SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a)
of the Securities Exchange Act of 1934
Filed by the Registrant [ X ]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[X] Preliminary Proxy Statement
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to section
240.14a-11(c) or section 240.14a-12
[ ] Confidential for Use of the Commission Only
(as permitted by Rule 14a-6(e)(2))
Technology 80 Inc.
------------------------------------------------
(Name of Registrant as Specified In Its Charter)
------------------------------------------
(Name of Person(s) Filing Proxy Statement,
if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[ ] $125 per Exchange Act Rules 0-11(c)(1)(ii),
14a-6(i)(1) or 14a-6(i)(2) or Item 22(a)(2) of
Schedule 14A.
[ ] $500 per each party to the controversy pursuant
to Exchange Act Rule 14a-6(i)(3)
[x] Fee computed on table below per Exchange Act
Rules 14a-6(i)(4) and 0-11
1) Title of each class of securities to which
transaction applies:
Common Stock
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2) Aggregate number of securities to which
transaction applies:
1,810,858
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3) Per unit price or other underlying value of
transaction computed pursuant to Exchange Act
Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was
determined):
$5.40
-----------------------------------------------
4) Proposed maximum aggregate value of
transaction:
$9,778,633.20
-----------------------------------------------
5) Total fee paid:
$1,955.73
-----------------------------------------------
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as
provided by Exchange Act Rule 0-11(a)(2) and
identify the filing for which the offsetting fee
was paid previously. Identify the previous filing
by registration statement number, or the Form or
Schedule and the date of its filing:
1) Amount Previously Paid: ______________________
2) Form, Schedule or Registration Statement No.:
_______________________________________________
3) Filing Party: ________________________________
4) Date Filed: __________________________________
<PAGE>
TECHNOLOGY 80 INC.
658 Mendelssohn Avenue North
Minneapolis, Minnesota 55427
Notice of Special Meeting of Shareholders
To Be Held On _________, 1999
To the Shareholders of Technology 80 Inc.:
NOTICE IS HEREBY GIVEN that a Special Meeting of
Shareholders (the "Special Meeting") of Technology 80 Inc., a
Minnesota corporation ("Tech 80" or the "Company"), will be held
on _______, _________, 1999, at 10:00 a.m., local time, at the
offices of Tech 80, 658 Mendelssohn Avenue North, Minneapolis,
Minnesota for the following purposes:
(1) To consider and vote upon a proposal to
approve the Second Amended and Restated Agreement and Plan of
Merger and Reorganization, attached hereto as Appendix A, dated
as of August 13, 1999 (the "Merger Agreement"), among Tech 80,
Duane Markus, Jack Pagel, Tom Gould (the "Principals"), ACS
Electronics, Limited ("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, provided
that the total cash Consideration otherwise payable to the
Principals for their Shares will be reduced by $1,100,000 and the
Principals will receive five year subordinated notes in lieu
thereof; 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 _________, 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.
<PAGE>
Only shareholders of record at the close of business on
_______, 1999, the record date for the Special Meeting, are
entitled to receive notice of, and to vote at, the Special
Meeting and any adjournment or postponement thereof.
Record and beneficial holders of Shares have the right to
dissent from the Merger and obtain payment for the "fair value"
of their Shares by following the procedures prescribed in
Sections 302A.471 and 302A.473 of the Minnesota Business
Corporation Act which are summarized under "Rights of Dissenting
Shareholders" in the accompanying Proxy Statement. A copy of the
provisions is attached as Appendix C. If the holders of more
than 15% of the outstanding number of Shares properly notify
Tech 80 of their intention to dissent from the Merger, ACS may
terminate the Merger Agreement.
To ensure that your vote will be counted, please complete,
sign and date the enclosed proxy (printed on blue paper) and
return it promptly in the enclosed prepaid envelope, whether or
not you plan to attend the Special Meeting. Your proxy may be
revoked in the manner described in the accompanying Proxy
Statement at any time before it has been voted at the Special
Meeting.
By Order of the Board of Directors,
Duane Markus
President and Chief Executive Officer
Minneapolis, Minnesota
______, 1999
PLEASE COMPLETE, SIGN, DATE AND RETURN THE ENCLOSED PROXY
(PRINTED ON BLUE PAPER) PROMPTLY, WHETHER OR NOT YOU INTEND TO BE
PRESENT AT THE SPECIAL MEETING. PLEASE DO NOT RETURN ANY STOCK
CERTIFICATES AT THIS TIME. THE BOARD OF DIRECTORS HAS
UNANIMOUSLY APPROVED THE MERGER AGREEMENT AND RECOMMENDS THAT
SHAREHOLDERS VOTE FOR THE MERGER.
<PAGE>
TABLE OF CONTENTS
Page
ADDITIONAL INFORMATION..........................................3
SUMMARY.........................................................4
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..................22
Opinion of Financial Advisor to Tech 80...................22
Effects of the Merger.....................................27
Interests of Certain Persons in the Merger................28
Effective Time; Closing Date..............................29
Exchange of Shares........................................29
Conditions................................................31
Covenants and Certain Agreements..........................32
Indemnification by the Principals.........................33
Termination and Amendment of the Merger Agreement.........33
Fees and Expenses.........................................34
Federal Income Tax Consequences...........................35
Regulatory Requirements...................................36
RIGHTS OF DISSENTING SHAREHOLDERS..............................36
MARKET PRICES AND DIVIDENDS....................................39
SELECTED FINANCIAL DATA........................................40
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS...........................40
Results of Operations - 1998 vs. 1997.....................40
Results of Operations - Quarter and Nine Months Ended
5/31/99 vs. Quarter and Nine Months Ended 5/31/98........41
Liquidity and Capital Resources...........................42
Year 2000 Issue...........................................42
Cautionary Statement......................................43
<PAGE>
BUSINESS OF TECH 80............................................44
General...................................................44
Industrial Control Products...............................44
Customers.................................................45
Competition...............................................45
Suppliers.................................................46
Backlog...................................................46
Employees.................................................47
Patents and Licenses......................................47
Research and Development..................................47
Marketing, Sales and Distribution.........................47
Description of Property...................................48
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.................................51
OTHER BUSINESS.................................................51
FINANCIAL STATEMENTS...........................................52
APPENDICES:
Appendix A: Second 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
_________, 1999
This Proxy Statement is being furnished to shareholders of
Technology 80 Inc., a Minnesota corporation ("Tech 80" or the
"Company"), in connection with the solicitation of proxies by the
Board of Directors of Tech 80 from holders of outstanding shares
of Common Stock, $.01 par value, of Tech 80 (the "Shares"). The
proxies are solicited for use at a Special Meeting of
Shareholders (the "Special Meeting") of Tech 80 to be held on
_________, 1999, and at any adjournment or postponement thereof.
The purpose of the Special Meeting is to consider and vote upon
the Second Amended and Restated Agreement and Plan of Merger and
Reorganization, dated as of August 13, 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,
Limited, an Israeli corporation and the sole shareholder of TAC
("ACS"). Pursuant to the Merger Agreement, TAC will be merged
with and into Tech 80, which will be the surviving corporation in
the merger (the "Merger"), and ACS will become the sole
shareholder of Tech 80. This Proxy Statement is first being
mailed to holders of Shares on or about ______, 1999.
Pursuant to the Merger Agreement, upon effectiveness of the
Merger, (i) TAC will be merged with and into Tech 80, and Tech 80
will be the surviving corporation in the Merger, (ii) each Share
(other than Shares held by any holder who properly exercises
dissenters' rights under Minnesota law) will be converted into
the right to receive $5.40 (the per share "Consideration") in
cash, provided that the total cash Consideration otherwise
payable to the Principals for their Shares will be reduced by
$1,100,000 and the Principals will receive five year subordinated
notes in lieu thereof; 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.
<PAGE>
Any shareholder giving a proxy may revoke it at any time
prior to its use at the Special Meeting by giving written notice
of such revocation to Tech 80's President and Chief Executive
Officer (Mr. Duane Markus) or Secretary (Mr. Thomas Gould), or by
filing a new written proxy with any of the persons holding these
offices. The enclosed proxy, when properly signed and returned
to Tech 80, will be voted by the proxy holders at the Special
Meeting as directed or if no direction is given, will be voted in
favor of the Merger.
UNDER THE MINNESOTA BUSINESS CORPORATION ACT (the "MBCA"),
The affirmative vote of the holders of a majority of the
outstanding Shares ENTITLED TO VOTE AT THE SPECIAL MEETING is
necessary to approve the Merger Agreement (THE "MBCA REQUIRED
APPROVAL").
The presence at the Special Meeting in person or by proxy of
the holders of 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.
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
_________, _________, 1999 at the offices of Tech 80, 658
Mendelssohn Avenue North, Minneapolis, Minnesota, 55427. Only
holders of record of shares of Tech 80 Common Stock, $.01 par
value (the "Shares"), at the close of business on _______, 1999
(the "Record Date") are entitled to notice of, and to vote at,
the Special Meeting. See "GENERAL INFORMATION--Voting Rights and
Vote Required."
<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 [1,694,858] Shares outstanding and
entitled to vote, held by [163] 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 [53.1%],
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."
<PAGE>
Rights of Dissenting Shareholders
- ---------------------------------
Holders of Shares who do not vote to approve the Merger Agreement
may dissent from the Merger and elect to have the "fair value" of
their Shares determined as of the time immediately prior to the
effectiveness of the Merger, based on all relevant factors, and
paid to them in cash. Such shareholders must deliver to Tech 80
a written notice of intent to demand the fair value of their
Shares prior to the taking of the vote on the Merger Agreement
and comply with the other requirements of Sections 302A.471 and
302A.473 of the MBCA (copies of which are attached to this Proxy
Statement as Appendix C). Any deviation by a shareholder in
meeting such requirements may result in forfeiture of the
shareholder's dissenters' rights. Dissenting shareholders are
entitled to receive only the fair value of their Shares, which
may be more than, the same as, or less than the amount of cash
they would be entitled to in the Merger. If the holders of more
than 15% of the outstanding shares of Tech 80 Common Stock
properly notify Tech 80 of their intention to dissent from the
Merger, ACS may terminate the Merger Agreement. See "RIGHTS OF
DISSENTING SHAREHOLDERS."
The Merger
- ----------
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; provided that the total cash
Consideration otherwise payable to the Principals for their
Shares will be reduced by $1,100,000 and the Principals will
receive five year subordinated notes in lieu thereof. As a result
of the Merger, ACS will become the sole shareholder of Tech 80.
See "THE MERGER--General."
<PAGE>
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"). However, the total cash Consideration otherwise
payable to the Principals for their Shares will be reduced by
$1,100,000 and they will receive five year subordinated notes
(the "Subordinated Notes") in lieu thereof. See, "THE MERGER--
General."
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
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.
<PAGE>
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 a
Restated Agreement and Plan of Merger and Reorganization (the
"First Amended Merger Agreement") was entered into on March 31,
1999 in connection with fixing the amount.
As contemplated by the First Amended Merger Agreement, the
Company called a special meeting of its shareholders for May 25,
1999. Immediately prior to such special meeting, the Company and
ACS issued a joint press release indicating that ACS had
terminated the First Amended Merger Agreement on May 25, 1999
claiming that there had been a material adverse change. The
Company also stated that there had been no material adverse
change, but did not intend to dispute ACS's termination. ACS and
the Company also stated their intentions to continue discussions
regarding a potential business relationship.
Such discussions did continue, and on June 9, 1999, ACS approached
the Company with its proposal to complete a merger on essentially
the same terms as previously agreed, including by payment of $5.40
in cash per Share to the shareholders, subject to some or all
shareholders facilitating ACS's financing by subordinating to
ACS's financing $1,600,000 of funds that otherwise would have been
paid in cash at Closing. The Principals indicated their
willingness to facilitate such financing and thus facilitate a
merger by agreeing to accept five year subordinated notes for
$1,100,000 and by agreeing to subject $500,000 of their non-
competition and severance payments to the same terms as the
subordinated notes. As a result of such discussions, the parties
entered into the Second Amended and Restated Agreement and Plan
of Merger and Reorganization attached hereto as Appendix A on
August 13, 1999. SEE, "THE MERGER--Background of the Merger."
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."
<PAGE>
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
August 13, 1999, the per share Consideration of $5.40 to be
received by Tech 80 public 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
- ------------------
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 (net of the $1,100,000 in Subordinated
Notes to be issued to the Principals). 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 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.
The $1,100,000 of Subordinated Notes to be issued to the
Principals will be subordinated to ACS's lender, anticipated to
be Bank Leumi. Unless otherwise agreed by the Principals and
ACS, the Subordinated Notes will accrue interest at a base rate
equal to the rate payable on ACS's bank debt, will provide for
interest only payments for two years, and then will be repaid
over three years. The Subordinated Notes will be secured by
certain assets of ACS and Tech 80 as the Surviving Corporation.
See, "THE MERGER--Exchange of Shares."
<PAGE>
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 the Merger is not consummated for any reason other than a
withdrawal of the Board's favorable recommendation or a breach of
the Company's obligations to not seek an alternative transaction,
then ACS will reimburse the Company for up to $35,000 of legal
fees incurred. Further, if the Merger is not consummated for any
reason other than a withdrawal of the Board's favorable
recommendation or a breach of the Company's obligations to not
seek an alternative transaction, then ACS will also pay the
Company $100,000, provided, however, that such fee will not be
payable if the sole reason the Merger is not consummated is
because ACS's anticipated lender has determined not to make an
acquisition loan to ACS or has offered to do so on terms which
represent a material adverse change in its anticipated terms.
See "THE MERGER--Covenants and Certain Agreements" and "THE
MERGER--Fees and Expenses."
Indemnification by the Principals
- ---------------------------------
The Principals have agreed to indemnify and hold harmless ACS and
Tech 80 (as the Surviving Corporation) and certain others for a
period of one year for up to $300,000 of expenses and losses
incurred as a result of a breach of the representations,
warranties and agreements made by Tech 80 and the Principals in
the Merger Agreement and related agreements. See "THE MERGER--
Indemnification by the Principals."
<PAGE>
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 October 31, 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, as well as Jack Pagel and Tom Gould, both directors of
Tech 80, will enter into severance and non-competition 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. Such $500,000 of fees will be paid on the
same terms and conditions, including interest rate, payment terms
and subordination, as the Subordinated Notes. Thus, the cost
thereof will be borne directly or indirectly by ACS. The Merger
Agreement contemplates that prior to Closing $900,000 of
additional consulting fees or bonuses may be paid by Tech 80 in
total to Duane Markus, Jack Pagel and Tom Gould. 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 $3.40 per Share. The
average of the bid and asked prices on the day immediately
preceding such public announcement was $3.63. On August _____,
1999, the last full trading day prior to the printing of this
Proxy Statement, the average of the bid and asked prices was
$________ per Share. Tech 80 shareholders are urged to obtain
current market quotations for their Shares. Tech 80 has never
paid a dividend with respect to its Common Stock. See "MARKET
PRICES AND DIVIDENDS."
<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 _________, 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 ________, 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 [1,694,858] Shares outstanding and entitled to
vote. Such outstanding Shares at the Record Date were held by
approximately [163] 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 the meeting for purposes of
calculating the vote with respect to such matter, a result
equivalent to a vote against the Merger.
<PAGE>
PROXIES WHICH ARE SIGNED BUT WHICH LACK ANY SPECIFICATION WILLl 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.
<PAGE>
Proxies
This Proxy Statement is being furnished to holders of Shares
in connection with the solicitation of proxies by Tech 80 and on
behalf of the Board for use at the Special Meeting.
Any proxy given pursuant to this solicitation may be revoked
by the person giving it at any time before it is voted. Proxies
may be revoked by (i) filing with the President and Chief
Executive Officer, Duane Markus, or Secretary, Tom Gould, of
Tech 80 at or before the taking of the vote at the Special
Meeting, a written notice of revocation bearing a later date than
the proxy, or (ii) duly executing a subsequent proxy relating to
the same Shares and delivering it to the President and Chief
Executive Officer or Secretary of Tech 80 before the Special
Meeting. Unless special procedures to obtain proxies are
undertaken by the beneficial owners of Shares held in street
name, proxies for such Shares may be given or revoked only by the
record (street name) holders. Attendance at the Special Meeting
will not in and of itself constitute a revocation of a proxy.
Any written notice of revocation or subsequent proxy should be
sent to: Technology 80 Inc., 658 Mendelssohn Avenue North,
Minneapolis, Minnesota 55427, Attention: Duane Markus, President
and Chief Executive, or hand delivered to Mr. Markus or Tech 80's
Secretary, Tom Gould, at or before the taking of the vote at the
Special Meeting.
All expenses of this solicitation, including the cost of
preparing and mailing this Proxy Statement, will be borne by
Tech 80 (subject to reimbursement by ACS as contemplated by the
Merger Agreement). 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. However, the cash Consideration otherwise payable to
the Principals will be reduced by $1,100,000 and the Principals
will receive in lieu thereof the Subordinated Notes. 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 the computer
board manufacturing industry, Tech 80 received expressions of
interest from two potential acquirers of Tech 80.
<PAGE>
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 and the full amount of the
Consideration was to be paid in cash to all shareholders,
including the Principals.
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 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.
<PAGE>
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 Amended and Restated Agreement and Plan
of Merger and Reorganization dated as of March 31, 1999 (the
"First Amended Merger Agreement"). The First Amended Merger
Agreement provided for terms and conditions substantially similar
to the Merger Agreement attached hereto as Appendix A, except
that the per share Consideration of $5.40 was to be paid in cash
to all shareholders, including the Principals. Based on the
number of shares and options outstanding on March 31, 1999, the
$5.40 per share fixed by the First Amended Merger Agreement
represented, and continues to represent, an aggregate purchase
price of $9,778,633. The average of the bid and asked prices for
Tech 80's Common Stock on March 31, 1999 was $4.47 per share.
As contemplated by the First Amended Merger Agreement, the
Company called a special meeting of its shareholders for May 25,
1999. Immediately prior to such special meeting, the Company and
ACS issued a joint press release indicating that ACS had
terminated the First Amended Merger Agreement on May 25, 1999
claiming that there had been a material adverse change. The
Company stated that there had been no material adverse change, but
did not intend to dispute ACS's termination. ACS and the Company
also stated their intentions to continue discussions regarding a
potential business relationship.
<PAGE>
On June 9, 1999, ACS approached the Company with its proposal
to complete a merger on essentially the same terms as previously
agreed, including payment of $5.40 in cash per Share to the
shareholders, subject to some or all shareholders facilitating
ACS's financing by subordinating to ACS's financing $1,600,000 of
funds that otherwise would have been paid in cash at Closing.
Discussions with ACS continued thereafter. On June 10, 1999, the
Principals indicated their tentative willingness to facilitate
such financing and thus facilitate a merger by agreeing to accept
five year subordinated notes for $1,100,000 and by agreeing to
subject $500,000 of their non-competition and severance payments
to the same terms as the subordinated notes. Thereafter, ACS
continued to pursue financing arrangements, principally with Bank
Leumi. The Principals also discussed with Bank Leumi
intercreditor arrangements, including the terms of the
subordination and security to be granted to the Principals. On
July 28, 1999, Technology 80 and ACS reached an agreement in
principle regarding the terms of the subordinated notes and fees
payable by ACS. On August 10, 1999, Bank Leumi issued ACS a
commitment letter for financing intended to be used by ACS for
completing the Merger. On August 13, 1999, the parties entered
into the Second Amended and Restated Agreement and Plan of
Merger and Reorganization attached hereto as Appendix A on August
13, 1999 (the "Merger Agreement"). The average of the bid and
asked prices for Tech 80's Common Stock on August 13, 1999 was
$3.59 per share.
The Merger Agreement amends and restates in its entirety the
Original Agreement and the First Amended Merger Agreement. The
terms of the Merger Agreement are substantially similar to the
terms of the Original Agreement and the First Amended Merger
Agreement, other than those provisions of the Original Agreement
that related to the Formula and related matters and other than
the issuance of the Subordinated Notes to the Principals and the
payment of a possible $100,000 termination fee by ACS.
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, March 31, 1999 and July 28, 1999, at which the
Board reached its decision to approve the Merger on the terms
contemplated by the Original Agreement, the First Amended Merger
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.
<PAGE>
** 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.
** 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.
<PAGE>
** On March 31, 1999, the Board confirmed that the factors
stated above remained valid reasons for the Merger, and approved
the First Amended 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 the
Proxy Statement related to the May 28, 1999 shareholder meeting.
The Board determined, after reviewing the opinion of Schmidt
Financial, Inc., that the consideration of $5.40 to be received by
the shareholders pursuant to the First Amended Merger Agreement
was fair to, and in the best interests of, Tech 80, its
shareholders, and its employees and other stakeholders.
** On July 28, 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 continued
at $5.40 per share, but the Principals would facilitate the
transaction by accepting five year Subordinated Notes for
$1,100,000 and by agreeing to subject their $500,000 of non-
competition and severance payments to the same terms and
conditions as the Subordinated Notes. At the time of such
approval, although the Board had not received an oral report from
its financial advisor, the Board had received a draft fairness
opinion of Schmidt Financial, Inc. regarding the $5.40
consideration. The Board determined, after reviewing the draft
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. 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.
<PAGE>
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 public 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 as provided for in the First Amended Merger Agreement,
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.
After ACS and Technology 80 started discussions in June 1999
regarding entering a new Merger Agreement on substantially the
same terms as the First Amended Merger Agreement, other than the
Principals' agreement to subordinate $1,600,000 of payments, the
Board of Directors requested Schmidt Financial to update its
Fairness Opinion with respect to a new Merger Agreement. Schmidt
Financial provided a draft opinion and analysis on July 13, 1999.
Schmidt Financial delivered a final opinion on August 13, 1999.
The analysis that Schmidt Financial used in such opinion is
summarized below, and it is based on the original analysis
performed by Schmidt Financial as updated for the Company's
performance through May 31, 1999.
In connection with the parties entering into the Merger
Agreement on August 13, 1999, Schmidt Financial delivered to Tech
80 its written opinion that, as of such date, the per share
Consideration of $5.40 was fair to Tech 80's public 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.
<PAGE>
The Board was in receipt of Schmidt Financial's amended and restated
written opinion dated as of March 31, 1999 when it approved the
First Amended Merger Agreement and the fixing of the per share
Consideration at $5.40. The Board was in receipt of Schmidt
Financial's amended and restated written opinion dated as of
March 31, 1999 when it approved the First Amended Merger
Agreement. The Board was also in receipt of Schmidt Financial's
draft opinion when it approved the Merger Agreement on July 28,
1999, and was in receipt of the final opinion when the Merger
Agreement was executed on August 13, 1999. 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
August 13, 1999, which amended and restated its written opinions
dated as of February 11, 1999 and 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
August 13, 1999, the analyses performed by Schmidt Financial were
originally undertaken in connection with its fairness opinion
delivered February 11, 1999, as updated by Schmidt Financial to
take into account Tech 80's performance through May 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 nine months ended May 31, 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 17.1%
discount rate using a build-up methodology and 15.2% 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 80's estimated
cost of capital. Based on this analysis, Schmidt Financial
arrived at per share values (fully diluted) ranging from $3.74 to
$4.49.
<PAGE>
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, Inc.,
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), and
related earnings. The guideline company multiples range from
2.1x to 20.1x with a median multiple of 6.6x. Schmidt Financial
compared the multiples indicated by this analysis to the
corresponding multiple in the Merger, estimated at 29.1x 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 is 1.49x the Company's trailing twelve months
revenue and the implied multiple of operating earnings is 36.9x
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, 1st Quarter 1999 by Houlihan, Lokey,
Howard, and Zukin. This publication analyzes premiums (and
discounts) paid in the public markets in order to gain control.
For the 1st Quarter of 1999, the low, median, mean, and high
premiums were 1.6%, 32.9%, 48.6% and 400.0% respectively.
However, this study does not include transactions that have been
consummated at a discount from their prior trading prices. In
the 1st Quarter of 1999, 10% of all of the transactions analyzed
sold at discounts. When taken into consideration, the median and
mean premiums fall to 28.8% and 41.8% respectively. When these
adjusted median and mean premiums are applied to Tech 80's stock
price on May 28, 1999,they imply a per share value for Tech 80 of
$4.03 and $4.43 respectively. Using the unadjusted median and
mean premiums would imply per share values of $4.15 and $4.64
respectively.
<PAGE>
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 May 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 on May 28, 1999 was $3.13 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 public 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. In connection with Schmidt Financial rendering its
opinion on August 13, 1999, Tech 80 paid Schmidt Financial an
additional $1,000. 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 in
cash, provided that the Consideration otherwise payable in cash
to the Principals for their Shares will be reduced by $1,100,000,
and in lieu thereof the Principals will receive five-year
Subordinated Notes; and (iii) each issued and outstanding share
of Common Stock, $.01 par value, of TAC will be converted into
and exchanged for one newly issued share of Common Stock of
Tech 80 so that ACS will become the sole shareholder of Tech 80.
In connection with the Merger, each outstanding Option will be
converted into the right to receive, for each share of Tech 80
Common Stock subject thereto, the per share Consideration in cash
less the per share exercise price of each Option (the "Net
Consideration").
<PAGE>
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, Jack Pagel and
Tom Gould have entered into severance and non-competition
agreements, with Tech 80 as the Surviving Corporation. Under
such agreements, Duane Markus would be paid a total of $400,000,
and Jack Pagel and Tom Gould will each be paid $50,000, for total
severance and non-competition payments to them of $500,000. Such
fees will be paid on the same terms and conditions as the
Subordinated Notes, including with the same interest rate and
five year payment terms and subordination provisions. 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 practices through the Closing Date.
Further, the Merger Agreement allows Tech 80 in the period prior
to the Closing Date to pay to the Principals up to a total of
$900,000 to the Principals for consulting services and bonus
payments from and after July 31, 1999 through the Closing Date.
The Company anticipates that it may pay up to such amounts in
recognition of the services that the Principals have rendered and
in consideration of their facilitating the Merger on the terms
contemplated by the Merger Agreement. 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.
<PAGE>
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 [163] 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 (net of the $1,100,000 in
Subordinated Notes to be issued to the Principals), 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.
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 has been continued since then, including
when the Merger Agreement was executed on August 13, 1999.
<PAGE>
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.
At Closing, ACS and Tech 80 as the Surviving Corporation are
to issue to the Principals five year Subordinated Notes totaling
$1,100,000. In addition, the $500,000 of severance and
noncompetition payments payable by Tech 80 as the Surviving
Corporation to the Principals will also be evidenced by additional
Subordinated Notes. Unless otherwise agreed by the Principals and
ACS, the Subordinated Notes: will accrue interest at the same base
rate payable by ACS to its lender, anticipated to be prime plus
1%, with a default interest rate equal to the base rate plus 5%;
will provide for interest only payments for two years, and then
principal and interest will be repaid in quarterly installments
for three years; will be subordinated to ACS's lender, anticipated
to be Bank Leumi; and will be secured by a junior security
interest in Tech 80's assets, and a first security interest in 25%
of the stock of Tech 80 held by ACS after the Merger. The terms
and conditions of the Subordinated Notes and all related
agreements are to be as agreed by the Principals and ACS.
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 August 13, 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 with
payment terms on the same terms and conditions as the five-year
Subordinated Notes; 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.
<PAGE>
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.
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 August 13, 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 July 31, 1999 financial
statements and pay up to $900,000 of consulting fees and bonuses;
(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, and any claims for indemnification may be
satisfied only by ACS exercising setoff rights against the
Subordinated Notes. 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
<PAGE>
(i) any condition to its obligations under the Merger Agreement
is not met or there is a material breach of the Merger Agreement
by ACS; (ii) the requisite shareholder approvals are not obtained;
(iii) Tech 80's Board of Directors withdraws its recommendation to
approve and adopt the Merger Agreement in accordance with the terms
of the Merger Agreement; or (iv) ACS or TAC fails to deliver any
required documents. Further, either ACS or Tech 80 may terminate the
Merger Agreement and abandon the Merger if the Merger shall not
have been consummated by October 31, 1999 or such later date as
the Company and ACS may agree (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 incurred
by each party is to be borne by such party. However, if the
Merger is not consummated for any reason other than a withdrawal
of the Board's favorable recommendation or a breach of the
Company's obligations to not seek an alternative transaction,
then ACS will reimburse the Company for up to $35,000 of legal
fees incurred (but no more than $5,000 are to be for legal fees
incurred prior to execution of the Merger Agreement). In the
event the Merger is not consummated: (i) ACS is to pay $100,000,
unless 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 unless Tech 80 should enter into any agreement,
arrangement or understanding providing for an Alternative
Transaction; 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. However, the $100,000 fee will not be
payable if the sole reason why the Merger is not consummated is
because ACS's anticipated lender, Bank Leumi, determines not to
loan funds as anticipated by a commitment letter dated August 10,
1999, as it may be amended, or offers to do so only on terms which
represent a material adverse change from the terms set forth in
such commitment letter. Further, if ACS's lender reduces the
amount of funds it is willing to advance to ACS, the Principals,
in their discretion, will have the right to increase the amount of
their Subordinated Notes to facilitate the financing. 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.
<PAGE>
Federal Income Tax Consequences
The following describes the principal federal income tax
consequences of the Merger, assuming that the Merger is
consummated as contemplated herein. The discussion assumes that a
Tech 80 shareholder holds his or her Shares as a capital asset
(i.e., generally for investment). This discussion is based on
current laws and interpretations thereof, and there can be no
assurance that future legislation, regulations, administrative
rulings, or court decisions will not adversely affect the accuracy
of the statements contained herein. The discussion does not take
account of rules that may apply to shareholders that are subject
to special treatment under federal income tax laws (including,
without limitation, trusts, S corporations, taxpayers subject to
alternative minimum tax, insurance companies, dealers in
securities, certain retirement plans, financial institutions, tax
exempt organizations, holders who are not United States citizens
or residents, Tech 80 shareholders who acquired Tech 80 common
stock pursuant to the exercise of employee stock options or rights
or otherwise as compensation, and persons in special situations,
including persons who hold shares of Tech 80 common stock as part
of a straddle). No rulings have been requested or received from
the Internal Revenue Service (the "IRS") as to the matters
discussed herein and there is no intent to seek any such rulings.
Accordingly, no assurance can be given that the IRS will not
challenge the tax treatment of certain matters discussed in this
summary or, if it does challenge the tax treatment, that it will
not be successful.
THE DISCUSSION BELOW DOES NOT ADDRESS STATE, LOCAL OR FOREIGN
TAX CONSEQUENCES OF THE MERGER AND THE SPECIFIC TAX CONSEQUENCES
TO EACH TECH 80 SHAREHOLDER MAY DIFFER. CONSEQUENTLY, EACH TECH
80 SHAREHOLDER SHOULD CONSULT ITS OWN TAX ADVISOR AS TO THE
SPECIFIC TAX CONSEQUENCES, INCLUDING THE APPLICABLE FEDERAL,
STATE, LOCAL AND FOREIGN TAX CONSEQUENCES TO IT, OF THE MERGER.
For each holder of Tech 80 common stock, the Merger will be a
taxable transaction for federal income tax purposes and such
holder will be treated as if, at the Effective Time, it had sold
each of its Shares for cash. A holder of Tech 80 common stock
will recognize capital gain or loss equal to the difference
between (x) its tax basis in the Shares surrendered and (y) any
cash received for the Shares.
The gain or loss recognized as a result of the Merger will be
treated as a capital gain or loss, provided that Tech 80 is not
treated for federal income tax purposes as a "collapsible
corporation." Tech 80's management believes that Tech 80 is not a
collapsible corporation for federal income tax purposes. The gain
or loss so recognized will be long-term with respect to shares of
Tech 80 Common Stock held for more than one year and will be
short-term with respect to shares held for one year or less. For
federal income tax purposes capital losses are generally
deductible only against capital gains and not against ordinary
income. 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
<PAGE>
which may be included as part of the letter of transmittal to be
returned to Tech 80 in order to provide the information and
certification necessary to avoid backup withholding, unless an
applicable exception exists and is proved in a satisfactory manner
or unless Tech 80 already has such tax identification number in
its possession. The exceptions provide that certain holders
(including, among others, all corporations and certain foreign
individuals) are not subject to these backup withholding and
reporting requirements. Any amounts withheld will be allowed as a
credit against the holder's federal income tax liability for such
year.
THE FEDERAL INCOME TAX DISCUSSION SET FORTH ABOVE IS INCLUDED
FOR GENERAL INFORMATION ONLY. SUCH DISCUSSION DOES NOT ADDRESS
THE TAX CONSEQUNCES TO THE PRINCIPALS ASSOCIATED WITH RECEIPT OF
THE SUBORDINATED NOTES OR THE PAYMENTS UNDER THEIR NON-COMPETITION
AND SEVERANCE AGREEMENTS. SHAREHOLDERS SHOULD NOTE THAT THE
PARTIES HAVE NOT OBTAINED, AND WILL NOT OBTAIN, A RULING FROM THE
IRS OR AN OPINION OF COUNSEL REGARDING THE MATTERS DESCRIBED
HEREIN. EACH SHAREHOLDER IS URGED TO CONSULT HIS OR HER TAX
ADVISOR WITH RESPECT TO THE TAX CONSEQUENCES TO THE SHAREHOLDER OF
THE PROPOSED TRANSACTIONS, INCLUDING FEDERAL, STATE, LOCAL AND
FOREIGN TAX CONSEQUENCES.
Regulatory Requirements
Except in connection with the filing of Articles of Merger
with the Secretary of State and compliance with other corporate
law requirements, the Merger does not require the approval of any
federal, state or other agency.
RIGHTS OF DISSENTING SHAREHOLDERS
Shareholders of Tech 80 are entitled to exercise dissenters'
rights pursuant to the provisions of Sections 302A.471 and
302A.473 of the Minnesota Statutes. In accordance with these
sections, Tech 80 shareholders have the right to dissent to the
Merger and to be paid the "fair value" of their Shares. In this
context, the term "fair value" means the value of the Shares
immediately before the Effective Time of the Merger. Under
Section 302A.473, where a merger is to be submitted for approval
at a meeting of shareholders, the corporation must notify each of
its shareholders of the right to dissent, include in such notice
a copy of Sections 302A.471 and 302A.473 and provide a brief
description of the procedures to be followed under these
sections. This Proxy Statement shall constitute such notice to
the shareholders of Tech 80 and the following discussion
describes the procedures to be followed by a dissenting
shareholder. The applicable statutory provisions are attached
hereto as Appendix C.
The following discussion is not a complete statement of the
law pertaining to a dissenting shareholder's rights under
Minnesota law and is qualified in its entirety by the full text
of Sections 302A.471 and 302A.473 attached hereto. Any Tech 80
shareholder who wishes to exercise the right to dissent and
demand the fair value of his or her Shares, or who wishes to
preserve the right to do so, should review the following
discussion and Appendix C carefully because failure to timely and
properly comply with the procedures will result in the loss of a
shareholder's right to dissent under Minnesota law.
<PAGE>
A shareholder of Tech 80 wishing to exercise the right to
demand the fair value of his or her Shares must:
** Before the vote of shareholders is taken at the Special
Meeting of Tech 80 shareholders, file a written notice of intent
to demand the fair value of his or her Shares and in addition he
or she must not vote in favor of the Merger Agreement. Because a
proxy which does not contain voting instructions will, unless
revoked, be voted FOR approval of the Merger Agreement, a
shareholder of Tech 80 who votes by proxy and who wishes to
exercise dissenters' rights must (i) vote AGAINST the approval of
the Merger Agreement, or (ii) ABSTAIN from voting on the approval
of the Merger Agreement. A vote against the Merger Agreement in
person or by proxy will not in and of itself constitute a written
notice of intent to demand the fair value of a shareholder's
Shares satisfying the requirements.
** A demand for fair value must be executed by or for the
shareholder of record, fully and correctly, as such shareholder's
name appears on his or her Tech 80 Common Stock certificate or
certificates. If the Common Stock is owned of record in a
fiduciary capacity such as by a trustee, guardian or custodian,
such demand must be executed by the fiduciary. If the Common
Stock is owned of record by more than one person, as in a joint
tenancy or tenancy in common, such demand must be executed by all
joint owners. An authorized agent, including an agent for two or
more joint owners, may execute the demand for a shareholder of
record; however, the agent must identify the record owner and
expressly disclose the fact that, in exercising the demand, he is
acting as agent for the record owner.
A record owner who holds Shares of Tech 80 as a nominee for
others, such as a broker, may demand fair value of the shares
held for all, or fewer than all, of the beneficial owners of such
shares. In such a case, the written demand should set forth the
number of Shares to which it relates. When no number of shares
is expressly mentioned, the demand will be presumed to cover all
Shares standing in the name of the record owner. Beneficial
owners of Shares who are not record owners and who intend to
exercise dissenters' rights should instruct the record owner to
comply with the statutory requirements with respect to the
exercise of dissenters' rights before the date of the Special
Meeting.
** Tech 80 shareholders who elect to exercise dissenters'
rights and demand fair value should mail or deliver their written
demand to: Technology 80 Inc., 658 Mendelssohn Avenue North,
Minneapolis, Minnesota, 55427, Attention: Duane Markus, President
and Chief Executive Officer. The written demand should specify
the shareholder's name and mailing address, the number of Shares
owned, and that the shareholder is thereby demanding the fair
value of his or her Shares.
** After the Effective Time, Tech 80, as the Surviving
Corporation, will cause to be mailed to each shareholder of
Tech 80 who has properly asserted dissenters' rights a notice
that contains (i) the address to which a demand for payment and
stock certificates must be sent in order to receive payment and
the date by which they must be received; (ii) a form to be used
to certify the date on which the shareholder, or the beneficial
owner on whose behalf the shareholder dissents, acquired his or
her Shares or an interest in them and to demand payment; and
(iii) another copy of Sections 302A.471 and 302A.473 together
with a brief description of these sections. To receive the fair
value of his or her Shares a dissenting shareholder must demand
payment and deposit his or her certificates within 30 days after
the notice is given.
<PAGE>
** After Tech 80 receives a valid demand for payment,
Tech 80 must remit to each dissenting shareholder who has
complied with the dissenters' rights provisions the amount
Tech 80 estimates to be the fair value of the Shares, plus
interest, along with (i) Tech 80's closing balance sheet and
statement of income for a fiscal year ending not more than 16
months before the effective date of the Merger, together with the
latest available interim financial statement; (ii) an estimate by
the corporation of the fair value of the Shares and a brief
description of the method used to reach the estimate; and
(iii) another copy of Sections 302A.471 and 302A.473 and a brief
description of the procedure to be followed in demanding
supplemental payment. If Tech 80 fails to remit payment within
60 days of the deposit of certificates, Tech 80 must return all
deposited certificates. However, Tech 80 may again give notice
and require deposit at a later time.
** If a dissenting Tech 80 shareholder believes that the
amount remitted by Tech 80 is less than the fair value of his or
her Shares plus interest, such dissenting shareholder may give
written notice to Tech 80 of his or her own estimate of the fair
value for the Shares plus interest and demand a supplemental
payment for the difference. Any written demand for supplemental
payment must be made within 30 days after Tech 80 mailed its
original remittance.
** Within 60 days after receiving a demand for supplemental
payment, Tech 80, as the Surviving Corporation, must either pay
the amount of the supplemental payment demanded (or agreed to
between the dissenting shareholder and Tech 80) or file a
petition in the state courts of Minnesota requesting that the
court determine the fair value of the Shares plus interest. Any
petition so filed must name as parties all dissenting
shareholders who have demanded supplemental payments and who have
been unable to reach an agreement with Tech 80 concerning the
fair value of their Shares. The court may appoint appraisers,
with such power and authority as the court deems proper, to
receive evidence on and recommend the amount of fair value of the
Shares. The jurisdiction of the court is plenary and exclusive,
and the fair value as determined by the court is binding on all
shareholders, wherever located. A dissenting shareholder, if
successful, is entitled to a judgment for the amount by which the
fair value of his or her Shares as determined by the court
exceeds the amount originally remitted by Tech 80.
Generally, the costs and expenses associated with a court
proceeding to determine the fair value of the Tech 80 Common
Stock will be borne by Tech 80, as the Surviving Corporation,
unless the court finds that a dissenting shareholder has demanded
supplemental payment in a manner which is arbitrary, vexatious,
or not in good faith. Similar costs and expenses may also be
assessed in instances where Tech 80 has failed to comply with the
procedures in Section 302A.473 pertaining to dissenters' rights
discussed above. The court may, in its discretion, award
attorneys' fees to an attorney representing dissenting
shareholders out of any amount awarded to such dissenters.
<PAGE>
Failure to follow the steps required by Section 302A.473 for
asserting dissenters' rights may result in the loss of a
shareholder's rights to demand the fair value of his or her
Shares. Shareholders considering seeking appraisal should
realize that the fair value of their Shares, as determined under
Section 302A.473 in the manner outlined above, could be more
than, the same as, or less than the amount of cash they would be
entitled to as a result of the Merger if they did not seek
appraisal of their shares. The dissenting shareholders shall
only be entitled to receive the fair value of their Shares, even
if such fair value is less than the amount of cash they would be
entitled to as a result of the Merger.
As set forth in the Merger Agreement, attached hereto as
Appendix A, if the holders of more than 15% of the outstanding
Shares properly exercise dissenters' rights (as described in this
section and in Appendix C hereto), ACS may terminate the
Agreement prior to Closing.
MARKET PRICES AND DIVIDENDS
Tech 80's common stock, $.01 par value, is 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, February 28, 1999 and May 31, 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
Third Quarter 2 3/4 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 [163] record holders of
Tech 80's common stock.
<PAGE>
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 $3.40 per share. On August 13, 1998,
the last full trading day prior to such announcement the average
of the bid and asked trading prices was $3.59 per share. On
______, 1999, the last full trading day prior to the printing of
this Proxy Statement, the average of the bid and asked prices of
Tech 80 Common Stock was $_______ per share. Tech 80
shareholders are urged to obtain current market quotations for
their common shares.
<TABLE>
<CAPTION>
SELECTED FINANCIAL DATA
Year Ended August 31,
1994 1995 1996 1997 1998
- --------------------------------------------------------------------------------
Operating Data:
<S> <C> <C> <C> <C> <C>
Operating Revenues $3,204,296 $3,668,353 $4,206,691 $4,918,935 $5,565,771
Net Profit 960,237 645,054 665,355 733,327 601,329
Net Profit
Per Common Share .60 .39 .39 .47 .37
Balance Sheet Data:
Total Assets $3,392,471 $4,195,375 $4,897,556 $6,009,100 $6,202,026
Long-Term Obligations -0- -0- -0- -0- -0-
</TABLE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Results of Operations - 1998 vs. 1997
Revenue increased 13.1% from fiscal year 1997 to fiscal year
1998 and increased 16.9% from fiscal year 1996 to 1997. The
increased revenue in fiscal years 1998 and 1997 resulted from an
expansion in the customer base for Tech 80's products and an
increase in the number of higher-priced products sold.
Gross profit as a percentage of revenue decreased to 62.4% in
fiscal year 1998 from 65.4% in 1997. This decrease resulted from
volume discounts granted to Tech 80's major customer during 1998.
Tech 80's sales to this customer in 1998 represented approximately
13% of total 1998 revenues. Due to increasing price pressure in
Tech 80's industry, similar discounts are expected to be necessary
in the future.
<PAGE>
Selling expenses as a percentage of revenue were 14.5% and
14.3% in fiscal years 1998 and 1997, respectively. General and
administrative expenses amounted to 19.8% and 20.3% of revenue for
fiscal years 1998 and 1997, respectively. Research and
development costs represented 14.1% of revenue in fiscal 1998,
compared with 14.3% in 1997. Tech 80 expects these expenses to
remain at current levels.
Income from operations was $786,123, or 14.1% of revenue, in
fiscal year 1998 and $811,182, or 16.5% of revenue, for fiscal
year 1997. The decrease in income from operations for 1998 over
1997 resulted primarily from volume discounts described above.
Other income decreased by $176,139 from 1997 to 1998,
primarily due to a small realized net loss in the sale of
investments in 1998 compared to a large realized net gain in 1997.
Other income amounted to 1.9% of revenue in fiscal year 1998 and
5.8% of revenue in fiscal year 1997. Tech 80 has retained
earnings in recent years while investigating opportunities to
purchase or build new facilities and to make strategic
acquisitions. These retained earnings have remained in various
accounts in an effort to balance the Company's interest in
liquidity, return and security.
Tech 80 reported net income of $601,329, or 10.8% of revenue,
for fiscal year 1998 and $733,327, or 14.9% of revenue, for fiscal
year 1997. The decrease in net income from 1997 to 1998 is the
result of new volume price discounts in 1998 and changes in
realized gains and losses on investments from 1997 to 1998.
Results of Operations -
Quarter and Nine Months Ended 5/31/99 vs.
Quarter and Nine Months Ended 5/31/98
Revenues for the third quarter ended May 31, 1999 decreased
18% from the same period the preceding year and decreased 22% for
the nine months ended May 31, 1999, compared to the nine months
ended May 31, 1998. Order backlog as of May 31, 1999 was
$965,990, as compared to $745,419 in backlog as of May 31, 1998.
Tech 80 believes that the decrease 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 May 31, 1999 and 1998 was 62% and 64%, respectively.
Gross profit as a percentage of revenue for the nine months ended
May 31, 1999 and 1998 was 61% and 62% respectively.
Operating expenses as a percentage of revenue was 44% for the
three months and 50% for the nine months ended May 31, 1999
compared to 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 nine
months.
Other income decreased $330,553 for the quarter ended May 31,
1999 and decreased $668,253 for the nine months ended May 31, 1999
from the same periods the preceding year. The decrease was
primarily a result of a liquidation of a substantial portion of
the company's investments in anticipation of the merger that was
terminated May 25, 1999.
A net loss of $29,991 for the quarter ended May 31, 1999
compares to a $268,613 net income for the quarter ended May 31,
1998. The net loss for the nine months ended May 31, 1999 was
$4,178 compared to net income of $800,736 for the nine months
ended May 31, 1998. The decrease was primarily due to the
decrease in revenue for the three and nine 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 provided $238,304 in cash during the nine months
ended May 31, 1999 compared to $99,913 the same period the prior
year. Cash and cash equivalents increased $1,978,029 since
August 31, 1998. Investing activities provided cash of $1,666,773
primarily due to a liquidation of a substantial portion of the
company's investments in anticipation of the merger terminated on
May 25, 1999. Proceeds from the exercise of stock options was
$72,952. Registrant expects that there will be sufficient capital
to fund its operations during fiscal year 1999.
At May 31, 1999, the company had investments with a cost and
fair market value of $485,050 and $224,641, 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 95%
of the fair market value was represented by investments in two
companies at May 31, 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 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.
<PAGE>
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.
** 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.
<PAGE>
** 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.
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.
<PAGE>
Tech 80 also produces accessories to add-in boards. These
accessories consist of software products, interface cables, and
terminal boards. Accessory products enhance the sales of the main
product line by making it more convenient for the customer to use
Tech 80's products.
Tech 80's products address four categories of industrial
control applications: servo motor control, stepper motor control,
encoder/data acquisition, and industrial input/output. Most of
Tech 80's products relate to motion control aspects of such
applications.
Customers
Tech 80's customers consist of both OEM and end-user (in-
house) applications. Tech 80 actively solicits OEM business,
which often results in significant follow-on sales. Because OEM
design-ins typically run for several years, future sales growth
can be enhanced by a "layering" effect from current OEM business.
All of Tech 80's sales are made to customers unaffiliated
with the company. One customer accounted for 13% of Tech 80's
revenue for fiscal year 1998 and twelve customers accounted for
approximately 50% of 1998 revenue. No one customer accounted for
10% or more of Tech 80's revenue for fiscal year 1997.
International sales accounted for 5.1% and 6.0% of revenue for the
years ended 1998 and 1997, respectively. Tech 80's business is
not seasonal in nature.
Competition
Tech 80 competes with industrial control manufacturers
located in the U.S. and Canada, as well as with some producers
based in Europe and Asia. A number of Tech 80's competitors,
including for example Galil Motion Control, Inc. and Delta Tau
Data Systems, Inc., are larger, have been in business longer, and
have greater resources than Tech 80. Based on the most recent
information available, Tech 80 believes that it offers one of the
most complete product lines for the industrial control products
market.
There are two main types of competition in Tech 80's
industrial control products business. Some competing producers
offer products that are directly competitive with the same
functions as Tech 80's products. Other producers offer products
that enable the user to implement a system in an alternative
fashion to accomplish the same result, either through use of
different functional boards on the same bus structure or on an
alternative bus structure. Tech 80's broad product line,
involving various bus structures, permits Tech 80 to compete
effectively regardless of the bus structure required. Some
competition also results from potential customers' in-house
special design departments.
Tech 80 believes that the principal competitive factors in
its business are function, availability of products and, to a
lesser extent, price. Tech 80's products are comparable in
performance and capability to those of its competitors. Tech 80
believes that its experienced design staff (utilizing Computer
Aided Design technology) enables it to offer standardized products
to meet the customer's needs with a warranty and price which
compare favorably to competitive alternatives, including potential
customers' in-house design costs.
<PAGE>
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 $683,134, or 16% of total
revenues, during the first eleven months of fiscal 1999. Sales of
products incorporating KID chips totaled $1,468,255, or 26% of
total revenue, during fiscal 1998 and $1,121,160, or 26% of total
revenues, during the first eleven months of fiscal 1999. Sales of
products incorporating LSI chips totaled $917,010, or 16% of total
revenue, during fiscal 1998 and $666,873, or 16% of total
revenues, during the first eleven months of fiscal 1999. Sales of
products incorporating PSE chips totaled $999,868, or 18% of total
revenues, during fiscal 1998 and $761,705, or 18% of total
revenues, during the first eleven months of fiscal 1999. Tech 80
has no long term contracts relating to the continued supply of
these 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.
<PAGE>
Employees
Tech 80 had 25 employees as of August 16, 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 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.
<PAGE>
Tech 80 employs a national sales manager for direct selling
of the motion control product line. Tech 80 has signed
agreements with several international distributors to implement
and handle sales and marketing of Tech 80's products in foreign
markets.
Tech 80 warrants its microcomputer interface cards for a
period of two years from the date of shipment. Tech 80's warranty
return experience has been minimal, and warranty related expenses
have not been material. Tech 80 offers in-house repair services
for its products.
Description of Property
Tech 80 leases its office and production facilities in a
multiple-tenant building located at 658 Mendelssohn Avenue North,
Minneapolis, Minnesota. The portion of the building occupied by
Tech 80 consists of 4,810 square feet for production, warehouse,
laboratory, drafting and engineering, plus 3,690 square feet for
offices, for a total of 8,500 square feet. Tech 80 leases the
space under a non-cancelable operating lease that expires October
2000. The lease requires Tech 80 to pay certain operating
expenses, including real estate taxes, insurance and maintenance,
in addition to the monthly base rent of $4,165. Rent expense for
1998 and 1997, including operating expenses, was approximately
$68,400 and $68,700, respectively.
MANAGEMENT
The name, age and position of each person who is a director
or executive officer of Tech 80 as of August 16, 1999, is as
follows:
<TABLE>
<CAPTION>
Position Position
Name Age with Company Held Since
-------------------------------------------------------------
<S> <C> <S> <C>
Thomas L. Gould 57 Director, Secretary 4/90
Duane A. Markus 57 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.
<PAGE>
Mr. Pagel was elected to fill a vacancy on the Board of
Directors on April 23, 1990. Mr. Pagel, since September 1985, has
been engaged in managing his personal investments. Prior to that
time, Mr. Pagel was President and sole shareholder of Pagel, Inc.
Mr. Burkett was promoted to Chief Operating Officer by the
Board of Directors in April 1993. Mr. Burkett was hired in August
1985 as Sales Manager and has since held the positions of Director
of Sales and Marketing and Vice President of Industrial Control
Products. Prior to his employment at Technology 80 Inc., Mr.
Burkett was employed as Vice President of the North American
Office of Omni Switch, Inc., Phoenix, Arizona.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth information as of August 16,
1999, as to the shares of the Company's Common Stock beneficially
owned by Messrs. Pagel, Markus, and Gould (the only persons known
by the Tech 80 to own, beneficially, more than 5% of the Tech 80's
outstanding Common Stock) and, as of such date, by each of the
Company's other current directors and officers and, as of such
date, by all officers and directors as a group.
<TABLE>
<CAPTION>
Amount and Nature Percent
Name and Business Address of Beneficial of Shares
of Beneficial Holder Ownership (1) (2) Ownership (2)
- ------------------------------------------------------------------
<S> <C> <C> <C>
Thomas L. Gould, Director 101,244 (4) 5.6
658 Mendelssohn Avenue North
Minneapolis, MN 55427
Jack W. Pagel, Director 345,947 (4) 19.2
658 Mendelssohn Avenue North
Minneapolis, MN 55427
Duane A. Markus
Director, CEO 552,808 (3) (5) 30.6
658 Mendelssohn Avenue North
Minneapolis, MN 55427
James A. Burkett,
Chief Operating Officer 75,450 (6) (7) 4.2
658 Mendelssohn Avenue North
Minneapolis, MN 55427
All Officers and Directors
as a Group (four people) 1,075,449 (8) 59.6
</TABLE>
(1) All shares reflected as beneficially owned are those as to
which the shareholder has sole voting and investment power, unless
otherwise noted.
<PAGE>
(2) Shares not outstanding, but deemed beneficially owned by
virtue of the right of an individual to acquire them within 60
days, are treated as outstanding only when determining the amount
and percent owned by such individual and when determining the
amount and percent owned by the group.
(3) Includes 65,200 shares beneficially owned by Mr. Markus's
children as to which Mr. Markus has voting power and the power of
disposition.
(4) Includes 47,000 shares which may be acquired pursuant to
options currently exercisable or exercisable within 60 days of the
date hereof.
(5) Includes 6,000 shares which may be acquired pursuant to
options currently exercisable or exercisable within 60 days of the
date hereof.
(6) Includes 9,000 shares which may be acquired pursuant to
options currently exercisable or exercisable within 60 days of the
date hereof.
(7) Includes 12,300 shares beneficially owned by Mr. Burkett's
spouse and child as to which Mr. Burkett has voting power and/or
the power of disposition.
(8) Includes 109,000 shares which may be acquired pursuant to
options currently exercisable or exercisable within 60 days of the
date hereof.
DESCRIPTION OF ACS
ACS is an Israeli corporation formed June 9, 1985. ACS
believes that its is a technology leader in the motion control
industry. ACS combines proprietary software and advanced
electronics in the development and production of universal, fully-
digital motion control products. The common stock of ACS is
traded on the Nasdaq SmallCap Market under the symbol "ACSEF."
The principal executive offices of ACS is located at
Industrial Park, P.O.B. 5668, Migdal Ha'Emek 10500, Israel 10500.
ACS's telephone number at its principal executive offices is 011-
972-6-6546-440.
DESCRIPTION OF TAC
TAC is a Minnesota corporation owned by ACS which was
incorporated on January 12, 1999 for the sole purpose of
effecting the Merger. TAC maintains its principal executive
offices at Industrial Park, P.O.B. 5668, Migdal Ha'Emek 10500,
Israel 10500. TAC's telephone number at its principal executive
offices is 011-972-6-6546-440. TAC has no operating history and
will cease to exist when it is merged into Tech 80 in connection
with the Merger.
LEGAL MATTERS
Certain legal matters in connection with the Merger will be
passed upon for Tech 80 by Fredrikson & Byron, P.A., Minneapolis,
Minnesota.
<PAGE>
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
May 31, August 31,
1999 1998
---------- ----------
CURRENT ASSETS
<S> <C> <C>
Cash and cash equivalents $3,645,392 $1,667,363
Short-term investments - 49,048
Accounts receivable (less allowance for doubtful
accounts: May 31 - $12,000; Aug. 31 - $12,000) 702,322 666,933
Inventories 1,014,583 1,357,461
Deferred taxes 41,000 41,000
Other current assets 142,913 82,972
---------- ----------
TOTAL CURRENT ASSETS 5,546,210 3,864,777
---------- ----------
PROPERTY AND EQUIPMENT
Furniture and equipment 538,268 524,035
Leasehold improvements 23,060 23,060
---------- ----------
561,328 547,095
Less accumulated depreciation 461,502 430,524
---------- ----------
99,826 116,571
---------- ----------
OTHER ASSETS
Investments 224,641 1,955,678
Deferred taxes 197,500 265,000
---------- ----------
422,141 2,220,678
---------- ----------
TOTAL ASSETS $6,068,177 $6,202,026
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 35,282 $ 87,418
Accrued payroll and payroll taxes 160,191 464,816
Accrued income taxes 84,500 -
Payable to investment company - 77,750
Accrued liabilities - other 31,247 217,950
---------- ----------
TOTAL CURRENT LIABILITIES 311,220 847,934
---------- ----------
STOCKHOLDERS' EQUITY
Common stock, $0.01 par value (authorized -
5,000,000 shares; issued and outstanding -
May 31, 1,694,733, Aug. 31, 1,646,733 shares) 16,947 16,468
Paid-in capital 3,523,204 3,450,732
Other - loans (162,809) (172,072)
Accumulated other comprehensive income (loss) (166,409) (491,238)
Retained earnings 2,546,024 2,550,202
---------- ----------
5,756,957 5,354,092
---------- ----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $6,068,177 $6,202,026
========== ==========
See notes to condensed financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
TECHNOLOGY 80 INC.
CONDENSED STATEMENTS OF INCOME
(UNAUDITED)
Three months ended Nine months ended
May 31, May 31,
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
REVENUES $1,233,119 $1,498,149 $3,297,161 $4,251,423
COST OF GOODS SOLD 466,895 536,652 1,285,440 1,633,858
---------- ---------- ---------- ----------
GROSS PROFIT 766,224 961,497 2,011,721 2,617,565
---------- ---------- ---------- ----------
OPERATING EXPENSES
General and administrative 146,812 180,026 541,978 485,751
Research and development 223,482 185,895 629,619 566,785
Selling 177,657 224,852 484,067 607,911
---------- ---------- ---------- ----------
TOTAL OPERATING EXPENSES 547,951 590,773 1,655,664 1,660,447
---------- ---------- ---------- ----------
INCOME FROM OPERATIONS 218,273 370,724 356,057 957,118
OTHER INCOME (LOSS) (289,664) 40,889 (402,635) 265,618
---------- ---------- ---------- ----------
INCOME (LOSS) BEFORE INCOME
TAXES (71,391) 411,613 (46,578) 1,222,736
PROVISION (BENEFIT) FOR
INCOME TAXES (41,400) 143,000 (42,400) 422,000
---------- ---------- ---------- ----------
NET INCOME (LOSS) $ (29,991) $ 268,613 $ (4,178) $ 800,736
========== ========== ========== ==========
BASIC EARNINGS PER SHARE ($0.02) $0.16 ($0.00) $0.49
===== ===== ===== =====
DILUTED EARNINGS PER SHARE ($0.02) $0.15 ($0.00) $0.46
===== ===== ===== =====
See notes to condensed financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
TECHNOLOGY 80 INC.
CONDENSED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(UNAUDITED)
Three months ended Nine months ended
May 31, May 31,
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net income (loss) $(29,991) $268,613 $ (4,178) $800,736
-------- -------- -------- --------
Other comprehensive income (loss):
Unrealized gain (loss) on
investments during the period
(net of (tax) benefit of
$31,900, ($37,300), $8,300
and ($48,000)) (56,707) 66,461 (14,916) 85,457
Less reclassification adjustment
for (gains) losses included in
net income
(net of (tax) benefit of
($119,000), $3,600,($192,000)
and $66,800) 211,534 (6,421) 339,745 (118,145)
-------- -------- -------- --------
154,827 60,040 324,829 (32,688)
-------- -------- -------- --------
Comprehensive income (loss) $124,836 $328,653 $320,651 $768,048
======== ======== ======== ========
See notes to condensed financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
TECHNOLOGY 80 INC.
CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Nine months ended
May 31,
1999 1998
----------- -----------
OPERATING ACTIVITIES
<S> <C> <C>
Net income (loss) $ (4,178) $ 800,736
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 37,371 31,644
Deferred taxes (37,250) 39,700
(Gain) loss on sale of investments 531,745 (184,945)
Gain on sale of fixed asset (218) (384)
Changes in operating assets and liabilities:
Accounts receivable (35,389) 165,539
Inventories 342,878 (174,119)
Other current assets (59,941) 6,792
Accounts payable (52,136) (46,059)
Accrued income taxes 84,500 84,010
Accrued liabilities (569,078) (623,001)
---------- ----------
NET CASH PROVIDED BY OPERATING ACTIVITIES 238,304 99,913
---------- ----------
INVESTING ACTIVITIES
Proceeds from sale of equipment 2,430 1,350
Purchase of equipment (23,274) (50,582)
Proceeds from sales and maturities of investments 2,001,735 1,645,062
Purchases of investments (323,381) (1,826,252)
Loans for stock purchases (26,641) -
Payments on loans for stock purchases 35,904 -
---------- ----------
NET CASH PROVIDED BY (USED IN) INVESTING
ACTIVITIES 1,666,773 (230,422)
---------- ----------
FINANCING ACTIVITIES
Proceeds from exercise of stock options 72,952 33,546
---------- ----------
NET CASH PROVIDED BY FINANCING ACTIVITIES 72,952 33,546
---------- ----------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 1,978,029 (96,963)
CASH AND CASH EQUIVALENTS AT BEGINNING OF THE PERIOD 1,667,363 284,261
---------- ----------
CASH AND CASH EQUIVALENTS AT END OF THE PERIOD $3,645,392 $ 187,298
========== ==========
See notes to condensed financial statements.
</TABLE>
<PAGE>
TECHNOLOGY 80 INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED)
May 31, 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 nine months ending May 31, 1999 and
1998 are as follows:
<TABLE>
<CAPTION>
Three months ended Nine months ended
May 31, May 31,
-------------------- --------------------
1999 1998 1999 1998
--------- --------- --------- ---------
Basic:
<S> <C> <C> <C> <C>
Average shares outstanding 1,687,619 1,640,420 1,671,916 1,627,451
========= ========= ========= =========
Net income (loss) $ (29,991) $ 268,613 $ (4,178) $ 800,736
========= ========= ========= =========
Per share amount ($0.02) $0.16 ($0.00) $0.49
===== ===== ===== =====
Diluted:
Average shares outstanding 1,687,619 1,640,420 1,671,916 1,627,451
Net effect of dilutive stock
options - based on
treasury stock method -0- 123,367 38,324 128,486
--------- --------- --------- ---------
1,687,619 1,763,787 1,710,240 1,755,937
========= ========= ========= =========
Net income (loss) $ (29,991) $ 268,613 $ (4,178) $ 800,736
========= ========= ========= =========
Per share amount ($0.02) $0.15 ($0.00) $0.46
===== ===== ===== =====
</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
SECOND AMENDED AND RESTATED
AGREEMENT AND PLAN OF MERGER
AND REORGANIZATION
Among
ACS Electronics, Limited, Tech 80 Acquisition Corp.,
Technology 80 Inc., Duane Markus,
Jack Pagel and Tom Gould
Dated as of August 13, 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......................6
SECTION 2.3. DELIVERIES AT THE CLOSING.....................8
ARTICLE III REPRESENTATIONS AND WARRANTIES OF THE COMPANY...10
SECTION 3.1. CORPORATE EXISTENCE..........................10
SECTION 3.2. MINUTE BOOKS.................................10
SECTION 3.3. CAPITALIZATION...............................11
SECTION 3.4. POWER AND AUTHORIZATION......................11
SECTION 3.5. DUE EXECUTION; ENFORCEABILITY................11
SECTION 3.6. NONVIOLATION.................................12
SECTION 3.7. NO APPROVALS REQUIRED........................12
SECTION 3.8. NO PROCEEDINGS...............................12
SECTION 3.9. FINANCIAL STATEMENTS.........................12
SECTION 3.10. ABSENCE OF CHANGES...........................13
SECTION 3.11. PROPERTIES AND ASSETS........................13
SECTION 3.12. CONTRACTS....................................13
SECTION 3.13. INTELLECTUAL PROPERTY........................14
SECTION 3.14. TAXES........................................15
SECTION 3.15. LITIGATION...................................16
SECTION 3.16. COMPLIANCE WITH LAWS; GOVERNMENTAL
AUTHORIZATIONS..............................16
SECTION 3.17. ENVIRONMENTAL MATTERS........................16
SECTION 3.18. EMPLOYMENT AGREEMENTS AND EMPLOYEE
BENEFIT PLANS...............................17
SECTION 3.19. EMPLOYEES....................................19
SECTION 3.20. INSURANCE....................................19
SECTION 3.21. ACCOUNTS, LOCKBOXES, SAFE DEPOSIT BOXES
AND POWERS OF ATTORNEY......................19
SECTION 3.22. TRANSACTIONS WITH AFFILIATES.................20
SECTION 3.23. SEC REPORTS AND FINANCIAL STATEMENTS.........20
SECTION 3.24. INFORMATION IN DISCLOSURE DOCUMENTS..........20
SECTION 3.25. DISCLOSURE...................................20
SECTION 3.26. CERTAIN BUSINESS PRACTICES AND REGULATIONS...21
SECTION 3.27. SCHEDULES....................................21
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER
SUB..............................................21
SECTION 4.1. CORPORATE EXISTENCE..........................21
SECTION 4.2. POWER AND AUTHORIZATION......................22
SECTION 4.3. DUE EXECUTION; ENFORCEABILITY................22
SECTION 4.4. NONVIOLATION.................................22
<PAGE>
SECTION 4.5. NO APPROVALS REQUIRED........................22
SECTION 4.6. NO PROCEEDINGS...............................22
SECTION 4.7. INFORMATION IN DISCLOSURE DOCUMENTS
AND REGISTRATION STATEMENTS................22
SECTION 4.8. INTERIM OPERATIONS OF MERGER SUB.............23
ARTICLE V COVENANTS.........................................23
SECTION 5.1. CONDUCT OF BUSINESS OF THE COMPANY...........23
SECTION 5.2. COVENANTS OF PARENT..........................25
ARTICLE VI ADDITIONAL AGREEMENTS............................25
SECTION 6.1. REASONABLE EFFORTS...........................25
SECTION 6.2. ACCESS TO INFORMATION........................26
SECTION 6.3. STOCKHOLDERS MEETING.........................26
SECTION 6.4. LEGAL CONDITIONS TO THE MERGER;
LEGAL COMPLIANCE............................26
SECTION 6.5. NO SOLICITATION..............................27
SECTION 6.6. FEES AND EXPENSES............................28
SECTION 6.7. NOTIFICATION OF CERTAIN MATTERS..............29
SECTION 6.8. INDEBTEDNESS.................................29
SECTION 6.9. INDEMNIFICATION..............................29
SECTION 6.10. LIMITATION ON INDEMNIFICATION................31
SECTION 6.11. CLAIM FOR INDEMNIFICATION....................31
ARTICLE VII CONDITIONS......................................31
SECTION 7.1. CONDITIONS TO EACH PARTY'S OBLIGATION
TO EFFECT THE MERGER........................31
SECTION 7.2. CONDITIONS OF OBLIGATIONS OF PARENT..........32
SECTION 7.3. CONDITIONS OF OBLIGATIONS OF THE COMPANY.....33
ARTICLE VIII TERMINATION AND AMENDMENT......................34
SECTION 8.1. TERMINATION..................................34
SECTION 8.2. EFFECT OF TERMINATION........................35
SECTION 8.3. AMENDMENT....................................35
SECTION 8.4. EXTENSION; WAIVER............................35
ARTICLE IX MISCELLANEOUS....................................36
SECTION 9.1. SURVIVAL OF REPRESENTATIONS AND WARRANTIES...36
SECTION 9.2. DEFINITIONS..................................36
SECTION 9.3. BROKERS' AND FINDERS' FEES...................38
SECTION 9.4. SALES, TRANSFER AND DOCUMENTARY TAXES, ETC...38
SECTION 9.5. PUBLICITY....................................38
SECTION 9.6. CONTENTS OF AGREEMENT; PARTIES
IN INTEREST; ETC............................38
SECTION 9.7. ASSIGNMENT AND BINDING EFFECT................39
SECTION 9.8. NOTICES......................................39
SECTION 9.9. GOVERNING LAW................................40
SECTION 9.10. NO BENEFIT TO OTHERS.........................41
SECTION 9.11. SCHEDULES....................................41
SECTION 9.12. SEVERABILITY.................................41
SECTION 9.13. COUNTERPARTS.................................41
SECTION 9.14. KNOWLEDGE....................................41
<PAGE>
This SECOND AMENDED AND RESTATED AGREEMENT AND PLAN OF
MERGER AND REORGANIZATION dated as of August 13, 1999, by and
among ACS Electronics, Limited, 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 and the
Amended and Restated Agreement and Plan of Merger dated as of
March 31, 1999. Certain terms used herein and not otherwise
defined herein are defined in ARTICLES II and IX.
RECITALS
--------
WHEREAS, the Company is engaged in the production and sale
of broad-level motion controllers and encoder interfaces for the
semiconductor, medical and packaging industries, designed for
industry-standard bus architectures (the "Business");
WHEREAS, the Board of Directors of the Company, 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.
<PAGE>
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.
-------------------------
The Articles of Incorporation of Merger Sub in effect
at the Effective Time shall be the Articles of Incorporation of
the Surviving Corporation until amended in accordance with the
terms thereof and applicable law
(b) By-Laws.
-------
The By-Laws of Merger Sub in effect at the Effective
Time shall be the By-Laws of the Surviving Corporation until
amended in accordance with the terms thereof and applicable law.
SECTION 1.6. DIRECTORS. The directors of Merger Sub at the
Effective Time shall be the directors of the Surviving
Corporation, each to hold office from the Effective Time in
accordance with the Articles of Incorporation and By-Laws of the
Surviving Corporation and until his or her successor is duly
elected and qualified.
SECTION 1.7. OFFICERS. The officers of Merger Sub at the
Effective Time shall be the officers of the Surviving
Corporation, each to hold office from the Effective Time in
accordance with the Articles of Incorporation and By-Laws of the
Surviving Corporation and until his or her successor is duly
appointed and qualified.
<PAGE>
ARTICLE II
CONVERSION OF SECURITIES
SECTION 2.1. CONVERSION OF CAPITAL STOCK. As of the
Effective Time, by virtue of the Merger and without any action on
the part of the holder of any shares of Common Stock, $.01 par
value per share, of the Company (the "Company Common Stock") or
rights to acquire Company Common Stock, or the holder of any
capital stock of Merger Sub:
(a) Merger Sub Common Stock.
-----------------------
Each issued and outstanding share of Common Stock, no
par value, of Merger Sub (the "Merger Sub Common Stock") shall be
converted into one share of common stock of the Surviving
Corporation.
(b) Company Common Stock.
--------------------
Each share of Company Common Stock issued and
outstanding as of the Effective Time shall be converted into the
right to receive 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. Except as set
forth in SECTION 2.1(e) below with respect to the Subordinated
Notes to be issued to the Principals, the Consideration shall be
payable in cash to all shareholders with respect to their Shares.
(c) Company Options.
---------------
All stock options to purchase shares of Company Common
Stock (the "Company Options") outstanding at the Effective Time,
whether or not all shares subject to such Company Options 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 in cash, as determined on a per share basis for each
share issuable upon exercise thereof (assuming full vesting
thereof) 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.
<PAGE>
(e) Consideration Payable to the Principals; Subordinated
Notes.
-----------------------------------------------------
Notwithstanding anything to the contrary herein, the
total Consideration otherwise payable in cash by the Company to
the Principals for all Shares of stock owned by them (and not for
any shares of Shares owned by any other shareholder) shall be
reduced in total by $1,100,000 and in lieu thereof Parent and the
Surviving Corporation shall issue at Closing to the Principals
three subordinated notes (the "Subordinated Notes") in the total
amount for all Principals of $1,100,000. Unless otherwise
agreed by the Principals and Parent, in their discretion:
(i) Terms.
-----
The Subordinated Notes shall provide for eight
quarterly payments of interest only for the first two years, and
then principal and interest shall be paid over three additional
years and be paid in 12 equal quarterly installments, together
with accrued interest. The Subordinated Notes may be prepaid in
whole or part without premium or discount. The Subordinated
Notes shall be subordinated to Parent's loan from its primary
lender (the "Lender") to be obtained at Closing in connection
with the acquisition contemplated hereby (the "Acquisition
Loan"), as contemplated by that certain commitment letter issued
by Bank Leumi to Parent dated as of August 10, 1999 (such
commitment letter, or any replacement or modified letter
reasonably agreed to by Parent and the Principals, is referred to
as the "Commitment Letter")The interest rate shall be a base rate
equal to the interest rate payable by Parent on the Acquisition
Loan, provided, however, that in the event of any default under
the Subordinated Notes (including any payment default whether or
not payment is blocked by Bank Leumi), the interest rate shall be
increased by five percent (5%) over such base rate; The
Subordinated Notes shall be a joint obligation of Parent and the
Surviving Corporation. The Subordinated Notes shall be secured by
a security interest in the assets of the Surviving Corporation
(provided that such security interest shall be subordinated to
any security interest granted to the Lender to secure the
Acquisition Loan), and by a first security interest in 25% of
Surviving Corporation's stock held by Parent.The terms and
conditions of the Subordinated Notes, and all other agreements
related thereto, shall be as mutually agreed by Principals and
Parent, in their discretion.
(ii) Per Principal.
-------------
The cash Consideration otherwise payable to each
Principal for the Shares owned by such Principal (and not by any
other shareholder) shall be reduced by the amount of such
Principal's Subordinated Note. Each Principal's Subordinated Note
shall be in the following amounts (unless otherwise agreed by the
Principals, in their sole discretion):
<PAGE>
Duane Markus $ 586,427
Jack Pagel $ 419,940
Tom Gould $ 93,633
----------
TOTAL $1,100,000
(f) Payment into the Shareholder Fund.
---------------------------------
At Closing, Parent shall pay in cash the Consideration
for all Shares outstanding at the Effective Time (net of the
amount of $1,100,000 in accordance with SECTION 2.1(e)) 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.
(i) Certain Obligations and Duties of the
Principals.
-------------------------------------
The Principals shall have the same duties,
obligations and liabilities, and the same limitations of duties,
obligations and liabilities, that an independent exchange agent
would have in fulfilling the duties of the Principals under this
ARTICLE II if the parties had retained an independent exchange
agent pursuant to an agreement containing terms and conditions
customary for transactions of this type.
(ii) 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).
(iii) The Shareholder Fund.
---------------------
The "Shareholder Fund" means an interest-bearing
account established by the Principals at a bank or other
financial institution selected by them, which account shall be
for the benefit, and shall be deemed an asset, of all
shareholders of the Company and holders of Option Agreements
(except that the Principals' pro rata interest in the Shareholder
Fund shall be reduced by an amount equal to the principal amount
of the Subordinated Notes issued to them as set forth above). The
Shareholder Fund shall be used for payment of the cash
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 by paying the
reasonable out-of-pocket costs of the Principals associated
therewith.
<PAGE>
SECTION 2.2. EXCHANGE AND PAYMENT.
(a) Exchange.
--------
(i) Transmittals.
------------
As soon as practicable after the Effective Time,
the Principals and the Surviving Corporation shall mail to each
holder of record of Company Common Stock whose shares were
converted pursuant to SECTION 2.1, and to holders of record of
Company Options (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 representing Company Common Stock (collectively, the
"Certificates"), or Option Agreements representing Company
Options, in exchange for the Consideration or Net Consideration,
as the case may be.
(ii) Surrender; Payment.
------------------
Upon surrender of a Certificate or Option
Agreement for cancellation to the Surviving Corporation, together
with such letter of transmittal, duly executed, the holder of
such Certificate or Option Agreement shall be entitled to receive
in exchange therefor the cash 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.
--------------------------------------
In the event of a transfer of ownership of
Company Common Stock or Company Options that 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 representing Company
Options 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.
<PAGE>
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 it 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.
(iv) The Surviving Corporation's Obligations;
Indemnification.
----------------------------------------
The Surviving Corporation's obligations under
this SECTION 2.2(a) shall be performed by Ricky Carlson or other
employee of the Surviving Corporation reasonably acceptable to
the Principals. From and after the Effective Time, the Parent and
the Surviving Corporation, jointly or severally, hereby agree to
indemnify and hold harmless the Principals and the holders of
Certificates or Option Agreements, and their respective
affiliates, for any Losses (as defined in SECTION 6.9) actually
suffered or incurred by them as a result of any breach of the
Surviving Corporation's obligations under this SECTION 2.2(a).
(b) Dissenters' Rights.
------------------
(i) Demand and Perfection.
---------------------
Notwithstanding any provision of this Agreement
to the contrary, the holder (a "Dissenting Shareholder") of any
shares of Company Common Stock who has demanded and perfected
such holder's right to dissent from the Merger and to be paid the
fair value of such shares (the "Dissenting Shares") in accordance
with Sections 302A.471 and 302A.473 of the MBCA and as of the
Effective Time has neither effectively withdrawn nor lost his,
her or its right to such dissent shall not have a right to
receive the Consideration for such Dissenting Shares pursuant to
SECTION 2.1(a) 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
<PAGE>
(through failure to perfect or otherwise) his, her or its 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(a) upon
surrender of the Certificate or Certificates representing such
Dissenting Shares.
(iii) Payment.
-------
The Company shall give Parent and Merger Sub
prompt notice of any demand by a Dissenting Shareholder for
payment, or notices of intent to demand payment received by the
Company under Sections 302A.471 and 302A.473 of the MBCA, and
Parent and Merger Sub shall have the right to participate in all
negotiations and proceedings with respect to such demands. The
Company shall not, except with the prior written consent of
Parent (which consent shall not be unreasonably withheld, delayed
or conditioned) or as otherwise required by law, make any payment
with respect to, or settle, or offer to settle, any such demands.
(c) Satisfaction.
------------
All of the Consideration or Net Consideration paid upon
shares of Company Common Stock or upon securities convertible
into Company Common Stock in accordance with the terms hereof
shall be deemed to have been paid in full satisfaction of all
rights pertaining to such shares or convertible securities.
(d) Undistributed Funds.
-------------------
Any portion of the Shareholder Fund which remains
undistributed to the shareholders of the Company for six months
after the Effective Time shall be delivered by the Principals
(along with all interest accrued on the Shareholder Fund) 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:
<PAGE>
(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
July 31, 1999, there has been no Material Adverse Effect;
(ii) Certificate of Good Standing.
----------------------------
A certificate of good standing of the Company
issued by the Secretary of State of Minnesota, dated as of a date
not more than ten (10) days prior to the Closing Date;
(iii) Certified Resolutions.
---------------------
True copies of, (1) resolutions of the Board of
Directors, and any applicable committee thereof, certified by the
Company's Secretary, (A) approving this Agreement, the Plan of
Merger and the transactions contemplated under this Agreement,
and (B) authorizing each of the persons who sign, on the
Company's behalf, this Agreement or any documents or instruments
delivered or required to be delivered in connection with the
transactions contemplated by this Agreement, and (2) resolutions
adopted by the shareholders of the Company, certified by the
Company's Secretary, approving the Plan of Merger in accordance
with the requirements of the MBCA;
(iv) Opinion.
-------
An opinion of Fredrikson & Byron, P.A. dated as
of the Closing in a form and substance reasonably satisfactory to
Parent;
(v) Non-Competition and Severance Agreements.
----------------------------------------
A duly executed Non-Competition and Severance
Agreement between Duane Markus and the Surviving Corporation, and
duly executed Severance Agreements between each of Jack Pagel and
Tom Gould and the Surviving Corporation; and
(vi) Other.
-----
Copies of any other documentation, agreements 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 or the Principals, as the case may be, each of the
following items:
(i) Officer Certificate.
-------------------
Certificates dated as of the date of the Closing
executed by an authorized officer of Parent and by an authorized
officer of Merger Sub, respectively, certifying, in such form as
the Company may reasonably request, that the representations and
warranties of Parent and Merger Sub, respectively, were true and
correct as of the date of the execution of the Agreement and are
true and correct on and as of the date of the Closing as if made
on or as of such date;
<PAGE>
(ii) Certified Resolutions.
---------------------
True copies of (1) resolutions of the Board of
Directors of Parent and Merger Sub certified by the Secretary of
each, (A) approving this Agreement, the Plan of Merger and the
transaction contemplated under this Agreement, and (B)
authorizing each of the persons who sign, on behalf of Parent and
Merger Sub, the Agreement or any instruments or documents
delivered or required to be delivered in connection with the
consummation of the transactions under this Agreement; and (2)
true copies of resolutions adopted by the sole shareholder of the
Merger Sub, as certified by Merger Sub's Secretary, approving the
Plan of Merger in accordance with the MBCA;
(iii) The Subordinated Notes.
----------------------
The Subordinated Notes shall be issued by Parent
and the Surviving Corporation at Closing;
(iv) Opinion.
-------
An opinion of Lindquist & Vennum P.L.L.P. (which
may rely on or incorporate an opinion of Israeli counsel) counsel
for Parent, dated as of the date of the Closing, in form and
substance reasonably satisfactory to the Company; and
(v) Other.
-----
Copies of any other documentation, agreements 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.
<PAGE>
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 June 30,
1999, 1,694,858 shares were issued and outstanding. As of June
30, 1999, 116,000 shares of Company Common Stock were reserved
for issuance upon exercise of outstanding Company Options
pursuant to the Company's Incentive Stock Option Plan and its
Directors' Stock Option Plan, (the "Company Stock Plans"). The
Company has no outstanding warrants. All the outstanding shares
of the Company's capital stock are, and all shares which may be
issued pursuant to Company Stock Plans will be, when issued in
accordance with the terms thereof, duly authorized, validly
issued, fully paid and non-assessable and free of any preemptive
rights in respect thereto. As of the date hereof, no bonds,
debentures, notes or other indebtedness having the right to vote
(or convertible into securities having the right to vote)
("Voting Debt") of the Company are issued or outstanding. Except
as set forth above or in SCHEDULE 3.3, as of the date hereof,
there are no existing options, warrants, calls, subscriptions or
other rights or other agreements, commitments, understandings or
restrictions of any character binding on the Company with respect
to the issued or unissued capital stock or Voting Debt of the
Company. Except as set forth above or in SCHEDULE 3.3, there are
no existing options, warrants, calls, subscriptions or other
rights or other agreements, commitments, understandings or
restrictions of any character obligating the Company to issue,
transfer or sell or cause to be issued, transferred or sold any
shares of capital stock or Voting Debt of, or other equity
interests in, the Company, or securities convertible into or
exchangeable for such shares, Voting Debt or equity interests, or
obligating the Company to grant, extend or enter into any such
option, warrant, call, subscription or other right, agreement,
commitment, understanding or restriction. Except as set forth in
SCHEDULE 3.3, there are no contractual obligations of the Company
to repurchase, redeem or otherwise acquire any shares of capital
stock of the Company. Since August 31, 1998, no shares of
Company Common Stock have been issued except issuance of shares
reserved for issuance and issued pursuant to the Company Stock
Plans. Except as set forth in SCHEDULE 3.3, there are no voting
trusts, proxies or other agreements or understandings to which
the Company is a party or is bound with respect to voting any
shares of capital stock of the Company.
SECTION 3.4. POWER AND AUTHORIZATION. The Company has full
power, authority and legal right to execute, deliver and perform
this Agreement and such of the Related Documents as are required
to be delivered by the Company in accordance with the provisions
hereof. The execution, delivery and performance of this Agreement
and the Related Documents by the Company have been duly
authorized by all necessary corporate action, subject to
obtaining shareholder approval pursuant to SECTION 6.3.
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.
<PAGE>
SECTION 3.6. NON-VIOLATION. Except as set forth in SCHEDULE
3.6, the execution, delivery and performance of this Agreement
and the Related Documents by the Company and Principals does not
and will not violate, conflict with, result in the breach of, or
constitute a default or result in or permit any acceleration of
any obligation under: (a) any law, ordinance or governmental rule
or regulation to which the Company is subject; (b) any judgment,
order, writ, injunction, decree or award of any court, arbitrator
or governmental or regulatory official, body or authority which
is applicable to the Company; (c) the Articles of Incorporation
or By-Laws of the Company or any securities issued by it; or (d)
any mortgage, indenture, agreement, contract, commitment, lease,
plan, license, or other instrument, document or understanding,
oral or written, to which the Company is a party, by which the
Company may have rights or by which any of the assets of the
Company may be bound or affected; or give any party thereunder
the right to terminate, modify, accelerate or otherwise change
the existing rights or obligations of the Company thereunder.
SECTION 3.7. NO APPROVALS REQUIRED. Except for the filing of
the Articles of Merger and the Proxy Statement as provided
herein, no authorization, approval or consent of and no
registration or filing with any governmental or regulatory
official, body or authority (except as contemplated or required
by this Agreement) is required in connection with the execution,
delivery or performance of this Agreement or the Related
Documents by the Company or the Principals, and the execution,
performance or delivery of this Agreement and the Related
Documents by the Company or the Principals will not result in the
creation of any Lien upon any of the assets of the Company.
SECTION 3.8. NO PROCEEDINGS. There is no injunction, order
or decree of any court or administrative agency or any action or
proceeding pending or, to the knowledge of the Company or the
Principals, threatened by or against the Company to restrain or
prohibit the consummation of the transactions contemplated
hereby.
SECTION 3.9. FINANCIAL STATEMENTS. The Company has
delivered to Parent and Merger Sub copies of its audited balance
sheets as of August 31, 1998, 1997 and 1996 and its unaudited
balance sheet (the "Balance Sheet") as of July 31, 1999 (the
"Balance Sheet Date"), and related statements of income for the
fiscal years ended August 31, 1998, 1997 and 1996 and the period
ended July 31, 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.
<PAGE>
SECTION 3.10. ABSENCE OF CHANGES. Since July 31, 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.
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;
<PAGE>
(ii) Inventory Contracts; Etc.
------------------------
Agreements for the purchase of inventory,
materials, supplies, services, equipment or any capital item or
items and involving a consideration of more than $5,000 per
contract or series of related contracts;
(iii) Union Contracts; Etc.
--------------------
Agreements with any labor union or collective
bargaining organization or other labor agreements;
(iv) Supplier Contracts; Etc.
-----------------------
Agreements with suppliers, customers, dealers,
distributors, sales representative and agents;
(v) Personal Property Leases.
------------------------
Leases of personal property as lessee involving
a consideration of more than $500 per month per lease or series
of related leases;
(vi) Non-Competition Contracts.
-------------------------
Agreements limiting the freedom of the Company
to compete in any line of business or in any geographic area or
with any person or entity;
(vii) Sale Contracts; Etc.
-------------------
Agreements providing for disposition of the
business, assets or stock of the Company, agreements of merger or
consolidation or letters of intent with respect to the foregoing;
(viii) Contracts with Affiliates.
-------------------------
Agreements to which the Company is a party and
in which any of the officers, directors or employees of the
Company has any personal interest, either direct or indirect;
(ix) Acquisition Contracts.
---------------------
Letters of intent or agreements with respect to
the acquisition of the business, assets or stock of any other
business; and
(x) Other.
-----
All other agreements that are material to the
ownership or operation of the Business.
(b) Defaults; Etc.
-------------
Except as otherwise set forth on SCHEDULE 3.12 or
SCHEDULE 3.18, (i) the Company has complied in all material
respects with all material provisions of all such Contracts, and
there does not exist any event of default by the Company under
any thereof or any event that, after the giving of notice or the
lapse of time, or both, would constitute such an event of
default, (ii) the Company is not aware of any existing event of
default by any other party to any such Contract, and (iii) all of
such Contracts are freely transferable in the Merger without the
consent of any other party thereto.
<PAGE>
SECTION 3.13. INTELLECTUAL PROPERTY.
(a) Proprietary Rights.
------------------
Except as set forth on SCHEDULE 3.13, the Company is
the sole and exclusive owner of all patents, patent rights,
trademarks, trademark rights, trade names, trade name rights,
copyrights, service marks, trade secrets, applications for
trademarks and for service marks, technology and know-how
(including all trade secrets, data bases, customer lists,
confidential information, discoveries, inventions and
improvements), rights in computer software that the Company
purports to own (excluding commercially available software
licensed from third parties) and other proprietary rights and
information listed on SCHEDULE 3.13 (collectively, "Proprietary
Rights") and constituting all Proprietary Rights used in the
Business as presently conducted, free and clear of all Liens,
claims, charges, security interests and encumbrances, except as
set forth in such Schedule.
(b) Assignment; Etc.
---------------
The Company has not, as of and since the date upon
which it acquired any of the Proprietary Rights, (i) transferred,
conveyed, sold, assigned, pledged, mortgaged or granted a
security interest in any of the Proprietary Rights to any third
party, (ii) entered into any license, franchise or other
agreement with respect to any of the Proprietary Rights with any
third person, or (iii) otherwise encumbered any of the
Proprietary Rights. The Company has taken all reasonable measures
to maintain and enforce the Proprietary Rights and to safeguard
the secrecy of all Proprietary Rights that are considered to be
trade secrets.
(c) Infringement.
------------
The conduct of the business of the Company as currently
conducted does not conflict or infringe in any way with any
proprietary right of any third party that, individually or in the
aggregate, is reasonably likely to have a Material Adverse
Effect, and there is no claim, suit, action or proceeding pending
or to the knowledge of the Company and the Principals threatened
against the Company (i) alleging that use of the Proprietary
Rights by the Company conflicts or infringes in any way with any
third party's proprietary rights, or (ii) challenging the
Company's ownership of or right to use or the validity of any
Proprietary Right. To the knowledge of the Company and the
Principals, there are no conflicts or infringements by any third
party of any Proprietary Rights.
(d) The Merger.
----------
The ownership or possession of Proprietary Rights and
the right to secure such rights currently enjoyed by the Company
will not be affected in any material way by the transactions
contemplated by this Agreement.
SECTION 3.14. TAXES. The Company has filed all tax reports
and returns required to be filed by it including, without
limitation, any information reports that are required to be
provided to any payee or other third party, and such reports and
returns were true, correct and complete in all material respects.
Except as set forth in SCHEDULE 3.14 (a) the Company has paid all
taxes and other charges due or claimed to be due from it to any
federal, state, local or foreign taxing authority (including,
without limitation, those due in respect of properties, income,
franchises, licenses, sales or payrolls and any withholding
obligations, or other trust fund taxes and any interest,
penalties or additions to tax);
<PAGE>
(b) all reserves for taxes reflected in the Balance Sheet are adequate;
(c) there are no tax Liens upon any property or assets of the Company,
except Liens for current taxes not yet due; (d) the Company has made all
required declarations of estimated federal, state or local income
taxes and has paid all taxes as shown on such declarations; (e)
there are no facts which exist or have existed which would
constitute grounds for the assessment of any tax liability and
neither the Internal Revenue Service nor any other taxing
authority is now asserting against the Company any deficiency or
claim for additional taxes or interest thereon or penalties in
connection therewith; and (f) there are no outstanding agreements
or waivers extending the statutory period of limitation
applicable to any tax return for any period. Copies of all
Federal income tax returns of the Company in respect of all years
not barred by the statute of limitations have heretofore been
delivered to Parent and Merger Sub. All taxes and other
assessments and levies required to be withheld by the Company
from customers with respect to the sale of goods, or from or on
behalf of employees for income, social security and unemployment
insurance taxes have been collected or withheld and either paid
to the appropriate governmental agency or set aside and held in
accounts for such purpose.
SECTION 3.15. LITIGATION. Except as described on SCHEDULE
3.15, no suit, action or other litigation, including any
arbitration, investigation or other proceeding of or before any
court, arbitrator or federal, state or other governmental or
regulatory official, body or authority, is pending or, to the
knowledge of the Company and the Principals, threatened against
the Company or which relates to the Business or the assets of the
Company, nor does the Company know of any reasonably likely basis
for any such litigation, arbitration, investigation or
proceeding, the result of which could materially and adversely
affect the Company, its assets, financial condition, results of
operations or prospects, the Business, or the transactions
contemplated hereby. The Company is not a party to or subject to
the provisions of any judgment, order, writ, injunction, decree
or award of any court, arbitrator or governmental or regulatory
official, body or authority which may materially and adversely
affect the Company, its financial condition, results of
operations or prospects, the Business, or the transactions
contemplated hereby.
SECTION 3.16. COMPLIANCE WITH LAWS; GOVERNMENTAL
AUTHORIZATIONS. The Company is in compliance with all federal,
state, and local laws, ordinances, rules, regulations, permits,
judgments, orders and decrees applicable to it, the Business or
any of its properties, assets, or operations, except to the
extent that noncompliance therewith, either singly or in the
aggregate, would not have a Material Adverse Effect. SCHEDULE
3.16 contains a complete listing of all governmental licenses,
franchises, permits, approvals and other governmental
authorizations necessary to permit the Company to operate the
Business and to own its properties and assets, all of which are
in full force and effect and will remain in full force and effect
after the consummation of the transactions contemplated by this
Agreement.
SECTION 3.17. ENVIRONMENTAL MATTERS. Except as described on
SCHEDULE 3.17 (a) the Company has complied, and to the knowledge
of the Company and the Principals, others have complied, with all
Environmental Laws applicable to all of its facilities and
properties currently or formerly owned or operated by the
Company;
<PAGE>
(b) none of the properties or facilities currently or formerly owned
or operated by the Company has been used by the Company, or to the
knowledge of the Company and the Principals, by others for the generation,
storage, manufacture, use, transportation, disposal or treatment of
Hazardous Substances other than in compliance with all applicable
Environmental Laws; (c) there has been no Hazardous Discharge made by
the Company, or to the knowledge of the Company and the Principals, by
others on or from any of the properties or facilities currently or formerly
owned or operated by the Company, except in compliance with all
applicable Environmental Laws; and (d) there are no outstanding
and, to the knowledge of the Company and the Principals,
threatened Environmental Actions against the Company or, to the
knowledge of the Company and the Principals, (i) against the
owners of any facilities operated by the Company or (ii) against
any of the owners or operators of any facilities that may have
received solid wastes or Hazardous Substances from the Company.
SECTION 3.18. EMPLOYMENT AGREEMENTS AND EMPLOYEE BENEFIT
PLANS.
(a) Compensation and Benefit Plans.
------------------------------
Except as set forth in SCHEDULE 3.12 or SCHEDULE 3.18,
the Company does not have and has not had at any time, any bonus,
deferred compensation, pension, retirement, profit-sharing,
thrift, savings, employee stock ownership, stock bonus, stock
purchase, restricted stock or stock option plans, employment or
severance contracts, other material employee benefit plans and
any applicable "change of control" or similar provisions in any
plan, contract or arrangement which cover employees or former
employees ("Company Employees") of the Company or any entity (an
"ERISA Affiliate") which is considered one employer with the
Company under Section 4001(b)(1) of the Employee Retirement
Income Security Act of 1974, as amended ("ERISA"), or Section
414(b) or (c) of the Internal Revenue Code of 1986, as amended
(the "Code") or any other benefit plans, contracts or
arrangements (regardless of whether they are funded or unfunded
or foreign or domestic) covering Company Employees, including,
but not limited to, "employee benefit plans" within the meaning
of Section 3(3) of ERISA (collectively, the "Compensation and
Benefit Plans"). The Company has made available to Parent and
Merger Sub true and complete copies of all Compensation and
Benefit Plans, including any trust instruments and/or insurance
contracts, if any, forming a part of any such plans, and all
amendments thereto; where applicable, current summary plan
descriptions; where applicable, the most current determination
letter received from the Internal Revenue Service (the "Service")
and most recent determination letter application, and where
applicable, annual reports, financial statements and actuarial
reports for the last three plan years ending before July 31,
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
<PAGE>
determination letter from the Service, and the Company is not
aware of any circumstances likely to result in revocation of any
such favorable determination letter. Neither the Company nor any
ERISA Affiliate has engaged in a transaction with respect to any
Compensation and Benefit Plan that, assuming the taxable period
of such transaction expired as of the date hereof, could subject
the Company or any ERISA Affiliate to a tax or penalty imposed by
either Section 4975 of the Code or Section 502(i) of ERISA in an
amount which would have a Material Adverse Effect. Neither the
Company nor any ERISA Affiliate has contributed or been required
to contribute to any Multi-employer Pension Plan subject to
Subtitle E of Title IV of ERISA.
(c) Certain ERISA Liabilities.
-------------------------
No liability under Subtitles C or D of Title IV of
ERISA has been or is expected to be incurred by the Company or
any ERISA Affiliate with respect to any ongoing, frozen or
terminated Compensation and Benefit Plan, currently or formerly
maintained by any of them.
(d) Contributions.
-------------
All contributions required to be made or accrued as of
July 31, 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.
<PAGE>
(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.
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 Surviving Corporation, its officers,
directors and authorized employees.
<PAGE>
SECTION 3.22. TRANSACTIONS WITH AFFILIATES. As of the date
hereof, except as disclosed in SCHEDULE 3.22, there are no
outstanding notes payable to or accounts receivable from, or
advances by the Company to, and the Company is not otherwise a
creditor of, any shareholder, officer, director, employee, or
affiliate of the Company, other than any such transactions which
do not exceed $1,000 individually or $10,000 in the aggregate,
and the Company is not a party to any contract with any
shareholder, officer, director, or employee of the Company.
SECTION 3.23. SEC REPORTS AND FINANCIAL STATEMENTS. The
Company has timely made all required filings with the Securities
and Exchange Commission (the "SEC") under the Securities Act of
1933, as amended (the "Securities Act"), the Securities Exchange
Act of 1934, as amended (the "Exchange Act"), the Investment
Company Act of 1940, as amended (the "Investment Company Act")
and the Investment Adviser's Act of 1940, as amended (the
"Adviser's Act"), the National Association of Securities Dealers
("NASD"), NASDAQ, and state securities authorities, and has made
available to Parent true and complete copies of, all forms,
reports and documents required to be filed by the Company since
the Company's inception under the Securities Act, the Exchange
Act, the Investment Company Act, the Adviser's Act, or rules or
regulations of the NASD, NASDAQ, or state securities authority
(collectively, the "Company SEC Documents"). The Company SEC
Documents, including, without limitation, any financial
statements or schedules included therein, (a) did not contain any
untrue statement of a material fact or omit to state a material
fact required to be stated therein or necessary in order to make
the statements therein, in light of the circumstances under which
they were made, not misleading, and (b) complied in all material
respects with the applicable requirements of the Securities Act,
the Exchange Act, Investment Company Act, Adviser's Act, or rules
or regulations of the NASD, NASDAQ or state securities authority,
as the case may be. The financial statements of the Company
included in the Company SEC Documents (including the notes and
schedules thereto, the "Company Financial Statements") comply as
to form in all material respects with applicable accounting
requirements and with the published rules and regulations of the
SEC with respect thereto.
SECTION 3.24. INFORMATION IN DISCLOSURE DOCUMENTS. None of
the information supplied or to be supplied by the Company, the
Principals or their representatives for inclusion or
incorporation by reference in the Proxy Statement relating to the
meeting of the Company's shareholders to be held in connection
with the Merger (the "Proxy Statement") will, at the date mailed
to the Company's shareholders and at the time of the meeting of
shareholders to be held in connection with the Merger, contain
any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary in order
to make the statements therein, in light of the circumstances
under which they were made, not misleading. The Proxy Statement
will comply as to form in all material respects with the
provisions of the Exchange Act and the rules and regulations
thereunder, except that no representation is made by the Company
with respect to statements made therein based on information
supplied by Parent for inclusion in the Proxy Statement.
<PAGE>
SECTION 3.25. DISCLOSURE. Neither this Agreement (including
the Schedules hereto) nor any Related Document, insofar as they
relate to the Company or the Principals, contains or will contain
any untrue statement of a material fact or omits or will omit a
material fact required to make the statements herein or therein
not misleading in light of the circumstances under which those
statements were or will be made. There is no fact known to the
Company or the Principals which has not been disclosed to Parent
and Merger Sub pursuant to this Agreement, the Schedules hereto
or the Company SEC Documents that could reasonably be expected to
cause a Materially Adverse Effect.
SECTION 3.26. CERTAIN BUSINESS PRACTICES AND REGULATIONS.
Neither the Company nor Principals, with respect to the Business
or any other person has made or received, and no officer,
director, employee, agent or other representative of the Company
or Principals, with respect to the Businesses or any other person
has made or received, directly or indirectly, in cash or in kind,
any illegal bribes, kickbacks, political contributions with
corporate funds, payments to or from corporate funds not recorded
in records of the Company payments to or from corporate funds
that were falsely recorded on such books and records, illegal
payments to or from corporate funds to governmental officials in
their individual capacities, illegal payments from corporate
funds to obtain or retain business, or any payments constituting
fraud or abuse of any laws.
SECTION 3.27. SCHEDULES. As of the date hereof, the Company
has not completed its internal investigation and review for
purposes of confirming and verifying the representations and
warranties of the Company contained in this Agreement. The
Company shall provide to Parent the Schedules contemplated by
this Agreement as soon as reasonably practicable, but in any
event within five (5) business days prior to the Closing Date as
required by SECTION 7.2(f). In the event that Parent determines
that such Schedules contains information which in Parent's good
faith, reasonable business judgment adversely affects the value
of the Company's business or prospects, then Parent shall have
the right, within five (5) days of the receipt of the full and
complete Schedules, to terminate this Agreement as set forth in
SECTION 8.1(c)(vii).
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUB
Parent and Merger Sub represent and warrant to the Company
and the Principals as follows:
SECTION 4.1. CORPORATE EXISTENCE. Parent and Merger Sub are
corporations duly organized, validly existing and in good
standing under the laws of their respective jurisdictions of
incorporation. Merger Sub is duly qualified to do business and is
in good standing as a foreign corporation in each jurisdiction,
if any, where the conduct of business or the ownership of assets
by Merger Sub requires it to be so qualified or, if not so
qualified, such failure to be so qualified will not have a
material adverse effect on Merger Sub. Merger Sub has delivered
to the Company true and complete copies of Merger Sub's governing
documents as currently in effect.
<PAGE>
SECTION 4.2. POWER AND AUTHORIZATION. Parent and Merger Sub
each has full power, authority and legal right to execute,
deliver and perform this Agreement and such of the Related
Documents as are required to be delivered by Parent and Merger
Sub in accordance with the provisions hereof. The execution,
delivery and performance of this Agreement and the Related
Documents by Parent and Merger Sub have been duly authorized by
all necessary corporate and other action.
SECTION 4.3. DUE EXECUTION; ENFORCEABILITY. This Agreement
and the Related Documents have been duly executed and delivered
on behalf of Parent and Merger Sub, and this Agreement and the
Related Documents constitute legal, valid and binding obligations
of Parent and Merger Sub, enforceable in accordance with their
respective terms, except as enforceability may be limited by
applicable insolvency, bankruptcy, reorganization, moratorium or
other similar laws affecting creditors' rights generally and by
general equitable principles.
SECTION 4.4. NON-VIOLATION. The execution, delivery and
performance of this Agreement and the Related Documents by Parent
and Merger Sub does not and will not violate, conflict with,
result in the breach of, or constitute a default or result in or
permit any acceleration of any obligation under: (a) any law,
ordinance or governmental rule or regulation to which Parent or
Merger Sub is subject; (b) any judgment, order, writ, injunction,
decree or award of any court, arbitrator or governmental or
regulatory official, body or authority which is applicable to
Parent or Merger Sub; (c) the Certificate of Incorporation or By-
Laws of Parent or Merger Sub or any securities issued by Parent
or Merger Sub; or (d) any mortgage, indenture, agreement,
contract, commitment, lease, plan, license, or other instrument,
document or understanding, oral or written, to which Parent or
Merger Sub is a party, by which Parent or Merger Sub may have
rights or by which any of the assets of Parent or Merger Sub may
be bound or affected; or give any party thereunder the right to
terminate, modify, accelerate or otherwise change the existing
rights or obligations of Parent or Merger Sub thereunder.
SECTION 4.5. NO APPROVALS REQUIRED. Except for the filing
of the Articles of Merger and the Proxy Statement as provided
herein, no authorization, approval or consent of and no
registration or filing with any governmental or regulatory
official, body or authority is required in connection with the
execution, delivery or performance of this Agreement or the
Related Documents by Parent or Merger Sub, and, except for Liens
which may be created in connection with any financing obtained by
Parent or Merger Sub, the execution, performance or delivery of
this Agreement and the Related Documents by Parent and Merger Sub
will not result in the creation of any Lien upon any of the
assets of Parent or Merger Sub.
SECTION 4.6. NO PROCEEDINGS. There is no injunction, order
or decree of any court or administrative agency or any action or
proceeding pending or, to the knowledge of Parent, threatened by
or against Parent or Merger Sub to restrain or prohibit the
consummation of the transactions contemplated hereby.
<PAGE>
SECTION 4.7. INFORMATION IN DISCLOSURE DOCUMENTS AND
REGISTRATION STATEMENTS. None of the information supplied or to
be supplied by Parent or its representatives for inclusion or
incorporation by reference in the Proxy Statement will, at the
date mailed to the Company's shareholders and at the time of the
meeting of the Company's shareholders to be held in connection
with the Merger, contain any untrue statement of a material fact
or omit any material fact required to be stated therein or
necessary in order to make the statements therein, in light of
the circumstances under which they were made, not misleading.
SECTION 4.8. INTERIM OPERATIONS OF MERGER SUB. Merger Sub
was formed solely for the purpose of engaging in the transactions
contemplated hereby, has engaged in no other business activities
and has conducted its operations only as contemplated hereby.
Merger Sub may enter into employment agreements with James
Burkett and Rick Carlson prior to the Closing.
ARTICLE V
COVENANTS
SECTION 5.1. CONDUCT OF BUSINESS OF THE COMPANY. During the
period from the date of this Agreement and continuing until the
Effective Time, except as contemplated or permitted by this
Agreement or SCHEDULE 5.1, or to the extent that Parent shall
otherwise consent in writing:
(a) Ordinary Course.
---------------
The Company shall (i) carry on the Business in the
usual, regular and ordinary course consistent with past practice,
(ii) maintain selling prices and discounts of products and
services at levels equal to the average pricing and discount
levels for each product and service during the three month period
prior to the date of this Agreement and (iii) use all reasonable
efforts to preserve intact the present business organization of
the Company, keep available the services of the present officers
and employees of the Company and preserve the relationships with
customers, suppliers and others having business dealings with the
Company.
(b) Dividends; Etc.
--------------
The Company shall not, nor shall the Company propose to
(i) declare or pay any dividends on or make other distributions
(whether in cash, securities or property or any combination
thereof) in respect of any of its capital stock, (ii) adjust,
split, combine or reclassify any of its capital stock or issue or
authorize or propose the issuance of any other securities in
respect of, in lieu of or in substitution for shares of its
capital stock (except for issuance of shares of capital stock
upon exercise or conversion of any rights to acquire shares of
capital stock outstanding on the date hereof) or (iii)
repurchase, redeem or otherwise acquire to repurchase, redeem or
otherwise acquire, any shares of capital stock of the Company.
<PAGE>
(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.
(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
<PAGE>
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
as of July 31, 1999, and provided further, that the foregoing
shall not restrict the Company from paying up to $900,000 to the
Principals for consulting services and bonus payments from and
after July 31, 1999 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.
(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.
<PAGE>
ARTICLE VI
ADDITIONAL AGREEMENTS
SECTION 6.1. REASONABLE EFFORTS. Subject to the terms and
conditions of this Agreement, each of the parties hereto agrees
to use commercially reasonable efforts to take, or cause to be
taken, all actions, and to do or cause to be done, all things
necessary, proper or advisable under applicable laws and
regulations to consummate and make effective the transactions
contemplated by this Agreement and the Related Documents
including, without limitation, (i) the prompt preparation and
filing with the SEC of the Proxy Statement, (ii) such actions as
may be required to have the Proxy Statement cleared by the SEC as
promptly as practicable, including by consulting with each other
as to, and responding promptly to, any SEC comments with respect
thereto and (iii) the mailing of the Proxy Statement to
shareholders of the Company. Each party shall promptly consult
with the other and provide any necessary information and material
with respect to all filings made by such party with any
Governmental Entity in connection with this Agreement and the
Related Documents and the transactions contemplated hereby and
thereby.
SECTION 6.2. ACCESS TO INFORMATION. Upon reasonable notice,
the Company shall afford to the officers, employees, accountants,
counsel and other representatives of Parent, access, during
normal business hours during the period prior to the Effective
Time, to all of its properties, books, contracts, commitments and
records and all other information concerning the business,
properties and personnel of the Company as Parent may reasonably
request, and, during such period, each of the Company and Parent
shall furnish promptly to the other a copy of each report,
schedule, registration statement and other document filed by it
during such period pursuant to the requirements of federal
securities laws. Unless otherwise required by law, the parties
will hold any such information which is non-public in confidence
in accordance with the confidentiality agreement, dated September
15, 1998 between the Company and Parent (the "Confidentiality
Agreement").
SECTION 6.3. SHAREHOLDERS MEETING. The Company shall call a
meeting of its shareholders to be held as promptly as practicable
after the Proxy Statement is cleared by the SEC for the purpose
of voting upon the approval and adoption of this Agreement. The
Company will, through its Board of Directors, recommend to its
shareholders approval and adoption of this Agreement and shall
use commercially reasonable efforts to hold such meeting as soon
as practicable; PROVIDED that the Company may withdraw its
recommendation (and such shareholder meeting need not be held) if
the Board of Directors of the Company, after consultation with
and based upon the advice of Fredrikson & Byron, P.A. or other
independent legal counsel, determines in good faith that such
withdrawal or modification is necessary for the Company's Board
of Directors to comply with its fiduciary duties to shareholders
under applicable law. The Principals shall vote all shares of
Company Common Stock beneficially owned by them as of the record
date for any such meeting in accordance with the terms of the
letters attached hereto as SCHEDULE 6.3.
SECTION 6.4. LEGAL CONDITIONS TO THE MERGER; LEGAL
COMPLIANCE. Each of the Company, Parent and Merger Sub will use
commercially reasonable efforts to comply promptly with all legal
requirements which may be imposed with respect to the Merger
(which actions shall include, without limitation, furnishing all
information in connection with approvals or filings with any
Governmental Entity required to be obtained or made by Parent,
Merger Sub or the Company) and will promptly cooperate with and
furnish information to each other in connection with any such
requirements imposed upon any of them in connection with the
<PAGE>
Merger. Subject to the terms and conditions hereof, each of the
Company and Parent will promptly use commercially reasonable
efforts to obtain (and will cooperate with each other in
obtaining) any consent, authorization, order or approval of, or
any exemption by, any Governmental Entity or other public or
private third party, required to be obtained or made by such
party in connection with the Merger or the taking of any action
contemplated thereby or by this Agreement. The Company shall use
commercially reasonable efforts to take such actions as are
necessary to assure compliance by the Company with all applicable
legal requirements relating to licenses, employment and benefits
matters and other governmental regulations.
SECTION 6.5. NO SOLICITATION.
(a) No Solicitation.
---------------
Until the earlier of the Effective Time or the
termination of this Agreement pursuant to ARTICLE VIII, the
Company and the Principals will not directly or indirectly,
through any officer, director, agent, affiliate, shareholder or
otherwise, initiate, solicit, encourage, negotiate or discuss
with any third party (including by way of knowingly furnishing
non-public information concerning the Company, the Business or
its assets or properties in connection therewith), or take any
other action to knowingly facilitate any inquiries with respect
to or the making of, any proposal or offer that constitutes or
may reasonably be expected to lead to an Alternative Transaction
(as defined below). As used herein, an "Alternative Transaction"
shall mean a merger, consolidation, business combination, sale of
a significant amount of assets outside of the ordinary course of
business, sale of shares of capital stock outside of the ordinary
course of business, sale or other disposition of the Business,
tender or exchange offer, or similar transaction involving the
Company. The Company will promptly communicate to Parent the
terms of any proposal or inquiry that it has received or may
receive in respect of any such transaction or of any such
information requested from it or of any such negotiations or
discussions being sought to be initiated with the Company and may
inform any third party who contacts the Company on an unsolicited
basis concerning an Alternative Transaction that the Company is
obligated hereunder to disclose such to Parent.
(b) Limited Exceptions.
------------------
Notwithstanding the foregoing, this SECTION shall not
prohibit the Board of Directors of the Company from
(i) furnishing information to or entering into discussions or
negotiations with, any person or entity that makes an unsolicited
bona fide Alternative Transaction, if, and only to the extent
that, (A) the Board of Directors of the Company determines in
good faith, after receipt of advice to such effect from
Fredrikson & Byron, P.A. or other independent legal counsel, that
such action is so required for the Board of Directors to comply
with its fiduciary duties to shareholders imposed by law, (B)
prior to furnishing information to, or entering into discussions
and negotiations with, such person or entity, the Company
promptly provides written notice to Parent to the effect that it
is furnishing information to, or entering into discussions or
negotiations with, such person or entity, and (C) the Company
keeps Parent informed of the status and all material terms and
events with respect to any such Alternative Transaction; and
<PAGE>
(ii) to the extent applicable, complying with Rules 14d-9 and
14e-2 promulgated under the 1934 Act, as amended, with regard to
an Alternative Transaction. Nothing in this SECTION shall (x)
permit the Company to terminate this Agreement (except as
specifically provided in ARTICLE VIII hereof), (y) permit the
Company to enter into any agreement with respect to an
Alternative Transaction for as long as this Agreement remains in
effect (it being agreed that for as long as this Agreement
remains in effect, the Company shall not enter into any agreement
with any person that provides for, or in any way facilitates, an
Alternative Transaction), or (z) affect any other obligation of
the Company under this Agreement while this Agreement remains in
effect.
SECTION 6.6. FEES AND EXPENSES.
(a) Payment by Parent.
-----------------
All costs and expenses incurred in connection with this
Agreement and the transactions contemplated hereby by any of the
parties to this Agreement shall be borne by the parties incurring
such costs (unless otherwise agreed by them). However, if the
Merger is not consummated for any reason (other than that set
forth in SECTION 6.6(b)(ii)), Parent shall reimburse the Company
for up to $35,000 of legal fees incurred in connection with the
transactions contemplated hereby (but no more than $5,000 of
which shall be for legal fees incurred prior to execution of this
Agreement). Such legal fees shall be promptly paid by Parent
after invoice or other request for payment by the Company
following termination of this Agreement.
(b) Payment by Parent.
-----------------
If the Merger is not consummated for any reason by the
date set forth in SECTION 8.1(b), Parent shall pay the Company,
in immediately available funds, the sum of $100,000. However,
Parent shall not be obligated to pay such amount if:
(i) the only reason (other than that set forth in
clause (ii) below) that the Merger is not consummated is because
the Lender determined not to provide the Acquisition Loan, or
shall have offered to make the Acquisition Loan only on terms
that represent a material adverse change from the terms
contemplated by the Commitment Letter, provided, however, that if
the material adverse change is a reduction in the amount of the
Acquisition Loan, this clause (i) shall apply only if the
Principals, in their discretion, shall have elected to not
increase the amount of their Subordinated Notes or provide
additional subordinated loans in an amount at least equal to such
reduction, or
(ii) 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 in violation of SECTION 6.5.
<PAGE>
(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 in violation of SECTION 6.5.
SECTION 6.7. NOTIFICATION OF CERTAIN MATTERS. The Company
shall give prompt notice to Parent, and Parent shall give prompt
notice to the Company, of (a) the occurrence or non-occurrence of
any event, the occurrence or non-occurrence of which would be
likely to cause (i) any representation or warranty contained in
this Agreement to be untrue or inaccurate or (ii) any covenant,
condition or agreement contained in this Agreement not to be
complied with or satisfied, (b) any failure of the Company or
Parent, as the case may be, to comply with or satisfy any
covenant, condition or agreement to be complied with or satisfied
by it hereunder or (c) the occurrence of any Material Adverse
Effect with respect to the Company or the Business; PROVIDED,
HOWEVER, that the delivery of any notice pursuant to this SECTION
6.7 shall not limit or otherwise affect the remedies available
hereunder to the party receiving such notice.
SECTION 6.8. INDEBTEDNESS. The Company agrees that
immediately prior to the Effective Time, there will not be
outstanding any Indebtedness in respect of which the Company is
obligated, other than the Indebtedness listed in SCHEDULE 6.8 up
to the amounts set forth in such Schedule, or Indebtedness
reflected on the Closing Date Balance Sheet.
SECTION 6.9. INDEMNIFICATION.
(a) Indemnification Obligations.
---------------------------
Subject to the provisions of SECTIONS 6.10 and 6.11,
from and after the Effective Time, Parent and the Surviving
Corporation, and their respective officers, directors, employees,
agents, consultants, successors and assigns shall be indemnified
and held harmless by the Principals, jointly and severally, for
any and all liabilities, losses, damages, claims, costs and
expenses, interest, awards, judgments, damages, (including
punitive damages awarded to third party claimants) fines, fees
and penalties, including without limitation, fees and expenses of
attorneys, experts and consultants (collectively, "Losses")
actually suffered or incurred by them:
(i) Breaches of Representations and Warranties.
------------------------------------------
Arising out of or resulting from the material
breach of any representation or warranty made by the Company or
the Principals in this Agreement or Related Documents (provided
that each Principal severally, and not jointly, provides such
indemnification hereunder with respect to such breaches made by a
Principal in a Related Document); and
<PAGE>
(ii) Other Breaches.
--------------
Arising out of or resulting from the breach of
any covenant or agreement by the Company contained in this
Agreement or Related Documents.
(b) Indemnification Procedures.
--------------------------
Promptly after the receipt by a party which is entitled
to indemnification hereunder (the "Indemnified Party") of a
notice of any claim, action, suit or proceeding of any third
party which is subject to indemnification hereunder, such
Indemnified Party shall give written notice of such claim to the
party obligated to provide indemnification hereunder (the
"Indemnifying Party"), stating the nature and basis of such claim
and the amount thereof, to the extent known. Subject to SECTIONS
6.10 and 6.11, failure of the Indemnified Party to give such
notice shall not relieve the Indemnifying Party from any
liability which he may have on account of this indemnification or
otherwise, except to the extent that the Indemnifying Party is
materially prejudiced. The Indemnifying Party shall be entitled
to participate in the defense of and if it so chooses, to assume
a defense of or otherwise contest, such claim, action, suit or
proceeding with counsel selected by the Indemnifying Party and
reasonably satisfactory to the Indemnified Party. Upon the
election by the Indemnifying Party to assume the defense of, or
otherwise contest, such claim, action, suit or proceeding, the
Indemnifying Party shall not be liable for any legal or other
expenses subsequently incurred by the Indemnified Party in
connection with the defense thereof, although the Indemnified
Party shall have the right to participate in the defense thereof
and to employ counsel, at its own expense. Notwithstanding the
foregoing, the Indemnifying Party shall be liable for the
reasonable fees and expenses of counsel employed by the
Indemnified Party, to the extent that (i) the Indemnifying Party
has not employed counsel reasonably acceptable to the Indemnified
Party to assume the defense of such action within a reasonable
time after receiving notice of the commencement of the action,
(ii) employment of counsel has been authorized in writing by the
Indemnifying Party or (iii) representation of the Indemnifying
Party and the Indemnified Party by the same counsel would, in the
reasonable opinion of such counsel, constitute a conflict of
interest or otherwise violate rules of professional
responsibility (in which case the Indemnifying Party will not
have the right to direct the defense of such action on behalf of
the Indemnified Party). The parties shall cooperate in any such
defense, give each other reasonable access to all information
relevant thereto and use commercially reasonable efforts to make
employees and other representatives available on a mutually
convenient basis to provide additional information or explanation
of any material provided in connection therewith. Whether or not
the Indemnifying Party shall have assumed the defense, the
Indemnifying Party shall not be obligated to indemnify the other
party hereunder for any settlement entered into without the
Indemnifying Party's prior written consent, which consent shall
not be unreasonably withheld or delayed. The Indemnifying Party
may not enter into any settlement without the Indemnified Party's
prior written consent, which consent shall not be unreasonably
withheld or delayed . To the extent that the Indemnifying
Party's undertaking set forth in this SECTION 6.9 may be
unenforceable for any reason, such Indemnifying Party shall
contribute the maximum amount that he is permitted to contribute
under applicable law to the payment and satisfaction of all
Losses incurred by the Indemnified Party (subject to SECTIONS
6.10 and 6.11).
<PAGE>
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; provided, further,
that any claim for indemnification shall be satisfied solely by
exercise of offset rights against the Subordinated Notes pro rata
among the holders thereof based on the original principal amounts
of the Subordinated Notes, and the Principals shall have no
personal liability for payment or repayment of any amounts that
cannot be satisfied by such offset rights.
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.
----------------------------------------
The Principals shall have executed and delivered to the
Surviving Corporation non-competition and severance agreements
providing for the payment of $400,000 to Duane Markus and $50,000
to each of Jack Pagel and Gould. Of such amounts, 90% shall be
deemed in consideration for the non-competition covenants and 10%
for the severance. Further, such amounts shall be paid on the
same terms and conditions, including interest rate, payment terms
and subordination, applicable to the Subordinated Notes (and such
payment obligations shall be evidenced in additional subordinated
notes to be issued by ACS and the Surviving Corporation to the
Principals). The non-competition and severance agreements shall
be in form and substance reasonably acceptable to Parent and the
Principals.
<PAGE>
(e) No Material Adverse Effect.
--------------------------
No Material Adverse Effect shall have occurred or be
threatened from and after the date of this Agreement, or be
pending subject to the giving of notice or the passage of time or
both.
(f) Schedules.
---------
Parent shall have received all of the Schedules to be
attached to this Agreement not less than five (5) business days
prior to the Closing Date and shall not have identified (and
given written notice thereof to the Company) within five (5)
business days after receipt of such Schedules any matter or
matters which, alone or in the aggregate, it determines in good
faith and in its reasonable business judgment to adversely affect
its valuation of and plans for the future development of the
Surviving Corporation and the Business.
(g) Other.
-----
All corporate and other proceedings and actions
required to be taken by the Company and its shareholders in
connection with the transactions contemplated hereby, and all
certificates, opinions, agreements, instruments and documents,
mentioned herein or incident to any such transactions shall have
been delivered and shall be reasonably satisfactory in form and
substance to Parent and its counsel.
SECTION 7.3. CONDITIONS OF OBLIGATIONS OF THE COMPANY. The
obligation of the Company to effect the Merger is subject to the
satisfaction of the following conditions, on or prior to the
Closing Date, unless waived by the Company:
(a) Representations and Warranties.
------------------------------
The representations and warranties of Parent and Merger
Sub contained in this Agreement shall be true and correct in all
material respects as of the date hereof, and, except to the
extent such representations and warranties speak as of an earlier
date, as of the Closing Date as though made on and as of the
Closing Date, and the Company shall have received a certificate
signed on behalf of Parent by the chief executive officer or the
chief financial officer of Parent to such effect.
(b) Obligations.
-----------
Parent and Merger Sub shall have performed in all
material respects all obligations required to be performed by
them under this Agreement at or prior to the Closing Date, and
the Company shall have received a certificate signed on behalf of
Parent by the chief executive officer or the chief financial
officer of Parent to such effect.
(c) Opinion.
-------
The Company shall have received the opinion of
Lindquist & Vennum P.L.L.P. (which may incorporate an opinion of
Israeli counsel) concerning such legal matters relating to the
Merger as are customarily obtained in transactions of a type
similar to the Merger.
(d) Non-Competition and Severance Agreements.
----------------------------------------
Duane Markus, Jack Pagel and Tom Gould shall have
executed and delivered to the Surviving Corporation the non-
competition and severance agreements referenced in SECTION
7.2(d).
<PAGE>
(e) Subordinated Notes.
------------------
Parent and Surviving Corporation shall have issued the
Subordinated Notes to the Principals, and all other agreements
related thereto shall be in form and substance reasonably
acceptable to the Principals.
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 October 31,
1999, or such other date as the Company and Parent may agree in
writing.
(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.
<PAGE>
SECTION 8.4. EXTENSION; WAIVER. At any time prior to the
Effective Time, the parties hereto, by action taken or authorized
by their respective Boards of Directors, may to the extent
legally allowed, (i) extend the time for the performance of any
of the obligations or other acts of the other parties hereto,
(ii) waive any inaccuracies in the representations and warranties
contained herein or in any document delivered pursuant hereto and
(iii) waive compliance with any of the agreements or conditions
contained herein. Any agreement on the part of a party hereto to
any such extension or waiver shall be valid only if set forth in
a written instrument signed on behalf of such party.
ARTICLE IX
MISCELLANEOUS
SECTION 9.1. SURVIVAL OF REPRESENTATIONS AND WARRANTIES.
All representations and warranties made by the parties in this
Agreement or in any Related Documents shall survive the Closing
for a period of one (1) year. Notwithstanding any investigation
or audit conducted before or after the Closing Date or the
decision of any party to complete the Merger, each party shall be
entitled to rely upon the representations and warranties set
forth herein and therein, and none of such representations and
warranties shall be deemed waived or modified in any respect by
reason of any such investigation.
SECTION 9.2. CERTAIN DEFINITIONS.
"Environmental Actions" means any complaint, summons,
citation, notice, directive, order, claim, litigation,
investigation, proceeding, judgment, letter or other
communication from any federal, state, local or municipal agency,
department, bureau, office or other authority, or any third
party, delivered to, or applicable to, the Company respecting (a)
any of the properties currently or formerly owned or operated by
the Company or any of their respective predecessors, or (b) any
facility that received solid or hazardous wastes from the Company
or any of its predecessors, or involving any violation of any
Environmental Laws.
"Environmental Laws" means the Comprehensive Environmental
Response, Compensation and Liability Act, 42 U.S.C. 9601 et seq.,
the Resource Conservation and Recovery Act, 42 U.S.C. 6901 et
seq., the Toxic Substances Control Act, 15 U.S.C. 2601 et seq.,
the Clean Water Act, 33 U.S.C. 1251 et seq., the Clean Air Act,
42 U.S.C. 7501 et seq., the Safe Drinking Water Act, 43 U.S.C.
300f-300j-26, the Occupational Safety and Health Act, 29 U.S.C.
655, and any other laws imposing liability or establishing
standards of conduct for environmental protection.
"Governmental Entity" means any court, arbitral tribunal,
administrative agency or commission or other governmental or
other regulatory authority or administrative agency or
commission.
"Hazardous Discharge" means any releasing, spilling,
leaking, pumping, pouring, emitting, emptying, discharging,
injecting, escaping, leaching, disposing or dumping of any
Hazardous Substances into the soil, surface waters or ground
waters at any of the properties or facilities currently or
formerly owned or operated by the Company or any of its
predecessors or at any facility that received solid or hazardous
wastes generated by the Company or any of its predecessors.
<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 securities carried
on the books of the Company 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. Each party
acknowledges that the parties have mutually agreed to waive the
termination of Amended and Restated Agreement and Plan of Merger
and Reorganization dated as March 31, 1999 and any claim that,
and disagreements concerning, a Material Adverse Effect had
occurred as defined thereunder.
<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, Limited
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
<PAGE>
If to the Company to:
Technology 80, Inc.
658 Mendelssohn Avenue North
Minneapolis, MN 55427
Attn: President
If to Duane Markus, to:
Duane Markus
405 Bushaway Road
Wayzata, MN 55391
If to Jack Pagel, to:
Jack Pagel
2940 Gale Road
Wayzata, MN 55391
If to Tom Gould, to:
Tom Gould
4120 Queen Avenue
Minneapolis, MN 55410
With copies to:
Simon Root, Esq.
Fredrikson & Byron, P.A.
1100 International Centre
900 Second Avenue South
Minneapolis, MN 55402
or to such other address as the addressee may have specified in a
notice duly given to the sender as provided herein. Such notice,
request, demand, waiver, consent, approval or other communication
will be deemed to have been given as of the date so delivered or
mailed.
<PAGE>
SECTION 9.9. GOVERNING LAW; JURISDICTION.
(a) Governing Law.
-------------
This Agreement shall be governed by and interpreted and
enforced in accordance with the internal laws of the State of
Minnesota, without giving effect the conflict of laws provisions
of any jurisdiction.
(b) Consent to Jurisdiction; Service of Process.
-------------------------------------------
Each party hereto hereby: (i) irrevocably submits to
the jurisdiction of any federal or state court located within the
State of Minnesota, U.S.A. over any dispute arising out of or
relating to this Agreement or any of the transactions
contemplated hereby; (ii) irrevocably agrees that all claims in
respect of such dispute or proceeding may be heard and determined
in such courts; (iii) irrevocably waives, to the fullest extent
permitted by applicable law, (A) any objection that it may now or
hereafter have to establishing venue of any such dispute brought
in such court or (B) any defense of inconvenient forum for the
maintenance of such dispute; (iv) agrees that a judgment in any
such dispute may be enforced in other jurisdictions by suit on
the judgment or in any other manner provided by law; and (v)
consents to process being served by any party to this Agreement
in any suit, action, or proceeding of the nature specified in
this Section by the mailing of a copy thereof in accordance with
the provisions hereof.
SECTION 9.10. NO BENEFIT TO OTHERS. The representations,
warranties, covenants and agreements contained in this Agreement
and the Related Documents are for the sole benefit of the parties
hereto and their respective permitted successors and assigns, and
they shall not be construed as conferring any rights on any other
persons.
SECTION 9.11. SCHEDULES. All Schedules referred to herein
are intended to be and hereby are specifically made a part of
this Agreement.
SECTION 9.12. SEVERABILITY. Any provision of this Agreement
which is invalid or unenforceable in any jurisdiction shall be
ineffective to the extent of such invalidity or unenforceability
without invalidating or rendering unenforceable the remaining
provisions hereof, and any such invalidity or unenforceability in
any jurisdiction shall not invalidate or render unenforceable
such provision in any other jurisdiction.
SECTION 9.13. COUNTERPARTS. This Agreement may be executed
in any number of counterparts, each of which when executed and
delivered shall be deemed to be an original and all of which
counterparts taken together shall constitute but one and the same
instrument.
SECTION 9.14. KNOWLEDGE. For purposes of this Agreement and
any Related Document, any reference to "knowledge" or other
similar term with respect to a party hereto, when modifying any
representation, warranty, covenant or agreement made by a party
hereto, shall mean that none of such parties, when individuals,
and none of the officers, directors or senior management of any
entity has any actual and present knowledge that such
representation, warranty, covenant or agreement is not true and
correct to the same extent as provided herein or any applicable
Related Document, after such person has made appropriate review
of all applicable files reasonably available to such person.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have duly executed
this Agreement as of the date first above written.
TECHNOLOGY 80 INC.
By: /s/Duane Markus
__________________________
Duane Markus, President
ACS ELECTRONICS, LIMITED
By: /s/Ze'ev Kirshenboim
_________________________
Ze'ev Kirshenboim, President
TECH 80 ACQUISITION CORP.
By: /s/Ze'ev Kirshenboim
_________________________
Ze'ev Kirshenboim, President
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.
August 13, 1999
Board of Directors
Technology 80 Inc.
658 Mendelssohn Avenue North
Minneapolis, MN 55427
Re: Second 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 Second Amended and Restated Agreement and Plan of
Merger and Reorganization dated as of August 13, 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, except that the cash consideration paid to
Duane Markus, Jack Pagel, and Duane Gould will be reduced by
subordinated notes totaling $1.1 million; 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 nine months ended May
31, 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
___________, 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 ______, 1999, and at any adjournment thereof.
THE BOARD OF DIRECTORS RECOMMENDS
A VOTE FOR PROPOSAL #1 BELOW.
1. Approve the Second Amended and Restated Agreement and Plan
of Merger and Reorganization, 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.
