Financial arrived at per share values (fully
diluted) ranging from $3.76 to $4.63.
2. Guideline Public Company Analysis. Schmidt Financial reviewed
certain financial and operating data of several publicly traded
companies engaged in activities similar to those of Tech 80.
Although none of the guideline public companies are directly
comparable to Tech 80, this analysis does provide an indication of
the range of appropriate values. However, given that none of the
guideline companies is directly comparable, the analysis was
considered in light of this qualification. Schmidt Financial
calculated a price/EBITDA (Earnings before Interest, Taxes,
Depreciation, and Amortization) multiple based on last twelve months
earnings, after adjusting the subject company and the guideline
companies for excess cash and non-operating assets (e.g.
investments). The guideline company multiples range from 3.6x to
15.9x with a median multiple of 8.4x. Schmidt Financial compared the
multiples indicated by this analysis to the corresponding multiple in
the Merger, estimated between 9.95x and 11.27x EBITDA.
3. Guideline Transaction Analysis. Schmidt Financial utilized public
and private information regarding certain guideline transactions of
companies deemed to be similar in operations to Tech 80. Since there
are no directly comparable transactions with information available,
the analysis needs to be considered in light of this qualification.
Schmidt Financial calculated the market value of the transactions as
a multiple of revenue, which ranged from 0.39x to 2.14x with a median
of .81x; and a multiple of operating income, which ranged from 1.84x
to 31.6x with a median of 5.1x. The implied multiple of revenue in
the proposed Merger ranges between 1.62x and 1.78x the Company's
trailing twelve months revenue and the implied multiple of operating
earnings ranges between 14.9x and 16.3x Tech 80's trailing twelve
months operating income.
4. Premium Analysis. Schmidt Financial considered data published in The
Control Premium Study, 3rd Quarter 1998 by Houlihan, Lokey, Howard,
and Zukin. This publication analyzes premiums (and discounts) paid in
the public markets in order to gain control. For the 3rd Quarter of
1998, the low, median, mean, and high premiums were 1.7%, 17.3%,
27.3% and 135.0% respectively. However, this study does not include
transactions that have been consummated at a discount from their
prior trading prices. In the 3rd Quarter of 1998, a full 34% of all
of the transactions analyzed sold at discounts. When taken into
consideration, the median and mean premiums fall to 10.9% and 10.3%
respectively. When these adjusted median and mean premiums are
applied to Tech 80's stock price immediately prior to the proposed
Merger announcement, which occurred on December 11, 1998, they imply
a per share value for Tech 80 of $4.65 and $4.62 respectively. Using
the unadjusted median and mean premiums would imply per share values
of $4.91 and $5.33 respectively.
5. Stock Trading Analysis. Schmidt Financial reviewed and analyzed the
historical trading prices and volume at which Tech 80's Common Stock
has recently traded. Schmidt Financial reviewed pricing data between
September 1996 and January 1999. Over this period of time, trading
activity in Tech 80's Common Stock was relatively limited and the
trading market was relatively illiquid. The highest traded price
over this period was $6.00 per share which occurred in August 1998,
and the lowest traded price was $2.50 per share which most recently
occurred in November 1996. The average of the bid and ask price
immediately prior to the announcement of the proposed Merger was
$4.19 per share.
Schmidt Financial was engaged by Tech 80's Board of Directors to give its
opinion regarding the fairness from a financial point of view of the
consideration to be received by Tech 80's shareholders in connection with the
proposed Merger. Pursuant to the terms of an engagement letter dated January
18, 1999, Tech 80 agreed to pay Schmidt Financial, for acting as a financial
advisor to the Board of Directors, a fee of $10,000 plus direct expenses (not
to exceed $50) paid as follows: 1) $5,000 upon execution of the engagement
letter and 2) $5,000 upon delivery of its opinion. Tech 80 has also agreed to
indemnify Schmidt Financial against certain liabilities relating to or arising
out of its engagement.
Effects Of The Merger
Pursuant to the Merger Agreement, at the Effective Time of the Merger (i)
TAC will be merged with and into Tech 80, which will be the surviving
corporation in the Merger; (ii) each Share (other than Shares held by any
holder who properly exercises dissenters' rights under Minnesota law) will be
converted into the right to receive the Consideration; and (iii) each issued
and outstanding share of Common Stock, $.01 par value, of TAC will be converted
into and exchanged for one newly issued share of Common Stock of Tech 80 so
that ACS will become the sole shareholder of Tech 80. In connection with the
Merger, each outstanding Option will be converted into the right to receive,
for each share of Tech 80 Common Stock subject thereto, the per share
Consideration in cash less the per share exercise price of each Option (the
"Net Consideration")
The structure of the Merger was intended to enable the ACS to obtain
ownership of 100% of the equity of Tech 80 if the Merger is approved and to
allow all holders of Shares to obtain cash for their Shares. Upon the
consummation of the Merger, each shareholder of Tech 80 (other than those who
have properly exercised their dissenters' rights) will each be entitled to
receive the Consideration for each Share owned by such shareholder.
Upon completion of the Merger and receipt of the Consideration,
shareholders will no longer be entitled to participate in the business of Tech
80 as shareholders or to vote on corporate matters of Tech 80. Tech 80
shareholders will incur a taxable gain for federal income tax purposes as a
result of the receipt of cash in exchange for Common Stock if their basis in
the Common Stock is less than the Consideration. Further, Tech 80 shareholders
will also incur taxable income on any interest received. See "THE MERGER--
Federal Income Tax Consequences."
If the Merger is consummated, all the Common Stock of Tech 80 as the
surviving corporation will be owned by ACS. Upon the effectiveness of the
Merger, Tech 80 will therefore become a private company, and public trading of
Tech 80 Common Stock will cease. Accordingly, Tech 80 will at such time be
delisted from the NASD Bulletin Board.
As owner of 100% of the Common Stock of Tech 80 following the Merger, ACS
will be able to enjoy the benefits of Tech 80's cash flow and earnings, if any,
and will be able to exercise full voting control over Tech 80. Tech 80's
current shareholders will no longer have the opportunity to continue their
interest in an ongoing company with potential for future growth or any of the
benefits discussed above. Any and all appreciation in the value of Tech 80
will accrue solely to the benefit of ACS.
It is anticipated that the current officers of TAC will become officers of
Tech 80 as the surviving corporation after the Merger and that the current
directors of Tech 80 will resign effective as of the Effective Time.
Therefore, immediately following the Merger, the members of the Board of TAC
will become directors of Tech 80.
Interests of Certain Persons in the Merger
In connection with the Merger, it is anticipated that Duane Markus will
resign as an officer and director of Tech 80, and Jack Pagel and Tom Gould will
resign as directors of Tech 80. The Merger Agreement provides that a mutual
condition to the Closing for Tech 80 and ACS is that Duane Markus has entered
into a severance and non-competition agreement, and that Jack Pagel and Tom
Gould each have entered into severance agreements, with Tech 80 as the
Surviving Corporation. Under such agreements, Duane Markus would be paid a
total of $400,000 in cash at the Closing, and Jack Pagel and Tom Gould will
each be paid $50,000 in cash at the Closing, for total severance and non-
competition payments to them of $500,000. The cost of these payments are to be
borne directly or indirectly by ACS and are not to be taken into account in
determining the Total Purchase Price and, thus, such payments will not reduce
the per share Consideration payable to shareholders in the Merger. The Merger
Agreement allows Tech 80 in the period prior to the Closing Date to pay to Jack
Pagel an additional consulting fee of $100,000. Such consulting fee would be
in addition to the consulting fees that Tech 80 has paid or may pay in
accordance with past practices. The Tech 80 Board of Directors anticipates
that it will pay such consulting fees to Jack Pagel in recognition of the
services that he rendered to Tech 80 in negotiating the terms of the Merger. If
some or all of such consulting fee is paid, the payment would have the effect
of reducing the Total Purchase Price otherwise payable. James Burkett, Tech
80's Chief Operating Officer, is anticipated to enter into a three-year
employment agreement with the Surviving Corporation effective as of the
Closing, which will provide for a continuation of his current compensation
plan.
Prior to the Closing Date, one or more of the Principals or their
affiliates may purchase certain assets from Tech 80 as contemplated by the
Merger Agreement. Any such purchase should not decrease, and may increase, the
Total Purchase Price otherwise payable by ACS. The Merger Agreement
contemplates that the Principals or their affiliates, at their and Tech 80's
option, might purchase receivables in cash for the face amount of such
receivables. No consent of ACS is required in connection therewith (but ACS's
consent would be required for the purchase of other assets). Since the amount
of the Adjusted Net Book Value in excess of $1,840,000 is not taken into
account in determining the Total Purchase Price, the Principals have indicated
that they would consider purchasing (but are not obligated to purchase)
receivables to reduce the Adjusted Net Book Value to $1,840,000 (if the
Adjusted Net Book Value would otherwise exceed $1,840,000). Any receivables
purchased by the Principals would decrease the amount of the Adjusted Net Book
Value, but would increase the amount of cash that is included in the
computation of Portfolio Assets (for which there is no limitation on the amount
thereof in determining the Total Purchase Price). Thus, any such purchase by
the Principals or their affiliates should not reduce the per share
Consideration receivable by shareholders, and may have the effect of increasing
the per share Consideration.
Effective Time; Closing Date
If the Merger Agreement is approved by the requisite vote of Tech 80
shareholders, and the other conditions to the Merger are satisfied or waived,
the Merger will become effective upon the filing of Articles of Merger with the
Minnesota Secretary of State (the "Effective Time"). It is currently
anticipated that the filing will be made promptly after the closing of the
Merger following the Special Meeting, assuming approval of the Merger by the
shareholders of Tech 80. The date on which the closing (the "Closing") is to
occur is referred to as the "Closing Date." See "THE MERGER--Covenants and
Conditions."
Exchange of Shares
In order to receive the cash to which Tech 80 shareholders will be
entitled at the Effective Time, each holder of a certificate or certificates
theretofore representing Shares of Tech 80 Common Stock (other than those
holders who have properly exercised dissenters' rights) will be required to
properly surrender such certificates together with a duly executed and properly
completed letter of transmittal and any other required documents, to Tech 80
(as the Surviving Corporation, acting as its own transfer agent). Outstanding
shares of TAC will be converted into shares of Tech 80 Common Stock as part of
the Merger, resulting in ACS as the sole shareholder of TAC being the sole
shareholder of Tech 80, the Surviving Corporation in the Merger.
Upon receipt from a shareholder of such certificate or certificates
together with a duly executed and properly completed letter of transmittal,
Tech 80 will inform the Principals that the shareholder is entitled to payment
of the per share Consideration. On or after the Availability Date, the
Principals will arrange for the issuance and delivery of checks drawn on the
Shareholder Fund in amounts representing the per share Consideration multiplied
by the number of Shares represented by each such shareholder's stock
certificate or certificates, plus interest to which such shareholder is
entitled. The Availability Date is expected to occur an estimated forty days
after the Closing Date, but may occur several weeks thereafter if there is a
dispute regarding the determination of the final Total Purchase Price. Such
person or persons will also receive from the Principals a brief statement
showing a final computation of the Consideration, including, without
limitation, a computation of the final Total Purchase Price and a brief and
summary accounting of the Shareholder Fund Administrative Expenses incurred and
the reserve established. To the extent practicable, such brief statement will
precede or accompany payment of the Consideration and Net Consideration.
Tech 80 and the Principals will send instructions to such holders of
Shares with regard to the procedure for surrendering certificates in exchange
for cash, together with a letter of transmittal to be used for this purpose, as
soon as practicable after the Effective Time. Such holders of Shares should
surrender certificates representing Shares only with a letter of transmittal.
See "THE MERGER--Consideration."
Holders of Shares should not send any stock certificates with the enclosed
Proxy.
Conditions
The obligations of each of Tech 80, TAC and ACS to consummate the Merger
are subject to the following conditions, among others: (i) the MBCA Required
Approval and the Non-Principal Shareholder Approval shall have been obtained,
(ii) the parties' representations and warranties shall be true and correct as
of January 27, 1999 and as of the Closing Date, and the parties shall have
complied with all obligations to be performed by them at or prior to the
Closing; (ii) all material required governmental approvals shall have been
obtained; and (iii) there shall not have been instituted or be pending any
action or proceeding before any court or governmental agency challenging the
Merger. In addition, the obligation of ACS to consummate the Merger is subject
to the following conditions, among others: (i) the Principals shall have
entered into the non-competition and severance agreements with the Surviving
Corporation providing for the payment by the Surviving Corporation of $400,000
to Duane Markus and $50,000 to each of Jack Pagel and Tom Gould, and (ii) Tech
80 shall have delivered all required Schedules at least five business days
prior to the Closing Date and ACS shall not have identified matters in good
faith and in its reasonable business judgment that it determines adversely
affects its valuation of and plans for the future development of Tech 80 as the
Surviving Corporation.
If any of the foregoing conditions are not met, the party whose obligation
to proceed is subject to such conditions may refuse to proceed with the Merger.
Alternatively, any of the foregoing conditions may be waived at any time prior
to the Merger by the parties to the Merger Agreement, except for the MBCA
Required Approval and compliance with all statutory requirements for the valid
consummation of the Merger.
Covenants and Certain Agreements
Tech 80 has agreed to conduct its businesses in the ordinary and usual
course prior to consummation of the Merger and to use its best efforts to cause
the transactions contemplated by the Merger Agreement to be consummated.
Further, in connection with its agreement to operate in the ordinary course,
Tech 80 has agreed that, except as may be set forth in a Schedule to the Merger
Agreement or as approved by ACS, Technology 80 will (i) maintain selling prices
and discounts at levels equal to the average levels during the three months
prior to January 27, 1999, and preserve its business relationships; (ii) not
pay dividends or make any distributions, or split or reclassify its capital
stock, or repurchase any of its capital stock; (iii) not issue any capital
stock or rights to acquire capital stock (other than pursuant to Options); (iv)
not amend its Articles of Incorporation or Bylaws; (v) acquire by way of merger
or otherwise another business; (vi) not dispose of assets other than in the
ordinary course or as contemplated by the Merger Agreement; (vii) not incur
debt or make any investments; (viii) not enter into or amend any compensation
or employee benefit plan, or increase the compensation of officers, directors
or employees, provided that Tech 80 may accelerate payment of amounts otherwise
accrued on its financial statements, and Tech 80 may pay a consulting fee of
$100,000 to Jack Pagel for services rendered; (x) not change its methods of
accounting; and (xi) not take any action that would result in the conditions to
Closing not being met. Further, Tech 80 has agreed that it would liquidate all
of its investments into cash or cash equivalents at least five trading days
prior to Closing.
Tech 80 and the Principals have agreed that they will not initiate,
solicit, encourage, negotiate or discuss or take other actions to knowingly
facilitate any proposal or offer to consummate an Alternative Transaction. An
"Alternative Transaction" includes a merger, consolidation, business
combination, sale of a significant amount of assets outside of the ordinary
course of business, sale of shares of capital stock outside of the ordinary
course of business, sale or other disposition of Tech 80's business, tender or
exchange offer, or similar transaction involving Tech 80. Tech 80 has agreed
to promptly notify ACS of any such inquiries or proposals received. Tech 80 has
a limited ability to furnish information to or enter into discussions or
negotiations with any person or entity that makes an unsolicited bona fide
Alternative Transaction inquiry or offer, if (i) the Board of Directors of Tech
80 determines in good faith, after receipt of advice to such effect from
independent legal counsel, that such action is so required for the Board of
Directors to comply with its fiduciary duties to shareholders imposed by law,
(ii) prior to furnishing information to, or entering into discussions and
negotiations with, such person or entity, Tech 80 promptly provides written
notice to ACS to the effect that it is furnishing information to, or entering
into discussions or negotiations with, such person or entity, and (iii) Tech 80
keeps ACS informed of the status and all material terms and events with respect
to any such Alternative Transaction
Tech 80 has agreed that it will, through its Board of Directors, recommend
to its shareholders approval and adoption of the Merger Agreement. The
Principals have also agreed to vote all of their Shares in favor of the Merger.
However, Tech 80 may withdraw its recommendation if the Board of Directors of
Tech 80, after consultation with and based upon the advice of independent legal
counsel, determines in good faith that such withdrawal or modification is
necessary for Tech 80's Board of Directors to comply with its fiduciary duties
to shareholders under applicable law.
During the period prior to the Closing Date, Tech 80 has agreed to afford
to ACS and its representatives reasonable access to Tech 80's properties, books
and records and to use its best efforts to furnish to ACS such additional
information as ACS may from time to time reasonably request. Both Tech 80 and
ACS have agreed to execute and deliver such instruments and take such other
action as the other party may reasonably require in order to carry out the
Merger Agreement and the transactions contemplated thereby.
Indemnification by the Principals
After the Effective Time, the Principals have jointly and severally agreed
to indemnify and hold harmless ACS and Tech 80 as the Surviving Corporation,
and certain related parties. The Principals have agreed to so indemnify such
parties for all losses and expenses (including attorneys' fees) that they
actually suffer or incur as a result of (i) any material breach of any
representation or warranty by Tech 80 or the Principals in the Merger Agreement
or related documents, and (ii) any breach by Tech 80 of any covenant or
agreement by Tech 80 prior to the Merger in the Merger Agreement or the related
documents. The Principals are not to have any liability for such losses and
expenses until the aggregate amount incurred exceeds $25,000, in which case the
indemnified parties are entitled to indemnification for all losses and
expenses. Further, the total liability of the Principals for indemnification
is not to exceed, in total, $300,000. No claim for indemnification will be
valid unless made on or prior to one year after the Effective Time.
The representations and warranties that Tech 80 and the Principals are
making in the Merger Agreement relate to the following matters, among others:
(i) the number of outstanding Shares and Options; (ii) the accuracy of Tech
80's financial statements, and the absence of undisclosed liabilities; (iii)
ownership of Tech 80's assets free and clear of undisclosed liens and
encumbrances; (iv) the lack of breaches regarding material contracts of Tech
80; (v) ownership and non-infringement of Tech 80's intellectual property; (vi)
Tech 80's full payment of all taxes owing; (vii) the absence of undisclosed
pending or threatened litigation; (viii) Tech 80's compliance with applicable
law; (ix) the absence of undisclosed environmental liabilities; (x) the
compliance under applicable law of all filings made by Tech 80 with the SEC;
and (xi) the absence of undisclosed information that could have a material
adverse effect on Tech 80 or its assets.
Termination and Amendment of the Merger Agreement
The Merger Agreement may be terminated and the Merger abandoned at any
time prior to the Effective Date, whether before or after approval by the
shareholders of Tech 80, by mutual written consent of ACS and Tech 80.
Further, it may be so terminated and abandoned by ACS if (i) any condition to
its obligations under the Merger Agreement is not met or there is a material
breach of the Merger Agreement by Tech 80; (ii) the requisite shareholder
approvals are not obtained; (iii) the holders of more than 15% of the
outstanding Shares shall have properly exercised dissenters' rights; (iv) the
Board of Directors withdraws, amends or modifies in a manner adverse to ACS its
favorable recommendation of the Merger; (v) Tech 80 or the Principals fail to
deliver any required documents; or (vi) within five business days after receipt
of the required Schedules, ACS shall have identified matters in good faith and
in its reasonable business judgment that it determines adversely affects its
valuation of and plans for the future development of Tech 80 as the Surviving
Corporation. The Merger Agreement may be terminated and the Merger abandoned at
any time prior to the Effective Date by Tech 80 if (i) any condition to its
obligations under the Merger Agreement is not met or there is a material breach
of the Merger Agreement by ACS; (ii) the requisite shareholder approvals are
not obtained; (iii) Tech 80's Board of Directors withdraws its recommendation
to approve and adopt the Merger Agreement in accordance with the terms of the
Merger Agreement; or (iv) ACS or TAC fails to deliver any required documents.
Further, either ACS or Tech 80 may terminate the Merger Agreement and abandon
the Merger if the Merger shall not have been consummated by March 31, 1999,
provided that such date will be extended to May 15, 1999 if the SEC shall not
have cleared this Proxy Statement by February 28, 1999 (unless the failure was
due to the action or failure to act that constitutes a breach of the Merger
Agreement).
The Merger Agreement may be amended at any time prior to the Effective
Time, upon the authorization of the respective Boards of Directors of Tech 80,
TAC and ACS without shareholder approval, except that after the shareholders of
Tech 80 have approved the Merger Agreement, no amendment may be made which by
law requires further approval by the shareholders without such further
approval.
Fees and Expenses
Except as described in the following sentence, whether or not the Merger
is consummated, all costs, fees and expenses in connection with the Merger
(including but not limited to accounting, legal and financial advisor fees) and
the transactions contemplated hereby will be paid by the party incurring such
costs, fees and expenses. In the event the Merger is not consummated (i)
because of the occurrence of a material adverse effect involving Tech 80, ACS
is to pay up to $50,000 of Tech 80's legal fees incurred after December 10,
1998 related to the negotiation and consummation of the Merger Agreement; and
(ii) so long as ACS shall not have materially breached its obligations under
the Merger Agreement, Tech 80 is to pay $400,000 if Tech 80 elects to terminate
the Merger Agreement as a result of its Board of Directors withdrawing its
recommendation to approve and adopt the Merger Agreement as permitted by the
Merger Agreement, or if Tech 80 should enter into any agreement, arrangement or
understanding providing for an Alternative Transaction. The Merger Agreement
allows the Board of Directors to withdraw its recommendation to approve and
adopt the Merger Agreement if it, after consultation with and based upon the
advice of independent legal counsel, determines in good faith that such
withdrawal or modification is necessary for Tech 80's Board of Directors to
comply with its fiduciary duties to shareholders under applicable law. An
"Alternative Transaction" includes a merger, consolidation, business
combination, sale of a significant amount of assets outside of the ordinary
course of business, sale of shares of capital stock outside of the ordinary
course of business, sale or other disposition of Tech 80's business, tender or
exchange offer, or similar transaction involving Tech 80.
Federal Income Tax Consequences
The following describes the principal federal income tax consequences of
the Merger, assuming that the Merger is consummated as contemplated herein.
The discussion assumes that a Tech 80 shareholder holds his or her Shares as a
capital asset (i.e., generally for investment). This discussion is based on
current laws and interpretations thereof, and there can be no assurance that
future legislation, regulations, administrative rulings, or court decisions
will not adversely affect the accuracy of the statements contained herein. The
discussion does not take account of rules that may apply to shareholders that
are subject to special treatment under federal income tax laws (including,
without limitation, trusts, S corporations, taxpayers subject to alternative
minimum tax, insurance companies, dealers in securities, certain retirement
plans, financial institutions, tax exempt organizations, holders who are not
United States citizens or residents, Tech 80 shareholders who acquired Tech 80
common stock pursuant to the exercise of employee stock options or rights or
otherwise as compensation, and persons in special situations, including persons
who hold shares of Tech 80 common stock as part of a straddle). No rulings
have been requested or received from the Internal Revenue Service (the "IRS")
as to the matters discussed herein and there is no intent to seek any such
rulings. Accordingly, no assurance can be given that the IRS will not
challenge the tax treatment of certain matters discussed in this summary or, if
it does challenge the tax treatment, that it will not be successful.
THE DISCUSSION BELOW DOES NOT ADDRESS STATE, LOCAL OR FOREIGN TAX
CONSEQUENCES OF THE MERGER AND THE SPECIFIC TAX CONSEQUENCES TO EACH TECH 80
SHAREHOLDER MAY DIFFER. CONSEQUENTLY, EACH TECH 80 SHAREHOLDER SHOULD CONSULT
ITS OWN TAX ADVISOR AS TO THE SPECIFIC TAX CONSEQUENCES, INCLUDING THE
APPLICABLE FEDERAL, STATE, LOCAL AND FOREIGN TAX CONSEQUENCES TO IT, OF THE
MERGER.
For each holder of Tech 80 common stock, the Merger will be a taxable
transaction for federal income tax purposes and such holder will be treated as
if, at the Effective Time, it had sold each of its Shares for cash. A holder
of Tech 80 common stock will recognize capital gain or loss equal to the
difference between (x) its tax basis in the Shares surrendered and (y) any cash
received for the Shares.
The gain or loss recognized as a result of the Merger will be treated as a
capital gain or loss, provided that Tech 80 is not treated for federal income
tax purposes as a "collapsible corporation." Tech 80's management believes
that Tech 80 is not a collapsible corporation for federal income tax purposes.
The gain or loss so recognized will be long-term with respect to shares of Tech
80 Common Stock held for more than one year and will be short-term with respect
to shares held for one year or less. For federal income tax purposes capital
losses are generally deductible only against capital gains and not against
ordinary income.
Under the federal income tax backup withholding rules, unless an exemption
applies, withholding will be required of 31% of all payments to which a payee
is entitled pursuant to the Merger, unless the payee provides or has provided a
tax identification number (social security number, in the case of an
individual, or employer identification number in the case of other Tech 80
shareholders). Each holder of Tech 80 Shares, and, if applicable, each other
payee, should complete and sign any substitute Form W-9 which may be included
as part of the letter of transmittal to be returned to Tech 80 in order to
provide the information and certification necessary to avoid backup
withholding, unless an applicable exception exists and is proved in a
satisfactory manner or unless Tech 80 already has such tax identification
number in its possession. The exceptions provide that certain holders
(including, among others, all corporations and certain foreign individuals) are
not subject to these backup withholding and reporting requirements. Any
amounts withheld will be allowed as a credit against the holder's federal
income tax liability for such year.
The Merger Agreement provides that shareholders will receive a pro rata
share of any interest earned on the Shareholder Fund from the Closing Date
until the Availability Date. Any such interest income would result in
ordinary income to the shareholder.
THE FEDERAL INCOME TAX DISCUSSION SET FORTH ABOVE IS INCLUDED FOR GENERAL
INFORMATION ONLY. SHAREHOLDERS SHOULD NOTE THAT THE PARTIES HAVE NOT OBTAINED,
AND WILL NOT OBTAIN, A RULING FROM THE IRS OR AN OPINION OF COUNSEL REGARDING
THE MATTERS DESCRIBED HEREIN. EACH SHAREHOLDER IS URGED TO CONSULT HIS OR HER
TAX ADVISOR WITH RESPECT TO THE TAX CONSEQUENCES TO THE SHAREHOLDER OF THE
PROPOSED TRANSACTIONS, INCLUDING FEDERAL, STATE, LOCAL AND FOREIGN TAX
CONSEQUENCES.
Regulatory Requirements
Except in connection with the filing of Articles of Merger with the
Secretary of State and compliance with other corporate law requirements, the
Merger does not require the approval of any federal, state or other agency.
RIGHTS OF DISSENTING SHAREHOLDERS
Shareholders of Tech 80 are entitled to exercise dissenters' rights
pursuant to the provisions of Sections 302A.471 and 302A.473 of the Minnesota
Statutes. In accordance with these sections, Tech 80 shareholders have the
right to dissent to the Merger and to be paid the "fair value" of their Shares.
In this context, the term "fair value" means the value of the Shares
immediately before the Effective Time of the Merger. Under Section 302A.473,
where a merger is to be submitted for approval at a meeting of shareholders,
the corporation must notify each of its shareholders of the right to dissent,
include in such notice a copy of Sections 302A.471 and 302A.473 and provide a
brief description of the procedures to be followed under these sections. This
Proxy Statement shall constitute such notice to the shareholders of Tech 80 and
the following discussion describes the procedures to be followed by a
dissenting shareholder. The applicable statutory provisions are attached
hereto as Appendix C.
The following discussion is not a complete statement of the law pertaining
to a dissenting shareholder's rights under Minnesota law and is qualified in
its entirety by the full text of Sections 302A.471 and 302A.473 attached
hereto. Any Tech 80 shareholder who wishes to exercise the right to dissent
and demand the fair value of his or her Shares, or who wishes to preserve the
right to do so, should review the following discussion and Appendix C carefully
because failure to timely and properly comply with the procedures will result
in the loss of a shareholder's right to dissent under Minnesota law.
A shareholder of Tech 80 wishing to exercise the right to demand the fair
value of his or her Shares must:
Before the vote of shareholders is taken at the Special Meeting of Tech
80 shareholders, file a written notice of intent to demand the fair
value of his or her Shares and in addition he or she must not vote in
favor of the Merger Agreement. Because a proxy which does not contain
voting instructions will, unless revoked, be voted FOR approval of the
Merger Agreement, a shareholder of Tech 80 who votes by proxy and who
wishes to exercise dissenters' rights must (i) vote AGAINST the
approval of the Merger Agreement, or (ii) ABSTAIN from voting on the
approval of the Merger Agreement. A vote against the Merger Agreement
in person or by proxy will not in and of itself constitute a written
notice of intent to demand the fair value of a shareholder's Shares
satisfying the requirements.
A demand for fair value must be executed by or for the shareholder of
record, fully and correctly, as such shareholder's name appears on his
or her Tech 80 Common Stock certificate or certificates. If the Common
Stock is owned of record in a fiduciary capacity such as by a trustee,
guardian or custodian, such demand must be executed by the fiduciary.
If the Common Stock is owned of record by more than one person, as in a
joint tenancy or tenancy in common, such demand must be executed by all
joint owners. An authorized agent, including an agent for two or more
joint owners, may execute the demand for a shareholder of record;
however, the agent must identify the record owner and expressly
disclose the fact that, in exercising the demand, he is acting as agent
for the record owner.
A record owner who holds Shares of Tech 80 as a nominee for others, such
as a broker, may demand fair value of the shares held for all, or fewer than
all, of the beneficial owners of such shares. In such a case, the written
demand should set forth the number of Shares to which it relates. When no
number of shares is expressly mentioned, the demand will be presumed to cover
all Shares standing in the name of the record owner. Beneficial owners of
Shares who are not record owners and who intend to exercise dissenters' rights
should instruct the record owner to comply with the statutory requirements with
respect to the exercise of dissenters' rights before the date of the Special
Meeting.
Tech 80 shareholders who elect to exercise dissenters' rights and demand
fair value should mail or deliver their written demand to: Technology
80 Inc., 658 Mendelssohn Avenue North, Minneapolis, Minnesota, 55427,
Attention: Duane Markus, President and Chief Executive Officer. The
written demand should specify the shareholder's name and mailing
address, the number of Shares owned, and that the shareholder is
thereby demanding the fair value of his or her Shares.
After the Effective Time, Tech 80, as the Surviving Corporation, will
cause to be mailed to each shareholder of Tech 80 who has properly
asserted dissenters' rights a notice that contains (i) the address to
which a demand for payment and stock certificates must be sent in order
to receive payment and the date by which they must be received; (ii) a
form to be used to certify the date on which the shareholder, or the
beneficial owner on whose behalf the shareholder dissents, acquired his
or her Shares or an interest in them and to demand payment; and (iii)
another copy of Sections 302A.471 and 302A.473 together with a brief
description of these sections. To receive the fair value of his or her
Shares a dissenting shareholder must demand payment and deposit his or
her certificates within 30 days after the notice is given.
After Tech 80 receives a valid demand for payment, Tech 80 must remit to
each dissenting shareholder who has complied with the dissenters'
rights provisions the amount Tech 80 estimates to be the fair value of
the Shares, plus interest, along with (i) Tech 80's closing balance
sheet and statement of income for a fiscal year ending not more than 16
months before the effective date of the Merger, together with the
latest available interim financial statement; (ii) an estimate by the
corporation of the fair value of the Shares and a brief description of
the method used to reach the estimate; and (iii) another copy of
Sections 302A.471 and 302A.473 and a brief description of the procedure
to be followed in demanding supplemental payment. If Tech 80 fails to
remit payment within 60 days of the deposit of certificates, Tech 80
must return all deposited certificates. However, Tech 80 may again
give notice and require deposit at a later time.
If a dissenting Tech 80 shareholder believes that the amount remitted by
Tech 80 is less than the fair value of his or her Shares plus interest,
such dissenting shareholder may give written notice to Tech 80 of his
or her own estimate of the fair value for the Shares plus interest and
demand a supplemental payment for the difference. Any written demand
for supplemental payment must be made within 30 days after Tech 80
mailed its original remittance.
Within 60 days after receiving a demand for supplemental payment, Tech
80, as the Surviving Corporation, must either pay the amount of the
supplemental payment demanded (or agreed to between the dissenting
shareholder and Tech 80) or file a petition in the state courts of
Minnesota requesting that the court determine the fair value of the
Shares plus interest. Any petition so filed must name as parties all
dissenting shareholders who have demanded supplemental payments and who
have been unable to reach an agreement with Tech 80 concerning the fair
value of their Shares. The court may appoint appraisers, with such
power and authority as the court deems proper, to receive evidence on
and recommend the amount of fair value of the Shares. The jurisdiction
of the court is plenary and exclusive, and the fair value as determined
by the court is binding on all shareholders, wherever located. A
dissenting shareholder, if successful, is entitled to a judgment for
the amount by which the fair value of his or her Shares as determined
by the court exceeds the amount originally remitted by Tech 80.
Generally, the costs and expenses associated with a court proceeding to
determine the fair value of the Tech 80 Common Stock will be borne by Tech 80,
as the Surviving Corporation, unless the court finds that a dissenting
shareholder has demanded supplemental payment in a manner which is arbitrary,
vexatious, or not in good faith. Similar costs and expenses may also be
assessed in instances where Tech 80 has failed to comply with the procedures in
Section 302A.473 pertaining to dissenters' rights discussed above. The court
may, in its discretion, award attorneys' fees to an attorney representing
dissenting shareholders out of any amount awarded to such dissenters.
Failure to follow the steps required by Section 302A.473 for asserting
dissenters' rights may result in the loss of a shareholder's rights to demand
the fair value of his or her Shares. Shareholders considering seeking
appraisal should realize that the fair value of their Shares, as determined
under Section 302A.473 in the manner outlined above, could be more than, the
same as, or less than the amount of cash they would be entitled to as a result
of the Merger if they did not seek appraisal of their shares. The dissenting
shareholders shall only be entitled to receive the fair value of their Shares,
even if such fair value is less than the amount of cash they would be entitled
to as a result of the Merger.
As set forth in the Merger Agreement, attached hereto as Appendix A, if
the holders of more than 15% of the outstanding Shares properly exercise
dissenters' rights (as described in this section and in Appendix C hereto), ACS
may terminate the Agreement prior to Closing.
MARKET PRICES AND DIVIDENDS
Tech 80's common stock, $.01 par value, is traded in the Minneapolis/St. Paul
local, over-the-counter market under NASD Bulletin Board symbol "TKAT". Set
forth in the table below is information concerning the range of high and low
bid quotations for Tech 80's common stock during the fiscal years ended August
31, 1998 and 1997 and the fiscal quarter ended November 30, 1998.
<TABLE>
<CAPTION>
Common Stock Trading Price Ranges
- ---------------------------------
Common Stock Bid
1999 Low High
- ---------------------------------------------
<S> <C> <C>
First Quarter 3 1/8 5
1998 Low High
- ---------------------------------------------
First Quarter 3 3 5/16
Second Quarter 3 4
Third Quarter 3 3/4 4 1/4
Fourth Quarter 3 5 1/4
1997 Low High
- ---------------------------------------------
First Quarter 2 2 1/2
Second Quarter 2 2 9/16
Third Quarter 2 2
Fourth Quarter 2 3 1/4
</TABLE>
Prices were obtained from Twin Cities media. The quotations reflect inter-
dealer prices, without retail markup, markdown or commission and may not
represent actual transactions.
As of the Record Date, there were [161] record holders of Tech 80's common
stock.
It is the present intention of Tech 80 to retain any earnings to finance
the development of its business and, accordingly, Tech 80 does not anticipate
payment of any cash dividends in the foreseeable future.
The average of the bid and asked trading prices for each of the 10 trading
days immediately preceding the public announcement of the proposed Merger was
$37/8 per share. On __________, 1999, the last full trading day prior to the
printing of this Proxy Statement, the average of the bid and asked prices of
Tech 80 Common Stock was $______ per share. Tech 80 shareholders are urged to
obtain current market quotations for their common shares.
<TABLE>
<CAPTION>
SELECTED FINANCIAL DATA
Year Ended August 31,
1994 1995 1996 1997 1998
Operating Data:
<S> <C> <C> <C> <C> <C>
Operating Revenues $3,204,296 $3,668,353 $4,206,691 $4,918,935 $5,565,771
Net Profit 960,237 645,054 665,355 733,327 601,329
Net Profit
Per Common Share .60 .39 .39 .47 .37
Balance Sheet Data:
Total Assets $3,392,471 $4,195,375 $4,897,556 $6,009,100 $6,202,026
Long-Term
Obligations -0- -0- -0- -0- -0-
</TABLE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Results of Operations - 1998 vs. 1997
Revenue increased 13.1% from fiscal year 1997 to fiscal year
1998 and increased 16.9% from fiscal year 1996 to 1997. The
increased revenue in fiscal years 1998 and 1997 resulted from an
expansion in the customer base for Tech 80's products and an
increase in the number of higher-priced products sold.
Gross profit as a percentage of revenue decreased to 62.4%
in fiscal year 1998 from 65.4% in 1997. This decrease resulted
from volume discounts granted to Tech 80's major customer during
1998. Tech 80's sales to this customer in 1998 represented
approximately 13% of total 1998 revenues. Due to increasing
price pressure in Tech 80's industry, similar discounts are
expected to be necessary in the future.
Selling expenses as a percentage of revenue were 14.5% and
14.3% in fiscal years 1998 and 1997, respectively. General and
administrative expenses amounted to 19.8% and 20.3% of revenue
for fiscal years 1998 and 1997, respectively. Research and
development costs represented 14.1% of revenue in fiscal 1998,
compared with 14.3% in 1997. Tech 80 expects these expenses to
remain at current levels.
Income from operations was $786,123, or 14.1% of revenue, in
fiscal year 1998 and $811,182, or 16.5% of revenue, for fiscal
year 1997. The decrease in income from operations for 1998 over
1997 resulted primarily from volume discounts described above.
Other income decreased by $176,139 from 1997 to 1998,
primarily due to a small realized net loss in the sale of
investments in 1998 compared to a large realized net gain in
1997. Other income amounted to 1.9% of revenue in fiscal year
1998 and 5.8% of revenue in fiscal year 1997. Tech 80 has
retained earnings in recent years while investigating
opportunities to purchase or build new facilities and to make
strategic acquisitions. These retained earnings have remained in
various accounts in an effort to balance the Company's interest
in liquidity, return and security.
Tech 80 reported net income of $601,329, or 10.8% of
revenue, for fiscal year 1998 and $733,327, or 14.9% of revenue,
for fiscal year 1997. The decrease in net income from 1997 to
1998 is the result of new volume price discounts in 1998 and
changes in realized gains and losses on investments from 1997 to
1998.
Results of Operations -
First Quarter 1999 vs. First Quarter 1998
Revenues for the quarter ended November 30, 1998 decreased
by 24% from $1,323,597 to $1,009,750 from revenues for the same
period in 1997. Order backlog as of December 31, 1998 was $779
180, as compared to $1,103,482 in backlog as of December 31,
1997. Tech 80 believes that the decrease in backlog and in
revenues has resulted from a slow-down in the semi-conductor
capital equipment market relating primarily to the following
factors: instability in Asian financial markets; delays in the
acceptance of next generation wafer-processing technology; and
erosion of DRAM margins.
Gross profit as a percentage of revenue for the three months
ended November 30, 1998 was 62%, compared to 59% for the three
months ended November 30, 1997. The increase in gross profit as
a percentage of revenue is due to the relatively high level of
volume discounts for products shipped in the first quarter of
fiscal year 1998.
Operating expenses totaled $517,461, or 51% of revenue, for
the first quarter of fiscal 1999 and $529,482, or 40% of revenue
for the first quarter of fiscal 1998. The increase in operating
expenses as percentage of revenue was due primarily to the
decrease in revenue for the quarter.
Other income increased by $2,827 to $62,387 for the quarter
ended November 30, 1998, compared to $59,540 for the same period
the preceding year.
Tech 80 reported net income of $122,294, or 12.1% of
revenue, for the quarter ended November 30, 1998 and $209,408, or
15.8% of revenue, for the quarter ended November 30, 1997. The
decrease in net income was due primarily to the decrease in
revenue for the quarter.
Liquidity and Capital Resources
Tech 80's operations provided a net increase in cash of
$641,143 in fiscal year 1998. Accounts receivable decreased by
$215,291 from the previous year, primarily due to fewer shipments
in August 1998 than in the same month the previous year.
Inventories increased $180,009 from the previous year primarily
due to increased sales. Tech 80 used $59,904 in cash to purchase
equipment. Investment sales and maturities, net of investment
purchases, provided an increase in cash of $1,053,109. Tech 80
received $42,989 from employees exercising stock options. In
total, cash and cash equivalents increased by $1,383,102 from
August 31, 1997 to August 31, 1998.
Operations used $284,046 in cash during the first quarter of
fiscal year 1999. This use of cash reflects the payment of
approximately $500,000 in accrued liabilities relating to bonuses
and consulting fees. Investing activity provided $308,480 in
cash during the quarter. In total, cash and cash equivalents
increased by $24,434 from August 31 to November 30, 1998. Tech 80
expects that there will be sufficient capital to fund its
operations during the remainder of fiscal year 1999.
At August 31, 1998, Tech 80 had investments with a cost and
fair market value of $2,772,464 and $2,004,726, respectively,
consisting primarily of investments in equity securities. This
compares to a cost and fair market value of $3,765,049 and
$3,348,616, respectively, at August 31, 1997. Approximately 46%
of the fair market value as of August 31, 1998 was represented by
investments in four companies. Approximately 45% of the fair
market value was represented by investments in three companies at
August 31, 1997.
Tech 80 has no long term borrowings and does not currently
anticipate that it will be necessary to seek long term debt
financing to fund continuing operations.
Year 2000 Issue
Tech 80 has completed an assessment of Year 2000 compliance
for its products and critical operating and application systems.
This assessment identified no material Year 2000 compliance
issues. Tech 80 expects to be fully Year 2000 compliant prior to
December 31, 1999. The costs associated with the assessment and
any modifications were less than $10,000.
Ultimately, the potential impact of the Year 2000 issue will
depend not only on the actions taken by the Tech 80, but also how
the Year 2000 issue is addressed by customers, vendors, service
providers, utilities, governmental agencies and other entities
with which the Tech 80 does business. Tech 80 is communicating
with these parties to learn commitment dates from the various
parties as to their Year 2000 readiness and delivery of compliant
software and other products. This process will continue
throughout fiscal year 1999. The Year 2000 efforts of third
parties are not within the Tech 80's control, however, and their
failure to respond to Year 2000 issues successfully could result
in business disruption and increased operating cost for the Tech
80. At the present time, it is not possible to determine whether
any such events are likely to occur, or to quantify any potential
negative impact they may have on the Tech 80's future results of
operations and financial condition. Tech 80 expects to assess
its need for contingency plans during 1999.
The foregoing discussion regarding the timing,
effectiveness, implementation, and cost of Tech 80's Year 2000
compliance efforts contains forward-looking statements which are
based on management's best estimates derived using assumptions.
These forward-looking statements involve inherent risks and
uncertainties, and actual results could differ materially from
those contemplated by such statements. Factors that might cause
material differences include, but are not limited to, the
availability of key Year 2000 personnel, Tech 80's ability to
locate and correct all relevant computer codes, the readiness of
third parties, and Tech 80's ability to respond to unforeseen
Year 2000 complications. Such material differences could result
in, among other things, business disruptions, operational
problems, financial loss, legal liability and similar risks.
Cautionary Statement
Statements included in this Management's Discussion and
Analysis of Financial Condition and Results of Operations and
elsewhere in this Proxy Statement, in future filings by Tech 80
with the Securities and Exchange Commission and in Tech 80's
press releases and oral statements made with the approval of
authorized executive officers, if the statements are not
historical or current facts, should be considered "forward-
looking statements" made pursuant to the safe harbor provisions
of the Private Securities Litigation Reform Act of 1995. These
statements are subject to certain risks and uncertainties that
could cause actual results to differ materially from historical
earnings and those presently anticipated or projected. Tech 80
wishes to caution the reader not to place undue reliance on any
such forward-looking statements, which reflect Tech 80's plans
and expectations only as of the date made.
Taking the foregoing into account, following are important
risk factors that could cause actual results to differ materially
from those expressed in any forward-looking statement made by or
on behalf of Tech 80:
Tech 80 participates in a highly competitive and volatile
high technology industry. Shifts in demand could
negatively affect pricing and sales of Tech 80's
products.
Tech 80's current order backlog is subject to
rescheduling or cancellation by Tech 80's customers.
Such rescheduling or cancellation could negatively affect
revenues from sales of Tech 80's products in the current
period.
Tech 80 has aggressively reduced administrative costs and
maximized capacity utilization in recent years. Changes
in the industry and in demand for Tech 80's products may
limit Tech 80's ability to maintain costs at current
levels in the future.
Tech 80's business is dependent in part on its continued
ability to develop new products to stay abreast of
changes in technology in its industry. An inability to
continue to develop such products, or a lack of
acceptance by Tech 80's customers of such products, could
negatively affect Tech 80's sales and the results of its
operations.
Tech 80 may identify product development opportunities or
needs in the future which require an immediate and
substantial increase in the level of its research and
development expenses. Such an increase could negatively
affect the results of Tech 80's operations.
Products representing a significant portion of Tech 80's
revenues depend on the continued supply of a proprietary
chipset from a sole source supplier. Sales of such
products have amounted to as much as 20% of Tech 80's
total revenue in recent periods. An interruption in or
termination of deliveries from this supplier could
negatively affect Tech 80's sales and the results of its
operations.
Sales to one customer represented 13% of Tech 80's
revenues during fiscal year 1998. Tech 80's financial
condition and results of operations would be materially
adversely affected if it were to lose the business of
this customer or if the amounts of this customer's orders
were to decline significantly.
BUSINESS OF TECH 80
General
Technology 80 Inc. ("Tech 80") was incorporated under the
laws of the State of Minnesota on February 12, 1980. It is
engaged in the business of developing, manufacturing, marketing
and selling computer-related industrial control products, with an
emphasis on motion control applications. Tech 80's initial
products included STD industrial bus structure cards and systems
and the ChanalyzerT diagnostic and data-logging tool for use with
mainframe computer systems. Tech 80 has since expanded its line
to include products for use in a variety of systems involving
different bus structures.
Within Tech 80's existing industry segment, manufacturing
technical instruments and systems, there is one principal class
of products and services; Industrial Control Products.
Industrial Control Products includes several industry standard
interfaces, commonly known in the industry as bus structures
(e.g., STD, PC, Multibus, SBX, VME, PC/104, and Industry Pack).
Industrial Control Products
Tech 80's products consist primarily of add-in boards for
various types of industry standard micro computers. The original
STD product line has been expanded and now includes a broad
product line of micro computer based boards.
Tech 80 also produces accessories to add-in boards. These
accessories consist of software products, interface cables, and
terminal boards. Accessory products enhance the sales of the
main product line by making it more convenient for the customer
to use Tech 80's products.
Tech 80's products address four categories of industrial
control applications: servo motor control, stepper motor control,
encoder/data acquisition, and industrial input/output. Most of
Tech 80's products relate to motion control aspects of such
applications.
Customers
Tech 80's customers consist of both OEM and end-user (in-
house) applications. Tech 80 actively solicits OEM business,
which often results in significant follow-on sales. Because OEM
design-ins typically run for several years, future sales growth
can be enhanced by a "layering" effect from current OEM business.
All of Tech 80's sales are made to customers unaffiliated
with the company. One customer accounted for 13% of Tech 80's
revenue for fiscal year 1998 and twelve customers accounted for
approximately 50% of 1998 revenue. No one customer accounted for
10% or more of Tech 80's revenue for fiscal year 1997.
International sales accounted for 5.1% and 6.0% of revenue for
the years ended 1998 and 1997, respectively. Tech 80's business
is not seasonal in nature.
Competition
Tech 80 competes with industrial control manufacturers
located in the U.S. and Canada, as well as with some producers
based in Europe and Asia. A number of Tech 80's competitors,
including for example Galil Motion Control, Inc. and Delta Tau
Data Systems, Inc., are larger, have been in business longer, and
have greater resources than Tech 80. Based on the most recent
information available, Tech 80 believes that it offers one of the
most complete product lines for the industrial control products
market.
There are two main types of competition in Tech 80's
industrial control products business. Some competing producers
offer products that are directly competitive with the same
functions as Tech 80's products. Other producers offer products
that enable the user to implement a system in an alternative
fashion to accomplish the same result, either through use of
different functional boards on the same bus structure or on an
alternative bus structure. Tech 80's broad product line,
involving various bus structures, permits Tech 80 to compete
effectively regardless of the bus structure required. Some
competition also results from potential customers' in-house
special design departments.
Tech 80 believes that the principal competitive factors in
its business are function, availability of products and, to a
lesser extent, price. Tech 80's products are comparable in
performance and capability to those of its competitors. Tech 80
believes that its experienced design staff (utilizing Computer
Aided Design technology) enables it to offer standardized
products to meet the customer's needs with a warranty and price
which compare favorably to competitive alternatives, including
potential customers' in-house design costs.
Suppliers
All parts for Tech 80's products are supplied by third party
vendors. Most of such parts are standard off-the-shelf items
available from several sources. Special fabricated parts made to
Tech 80's specifications can be produced by several local
vendors. Printed circuit boards, which are a large part of Tech
80's products, are produced by a variety of local vendors, and
additional vendors could be utilized if desired.
A significant portion of Tech 80's revenues result from
sales of products incorporating a proprietary digital signal
processor chipset supplied by Performance Motion Devices of
Lexington, Massachusetts. Sales of such products have amounted
to as much as 20% of Tech 80's total revenue in recent periods.
Tech 80 has no long term contract relating to the continued
supply of such chipsets and has identified no other source of
supply to substitute for Performance Motion Devices in the event
that deliveries from Performance Motion Devices are interrupted
or discontinued.
Tech 80 utilizes the latest state of the art components,
especially in integrated circuits, in its designs. Delivery of
certain new products is sometimes initially delayed due to
shortage of these state of the art devices. Once available,
however, there has been no instance when such integrated circuits
were not available with reasonable lead time. Tech 80 does not
anticipate any parts supply problems in the foreseeable future.
Tech 80 maintains inventory levels consistent with projected
sales. Due to increasing sales, Tech 80 has found it necessary
in recent periods to maintain larger inventories in order to
ensure a continuous allotment of parts and materials from its
suppliers and to meet its customers' rapid delivery requirements.
Backlog
Current backlog is the result of purchase orders with
delivery scheduled over a period of several months. These
deliveries may be rescheduled or canceled by the customer. Tech
80's products are built to a production schedule based on sales
forecasts, enabling Tech 80 to meet the needs of its customers
who require immediate shipment. Almost all of Tech 80's sales
are shipped within days of receiving orders.
Order backlog as of December 31, 1998 was $779 180, as
compared to $1,103,482 in backlog as of December 31, 1997. Tech
80 believes that the decrease in backlog has resulted from a
slow-down in the semi-conductor capital equipment market relating
primarily to the following factors: instability in Asian
financial markets; delays in the acceptance of next generation
wafer-processing technology; and erosion of DRAM margins.
Employees
Tech 80 had 25 employees as of November 15, 1998, of which
none were part-time. Tech 80 is not a party to any collective
bargaining agreement, and Tech 80 considers its employee
relations to be satisfactory. In view of the small number of
employees, the loss of certain technical or sales personnel could
adversely affect Tech 80 in the short-term.
Tech 80 requires, to the extent allowed by Minnesota law,
its employees to assign to Tech 80 all inventions developed
during their employment by Tech 80. Tech 80 also requires all
employees to enter into agreements pursuant to which, among other
things, the employee agrees not to divulge confidential or
proprietary information to any competitor and, for a period of
two years following termination of employment with Tech 80, not
to compete with Tech 80 in any subsequent employment. Tech 80
has such agreements with all of its present employees. Such
agreements are not binding in the event Tech 80 is acquired in a
transaction opposed by Tech 80's Board of Directors.
Patents and Licenses
One patent has been granted for an Industrial Control
Product design. Tech 80 claims copyright protection as to the
artwork and documentation of all of its products, but has not
sought to register any of its copyrights. There can be no
assurance that any existing patents or any future patents will
prevent competitors from producing substantially similar
products. Tech 80 does not anticipate that any party will have
an interest in licensing its patents.
Tech 80 relies less on the protection provided by patents
and copyrights than it does on the technical and creative skills
of its personnel and on its abilities to market and service its
products, to establish its market position for each of its
products, and to improve its products and develop new products to
stay abreast of new technology.
Research and Development
Tech 80 has spent $782,068 and $703,742 during the fiscal
years ended August 31, 1998 and 1997, respectively, for research
and development of industrial control products. Research and
development costs were 14.1% of revenue for the fiscal year ended
August 31, 1998 and 14.3% of revenue for the fiscal year ended
August 31, 1997. For the foreseeable future, Tech 80 expects
research and development costs to remain approximately the same,
as a percentage of revenue, in light of the continuing need for
new products and utilization of new technology to provide the
basis for future revenues.
Tech 80 continually explores research and development
opportunities. If the company identifies opportunities with
significant potential market demand, a sharp increase in research
and development expenditures may result as Tech 80 engages in
efforts to develop and bring new products to market. Such
increased expenditures may have short- term adverse effects on
Tech 80's profitability.
Marketing, Sales and Distribution
Tech 80 markets its industrial control products in the
United States and Canada primarily through an in-house sales team
that sells to manufacturers and, to a lesser extent, to catalog
distributors. Tech 80 uses a number of system integrators and
distributors specializing in motion control products to
supplement the efforts of the direct sales team.
Tech 80 employs a national sales manager for direct selling
of the motion control product line. Tech 80 has signed
agreements with several international distributors to implement
and handle sales and marketing of Tech 80's products in foreign
markets.
Tech 80 warrants its microcomputer interface cards for a
period of two years from the date of shipment. Tech 80's
warranty return experience has been minimal, and warranty related
expenses have not been material. Tech 80 offers in-house repair
services for its products.
Description of Property
Tech 80 leases its office and production facilities in a
multiple-tenant building located at 658 Mendelssohn Avenue North,
Minneapolis, Minnesota. The portion of the building occupied by
Tech 80 consists of 4,810 square feet for production, warehouse,
laboratory, drafting and engineering, plus 3,690 square feet for
offices, for a total of 8,500 square feet. Tech 80 leases the
space under a non-cancelable operating lease that expires October
2000. The lease requires Tech 80 to pay certain operating
expenses, including real estate taxes, insurance and maintenance,
in addition to the monthly base rent of $4,165. Rent expense for
1998 and 1997, including operating expenses, was approximately
$68,400 and $68,700, respectively.
MANAGEMENT
The name, age and position of each person who is a director or
executive officer of Tech 80 as of January 29, 1999, is as
follows:
<TABLE>
<CAPTION>
Position with Company Position Held
Name Age with Company Since
- -----------------------------------------------------------------
<S> <C> <S> <C>
Thomas L. Gould 56 Director, Secretary 4/90
Duane A. Markus 56 President, Chief Executive 4/90
Officer, Chief Financial
Officer, Director
Jack W. Pagel 56 Director 4/90
James A. Burkett 44 Chief Operating Officer 4/93
</TABLE>
Mr. Gould was elected to fill a vacancy on the Board of
Directors on April 23, 1990. Mr. Gould has been the President of
GH Medical, Inc. since 1990 and has worked as a securities
salesman at Equity Securities Trading Co., Inc., Minneapolis,
Minnesota since July 1988. Prior to that time, Mr. Gould was
employed as a securities salesman by a number of brokerage firms
in Minneapolis, Minnesota, including Engler Budd & Co., Inc. from
July 1986, to July 1988; Craig-Hallum, Inc. from January 1986, to
July 1986; J.W. McClees, Inc. from September 1985, to January
1986; and Pagel, Inc. from August 1981, to September 1985.
Mr. Markus was elected to fill a vacancy on the Board of
Directors on April 23, 1990. Mr. Markus was elected interim
Chief Executive Officer of the Company in September 1990, and
President, CEO and CFO on December 12, 1990. Mr. Markus, from
September 1985, until September 1990, was engaged in managing his
personal investments. From approximately 1983 to 1985, Mr.
Markus was employed by Pagel, Inc. as a securities trader, and
for more than four years prior to 1983, Mr. Markus was employed
by Pagel, Inc. as its Executive Vice President and Trader.
Mr. Pagel was elected to fill a vacancy on the Board of
Directors on April 23, 1990. Mr. Pagel, since September 1985,
has been engaged in managing his personal investments. Prior to
that time, Mr. Pagel was President and sole shareholder of Pagel,
Inc.
Mr. Burkett was promoted to Chief Operating Officer by the
Board of Directors in April 1993. Mr. Burkett was hired in
August 1985 as Sales Manager and has since held the positions of
Director of Sales and Marketing and Vice President of Industrial
Control Products. Prior to his employment at Technology 80 Inc.,
Mr. Burkett was employed as Vice President of the North American
Office of Omni Switch, Inc., Phoenix, Arizona.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth information as of January 29,
1999, as to the shares of the Company's Common Stock beneficially
owned by Messrs. Pagel, Markus, and Gould (the only persons known
by the Tech 80 to own, beneficially, more than 5% of the Tech
80's outstanding Common Stock) and, as of such date, by each of
the Company's other current directors and officers and, as of
such date, by all officers and directors as a group.
<TABLE>
<CAPTION>
Amount and Nature Percent
Name and Business Address of Beneficial of Shares
of Beneficial Holder Ownership (1) (2) Ownership (2)
- -----------------------------------------------------------------
<S> <C> <C>
Thomas L. Gould, Director 101,244 (4) 5.65
658 Mendelssohn Avenue North
Minneapolis, MN 55427
Jack W. Pagel, Director 345,947 (4) 19.30
658 Mendelssohn Avenue North
Minneapolis, MN 55427
Duane A. Markus, Director, CEO 552,808 (3) (5) 30.85
658 Mendelssohn Avenue North
Minneapolis, MN 55427
James A. Burkett, 75,450 (6) (7) 4.21
Chief Operating Officer
658 Mendelssohn Avenue North
Minneapolis, MN 55427
All Officers and Directors
as a Group (four people) 1,075,449 (8) 60.01
</TABLE>
(1) All shares reflected as beneficially owned are those as to
which the shareholder has sole voting and investment power,
unless otherwise noted.
(2) Shares not outstanding, but deemed beneficially owned by
virtue of the right of an individual to acquire them within
60 days, are treated as outstanding only when determining
the amount and percent owned by such individual and when
determining the amount and percent owned by the group.
(3) Includes 65,200 shares beneficially owned by Mr. Markus's
children as to which Mr. Markus has voting power and the
power of disposition.
(4) Includes 47,000 shares which may be acquired pursuant to
options currently exercisable or exercisable within 60 days
of the date hereof.
(5) Includes 6,000 shares which may be acquired pursuant to
options currently exercisable or exercisable within 60 days
of the date hereof.
(6) Includes 9,000 shares which may be acquired pursuant to
options currently exercisable or exercisable within 60 days
of the date hereof.
(7) Includes 12,300 shares beneficially owned by Mr. Burkett's
spouse and child as to which Mr. Burkett has voting power
and/or the power of disposition.
(8) Includes 109,000 shares which may be acquired pursuant to
options currently exercisable or exercisable within 60 days
of the date hereof.
DESCRIPTION OF ACS
ACS is an Israeli corporation formed June 9, 1985. ACS
believes that its is a technology leader in the motion control
industry. ACS combines proprietary software and advanced
electronics in the development and production of universal,
fully-digital motion control products. The common stock of ACS
is traded on the Nasdaq SmallCap Market under the symbol "ACSEF."
The principal executive offices of ACS is located at
Industrial Park, P.O.B. 5668, Migdal Ha'Emek 10500, Israel 10500.
ACS's telephone number at its principal executive offices is 011-
972-6-6546-440.
DESCRIPTION OF TAC
TAC is a Minnesota corporation owned by ACS which was
incorporated on January 12, 1999 for the sole purpose of
effecting the Merger. TAC maintains its principal executive
offices at Industrial Park, P.O.B. 5668, Migdal Ha'Emek 10500,
Israel 10500. TAC's telephone number at its principal executive
offices is 011-972-6-6546-440. TAC has no operating history and
will cease to exist when it is merged into Tech 80 in connection
with the Merger.
LEGAL MATTERS
Certain legal matters in connection with the Merger will be
passed upon for Tech 80 by Fredrikson & Byron, P.A., Minneapolis,
Minnesota.
INDEPENDENT PUBLIC ACCOUNTANTS
Lurie, Besikof, Lapidus & Co., LLP, has served as
independent auditors for Tech 80 since 1990. The audited
consolidated financial statements of Technology 80 Inc. as of
August 31, 1998 and 1997 and related consolidated statements of
earnings, stockholders' equity, and cash flows for each of the
two years in the period ended August 31, 1998 are included
herein. A representative of Lurie, Besikof, Lapidus & Co., LLP
is expected to be present at the Special Meeting to respond to
questions.
OTHER BUSINESS
Management of Tech 80 is not aware of any matters to be
presented for action at the Special Meeting, except for matters
discussed in this Proxy Statement. If any other matters properly
come before the meeting, it is intended that the shares
represented by Proxies will be voted in accordance with the
judgment of the person voting the proxies.
FINANCIAL STATEMENTS
TECHNOLOGY 80 INC.
FINANCIAL STATEMENTS
August 31, 1998 and 1997
C O N T E N T S
Page
----
INDEPENDENT AUDITOR'S REPORT 1
FINANCIAL STATEMENTS
Balance sheets 2
Statements of income 3
Statements of stockholders' equity 4
Statements of cash flows 5
Notes to financial statements 6-11
[LOGO] LURIE, BESIKOF, LAPIDUS & CO., LLP
INDEPENDENT AUDITOR'S REPORT
Board of Directors and Stockholders
TECHNOLOGY 80 INC.
Minneapolis, Minnesota
We have audited the accompanying balance sheets of TECHNOLOGY 80
INC. as of August 31, 1998 and 1997, and the related statements
of income, stockholders' equity, and cash flows for the years
then ended. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that
our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the financial position
of TECHNOLOGY 80 INC. as of August 31, 1998 and 1997, and the
results of its operations and its cash flows for the years then
ended in conformity with generally accepted accounting
principles.
/s/ Lurie, Besikof, Lapidus & Co., LLP
- --------------------------------------
LURIE, BESIKOF, LAPIDUS & CO., LLP
Minneapolis, Minnesota
October 7, 1998
- 2 -
<TABLE>
<CAPTION>
TECHNOLOGY 80 INC.
BALANCE SHEETS
August 31, 1998 and 1997
ASSETS 1998 1997
---------- ----------
CURRENT ASSETS
<S> <C> <C>
Cash and cash equivalents $1,667,363 $ 284,261
Short-term investments 49,048 64,402
Accounts receivable (less allowance for doubtful
accounts: 1998 and 1997 - $12,000) 666,933 882,224
Income tax refund receivable 66,540 -
Inventories 1,357,461 1,177,452
Deferred income taxes 41,000 44,000
Other current assets 16,432 24,383
---------- ----------
TOTAL CURRENT ASSETS 3,864,777 2,476,722
---------- ----------
PROPERTY AND EQUIPMENT
Furniture and equipment 524,035 473,934
Leasehold improvements 23,060 23,060
---------- ----------
547,095 496,994
Less accumulated depreciation 430,524 395,830
---------- ----------
116,571 101,164
---------- ----------
OTHER ASSETS
Investments 1,955,678 3,284,214
Deferred income taxes 265,000 147,000
---------- ----------
2,220,678 3,431,214
---------- ----------
$6,202,026 $6,009,100
========== ==========
</TABLE>
<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
<S> <C> <C>
Accounts payable $ 87,418 $ 96,371
Accrued payroll and payroll taxes 464,816 464,659
Payable to investment company 77,750 285,392
Due to related parties 217,950 180,800
Accrued income taxes - 36,990
---------- ----------
TOTAL CURRENT LIABILITIES 847,934 1,064,212
STOCKHOLDERS' EQUITY 5,354,092 4,944,888
---------- ----------
$6,202,026 $6,009,100
========== ==========
</TABLE>
See notes to financial statements.
- 3 -
<TABLE>
<CAPTION>
TECHNOLOGY 80 INC.
STATEMENTS OF INCOME
Years Ended August 31, 1998 and 1997
1998 1997
---------- ----------
<S> <C> <C>
REVENUE $5,565,771 $4,918,935
COST OF GOODS SOLD 2,091,518 1,702,373
---------- ----------
GROSS PROFIT 3,474,253 3,216,562
---------- ----------
OPERATING EXPENSES
General and administrative 1,099,606 998,562
Research and development 782,068 703,742
Selling 806,456 703,076
---------- ----------
2,688,130 2,405,380
---------- ----------
INCOME FROM OPERATIONS 786,123 811,182
---------- ----------
OTHER INCOME (EXPENSE)
Gain (loss) on sales of investments (17,226) 144,804
Investment income 115,669 136,729
Miscellaneous 9,563 2,612
---------- ----------
108,006 284,145
---------- ----------
INCOME BEFORE INCOME TAXES 894,129 1,095,327
PROVISION FOR INCOME TAXES 292,800 362,000
---------- ----------
NET INCOME $ 601,329 $ 733,327
========== ==========
NET INCOME PER SHARE
Basic $ 0.37 $ 0.47
Diluted $ 0.34 $ 0.43
SHARES USED IN PER SHARE CALCULATION
Basic 1,632,177 1,576,991
Diluted 1,759,889 1,723,540
</TABLE>
See notes to financial statements.
<TABLE>
<CAPTION>
- 4 -
TECHNOLOGY 80 INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
Years Ended August 31, 1998 and 1997
Common Stock
------------ Additional Loans Unrealized
Shares * Paid-in for Stock Losses on Retained
Issued Amount Capital Purchases Investments Earnings Total
---------- ------ ----------- ---------- ----------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE - AUGUST 31, 1996 1,571,170 $15,712 $3,383,944 ($162,263) ($102,526) $1,215,546 $4,350,413
Net income - - - - - 733,327 733,327
Exercise of stock options 33,875 339 24,216 - - - 24,555
Change in unrealized loss on
investments, net of tax
benefit of $92,500 - - - - ( 163,407) - ( 163,407)
---------- ------- ---------- ---------- ---------- ---------- ------------
BALANCE - AUGUST 31, 1997 1,605,045 16,051 3,408,160 ( 162,263) ( 265,933) 1,948,873 4,944,888
Net income - - - - - 601,329 601,329
Loan for stock option exercise - - - ( 9,809) - - ( 9,809)
Exercise of stock options 41,688 417 42,572 - - - 42,989
Change in unrealized loss on
investments, net of tax
benefit of $126,000 - - - - ( 225,305) - ( 225,305)
--------- ------- ---------- -------- --------- ---------- ----------
BALANCE - AUGUST 31, 1998 1,646,733 $16,468 $3,450,732 ($172,072) ($491,238) $2,550,202 $5,354,092
========= ======= ========== ======== ========= ========== ==========
</TABLE>
* Common stock: $.01 par value; authorized - 5,000,000 shares.
See notes to financial statements.
- 5 -
<TABLE>
<CAPTION>
TECHNOLOGY 80 INC.
STATEMENTS OF CASH FLOWS
Years Ended August 31, 1998 and 1997
1998 1997
--------- ---------
OPERATING ACTIVITIES
<S> <C> <C>
Net income $ 601,329 $ 733,327
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation 43,531 34,877
Deferred income taxes 11,000 14,500
(Gain) loss on sales of investments 17,226 ( 144,804)
Changes in operating assets and liabilities:
Accounts receivable 215,291 ( 294,687)
Income tax refund receivable ( 66,540) -
Inventories ( 180,009) ( 220,708)
Other current assets 7,951 4,686
Accounts payable ( 8,953) 44,679
Accrued payroll and payroll taxes 157 247,445
Due to related parties 37,150 108,700
Accrued income taxes ( 36,990) ( 169,147)
---------- ---------
Net cash provided by operating
activities 641,143 358,868
---------- ---------
INVESTING ACTIVITIES
Proceeds from sale of equipment 966 267
Purchases of property and equipment ( 59,904) ( 52,358)
Proceeds from sales and maturities of
investments 3,388,616 1,835,230
Purchases of investments (2,335,507) (2,301,437)
Payments to investment company ( 285,392) -
Loan for stock purchase ( 12,187) -
Payments on loans for stock purchases 2,378 -
---------- ---------
Net cash provided (used) by investing
activities 698,970 ( 518,298)
---------- ---------
FINANCING ACTIVITY
Proceeds from exercise of stock options 42,989 24,555
---------- ---------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS 1,383,102 ( 134,875)
CASH AND CASH EQUIVALENTS
Beginning of year 284,261 419,136
---------- ---------
End of year $1,667,363 $ 284,261
========== =========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid for:
Income taxes $ 387,490 $ 516,641
Interest 19,787 5,101
SUPPLEMENTAL DISCLOSURE OF NONCASH
INVESTING ACTIVITIES
Short sale stock value and payable to
investment company $ 77,750 $ 285,392
</TABLE>
See notes to financial statements.
- 6 -
TECHNOLOGY 80 INC.
NOTES TO FINANCIAL STATEMENTS
1. Description of Business and Summary of Significant
Accounting Policies -
Description of Business
-----------------------
TECHNOLOGY 80 INC. designs, manufactures, and markets motion control
components and systems for original equipment manufacturer (OEM)
machine and instrument builders and end users located worldwide.
Products are sold through direct sales, manufacturers'
representatives, and distributors.
Use of Estimates
----------------
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that may affect the reported amounts and disclosures
in the financial statements and accompanying notes. Actual results
could differ from those estimates.
Cash Equivalents
----------------
All highly liquid investments purchased with a maturity of three
months or less are considered to be cash equivalents.
Short-Term Investments
----------------------
Investments which mature within one year from the balance sheet date
and investments sold prior to the issuance of the financial statements
are classified as short-term.
Inventories
-----------
Inventories are stated at the lower of cost or market determined on a
first-in, first-out (FIFO) basis.
Inventory writedowns are provided based on the age and anticipated use
of the specific inventories and related market forecast.
Property and Equipment
----------------------
Property and equipment are stated at cost. Depreciation is computed
over the estimated useful lives of the related assets. The straight-
line method is used for substantially all assets for financial
reporting purposes and accelerated methods are used for tax purposes.
Advertising Costs
-----------------
Advertising costs are expensed in the year incurred and were
approximately $100,800 and $68,100 in 1998 and 1997, respectively.
(continued)
- 7 -
TECHNOLOGY 80 INC.
NOTES TO FINANCIAL STATEMENTS
1. Nature of Business and Summary of Significant Accounting Policies -
(continued)
Earnings Per Share
------------------
During 1997, the Financial Accounting Standards Board released
Statement of Financial Accounting Standards No. 128, "Earnings per
Share" (SFAS No. 128) which the Company adopted in 1998. Under SFAS
No. 128, basic net income per share is computed based on the weighted
average number of common shares outstanding. Diluted net income per
share is computed based on the weighted average number of common
shares outstanding plus potential dilutive shares of common stock
including stock options which were granted to employees and directors.
SFAS No. 128 requires restatement of earnings per share amounts for
all periods presented.
Comprehensive Income
--------------------
In June 1997, the Financing Accounting Standards Board issued
Statement of Financial Accounting Standards No. 130, "Reporting
Comprehensive Income", which establishes financial accounting and
reporting standards for comprehensive income and its components
(revenues, expenses, gains and losses). The Standard is effective for
fiscal years beginning after December 15, 1997.
Reclassifications
-----------------
Certain reclassifications were made to the 1997 financial statements
to present them on a basis comparable with the current year. The
reclassifications had no effect on previously reported stockholders'
equity, net income or net cash flows.
2. Credit Risk -
The Company maintains cash at two banks located in Minnesota. The
balances are insured by the Federal Deposit Insurance Corporation
(FDIC) up to $100,000 at each bank. At August 31, 1998, deposits at
these banks exceeded the balance insured by the FDIC by approximately
$78,000.
Included in cash and cash equivalents at August 31, 1998, are
investments of approximately $1,515,000 with various investment
companies. These investments are not insured by the FDIC.
3. Inventories -
<TABLE>
<CAPTION>
Inventories consist of the following:
1998 1997
---------- ----------
<S> <C> <C>
Raw materials $ 656,515 $ 586,884
Work in process 189,668 237,845
Finished goods 511,278 352,723
---------- ----------
$1,357,461 $1,177,452
========== ==========
</TABLE>
- 8 -
TECHNOLOGY 80 INC.
NOTES TO FINANCIAL STATEMENTS
4. Investments -
A summary of the cost, unrealized gains and losses, and fair value of
investment are as follows:
<TABLE>
<CAPTION>
Gross Unrealized
---------------------- Estimated
Cost Gains Losses Fair Value
---------- --------- --------- ----------
<S> <C> <C> <C> <C>
August 31, 1998:
Available-for-sale -
equity securities $2,767,464 $ 60,702 ($ 828,440) $1,999,726
Held-to-maturity -
municipal bond 5,000 - - 5,000
---------- --------- --------- ----------
$2,772,464 $ 60,702 ($ 828,440) $2,004,726
========== ========= ========= ==========
August 31, 1997:
Available-for-sale -
equity securities $3,760,049 $ 91,822 ($ 508,255) $3,343,616
Held-to-maturity -
municipal bond 5,000 - - 5,000
---------- --------- --------- ----------
$3,765,049 $ 91,822 ($ 508,255) $3,348,616
========== ========= ========= ==========
</TABLE>
Approximately 46% of the fair market value is represented by investments in
four companies at August 31, 1998. Gross realized gains and (losses),
using the specific identification method, totalled $319,075 and ($336,301)
for 1998 and $166,757 and ($21,953) for 1997, respectively. The held-to-
maturity bond is due in less than one year.
5. Income Taxes -
The provision for income taxes consists of the following:
<TABLE>
<CAPTION>
1998 1997
---------- ----------
<S> <C> <C>
Current:
Federal $ 281,500 $ 347,200
State 300 300
---------- ---------
281,800 347,500
---------- ---------
Deferred:
Federal ( 5,100) ( 9,700)
State 16,100 24,200
---------- ---------
11,000 14,500
---------- ---------
$ 292,800 $ 362,000
========== =========
</TABLE>
(continued)
- 9 -
TECHNOLOGY 80 INC.
NOTES TO FINANCIAL STATEMENTS
5. Income Taxes - (continued)
The Company utilized approximately $16,200 of tax credits in 1998 to
reduce state income taxes. The Company utilized approximately $109,000 of
net operating loss carryforwards and $13,500 of tax credits in 1997 to
reduce state income taxes.
The significant components of deferred income tax assets and liabilities
are as follows:
<TABLE>
<CAPTION>
1998 1997
----------------------------- -----------------------------
Total Federal State Total Federal State
--------- ------------------ --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Deferred income tax assets:
Credit carryforwards $ 36,100 $ - $ 36,100 $ 52,300 $ - $ 52,300
Unrealized losses on
investments 276,500 252,500 24,000 150,500 137,000 13,500
Other 26,500 24,200 2,300 26,000 23,800 2,200
------- ------- ------- ------- ------- -------
339,100 276,700 62,400 228,800 160,800 68,000
------- ------- ------- ------- ------- -------
Deferred income tax liabilities:
Impact of state credit
carryforwards 12,300 12,300 - 17,800 17,800 -
Other 20,800 19,100 1,700 20,000 18,300 1,700
------- ------- ------- ------- ------- -------
33,100 31,400 1,700 37,800 36,100 1,700
------- ------- ------- ------- ------- -------
Net deferred tax asset $306,000 $245,300 $ 60,700 $191,000 $124,700 $ 66,300
======= ======= ======= ======= ======= =======
</TABLE>
The significant differences between income taxes at the statutory rate and
the effective tax rates were as follows:
<TABLE>
<CAPTION>
1998 1997
--------- ---------
<S> <C> <C>
Tax computed at the statutory rate $ 304,000 $ 372,500
State income taxes, net of federal benefit 16,300 16,200
Tax exempt investment income ( 28,700) ( 27,800)
Other 1,200 1,100
--------- ---------
Income tax expense $ 292,800 $ 362,000
========= =========
</TABLE>
6. Transactions with Related Parties -
The Company has consulting agreements with two directors and also pays
these individuals director fees. Consulting and director fees earned by
these individuals totaled $217,950 and $180,800 in 1998 and 1997,
respectively. The fees are paid to these individuals in the year
following being earned.
During fiscal 1998 and 1994 respectively, the Company provided loans of
$12,186 and $171,404 to certain employees and directors to purchase the
Company's stock. The stock purchased by these individuals is held by the
Company as collateral against the loan balances. The loans, which have a
balance of $172,073 and $162,263 at August 31, 1998 and 1997,
respectively, are classified as a reduction of stockholders' equity. The
loans bear interest at 6% and are due on demand. The Company earned
interest on these loans of approximately $10,000 during both 1998 and
1997.
- 10 -
TECHNOLOGY 80 INC.
NOTES TO FINANCIAL STATEMENTS
7. Building Lease -
The Company leases its office and production facility under a
noncancellable operating lease which expires October 2000. The lease
requires the Company to pay certain operating expenses, including
real estate taxes, insurance, and maintenance, in addition to the
monthly base rent of $4,165.
The future minimum annual base rental commitment under the above
lease is as follows:
<TABLE>
<CAPTION>
Year Ending
August 31, Amount
----------- --------
<C> <C>
1999 $ 49,980
2000 49,980
2001 4,165
--------
$104,125
========
</TABLE>
Rent expense for 1998 and 1997, including operating expenses, was
approximately $68,400 and $68,700, respectively.
8. Common Stock Options -
Incentive Stock Option Plan
---------------------------
The Company had an Incentive Stock Option Plan which expired in
fiscal 1995. Options issued under the Plan are exercisable for a
specific period of time, as determined by the Board of Directors, but
not greater than ten years. The options granted become exercisable
in four equal annual installments beginning on the first anniversary
of the date of grant. The Company reserved 200,000 shares of common
stock for issuance pursuant to the Plan. Option transactions under
the Plan are summarized as follows:
<TABLE>
<CAPTION>
Number Weighted-Average
of Shares Exercise Price
---------- ----------------
<S> <C> <C>
Outstanding at August 31, 1996 155,250 $1.25
Expired ( 375) $1.69
Cancelled ( 8,250) $1.49
Exercised ( 33,875) $0.72
--------
Outstanding at August 31, 1997 112,750 $1.38
Cancelled ( 937) $1.69
Exercised ( 41,688) $1.03
--------
Outstanding at August 31, 1998 70,125 $1.59
========
</TABLE>
- 11 -
TECHNOLOGY 80 INC.
NOTES TO FINANCIAL STATEMENTS
8. Common Stock Options - (continued)
The following table summarizes stock options outstanding and exercisable at
August 31, 1998:
<TABLE>
<CAPTION>
Outstanding Exercisable
------------------------------- -------------------
Weighted Weighted Weighted
Average Average Average
Remaining Exercise Exercise
Exercise Price Range Shares Life Price Shares Price
-------------------- ------- --------- -------- -------- ---------
<S> <C> <C> <C> <C> <C>
$1.38 - $1.44 29,375 3 months $1.38 29,375 $1.38
$1.69 - $1.86 40,750 15 months $1.74 33,687 $1.75
------ ------
$1.38 - $1.86 70,125 10 months $1.59 63,062 $1.58
====== ======
</TABLE>
Directors' Stock Option Plan
----------------------------
The Company had a Directors' Stock Option Plan which granted stock
options to members of the Board of Directors who were not employees of
the Company. Stock options were granted at an exercise price equal to
not less than the fair market value at the date of grant and are
exercisable over ten years. There were no options granted under the
plan during 1998 or 1997.
Options to purchase 94,000 shares were outstanding and exercisable at
$0.56 - $1.69 per share (average exercise price of $0.96) at August 31,
1998. Outstanding stock options expire over a period ending no later
than December 2004 and have a weighted average remaining exercise life
of approximately 3 years. During 1997, options to purchase 2,000
shares at an average exercise price of $1.25 expired.
9. Pension Plan -
The Company has a Simplified Employee Pension Plan to which it can
contribute up to 15% of eligible employees' compensation.
Contributions are made at the discretion of the Company; no
contributions were made for 1998 or 1997.
10. Major Customer -
One customer accounted for approximately 13% of 1998 revenue and
accounts receivable at August 31, 1998 and 12 customers accounted for
approximately 50% of 1998 revenue. No one customer had revenues in
excess of 10% in 1997.
TECHNOLOGY 80 INC.
CONDENSED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
ASSETS November 30 August 31
1998 1998
CURRENT ASSETS
<S> <C> <C>
Cash and cash equivalents $1,691,797 $1,667,363
Short-term investments - 49,048
Accounts receivable (less allowance for doubtful
accounts: Nov. 30 - $12,000; Aug. 31 - $12,000) 557,159 666,933
Inventories 1,342,895 1,357,461
Income tax refunds receivable 21,200 66,540
Deferred taxes 41,000 41,000
Other current assets 21,643 16,432
--------- ---------
TOTAL CURRENT ASSETS 3,675,694 3,864,777
--------- ---------
PROPERTY AND EQUIPMENT
Furniture and equipment 530,655 524,035
Leasehold improvements 23,060 23,060
--------- ---------
553,715 547,095
Less accumulated depreciation 442,220 430,524
--------- ---------
111,495 116,571
--------- ---------
OTHER ASSETS
Investments 1,915,162 1,955,678
Deferred taxes 163,500 265,000
--------- ---------
2,078,662 2,220,678
--------- ---------
TOTAL ASSETS $5,865,851 $6,202,026
========= =========
</TABLE>
<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
<S> <C> <C>
Accounts payable 35,011 87,418
Accrued payroll and payroll taxes 161,498 464,816
Payable to investment company - 77,750
Accrued liabilities - other 12,812 217,950
--------- ---------
TOTAL CURRENT LIABILITIES 209,321 847,934
--------- ---------
STOCKHOLDERS' EQUITY
Common stock, $0.01 par value (authorized -
5,000,000 shares; issued and outstanding -
Nov. 30, 1,646,733, Aug. 31, 1,646,733 shares) 16,468 16,468
Paid-in capital 3,450,732 3,450,732
Other - loans (171,158) (172,072)
Unrealized loss on available-for-sale securities (312,008) (491,238)
Retained earnings 2,672,496 2,550,202
--------- ---------
5,656,530 5,354,092
--------- ---------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $5,865,851 $6,202,026
========= =========
</TABLE>
See notes to condensed financial statements.
TECHNOLOGY 80 INC.
CONDENSED STATEMENTS OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
Three months ended
November 30,
1998 1997
--------- ---------
<S> <C> <C>
REVENUES $1,009,750 $1,323,597
COST OF GOODS SOLD 386,662 540,247
--------- ---------
GROSS PROFIT 623,088 783,350
--------- ---------
OPERATING EXPENSES
General and administrative 16,931 149,699
Research and development 188,201 176,894
Selling 161,329 202,889
--------- ---------
TOTAL OPERATING EXPENSES 517,461 529,482
--------- ---------
INCOME FROM OPERATIONS 105,627 253,868
OTHER INCOME 62,367 59,540
--------- ---------
INCOME BEFORE INCOME TAXES 167,994 313,408
PROVISION FOR INCOME TAXES 45,700 104,000
--------- ---------
NET INCOME $ 122,294 $ 209,408
========= =========
BASIC EARNINGS PER SHARE $0.07 $0.13
==== ====
DILUTED EARNINGS PER SHARE $0.07 $0.12
==== ====
</TABLE>
See notes to condensed financial statements.
TECHNOLOGY 80 INC.
CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Three months ended
November 30,
1998 1997
-------- --------
OPERATING ACTIVITIES
<S> <C> <C>
Net income $ 122,294 $ 209,408
Adjustments to reconcile net income to net cash
provided (used) by operating activities:
Depreciation and amortization 11,696 9,333
Deferred taxes - 9,700
Gain on sale of fixed asset - (500)
Gain on sale of investments (21,642) (33,211)
Changes in operating assets and liabilities:
Accounts receivable 109,774 179,977
Inventories 14,566 27,762
Other current assets 40,129 186
Accounts payable (52,407) (27,605)
Accrued income taxes - 55,110
Accrued liabilities (508,456) (70,527)
--------- --------
NET CASH PROVIDED(USED) BY OPERATING ACTIVITIES (284,046) 359,633
--------- --------
INVESTING ACTIVITIES
Proceeds from sale of equipment - 500
Purchase of property and equipment (6,620) (35,336)
Proceeds from sales and maturities of investments 314,185 382,133
Purchase of investments - (671,612)
Payments on loans for stock purchases 915 -
--------- --------
NET CASH PROVIDED (USED) IN INVESTING ACTIVITIES 308,480 (324,315)
--------- --------
FINANCING ACTIVITIES
Proceeds from exercise of stock options - 12,094
--------- --------
NET CASH PROVIDED BY FINANCING ACTIVITIES - 12,094
--------- --------
NET INCREASE IN CASH AND CASH EQUIVALENTS 24,434 47,412
CASH AND CASH EQUIVALENTS AT BEGINNING
OF THE PERIOD 1,667,363 284,261
--------- --------
CASH AND CASH EQUIVALENTS AT END OF THE PERIOD $1,691,797 $ 331,673
========= ========
</TABLE>
See notes to condensed financial statements.
TECHNOLOGY 80 INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED)
November 30, 1998
NOTE A - FINANCIAL INFORMATION
The unaudited interim financial statements have been prepared pursuant
to the rules and regulations of the Securities and Exchange Commission;
accordingly, certain information and footnote disclosures normally
included in financial statements prepared in accordance with generally
accepted accounting principles have been condensed or omitted. The
condensed balance sheet at August 31, 1998 has been derived from the
audited financial statements at that date but does not include all of
the information and footnotes required by generally accepted accounting
principles for complete financial statements. These interim financial
statements should be read in conjunction with the financial statements
and notes in the Company's 1998 Annual Report on Form 10-KSB filed with
the Securities and Exchange Commission.
In the opinion of management, the financial statements reflect all
adjustments (which include only normal recurring adjustments) necessary
for a fair presentation of the interim periods.
NOTE B - EARNINGS PER SHARE
Earnings per share are calculated in accordance with the provisions of
Statement of Financial Accounting Standards No. 128 - "Earnings per
Share" (SFAS No. 128), effective for interim and annual periods ending
after December 15, 1997. SFAS No. 128 requires the Company to report
both basic earnings per share which is based on weighted-average number
of common shares outstanding and diluted earnings per share which is
based on the weighted-average number of common shares outstanding and
all dilutive potential common shares outstanding. All earnings per
share data in this report reflect basic earnings per share, unless
otherwise indicated. The details of the earnings per share calculations
for the quarter ending November 30, 1998 and 1997 follow:
<TABLE>
<CAPTION>
Per share
1998 Income Shares amount
---- ------ ------ ---------
<S> <C> <C> <C>
Earnings per share of common stock -
basic $122,294 1,646,733 $0.07
Stock options - 114,970 -
------- --------- ----
Earnings per share of common stock -
assuming dilution $122,294 1,761,703 $0.07
======= ========= ====
Per share
1997 Income Shares amount
---- ------ ------ ---------
Earnings per share of common stock -
basic $209,408 1,606,283 $0.13
Stock options - 137,434 -
------- --------- ----
Earnings per share of common stock -
assuming dilution $209,408 1,743,717 $0.12
======= ========= ====
</TABLE>
Appendix A
AGREEMENT AND PLAN OF MERGER AND REORGANIZATION
Among
ACS Electronics, Ltd., Tech 80 Acquisition Corp.,
Technology 80 Inc., Duane Markus,
Jack Pagel and Tom Gould
Dated as of January 27, 1999
TABLE OF CONTENTS
RECITALS
ARTICLE I THE MERGER
SECTION 1.1. THE MERGER
SECTION 1.2. EFFECTIVE TIME
SECTION 1.3. CLOSING
SECTION 1.4. EFFECTS OF THE MERGER
SECTION 1.5. ARTICLES OF INCORPORATION AND BY-LAWS
SECTION 1.6. DIRECTORS
SECTION 1.7. OFFICERS
ARTICLE II CONVERSION OF SECURITIES
SECTION 2.1. CONVERSION OF CAPITAL STOCK
SECTION 2.2. EXCHANGE AND PAYMENT
SECTION 2.3. DELIVERIES AT THE CLOSING
ARTICLE III REPRESENTATIONS AND WARRANTIES OF THE COMPANY
SECTION 3.1. CORPORATE EXISTENCE
SECTION 3.2. MINUTE BOOKS
SECTION 3.3. CAPITALIZATION
SECTION 3.4. POWER AND AUTHORIZATION
SECTION 3.5. DUE EXECUTION; ENFORCEABILITY
SECTION 3.6. NONVIOLATION
SECTION 3.7. NO APPROVALS REQUIRED
SECTION 3.8. NO PROCEEDINGS
SECTION 3.9. FINANCIAL STATEMENTS
SECTION 3.10. ABSENCE OF CHANGES
SECTION 3.11. PROPERTIES AND ASSETS
SECTION 3.12. CONTRACTS
SECTION 3.13. INTELLECTUAL PROPERTY
SECTION 3.14. TAXES
SECTION 3.15. LITIGATION
SECTION 3.16. COMPLIANCE WITH LAWS; GOVERNMENTAL AUTHORIZATIONS
SECTION 3.17. ENVIRONMENTAL MATTERS
SECTION 3.18. EMPLOYMENT AGREEMENTS AND EMPLOYEE BENEFIT PLANS
SECTION 3.19. EMPLOYEES
SECTION 3.20. INSURANCE
SECTION 3.21. ACCOUNTS, LOCKBOXES, SAFE DEPOSIT BOXES AND POWERS
OF ATTORNEY
SECTION 3.22. TRANSACTIONS WITH AFFILIATES
SECTION 3.23. SEC REPORTS AND FINANCIAL STATEMENTS
SECTION 3.24. INFORMATION IN DISCLOSURE DOCUMENTS
SECTION 3.25. DISCLOSURE
SECTION 3.26. CERTAIN BUSINESS PRACTICES AND REGULATIONS
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER
SUB
SECTION 4.1. CORPORATE EXISTENCE
SECTION 4.2. POWER AND AUTHORIZATION
SECTION 4.3. DUE EXECUTION; ENFORCEABILITY
SECTION 4.4. NONVIOLATION
SECTION 4.5. NO APPROVALS REQUIRED
SECTION 4.6. NO PROCEEDINGS
SECTION 4.7. INFORMATION IN DISCLOSURE DOCUMENTS AND REGISTRATION
STATEMENTS
SECTION 4.8. INTERIM OPERATIONS OF MERGER SUB
ARTICLE V COVENANTS
SECTION 5.1. CONDUCT OF BUSINESS OF THE COMPANY
SECTION 5.2. COVENANTS OF PARENT
ARTICLE VI ADDITIONAL AGREEMENTS
SECTION 6.1. REASONABLE EFFORTS
SECTION 6.2. ACCESS TO INFORMATION
SECTION 6.3. SHAREHOLDERS MEETING
SECTION 6.4. LEGAL CONDITIONS TO THE MERGER; LEGAL COMPLIANCE
SECTION 6.5. NO SOLICITATION
SECTION 6.6. FEES AND EXPENSES
SECTION 6.7. NOTIFICATION OF CERTAIN MATTERS
SECTION 6.8. INDEBTEDNESS
SECTION 6.9. INDEMNIFICATION
SECTION 6.10. LIMITATION ON INDEMNIFICATION
SECTION 6.11. CLAIM FOR INDEMNIFICATION
SECTION 6.12. CERTAIN PURCHASES BY THE PRINCIPALS OR AFFILIATES
ARTICLE VII CONDITIONS
SECTION 7.1. CONDITIONS TO EACH PARTY'S OBLIGATION TO EFFECT THE
MERGER
SECTION 7.2. CONDITIONS OF OBLIGATIONS OF PARENT
SECTION 7.3. CONDITIONS OF OBLIGATIONS OF THE COMPANY
ARTICLE VIII TERMINATION AND AMENDMENT
SECTION 8.1. TERMINATION
SECTION 8.2. EFFECT OF TERMINATION
SECTION 8.3. AMENDMENT
SECTION 8.4. EXTENSION; WAIVER
ARTICLE IX MISCELLANEOUS
SECTION 9.1. SURVIVAL OF REPRESENTATIONS AND WARRANTIES
SECTION 9.2. DEFINITIONS
SECTION 9.3. BROKERS' AND FINDERS' FEES
SECTION 9.4. SALES, TRANSFER AND DOCUMENTARY TAXES, ETC.
SECTION 9.5. PUBLICITY
SECTION 9.6. CONTENTS OF AGREEMENT; PARTIES IN INTEREST; ETC.
SECTION 9.7. ASSIGNMENT AND BINDING EFFECT
SECTION 9.8. NOTICES
SECTION 9.9. GOVERNING LAW; JURISDICTION
SECTION 9.10. NO BENEFIT TO OTHERS
SECTION 9.11. SCHEDULES
SECTION 9.12. SEVERABILITY
SECTION 9.13. COUNTERPARTS
SECTION 9.14. KNOWLEDGE 47
This AGREEMENT AND PLAN OF MERGER AND REORGANIZATION dated as
of January 27, 1999, by and among ACS Electronics, Ltd., an
Israeli corporation ("Parent"), Tech 80 Acquisition Corp., a
Minnesota corporation and a newly--formed wholly-owned subsidiary
of Parent ("Merger Sub"), and Technology 80 Inc., a Minnesota
corporation (the "Company"), Duane Markus, Jack Pagel and Tom
Gould (collectively, the "Principals"). Certain terms used herein
and not otherwise defined herein are defined in ARTICLES II and
IX.
RECITALS
- --------
WHEREAS, the Company is engaged in the production and sale of
broad-level motion controllers and encoder interfaces for the
semiconductor, medical and packaging industries, designed for
industry-standard bus architectures (the "Business");
WHEREAS, the Board of Directors of the Company (subject to
its receipt of the fairness opinion referenced in SECTION 7.3(d)),
and the Boards of Directors of Parent and Merger Sub, deem it
advisable and in the best interests of their respective
shareholders that Parent indirectly acquire the Business pursuant
to the terms and conditions set forth in this Agreement;
WHEREAS, the Board of Directors of the Company (subject to
its receipt of the fairness opinion referenced in SECTION 7.3(d)),
and the Boards of Directors of Parent and Merger Sub, have
determined that the merger of the Merger Sub with and into the
Company (the "Merger"), with the Company surviving as a wholly-
owned subsidiary of Parent, would be in the best interests of
their respective shareholders and have approved this Agreement and
a Plan of Merger, and have directed that the Plan of Merger be
submitted to the respective shareholders of the Company and Merger
Sub; and
NOW, THEREFORE, in consideration of the foregoing and the
respective representations, warranties, covenants and agreements
set forth herein, the parties hereto, intending to be legally
bound hereby, agree as follows:
ARTICLE I
THE MERGER
SECTION 1.1. THE MERGER. Upon the terms and subject to the
conditions hereof and the Minnesota Business Corporation Act (the
"MBCA"), at the Effective Time, the Company and Merger Sub shall
consummate the Merger pursuant to which (i) Merger Sub shall be
merged with and into the Company, (ii) the separate corporate
existence of Merger Sub shall thereupon cease, (iii) the Company
shall be the surviving corporation in the Merger (the "Surviving
Corporation") and shall continue to be governed by the laws of the
State of Minnesota, and (iv) the properties, rights, privileges,
powers and franchises of the Company and Merger Sub shall be
vested in the Surviving Corporation by the Merger.
SECTION 1.2. EFFECTIVE TIME. Upon the terms and subject to
the conditions hereof, articles of merger (the "Articles of
Merger") shall be duly prepared, executed and acknowledged by the
Surviving Corporation and thereafter delivered to the Secretary of
State of the State of Minnesota for filing, as provided in the
MBCA, as soon as practicable after the Company's shareholders
approve the Merger. The Merger shall become effective upon the
filing of the Articles of Merger with the Secretary of State of
the State of Minnesota or at such other time as is provided in the
Articles of Merger. The date and time when the Merger becomes
effective is herein referred to as the "Effective Time."
SECTION 1.3. CLOSING. Subject to the satisfaction or waiver
of all of the conditions to closing contained in ARTICLE VII
hereof, the closing of the Merger (the "Closing") will take place
as promptly as practicable (and in any event within two business
days) after satisfaction or waiver of the conditions to Closing
contained in ARTICLE VII and payment of the estimated Total
Purchase Price pursuant to SECTION 2.1(f), at the offices of
Lindquist & Vennum P.L.L.P., 4200 IDS Center, 80 South Eighth
Street, Minneapolis, Minnesota 55402, unless another date or place
is agreed to in writing by the parties hereto. The date on which
the Closing occurs is referred to herein as the "Closing Date."
SECTION 1.4. EFFECTS OF THE. The Merger shall have the
effects set forth in the MBCA.
SECTION 1.5. ARTICLES OF INCORPORATION AND BY-LAWS.
(a) Articles of Incorporation.
--------------------------
The Articles of Incorporation of Merger Sub in effect at the
Effective Time shall be the Articles of Incorporation of the
Surviving Corporation until amended in accordance with the terms
thereof and applicable law.
(b) By-Laws.
--------
The By-Laws of Merger Sub in effect at the Effective Time shall be
the By-Laws of the Surviving Corporation until amended in
accordance with the terms thereof and applicable law.
SECTION 1.6. DIRECTORS. The directors of Merger Sub at the
Effective Time shall be the directors of the Surviving
Corporation, each to hold office from the Effective Time in
accordance with the Articles of Incorporation and By-Laws of the
Surviving Corporation and until his or her successor is duly
elected and qualified.
SECTION 1.7. OFFICERS. The officers of Merger Sub at the
Effective Time shall be the officers of the Surviving Corporation,
each to hold office from the Effective Time in accordance with the
Articles of Incorporation and By-Laws of the Surviving Corporation
and until his or her successor is duly appointed and qualified.
ARTICLE II
CONVERSION OF SECURITIES
SECTION 2.1. CONVERSION OF CAPITAL STOCK. As of the
Effective Time, by virtue of the Merger and without any action on
the part of the holder of any shares of Common Stock, $.01 par
value per share, of the Company (the "Company Common Stock") or
rights to acquire Company Common Stock, or the holder of any
capital stock of Merger Sub:
(a) Merger Sub Common Stock.
------------------------
Each issued and outstanding share of Common Stock, no par value,
of Merger Sub (the "Merger Sub Common Stock") shall be converted
into one share of common stock of the Surviving Corporation.
(b) Company Common Stock.
---------------------
Each share of Company Common Stock issued and outstanding as of
the Effective Time shall be converted into the right to receive,
in cash, an amount equal to (the "Consideration"): (x) the sum of
(1) the Total Purchase Price plus (2) the Total Options Exercise
Price minus (3) the Shareholder Fund Administrative Expenses,
divided by (y) the sum of the number of shares of Company Common
Stock outstanding at the Effective Time plus the number of shares
of Company Common Stock issuable upon exercisable of all Company
Options (as defined in SECTION 2.1(c)) outstanding at the
Effective Time. "Total Options Exercise Price" means an amount
equal to the total exercise price payable upon exercise of all
Company Options outstanding at the Effective Time for all shares
of Company Common Stock issuable upon exercise of all such Company
Options. All shares of Company Common Stock, when so converted,
shall no longer be outstanding and shall automatically be canceled
and retired and shall cease to exist, and each holder of a
certificate representing any such shares shall cease to have any
rights with respect thereto, except the right to receive the
Consideration upon the surrender of such certificate in accordance
with SECTION 2.2, without interest (except as set forth in SECTION
2.1(h)).
(c) Company Options.
----------------
All stock options to purchase shares of Company Common Stock (the
"Company Options") outstanding at the Effective Time, whether or
not all shares subject to such Company Option are vested, shall,
by virtue of the Merger and without any action on the part of the
holder thereof, be converted into the right to receive cash, as
determined on a per share basis for each share issuable upon
exercise thereof (assuming full vesting thereof) in an amount (the
"Net Consideration") equal to the per share Consideration minus
the exercise price per share of Company Common Stock payable upon
exercise of such Company Options. All Company Options, when so
converted, shall no longer be outstanding and shall automatically
be canceled and retired and shall cease to exist. Each holder of
an agreement representing such stock option rights ("Option
Agreement") shall cease to have any rights with respect thereto,
except the right to receive the Net Consideration.
(d) Stock Dividends, Etc.
---------------------
If after the date hereof and prior to the Effective Time the
outstanding shares of Company Common Stock or the outstanding
securities convertible into Company Common Stock shall have been
changed into a different number of shares or a different class, by
reason of any stock dividend, subdivision, reclassification,
recapitalization, split, combination or exchange of shares, the
Consideration and Net Consideration shall be correspondingly
adjusted to reflect such stock dividend, subdivision,
reclassification, recapitalization, split, combination or exchange
of shares.
(e) The Total Purchase Price.
-------------------------
The Total Purchase Price shall be determined according to the
following definitions and formulas:
(i) Total Purchase Price.
---------------------
"Total Purchase Price" shall mean the sum of (1) the Base Price
plus (2) the Portfolio Position and minus (3) the Shortfall
Amount.
(ii) Portfolio Position.
-------------------
"Portfolio Position" shall mean the sum of the Company's cash and
cash equivalents plus its short term and other investments, all as
of the Closing Date and all as determined in accordance with
generally accepted accounting principles applied on a basis
consistent with the accounting principles applied by the
Accountants (defined below) in the preparation of the August 31,
1998 audited financial statements of the Company ("GAAP").
(iii) Shortfall Amount.
-----------------
"Shortfall Amount" shall mean the amount, if any, by which the
Adjusted Net Book Value as of the Closing Date is less than
$1,840,000. The Shortfall Amount shall not be less than $0.
(iv) Adjusted Net Book Value.
------------------------
"Adjusted Net Book Value" shall mean the amount by which (1) the
book value of the Company's property and equipment, receivables
(not including "interest from employees" or "money due-loans" as
set forth in the Company's financial statements), inventory, pre-
paid assets and Adjusted Tax Assets on the Closing Date, exceed
(2) the total liabilities of the Company as of the Closing Date,
all as set forth in the Company's financial statements as of the
Closing Date and all as determined by the Accountants in the
manner described at SECTION 2.1(f)(ii) below.
(v) Adjusted Tax Assets.
--------------------
"Adjusted Tax Assets" means an amount equal to (1) all tax credits
of the Company on the Closing Date which would be available to the
Survivor Corporation, plus (2) an amount equal to the estimated
tax refund (including interest) that the Company could receive
from using any net capital losses of the Company incurred during
the current fiscal year (including, without limitation, as a
result of the liquidation of the Company's investments
contemplated by SECTION 5.1(k)) in connection with taxes paid on
any net capital gains of the Company in prior fiscal years.
(vi) Base Price.
-----------
"Base Price" shall mean the sum of (1) $6,350,000 and (2) 1.508
multiplied by the amount by which Applicable Sales exceed
$1,159,000; provided, however, that in no event shall the Base
Price be greater than $6,700,000 nor less than $6,350,000. At any
time after the date hereof when the Applicable Sales are known,
the Company and Parent parties may acknowledge in writing the
amount of the Base Price, and the amount so acknowledged shall be
binding on the parties.
(vii) Applicable Sales.
-----------------
"Applicable Sales" shall mean Company sales during the period
commencing November 1, 1998 and ending January 31, 1999
(regardless of whether the Closing occurs before or after the end
of such quarter).
(f) Determination and Payment.
--------------------------
The Total Purchase Price shall be determined and paid as follows:
(i) Estimate; Shareholder Fund.
---------------------------
The day before the Closing Date, the Company shall provide an
estimate of the Total Purchase Price based on a pro forma Total
Purchase Price Certificate and a pro forma Closing Date Balance
Sheet (as defined below) prepared in good faith by the Company.
On the Closing Date, Parent shall pay in cash such estimated Total
Purchase Price into the Shareholder Fund in accordance with
instructions of the Principals.
(ii) Accountants; Total Purchase Price Certificate.
----------------------------------------------
Within twenty-one (21) days after the Closing Date, Lurie,
Besikof, Lapidus & Co., LLP, 2501 Wayzata Boulevard, Minneapolis
MN 55405 ("Accountants") shall at the expense of Parent (1)
prepare financials of Company as of the Closing Date which shall
be prepared in accordance with GAAP and in accordance with the
Accountant's Letter (described below), and shall include a balance
sheet as of the Closing Date (the "Closing Date Balance Sheet")
and associated statements of income and cash flows for the period
then ended, including the quarter ended January 31, 1999
(collectively, the "Closing Date Financials"), and (2) provide
Parent and the Principals with a certificate stating the final
amount of Total Purchase Price, determined by the Accountants in
accordance with this ARTICLE II (the "Total Purchase Price
Certificate").
(A) Preparation of the Closing Date Balance Sheet.
----------------------------------------------
The assets and liabilities set forth in the Closing Date Balance
Sheet shall be determined using the same accounting methods,
policies, principles, practices, and procedures, with consistent
classification, judgments, and estimation methodology, as used in
determining assets and liabilities included in the Financial
Statements. The Closing Date Balance Sheet shall prepared without
giving effect to the Merger, and any assets, liabilities, revenues
or expenses of the Merger Sub, or the consummation of the
transactions contemplated hereby (including, without limitation,
without reference to the payments made under the non-competition
and severance agreements referenced in SECTION 7.2(d)). The
Closing Date Balance Sheet shall include, without limitation, all
liabilities related to the consummation of the transaction
contemplated hereby to the extent incurred but not paid by the
Company at the Effective Time (except to the extent that this
Agreement provides for payment by the Parent or Merger Sub), and
all accrued but unpaid tax liabilities of the Company at the
Effective Time. Further, the Closing Date Balance Sheet shall be
prepared in accordance with the procedures set forth in the
Accountant's letter to the Company and Parent dated January __,
1999 (the "Accountant's Letter").
(B) Drafts; Access.
---------------
The Accountant shall afford the Principals and Parent (including
their or its employees, accountants, agents, and professional
advisors) the opportunity to review and comment upon drafts of the
Closing Date Financials and the Total Purchase Price Certificate
prior to the finalization of the same by the Accountants. The
Accountants, Principals and Parent shall attempt in good faith to
resolve any disputes with respect to the draft Closing Date
Financials and the calculations therein before the final Closing
Date Financials and the Total Purchase Price Certificate are
delivered by the Accountant. In connection therewith, the
Surviving Corporation shall arrange for the work papers of the
Accountants to be made available to the Principals and Parent, and
the Principals and Parent may make inquiries of representatives of
the Surviving Corporation and the Surviving Corporation's
Accountants to the extent deemed necessary by the Principals or
Parent.
(iii) Payments; Adjustments.
----------------------
Within seven (7) days of the finalization of the Total Purchase
Price Certificate in accordance with this SECTION 2.1(f), (1) if
the estimated Total Purchase Price paid into the Shareholder Fund
on the Closing Date exceeds the final Total Purchase Price, the
Principals shall pay from the Shareholder Fund such excess to
Parent along with interest earned on such excess while held in the
Shareholder Fund; or (2) if the estimated Total Purchase Price
paid into the Shareholder Fund on the Closing Date is less than
the final Total Purchase Price, Parent shall pay such deficit into
the Shareholder Fund with interest thereon from and after the
Closing Date to the date of such payment at the same rate of
interest as that earned on the Shareholder Fund during such
period. The date on which such adjusting payment is made, but not
later then seven days after the date of finalization of the final
Total Purchase Price Certificate, is referred to herein as the
"Availability Date." On and after the Availability Date, the
Principals shall pay from the Shareholder Fund the Consideration
or Net Consideration to holders of Certificates or Option
Agreements in accordance with the terms of this ARTICLE II.
(A) Supplemental Payments.
----------------------
However, if Parent has not paid in full any amounts required to be
paid under this SECTION 2.1(f)(iii) at the time such Consideration
or Net Consideration is paid to such holders, the Principals may
make a supplemental payment from the Shareholder Fund as
appropriate as additional payments are made by or on behalf of
Parent.
(B) Breaches.
---------
For purposes of this Agreement, if Parent fails to pay the amount
required to be paid under this SECTION 2.1(f)(iii) in full within
seven days of finalization of the Total Purchaser Price
Certificate in accordance with this SECTION 2.1(f), interest shall
accrue on such amount at the rate of one and one-half percent per
month (or the maximum rate permitted by law, if lesser). Further,
Parent shall pay all costs and expenses, including, without
limitation, reasonable attorneys' fees, incurred in connection
with the enforcement of Parent's obligations under this Agreement,
whether or not suit is brought. Commencing on the Closing Date,
the Surviving Corporation hereby guarantees the prompt payment and
performance of all of Parent's obligations under this Agreement.
The Principals, or any of them, may bring an action hereunder to
enforce payment or performance of any amounts or obligations owed
by Parent or the Surviving Corporation under this Agreement, and
in connection therewith, the Principals shall be entitled as a
matter of right to specific performance of Parent's and Surviving
Corporation's obligations under this Agreement.
(iv) The Principals.
---------------
For purposes of this SECTION 2.1(f), all decisions of the
Principals to made under this SECTION 2.1(f) shall be made by a
majority in interest of the Principals based on the number of
shares of Company Common Stock owned of record or beneficially by
the Principals immediately prior to the Merger, provided, however,
that withdrawals from the Shareholder Fund may only be made with
approval of at least two Principals. For purposes of this SECTION
2.1(f), all notices required to be given to the Principals shall
be deemed duly delivered if delivered to Duane Markus in
accordance with the provisions of SECTION 9.8.
(v) Finalization Based on No Notice of Dispute.
-------------------------------------------
The final Closing Date Financials and Total Purchase Price
Certificate delivered by the Accountant to the Principals and
Parent (and the Total Purchase Price as determined therein) shall
be conclusive and binding upon the parties unless either the
Principals or Parent, within ten (10) business days after the
delivery to the Principals and Parent of the final Closing Date
Financials and Total Purchase Price Certificate, notifies the
other in writing that such notifying party or parties disputes any
of the amounts set forth therein, specifying in reasonable detail
the nature and amount of the dispute and the basis therefor;
provided, however, that the Principals may dispute only those
items that are different from the positions taken by the Company
in the pro forma Total Purchase Price Certificate and Closing Date
Balance Sheet provided pursuant to SECTION 2.1(f)(i). If no such
notice is given, the Total Purchase Price Certificate shall be
finalized and the provisions of SECTION 2.1(f)(iii) shall apply
without further action by the Principals or Parent.
(vi) Finalization Based On Mutual Agreement.
---------------------------------------
If either the Principals or Parent gives timely notice of a
dispute under SECTION 2.1(f)(v), the Principals and Parent shall
in good faith attempt to resolve any dispute. If at any time they
mutually resolve such dispute (even after submittal to the
Arbiter), the Closing Date Financials and the Total Purchase Price
Certificate may be amended in writing by them to the extent
necessary to reflect the resolution of the dispute. The Total
Purchase Price Certificate as so amended shall be deemed finalized
and shall be conclusive and binding upon the parties, in which
case the provisions of SECTION 2.1(f)(iii) shall apply.
(vii) Finalization Based on Determination of the Arbiter.
---------------------------------------------------
If the Principals and Parent do not reach mutual resolution the
dispute within 15 days after notice is given by either the
Principals or Parent under SECTION 2.1(f)(v), either the
Principals or Parent may at any time thereafter submit the dispute
to Deloitte & Touche or other independent accounting firm
acceptable to the Principals and Parent (the "Arbiter"), for
resolution by the Arbiter.
(A) Submission.
-----------
To submit the dispute, the Principals or Parent shall provide
written notice to the Arbiter and the Parent or Principals, as the
case may be, which notice shall specify in reasonable detail the
unresolved nature and amount of the dispute and the basis
therefor. The Arbiter may establish reasonable rules and
procedures for affording the Principals, Parent and the
Accountants (or their employees, accountants, agents, and
professional advisors) a reasonable opportunity to present
information for consideration by the Arbiter.
(B) Determination.
--------------
Promptly, but no later than 30 days after submission of the
dispute to the Arbiter, the Arbiter shall make a determination,
based solely on such information provided by the Principals,
Parent and the Accountant (or their employees, accountants,
agents, and professional advisors), and not by independent review,
and shall render a report as to its determination of the final
Total Purchase Price Certificate (and the resulting computation of
the Total Purchase Price). The final Total Purchase Price
Certificate as determined by the Arbiter shall be conclusive and
binding upon all parties, in which case the provisions of SECTION
2.1(f)(iii) shall apply. In resolving any disputed item, the
Arbiter (x) shall be bound by the provisions of this SECTION
2.1(f) and (y) may not assign a value to any item greater than the
greatest value for such item claimed by either party or less than
the smallest value for such item claimed by either party.
(C) Fees.
-----
The fees, costs, and expenses of the Arbiter (A) shall be borne by
Parent in the proportion that the aggregate dollar amount of such
disputed items so submitted that are unsuccessfully disputed by
Parent (as finally determined by the Arbiter) bears to the
aggregate dollar amount of such items so submitted and (B) shall
be paid by the Principals from the Shareholder Fund as a
Shareholder Fund Administrative Expense in the proportion that the
aggregate dollar amount of such disputed items so submitted that
are successfully disputed by Parent (as finally determined by the
Arbiter) bears to the aggregate dollar amount of such items so
submitted.
(g) Certain Obligations and Duties of the Principals.
-------------------------------------------------
The Principals shall have the same duties, obligations and
liabilities, and the same limitations of duties, obligations and
liabilities, that an independent exchange agent would have in
fulfilling the duties of the Principals under this ARTICLE II
(other than finalization of the Total Purchase Price or in
enforcing the obligations of Parent and the Surviving Corporation
under this Agreement) if the parties had retained an independent
exchange agent pursuant to an agreement containing terms and
conditions customary for transactions of this type. The
Principals shall have no liabilities or obligations for actions
undertaken in finalizing the Total Purchase Price (or in enforcing
the obligations of Parent and the Surviving Corporation under this
Agreement) if the Principals act in good faith in connection
therewith.
(h) Interest on the Shareholder Fund.
---------------------------------
The Shareholder Fund shall be an interest-bearing account. From
and after the Closing Date until the Availability Date, any
interest earned on the Shareholder Fund (after taking into account
the payment adjustments and interest, if any, to be paid under
SECTION 2.1(f)(iii), including interest paid on late payments),
shall accrue to the benefit of holders of Certificates and Option
Agreements pro rata among them based on the number of shares of
Company Common Stock outstanding and the number of shares of
Company Common Stock issuable upon exercise of all Company
Options, and shall be paid to such holders along with payment of
the Consideration or Net Consideration, as the case may be.
Except as set forth in SECTION 2.1(j), from and after the
Availability Date (and except for interest paid on late payments),
any interest thereafter earned on the remaining balance of the
Shareholder Fund shall accrue to the benefit of the Surviving
Corporation and, unless otherwise agreed by the Principals and the
Surviving Corporation, shall be paid from the Shareholder Fund by
the Principals to the Surviving Corporation when undistributed
funds are returned to the Surviving Corporation in accordance with
SECTION 2.2(d).
(i) The Shareholder Fund.
----------------------
The "Shareholder Fund" means an interest-bearing account
established by the Principals at a bank or other financial
institution selected by them, which account shall be for the
benefit of, and shall be deemed an asset of, of all shareholders
of the Company and holders of Option Agreements. The Shareholder
Fund shall be used for payment of the Consideration to the holders
of shares of the Company and for payment of the Net Consideration
to holders of Option Agreement, in accordance with the terms of
this ARTICLE II. The Shareholder Fund shall be administered by the
Principals as representatives of the Shareholders, and amounts may
be withdrawn therefrom with the approval of at least two of the
Principals. The Surviving Corporation shall reasonably cooperate
with and assist the Principals in the administration of the
Shareholder Fund and in the fulfillment of the Principals'
obligations under this ARTICLE II, provided, however, that the
Surviving Corporation shall not be obligated to incur any
significant out-of-pocket costs in connection therewith not
related to the fulfillment of the Surviving Corporation's
obligations under SECTION 2.2. The Principals are expressly
authorized with withdraw funds from the Shareholder Fund to pay or
reimburse the Principals for Shareholder Fund Administrative
Expenses.
(j) Shareholder Fund Administrative Expenses.
-----------------------------------------
"Shareholder Fund Administrative Expenses" means (1) the fees,
costs and expenses, if any, of the Arbiter to be paid by the
Principals from the Shareholder Fund pursuant to SECTION
2.1(f)(vii), and (2) the out-of-pocket costs paid or incurred by
the Principals, their affiliates or others incurred in performance
of the Principal's obligations under this ARTICLE II. It is
acknowledged that the Principals' obligations under this ARTICLE
II includes, without limitation, establishing and administering
the Shareholder Fund, finalizing the determination of the Total
Purchase Price, enforcing the Parent's and the Surviving
Corporation's obligations under this Agreement, providing the
transmittals to holders of Certificates and Option Agreement,
paying from the Shareholder Fund the Consideration and Net
Consideration and complying with tax reporting requirements.
Solely for purposes of illustration, the out-of-pocket costs that
the Principals may pay or incur in connection therewith may
include, without limitation, legal and accounting fees, bank
charges, printing costs and mailing charges and consultant fees.
(i) Certain Exclusions.
-------------------
The Principals shall not be entitled to any fees or compensation
in connection with fulfilling their obligations under this ARTICLE
II, and Shareholder Fund Administrative Expenses shall not include
any such fees or compensations of the Principals. Further,
Shareholder Fund Administrative Expenses shall not include amounts
for which the Principals are required to indemnify under SECTION
2.1(k) to the extent that the Principals have breached their
duties under this ARTICLE II. However, Shareholder Fund
Administrative Expenses shall include amounts for which the
Principals are required to so indemnify to the extent that the
Principals have not so breached their duties under this ARTICLE
II.
(ii) Reserve.
--------
In recognition of the fact that the Principals will incur out-of-
pocket costs after the Availability Date, the Principals are
hereby authorized to create a reserve for their good faith
estimate of the out-of-pocket costs that may be incurred in
fulfilling their obligations under this ARTICLE II after the
Availability Date, and such reserve shall be deemed a Shareholder
Fund Administrative Expense. Except to the extent of available
interest earned on the Shareholder Fund from and after the
Availability Date, the Principals shall not be entitled to payment
or reimbursement from the Shareholder Fund of any out-of-pocket
costs paid or incurred in excess of such reserve after the
Availability Date. If the actual out-of-pocket costs paid or
incurred by the them as of the date that undistributed funds are
to be paid to the Surviving Corporation under SECTION 2.2(d), the
excess reserve, at the election of the Principals, may either be
paid to the Surviving Corporation or paid to a charitable
organization exempt under Section 501(c)(3) of the Internal
Revenue Code.
(k) Indemnification by the Principals.
----------------------------------
In addition to the indemnity made by the Principals in SECTION
6.9, and without reference to the limitations on indemnity set
forth in SECTIONS 6.10 or 6.11, from and after the Effective Time,
the Principals, jointly or severally, hereby agree to indemnify
and hold harmless Parent and the Surviving Corporation, and their
respective officers, directors, employees, agents, consultants,
for any Losses (as defined in SECTION 6.9) actually suffered or
incurred by them as a result of any breach of the Principals'
obligations under this ARTICLE II.
SECTION 2.2. EXCHANGE AND PAYMENT
(a) Exchange.
---------
(i) Transmittals.
-------------
As soon as practicable after the Effective Time, the Principals
and the Surviving Corporation shall mail to each holder of record
of a certificate or certificates (collectively, the
"Certificates") whose shares were converted pursuant to SECTION
2.1, and to holders of record of Option Agreements, into the right
to receive the Consideration or Net Consideration (i) a letter of
transmittal (which shall be in such form and have such provisions
as the Principals and Surviving Corporation may reasonably
specify) and (ii) instructions for use in effecting the surrender
of the Certificates or Option Agreements in exchange for the
Consideration or Net Consideration.
(ii) Surrender; Payment.
-------------------
Upon surrender of a Certificate or Option Agreement for
cancellation to the Surviving Corporation, together with such
letter of transmittal, duly executed, the holder of such
Certificate or Option Agreement shall be entitled to receive in
exchange therefor the Consideration to which such holder is
entitled pursuant to SECTION 2.1(b) hereof or the Net
Consideration to which such holder is entitled to pursuant to
SECTION 2.1(c) and the Certificate or Option Agreement so
surrendered shall forthwith be canceled. Within two (2) business
days after the Surviving Corporation's receipt of the surrendered
Certificate or Option Agreement for cancellation with such duly
executed letter of transmittal, the Surviving Corporation shall
provide notice to the Principals regarding such holder's right to
payment, including the name of the holder and the Consideration or
Net Consideration payable to such holder. Promptly thereafter,
the Principals shall pay from the Shareholder Fund such
Consideration or Net Consideration, as the case may, to such
holder, after giving effect to any required tax withholdings, in
accordance with the terms hereof (with interest thereon as
provided in SECTION 2.1(h)).
(iii) Computation Statement.
----------------------
To the extent practicable, prior to or simultaneous with payment
of the Consideration or Net Consideration (and in any event,
promptly after payment thereof), the Principals shall provide a
holder of a Certificate or Option Agreement with a brief statement
showing a final computation of the Consideration or Net
Consideration, including, without limitation, a computation of the
final Total Purchase Price and a brief and summary accounting of
the Shareholder Fund Administrative Expenses incurred and the
reserve established under SECTION 2.1(j) (if any).
(iv) Transfers; Lost Certificates or Option Agreements.
--------------------------------------------------
In the event of a transfer of ownership of Company Common Stock or
an Option Agreement which is not registered in the transfer
records of the Company, the Consideration or Net Consideration
payable to the transferee thereof in the Merger may be issued to a
transferee if the Certificate representing such Company Common
Stock or Option Agreement is presented to the Surviving
Corporation, accompanied by all documents required to evidence and
effect such transfer and by evidence that any applicable stock
transfer taxes have been paid. In the event any Certificates or
Option Agreements shall have been lost, stolen, or destroyed, the
Principals may pay the Consideration or Net Consideration from the
Shareholder Fund in exchange for such lost, stolen, or destroyed
Certificates or Option Agreement, upon the making of an affidavit
of that fact by the holder thereof; provided, however, that the
Surviving Corporation may, in its discretion and as a condition
precedent to the issuance thereof, require the owner of such lost,
stolen, or destroyed Certificate or Option Agreement to deliver a
bond in such sum as they may direct as indemnity against any claim
that may be made against the Principals, the Parent or the
Surviving Corporation with respect to such Certificate or Option
Agreement alleged to have been lost, stolen, or destroyed. Until
surrendered as contemplated by this SECTION 2.2, each Certificate
and Option Agreement shall be deemed at any time after the
Effective Time to represent only the right to receive upon such
surrender the Consideration or Net Consideration payable in the
Merger.
(v) The Surviving Corporation's Obligations; Indemnification.
---------------------------------------------------------
The Surviving Corporation's obligations under this SECTION 2.2(a)
shall be performed by Ricky Carlson or other employee of the
Surviving Corporation reasonably acceptable to the Principals.
From and after the Effective Time, the Parent and the Surviving
Corporation, jointly or severally, hereby agree to indemnify and
hold harmless the Principals and the holders of Certificates or
Option Agreements, and their respective affiliates, for any Losses
(as defined in SECTION 6.9) actually suffered or incurred by them
as a result of any breach of the Surviving Corporation's under
this SECTION 2.2(a).
(b) Dissenters' Rights.
-------------------
(i) Demand and Perfection.
----------------------
Notwithstanding any provision of this Agreement to the contrary,
the holder (a "Dissenting Shareholder") of any shares of Company
Common Stock who has demanded and perfected such holder's right to
dissent from the Merger and to be paid the fair value of such
shares (the "Dissenting Shares") in accordance with Sections
302A.471 and 302A.473 of the MBCA and as of the Effective Time has
neither effectively withdrawn nor lost his, her or its right to
such dissent shall not have a right to receive the Consideration
for such Dissenting Shares pursuant to SECTION 2.1(b) and shall
only be entitled to such rights as are granted by the MBCA. The
Surviving Corporation shall make any and all payments due to
holders of Dissenting Shares.
(ii) Withdrawal or Loss of Rights.
-----------------------------
Notwithstanding the provisions of SECTION 2.2(b)(i), if any
Dissenting Shareholder demanding dissenters' rights with respect
to such Dissenting Shareholder's Dissenting Shares under the MBCA
shall effectively withdraw or lose (through failure to perfect or
otherwise) his, her or right to dissent, then as of the Effective
Time or the occurrence of such event, whichever occurs later, such
Dissenting Shares shall automatically be converted into and
represent only the right to receive the Consideration as provided
in SECTION 2.1(b) upon surrender of the certificate or
certificates representing such Dissenting Shares.
(iii) Payment.
--------
The Company shall give Parent and Merger Sub prompt notice of any
demand by a Dissenting Shareholder for payment, or notices of
intent to demand payment received by the Company under Sections
302A.471 and 302A.473 of the MBCA, and Parent and Merger Sub shall
have the right to participate in all negotiations and proceedings
with respect to such demands. The Company shall not, except with
the prior written consent of Parent (which consent shall not be
unreasonably withheld, delayed or conditioned) or as otherwise
required by law, make any payment with respect to, or settle, or
offer to settle, any such demands.
(c) Satisfaction.
-------------
All of the Consideration or Net Consideration paid upon shares of
Company Common Stock or upon securities convertible into Company
Common Stock in accordance with the terms hereof shall be deemed
to have been paid in full satisfaction of all rights pertaining to
such shares.
(d) Undistributed Funds.
--------------------
Any portion of the Shareholder Fund which remains undistributed to
the shareholders of the Company for six months after the Effective
Time shall be delivered by the Escrow Agent (along with interest
accruing thereon from and after the Availability Date as provided
in SECTION 2.1(h)) to the Surviving Corporation, upon demand, and
any shareholders of the Company who have not theretofore complied
with this ARTICLE II shall, subject to any applicable abandoned
property, escheat or similar law, thereafter look only to the
Surviving Corporation for the Consideration or Net Consideration
payable in the Merger (plus interest only as expressly provided in
SECTION 2.1(h)). None of Parent, Merger Sub, the Company or the
Surviving Corporation shall be liable to any holder of shares of
Company Common Stock or securities convertible into Company Common
Stock for such Consideration or Net Consideration payable in the
Merger delivered to a public official pursuant to any applicable
abandoned property, escheat or similar law.
SECTION 2.3. DELIVERIES AT THE CLOSING
(a) Deliveries by the Company and the Principals.
---------------------------------------------
At the Closing the Company and the Principals shall take the
following actions and deliver or cause to be delivered to Parent
and Merger Sub each of the following items:
(i) President's Certificate.
------------------------
A certificate dated as of the date of the Closing executed by the
President of the Company certifying, in such form as Parent may
reasonably request, that the representations and warranties of the
Company, and the Principals, respectively, set forth in ARTICLE
III of this Agreement were true and correct as of the date of the
execution of this Agreement and are true and correct and as of the
date of the Closing as if made on and as of such date, and that
since August 31, 1998, there has been no Material Adverse Effect;
(ii) Certificate of Good Standing.
-----------------------------
A certificate of good standing of the Company issued by the
Secretary of State of Minnesota, dated as of a date not more than
ten (10) days prior to the Closing Date;
(iii) Certified Resolutions.
----------------------
True copies of, (1) resolutions of the Board of Directors, and any
applicable committee thereof, certified by the Company's
Secretary, (A) approving this Agreement, the Plan of Merger and
the transactions contemplated under this Agreement, and (B)
authorizing each of the persons who sign, on the Company's behalf,
this Agreement or any documents or instruments delivered or
required to be delivered in connection with the transactions
contemplated by this Agreement, and (2) resolutions adopted by the
shareholders of the Company, certified by the Company's Secretary,
approving the Plan of Merger in accordance with the requirements
of the MBCA;
(iv) Opinion.
--------
An opinion of Fredrikson & Byron, P.A. dated as of the Closing in
a form and substance reasonably satisfactory to Parent;
(v) Non-Competition and Severance Agreements.
-----------------------------------------
A duly executed Non-Competition and Severance Agreement between
Duane Markus and the Surviving Corporation, and duly executed
Severance Agreements between each of Jack Pagel and Tom Gould and
the Surviving Corporation; and
(vi) Other.
------
Copies of any other documentation or information reasonably
requested by Parent.
(b) Deliveries by Parent and Merger Sub.
------------------------------------
At the Closing, Parent and Merger Sub shall take the following
actions and deliver or cause to be delivered to the Company each
of the following items:
(i) Officer Certificate.
--------------------
Certificates dated as of the date of the Closing executed by an
authorized officer of Parent and by an authorized officer of
Merger Sub, respectively, certifying, in such form as the Company
may reasonably request, that the representations and warranties of
Parent and Merger Sub, respectively, were true and correct as of
the date of the execution of the Agreement and are true and
correct on and as of the date of the Closing as if made on or as
of such date;
(ii) Certified Resolutions.
----------------------
True copies of (1) resolutions of the Board of Directors of Parent
and Merger Sub certified by the Secretary of each, (A) approving
this Agreement, the Plan of Merger and the transaction
contemplated under this Agreement, and (B) authorizing each of the
persons who sign, on behalf of Parent and Merger Sub, the
Agreement or any instruments or documents delivered or required to
be delivered in connection with the consummation of the
transactions under this Agreement; and (2) true copies of
resolutions adopted by the sole shareholder of the Merger Sub, as
certified by Merger Sub's Secretary, approving the Plan of Merger
in accordance with the MBCA;
(iii) Opinion.
--------
An opinion of Lindquist & Vennum P.L.L.P. (which may rely on or
incorporate an opinion of Israeli counsel) counsel for Parent,
dated as of the date of the Closing, in form and substance
reasonably satisfactory to the Company; and
(iv) Other.
------
Copies of any other documentation or information reasonably
requested by the Company.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company and the Principals represent and warrant to
Parent and Merger Sub as follows:
SECTION 3.1. CORPORATE EXISTENCE. The Company is duly
organized, validly existing and in good standing under the laws of
the State of Minnesota. The Company is duly qualified to do
business and is in good standing as a foreign corporation in each
jurisdiction, if any, where the conduct of the Business or the
ownership of assets by it requires it to be so qualified or, if
not so qualified, such failure to be so qualified will not have a
material adverse effect on the Business or the Company's financial
condition, results of operations or prospects taken as a whole.
The Company has delivered to Parent and Merger Sub true and
complete copies of the Company's Articles of Incorporation and By-
Laws as currently in effect. SCHEDULE 3.1 to this Agreement is a
complete and accurate list of each jurisdiction in which either,
(a) the Company owns or leases property, or (b) the Company is
qualified to do business, together with the date of such
qualification.
SECTION 3.2. MINUTE BOOKS. The minute books of the Company
contain accurate records of all actions taken by the shareholders,
Board of Directors and all committees of the Board of Directors of
the Company. Complete and accurate copies of all such minute
books have been made available to Parent and Merger Sub.
SECTION 3.3. CAPITALIZATION. As of the date hereof, the
authorized capital stock of the Company consists of: (i) 5,000,000
shares of Company Common Stock of which, as of August 31, 1998,
1,606,283 shares were issued and outstanding. As of August 31,
1998, 166,125 shares of Company Common Stock were reserved for
issuance upon exercise of outstanding options (the "Company Stock
Options") pursuant to the Company's Incentive Stock Option Plan
and its Directors' Stock Option Plan, (the "Company Stock Plans").
The Company has no outstanding warrants. All the outstanding
shares of the Company's capital stock are, and all shares which
may be issued pursuant to Company Stock Plans will be, when issued
in accordance with the terms thereof, duly authorized, validly
issued, fully paid and non-assessable and free of any preemptive
rights in respect thereto. As of the date hereof, no bonds,
debentures, notes or other indebtedness having the right to vote
(or convertible into securities having the right to vote) ("Voting
Debt") of the Company are issued or outstanding. Except as set
forth above or in SCHEDULE 3.3, as of the date hereof, there are
no existing options, warrants, calls, subscriptions or other
rights or other agreements, commitments, understandings or
restrictions of any character binding on the Company with respect
to the issued or unissued capital stock or Voting Debt of the
Company. Except as set forth above or in SCHEDULE 3.3, there are
no existing options, warrants, calls, subscriptions or other
rights or other agreements, commitments, understandings or
restrictions of any character obligating the Company to issue,
transfer or sell or cause to be issued, transferred or sold any
shares of capital stock or Voting Debt of, or other equity
interests in, the Company, or securities convertible into or
exchangeable for such shares, Voting Debt or equity interests, or
obligating the Company to grant, extend or enter into any such
option, warrant, call, subscription or other right, agreement,
commitment, understanding or restriction. Except as set forth in
SCHEDULE 3.3, there are no contractual obligations of the Company
to repurchase, redeem or otherwise acquire any shares of capital
stock of the Company. Since August 31, 1998, no shares of Company
Common Stock have been issued except issuance of shares reserved
for issuance and issued pursuant to the Company Stock Plans.
Except as set forth in SCHEDULE 3.3, there are no voting trusts,
proxies or other agreements or understandings to which the Company
is a party or is bound with respect to voting any shares of
capital stock of the Company.
SECTION 3.4. POWER AND AUTHORIZATION. The Company has full
power, authority and legal right to execute, deliver and perform
this Agreement and such of the Related Documents as are required
to be delivered by the Company in accordance with the provisions
hereof. The execution, delivery and performance of this Agreement
and the Related Documents by the Company have been duly authorized
by all necessary corporate action, subject to obtaining
shareholder approval pursuant to SECTION 6.3 and subject to
receipt of the fairness opinion referenced in SECTION 7.3(d).
SECTION 3.5. DUE EXECUTION; ENFORCEABILITY. This Agreement
and the Related Documents have been duly executed and delivered on
behalf of the Company and the Principals, and this Agreement and
the Related Documents constitute legal, valid and binding
obligations of the Company and the Principals, enforceable in
accordance with their respective terms against the Company and the
Principals, except as enforceability may be limited by applicable
insolvency, bankruptcy, reorganization, moratorium or other
similar laws affecting creditors' rights generally and by general
equitable principles.
SECTION 3.6. NON-VIOLATION. Except as set forth in SCHEDULE
3.6, the execution, delivery and performance of this Agreement and
the Related Documents by the Company and Principals does not and
will not violate, conflict with, result in the breach of, or
constitute a default or result in or permit any acceleration of
any obligation under: (a) any law, ordinance or governmental rule
or regulation to which the Company is subject; (b) any judgment,
order, writ, injunction, decree or award of any court, arbitrator
or governmental or regulatory official, body or authority which is
applicable to the Company; (c) the Articles of Incorporation or
By-Laws of the Company or any securities issued by it; or (d) any
mortgage, indenture, agreement, contract, commitment, lease, plan,
license, or other instrument, document or understanding, oral or
written, to which the Company is a party, by which the Company may
have rights or by which any of the assets of the Company may be
bound or affected; or give any party thereunder the right to
terminate, modify, accelerate or otherwise change the existing
rights or obligations of the Company thereunder.
SECTION 3.7. NO APPROVALS REQUIRED. Except for the filing of
the Articles of Merger and the Proxy Statement as provided herein,
no authorization, approval or consent of and no registration or
filing with any governmental or regulatory official, body or
authority (except as contemplated or required by this Agreement)
is required in connection with the execution, delivery or
performance of this Agreement or the Related Documents by the
Company or the Principals, and the execution, performance or
delivery of this Agreement and the Related Documents by the
Company or the Principals will not result in the creation of any
Lien upon any of the assets of the Company.
SECTION 3.8. NO PROCEEDINGS. There is no injunction, order
or decree of any court or administrative agency or any action or
proceeding pending or, to the knowledge of the Company or the
Principals, threatened by or against the Company to restrain or
prohibit the consummation of the transactions contemplated hereby.
SECTION 3.9. FINANCIAL STATEMENTS. The Company has delivered
to Parent and Merger Sub copies of its audited balance sheets as
of August 31, 1998, 1997 and 1996 and its unaudited balance sheet
(the "Balance Sheet") as of December 31, 1998 (the "Balance Sheet
Date"), and related statements of income for the fiscal years
ended August 31, 1998, 1997 and 1996 and the four months ended
December 31, 1998 (collectively, the "Financial Statements"). The
audited Financial Statements have been reported on by Lurie,
Besikof, Lapidus & Co., LLP and the unaudited Financial Statements
have been prepared by the management of the Company, in each case,
in accordance with GAAP throughout the periods involved (except as
otherwise indicated in the notes thereto), and are true and
correct in all material respects, and present fairly, in all
material respects, the financial condition of the Company as at
the dates of such balance sheets and its results of operations for
such respective periods then ended. Except as will be disclosed
or accrued on the Closing Date Balance Sheet, the Company does not
have any liabilities or obligations, either direct or indirect,
matured or unmatured or absolute, contingent or otherwise, except
(1) liabilities arising in the ordinary course of business under
any agreement, contract, commitment, lease or plan listed on
SCHEDULE 3.12 or not required to be disclosed because of the term
or amount involved, and (2) other liabilities or obligations not
required by GAAP to be reflected on the Closing Date Balance Sheet
if such other liabilities or obligations are otherwise disclosed
on the Schedules attached hereto or are not otherwise required to
be disclosed by this ARTICLE III.
SECTION 3.10. ABSENCE OF CHANGES. Since August 31, 1998,
except as described in SCHEDULE 3.10, there has not been: (a) any
Material Adverse Effect; (b) any material loss, damage,
condemnation or destruction to any of the Company's properties or
assets; (c) any sale, transfer or other disposition of any of the
Company's properties or assets (except for property sold or
disposed of in the ordinary course of business consistent with
past practice); (d) any change in the Company's number of
authorized shares of capital stock or Indebtedness not reflected
on the Closing Date Balance Sheet; or (e) any change in the titles
of, or in the salaries or bonuses for, employees, except for
changes in the ordinary course of business consistent with past
practice. The Company has operated the Business in the ordinary
course consistent with past practice from the Balance Sheet Date
to the date hereof and will continue to operate the Business in a
similar fashion through the Closing Date.
SECTION 3.11. PROPERTIES AND ASSETS. SCHEDULE 3.11 sets
forth: (a) a description, by deed reference or otherwise, of all
real property, if any, owned by, and all easement rights granted
to, the Company; (b) a complete and correct list of each lease of
real property, if any, to which the Company is a party, true
copies of which leases, any amendments thereto and any options
exercised thereunder, have previously been delivered to Parent and
Merger Sub; and (c) a description of all fixed assets, machinery,
equipment, furniture, fixtures and other tangible personal
property owned or leased by the Company with a book value as of
the Balance Sheet Date in excess of $500. The Company has good,
valid and marketable title to all of its properties and assets,
real, personal and mixed, which it purports to own, including,
without limitation, all properties and assets used or useful in
the Business or to be reflected on the Closing Date Balance Sheet,
free and clear of all Liens, and defects of title of any nature
whatsoever, except for: (i) Liens listed in SCHEDULE 3.11; (ii)
Liens for current real or personal property taxes not yet due and
payable; (iii) worker's, carrier's, mechanics, materialmen's and
other similar Liens; and (iv) defects of title and other
restrictions and encumbrances that are immaterial in character,
amount and extent and which do not materially detract from the
value or materially interfere with the present or proposed use of
the properties they affect.
SECTION 3.12. CONTRACTS.
(a) Schedule 3.12.
--------------
SCHEDULE 3.12 sets forth a complete and correct list of all
currently existing contracts, obligations, agreements, plans,
arrangements, commitments or the like (written or oral) of a
material nature to which the Company is a party ("Contracts"),
including, without limitation, the following:
(i) Employee Contacts; Etc.
-----------------------
Employment, bonus or consulting agreements, pension, profit-
sharing, deferred compensation, stock bonus, stock option, stock
purchase, phantom stock or similar plans, including agreements
evidencing rights to purchase securities of the Company and
agreements among the Company and its shareholders;
(ii) Inventory Contracts; Etc.
-------------------------
Agreements for the purchase of inventory, materials, supplies,
services, equipment or any capital item or items and involving a
consideration of more than $5,000 per contract or series of
related contracts;
(iii) Union Contracts; Etc.
---------------------
Agreements with any labor union or collective bargaining
organization or other labor agreements;
(iv) Supplier Contracts; Etc.
------------------------
Agreements with suppliers, customers, dealers, distributors, sales
representative and agents;
(v) Personal Property Leases.
-------------------------
Leases of personal property as lessee involving a consideration of
more than $500 per month per lease or series of related leases;
(vi) Non-Competition Contracts.
--------------------------
Agreements limiting the freedom of the Company to compete in any
line of business or in any geographic area or with any person or
entity;
(vii)Sale Contracts; Etc.
--------------------
Agreements providing for disposition of the business, assets or
stock of the Company, agreements of merger or consolidation or
letters of intent with respect to the foregoing;
(viii) Contracts with Affiliates.
--------------------------
Agreements to which the Company is a party and in which any of the
officers, directors or employees of the Company has any personal
interest, either direct or indirect;
(ix) Acquisition Contracts.
----------------------
Letters of intent or agreements with respect to the acquisition of
the business, assets or stock of any other business; and
(x) Other.
------
All other agreements that are material to the ownership or
operation of the Business.
(b) Defaults; Etc.
--------------
Except as otherwise set forth on SCHEDULE 3.12 or SCHEDULE 3.18,
(i) the Company has complied in all material respects with all
material provisions of all such Contracts, and there does not
exist any event of default by the Company under any thereof or any
event that, after the giving of notice or the lapse of time, or
both, would constitute such an event of default, (ii) the Company
is not aware of any existing event of default by any other party
to any such Contract, and (iii) all of such Contracts are freely
transferable in the Merger without the consent of any other party
thereto.
SECTION 3.13. INTELLECTUAL PROPERTY.
(a) Proprietary Rights.
-------------------
Except as set forth on SCHEDULE 3.13, the Company is the sole and
exclusive owner of all patents, patent rights, trademarks,
trademark rights, trade names, trade name rights, copyrights,
service marks, trade secrets, applications for trademarks and for
service marks, technology and know-how (including all trade
secrets, data bases, customer lists, confidential information,
discoveries, inventions and improvements), rights in computer
software that the Company purports to own (excluding commercially
available software licensed from third parties) and other
proprietary rights and information listed on SCHEDULE 3.13
(collectively, "Proprietary Rights") and constituting all
Proprietary Rights used in the Business as presently conducted,
free and clear of all Liens, claims, charges, security interests
and encumbrances, except as set forth in such Schedule.
(b) Assignment; Etc.
----------------
The Company has not, as of and since the date upon which it
acquired any of the Proprietary Rights, (i) transferred, conveyed,
sold, assigned, pledged, mortgaged or granted a security interest
in any of the Proprietary Rights to any third party, (ii) entered
into any license, franchise or other agreement with respect to any
of the Proprietary Rights with any third person, or (iii)
otherwise encumbered any of the Proprietary Rights. The Company
has taken all reasonable measures to maintain and enforce the
Proprietary Rights and to safeguard the secrecy of all Proprietary
Rights that are considered to be trade secrets.
(c) Infringement.
-------------
The conduct of the business of the Company as currently conducted
does not conflict or infringe in any way with any proprietary
right of any third party that, individually or in the aggregate,
is reasonably likely to have a Material Adverse Effect, and there
is no claim, suit, action or proceeding pending or to the
knowledge of the Company and the Principals threatened against the
Company (i) alleging that use of the Proprietary Rights by the
Company conflicts or infringes in any way with any third party's
proprietary rights, or (ii) challenging the Company's ownership of
or right to use or the validity of any Proprietary Right. To the
knowledge of the Company and the Principals, there are no
conflicts or infringements by any third party of any Proprietary
Rights.
(d) The Merger.
-----------
The ownership or possession of Proprietary Rights and the right to
secure such rights currently enjoyed by the Company will not be
affected in any material way by the transactions contemplated by
this Agreement.
SECTION 3.14. TAXES. The Company has filed all tax reports
and returns required to be filed by it including, without
limitation, any information reports that are required to be
provided to any payee or other third party, and such reports and
returns were true, correct and complete in all material respects.
Except as set forth in SCHEDULE 3.14 (a) the Company has paid all
taxes and other charges due or claimed to be due from it to any
federal, state, local or foreign taxing authority (including,
without limitation, those due in respect of properties, income,
franchises, licenses, sales or payrolls and any withholding
obligations, or other trust fund taxes and any interest, penalties
or additions to tax); (b) all reserves for taxes reflected in the
Balance Sheet are adequate; (c) there are no tax Liens upon any
property or assets of the Company, except Liens for current taxes
not yet due; (d) the Company has made all required declarations of
estimated federal, state or local income taxes and has paid all
taxes as shown on such declarations; (e) there are no facts which
exist or have existed which would constitute grounds for the
assessment of any tax liability and neither the Internal Revenue
Service nor any other taxing authority is now asserting against
the Company any deficiency or claim for additional taxes or
interest thereon or penalties in connection therewith; and (f)
there are no outstanding agreements or waivers extending the
statutory period of limitation applicable to any tax return for
any period. Copies of all Federal income tax returns of the
Company in respect of all years not barred by the statute of
limitations have heretofore been delivered to Parent and Merger
Sub. All taxes and other assessments and levies required to be
withheld by the Company from customers with respect to the sale of
goods, or from or on behalf of employees for income, social
security and unemployment insurance taxes have been collected or
withheld and either paid to the appropriate governmental agency or
set aside and held in accounts for such purpose.
SECTION 3.15. LITIGATION. Except as described on SCHEDULE
3.15, no suit, action or other litigation, including any
arbitration, investigation or other proceeding of or before any
court, arbitrator or federal, state or other governmental or
regulatory official, body or authority, is pending or, to the
knowledge of the Company and the Principals, threatened against
the Company or which relates to the Business or the assets of the
Company, nor does the Company know of any reasonably likely basis
for any such litigation, arbitration, investigation or proceeding,
the result of which could materially and adversely affect the
Company, its assets, financial condition, results of operations or
prospects, the Business, or the transactions contemplated hereby.
The Company is not a party to or subject to the provisions of any
judgment, order, writ, injunction, decree or award of any court,
arbitrator or governmental or regulatory official, body or
authority which may materially and adversely affect the Company,
its financial condition, results of operations or prospects, the
Business, or the transactions contemplated hereby.
SECTION 3.16. COMPLIANCE WITH LAWS; GOVERNMENTAL
AUTHORIZATIONS. The Company is in compliance with all federal,
state, and local laws, ordinances, rules, regulations, permits,
judgments, orders and decrees applicable to it, the Business or
any of its properties, assets, or operations, except to the extent
that noncompliance therewith, either singly or in the aggregate,
would not have a Material Adverse Effect. SCHEDULE 3.16 contains a
complete listing of all governmental licenses, franchises,
permits, approvals and other governmental authorizations necessary
to permit the Company to operate the Business and to own its
properties and assets, all of which are in full force and effect
and will remain in full force and effect after the consummation of
the transactions contemplated by this Agreement.
SECTION 3.17. ENVIRONMENTAL MATTERS. Except as described on
SCHEDULE 3.17 (a) the Company has complied, and to the knowledge
of the Company and the Principals, others have complied, with all
Environmental Laws applicable to all of its facilities and
properties currently or formerly owned or operated by the Company;
(b) none of the properties or facilities currently or formerly
owned or operated by the Company has been used by the Company, or
to the knowledge of the Company and the Principals, by others for
the generation, storage, manufacture, use, transportation,
disposal or treatment of Hazardous Substances other than in
compliance with all applicable Environmental Laws; (c) there has
been no Hazardous Discharge made by the Company, or to the
knowledge of the Company and the Principals, by others on or from
any of the properties or facilities currently or formerly owned or
operated by the Company, except in compliance with all applicable
Environmental Laws; and (d) there are no outstanding and, to the
knowledge of the Company and the Principals, threatened
Environmental Actions against the Company or, to the knowledge of
the Company and the Principals, (i) against the owners of any
facilities operated by the Company or (ii) against any of the
owners or operators of any facilities that may have received solid
wastes or Hazardous Substances from the Company.
SECTION 3.18. EMPLOYMENT AGREEMENTS AND EMPLOYEE BENEFIT
PLANS.
(a) Compensation and Benefit Plans.
-------------------------------
Except as set forth in SCHEDULE 3.12 or SCHEDULE 3.18, the Company
does not have and has not had at any time, any bonus, deferred
compensation, pension, retirement, profit-sharing, thrift,
savings, employee stock ownership, stock bonus, stock purchase,
restricted stock or stock option plans, employment or severance
contracts, other material employee benefit plans and any
applicable "change of control" or similar provisions in any plan,
contract or arrangement which cover employees or former employees
("Company Employees") of the Company or any entity (an "ERISA
Affiliate") which is considered one employer with the Company
under Section 4001(b)(1) of the Employee Retirement Income
Security Act of 1974, as amended ("ERISA"), or Section 414(b) or
(c) of the Internal Revenue Code of 1986, as amended (the "Code")
or any other benefit plans, contracts or arrangements (regardless
of whether they are funded or unfunded or foreign or domestic)
covering Company Employees, including, but not limited to,
"employee benefit plans" within the meaning of Section 3(3) of
ERISA (collectively, the "Compensation and Benefit Plans"). The
Company has made available to Parent and Merger Sub true and
complete copies of all Compensation and Benefit Plans, including
any trust instruments and/or insurance contracts, if any, forming
a part of any such plans, and all amendments thereto; where
applicable, current summary plan descriptions; where applicable,
the most current determination letter received from the Internal
Revenue Service (the "Service") and most recent determination
letter application, and where applicable, annual reports,
financial statements and actuarial reports for the last three plan
years ending before December 31, 1998, which fairly and accurately
reflect the financial condition of such plans.
(b) ERISA.
------
All of the Compensation and Benefit Plans, to the extent subject
to ERISA, are in material compliance with ERISA. Each Compensation
and Benefit Plan which is an "employee pension benefit plan"
within the meaning of Section 3(2) of ERISA ("Pension Plan") and
which is intended to be qualified under Section 401(a) of the
Code, has received a favorable determination letter from the
Service, and the Company is not aware of any circumstances likely
to result in revocation of any such favorable determination
letter. Neither the Company nor any ERISA Affiliate has engaged
in a transaction with respect to any Compensation and Benefit Plan
that, assuming the taxable period of such transaction expired as
of the date hereof, could subject the Company or any ERISA
Affiliate to a tax or penalty imposed by either Section 4975 of
the Code or Section 502(i) of ERISA in an amount which would have
a Material Adverse Effect. Neither the Company nor any ERISA
Affiliate has contributed or been required to contribute to any
Multi-employer Pension Plan subject to Subtitle E of Title IV of
ERISA.
(c) Certain ERISA Liabilities.
--------------------------
No liability under Subtitles C or D of Title IV of ERISA has been
or is expected to be incurred by the Company or any ERISA
Affiliate with respect to any ongoing, frozen or terminated
Compensation and Benefit Plan, currently or formerly maintained by
any of them.
(d) Contributions.
--------------
All contributions required to be made or accrued as of December
31, 1998 under the terms of any Compensation and Benefit Plan for
which the Company may have liability have been timely made or have
been reflected on the Balance Sheet. No Pension Plan has incurred
an "accumulated funding deficiency" (whether or not waived) within
the meaning of Section 412 of the Code or Section 302 of ERISA.
Neither the Company nor any ERISA Affiliate has provided, or is
required to provide, security to any Pension Plan pursuant to
Section 401(a)(29) of the Code.
(e) Retiree Benefits.
-----------------
Except as set forth in SCHEDULE 3.12 or SCHEDULE 3.18, the Company
does not have any obligations for retiree benefits under any
Compensation and Benefit Plans.
(f) The Merger.
-----------
Except as expressly provided in this Agreement or as set forth on
SCHEDULE 3.12 or SCHEDULE 3.18, the consummation of the
transactions contemplated by this Agreement will not: (i) entitle
any current or former employee or officer of the Company or any
ERISA Affiliate to severance pay, unemployment compensation or any
other payment, except as expressly provided in this Agreement, or
(ii) accelerate the time of payment or vesting, or increase the
amount of compensation due any such employee or officer.
(g) Unfunded Liabilities.
---------------------
The Company has no unfunded liabilities with respect to any
Pension Plan which covers former Employees in an amount which
would have a Material Adverse Effect.
(h) Termination.
------------
Immediately after the Effective Time, the Surviving Corporation
could terminate each Compensation and Benefit Plan in accordance
with its terms and applicable law without incurring any material
liability.
(i) Additional Payments.
--------------------
Except as expressly provided in this Agreement or as set forth on
SCHEDULE 3.12 or SCHEDULE 3.18, with respect to the Company and
the Business, the transactions contemplated by this Agreement will
not cause any additional payments to be due under any Compensation
and Benefit Plan, nor accelerate the payment or vesting of any
amounts due under any Compensation and Benefit Plan, nor result in
any excess parachute payment within the meaning of Code Section
280G except for payments which are paid prior to the Effective
Time, accrued on the Closing Date Balance Sheet or for which funds
have been reserved.
(j) Claims.
-------
There are no pending, or to the Company's knowledge, threatened or
anticipated claims by or on behalf of any Compensation and
Benefit Plan, by any employee or beneficiary covered under any
such Compensation and Benefit Plan, or otherwise involving any
such Compensation and Benefit Plan (other than routine claims for
benefits).
SECTION 3.19. EMPLOYEES. SCHEDULE 3.19 sets forth a complete
and correct list, as of the date hereof, of the names and current
annual salary rates of any officer or employee of the Company
whose current regular annual compensation is $40,000 or more,
together with a list of all bonuses paid to any such persons for
the Company's last two calendar years, and, to the extent existing
on the date hereof, all arrangements with respect to any bonuses
or deferred compensation to be paid to them from and after the
date hereof.
SECTION 3.20. INSURANCE. All policies or binders of fire,
liability, product liability, workers' compensation, vehicular and
other insurance held by or on behalf of the Company are set forth
on SCHEDULE 3.20. Each such policy or binder is valid and
enforceable against the Company in accordance with its terms, and
is in full force and effect. No notice has been received from any
insurer with respect to the cancellation of, or intent to cancel,
or the non-renewal of, any of such policies. Except as set forth
on SCHEDULE 3.20, to the Company's and the Principals' knowledge,
no event has occurred which could result in a cancellation of any
of the insurance policies set forth on such Schedule or a refusal
by the insurer to pay under such policies, nor has the Company
failed to make any claim under any such policies in a due and
timely fashion.
SECTION 3.21. ACCOUNTS, LOCKBOXES, SAFE DEPOSIT BOXES AND
POWERS OF ATTORNEY. SCHEDULE 3.21 sets forth: (i) the names of
each bank, savings and loan association, securities or commodities
broker, clearing corporation, or other financial institution in
which the Company has an account, including cash contribution
accounts, customer accounts, securities accounts, and the names of
all persons authorized to draw thereon or have access thereto,
(ii) the location of all lockboxes and safe deposit boxes of the
Company and the names of all persons authorized to draw thereon or
have access thereto and (iii) the names of all persons, if any,
holding powers of attorney relating to the Company or the
Business, copies of which have been provided to Parent and Merger
Sub. At the time of the Closing, all monies, securities,
securities entitlements, financial assets and accounts of the
Company (if any) related to, necessary to or advisable for the
conduct of the Business shall be held by, and be accessible only
to, the Company.
SECTION 3.22. TRANSACTIONS WITH AFFILIATES. As of the date
hereof, except as disclosed in SCHEDULE 3.22, there are no
outstanding notes payable to or accounts receivable from, or
advances by the Company to, and the Company is not otherwise a
creditor of, any shareholder, officer, director, employee, or
affiliate of the Company, other than any such transactions which
do not exceed $1,000 individually or $10,000 in the aggregate, and
the Company is not a party to any contract with any shareholder,
officer, director, or employee of the Company.
SECTION 3.23. SEC REPORTS AND FINANCIAL STATEMENTS. The
Company has timely made all required filings with the Securities
and Exchange Commission (the "SEC") under the Securities Act of
1933, as amended (the "Securities Act"), the Securities Exchange
Act of 1934, as amended (the "Exchange Act"), the Investment
Company Act of 1940, as amended (the "Investment Company Act") and
the Investment Adviser's Act of 1940, as amended (the "Adviser's
Act"), the National Association of Securities Dealers ("NASD"),
NASDAQ, and state securities authorities, and has made available
to Parent true and complete copies of, all forms, reports and
documents required to be filed by the Company since the Company's
inception under the Securities Act, the Exchange Act, the
Investment Company Act, the Adviser's Act, or rules or regulations
of the NASD, NASDAQ, or state securities authority (collectively,
the "Company SEC Documents"). The Company SEC Documents,
including, without limitation, any financial statements or
schedules included therein, (a) did not contain any untrue
statement of a material fact or omit to state a material fact
required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances under which they
were made, not misleading, and (b) complied in all material
respects with the applicable requirements of the Securities Act,
the Exchange Act, Investment Company Act, Adviser's Act, or rules
or regulations of the NASD, NASDAQ or state securities authority,
as the case may be. The financial statements of the Company
included in the Company SEC Documents (including the notes and
schedules thereto, the "Company Financial Statements") comply as
to form in all material respects with applicable accounting
requirements and with the published rules and regulations of the
SEC with respect thereto.
SECTION 3.24. INFORMATION IN DISCLOSURE DOCUMENTS. None of
the information supplied or to be supplied by the Company, the
Principals or their representatives for inclusion or incorporation
by reference in the Proxy Statement relating to the meeting of the
Company's shareholders to be held in connection with the Merger
(the "Proxy Statement") will, at the date mailed to the Company's
shareholders and at the time of the meeting of shareholders to be
held in connection with the Merger, contain any untrue statement
of a material fact or omit to state any material fact required to
be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they were made,
not misleading. The Proxy Statement will comply as to form in all
material respects with the provisions of the Exchange Act and the
rules and regulations thereunder, except that no representation is
made by the Company with respect to statements made therein based
on information supplied by Parent for inclusion in the Proxy
Statement.
SECTION 3.25. DISCLOSURE. Neither this Agreement (including
the Schedules hereto) nor any Related Document, insofar as they
relate to the Company or the Principals, contains or will contain
any untrue statement of a material fact or omits or will omit a
material fact required to make the statements herein or therein
not misleading in light of the circumstances under which those
statements were or will be made. There is no fact known to the
Company or the Principals which has not been disclosed to Parent
and Merger Sub pursuant to this Agreement, the Schedules hereto or
the Company SEC Documents that could reasonably be expected to
cause a Materially Adverse Effect.
SECTION 3.26. CERTAIN BUSINESS PRACTICES AND REGULATIONS
Neither the Company nor Principals, with respect to the Business
or any other person has made or received, and no officer,
director, employee, agent or other representative of the Company
or Principals, with respect to the Businesses or any other person
has made or received, directly or indirectly, in cash or in kind,
any illegal bribes, kickbacks, political contributions with
corporate funds, payments to or from corporate funds not recorded
in records of the Company payments to or from corporate funds that
were falsely recorded on such books and records, illegal payments
to or from corporate funds to governmental officials in their
individual capacities, illegal payments from corporate funds to
obtain or retain business, or any payments constituting fraud or
abuse of any laws.
SECTION 3.27. SCHEDULES. As of the date hereof, the Company has
not completed its internal investigation and review for purposes
of confirming and verifying the representations and warranties of
the Company contained in this Agreement. The Company shall
provide to Parent the Schedules contemplated by this Agreement as
soon as reasonably practicable, but in any event within five (5)
business days prior to the Closing Date as required by SECTION
7.2(f). In the event that Parent determines that such Schedules
contains information which in Parent's good faith, reasonable
business judgment adversely affects the value of the Company's
business or prospects, then Parent shall have the right, within
five (5) days of the receipt of the full and complete Schedules,
to terminate this Agreement as set forth in SECTION 8.1(c)(vii).
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUB
Parent and Merger Sub represent and warrant to the Company
and the Principals as follows:
SECTION 4.1. CORPORATE EXISTENCE. Parent and Merger Sub are
corporations duly organized, validly existing and in good standing
under the laws of their respective jurisdictions of incorporation.
Merger Sub is duly qualified to do business and is in good
standing as a foreign corporation in each jurisdiction, if any,
where the conduct of business or the ownership of assets by Merger
Sub requires it to be so qualified or, if not so qualified, such
failure to be so qualified will not have a material adverse effect
on Merger Sub. Merger Sub has delivered to the Company true and
complete copies of Merger Sub's governing documents as currently
in effect.
SECTION 4.2. POWER AND AUTHORIZATION. Parent and Merger Sub
each has full power, authority and legal right to execute, deliver
and perform this Agreement and such of the Related Documents as
are required to be delivered by Parent and Merger Sub in
accordance with the provisions hereof. The execution, delivery and
performance of this Agreement and the Related Documents by Parent
and Merger Sub have been duly authorized by all necessary
corporate and other action.
SECTION 4.3. DUE EXECUTION; ENFORCEABILITY. This Agreement
and the Related Documents have been duly executed and delivered on
behalf of Parent and Merger Sub, and this Agreement and the
Related Documents constitute legal, valid and binding obligations
of Parent and Merger Sub, enforceable in accordance with their
respective terms, except as enforceability may be limited by
applicable insolvency, bankruptcy, reorganization, moratorium or
other similar laws affecting creditors' rights generally and by
general equitable principles.
SECTION 4.4. NON-VIOLATION. The execution, delivery and
performance of this Agreement and the Related Documents by Parent
and Merger Sub does not and will not violate, conflict with,
result in the breach of, or constitute a default or result in or
permit any acceleration of any obligation under: (a) any law,
ordinance or governmental rule or regulation to which Parent or
Merger Sub is subject; (b) any judgment, order, writ, injunction,
decree or award of any court, arbitrator or governmental or
regulatory official, body or authority which is applicable to
Parent or Merger Sub; (c) the Certificate of Incorporation or By-
Laws of Parent or Merger Sub or any securities issued by Parent or
Merger Sub; or (d) any mortgage, indenture, agreement, contract,
commitment, lease, plan, license, or other instrument, document or
understanding, oral or written, to which Parent or Merger Sub is a
party, by which Parent or Merger Sub may have rights or by which
any of the assets of Parent or Merger Sub may be bound or
affected; or give any party thereunder the right to terminate,
modify, accelerate or otherwise change the existing rights or
obligations of Parent or Merger Sub thereunder.
SECTION 4.5. NO APPROVALS REQUIRED. Except for the filing of
the Articles of Merger and the Proxy Statement as provided herein,
no authorization, approval or consent of and no registration or
filing with any governmental or regulatory official, body or
authority is required in connection with the execution, delivery
or performance of this Agreement or the Related Documents by
Parent or Merger Sub, and, except for Liens which may be created
in connection with any financing obtained by Parent or Merger Sub,
the execution, performance or delivery of this Agreement and the
Related Documents by Parent and Merger Sub will not result in the
creation of any Lien upon any of the assets of Parent or Merger
Sub.
SECTION 4.6. NO PROCEEDINGS. There is no injunction, order
or decree of any court or administrative agency or any action or
proceeding pending or, to the knowledge of Parent, threatened by
or against Parent or Merger Sub to restrain or prohibit the
consummation of the transactions contemplated hereby.
SECTION 4.7. INFORMATION IN DISCLOSURE DOCUMENTS AND
REGISTRATION STATEMENTS. None of the information supplied or to
be supplied by Parent or its representatives for inclusion or
incorporation by reference in the Proxy Statement will, at the
date mailed to the Company's shareholders and at the time of the
meeting of the Company's shareholders to be held in connection
with the Merger, contain any untrue statement of a material fact
or omit any material fact required to be stated therein or
necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading.
SECTION 4.8. INTERIM OPERATIONS OF MERGER SUB. Merger Sub
was formed solely for the purpose of engaging in the transactions
contemplated hereby, has engaged in no other business activities
and has conducted its operations only as contemplated hereby.
Merger Sub may enter into employment agreements with James Burkett
and Rick Carlson prior to the Closing.
ARTICLE V
COVENANTS
SECTION 5.1. CONDUCT OF BUSINESS OF THE COMPANY. During the
period from the date of this Agreement and continuing until the
Effective Time, except as contemplated or permitted by this
Agreement or SCHEDULE 5.1, or to the extent that Parent shall
otherwise consent in writing:
(a) Ordinary Course.
----------------
The Company shall (i) carry on the Business in the usual, regular
and ordinary course consistent with past practice, (ii) maintain
selling prices and discounts of products and services at levels
equal to the average pricing and discount levels for each product
and service during the three month period prior to the date of
this Agreement and (iii) use all reasonable efforts to preserve
intact the present business organization of the Company, keep
available the services of the present officers and employees of
the Company and preserve the relationships with customers,
suppliers and others having business dealings with the Company.
(b) Dividends; Etc.
---------------
The Company shall not, nor shall the Company propose to (i)
declare or pay any dividends on or make other distributions
(whether in cash, securities or property or any combination
thereof) in respect of any of its capital stock, (ii) adjust,
split, combine or reclassify any of its capital stock or issue or
authorize or propose the issuance of any other securities in
respect of, in lieu of or in substitution for shares of its
capital stock (except for issuance of shares of capital stock upon
exercise or conversion of any rights to acquire shares of capital
stock outstanding on the date hereof) or (iii) repurchase, redeem
or otherwise acquire to repurchase, redeem or otherwise acquire,
any shares of capital stock of the Company.
(c) Issuances.
----------
Except as expressly contemplated by this Agreement and except for
issuance of shares of capital stock upon exercise or conversion of
any rights to acquire shares of capital stock outstanding on the
date hereof, the Company shall not issue, transfer, pledge or
sell, or authorize or propose or agree to the issuance, transfer,
pledge or sale of, any shares of its capital stock of any class,
any Voting Debt or other equity interests or any securities
convertible into, or any rights, warrants, calls, subscriptions,
options or other rights or agreements, commitments or
understandings to acquire, any such shares, Voting Debt, equity
interests or convertible securities.
(d) Articles and Bylaws.
--------------------
The Company shall not amend or propose to amend its Articles of
Incorporation or By-Laws.
(e) Acquisitions.
-------------
The Company shall not acquire or agree to acquire by merging or
consolidating with, or by purchasing a substantial equity interest
in or substantial portion of the assets of, or by any other
manner, any business or any corporation, partnership, association
or other business organization or division thereof or otherwise
acquire or agree to acquire any assets outside the ordinary and
usual course of business consistent with past practice or
otherwise enter into any material commitment or transaction
outside the ordinary and usual course of business consistent with
past practice, provided, however, that the foregoing shall not
apply to sales of receivables or other assets contemplated by
SECTION 6.12.
(f) Dispositions.
-------------
The Company shall not sell, lease, license, encumber or otherwise
dispose of, or agree to sell, lease, license, encumber or
otherwise dispose of, any of its assets outside the ordinary and
usual course of business consistent with past practice, provided,
however, that the foregoing shall not apply to sales of
receivables or other assets contemplated by SECTION 6.12.
(g) Indebtedness; Etc.
------------------
The Company shall not (i) incur, assume, pre-pay, guarantee,
endorse or otherwise become liable or responsible (whether
directly, contingently or otherwise) for any Indebtedness except
in the ordinary and usual course of business consistent with past
practice, (ii) issue or sell any debt securities or warrants or
rights to acquire any debt securities of the Company or guarantee
any obligations of others or (iii) make any loans, advances or
capital contributions to, or investments in, any other person
except in the ordinary and usual course of business consistent
with past practice (except as otherwise contemplated by Section
5.1(k)).
(h) Compensation; Etc.
------------------
The Company shall not (i) enter into, adopt, amend (except as may
be required by law and except for immaterial amendments) or
terminate any Compensation and Benefit Plan or other employee
benefit plan or any agreement, arrangement, plan or policy between
the Company and one or more of its directors, officers or
employees or (ii) except in the ordinary course of business
consistent with past practice, increase in any manner, the
compensation or fringe benefits of any director, officer or
employee or increase any benefit to any director, officer or
employee not required by any plan or arrangement as in effect as
of the date hereof or enter into any contract, agreement,
commitment or arrangement to do any of the foregoing or engage in
any transaction with any shareholder, officer or director,
provided that the foregoing shall not restrict the payment of any
obligations owed to such persons otherwise accrued on the
Company's financial statements, and provided further, that the
foregoing shall not restrict the Company from paying $100,000 that
it intends to pay to Jack Pagel for additional consulting services
rendered to the Company prior to the date hereof.
(i) Filings.
--------
The Company shall promptly provide Parent copies of all filings
made by the Company with any federal, state or foreign
governmental entity in connection with this Agreement, and the
Related Documents and the transactions contemplated hereby and
thereby.
(j) Accounting.
-----------
The Company will not change any of its accounting principles,
policies or procedures, except as may be required by GAAP.
(k) Investments.
------------
The Company shall liquidate, and convert to cash or cash-
equivalents, all investments in an orderly fashion on or before
that date which is not less than five (5) trading days prior to
the Effective Time.
(l) Other.
------
Notwithstanding the fact that such action might otherwise be
permitted pursuant to this SECTION 5.1, the Company shall not take
any action that would or is reasonably likely to result in any of
the conditions to the Merger set forth in ARTICLE VII not being
satisfied or that would materially impair the ability of the
Company to consummate the Merger in accordance with the terms
hereof or materially delay such consummation.
SECTION 5.2. COVENANTS OF PARENT.
(a) Certain Actions.
----------------
During the period from the date of this Agreement and continuing
until the Effective Time, Parent agrees as to itself and Merger
Sub that Parent shall not take any action that would or is
reasonably likely to result in any of the conditions to the Merger
set forth in ARTICLE VII not being satisfied or that would
materially impair the ability of Parent or Merger Sub to
consummate the Merger in accordance with the terms hereof or
materially delay such consummation.
(b) Parent Filings.
---------------
Parent shall promptly provide the Company (or its counsel) copies
of all filings made by Parent with any federal, state or foreign
Governmental Entity in connection with this Agreement and the
Related Documents and the transactions contemplated hereby and
thereby.
ARTICLE VI
ADDITIONAL AGREEMENTS
SECTION 6.1. REASONABLE EFFORTS. Subject to the terms and
conditions of this Agreement, each of the parties hereto agrees to
use commercially reasonable efforts to take, or cause to be taken,
all actions, 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 and the Related Documents including, without
limitation, (i) the prompt preparation and filing with the SEC of
the Proxy Statement, (ii) such actions as may be required to have
the Proxy Statement cleared by the SEC as promptly as practicable,
including by consulting with each other as to, and responding
promptly to, any SEC comments with respect thereto and (iii) the
mailing of the Proxy Statement to shareholders of the Company.
Each party shall promptly consult with the other and provide any
necessary information and material with respect to all filings
made by such party with any Governmental Entity in connection with
this Agreement and the Related Documents and the transactions
contemplated hereby and thereby.
SECTION 6.2. ACCESS TO INFORMATION. Upon reasonable notice,
the Company shall afford to the officers, employees, accountants,
counsel and other representatives of Parent, access, during normal
business hours during the period prior to the Effective Time, to
all of its properties, books, contracts, commitments and records
and all other information concerning the business, properties and
personnel of the Company as Parent may reasonably request, and,
during such period, each of the Company and Parent shall furnish
promptly to the other a copy of each report, schedule,
registration statement and other document filed by it during such
period pursuant to the requirements of federal securities laws.
Unless otherwise required by law, the parties will hold any such
information which is non-public in confidence in accordance with
the confidentiality agreement, dated September 15, 1998 between
the Company and Parent (the "Confidentiality Agreement").
SECTION 6.3. SHAREHOLDERS MEETING. The Company shall call a
meeting of its shareholders to be held as promptly as practicable
after the Proxy Statement is cleared by the SEC for the purpose of
voting upon the approval and adoption of this Agreement. The
Company will, through its Board of Directors, recommend to its
shareholders approval and adoption of this Agreement and shall use
commercially reasonable efforts to hold such meeting as soon as
practicable; PROVIDED that the Company may withdraw its
recommendation (and such shareholder meeting need not be held) if
the Board of Directors of the Company, after consultation with and
based upon the advice of Fredrikson & Byron, P.A. or other
independent legal counsel, determines in good faith that such
withdrawal or modification is necessary for the Company's Board of
Directors to comply with its fiduciary duties to shareholders
under applicable law. The Principals shall vote all shares of
Company Common Stock beneficially owned by them as of the record
date for any such meeting in accordance with the terms of the
letters attached hereto as Schedule 6.3.
SECTION 6.4. LEGAL CONDITIONS TO THE MERGER; LEGAL
COMPLIANCE. Each of the Company, Parent and Merger Sub will use
commercially reasonable efforts to comply promptly with all legal
requirements which may be imposed with respect to the Merger
(which actions shall include, without limitation, furnishing all
information in connection with approvals or filings with any
Governmental Entity required to be obtained or made by Parent,
Merger Sub or the Company) and will promptly cooperate with and
furnish information to each other in connection with any such
requirements imposed upon any of them in connection with the
Merger. Subject to the terms and conditions hereof, each of the
Company and Parent will promptly use commercially reasonable
efforts to obtain (and will cooperate with each other in
obtaining) any consent, authorization, order or approval of, or
any exemption by, any Governmental Entity or other public or
private third party, required to be obtained or made by such party
in connection with the Merger or the taking of any action
contemplated thereby or by this Agreement. The Company shall use
commercially reasonable efforts to take such actions as are
necessary to assure compliance by the Company with all applicable
legal requirements relating to licenses, employment and benefits
matters and other governmental regulations.
SECTION 6.5. NO SOLICITATION.
(a) No Solicitation.
----------------
Until the earlier of the Effective Time or the termination of this
Agreement pursuant to ARTICLE VIII, the Company and the Principals
will not directly or indirectly, through any officer, director,
agent, affiliate, shareholder or otherwise, initiate, solicit,
encourage, negotiate or discuss with any third party (including by
way of knowingly furnishing non-public information concerning the
Company, the Business or its assets or properties in connection
therewith), or take any other action to knowingly facilitate any
inquiries with respect to or the making of, any proposal or offer
that constitutes or may reasonably be expected to lead to an
Alternative Transaction (as defined below). As used herein, an
"Alternative Transaction" shall mean a merger, consolidation,
business combination, sale of a significant amount of assets
outside of the ordinary course of business, sale of shares of
capital stock outside of the ordinary course of business, sale or
other disposition of the Business, tender or exchange offer, or
similar transaction involving the Company. The Company will
promptly communicate to Parent the terms of any proposal or
inquiry that it has received or may receive in respect of any such
transaction or of any such information requested from it or of any
such negotiations or discussions being sought to be initiated with
the Company and may inform any third party who contacts the
Company on an unsolicited basis concerning an Alternative
Transaction that the Company is obligated hereunder to disclose
such to Parent.
(b) Limited Exceptions.
-------------------
Notwithstanding the foregoing, this SECTION shall not prohibit the
Board of Directors of the Company from (i) furnishing information
to or entering into discussions or negotiations with, any person
or entity that makes an unsolicited bona fide Alternative
Transaction, if, and only to the extent that, (A) the Board of
Directors of the Company determines in good faith, after receipt
of advice to such effect from Fredrikson & Byron, P.A. or other
independent legal counsel, that such action is so required for the
Board of Directors to comply with its fiduciary duties to
shareholders imposed by law, (B) prior to furnishing information
to, or entering into discussions and negotiations with, such
person or entity, the Company promptly provides written notice to
Parent to the effect that it is furnishing information to, or
entering into discussions or negotiations with, such person or
entity, and (C) the Company keeps Parent informed of the status
and all material terms and events with respect to any such
Alternative Transaction; and (ii) to the extent applicable,
complying with Rules 14d-9 and 14e-2 promulgated under the 1934
Act, as amended, with regard to an Alternative Transaction.
Nothing in this SECTION shall (x) permit the Company to terminate
this Agreement (except as specifically provided in ARTICLE VIII
hereof), (y) permit the Company to enter into any agreement with
respect to an Alternative Transaction for as long as this
Agreement remains in effect (it being agreed that for as long as
this Agreement remains in effect, the Company shall not enter into
any agreement with any person that provides for, or in any way
facilitates, an Alternative Transaction), or (z) affect any other
obligation of the Company under this Agreement while this
Agreement remains in effect.
SECTION 6.6. FEES AND EXPENSES.
(a) Incurring Party.
----------------
Except as set forth in SECTION 6.6(b) or SECTION 6.6(c), whether
or not the Merger is consummated, all costs and expenses incurred
in connection with this Agreement and the transactions
contemplated hereby shall be paid by the party incurring such
expenses.
(b) Payment by Parent.
------------------
If Parent exercises its right not to consummate the transaction
because of the occurrence of a Material Adverse Effect as defined
in this Agreement as to the Company, Parent shall pay the
Company's legal expenses incurred after December 10, 1998 relating
to the negotiation and consummation of this Agreement and the
transactions contemplated hereby in an amount up to $50,000;
provided that any request by the Company for such payment shall be
made in writing and accompanied by applicable invoices of legal
counsel to the Company showing sufficient detail of work performed
and expenses incurred in connection therewith.
(c) Payment by the Company.
-----------------------
So long as Parent shall not have materially breached its
obligations under this Agreement, the Company will pay Parent, in
immediately available funds, $400,000, if this Agreement is
terminated by the Company pursuant to SECTION 8.1(d)(iii) or if
the Company shall enter into any agreement, arrangement or
understanding providing for an Alternative Transaction.
SECTION 6.7. NOTIFICATION OF CERTAIN MATTERS. The Company
shall give prompt notice to Parent, and Parent shall give prompt
notice to the Company, of (a) the occurrence or non-occurrence of
any event, the occurrence or non-occurrence of which would be
likely to cause (i) any representation or warranty contained in
this Agreement to be untrue or inaccurate or (ii) any covenant,
condition or agreement contained in this Agreement not to be
complied with or satisfied, (b) any failure of the Company or
Parent, as the case may be, to comply with or satisfy any
covenant, condition or agreement to be complied with or satisfied
by it hereunder or (c) the occurrence of any Material Adverse
Effect with respect to the Company or the Business; PROVIDED,
HOWEVER, that the delivery of any notice pursuant to this SECTION
6.7 shall not limit or otherwise affect the remedies available
hereunder to the party receiving such notice.
SECTION 6.8. INDEBTEDNESS. The Company agrees that
immediately prior to the Effective Time, there will not be
outstanding any Indebtedness in respect of which the Company is
obligated, other than the Indebtedness listed in SCHEDULE 6.8 up
to the amounts set forth in such Schedule, or Indebtedness
reflected on the Closing Date Balance Sheet.
SECTION 6.9. INDEMNIFICATION.
(a) Indemnification Obligations.
----------------------------
Subject to the provisions of SECTIONS 6.10 and 6.11, from and
after the Effective Time, Parent and the Surviving Corporation,
and their respective officers, directors, employees, agents,
consultants, successors and assigns shall be indemnified and held
harmless by the Principals, jointly and severally, for any and all
liabilities, losses, damages, claims, costs and expenses,
interest, awards, judgments, damages, (including punitive damages
awarded to third party claimants) fines, fees and penalties,
including without limitation, fees and expenses of attorneys,
experts and consultants (collectively, "Losses") actually suffered
or incurred by them:
(i) Breaches of Representations and Warranties.
-------------------------------------------
Arising out of or resulting from the material breach of any
representation or warranty made by the Company or the Principals
in this Agreement or Related Documents (provided that each
Principal severally, and not jointly, provides such
indemnification hereunder with respect to such breaches made by a
Principal in a Related Document); and
(ii) Other Breaches.
---------------
Arising out of or resulting from the breach of any covenant or
agreement by the Company contained in this Agreement or Related
Documents.
(b) Indemnification Procedures.
---------------------------
Promptly after the receipt by a party which is entitled to
indemnification hereunder (the "Indemnified Party") of a notice of
any claim, action, suit or proceeding of any third party which is
subject to indemnification hereunder, such Indemnified Party shall
give written notice of such claim to the party obligated to
provide indemnification hereunder (the "Indemnifying Party"),
stating the nature and basis of such claim and the amount thereof,
to the extent known. Subject to SECTIONS 6.10 and 6.11, failure
of the Indemnified Party to give such notice shall not relieve the
Indemnifying Party from any liability which he may have on account
of this indemnification or otherwise, except to the extent that
the Indemnifying Party is materially prejudiced. The Indemnifying
Party shall be entitled to participate in the defense of and if it
so chooses, to assume a defense of or otherwise contest, such
claim, action, suit or proceeding with counsel selected by the
Indemnifying Party and reasonably satisfactory to the Indemnified
Party. Upon the election by the Indemnifying Party to assume the
defense of, or otherwise contest, such claim, action, suit or
proceeding, the Indemnifying Party shall not be liable for any
legal or other expenses subsequently incurred by the Indemnified
Party in connection with the defense thereof, although the
Indemnified Party shall have the right to participate in the
defense thereof and to employ counsel, at its own expense.
Notwithstanding the foregoing, the Indemnifying Party shall be
liable for the reasonable fees and expenses of counsel employed by
the Indemnified Party, to the extent that (i) the Indemnifying
Party has not employed counsel reasonably acceptable to the
Indemnified Party to assume the defense of such action within a
reasonable time after receiving notice of the commencement of the
action, (ii) employment of counsel has been authorized in writing
by the Indemnifying Party or (iii) representation of the
Indemnifying Party and the Indemnified Party by the same counsel
would, in the reasonable opinion of such counsel, constitute a
conflict of interest or otherwise violate rules of professional
responsibility (in which case the Indemnifying Party will not have
the right to direct the defense of such action on behalf of the
Indemnified Party). The parties shall cooperate in any such
defense, give each other reasonable access to all information
relevant thereto and use commercially reasonable efforts to make
employees and other representatives available on a mutually
convenient basis to provide additional information or explanation
of any material provided in connection therewith. Whether or not
the Indemnifying Party shall have assumed the defense, the
Indemnifying Party shall not be obligated to indemnify the other
party hereunder for any settlement entered into without the
Indemnifying Party's prior written consent, which consent shall
not be unreasonably withheld or delayed. The Indemnifying Party
may not enter into any settlement without the Indemnified Party's
prior written consent, which consent shall not be unreasonably
withheld or delayed . To the extent that the Indemnifying Party's
undertaking set forth in this SECTION 6.9 may be unenforceable for
any reason, such Indemnifying Party shall contribute the maximum
amount that he is permitted to contribute under applicable law to
the payment and satisfaction of all Losses incurred by the
Indemnified Party (subject to SECTIONS 6.10 and 6.11).
SECTION 6.10. LIMITATION ON INDEMNIFICATION. The Principals
shall not have any liability for indemnification with respect to
Losses incurred by the Indemnified Parties unless and until the
aggregate amount of Losses exceeds $25,000 at which point the
Indemnified Parties shall be entitled to indemnification for all
Losses incurred; provided that recovery by the Indemnified Parties
from the Principals with respect to any and all such Losses shall
be limited in all events to an aggregate amount of $300,000 in
total from any and all Principals.
SECTION 6.11. CLAIM FOR INDEMNIFICATION. No claim for
Indemnification will be valid unless made on or prior to one year
after the Effective Time, after which date the Principals'
obligations to indemnify shall terminate with respect to any claim
except those which were specifically identified in a written
notice given to the Principals specifying in reasonable detail the
claim and basis for Indemnification prior to one year after the
Effective Time.
SECTION 6.12. CERTAIN PURCHASES BY THE PRINCIPALS OR
AFFILIATES. On or before the Effective Time, it is acknowledged
and agreed that the Principals, or their affiliates, at their and
the Company's discretion, may purchase one or more receivables
(or, with Parent's consent other assets) of the Company for cash
in an amount equal to the face value of such receivables (or the
fair market value of such other assets as mutually determined by
Parent, such parties and the Company). The Company shall provide
Parent with prior or simultaneous notice of the sale of any
receivables under this Section. It is acknowledged and agreed
that, all else being equal, any such receivables (or other assets)
purchased for cash by such parties would decrease the Adjusted Net
Book Value that would otherwise be determined under this Agreement
(including, if applicable, to reduce the Adjusted Net Book Value
to $1,840,000), and would increase the cash that would constitute
part of the Portfolio Position of the Company. If the Principals
or such affiliates purchase receivables, the Surviving Corporation
shall provide commercially reasonable assistance in the collection
thereof at no cost to such parties, but such receivables shall be
assigned on a non-recourse basis and the Surviving Corporation
shall have no responsibility for any amounts not collected.
ARTICLE VII
CONDITIONS
SECTION 7.1. CONDITIONS TO EACH PARTY'S OBLIGATION TO EFFECT
THE MERGER. The respective obligations of the parties to effect
the Merger are subject to the satisfaction, on or prior to the
Closing Date, of the following conditions:
(a) Shareholder Approval.
---------------------
The Merger shall have been approved by the shareholders of the
Company in accordance with the MBCA at the meeting held pursuant
to SECTION 6.3 (the "Meeting"). In addition to any approval
otherwise required by the MBCA, the Merger shall have been
approved (the "Non-Principal Shareholder Approval") by the
affirmative vote of the holders of a majority of the shares
represented in person or by proxy at the Meeting with authority to
vote on the matter and which are beneficially owned by
shareholders other than the Principals. For purposes of the Non-
Principal Shareholder Approval, shares beneficially owned other
than by the Principals and covered by a proxy granted to one or
more the Principals shall be deemed voted by the beneficial owner
as directed on the form of proxy or, if no direction is given,
shall be deemed to have affirmatively voted in favor of the Merger
(and such shares, solely by reason of such proxy, shall not be
deemed shares beneficially owned by the Principals for purposes of
the Non-Principal Shareholder Approval).
(b) Governmental Approvals.
-----------------------
Other than the filing of the Articles of Merger, all
authorizations, consents, orders or approvals of, or declarations
or filings with, or expirations of waiting periods imposed by, any
Governmental Entity, the failure of which to obtain would have a
Material Adverse Effect or on the ability of the parties hereto to
consummate the transactions contemplated hereby, shall have been
filed, occurred or been obtained.
(c) Actions.
--------
No temporary restraining order, preliminary or permanent
injunction or other order issued by any court of competent
jurisdiction or other legal restraint or prohibition preventing
the consummation of the Merger shall be in effect (each party
agreeing to use commercially reasonable efforts to have any such
order reversed or injunction lifted).
SECTION 7.2. CONDITIONS OF OBLIGATIONS OF PARENT. The
obligations of Parent to effect the Merger are subject to the
satisfaction, on or prior to the Closing Date, of the following
conditions unless waived by Parent in writing:
(a) Representations and Warranties.
-------------------------------
The representations and warranties of the Company shall be true
and correct in all material respects as of the date hereof, and,
except to the extent such representations and warranties speak as
of an earlier date, as of the Closing Date as though made on and
as of the Closing Date, and Parent shall have received a
certificate signed on behalf of the Company by the chief executive
officer or the chief financial officer of the Company to such
effect.
(b) Obligations.
------------
The Company shall have performed in all material respects all
obligations required to be performed by it under this Agreement at
or prior to the Closing Date, and Parent shall have received a
certificate signed on behalf of the Company by the chief executive
officer or the chief financial officer of the Company to such
effect.
(c) Opinion.
--------
Parent shall have received the opinion of Fredrikson & Byron, P.A.
concerning such legal matters relating to the Merger as are
customarily obtained in transactions of a type similar to the
Merger.
(d) Non-Competition and Severance Agreements.
---------------------------------------------
Duane Markus shall have executed and delivered to the Surviving
Corporation a non-competition and severance agreement providing
for the payment of $400,000 to Duane Markus (of which $375,000
shall be a severance payment and $25,000 shall be a payment in
consideration for his non-competition covenants), and each of Jack
Pagel and Tom Gould shall have executed and delivered to the
Surviving Corporation severance agreements providing for the
payment of $50,000 to each of them, all such agreements in form
and substance acceptable to Parent, in its sole discretion.
(e) No Material Adverse Effect.
---------------------------
No Material Adverse Effect shall have occurred or be threatened,
or be pending subject to the giving of notice or the passage of
time or both.
(f) Schedules.
----------
Parent shall have received all of the Schedules to be attached to
this Agreement not less than five (5) business days prior to the
Closing Date and shall not have identified (and given written
notice thereof to the Company) within five (5) business days after
receipt of such Schedules any matter or matters which, alone or in
the aggregate, it determines in good faith and in its reasonable
business judgment to adversely affect its valuation of and plans
for the future development of the Surviving Corporation and the
Business.
(g) Other.
------
All corporate and other proceedings and actions required to be
taken by the Company and its shareholders in connection with the
transactions contemplated hereby, and all certificates, opinions,
agreements, instruments and documents, mentioned herein or
incident to any such transactions shall have been delivered and
shall be reasonably satisfactory in form and substance to Parent
and its counsel.
SECTION 7.3. CONDITIONS OF OBLIGATIONS OF THE COMPANY. The
obligation of the Company to effect the Merger is subject to the
satisfaction of the following conditions, on or prior to the
Closing Date, unless waived by the Company:
(a) Representations and Warranties.
-------------------------------
The representations and warranties of Parent and Merger Sub
contained in this Agreement shall be true and correct in all
material respects as of the date hereof, and, except to the extent
such representations and warranties speak as of an earlier date,
as of the Closing Date as though made on and as of the Closing
Date, and the Company shall have received a certificate signed on
behalf of Parent by the chief executive officer or the chief
financial officer of Parent to such effect.
(b) Obligations.
------------
Parent and Merger Sub shall have performed in all material
respects all obligations required to be performed by them under
this Agreement at or prior to the Closing Date, and the Company
shall have received a certificate signed on behalf of Parent by
the chief executive officer or the chief financial officer of
Parent to such effect.
(c) Opinion.
--------
The Company shall have received the opinion of Lindquist & Vennum
P.L.L.P. (which may incorporate an opinion of Israeli counsel)
concerning such legal matters relating to the Merger as are
customarily obtained in transactions of a type similar to the
Merger.
(d) Fairness Opinion.
-----------------
The Company shall have received an opinion from a financial
advisor selected by the Company that the consideration to be
received by the Company's shareholders in conjunction with the
Merger is fair to the Company's shareholders from a financial
point of view.
(e) Non-Competition and Severance Agreements.
-----------------------------------------
Duane Markus shall have executed and delivered to the Surviving
Corporation a non-competition and severance agreement providing
for the payment of $400,000 to Duane Markus (of which $375,000
shall be a severance payment and $25,000 shall be a payment in
consideration for his non-competition covenants), and each of Jack
Pagel and Tom Gould shall have executed and delivered to the
Surviving Corporation severance agreements providing for the
payment of $50,000 to each of them.
ARTICLE VIII
TERMINATION AND AMENDMENT
SECTION 8.1. TERMINATION. This Agreement may be terminated
at any time prior to the Effective Time, whether before or after
approval of the Merger and this Agreement by the shareholders of
the Company:
(a) Mutual Consent.
---------------
By mutual written consent of Parent and the Company.
(b) Certain Date.
-------------
By either Parent or the Company if the Merger shall not have been
consummated on or before the Termination Date (unless the failure
to so consummate the Merger by such date shall be due to the
action or failure to act of the party seeking to terminate this
Agreement, which action or failure to act constitutes a breach of
this Agreement). "Termination Date" means March 31, 1999,
provided, however, that if the SEC shall not have cleared the
Proxy Statement as contemplated by SECTION 6.3 by February 28,
1999, the Termination Date shall be extended to May 15, 1999.
(c) Parent.
-------
By Parent if:
(i) there has been a material breach on the part of the Company
in the representations, warranties or covenants of the Company set
forth herein, or any material failure on the part of the Company
to comply with its obligations hereunder, or
(ii) the Company's shareholders do not approve of the Merger and
this Agreement at the meeting required under SECTION 6.3 hereof,
or
(iii) more than fifteen percent (15%) of the shareholders of the
Company exercise dissenter's rights under the MBCA, or
(iv) the Board of Directors of the Company withdraws, amends, or
modifies in a manner adverse to Parent its favorable
recommendation of the Merger, or
(v) the Company or the Principals fail to deliver such documents
as required by ARTICLE II of this Agreement, or
(vi) any of the conditions to Closing by Parent or Merger Sub set
forth in SECTION 7.2, or any of the conditions set forth in
SECTION 7.1, have not been satisfied, or
(vii) within five (5) business days following receipt of all of the
Schedules as contemplated by SECTION 3.27 and SECTION 7.2(f), if
Parent has identified (and given written notice thereof to the
Company) any matter or matters which, alone or in the aggregate,
it determines in good faith and in its reasonable business
judgment to adversely affect its valuation of and plans for the
future development of the Surviving Corporation and the Business.
(d) The Company.
------------
By the Company if:
(i) there has been a material breach on the part of Parent in
the representations, warranties or covenants of Parent set forth
herein, or any material failure on the part of Parent to comply
with its obligations hereunder, or
(ii) the Company's shareholders do not approve of the Merger and
this Agreement in accordance with the provisions of SECTION 7.1(a)
at the meeting required under SECTION 6.3 hereof, or
(iii) the Company's Board of Directors withdraws its recommendation
to approve and adopt this Agreement in accordance with SECTION
6.3, or
(iv) Parent or Merger Sub fails to deliver such documents or
payments as required by ARTICLE II of this Agreement, or
(v) any of the conditions to Closing by the Company set forth in
SECTION 7.3, or any of the conditions set forth in SECTION 7.1,
have not been satisfied.
SECTION 8.2. EFFECT OF TERMINATION. In the event of a
termination of this Agreement by either the Company or Parent as
provided in SECTION 8.1, this Agreement shall forthwith become
void and there shall be no liability or obligation on the part of
Parent, Merger Sub, the Company, the Principals or their
affiliates or respective officers or directors, other than the
Company or Parent as provided in SECTION 6.6 and the
Confidentiality Agreement.
SECTION 8.3. AMENDMENT. This Agreement may be amended by the
parties hereto, by action taken or authorized by their respective
Boards of Directors, at any time before or after approval of the
matters presented in connection with the Merger by the
shareholders of the Company but, after any such approval, no
amendment shall be made which by law requires further approval by
such shareholders without such further approval. This Agreement
may not be amended except by an instrument in writing signed on
behalf of each of the parties hereto.
SECTION 8.4. EXTENSION; WAIVER. At any time prior to the
Effective Time, the parties hereto, by action taken or authorized
by their respective Boards of Directors, may to the extent legally
allowed, (i) extend the time for the performance of any of the
obligations or other acts of the other parties hereto, (ii) waive
any inaccuracies in the representations and warranties contained
herein or in any document delivered pursuant hereto and (iii)
waive compliance with any of the agreements or conditions
contained herein. Any agreement on the part of a party hereto to
any such extension or waiver shall be valid only if set forth in a
written instrument signed on behalf of such party.
ARTICLE IX
MISCELLANEOUS
SECTION 9.1. SURVIVAL OF REPRESENTATIONS AND WARRANTIES. All
representations and warranties made by the parties in this
Agreement or in any Related Documents shall survive the Closing
for a period of one (1) year. Notwithstanding any investigation or
audit conducted before or after the Closing Date or the decision
of any party to complete the Merger, each party shall be entitled
to rely upon the representations and warranties set forth herein
and therein, and none of such representations and warranties shall
be deemed waived or modified in any respect by reason of any such
investigation.
SECTION 9.2. CERTAIN DEFINITIONS.
"Environmental Actions" means any complaint, summons,
citation, notice, directive, order, claim, litigation,
investigation, proceeding, judgment, letter or other communication
from any federal, state, local or municipal agency, department,
bureau, office or other authority, or any third party, delivered
to, or applicable to, the Company respecting (a) any of the
properties currently or formerly owned or operated by the Company
or any of their respective predecessors, or (b) any facility that
received solid or hazardous wastes from the Company or any of its
predecessors, or involving any violation of any Environmental
Laws.
"Environmental Laws" means the Comprehensive Environmental
Response, Compensation and Liability Act, 42 U.S.C. 9601 et seq.,
the Resource Conservation and Recovery Act, 42 U.S.C. 6901 et
seq., the Toxic Substances Control Act, 15 U.S.C. 2601 et seq.,
the Clean Water Act, 33 U.S.C. 1251 et seq., the Clean Air Act, 42
U.S.C. 7501 et seq., the Safe Drinking Water Act, 43 U.S.C. 300f-
300j-26, the Occupational Safety and Health Act, 29 U.S.C. 655,
and any other laws imposing liability or establishing standards of
conduct for environmental protection.
"Governmental Entity" means any court, arbitral tribunal,
administrative agency or commission or other governmental or other
regulatory authority or administrative agency or commission.
"Hazardous Discharge" means any releasing, spilling, leaking,
pumping, pouring, emitting, emptying, discharging, injecting,
escaping, leaching, disposing or dumping of any Hazardous
Substances into the soil, surface waters or ground waters at any
of the properties or facilities currently or formerly owned or
operated by the Company or any of its predecessors or at any
facility that received solid or hazardous wastes generated by the
Company or any of its predecessors.
"Hazardous Substances" means (a) any pollutant, contaminant,
toxic substance, hazardous waste or hazardous substance, as
defined in or regulated by any Environmental Laws, or any other
compound, element or chemical determined to be hazardous or toxic
by a Governmental Entity under any Environmental Laws and (b)
asbestos or asbestos-containing materials.
"Indebtedness" means (i) all obligations for borrowed money
(including without limitation, all notes payable and drafts
accepted representing extensions of credit, all obligations
evidenced by bonds, debentures, notes or similar instruments, all
obligations on which interest charges are customarily paid, all
obligations under conditional sale or other title retention
agreements and all obligations issued or assumed as full or
partial payment for property whether or not any such notes, drafts
or obligations are obligations for borrowed money), (ii) all
obligations secured by any Lien existing on property owned or
acquired subject thereto, whether or not the obligations secured
thereby shall have been assumed, (iii) all obligations of the type
referred to in clauses (i) and (ii) above guaranteed (other than
by endorsement of the above instruments for collection in the
ordinary course of business), directly or indirectly, in any
manner, or in effect guaranteed, directly or indirectly, through
an agreement, contingent or otherwise (a) to purchase securities,
indebtedness or other obligations of the type referred to in
clauses (i) and (ii) above, (b) to purchase, sell or lease (as
lessee or lessor) property or to purchase or sell services
primarily for the purpose of enabling the debtor to make payment
of indebtedness or other obligations of the type referred to in
clauses (i) and (ii) above or to assure the owner of such
indebtedness or other obligations against loss, (c) to supply
funds to or to in any manner invest in the debtor or (d) to repay
amounts drawn down by beneficiaries of letters of credit, (iv) all
obligations of the type referred to in clauses (i) through (iii)
above for the payment or purchase of which the Company has agreed
contingently or otherwise to advance or supply funds and (v) all
capitalized lease obligations.
"Lien" means any security interest, mortgage, lien, pledge,
charge, claim, restriction or other encumbrance of any nature
whatsoever.
"Material Adverse Effect" means any circumstance, change in
or effect on the Business or the Company that, individually or in
the aggregate with any other circumstances, changes in, or effects
on the Business or the Company is or is reasonably likely to be
(a) materially adverse to the Business or the Company or to the
Company's assets, liabilities, operations, results of operations
or business relationships, (b) materially adverse to the ability
of Parent or Merger Sub to operate or conduct the Business in the
manner in which it is currently conducted or operated or (c)
materially adverse to the ability of the parties to this Agreement
to consummate the transactions contemplated by this Agreement or
the Related Documents; provided, however, that no circumstance,
change or effect on the Portfolio Position shall be deemed to be a
Material Adverse Effect.
"Related Documents" means, with respect to the Company, any
certificate, instrument, agreement or other document executed and
delivered by the Company, and with respect to the Principals, any
certificate, instrument, agreement or other document executed and
delivered by any Principal, pursuant to or in connection with the
transactions contemplated by this Agreement.
SECTION 9.3. BROKERS' AND FINDERS' FEES.
(a) The Company and the Principals.
-------------------------------
The Company and the Principals represent and warrant to Parent and
Merger Sub that all negotiations relative to this Agreement have
been carried on without the intervention of any person who may be
entitled to any brokerage or finder's fee or other commission in
respect of this Agreement or the consummation of the transactions
contemplated hereby, and the Principals agree to indemnify and
hold Parent and Merger Sub harmless from and against any and all
claims, losses, liabilities and expenses which may be asserted
against or incurred by them as a result of the Company's or the
Principals' dealings, arrangements or agreements with any such
person.
(b) Parent and Merger Sub.
----------------------
Parent and Merger Sub represent and warrant to the Company and the
Principals that all negotiations relative to this Agreement have
been carried on without the intervention of any person who may be
entitled to any brokerage or finder's fee or other commission in
respect of this Agreement or the consummation of the transactions
contemplated hereby, and Parent agrees to indemnify and hold the
Company and the Principals harmless from and against any and all
claims, losses, liabilities and expenses which may be asserted
against or incurred by it as a result of Parent's dealings,
arrangements or agreements with any such person.
SECTION 9.4. SALES, TRANSFER AND DOCUMENTARY TAXES, ETC. The
Surviving Corporation shall pay all federal, state and local
sales, documentary and other transfer taxes, if any, due as a
result of the Merger, whether imposed by law on the Company,
Parent or Merger Sub.
SECTION 9.5. PUBLICITY. Except as otherwise required by law
or the rules and regulations of the NASD or NASDAQ, for so long as
this Agreement is in effect, neither the Company, Parent nor
Merger Sub shall issue or cause the publication of any press
release or other public announcement with respect to the
transactions contemplated by this Agreement or the Related
Documents without the consent of the other parties, which consent
shall not be unreasonably withheld or delayed.
SECTION 9.6. CONTENTS OF AGREEMENT; PARTIES IN INTEREST; ETC.
This Agreement, the Related Documents and the Confidentiality
Agreement set forth the entire understanding of the parties hereto
with respect to the transactions contemplated hereby. Any and all
previous agreements, understandings, representations or warranties
between or among the parties regarding the subject matter hereof
or thereof, whether written or oral, are superseded by this
Agreement.
SECTION 9.7. ASSIGNMENT AND BINDING EFFECT. This Agreement
may not be assigned prior to the Closing by any party hereto
without the prior written consent of the other parties, except
that the rights, but not the obligations, of Parent and Merger Sub
hereunder may be assigned to any wholly-owned subsidiary of
Parent. Subject to the foregoing, all of the terms and provisions
of this Agreement shall be binding upon and inure to the benefit
of and be enforceable by the successors and assigns of the
Company, the Principals, Parent and Merger Sub.
SECTION 9.8. NOTICES. Any notice, request, demand, waiver,
consent, approval or other communication which is required or
permitted hereunder shall be in writing and shall be deemed given
only if delivered personally or sent by registered or certified
mail, postage prepaid, by a national overnight courier service as
follows:
If to Parent, Merger Sub or the Surviving Corporation, to:
ACS Electronics, Ltd.
Attn: Ze'ev Kirshenboim
Industrial Park P.O.B. 5668
Migdal Ha'Emek 10500, Israel
With copies to:
Bruno Lerer, Esq.
655 Third Avenue
20th Floor
New York, NY 10017-5617
Jeffrey N. Saunders, Esq.
Lindquist & Vennum P.L.L.P.
4200 IDS Center
80 South Eighth Street
Minneapolis, Minnesota 55402
If to the Company to:
Technology 80, Inc.
658 Mendelssohn Avenue North
Minneapolis, MN 55427
Attn: President
If to Duane Markus, to:
Duane Markus
405 Bushaway Road
Wayzata, MN 55391
If to Jack Pagel, to:
Jack Pagel
2940 Gale Road
Wayzata, MN 55391
If to Tom Gould, to:
Tom Gould
4120 Queen Avenue
Minneapolis, MN 55410
With copies to:
Simon Root, Esq.
Fredrikson & Byron, P.A.
1100 International Centre
900 Second Avenue South
Minneapolis, MN 55402
or to such other address as the addressee may have specified in a
notice duly given to the sender as provided herein. Such notice,
request, demand, waiver, consent, approval or other communication
will be deemed to have been given as of the date so delivered or
mailed.
SECTION 9.9. GOVERNING LAW; JURISDICTION.
(a) Governing Law.
--------------
This Agreement shall be governed by and interpreted and enforced
in accordance with the internal laws of the State of Minnesota,
without giving effect the conflict of laws provisions of any
jurisdiction.
(b) Consent to Jurisdiction; Service of Process.
--------------------------------------------
Each party hereto hereby: (i) irrevocably submits to the
jurisdiction of any federal or state court located within the
State of Minnesota, U.S.A. over any dispute arising out of or
relating to this Agreement or any of the transactions contemplated
hereby; (ii) irrevocably agrees that all claims in respect of such
dispute or proceeding may be heard and determined in such courts;
(iii) irrevocably waives, to the fullest extent permitted by
applicable law, (A) any objection that it may now or hereafter
have to establishing venue of any such dispute brought in such
court or (B) any defense of inconvenient forum for the maintenance
of such dispute; (iv) agrees that a judgment in any such dispute
may be enforced in other jurisdictions by suit on the judgment or
in any other manner provided by law; and (v) consents to process
being served by any party to this Agreement in any suit, action,
or proceeding of the nature specified in this Section by the
mailing of a copy thereof in accordance with the provisions
hereof.
SECTION 9.10. NO BENEFIT TO OTHERS. The representations,
warranties, covenants and agreements contained in this Agreement
and the Related Documents are for the sole benefit of the parties
hereto and their respective permitted successors and assigns, and
they shall not be construed as conferring any rights on any other
persons.
SECTION 9.11. SCHEDULES. All Schedules referred to herein
are intended to be and hereby are specifically made a part of this
Agreement.
SECTION 9.12. SEVERABILITY. Any provision of this Agreement
which is invalid or unenforceable in any jurisdiction shall be
ineffective to the extent of such invalidity or unenforceability
without invalidating or rendering unenforceable the remaining
provisions hereof, and any such invalidity or unenforceability in
any jurisdiction shall not invalidate or render unenforceable such
provision in any other jurisdiction.
SECTION 9.13. COUNTERPARTS. This Agreement may be executed
in any number of counterparts, each of which when executed and
delivered shall be deemed to be an original and all of which
counterparts taken together shall constitute but one and the same
instrument.
SECTION 9.14. KNOWLEDGE. For purposes of this Agreement and
any Related Document, any reference to "knowledge" or other
similar term with respect to a party hereto, when modifying any
representation, warranty, covenant or agreement made by a party
hereto, shall mean that none of such parties, when individuals,
and none of the officers, directors or senior management of any
entity has any actual and present knowledge that such
representation, warranty, covenant or agreement is not true and
correct to the same extent as provided herein or any applicable
Related Document, after such person has made appropriate review of
all applicable files reasonably available to such person.
IN WITNESS WHEREOF, the parties hereto have duly executed
this Agreement as of the date first above written.
TECHNOLOGY 80 INC.
By: /s/ Duane Markus
-----------------------
Duane Markus, President
ACS ELECTRONICS, LTD.
By: /s/ Ze'ev Kirshenboim
_____________________
Its: CEO
TECH 80 ACQUISITION CORP.
By: /s/ Ze'ev Kirshenboim
_____________________
Its: CEO
DUANE MARKUS
/s/ Duane Markus
______________________________
JACK PAGEL
/s/ Jack Pagel
______________________________
TOM GOULD
/s/ Tom Gould
______________________________
Schedules
Schedule 3.1 Jurisdiction List
Schedule 3.3 Capitalization
Schedule 3.6 Non-Violation
Schedule 3.10 Material Changes
Schedule 3.11 Properties and Assets
Schedule 3.12 List of Contracts
Schedule 3.13 Intellectual Property
Schedule 3.14 Taxes
Schedule 3.15 Litigation
Schedule 3.16 Compliance with Laws; Governmental
Authorizations
Schedule 3.17 Environmental Matters
Schedule 3.18 Employee Benefits
Schedule 3.19 Employees
Schedule 3.20 Insurance
Schedule 3.21 Accounts, Lockboxes, Safe Deposit Boxes and
Powers of Attorney
Schedule 3.22 Transactions with Affiliates
Schedule 5.1 Conduct of the Business
Schedule 6.3 Affiliate Letters
Schedule 6.8 Indebtedness
Appendix B
[LOGO] SCHMIDT FINANCIAL, INC.
February 11, 1999
Board of Directors
Technology 80 Inc.
658 Mendelssohn Avenue North
Minneapolis, MN 55427
Re: Fairness Opinion Regarding the Proposed Merger
Involving Technology 80 Inc. and ACS Electronics Ltd.
Dear Directors:
Schmidt Financial, Inc. ("Schmidt Financial") has been
retained by the Board of Directors of Technology 80 Inc.
("Technology 80") to issue a fairness opinion in connection
with the Agreement and Plan of Merger and Reorganization
dated as of January 27, 1999 ("Merger Agreement") among
Technology 80, Duane Markus, Jack Pagel, Tom Gould, Tech 80
Acquisition Corp. ("TAC") and ACS Electronics, Ltd. ("ACS").
The fairness opinion is issued from a financial point of
view from the perspective of the public holders of
Technology 80 common stock, ("Public Shareholders").
Under the terms of the Merger Agreement, (i) TAC will be
merged with and into Technology 80 which will be the
surviving corporation in the merger (the "Merger"); (ii)
each issued and outstanding share of Common Stock, $.01 par
value, of Technology 80 (other than shares held by any
holder who properly exercises dissenters' rights under
Minnesota law) will be converted into the right to receive
in cash an amount determined pursuant to a formula set forth
in the Merger Agreement; and (iii) each issued and
outstanding share of Common Stock, $.01 par value, of TAC
will be converted into and exchanged for one newly issued
share of Common Stock of Technology 80.
As part of the engagement, a representative of Schmidt
Financial visited with Technology 80 management in
Minneapolis, Minnesota and with one of ACS's representatives
by phone. Schmidt Financial was not asked to, and did not
assist in the merger negotiations. Factors considered in
rendering this opinion include:
1. Terms of the Merger Agreement;
2. Review of Technology 80's audited financial
statements for the 5 years ending August 31, 1998
and unaudited financial statements for the quarter
ended November 30, 1998.
3. Review of certain financial and securities data of
certain other publicly traded companies that
Schmidt Financial considered to be generally
comparable to Technology 80.
4. Comparison of prices and premiums paid in certain
other acquisitions and transactions that Schmidt
Financial considered to be relevant.
5. An analysis of the share price and volume of shares
traded of Technology 80 common stock for the past
three years.
6. Discussions with Technology 80 senior management
regarding past, current and prospective business
operations, financial and competitive conditions,
and overall outlook for the company.
In forming this opinion, Schmidt Financial has relied upon
and assumed the accuracy of the financial and other
information publicly available or provided by the Company or
its representatives. We have not audited or independently
verified the accuracy of the information used in our
analysis. We have not made or obtained any appraisals of
any of the assets of Technology 80. Our opinion is
necessarily dependent on the financial, economic, market and
other conditions as they exist and can be evaluated as of
the date this opinion is made.
Our opinion does not constitute a recommendation to any
shareholder as to how the shareholder should vote on the
proposed merger. Schmidt Financial has not expressed an
opinion as to the price at which any security of Technology
80 might trade in the future.
This opinion may be included in its entirety in the
Technology 80 Proxy Statement to be submitted to Technology
80 shareholders in connection with the shareholder meeting
to vote on the Merger.
Based upon our analysis of the proposed transaction, it is
our opinion that the consideration to be received by the
holders of Technology 80 Common Stock pursuant to the Merger
Agreement is fair from a financial point of view to such
holders.
Sincerely yours,
/s/ Schmidt Financial, Inc.
Schmidt Financial, Inc.
Appendix C
MINNESOTA BUSINESS CORPORATION ACT
302A.471. Rights of dissenting shareholders
Subdivision 1. Actions creating rights. A shareholder of a
corporation may dissent from, and obtain payment for the fair value of the
shareholder's shares in the event of, any of the following corporate
actions:
(a) An amendment of the articles that materially and adversely
affects the rights or preferences of the shares of the dissenting
shareholder in that it:
(1) alters or abolishes a preferential right of the shares;
(2) creates, alters, or abolishes a right in respect of the
redemption of the shares, including a provision respecting a
sinking fund for the redemption or repurchase of the shares;
(3) alters or abolishes a preemptive right of the holder of the
shares to acquire shares, securities other than shares, or rights
to purchase shares or securities other than shares;
(4) excludes or limits the right of a shareholder to vote on a
matter, or to cumulate votes, except as the right may be excluded
or limited through the authorization or issuance of securities of
an existing or new class or series with similar or different
voting rights; except that an amendment to the articles of an
issuing public corporation that provides that section 302A.671
does not apply to a control share acquisition does not give rise
to the right to obtain payment under this section;
(b) A sale, lease, transfer, or other disposition of all or
substantially all of the property and assets of the corporation, but not
including a transaction permitted without shareholder approval in section
302A.661, subdivision 1, or a disposition in dissolution described in
section 302A.725, subdivision 2, or a disposition pursuant to an order of a
court, or a disposition for cash on terms requiring that all or
substantially all of the net proceeds of disposition be distributed to the
shareholders in accordance with their respective interests within one year
after the date of disposition;
(c) A plan of merger, whether under this chapter or under chapter
322B, to which the corporation is a party, except as provided in
subdivision 3;
(d) A plan of exchange, whether under this chapter or under chapter
322B, to which the corporation is a party as the corporation whose shares
will be acquired by the acquiring corporation, if the shares of the
shareholder are entitled to vote on the plan; or
(e) Any other corporate action taken pursuant to a shareholder vote
with respect to which the articles, the bylaws, or a resolution approved by
the board directs that dissenting shareholders may obtain payment for their
shares.
Subd. 2. Beneficial owners. (a) A shareholder shall not assert
dissenters' rights as to less than all of the shares registered in the name
of the shareholder, unless the shareholder dissents with respect to all the
shares that are beneficially owned by another person but registered in the
name of the shareholder and discloses the name and address of each
beneficial owner on whose behalf the shareholder dissents. In that event,
the rights of the dissenter shall be determined as if the shares as to
which the shareholder has dissented and the other shares were registered in
the names of different shareholders.
(b) The beneficial owner of shares who is not the shareholder may
assert dissenters' rights with respect to shares held on behalf of the
beneficial owner, and shall be treated as a dissenting shareholder under
the terms of this section and section 302A.473, if the beneficial owner
submits to the corporation at the time of or before the assertion of the
rights a written consent of the shareholder.
Subd. 3. Rights not to apply. (a) Unless the articles, the bylaws,
or a resolution approved by the board otherwise provide, the right to
obtain payment under this section does not apply to a shareholder of the
surviving corporation in a merger, if the shares of the shareholder are not
entitled to be voted on the merger.
(b) If a date is fixed according to section 302A.445, subdivision 1,
for the determination of shareholders entitled to receive notice of and to
vote on an action described in subdivision 1, only shareholders as of the
date fixed, and beneficial owners as of the date fixed who hold through
shareholders, as provided in subdivision 2, may exercise dissenters'
rights.
Subd. 4. Other rights. The shareholders of a corporation who have a
right under this section to obtain payment for their shares do not have a
right at law or in equity to have a corporate action described in
subdivision 1 set aside or rescinded, except when the corporate action is
fraudulent with regard to the complaining shareholder or the corporation.
302A.473. Procedures for asserting dissenters' rights
Subdivision 1. Definitions. (a) For purposes of this section, the
terms defined in this subdivision have the meanings given them.
(b) "Corporation" means the issuer of the shares held by a dissenter
before the corporate action referred to in section 302A.471, subdivision 1
or the successor by merger of that issuer.
(c) "Fair value of the shares" means the value of the shares of a
corporation immediately before the effective date of the corporate action
referred to in section 302A.471, subdivision 1.
(d) "Interest" means interest commencing five days after the
effective date of the corporate action referred to in section 302A.471,
subdivision 1, up to and including the date of payment, calculated at the
rate provided in section 549.09 for interest on verdicts and judgments.
Subd. 2. Notice of action. If a corporation calls a shareholder
meeting at which any action described in section 302A.471, subdivision 1 is
to be voted upon, the notice of the meeting shall inform each shareholder
of the right to dissent and shall include a copy of section 302A.471 and
this section and a brief description of the procedure to be followed under
these sections.
Subd. 3. Notice of dissent. If the proposed action must be approved
by the shareholders, a shareholder who wishes to exercise dissenters'
rights must file with the corporation before the vote on the proposed
action a written notice of intent to demand the fair value of the shares
owned by the shareholder and must not vote the shares in favor of the
proposed action.
Subd. 4. Notice of procedure; deposit of shares. (a) After the
proposed action has been approved by the board and, if necessary, the
shareholders, the corporation shall send to all shareholders who have
complied with subdivision 3 and to all shareholders entitled to dissent if
no shareholder vote was required, a notice that contains:
(1) The address to which a demand for payment and certificates of
certificated shares must be sent in order to obtain payment and the date by
which they must be received;
(2) Any restrictions on transfer of uncertificated shares that will
apply after the demand for payment is received;
(3) A form to be used to certify the date on which the shareholder,
or the beneficial owner on whose behalf the shareholder dissents, acquired
the shares or an interest in them and to demand payment; and
(4) A copy of section 302A.471 and this section and a brief
description of the procedures to be followed under these sections.
(b) In order to receive the fair value of the shares, a dissenting
shareholder must demand payment and deposit certificated shares or comply
with any restrictions on transfer of uncertificated shares within 30 days
after the notice required by paragraph (a) was given, but the dissenter
retains all other rights of a shareholder until the proposed action takes
effect.
Subd. 5. Payment; return of shares. (a) After the corporate action
takes effect, or after the corporation receives a valid demand for payment,
whichever is later, the corporation shall remit to each dissenting
shareholder who has complied with subdivisions 3 and 4 the amount the
corporation estimates to be the fair value of the shares, plus interest,
accompanied by:
(1) The corporation's closing balance sheet and statement of income
for a fiscal year ending not more than 16 months before the effective date
of the corporate action, together with the latest available interim
financial statements;
(2) An estimate by the corporation of the fair value of the shares
and a brief description of the method used to reach the estimate; and
(3) A copy of section 302A.471 and this section, and a brief
description of the procedure to be followed in demanding supplemental
payment.
(b) The corporation may withhold the remittance described in
paragraph (a) from a person who was not a shareholder on the date the
action dissented from was first announced to the public or who is
dissenting on behalf of a person who was not a beneficial owner on that
date. If the dissenter has complied with subdivisions 3 and 4, the
corporation shall forward to the dissenter the materials described in
paragraph (a), a statement of the reason for withholding the remittance,
and an offer to pay to the dissenter the amount listed in the materials if
the dissenter agrees to accept that amount in full satisfaction. The
dissenter may decline the offer and demand payment under subdivision 6.
Failure to do so entitles the dissenter only to the amount offered. If the
dissenter makes demand, subdivisions 7 and 8 apply.
(c) If the corporation fails to remit payment within 60 days of the
deposit of certificates or the imposition of transfer restrictions on
uncertificated shares, it shall return all deposited certificates and
cancel all transfer restrictions. However, the corporation may again give
notice under subdivision 4 and require deposit or restrict transfer at a
later time.
Subd. 6. Supplemental payment; demand. If a dissenter believes that
the amount remitted under subdivision 5 is less than the fair value of the
shares plus interest, the dissenter may give written notice to the
corporation of the dissenter's own estimate of the fair value of the
shares, plus interest, within 30 days after the corporation mails the
remittance under subdivision 5, and demand payment of the difference.
Otherwise, a dissenter is entitled only to the amount remitted by the
corporation.
Subd. 7. Petition; determination. If the corporation receives a
demand under subdivision 6, it shall, within 60 days after receiving the
demand, either pay to the dissenter the amount demanded or agreed to by the
dissenter after discussion with the corporation or file in court a petition
requesting that the court determine the fair value of the shares, plus
interest. The petition shall be filed in the county in which the
registered office of the corporation is located, except that a surviving
foreign corporation that receives a demand relating to the shares of a
constituent domestic corporation shall file the petition in the county in
this state in which the last registered office of the constituent
corporation was located. The petition shall name as parties all dissenters
who have demanded payment under subdivision 6 and who have not reached
agreement with the corporation. The corporation shall, after filing the
petition, serve all parties with a summons and copy of the petition under
the rules of civil procedure. Nonresidents of this state may be served by
registered or certified mail or by publication as provided by law. Except
as otherwise provided, the rules of civil procedure apply to this
proceeding. The jurisdiction of the court is plenary and exclusive. The
court may appoint appraisers, with powers and authorities the court deems
proper, to receive evidence on and recommend the amount of the fair value
of the shares. The court shall determine whether the shareholder or
shareholders in question have fully complied with the requirements of this
section, and shall determine the fair value of the shares, taking into
account any and all factors the court finds relevant, computed by any
method or combination of methods that the court, in its discretion, sees
fit to use, whether or not used by the corporation or by a dissenter. The
fair value of the shares as determined by the court is binding on all
shareholders, wherever located. A dissenter is entitled to judgment in
cash for the amount by which the fair value of the shares as determined by
the court, plus interest, exceeds the amount, if any, remitted under
subdivision 5, but shall not be liable to the corporation for the amount,
if any, by which the amount, if any, remitted to the dissenter under
subdivision 5 exceeds the fair value of the shares as determined by the
court, plus interest.
Subd. 8. Costs; fees; expenses. (a) The court shall determine the
costs and expenses of a proceeding under subdivision 7, including the
reasonable expenses and compensation of any appraisers appointed by the
court, and shall assess those costs and expenses against the corporation,
except that the court may assess part or all of those costs and expenses
against a dissenter whose action in demanding payment under subdivision 6
is found to be arbitrary, vexatious, or not in good faith.
(b) If the court finds that the corporation has failed to comply
substantially with this section, the court may assess all fees and expenses
of any experts or attorneys as the court deems equitable. These fees and
expenses may also be assessed against a person who has acted arbitrarily,
vexatiously, or not in good faith in bringing the proceeding, and may be
awarded to a party injured by those actions.
(c) The court may award, in its discretion, fees and expenses to an
attorney for the dissenters out of the amount awarded to the dissenters, if
any.
PRELIMINARY COPY
- ----------------
TECHNOLOGY 80 INC.
Proxy for Special Meeting of Shareholders
_______________, 1999
The undersigned hereby appoints Duane A. Marcus and Thomas L.
Gould, and each of them, with full power of substitution, as
Proxies to represent and vote, as designated below, all shares of
stock of Technology 80 Inc. (the "Company") registered in the
name of the undersigned at the Special Meeting of Shareholders of
the Company to be held at 10:00 a.m., local time, at the offices
of Technology 80 Inc., 658 Mendelssohn Avenue North, Minneapolis,
Minnesota, on ____________, 1999, and at any adjournment thereof.
THE BOARD OF DIRECTORS RECOMMENDS
A VOTE FOR PROPOSAL #1 BELOW.
1. Approve the Agreement and Plan of Merger pursuant to which
Tech 80 Acquisition Corp. will be merged with and into the
Company.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
2. Other Matters. In their discretion, the Proxies are...
[ ] AUTHORIZED [ ] NOT AUTHORIZED
to vote upon such other business as may properly come before
the Meeting.
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED AS DIRECTED OR,
IF NO DIRECTION IS GIVEN, WILL BE VOTED FOR PROPOSAL 1, AND WILL
BE DEEMED TO GRANT AUTHORITY UNDER PROPOSAL 2.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
Date: _________________, 1999 ____________________________
____________________________
PLEASE DATE AND SIGN ABOVE
exactly as name(s) are shown
on the label at left.
Indicate, where appropriate,
official position or
representative capacity.
For stock held in joint
tenancy, each joint owner
must sign.
