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:
[ ] Preliminary Proxy Statement [ ] Confidential for Use of the
[X] Definitive Proxy Statement Commission Only (as permitted
[ ] Definitive Additional Materials by Rule 14a-6(e)(2))
[ ] Soliciting Material Pursuant
to sec. 240.14a-11(c) or sec. 240.14a-12
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):
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or Item 22(a)(2) of Schedule 14A.
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14a-6(i)(3)
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4)
and 0-11
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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):
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[X] 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: __________________________________________
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3) Filing Party: ____________________________________________________
4) Date Filed: ______________________________________________________
<PAGE>
TECHNOLOGY 80 INC.
658 Mendelssohn Avenue North
Minneapolis, Minnesota 55427
Notice of Special Meeting of Shareholders
To Be Held On May 25, 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" or the "Company"), will be held on
Tuesday, May 25, 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
Amended and Restated Agreement and Plan of Merger and
Reorganization, attached hereto as Appendix A, dated as of March
31, 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 $5.40 (the per share
"Consideration") in cash; 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. 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 May 25, 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 immediately thereafter.
(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 April 2,
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.
<PAGE>
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
April 27, 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.
<PAGE>
TABLE OF CONTENTS
Page
ADDITIONAL INFORMATION 4
SUMMARY 5
GENERAL INFORMATION 13
Voting Rights and Vote Required 13
Proxies 14
THE MERGER 16
General 16
Background of the Merger 16
Reasons for the Merger 20
Recommendation of the Board of Directors 21
Opinion of Financial Advisor to Tech 80 22
Effects of the Merger 26
Interests of Certain Persons in the Merger 27
Effective Time; Closing Date 27
Exchange of Shares 28
Conditions 29
Covenants and Certain Agreements 30
Indemnification by the Principals 31
Termination and Amendment of the Merger Agreement 32
Fees and Expenses 32
Federal Income Tax Consequences 33
Regulatory Requirements 34
RIGHTS OF DISSENTING SHAREHOLDERS 35
MARKET PRICES AND DIVIDENDS 38
SELECTED FINANCIAL DATA 39
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS 39
Results of Operations - 1998 vs. 1997 39
Results of Operations -
Quarter and Six Months Ended 2/28/99 vs.
Quarter and Six Months Ended 2/28/98 40
Liquidity and Capital Resources 41
Year 2000 Issue 41
Cautionary Statement 42
BUSINESS OF TECH 80 44
General 44
Industrial Control Products 44
Customers 44
Competition 45
Suppliers 45
Backlog 46
Employees 46
Patents and Licenses 46
Research and Development 47
Marketing, Sales and Distribution 47
Description of Property 47
<PAGE>
MANAGEMENT 48
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT 49
DESCRIPTION OF ACS 50
DESCRIPTION OF TAC 50
LEGAL MATTERS 50
INDEPENDENT PUBLIC ACCOUNTANTS 50
OTHER BUSINESS 50
FINANCIAL STATEMENTS 51
APPENDICES:
Appendix A: Amended and Restated 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
<PAGE>
TECHNOLOGY 80 INC.
PROXY STATEMENT
for
SPECIAL MEETING OF SHAREHOLDERS
to be held
May 25, 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 May
25, 1999, and at any adjournment or postponement thereof. The
purpose of the Special Meeting is to consider and vote upon an
Amended and Restated Agreement and Plan of Merger and
Reorganization, dated as of March 31, 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 April 27, 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 $5.40 (the per share "Consideration") in
cash; 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.
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. 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
<PAGE>
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 35% 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."
<PAGE>
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 55427; (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.
<PAGE>
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.
<PAGE>
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
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." Apart from the Merger Agreement itself, there
has been and is no affiliation between ACS and Tech 80 or the
Principals. 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; Record Date
- -------------------------------------------
The Special Meeting will be held at 10:00 a.m., local time, on
Tuesday, May 25, 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 April 2, 1999 (the "Record
Date") are entitled to notice of, and to vote at, the Special
Meeting. See "GENERAL INFORMATION--Voting Rights and Vote
Required."
<PAGE>
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 of $5.40.
Quorum
- ------
At the Record Date there were 1,685,233 Shares outstanding and
entitled to vote, held by 161 holders of record. Under Tech 80's
Bylaws, 35% 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." As of the Record Date, the Principals
owned or controlled the voting of 899,999 shares, or 53.4%, of
the Company's outstanding Common Stock and have indicated that
they intend to vote their shares to approve the Merger Agreement.
As of the Record Date, James Burkett, the Chief Operating Officer
of the Company, owned or controlled the voting of 66,450 shares,
or 3.9%, of the Company's outstanding Common Stock and has
indicated that he intends to vote to approve the Merger
Agreement.
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
<PAGE>
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
- ----------
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, and (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 of $5.40. As a result of the Merger, ACS will
become the sole shareholder of Tech 80. See "THE MERGER--
General."
The Consideration
- -----------------
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 of $5.40, 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."
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 an
Agreement and Plan of Merger and Reorganization as of January 27,
1999 (the "Original Agreement"). Among the reasons why the Board
of Directors approved the Merger contemplated by the Original
Agreement were (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 the Merger" and "THE MERGER--Reasons for the
Merger."
The Original Agreement dated as of January 27, 1999 provided for
a per share Consideration that would have been determined by a
formula (the "Formula"). The Formula was based on a base price
of $6,353,000 for Tech 80 as adjusted for the amount of certain
<PAGE>
assets and liabilities of Tech 80 on the Closing Date. Tech 80
had estimated that the per share Consideration that would have
resulted from the application of the Formula pursuant to the
Original Agreement would have been $5.25 to $5.75. However,
because the Formula was based on a Closing Date Balance Sheet
that would not be finalized until after Closing, and the Formula
included certain expenses that would not be known until after
Closing, the amount of the per share Consideration under the
Original Agreement would not have been finally determined until
after Closing. In order to simplify matters and to facilitate
the consummation of the Merger at the earliest practicable date,
Tech 80 and ACS in March 1999 undertook to establish by mutual
agreement, and based on the principles taken into account as part
of the Formula, a fixed Consideration for the Shares. As a result
of such efforts, Tech 80 and ACS established $5.40 as the fixed
amount of the per share Consideration, and the Amended and
Restated Agreement and Plan of Merger and Reorganization attached
hereto as Appendix A was entered into on March 31, 1999 in
connection with fixing the amount.
Recommendation of the Board of Directors
- ----------------------------------------
The Board of Directors unanimously recommends approval of the
Merger Agreement by the Shareholders. See, "THE MERGER--
Recommendation of the Board of Directors."
Opinion of Financial Advisors
- -----------------------------
Schmidt Financial, Inc. has delivered to Tech 80's Board of
Directors its amended and restated written opinion that, as of
March 31, 1999, the per share Consideration of $5.40 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
- ---------------------------
Upon the Closing, ACS will pay the per share Consideration for
all Shares outstanding at the Effective Time, as well as the Net
Consideration for all Options outstanding at the Effective Time,
into the Shareholder Fund. Within fifteen days after the
Closing, Tech 80 and the Principals will send instructions to
shareholders regarding the procedure for surrendering
certificates in exchange for cash. Such instructions will advise
shareholders to respond as soon as possible. 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 within six months after the
Closing. After Tech 80 has confirmed compliance with
<PAGE>
the procedures, Tech 80 will notify the Principals. 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, without interest. Six months
after the Closing, any undistributed funds remaining in the
Shareholder Fund will be returned to Tech 80 as the Surviving
Corporation in the Merger. Tech 80 will assume responsibility
for paying shareholders who fail to properly submit their
certificates within six months after the Closing. 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--
<PAGE>
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 30, 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. The Merger Agreement contemplates that prior to Closing
Tech 80 would pay Jack Pagel an additional $100,000 consulting
fee for services rendered in connection with the Merger. Tech 80
anticipates that such fee will continue to be paid to Jack Pagel,
and the Principals, in their individual capacities as employees
of or consultants to the Company, would continue to receive
compensation through the Closing Date consistent with prior
practices. 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. 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."
<PAGE>
Recent Prices of Tech 80 Common Stock
- -------------------------------------
Tech 80's Common Stock is quoted on the OTC Bulletin Board under
the symbol "TKAT" and is traded on the Minneapolis over-the-
counter market. 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. The
average of the bid and asked prices on the day immediately
preceding such public announcement was $4.19. On April 23, 1999,
the last full trading day prior to the printing of this Proxy
Statement, the average of the bid and asked prices was $4.75 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."
<PAGE>
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 May 25, 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 of $5.40. 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 April 2, 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 1,685,233 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 35% 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
<PAGE>
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.
<PAGE>
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
<PAGE>
THE MERGER
Set forth below is a description of all material terms of the
Merger Agreement and related matters. For additional
information, you should review 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 $5.40 (the per share
"Consideration") in cash , 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 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").
Background of the Merger
Tech 80 agreed to the Merger with ACS after Tech 80's management
explored several alternatives, including strategic acquisitions
and transactions with other potential buyers, as described in
greater detail below.
Over the past several years, Tech 80 has investigated
opportunities to purchase or build new facilities and to make
strategic acquisitions. In connection with these investigations,
Tech 80 has retained earnings generated by its operations and has
invested such earnings in various investments. The Company's
Board of Directors determined that such acquisitions might be
necessary to expand the Company's operations and product
offerings that customers might require in the future. During
1993 to 1996 Tech 80 investigated approximately four alternative
sites for the Company's business with a view toward expanding its
facilities in the Twin Cities area. However, management was
unable to identify available facilities in desirable locations
that suited the Company's needs and goals at the time. In 1996
and 1997, Tech 80 contacted approximately five businesses in
related fields that management had identified as potentially
attractive acquisition opportunities. Tech 80 entered into a
confidentiality agreement with one of these companies and
conducted preliminary due diligence, but the parties mutually
terminated further discussions and no other acquisition
opportunities emerged.
By the summer of 1997, the Board felt that it was not likely to
promptly succeed in its efforts to implement a growth strategy
for the Company based on acquiring new facilities or completing a
strategic acquisition of another company, and the Board began to
consider the possibility of selling the Company in an effort to
maximize shareholder value. Management believed that its
experience in the industry enabled them to identify and evaluate
potential acquirers. At approximately the same time, in
connection with general consolidation occurring in
<PAGE>
the computer board manufacturing industry, Tech 80 received
expressions of interest from two potential acquirers of Tech 80.
In June 1997, Suitor A, a public company with shares traded on
Nasdaq, initiated discussions with Tech 80 in connection with the
possible purchase of Tech 80 in a stock transaction. Suitor A
manufactures computer-based equipment and reported revenues in
excess of $300 million in 1998. Tech 80 entered into a
confidentiality agreement with Suitor A, who proceeded with due
diligence and proposed preliminary terms for a stock merger.
Suitor A's preliminary terms included a proposed price of
approximately $9.5 million in Suitor A common stock, subject to
adjustment for fluctuation in Tech 80's book equity, in exchange
for all the outstanding stock of Tech 80. Discussions with
Suitor A terminated in August 1997 due to an inability to reach
agreement regarding the valuation of Tech 80's stock.
In November 1997, Suitor B, a private company, expressed interest
in discussing a possible acquisition of Tech 80. Tech 80 entered
into a confidentiality agreement with Suitor B, and the parties
discussed proposed terms of a cash transaction during February
and March 1998. Suitor B proposed a cash purchase price of
approximately $8.5 million plus the value of Tech 80's cash and
investments, less accrued taxes, which amounted to approximately
$3.3 million as of February 28, 1998. Suitor B terminated these
discussions due to its inability to obtain financing and changing
industry conditions, including the trend away from small niche
vendors like Tech 80 and toward diversified suppliers that could
offer many product lines.
In mid-1998, economic troubles in the Asian markets appeared to
exert a depressing effect upon industry valuations. ACS entered
into a confidentiality agreement with Tech 80 in August 1998 and
the parties began discussions regarding a possible acquisition by
ACS. Shortly thereafter, ACS proposed to acquire up to 65% of
Tech 80's shares, based on a valuation of Tech 80 as a whole in
the approximate amount of $6.8 million plus the value of its cash
and investments, subject to adjustment for pre-closing operations
and balance sheet fluctuations. ACS proposed to pay the
consideration in cash at closing and installments over two years.
In response, the Board required that ACS make a cash offer that
would result in the acquisition of 100% of Tech 80's outstanding
common stock and provide for severance and non-competition
arrangements for the Principals. In late August, ACS proposed a
price of $6.1 million plus cash and investments for all of Tech
80's outstanding stock and $1.1 million in severance and non-
competition payments to be paid over four years to the
Principals. In September 1998, Tech 80 proposed, among other
things, increasing the base price to $6.5 million, subject to
adjustment for pre-closing operations and balance sheet
fluctuations, and decreasing the severance and non-competition
payments to $700,000 payable over four years. Discussions with
ACS continued until late September 1998, and during this period
Tech 80's sales declined from fiscal 1998 levels. ACS proposed
decreasing its purchase price as a result of Tech 80's declining
sales, and the parties' discussions reached an impasse.
ACS initiated conversations with Tech 80 again in November 1998,
proposing among other things a base price of $6,850,000 with no
severance or non-competition payments to the Principals. In
response, Tech 80 proposed retaining the severance and non-
competition payments, although reducing the amount of such
payments to $600,000, and a base price of $6,250,000 plus an
adjustment to account for Tech 80's financial performance up to
the date of the definitive merger agreement.
<PAGE>
After further negotiation, Tech 80 and ACS executed a letter of
intent for a merger on December 10, 1998. Tech 80 and ACS made a
public announcement of the proposed merger on December 11, 1998.
The average of the bid and asked prices for Tech 80's Common
Stock on December 10 and 11, 1998 was $4.19 per share on both
dates.
On January 27, 1999, Tech 80's Board of Directors approved, and
ACS, TAC, Tech 80 and the Principals entered into the Agreement
and Plan of Merger and Reorganization as of January 27, 1999 (the
"Original Agreement") contemplated by the letter of intent. The
average of the bid and asked prices for Tech 80's Common Stock on
January 27, 1999 was $4.56 per share. The Original Agreement
provided for terms and conditions substantially similar to the
Merger Agreement attached hereto as Appendix A, except that the
per share Consideration was to have been determined by a formula.
The formula (the "Formula") provided for in the Original
Agreement was based on a total purchase price of $6,353,000 as
adjusted for certain assets and liabilities of Tech 80 on the
Closing Date for the Merger. In general terms, the $6,353,000
represented the value of the Company's business apart from the
Company's cash, cash equivalents and investments. Because the
value of the cash, cash equivalents and investments could easily
be established at the time of closing, the Formula used the
$6,353,000 value as a base price and added the value of the cash,
cash equivalents and investments as of the closing date. No
multiple was to be applied in valuing the cash, cash equivalents
or investments.
The Formula provided for in the Original Agreement was as
follows: (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 was the amount of cash that ACS was to pay
for all Shares and Options. The "Total Purchase Price" was 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" was the amount of Tech 80's cash, cash
equivalents and investments would have been as of the Closing
Date. The "Shortfall Amount" was the amount, if any, by which
Tech 80's Adjusted Net Book Value as of the Closing Date would
have been less than $1,840,000. Tech 80's "Adjusted Net Book
Value" was 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 that would have been shown on the Closing
Date balance sheet. The "Total Options Exercise Price" were the
total exercise price what would have been payable under all
Options outstanding at the effective time of the Merger. The
"Shareholder Fund Administrative Expenses" was the out-of-pocket
expenses that the Principals would have incurred in connection
with finalizing the Total Purchase Price, in administering the
Shareholder Fund and in otherwise performing their duties under
the Original Agreement. The Principals were not to have been
paid any fees or compensation for performing such duties.
Tech 80 estimated, both at the time the letter of intent was
executed on December 10, 1998, and at the time of execution of
the Original Agreement on January 27, 1999, that the application
of the Formula would have resulted in a per share Consideration
of $5.25 to $5.75. However, the final per share Consideration
would not have been determined until after Closing. The Closing
Date
<PAGE>
balance sheet was to have been prepared by Tech 80's accountants
following Closing, and ACS was to have the right to review and
contest the Closing Date balance sheet. Further, some of the
expenses to have been taken into account in determining the
Consideration (that is, the Shareholder Fund Administrative
Expenses) would not have been known until after Closing. As a
result of terms of the Original Agreement, even though
Shareholders were to have been provided estimates of the per
share Consideration, shareholders of Tech 80 would not have know
the final per share Consideration at the time of the Special
Meeting, and they would not have the opportunity to receive the
per share Consideration until the amount thereof was finally
determined some time after Closing.
Tech 80's estimates that the application of the formula would
result in a per share Consideration of $5.25 to $5.75 were based
on numerous assumptions made at different times relating
principally to the amount of the Company's net working capital
and the value of the Company's cash, cash equivalents and
investments that the Company would have as of the Closing Date.
Tech 80 made these estimates in good faith based on the amount of
the Company's assets and liabilities shown on the Company's
recent financial statements, as well as information available to
the Company regarding values for cash, cash equivalents and
investments, and adjusting such amounts and values to reflect
possible changes prior to closing, including changes resulting
from operating results and amounts that might be realized from
its investments. The Company's estimates at different times
produced various values generally in the range of $5.40 to $5.60
per share. The Company expanded this range to $5.25 to $5.75 in
order to take into consideration the possibility of both positive
and negative variances from its expectations.
In late March 1999, Tech 80 initiated discussions with ACS and
its representatives regarding the possibility of fixing by mutual
agreement the per share Consideration in lieu of using the
Formula. Tech 80 believed that to do so would simplify matters
for all involved and would facilitate consummating the Merger at
the earliest practical time, which Tech 80 believed would be in
the best interests of the Tech 80 shareholders. In late March,
Tech 80 indicated its willingness to fix the per share
Consideration at $5.40, or to provide for a per share
Consideration of approximately $5.45 that would be subject to a
possible negative adjustment of approximately $0.05 to $0.10
based on undetermined factors that would need to be negotiated.
ACS did not make any counteroffers. On March 26, 1999, Tech 80
and ACS reached an agreement in principle to fix the per share
Consideration at $5.40, subject to ACS's completing its analysis
of the likely price that would have resulted from application of
the Formula and possible changes therein. The average of the bid
and asked prices for Tech 80's Common Stock on March 26, 1999 was
$4.47 per share.
As a result of their discussions, on March 31, 1999, the parties
entered into the Merger Agreement attached hereto as Appendix A.
Based on the number of shares and options outstanding at the
Record Date, $5.40 per share represents an aggregate purchase
price of $9,778,633. The Merger Agreement fixes the per share
Consideration at $5.40. The Merger Agreement also amends and
restates in its entirety the Original Agreement. The terms of
the Merger Agreement are substantially similar to the terms of
the Original Agreement, other than those provisions of the
Original Agreement that related to the Formula and related
matters. The average of the bid and asked prices for Tech 80's
Common Stock on March 31, 1999 was $4.47 per share.
<PAGE>
Reasons for the Merger
Set forth below is a description of all material factors taken
into account by the Board of Directors in its meetings on January
27, 1999 and March 31, 1999 at which the Board reached its
decision to approve the Merger on the terms contemplated by the
Original Agreement and the Merger Agreement, respectively:
* On January 27, 1999, the Board recognized that the
Company had been unsuccessful in implementing its growth
strategy, and as a result of its small size the market for
Tech 80's stock was relatively illiquid. For example, the
average daily trading volume of Tech 80's stock was less than
1,300 shares during the period December 1, 1998 through April 14,
1999. 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 Merger would allow shareholders to liquidate their
investments in the Company, and the Board therefore concluded
that this factor supported the Merger.
* On January 27, 1999, the Board also discussed its belief
that the public market may not fairly value Tech 80's stock. The
Board considered the value of ACS's offer relative to the market
price of its stock in the weeks preceding announcement of the
proposed merger with ACS in December 1998. For example, 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 $4.00 per share, as compared to the estimated
per share Consideration of $5.25 to $5.75 being offered by ACS.
ACS's willingness to pay a price greater than recent market
prices for the Company's Common Stock, as well as discussions
with prior suitors, supported the Board's belief that the public
market did not provide a fair value for the Company's Common
Stock. The Board concluded that the tendency of the market to
undervalue the Company's Common Stock supported the Board's
decision to proceed with the Merger.
* On January 27, 1999, the Board reviewed and discussed the
recent changes in the computer board manufacturing industry. As
the industry has matured and consolidation has continued, more
vendors are able to offer customers "complete" solutions
including controls, drivers, motors, feedback devices and
software. Customer expectations are changing to favor the
complete solution strategy. The Board noted that it has become
increasingly difficult for Tech 80 to thrive as a niche player
offering only one category of products. The Board concluded that
the increasing competitive challenges in its industry supported
the Board's decision to proceed with the Merger.
* On January 27, 1999, it was the sense of the Board that
based on media reports and anecdotal evidence obtained from
management's contacts in the industry that market valuations of
companies in the industry have decreased due to reduced sales
associated with economic troubles in Asian markets). The Board
concluded that changing industry conditions may make it difficult
in the future to obtain valuations as high as that offered by
ACS, and that the Merger therefore would be advantageous to
shareholders.
<PAGE>
* On January 27, 1999, the Board took into consideration
the fact that the Board members (who are the Principals)
controlled a majority of the Company's outstanding Common Stock.
The Board further considered that, pursuant to severance and non-
competition agreements to be entered into by the Board members in
connection with the closing of the Merger, the members of the
Board will receive $500,000 in cash severance and non-competition
payments at the closing. In order to assure that the Merger is
fair to shareholders other than the Board members, the Board
provided in the Merger Agreement negotiated with ACS that the
Merger would be conditioned upon approval of the Merger by a
majority of the votes cast by shareholders other than the Board
members (that is, the Principals) at a special meeting called to
approve the Merger. The Board believed that this factor further
supported the fairness of the Merger.
* On January 27, 1999, the Board reviewed the formula
negotiated by management under which the consideration to be
received from ACS would have been calculated under the Original
Agreement. The Board determined that the consideration
calculated under the formula, estimated at $5.25 to $5.75 per
share, accounted fairly for the value of Tech 80's operating and
financial assets. The Board also determined that the formula
would have accounted fairly for any interim changes in the amount
of the Company's financial and operating assets before the
Closing Date. However, the Board was not in receipt of a
fairness opinion from a financial advisor on January 27, 1999
when it approved the Original Agreement, but provided in the
Original Agreement that the Merger would be conditioned on
receiving such a fairness opinion. The Board recognized that if
it did not receive such an opinion, it would re-negotiate or
abandon the transaction.
* On March 31, 1999, the Board confirmed that the factors
stated above remained valid reasons for the Merger, and approved
the Merger Agreement whereby the per share Consideration was
fixed at $5.40 per share. The Board determined that replacing
the Formula with a fixed amount of $5.40 per share would simplify
the transaction and facilitate the consummation of the Merger at
the earliest practicable date. The Board believed that these
advantages justified eliminating the Formula and the possibility
that the Formula would have resulted in price previously
estimated at up to $5.75 per share. The Board also observed that
fixing the price also eliminated the possibility that the Formula
would have resulted in a price less than $5.40 per share. At the
time of such approval, although the Board had not received an
oral report from its financial advisor, the Board had received
the fairness opinion of Schmidt Financial, Inc. regarding the
$5.40 consideration and the summary analyses of Schmidt
Financial, Inc. contained in the draft versions of this Proxy
Statement. The Board determined, after reviewing the opinion of
Schmidt Financial, Inc. described in greater detail below, that
the consideration of $5.40 to be received by the shareholders
pursuant to the Merger Agreement is fair to, and in the best
interests of, Tech 80, its shareholders, and its employees and
other stakeholders.
In view of the variety of factors considered, the Board did not
find it practicable to attempt to assign relative weights to the
specific factors considered in making its determination. In
addition, individual members of the Board may have assigned
different weights to different factors.
<PAGE>
Consequently, the Board did not quantify the assumptions and
results of its analysis in reaching its determination that the
Merger is fair to, and in the best interests of, Tech 80 and its
shareholders.
Recommendation of the Board of Directors
The Board of Directors believes that the Merger is fair to and in
the best interests of Tech 80, its shareholders, and its
employees and other stakeholders. The Board of Directors
therefore 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, and based upon the terms set
forth in the Original Agreement, Schmidt Financial delivered its
oral opinion to Tech 80 on February 3, 1999 to the effect that,
as of such date, the Consideration under the Original Agreement
was fair to Tech 80's shareholders from a financial point of
view. Schmidt Financial subsequently delivered its written
opinion on February 11, 1999. Such opinion was to the effect
that the actual per share Consideration that would result from
the application of the Formula would be fair to the shareholders
from a financial point of view, and was not based on any specific
or minimum per share amount.
In connection with the fixing of the per share Consideration at
$5.40, Schmidt Financial delivered to Tech 80 on March 31, 1999
its written opinion that, as of such date, the per share
Consideration of $5.40 was fair to Tech 80's shareholders from a
financial point of view. 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.
The Board of Directors approved the Original Agreement on January
27, 1999, subject to receipt of a fairness opinion. Tech 80
received and accepted Schmidt Financial's written opinion dated
as of February 11, 1999, subsequent to its approval of the Merger
on the terms contemplated by the Original Agreement. The Board
was in receipt of Schmidt Financial's amended and restated
written opinion dated as of March 31, 1999 when it approved the
Merger Agreement and the fixing of the per share Consideration at
$5.40. Schmidt Financial did not make any presentation to the
Board regarding its opinions, and did not provide any written
materials or analyses for the Board's consideration, other than
its written opinion dated as of
<PAGE>
February 11, 1999 and its amended and restated written opinion
dated as of March 31, 1999 that were received and accepted by
Tech 80's Board.
Although the following discussion (except as otherwise noted)
relates to Schmidt Financial's written opinion dated as of March
31, 1999, the analyses performed by Schmidt Financial were
undertaken in connection with its fairness opinion delivered
February 11, 1999 and Schmidt Financial did not consider it
necessary to revise its analyses in connection with the written
opinion dated as of March 31, 1999.
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 six months ended February 28, 1999;
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.
<PAGE>
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 provided 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 the following financial and
comparative analyses in preparing its fairness opinion:
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 is a description of
all material analyses underlying the fairness opinion. The
preparation of a fairness opinion is a complex process that
involves subjective judgments. 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 a 16.1%
discount rate using a build-up methodology and 14.2% using the
Capital Asset Pricing Model (CAPM). 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
<PAGE>
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. Schmidt Financial considered over 200
publicly traded companies within the 3571 and 3577 Standard
Industrial Classification ("SIC") codes. Based on three factors
(comparable size, comparable financial results and comparable
product lines), Schmidt Financial developed a list of five
relevant guideline companies: Electro-Sensors, Inc. Minnetonka,
MN; Pro-Dex, Inc., Boulder, CO; National Instruments, Austin, TX;
Equinox Systems, Sunrise, FL; and Performance Technologies,
Rochester, NY. 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 at 10.8x EBITDA after removing
the impact of nonoperating assets and excess cash.
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. Schmidt Financial
considered seven transactions, one of which involved a publicly
traded company, Pro-Dex, Inc. and its acquisition of Oregon Micro
Systems, Inc. The other six transactions involved privately held
companies: Omnilink Communications Corporation; Quintar Holdings,
Corp.; BusLogic, Inc.; InCirt Technology; Eagle Research; and
Micro Alliance. 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 is 1.19x the Company's trailing twelve
months revenue and the implied multiple of operating earnings is
20.7x Tech 80's trailing twelve months operating income. Schmidt
Financial removed the impact of nonoperating assets and excess
cash in calculating these multiples.
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
<PAGE>
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.
In performing the analyses referenced above, Schmidt Financial
separated out the non-operating assets, consisting of excess cash
and investments, from other assets, and the income derived from
such non-operating assets, of Tech 80 and the guideline
companies. In the case of Tech 80, Schmidt Financial analyzed
cash and investments required to continue the current core
business of Tech 80 as is. Such analysis did not address Tech
80's plans to use such cash and investment for other purposes,
including for possible acquisition of additional facilities or
strategic acquisitions of other businesses. Schmidt Financial
also addressed employee base, customer lists, proprietary
technology and other intangible assets as part the analyses of
the overall goodwill of Tech 80 and the guideline companies. To
the extent that a business has value that exceeds its book value,
Schmidt Financial deemed the incremental value beyond book value
to be goodwill.
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 per share Consideration of $5.40; and
(iii) each issued and outstanding share of Common Stock, $.01 par
value, of TAC will be converted
<PAGE>
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. 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. Such fees are in addition to the
compensation otherwise payable to the Principals by Tech 80 in
their capacities as employees of or consultants to Tech 80. Such
compensation is anticipated to be paid in accordance with prior
<PAGE>
practices through the Closing Date. Further, 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 for
services rendered in connection with the Merger. Jack Pagel
provided significant assistance to the Company's management in
structuring and negotiating the Merger with ACS. He was a key
participant in negotiations regarding the purchase price to be
paid by ACS and the other terms and conditions of the Merger. 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 connection with the Merger. 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.
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
As of the Record Date, Tech 80 had 161 shareholders of record.
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 applicable documents (such as
affidavits of lost certificates, transfer instruction or IRS Form
W-9), 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.
ACS will pay the per share Consideration for all Shares
outstanding at the Effective Time, as well as the Net
Consideration for all Options outstanding at the Effective Time,
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. 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 the Consideration and Net Consideration to holders
of Shares and Options, respectively.
<PAGE>
The Company elected to establish the Shareholder Fund to be
administered by the Principals in order to avoid expenses of a
retaining a third party exchange agent. Under the Original
Agreement, all administrative costs associated with exchange
agency function would have reduced the Consideration payable to
shareholders. The Principals therefore believed that it was in
the best interest of all shareholders to avoid what they believed
would be unnecessary costs associated with engaging an
independent exchange agent, and instead to have the exchange
agency functions performed jointly by them and Tech 80 (as the
surviving corporation). However, the Principals did not believe
it was in the shareholders' best interests to let Tech 80 (the
surviving corporation) control the disbursement of funds. Thus,
the Original Agreement provided for the Principals to fulfill
these functions. That concept was continued when the Merger
Agreement was executed on March 31, 1999.
Under the Original Agreement, interest was to have been paid to
shareholders for amounts held in the Shareholder Fund from the
Closing Date until the first date on which fund could have been
paid to shareholders. During this period, the total purchase
price payable under the Formula was to have been determined. It
was anticipated that it would have taken several weeks to several
months post-closing to finally determine the total purchase
price. Thus, the parties had agreed that interest during the
time period during which the total purchase price was being
determined would accrue to the benefit of the shareholders.
Under the Merger Agreement, the per share Consideration is fixed
and may be paid to shareholders as soon as they comply with
transmittal procedures. Because the significant time period to
determine the price was no longer applicable, the Company agreed
that, as is often the case for transactions of this type, no
interest would be paid to the shareholders.
The Merger Agreement provides that the Principals will 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 in administering the Shareholder Fund as if the
parties had retained an independent exchange agent pursuant to an
agreement containing terms and conditions customary for
transactions of this type. As a result, in the event that the
Principals fail to fulfill their duties, such as if the
Principals do not direct payment to a shareholder in compliance
with the terms of the Merger Agreement, shareholders may be
forced to seek remedies against the Principals (who may have
personal liability) to enforce their rights.
Six months after the Closing, any undistributed funds remaining
in the Shareholder Fund, including any interest earned thereon,
are to be returned to Tech 80 (as the Surviving Corporation in
the Merger). Tech 80 will then assume the responsibility for
paying any shareholders who submit letters of transmittal and
certificates more than six months after Closing. Such
shareholders will be able to submit their certificates and
letters of transmittal to Tech 80 or for more information can
call Tech 80 at (612) 542-9545 or write to Technology 80 Inc.,
658 Mendelssohn Avenue North, Minneapolis, Minnesota 55427.
Since the remaining amounts in the Shareholder Fund will be
returned to Tech 80 (and not retained or paid into a trust) six
months after Closing, shareholders may be forced to seek remedies
against Tech 80 to enforce their rights. Tech 80 will also be
required to comply with applicable escheat laws for any unclaimed
funds. Minnesota's Unclaimed Property Act may apply to require
Tech 80 to surrender these funds to the State if they remain
unclaimed three years after the Closing Date. In such
circumstances, Minnesota law may require Tech 80 to send
additional notice to the former shareholder's last known address.
<PAGE>
Upon receipt from a shareholder of such certificate or
certificates together with a duly executed and properly completed
letter of transmittal and any other applicable documents, Tech 80
will inform the Principals that the shareholder is entitled to
payment of the per share Consideration. 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,
without interest.
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. The Company anticipates that such
instructions will be sent to all shareholders of record no later
than fifteen days after Closing. Such instructions will advise
shareholders to submit their letter of transmittal along with
their certificates as soon as possible. The Company does not
plan to provide a second notice to shareholders who fail to
return a letter of transmittal. 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
March 31, 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; (iii) all material required governmental
approvals shall have been obtained; and (iv) 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.
Tech 80 will not waive any conditions to the Merger that the
Board of Directors determines, after consultation with counsel to
Tech 80, are material to the shareholders of the Company, without
first resoliciting a vote of the shareholders in connection
therewith.
<PAGE>
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; (ix) not change its methods of accounting; and
(x) 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.
<PAGE>
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
<PAGE>
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 May 30,
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
<PAGE>
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. A limited exception permits individual
taxpayers to deduct up to $3,000 of net capital loss from
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.
<PAGE>
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.
<PAGE>
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.
<PAGE>
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.
<PAGE>
* 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.
<PAGE>
MARKET PRICES AND DIVIDENDS
Tech 80's common stock, $.01 par value, is quoted on the OTC
Bulletin Board under the symbol "TKAT" and traded in the
Minneapolis/St. Paul local, over-the-counter market. 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
quarters ended November 30, 1998 and February 28, 1999.
<TABLE>
<CAPTION>
Common Stock Trading Price Ranges
Common Stock Bid
1999 Low High
-------------------------------------------------------
<S> <C> <C>
First Quarter 3 1/8 5
Second Quarter 3 1/2 4 3/4
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 reports of OTC
Bulletin Board trading activity. 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 $4.00 per share. On December 10, 1998,
the last full trading day prior to such announcement the average
of the bid and asked trading prices was $4.19 per share. On
April 23, 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
<PAGE>
$4.75 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.
<PAGE>
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 -
Quarter and Six Months Ended 2/28/99 vs.
Quarter and Six Months Ended 2/28/98
Revenues for the second quarter ended February 28, 1999 decreased
26% from the same period the preceding year and decreased 25% for
the six months ended February 28, 1999, compared to the six
months ended February 28, 1998. 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 second quarter
ended February 28, 1999 and 1998 was 59% and 61%, respectively.
Gross profit as a percentage of revenue for the six months ended
February 28, 1999 and 1998 was 60% in each period.
Operating expenses as a percentage of revenue was 56% for the
three months and 54% for the six months ended February 28, 1999
compared to 38% and 39% for the same periods the prior year,
respectively. The increase in operating expenses as percentage
of revenue was due primarily to the decrease in revenue for the
quarter and six months.
Other income decreased $340,527 for the quarter ended
February 28, 1999 and decreased $337,700 for the six months ended
February 28, 1999 from the same periods the preceding year. The
decrease was primarily a result of partially liquidating the
company's investments in anticipation of the pending merger.
A net loss of $96,481 for the quarter ended February 28, 1999
compares to a $322,715 net income for the quarter ended
February 28, 1998. Net income for the six months ended
February 28, 1999 and February 28, 1998 was $25,813 and $532,123,
respectively. The decrease was primary due to the decrease in
revenue for the three and six months.
<PAGE>
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 $21,304 in cash during the six months ended
February 28, 1999 compared to $205,790 the same period the prior
year. Cash and cash equivalents increased $1,667,363 since
August 31, 1998. Investing activities provided cash of $378,398
primarily due to the partial liquidation of the company's
investments in anticipation of the pending merger. Proceeds from
the exercise of stock options was $54,186. Registrant expects
that there will be sufficient capital to fund its operations
during fiscal year 1999.
At February 28, 1999, the company had investments with a cost and
fair market value of $2,081,205 and $1,578,969, respectively,
consisting primarily of investments in equity securities. This
compares to a cost and fair market value of $2,772,464 and
$2,004,726, respectively, at August 31, 1998. Approximately 45%
of the fair market value was represented by investments in three
companies at February 28, 1999. Approximately 46% of the fair
market value as of August 31, 1998 was represented by investments
in four companies.
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.
Tech 80's motion controllers and encoder interface products are
not affected by the Year 2000. Depending on the customer's
particular application, certain of Tech 80's carrier boards may
be susceptible to Year 2000 problems. Sales of these carrier
boards have represented as much as 10% of Tech 80's revenues in
recent periods. Customers may seek redress from the Company in
the event that the Company's products are not Year 2000
compliant.
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
<PAGE>
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 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.
In the most reasonably likely worst case scenario, the failure of
a material vendor or system to be Year 2000 compliant could
prevent or delay delivery of Tech 80's products to its customers
or have other, unforeseen adverse consequences. Tech 80 believes
that its continuing Year 2000 compliance efforts minimize this
risk, but such a scenario is possible and could result in
decreased revenues and damage to its customer relationships.
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.
<PAGE>
* 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 proprietary chipsets
from certain sole source suppliers. An interruption in or
termination of deliveries from any of these suppliers could
negatively affect Tech 80's sales and the results of its
operations. See "BUSINESS OF TECH 80--Suppliers."
* 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.
<PAGE>
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 used to control
automated industrial equipment. Tech 80's motion control boards
plug into micro computers that are used as host controllers in
various types of industrial machines and instruments. Typical
industry applications include semiconductor processing equipment,
medical instruments, packaging machines and material handling
systems. 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.
<PAGE>
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.
Significant portions of Tech 80's revenues result from sales of
products incorporating proprietary computer chipsets supplied by
Performance Motion Devices of Lexington, Massachusetts ("PMD");
Kollmorgen Industrial Drives of Radford, Virginia ("KID"); LSI
Computer Systems, Inc. of Melville, New York ("LSI"); and
Pioneer-Standard Electronics, Inc. of Cleveland, Ohio ("PSE").
Sales of products incorporating PMD chips totaled $865,737, or
16% of total revenues, during fiscal 1998 and $452,910, or 19% of
total revenues, during the first seven months of fiscal 1999.
Sales of products incorporating KID chips totaled $1,468,255, or
26% of total revenue, during fiscal 1998 and $446,877, or 20% of
total revenues, during the first seven months of fiscal 1999.
Sales of products incorporating LSI chips totaled $917,010, or
16% of total revenue, during fiscal 1998 and $339,201, or 15% of
total revenues, during the first seven months of fiscal 1999.
Sales of products incorporating PSE chips totaled $999,868, or
18% of total revenues, during fiscal 1998 and $434,160, or 20% of
total revenues, during the first seven months of fiscal 1999.
Tech 80 has no long term contracts relating to the continued
supply of these
<PAGE>
chipsets and has identified no other source of supply to
substitute for PMD, KID, LSI or PSE in the event that deliveries
from PMD, KID, LSI or PSE 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 26 employees as of April 2, 1999, including one part-
time employee. 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. Tech 80 has such agreements with all of its present
employees.
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
<PAGE>
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
<PAGE>
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.
<PAGE>
<TABLE>
<CAPTION>
MANAGEMENT
The name, age and position of each person who is a director or
executive officer of Tech 80 as of April 2, 1999, is as follows:
Position Position
Name Age with Company Held Since
---------------------------------------------------------------
<S> <C> <S> <C>
Thomas L. Gould 56 Director, Secretary 4/90
Duane A. Markus 56 President, Chief Executive
Officer, Chief Financial
Officer, Director 4/90
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.
<PAGE>
<TABLE>
<CAPTION>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth information as of April 2, 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.
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) 5.8
658 Mendelssohn Avenue North
Minneapolis, MN 55427
Jack W. Pagel, Director 345,947 (4) 20.0
658 Mendelssohn Avenue North
Minneapolis, MN 55427
Duane A. Markus, Director, CEO 552,808 (3) (5) 32.7
658 Mendelssohn Avenue North
Minneapolis, MN 55427
James A. Burkett,
Chief Operating Officer 75,450 (6) (7) 4.5
658 Mendelssohn Avenue North
Minneapolis, MN 55427
All Officers and Directors
as a Group (four people) 1,075,449 (8) 59.9
</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.
<PAGE>
(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 financial
statements of Technology 80 Inc. as of August 31, 1998 and 1997
and related statements of income, 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.
<PAGE>
FINANCIAL STATEMENTS
TECHNOLOGY 80 INC.
CONDENSED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
ASSETS February 28, August 31,
1999 1998
------------ -------------
CURRENT ASSETS
<S> <C> <C>
Cash and cash equivalents $ 2,078,643 $ 1,667,363
Short-term investments - 49,048
Accounts receivable (less allowance
for doubtful accounts:
Feb. 28 - $12,000; Aug. 31 - $12,000) 514,272 666,933
Inventories 1,217,769 1,357,461
Deferred taxes 41,000 41,000
Other current assets 17,988 82,972
----------- -----------
TOTAL CURRENT ASSETS 3,869,672 3,864,777
----------- -----------
PROPERTY AND EQUIPMENT
Furniture and equipment 530,149 524,035
Leasehold improvements 23,060 23,060
----------- -----------
553,209 547,095
Less accumulated depreciation 450,249 430,524
----------- -----------
102,960 116,571
----------- -----------
OTHER ASSETS
Investments 1,578,969 1,955,678
Deferred taxes 235,500 265,000
----------- -----------
1,814,469 2,220,678
----------- -----------
TOTAL ASSETS $ 5,787,101 $ 6,202,026
=========== ===========
</TABLE>
<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
<S> <C> <C>
Accounts payable $ 55,535 $ 87,418
Accrued payroll and payroll taxes 129,688 464,816
Payable to investment company - 77,750
Accrued liabilities - other 19,524 217,950
----------- -----------
TOTAL CURRENT LIABILITIES 204,747 847,934
----------- -----------
STOCKHOLDERS' EQUITY
Common stock, $0.01 par value (authorized -
5,000,000 shares; issued and outstanding:
Feb. 28 - 1,683,983; Aug. 31 - 1,646,733
shares) 16,840 16,468
Additional paid-in capital 3,504,546 3,450,732
Other - loans (193,811) (172,072)
Accumulated other comprehensive
income (loss) (321,236) (491,238)
Retained earnings 2,576,015 2,550,202
----------- -----------
5,582,354 5,354,092
----------- -----------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $ 5,787,101 $ 6,202,026
=========== ===========
See notes to condensed financial statements.
</TABLE>
<PAGE>
TECHNOLOGY 80 INC.
CONDENSED STATEMENTS OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
Three months ended Six months ended
February 28, February 28,
------------------------ -----------------------
1999 1998 1999 1998
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
REVENUES $1,054,292 $1,429,677 $2,064,042 $2,753,274
COST OF GOODS SOLD 431,882 556,959 818,545 1,097,206
---------- ---------- ---------- ----------
GROSS PROFIT 622,410 872,718 1,245,497 1,656,068
---------- ---------- ---------- ----------
OPERATING EXPENSES
General and
administrative 227,235 156,026 395,166 305,725
Research and development 217,936 203,996 406,137 380,890
Selling 145,082 180,170 306,410 383,059
---------- ---------- ---------- ----------
TOTAL OPERATING EXPENSES 590,253 540,192 1,107,713 1,069,674
---------- ---------- ---------- ----------
INCOME FROM OPERATIONS 32,157 332,526 137,784 586,394
OTHER INCOME (LOSS) (175,338) 165,189 (112,971) 224,729
---------- ---------- ---------- ----------
INCOME (LOSS) BEFORE
INCOME TAXES (143,181) 497,715 24,813 811,123
PROVISION (BENEFIT) FOR
INCOME TAXES (46,700) 175,000 (1,000) 279,000
---------- ---------- ---------- ----------
NET INCOME (LOSS) ($ 96,481) $ 322,715 $ 25,813 $ 532,123
========== ========== ========== ==========
BASIC EARNINGS PER SHARE ($0.06) $0.20 $0.02 $0.33
===== ===== ===== =====
DILUTED EARNINGS PER SHARE ($0.06) $0.18 $0.01 $0.30
===== ===== ===== =====
See notes to condensed financial statements.
</TABLE>
<PAGE>
TECHNOLOGY 80 INC.
CONDENSED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(UNAUDITED)
<TABLE>
<CAPTION>
Three months ended Six months ended
February 28, February 28,
--------------------- --------------------
1999 1998 1999 1998
-------- --------- --------- ---------
<S> <C> <C> <C> <C>
Net income (loss) ($ 96,481) $ 322,715 $ 25,813 $ 532,123
-------- --------- --------- ---------
Other comprehensive
income (loss):
Unrealized gain (loss)
on investments during
the period (net of (tax)
benefit of $75,000,
($81,600), ($23,100)
and ($10,800)) (133,398) 145,177 41,227 19,224
Less reclassification
adjustment for (gains)
losses included in net
income (net of (tax)
benefit of ($80,000),
$51,000, ($72,400) and
$62,900) 142,626 (90,697) 128,775 (111,952)
-------- --------- --------- ---------
9,228 54,480 170,002 (92,728)
-------- --------- --------- ---------
Comprehensive income
(loss) ($ 87,253) $ 377,195 $ 195,815 $ 439,395
======== ========= ========= =========
See notes to condensed financial statements.
</TABLE>
<PAGE>
TECHNOLOGY 80 INC.
CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Six months ended
February 28,
1999 1998
---------- ----------
OPERATING ACTIVITIES
<S> <C> <C>
Net income $ 25,813 $ 532,123
Adjustments to reconcile net income to
net cash used by operating activities:
Depreciation and amortization 25,772 20,116
Deferred taxes 71,750 24,700
Gain (loss) on sale of investments 201,211 (174,924)
Gain on sale of fixed asset - (384)
Changes in operating assets and liabilities:
Accounts receivable 92,661 (7,322)
Inventories 139,692 40,019
Other current assets 64,984 (1,105)
Accounts payable (31,883) (3,207)
Accrued income taxes - 41,110
Accrued liabilities (611,304) (676,916)
---------- ----------
NET CASH USED BY OPERATING ACTIVITIES (21,304) (205,790)
---------- ----------
INVESTING ACTIVITIES
Proceeds from sale of equipment - 1,350
Purchase of equipment (12,160) (37,906)
Proceeds from sales and maturities of investments 529,803 1,273,514
Purchases of investments (117,506) (1,219,219)
Loans for stock purchases (26,641) -
Payments on loans for stock purchases 4,902 -
---------- ----------
NET CASH PROVIDED BY INVESTING ACTIVITIES 378,398 17,739
---------- ----------
FINANCING ACTIVITIES
Proceeds from exercise of stock options 54,186 33,546
---------- ----------
NET CASH PROVIDED BY FINANCING ACTIVITIES 54,186 33,546
---------- ----------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS 411,280 (154,505)
CASH AND CASH EQUIVALENTS AT BEGINNING OF
THE PERIOD 1,667,363 284,261
---------- ----------
CASH AND CASH EQUIVALENTS AT END OF THE PERIOD $2,078,643 $ 129,756
========== ==========
See notes to condensed financial statements.
</TABLE>
<PAGE>
TECHNOLOGY 80 INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED)
February 28, 1999
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). 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
three and six months ending February 28, 1999 and 1998 are as follows:
<TABLE>
<CAPTION>
Three months ended Six months ended
February 28, February 28,
---------------------- ----------------------
1999 1998 1999 1998
----------- --------- ---------- ---------
Basic:
<S> <C> <C> <C> <C>
Average shares outstanding 1,681,397 1,635,651 1,664,065 1,625,411
========= ========= ========= =========
Net income (loss) ($ 96,481) $ 322,715 $ 25,813 $ 532,123
========= ========= ========= =========
Per share amount ($0.06) $0.20 $0.02 $0.33
===== ===== ===== =====
Diluted:
Average shares outstanding 1,681,397 1,635,651 1,664,065 1,625,411
Net effect of dilutive
stock options-based on
treasury stock method -0- 124,655 106,820 126,601
--------- --------- --------- ---------
1,681,397 1,760,306 1,770,885 1,752,012
========= ========= ========= =========
Net income (loss) ($ 96,481) $ 322,715 $ 25,813 $ 532,123
========= ========= ========= =========
Per share amount ($0.06) $0.18 $0.01 $0.30
===== ===== ===== =====
</TABLE>
<PAGE>
NOTE C - COMPREHENSIVE INCOME
The Company adopted Statement of Financial Accounting Standards No. 130,
"Reporting Comprehensive Income" (SFAS No. 130), which establishes
standards for the reporting and presentation of changes in equity from
nonowner sources in the financial statements. Nonowner changes in
stockholders' equity consist of net income and unrealized holding gains
and losses on marketable securities.
Prior year financial statements have been reclassified to conform to the
SFAS No. 130 requirements.
<PAGE>
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
<PAGE>
<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.
<PAGE>
<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.
<PAGE>
<TABLE>
<CAPTION>
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.
<PAGE>
<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.
<PAGE>
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)
<PAGE>
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>
<PAGE>
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)
<PAGE>
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.
<PAGE>
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>
<PAGE>
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.
<PAGE>
Appendix A
AMENDED AND RESTATED
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 March 31, 1999
<PAGE>
TABLE OF CONTENTS
RECITALS 1
ARTICLE I THE MERGER 1
SECTION 1.1. THE MERGER 1
SECTION 1.2. EFFECTIVE TIME 2
SECTION 1.3. CLOSING 2
SECTION 1.4. EFFECTS OF THE MERGER 2
SECTION 1.5. CERTIFICATE OF INCORPORATION AND BYLAWS 2
SECTION 1.6. DIRECTORS 2
SECTION 1.7. OFFICERS 2
ARTICLE II CONVERSION OF SECURITIES 3
SECTION 2.1. CONVERSION OF CAPITAL STOCK 3
SECTION 2.2. EXCHANGE OF CERTIFICATES 4
SECTION 2.3. DELIVERIES AT THE CLOSING 7
ARTICLE III REPRESENTATIONS AND WARRANTIES OF THE COMPANY 9
SECTION 3.1. CORPORATE EXISTENCE 9
SECTION 3.2. MINUTE BOOKS 9
SECTION 3.3. CAPITALIZATION 9
SECTION 3.4. POWER AND AUTHORIZATION 10
SECTION 3.5. DUE EXECUTION; ENFORCEABILITY 10
SECTION 3.6. NONVIOLATION 10
SECTION 3.7. NO APPROVALS REQUIRED 10
SECTION 3.8. NO PROCEEDINGS 11
SECTION 3.9. FINANCIAL STATEMENTS 11
SECTION 3.10. ABSENCE OF CHANGES 11
SECTION 3.11. PROPERTIES AND ASSETS 11
SECTION 3.12. CONTRACTS 12
SECTION 3.13. INTELLECTUAL PROPERTY 13
SECTION 3.14. TAXES 14
SECTION 3.15. LITIGATION 14
SECTION 3.16. COMPLIANCE WITH LAWS; GOVERNMENTAL AUTHORIZATIONS 15
SECTION 3.17. ENVIRONMENTAL MATTERS 15
SECTION 3.18. EMPLOYMENT AGREEMENTS AND EMPLOYEE BENEFIT PLANS 15
SECTION 3.19. EMPLOYEES 17
SECTION 3.20. INSURANCE 18
SECTION 3.21. ACCOUNTS, LOCKBOXES, SAFE DEPOSIT BOXES AND POWERS
OF ATTORNEY 18
SECTION 3.22. TRANSACTIONS WITH AFFILIATES 18
SECTION 3.23. SEC REPORTS AND FINANCIAL STATEMENTS 18
SECTION 3.24. INFORMATION IN DISCLOSURE DOCUMENTS 19
SECTION 3.25. DISCLOSURE 19
SECTION 3.26. CERTAIN BUSINESS PRACTICES AND REGULATIONS 19
SECTION 3.27. SCHEDULES 20
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER
SUB 20
SECTION 4.1. CORPORATE EXISTENCE 20
SECTION 4.2. POWER AND AUTHORIZATION 20
SECTION 4.3. DUE EXECUTION; ENFORCEABILITY 20
SECTION 4.4. NONVIOLATION 20
<PAGE>
SECTION 4.5. NO APPROVALS REQUIRED 21
SECTION 4.6. NO PROCEEDINGS 21
SECTION 4.7. INFORMATION IN DISCLOSURE DOCUMENTS AND
REGISTRATION STATEMENTS 21
SECTION 4.8. INTERIM OPERATIONS OF MERGER SUB 21
ARTICLE V COVENANTS 21
SECTION 5.1. CONDUCT OF BUSINESS OF THE COMPANY 21
SECTION 5.2. COVENANTS OF PARENT 24
ARTICLE VI ADDITIONAL AGREEMENTS 24
SECTION 6.1. REASONABLE EFFORTS 24
SECTION 6.2. ACCESS TO INFORMATION 24
SECTION 6.3. STOCKHOLDERS MEETING 25
SECTION 6.4. LEGAL CONDITIONS TO THE MERGER; LEGAL COMPLIANCE 25
SECTION 6.5. NO SOLICITATION 25
SECTION 6.6. FEES AND EXPENSES 26
SECTION 6.7. NOTIFICATION OF CERTAIN MATTERS 27
SECTION 6.8. INDEBTEDNESS 27
SECTION 6.9. INDEMNIFICATION 27
SECTION 6.10. LIMITATION ON INDEMNIFICATION 29
SECTION 6.11. CLAIM FOR INDEMNIFICATION 29
ARTICLE VII CONDITIONS 29
SECTION 7.1. CONDITIONS TO EACH PARTY'S OBLIGATION TO EFFECT
THE MERGER 29
SECTION 7.2. CONDITIONS OF OBLIGATIONS OF PARENT 30
SECTION 7.3. CONDITIONS OF OBLIGATIONS OF THE COMPANY 31
ARTICLE VIII TERMINATION AND AMENDMENT 32
SECTION 8.1. TERMINATION 32
SECTION 8.2. EFFECT OF TERMINATION 33
SECTION 8.3. AMENDMENT 33
SECTION 8.4. EXTENSION; WAIVER 33
ARTICLE IX MISCELLANEOUS 34
SECTION 9.1. SURVIVAL OF REPRESENTATIONS AND WARRANTIES 34
SECTION 9.2. DEFINITIONS 34
SECTION 9.3. BROKERS' AND FINDERS' FEES 36
SECTION 9.4. SALES, TRANSFER AND DOCUMENTARY TAXES, ETC. 36
SECTION 9.5. PUBLICITY 36
SECTION 9.6. CONTENTS OF AGREEMENT; PARTIES IN INTEREST; ETC. 36
SECTION 9.7. ASSIGNMENT AND BINDING EFFECT 37
SECTION 9.8. NOTICES 37
SECTION 9.9. GOVERNING LAW 38
SECTION 9.10. NO BENEFIT TO OTHERS 39
SECTION 9.11. SCHEDULES 39
SECTION 9.12. SEVERABILITY 39
SECTION 9.13. COUNTERPARTS 39
SECTION 9.14. KNOWLEDGE. 39
<PAGE>
This AMENDED AND RESTATED AGREEMENT AND PLAN OF MERGER AND
REORGANIZATION dated as of March 31, 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"). This
Agreement amends and restates in its entirety the Agreement and
Plan of Merger and Reorganization dated as of January 27, 1999
among the parties hereto. Certain terms used herein and not
otherwise defined herein are defined in ARTICLES II and IX.
RECITALS
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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, 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, 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.
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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, 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 MERGER. The Merger shall have the
effects set forth in the MBCA.
SECTION 1.5. ARTICLES OF INCORPORATION AND BY-LAWS.
(a) Articles of Incorporation.
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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.
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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.
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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.
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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.
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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 $5.40 (the
"Consideration"). 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.
(c) Company Options.
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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.
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(e) Payment.
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At Closing, Parent shall pay in cash the Consideration for
all Shares outstanding at the Effective Time and the Net
Consideration for all Shares issuable upon exercise of all
Company Options outstanding at the Effective Time into the
Shareholder Fund in accordance with instructions of the
Principals.
(f) Certain Obligations and Duties of the Principals.
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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 if
the parties had retained an independent exchange agent pursuant
to an agreement containing terms and conditions customary for
transactions of this type.
(g) Interest on the Shareholder Fund.
--------------------------------
The Shareholder Fund shall be an interest-bearing account.
All interest earned on 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).
(h) The Shareholder Fund.
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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 Agreements, 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, including, without limitation, by paying for the cost of the
transmittals contemplated by SECTION 2.2(a), and shall pay the
reasonable out-of-pocket costs of the Principals associated
therewith.
SECTION 2.2. EXCHANGE AND PAYMENT.
(a) Exchange.
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(i) Transmittals.
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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.
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(ii) Surrender; Payment.
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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.
(iii) Transfers; Lost Certificates or Option Agreements.
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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.
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(iv) The Surviving Corporation's Obligations;
Indemnification.
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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.
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(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.
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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.
<PAGE>
(c) Satisfaction.
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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.
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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 Principals
(along with interest accruing thereon) 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 (without
interest). 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 February 28, 1999, there has been no
Material Adverse Effect;
(ii) Certificate of Good Standing.
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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;
<PAGE>
(iv) Opinion.
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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.
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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.
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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.
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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.
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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.
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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
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(iv) Other.
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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 March
31, 1999, 1,683,983 shares were issued and outstanding. As of
March 31, 1999, 126,875 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,
<PAGE>
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.
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.
<PAGE>
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 February 28, 1999 (the "Balance Sheet
Date"), and related statements of income for the fiscal years
ended August 31, 1998, 1997 and 1996 and the six months ended
February 28, 1999 (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 consistently applied
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 shown on the 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 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 February 28, 1999,
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 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.
<PAGE>
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 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;
<PAGE>
(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.
<PAGE>
(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.
<PAGE>
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.
<PAGE>
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 February 28,
1999, 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.
<PAGE>
(d) Contributions.
-------------
All contributions required to be made or accrued as of
February 28, 1999 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 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.
<PAGE>
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
<PAGE>
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.
<PAGE>
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.
<PAGE>
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.
<PAGE>
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.
<PAGE>
(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.
(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 employee who is not a
Principal or increase any benefit to any employee who is not a
Principal not required by any plan or arrangement as in effect as
of the date hereof or (iii) pay any compensation or fringe
benefits to any of the Principals other than salary at rates in
effect as of the date hereof and benefits under any employee
benefit plans, arrangements or policies 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 or Principal, provided that the
foregoing shall not restrict the payment of any obligations owed
to such persons otherwise accrued on the Company's Balance Sheet
(including approximately $19,500 of directors' fees and
approximately $2,500 of bonus for Duane Markus), and provided
further, that the foregoing shall not restrict the Company from
paying $325,000 to the Principals for consulting services and
bonus payments through the Closing Date.
(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.
-----------
From and after the date hereof, the Company shall not make
or hold any investments other than cash or cash equivalents.
<PAGE>
(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.
<PAGE>
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.
<PAGE>
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.
<PAGE>
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:
<PAGE>
(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
<PAGE>
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.
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).
<PAGE>
(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.
<PAGE>
(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.
<PAGE>
(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.
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 May 30,
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
<PAGE>
(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.
<PAGE>
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.
<PAGE>
"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. In addition to the
foregoing, a Material Adverse Effect shall be deemed to have
occurred in the event that on the Closing Date (i) the sum of the
proceeds derived from the liquidation of the investments set
forth on Schedule 9.2 ("Investments") together with any earnings
on such investments received between February 26, 1999 and the
Closing Date, plus any cash contributions to the Company by the
Principals, is less than $724,527; or (ii) Investments with a
market value in excess of $50,000 in the aggregate remain
unliquidated.
<PAGE>
"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.
<PAGE>
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
<PAGE>
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.
<PAGE>
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.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement as of the date first above written.
TECHNOLOGY 80 INC.
/s/ Duane Markus
- -----------------------------------
By: DUANE MARKUS
Its: President
ACS ELECTRONICS, LTD.
/s/ Ze'ev Kirshenboim
- -----------------------------------
By: ZE'EV KIRSHENBOIM
Its: CEO
TECH 80 ACQUISITION CORP.
/s/ Ze'ev Kirshenboim
- -----------------------------------
By: ZE'EV KIRSHENBOIM
Its: CEO
DUANE MARKUS
/s/ Duane Markus
- ------------------------------
JACK PAGEL
/s/ Jack Pagel
- ------------------------------
TOM GOULD
/s/ Tom Gould
- ------------------------------
<PAGE>
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
Schedule 9.2 Investments
<PAGE>
Appendix B
[LOGO] SCHMIDT FINANCIAL, INC.
March 31, 1999
Board of Directors
Technology 80 Inc.
658 Mendelssohn Avenue North
Minneapolis, MN 55427
Re: Amended and Restated 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 Amended and Restated Agreement and Plan of Merger
and Reorganization dated as of March 31, 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 equal to $5.40 per share pursuant to 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 six
months ended February 28, 1999.
<PAGE>
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.
<PAGE>
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
<PAGE>
(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.
<PAGE>
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.
<PAGE>
(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.
<PAGE>
TECHNOLOGY 80 INC.
Proxy for Special Meeting of Shareholders
May 25, 1999
The undersigned hereby appoints Duane A. Markus 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 May 25, 1999, and at any adjournment thereof.
THE BOARD OF DIRECTORS RECOMMENDS
A VOTE FOR PROPOSAL #1 BELOW.
1. Approve the Amended and Restated 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.
