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PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES
EXCHANGE ACT OF 1934
(AMENDMENT NO. 4)
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Filed by the Registrant /X/
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Filed by a Party other than the Registrant / /
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Check the appropriate box:
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/ / Preliminary Proxy Statement / / Confidential, for Use of the Commission
/X/ Definitive Proxy Statement Only (as permitted by Rule 14a-b(e)(2))
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Section240.14a-11(c) or Section240.14a-12
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INTERNATIONAL JENSEN INCORPORATED
- --------------------------------------------------------------------------------
(Name of Registrant as Specified in Its Charter)
MARC T. TANENBERG, VICE PRESIDENT
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(Name of Person(s) Filing Proxy Statement)
Payment of Filing Fee (Check the appropriate box):
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/ / $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), 14a-6(i)(2).
/ / $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, par value $.01 per share
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(2) Aggregate number of securities to which transaction applies:
5,738,132
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(3) Per unit price or other underlying value of transaction computed pursuant to
Exchange Act Rule 0-11:
$11.00 for 2,138,778 shares plus $8.90 for 3,599,354 shares
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(4) Proposed maximum aggregate value of transaction:
$55,560,809
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(5) Total fee paid:
$11,113
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/X/ Fee paid previously with preliminary materials.
/ / Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and
identify the filing for which the offsetting fee was paid previously. Identify the previous
filing by registration statement number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
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(2) Form, Schedule or Registration Statement No.:
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(3) Filing Party:
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(4) Date Filed:
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INTERNATIONAL JENSEN INCORPORATED
25 TRI-STATE INTERNATIONAL OFFICE CENTER, SUITE 400
LINCOLNSHIRE, ILLINOIS 60069
JULY 23, 1996
DEAR STOCKHOLDER:
You are cordially invited to attend a Special Meeting of Stockholders (the
"Special Meeting") of International Jensen Incorporated ("Jensen") to be held at
9:00 A.M. local time, on August 28, 1996, at Tri-State International Office
Center, First Floor Auditorium, Building 200, Lincolnshire, IL 60069. I hope
that you will be present or represented by proxy at this important meeting.
At the Special Meeting, you will be asked to approve the Fourth Amended and
Restated Agreement and Plan of Merger dated as of January 3, 1996 (the "Merger
Agreement"), among Recoton Corporation ("Recoton"), RC Acquisition Sub, Inc.
("RC Acquisition Sub"), and Jensen. Pursuant to the Merger Agreement, RC
Acquisition Sub, a wholly owned subsidiary of Recoton, will be merged with and
into Jensen (the "Merger"), and each Jensen stockholder other than Robert G.
Shaw, Chairman of the Board, President and Chief Executive Officer of Jensen,
and William Blair Leveraged Capital Fund ("WBLCF") will receive $11.00 per share
in cash for each share of Jensen Common Stock, par value $0.01 ("Jensen Common
Stock"). Mr. Shaw and WBLCF (also herein referred to as the "Principal
Stockholders"), who together hold approximately 63% of the shares of Jensen
Common Stock outstanding, will receive $8.90 per share in cash.
The Merger Agreement contemplates that immediately prior to, and as a
condition of, the Merger, Jensen will sell the assets associated with its
original equipment manufacturing business (the "OEM Business") to IJI
Acquisition Corp., a corporation solely-owned by Robert G. Shaw (the "OEM Asset
Sale"). Approval of the Merger Agreement will constitute approval of both the
Merger and the OEM Asset Sale.
The terms of the Merger Agreement, the Merger and the OEM Asset Sale are
more fully discussed in the accompanying Proxy Statement.
The Board of Directors of Jensen has received the written opinion of its
financial advisor, Lehman Brothers, to the effect that, based upon and subject
to certain matters stated therein, the consideration to be received by the
public stockholders of Jensen (I.E., those other than the Principal
Stockholders) in the Merger is fair to such public stockholders from a financial
point of view and, since Recoton is requiring the prior sale of the OEM Business
as a condition to the Merger, the consideration to be received by Jensen for the
OEM Asset Sale, in the context of the overall transaction and the consideration
to be received by the public stockholders in the Merger, is fair to Jensen from
a financial point of view. SEE "THE MERGER -- FAIRNESS OPINION BY LEHMAN
BROTHERS" in the Proxy Statement. A copy of the written opinion of Lehman
Brothers dated the date hereof is included as Annex IV to the Proxy Statement
and should be read carefully in its entirety.
Your Board of Directors, after careful consideration, has approved the
Merger and the OEM Asset Sale and determined that the Merger is fair to and in
the best interests of Jensen stockholders and that the OEM Asset Sale is fair to
Jensen. SEE "THE MERGER -- RECOMMENDATION AND REASONS FOR THE MERGER" in the
Proxy Statement. Copies of the Merger Agreement and the agreement for the OEM
Asset Sale are attached as Annexes I and II to the Proxy Statement.
Jensen has received unsolicited acquisition proposals from Emerson Radio
Corp. ("Emerson") pursuant to which Emerson has offered to acquire Jensen,
initially in a transaction involving the sale of the OEM Business to IJI
Acquisition Corp. and subsequently in a transaction in which Emerson would
acquire all of Jensen including the OEM Business. The Board of Directors of
Jensen (the "Jensen Board") appointed a Special Committee to negotiate a
transaction with Emerson and such Committee ultimately conducted an auction with
respect to the competing Recoton and Emerson acquisition proposals. By the
conclusion of the bidding process established by the Special Committee,
<PAGE>
Emerson had submitted and not withdrawn several proposals from which Emerson had
indicated the Special Committee could choose. The most viable Emerson proposal
at the conclusion of the bidding provided for the payment of $10.25 per share of
Jensen Common Stock in an all cash merger transaction (which included the
acquisition by Emerson of the OEM Business). After negotiations with Emerson and
Recoton and extensive consideration and comparison of the final Recoton proposal
and the alternative proposals of Emerson, the Special Committee determined on
June 23, 1996, to accept the Recoton proposal for the reasons explained in the
accompanying Proxy Statement. On June 25, 1996, Emerson indicated that it would
offer $12.00 to the public stockholders and $8.90 to the Principal Stockholders
and Recoton if Recoton were to acquire shares from WBLCF. The Special Committee
has rejected Emerson's proposal for a number of reasons as explained in the
Proxy Statement, including the fact that neither Mr. Shaw nor WBLCF has agreed
to accept less from Emerson than is being paid to the public stockholders and
both have advised the Special Committee that they would vote against this
Emerson proposal. Absent their consent to the lesser amount, and a vote in favor
of a merger on such terms, the Special Committee concluded, based on the advice
of its Delaware counsel, that the Emerson proposal could not be consummated.
On July 16, 1996, Emerson submitted another offer of $12.00 per share to the
public stockholders and $8.90 per share to Mr. Shaw, but offered to purchase the
shares held by WBLCF for $10.00 per share. Emerson's proposal contemplated an
immediate purchase of WBLCF shares premised on Emerson's assertion that a
certain stock option and voting agreement WBLCF had entered into with Recoton
had terminated. However, WBLCF has advised both Emerson and the Special
Committee that such stock option and voting agreement continues in full force
and effect and, accordingly, that WBLCF would not sell its shares to Emerson.
The Special Committee met on July 18, 1996, and rejected this Emerson offer for
the same reasons it rejected Emerson's June 25, 1996 offer.
The Special Committee and the Jensen Board believe it is in the best
interests of Jensen and its stockholders to proceed with the Merger with
Recoton. Consequently, the Jensen Board recommends the Merger with Recoton. SEE
"THE MERGER--BACKGROUND OF THE MERGER" in the accompanying Proxy Statement.
YOUR BOARD OF DIRECTORS (WITH MR. SHAW ABSTAINING) UNANIMOUSLY RECOMMENDS
THAT YOU VOTE "FOR" THE MERGER AGREEMENT AND THE TRANSACTIONS CONTEMPLATED
THEREBY, WHICH APPROVAL AND ADOPTION WILL CONSTITUTE APPROVAL OF THE MERGER AND
THE OEM ASSET SALE.
Stockholders are entitled to vote all shares of Jensen Common Stock held by
them on July 15, 1996, which is the record date for the Special Meeting.
WE URGE YOU TO CONSIDER CAREFULLY THESE IMPORTANT MATTERS, WHICH ARE
DESCRIBED IN THE ACCOMPANYING PROXY STATEMENT. In order to ensure that your vote
is represented at the meeting, please indicate your choice on the proxy form,
date and sign it, and return it in the enclosed envelope. A prompt response will
be appreciated.
Sincerely,
Robert G. Shaw
CHAIRMAN OF THE BOARD,
PRESIDENT AND CHIEF EXECUTIVE OFFICER
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INTERNATIONAL JENSEN INCORPORATED
25 TRI-STATE INTERNATIONAL OFFICE CENTER, SUITE 400
LINCOLNSHIRE, ILLINOIS 60069
------------------------
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD AUGUST 28, 1996
------------------------
NOTICE HEREBY IS GIVEN that a Special Meeting of Stockholders (the "Special
Meeting") of International Jensen Incorporated, a Delaware corporation
("Jensen"), has been called by the Board of Directors of Jensen and will be held
at Tri-State International Office Center, First Floor Auditorium, Building 200,
Lincolnshire, IL 60069 at 9:00 A.M. local time on August 28, 1996, for the
following purposes:
1. To consider and vote upon the Fourth Amended and Restated Agreement and
Plan of Merger, dated as of January 3, 1996 (as it may be amended,
supplemented or modified from time to time, the "Merger Agreement"),
among Recoton Corporation, a New York corporation ("Recoton"), RC
Acquisition Sub, Inc. ("RC Acquisition Sub"), a Delaware corporation, and
Jensen, pursuant to which:
(a) RC Acquisition Sub, a wholly-owned subsidiary of Recoton, will be
merged with and into Jensen upon the terms and subject to the
conditions set forth in the Merger Agreement (the "Merger");
(b) Each Jensen stockholder, other than Robert G. Shaw, Chairman of the
Board, President and Chief Executive Officer of Jensen and William
Blair Leveraged Capital Fund ("WBLCF"), will receive $11.00 per share
in cash for each share of Jensen Common Stock, par value $0.01 per
share ("Jensen Common Stock"), and Mr. Shaw and WBLCF will each
receive $8.90 per share in cash for each share of Jensen Common
Stock; and
(c) Immediately prior to the Merger, and as a condition to its
consummation, Jensen will sell the assets of its original equipment
manufacturing business (the "OEM Business") to IJI Acquisition Corp.,
an Illinois corporation solely-owned by Robert G. Shaw, upon
satisfaction of certain conditions.
2. To act on such other business as may properly come before the meeting or
any adjournments or postponements thereof.
The foregoing transactions are subject to and more fully described in the
Merger Agreement, the full text of which is attached as Annex I to the
accompanying Proxy Statement, and the agreement to sell the assets of the OEM
Business, the full text of which is attached as Annex II to the accompanying
Proxy Statement.
Only holders of Jensen Common Stock of record at the close of business on
July 15, 1996 (the "Record Date"), are entitled to notice of and to vote at such
meeting or any adjournments or postponements thereof. Approval of the matters to
be voted upon in connection with the Merger requires the affirmative vote of a
majority of the outstanding shares of Jensen Common Stock, as well as a majority
of the shares of Jensen Common Stock which are voted at the Special Meeting
other than shares held directly or indirectly by Robert G. Shaw.
Any holder of shares of Jensen Common Stock who is a stockholder of Jensen
as of the Record Date and who does not assent to the Merger has the right, upon
compliance with specific procedures, to demand from Jensen payment of the fair
value of such holder's shares. Such stockholders must, among other things, not
vote for the approval and adoption of the Merger Agreement (which approval would
include submitting a signed proxy form without voting instructions), timely
deliver to Jensen a
<PAGE>
written demand for appraisal of their shares prior to the Special Meeting and
strictly comply with certain other requirements. For a more complete description
of such right, reference is made to "THE MERGER-DISSENTERS' RIGHTS" in the Proxy
Statement and to Section 262 of the General Corporation Law of the State of
Delaware, a copy of which is attached to the Proxy Statement as Annex V.
By Order of the Board Directors
MARC T. TANENBERG
SECRETARY
Lincolnshire, Illinois
July 23, 1996
PLEASE MARK, SIGN, DATE AND RETURN YOUR PROXY FORM PROMPTLY, WHETHER OR NOT YOU
PLAN TO ATTEND THE SPECIAL MEETING. YOUR PROXY MAY BE REVOKED, EITHER IN WRITING
OR BY VOTING IN PERSON AT THE SPECIAL MEETING, AT ANY TIME PRIOR TO ITS
EXERCISE.
PLEASE DO NOT SEND YOUR JENSEN COMMON STOCK CERTIFICATES AT THIS TIME.
THE BOARD OF DIRECTORS OF JENSEN (WITH MR. SHAW ABSTAINING) UNANIMOUSLY
RECOMMENDS THAT STOCKHOLDERS VOTE "FOR" THE MATTERS TO BE VOTED UPON AT THE
SPECIAL MEETING.
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PROXY STATEMENT
INTERNATIONAL JENSEN INCORPORATED
25 TRI-STATE INTERNATIONAL OFFICE CENTER, SUITE 400
LINCOLNSHIRE, ILLINOIS 60069
(847) 317-3700
------------------------
SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD AUGUST 28, 1996
---------------------
INTRODUCTION
This Proxy Statement is being furnished to stockholders of International
Jensen Incorporated ("Jensen"), a Delaware corporation, in connection with the
solicitation of proxies by and on behalf of the Board of Directors of Jensen to
be used at a special meeting of its stockholders (including any adjournments or
postponements thereof, the "Special Meeting"), to be held on August 28, 1996.
This Proxy Statement relates to the proposed merger (the "Merger") between
Jensen and RC Acquisition Sub, Inc. ("RC Acquisition Sub"), a Delaware
corporation and wholly-owned subsidiary of Recoton Corporation ("Recoton"), a
New York corporation, pursuant to the Fourth Amended and Restated Agreement and
Plan of Merger, dated as of January 3, 1996 (as it may be amended, supplemented
or modified from time to time, the "Merger Agreement"), among Recoton, RC
Acquisition Sub and Jensen. If the proposed Merger is approved at the Special
Meeting, immediately prior to the Merger, and as a condition to its
consummation, upon the satisfaction of certain conditions, IJI Acquisition Corp.
("IJI Acquisition"), an Illinois corporation of which Robert G. Shaw, Chairman
of the Board, President and Chief Executive Officer of Jensen, is the sole
stockholder, will acquire the assets associated with the original equipment
manufacturing business (the "OEM Business") of Jensen and assume related
liabilities (the "OEM Asset Sale"). At the Special Meeting, the stockholders of
Jensen will be asked to approve and adopt the Merger Agreement, which approval
and adoption will also constitute approval of the transactions contemplated
thereby, including the Merger and the OEM Asset Sale.
When the Merger is completed, each outstanding share of Common Stock of
Jensen, par value $0.01 per share ("Jensen Common Stock"), will represent the
right to receive $11.00 in cash (or $8.90 in cash in the case of shares held
beneficially by Robert G. Shaw ("Shaw") and William Blair Leveraged Capital
Fund, L.P. ("WBLCF") (Shaw and WBLCF being referred to herein as the "Principal
Stockholders")). The amount paid with respect to each share of Jensen Common
Stock shall be referred to as the "Merger Consideration" and with respect to all
shares of Jensen Common Stock as the "Aggregate Merger Consideration."
The Aggregate Merger Consideration to be paid to Jensen stockholders is
$55,560,809 based on 5,738,132 outstanding shares of Jensen Common Stock as of
July 15, 1996.
Upon consummation of the Merger (the "Effective Time"), RC Acquisition Sub
will be merged with and into Jensen, which will be renamed Recoton Audio
Corporation (the "Surviving Corporation").
Following the Merger, the Surviving Corporation and IJI Acquisition will be
parties to a number of agreements, including a management services agreement, a
non-competition agreement, a supply agreement, a shared facilities agreement and
one or more license agreements. SEE "THE OEM ASSET SALE -- OEM RELATED
AGREEMENTS."
Only stockholders of record of Jensen Common Stock at the close of business
on July 15, 1996 (the "Record Date"), will be entitled to notice of, and to vote
at, the Special Meeting. Shares of Jensen Common Stock represented by
duly-executed proxies received by Jensen will be voted in accordance with the
instructions contained therein and, in the absence of specific instructions,
will be voted for
<PAGE>
the Merger Agreement to be acted upon at the Special Meeting and for the
transactions contemplated by the Merger Agreement, including the Merger and the
OEM Asset Sale, and for authorizing the person or persons voting the proxies to
vote in favor of adjournment or postponement of the Special Meeting if the Board
of Directors of Jensen determines that such adjournment or postponement is
necessary or appropriate. In addition, properly-executed proxies that are timely
returned will be voted in accordance with the judgment of the person or persons
voting the proxies on any other matter that properly may be brought before the
Special Meeting. The execution of a proxy will in no way affect a Stockholder's
right to attend the Special Meeting and to vote in person. Any proxy executed
and returned by a Stockholder may be revoked at any time thereafter except as to
any matter or matters upon which, prior to such revocation, a vote shall have
been cast pursuant to the authority conferred by such proxy.
This Proxy Statement and the accompanying proxy form are being mailed on or
about July 23, 1996, to Stockholders entitled to vote at the Special Meeting.
The expense of filing, printing, assembling and mailing this proxy material to
stockholders will be shared equally by Jensen and Recoton, and the cost of
soliciting proxies will be borne by Jensen. In addition to solicitation by use
of the mails, Jensen may use the services of its directors, officers and
employees to solicit proxies personally or by telephone, without additional
salary or compensation to them. Jensen also has retained the services of The
Financial Relations Board, Inc. to assist in the solicitation of proxies for a
fee estimated in the range of $15,000 to $25,000. Brokerage houses, custodians,
nominees and fiduciaries will be requested to forward the proxy soliciting
materials to the beneficial owners of Jensen's shares held of record by such
persons, and Jensen will reimburse such persons for reasonable out-of-pocket
expenses incurred by them in that regard.
Any holder of shares of Jensen Common Stock as of the Record Date who does
not assent to the Merger has the right, upon compliance with specific
procedures, to demand from Jensen payment of the fair value of such holder's
shares. Such stockholder must, among other things, not vote for the approval and
adoption of the Merger Agreement (which approval would include submitting a
signed proxy form without voting instructions), timely object to the Merger in
writing prior to the Special Meeting and strictly comply with certain other
requirements. For a more complete description of such right, reference is made
to "THE MERGER -- DISSENTERS' RIGHTS" in this Proxy Statement and to Section 262
of the General Corporation Law of the State of Delaware ("DGCL"), a copy of
which is attached to this Proxy Statement as Annex V.
Accompanying this Proxy Statement are copies of Jensen's Annual Report on
Form 10-K for the fiscal year ended February 29, 1996 and Quarterly Report on
Form 10-Q for the quarterly period ended May 31, 1996.
------------------------
The date of this Proxy Statement is July 23, 1996
2
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NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS ON BEHALF OF JENSEN NOT CONTAINED IN THIS PROXY STATEMENT, AND,
IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS
HAVING BEEN AUTHORIZED BY JENSEN. THIS PROXY STATEMENT DOES NOT CONSTITUTE THE
SOLICITATION OF A PROXY IN ANY JURISDICTION WHERE IT IS UNLAWFUL TO MAKE SUCH
SOLICITATION. THE DELIVERY OF THIS PROXY STATEMENT SHALL NOT, UNDER ANY
CIRCUMSTANCES, CREATE AN IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE
AFFAIRS OF JENSEN SINCE THE DATE HEREOF OR THAT THE INFORMATION CONTAINED HEREIN
IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF.
AVAILABLE INFORMATION
Jensen is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and, in accordance
therewith, files reports and other information with the Securities and Exchange
Commission. Reports, proxy statements and other information filed by Jensen can
be inspected and copied at the public reference facilities maintained by the
Commission at Room 1024, 450 Fifth Street, N.W., Washington. D.C. 20549, and at
the following Regional Offices of the Commission: Midwest Regional Office, 500
West Madison Street, Suite 1400, Chicago, Illinois 60661-2511, and Seven World
Trade Center, Suite 1300, New York, New York 10048. Copies of such material also
can be obtained from the Public Reference Section of the Commission at 450 Fifth
Street, N.W., Washington, D.C. 20549, at prescribed rates. In addition, reports,
proxy statements and other information concerning Jensen may be inspected at the
offices of the National Association of Securities Dealers, Inc. (the "NASD"),
1935 K Street, N.W., Washington, D.C. 20006.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents heretofore filed with the Commission by Jensen (File
Number 0-19779) pursuant to the Exchange Act are incorporated by reference in
this Proxy Statement: (i) Annual Report on Form 10-K for the fiscal year ended
February 29, 1996, (ii) Quarterly Report on Form 10-Q for the quarterly period
ended May 31, 1996, and (iii) Current Report on Form 8-K dated June 23, 1996
(the "Jensen Reports").
THIS PROXY STATEMENT INCORPORATES CERTAIN DOCUMENTS BY REFERENCE WHICH ARE
NOT PRESENTED HEREIN OR DELIVERED HEREWITH. COPIES OF SUCH DOCUMENTS (OTHER THAN
EXHIBITS NOT SPECIFICALLY INCORPORATED BY REFERENCE INTO THE TEXT OF SUCH
DOCUMENTS) ARE AVAILABLE, WITHOUT CHARGE, TO EACH PERSON TO WHOM THIS PROXY
STATEMENT IS DELIVERED, ON THE WRITTEN OR ORAL REQUEST OF SUCH PERSON, TO MARC
T. TANENBERG, SECRETARY, INTERNATIONAL JENSEN INCORPORATED, 25 TRI-STATE
INTERNATIONAL OFFICE CENTER, SUITE 400, LINCOLNSHIRE, ILLINOIS 60069 (TELEPHONE
(847) 317-3700). IN ORDER TO ENSURE TIMELY DELIVERY OF THE DOCUMENTS, ANY
REQUEST SHOULD BE RECEIVED BY AUGUST 16, 1996.
3
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TABLE OF CONTENTS
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PROXY STATEMENT............................................................................................ 1
AVAILABLE INFORMATION...................................................................................... 3
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE............................................................ 3
SUMMARY.................................................................................................... 7
The Companies............................................................................................ 7
Jensen................................................................................................. 7
Recoton................................................................................................ 7
RC Acquisition Sub..................................................................................... 7
The Special Meeting...................................................................................... 7
The Merger Agreement..................................................................................... 8
Merger................................................................................................. 8
Conversion of Shares of Jensen Common Stock............................................................ 8
Background of the Merger............................................................................... 8
Pending Litigation..................................................................................... 11
Reasons for the Merger................................................................................. 12
Opinion of Jensen's Financial Advisor.................................................................. 12
Recommendation of the Jensen Board..................................................................... 12
Interests of Certain Persons in the Merger; Management After the Merger................................ 12
Effective Time of the Merger........................................................................... 14
Financing.............................................................................................. 14
Regulatory Considerations.............................................................................. 14
Other Conditions to the Merger......................................................................... 14
Consideration of Other Proposals....................................................................... 15
Amendment, Waiver and Termination...................................................................... 15
Certain Federal Income Tax Consequences................................................................ 16
Dissenters' Rights..................................................................................... 16
OEM Asset Sale........................................................................................... 17
Certain Other Agreements................................................................................. 17
AR Agreement........................................................................................... 17
Loan by Recoton to Jensen.............................................................................. 18
OEM Amendment Agreement................................................................................ 18
Shaw Employment Agreements............................................................................. 18
Stock Option, Voting and Similar Agreements............................................................ 18
THE SPECIAL MEETING........................................................................................ 19
Time and Place; Purpose.................................................................................. 19
Voting Rights; Votes Required for Approval............................................................... 19
Proxies.................................................................................................. 20
THE MERGER................................................................................................. 21
Background of the Merger................................................................................. 21
Recommendation and Reasons for the Merger................................................................ 41
Fairness Opinion by Lehman Brothers...................................................................... 42
Interests of Certain Persons in the Merger............................................................... 48
OEM Asset Sale......................................................................................... 48
Stock Option, Voting and Similar Agreements............................................................ 48
Directors and Officers of Recoton and the Surviving Corporation After the Merger....................... 48
Employee Stock Option Programs......................................................................... 49
Employee Benefit Plans................................................................................. 50
Indemnification........................................................................................ 50
Directors' and Officers' Liability Insurance........................................................... 50
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Employment Agreement of Robert G. Shaw................................................................. 51
Transitional Employment Agreements..................................................................... 51
Bonuses to Jensen Officers............................................................................. 52
Conversion of Shares of Jensen Common Stock.............................................................. 52
Exchange Procedures...................................................................................... 52
Certain Federal Income Tax Consequences.................................................................. 53
Regulatory Considerations................................................................................ 54
Other Conditions to the Consummation of the Merger....................................................... 54
Representations and Warranties........................................................................... 55
Financing the Acquisition and Related Expenses; Capital Needs............................................ 56
Amendment, Waiver and Termination........................................................................ 56
Amendment.............................................................................................. 56
Waiver................................................................................................. 56
Termination............................................................................................ 56
Extension of Termination Date.......................................................................... 57
Payments and Other Rights Upon Termination............................................................... 58
Pending Litigation....................................................................................... 60
Dissenters' Rights....................................................................................... 61
OTHER JENSEN AND RECOTON AGREEMENTS........................................................................ 64
STOCK OPTION, VOTING AND SIMILAR AGREEMENTS................................................................ 65
OEM BUSINESS............................................................................................... 66
Automotive OEM........................................................................................... 66
Loudspeaker Components................................................................................... 66
Sales, Marketing and Distribution........................................................................ 67
Production............................................................................................... 67
Engineering.............................................................................................. 67
Facilities............................................................................................... 67
Recent Developments...................................................................................... 68
OEM Business Financial Highlights (unaudited)............................................................ 68
THE OEM ASSET SALE......................................................................................... 69
The OEM Agreement........................................................................................ 69
Assets to be Purchased................................................................................. 70
Assets Not to be Purchased............................................................................. 70
Liabilities to be Assumed.............................................................................. 70
Sale of Accounts Receivable to Another Purchaser....................................................... 71
OEM Related Agreements................................................................................... 71
Management Services Agreement.......................................................................... 71
Supply and Services Agreement.......................................................................... 71
Shared Facilities Agreement............................................................................ 72
Non-Competition Agreement.............................................................................. 72
License Agreement...................................................................................... 72
PRINCIPAL STOCKHOLDERS..................................................................................... 73
SELECTED FINANCIAL DATA.................................................................................... 74
PRO FORMA FINANCIAL DATA................................................................................... 75
MARKET PRICES AND DIVIDEND INFORMATION..................................................................... 78
EXPERTS.................................................................................................... 79
STOCKHOLDER PROPOSALS...................................................................................... 79
OTHER BUSINESS............................................................................................. 79
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Annex I Fourth Amended and Restated Agreement and Plan of Merger
Annex II Third Amended and Restated Agreement for Purchase and Sale of the
Assets of the OEM Business
Annex III-A, Press Releases by Emerson Radio Corp.
B, C, D, E, F
and G
Annex IV Opinion of Lehman Brothers
Annex V Section 262 of the Delaware General Corporation Law
Annex VI Amended and Restated Exclusive World-Wide License and Option to Sell
and Option to Purchase Proprietary Rights
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SUMMARY
THIS SUMMARY IS QUALIFIED IN ITS ENTIRETY BY THE MORE DETAILED INFORMATION
AND FINANCIAL DATA APPEARING ELSEWHERE OR INCORPORATED BY REFERENCE IN THIS
PROXY STATEMENT AND THE ANNEXES HERETO. STOCKHOLDERS ARE URGED TO REVIEW
CAREFULLY THE ENTIRE PROXY STATEMENT, THE DOCUMENTS INCORPORATED HEREIN BY
REFERENCE AND THE ANNEXES HERETO.
THE COMPANIES
JENSEN. International Jensen Incorporated, a Delaware corporation, designs,
manufactures and markets quality loudspeakers and loudspeaker components for the
domestic and international automotive original equipment manufacturing market,
automotive after market and home audio market. Jensen also designs and markets
related audio electronics products. Its principal products are sold under the
brand names Jensen-Registered Trademark-, Advent-Registered Trademark-,
NHT-Registered Trademark-, Magnat-Registered Trademark- and Mac
Audio-Registered Trademark-. Jensen's principal executive offices are located at
25 Tri-State International Office Center, Suite 400, Lincolnshire, IL 60069 and
its telephone number is 847-317-3700.
RECOTON. Recoton Corporation, a New York corporation incorporated in 1936,
with its subsidiaries, is one of the leading suppliers of consumer electronics
accessory products in North America, offering over 3,500 functional and
versatile products in virtually every accessory category. Recoton's products
include antennas for television and radio (AM/FM), audio accessories, CD/compact
disc accessories, camcorder accessories, stereo headphones, wireless products,
remote controls, audio and video tapes, music carrying cases and accessories for
audio and video products, video games, camcorders, computers, home office
products, telephones, cellular phones, televisions, VCRs and car audio products.
Recoton markets these products under a number of well-respected brand names,
including Recoton-Registered Trademark-, Ambico-Registered Trademark-,
Discwasher-Registered Trademark-, Parsec-Registered Trademark-,
Rembrandt-Registered Trademark-, Calibron-Registered Trademark-, Sole
Control-Registered Trademark-, SoundQuest-TM-, Ampersand-TM- and
Interact-Registered Trademark-, and since January 1996, when an exclusive
worldwide license was granted by Jensen to Recoton, Acoustic
Research-Registered Trademark- and AR-Registered Trademark-. Recoton's principal
executive offices are located at 2950 Lake Emma Road, Lake Mary, Florida 32746,
and its telephone number is 407-333-8900.
RC ACQUISITION SUB. RC Acquisition Sub, Inc. is a wholly-owned subsidiary
of Recoton incorporated as a Delaware corporation in December 1995. RC
Acquisition Sub has not engaged in any substantial business to date. Upon RC
Acquisition Sub's merger with and into Jensen, Jensen will be renamed Recoton
Audio Corporation. RC Acquisition Sub's principal executive offices are located
at 2950 Lake Emma Road, Lake Mary, Florida 32746, and its telephone number is
407-333-8900.
THE SPECIAL MEETING
The Special Meeting of the Stockholders will be held at the Tri-State
International Office Center, First Floor Auditorium, Building 200, Lincolnshire,
Illinois 60069 on August 28, 1996, starting at 9:00 A.M., local time. SEE "THE
SPECIAL MEETING." At the meeting, holders of Jensen Common Stock will be asked
to approve the Merger Agreement and the transactions contemplated thereby,
including the Merger and the OEM Asset Sale. The Merger Agreement and the OEM
Agreement are attached hereto as Annexes I and II, respectively. SEE "THE
MERGER."
Holders of record of Jensen Common Stock at the close of business on July
15, 1996 have the right to receive notice of and to vote at the Special Meeting.
On July 15, 1996, there were 5,738,132 shares of Jensen Common Stock outstanding
and entitled to vote. Each share of Jensen Common Stock is entitled to one vote
on each matter that is properly presented to the Stockholders for a vote at the
Special Meeting. Under the DGCL, the affirmative vote of the holders of a
majority of the outstanding shares of Jensen Common Stock is required to approve
and adopt the Merger Agreement and the transactions contemplated thereby. In
addition, in accordance with its terms, the Merger Agreement also requires the
approval of a majority of the shares of Jensen Common Stock which are voted at
the Special Meeting other than shares held directly or indirectly by Robert G.
Shaw, Chairman of the Board, President, and Chief Executive Officer of Jensen.
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WBLCF, which holds 1,487,500 shares (approximately 25.9%) of the outstanding
Jensen Common Stock, has entered into a Stock Option and Voting Agreement with
Recoton (the "Stock Option and Voting Agreement") pursuant to which WBLCF has
(i) agreed to vote its shares of Jensen Common Stock in favor of the Merger and
against any third party transaction that would interfere with the Merger, (ii)
granted a proxy to Recoton to vote its shares under certain circumstances, (iii)
granted Recoton an option to purchase its shares of Jensen Common Stock at $8.90
per share plus 50% of any net proceeds over $8.90 per share which Recoton
receives upon sale of such shares to the extent such net proceeds do not exceed
$10.90 per share plus 100% of the net proceeds which Recoton may receive over
$10.90 per share upon such sale and (iv) committed not to sell or transfer its
shares of Jensen Common Stock other than pursuant to the Merger Agreement and
the Stock Option and Voting Agreement. Robert G. Shaw, Chairman of the Board,
President and Chief Executive Officer of Jensen, has entered into an Amended and
Restated Agreement with Recoton (the "Spread Agreement") pursuant to which Mr.
Shaw will pay to Recoton 50% of the difference between (i) the net proceeds per
share received by Mr. Shaw, but not to exceed $10.65 per share, and (ii) $8.90
per share, resulting from the transfer of any or all of his shares by way of
merger, tender offer or otherwise to a third person other than Recoton. Recoton
shall reimburse Mr. Shaw 50% of Federal and state income taxes which are
incurred by Mr. Shaw as a result of Recoton's receipt of any portion of the sale
proceeds. Mr. Shaw, who owns 2,111,854 shares (approximately 36.8%) of the
outstanding Jensen Common Stock, has not entered into an agreement to vote his
shares in favor of the Merger. SEE "STOCK OPTION, VOTING AND SIMILAR
AGREEMENTS." Mr. Shaw and the other executive officers and directors of Jensen
and their affiliates (including WBLCF), who as of July 15, 1996 as a group
beneficially owned approximately 63% of the shares of Jensen Common Stock
expected to be outstanding at the time of the Special Meeting, have, however,
indicated that they intend to vote "for" the proposed transactions and the
authorization referred to below. SEE "PRINCIPAL STOCKHOLDERS."
If the Merger is approved by the stockholders pursuant to the Merger
Agreement, and as a condition to the consummation of the Merger, the OEM Asset
Sale is to occur immediately prior to the Merger in accordance with the terms
of, and upon the satisfaction of the conditions set forth in, the Third Amended
and Restated Agreement for Purchase and Sale of the Assets of OEM Business of
International Jensen Incorporated by and between Jensen and IJI Acquisition
dated as of January 3, 1996 (the "OEM Agreement"). Robert G. Shaw is the sole
stockholder, Director and the President of IJI Acquisition. SEE "THE OEM ASSET
SALE -- THE OEM AGREEMENT."
Notwithstanding the existence of the Merger Agreement, there can be no
assurance that the Merger will occur even if the applicable proposals are
approved by the requisite vote of the stockholders since there are various
conditions to the closing of the Merger and either party to the Merger Agreement
may refuse to perform its obligations under such agreement. SEE "THE MERGER --
OTHER CONDITIONS TO THE CONSUMMATION OF THE MERGER" and "-- PAYMENTS AND OTHER
RIGHTS UPON TERMINATION."
THE MERGER AGREEMENT
MERGER. The Merger Agreement provides, among other things, that RC
Acquisition Sub will merge with and into Jensen, and that Jensen will be the
surviving corporation and change its name to Recoton Audio Corporation. The
Surviving Corporation will be a wholly-owned subsidiary of Recoton.
CONVERSION OF SHARES OF JENSEN COMMON STOCK. Upon consummation of the
Merger, shares of Jensen Common Stock outstanding immediately prior to the
Effective Time (other than shares held by Jensen as treasury shares ("Jensen
Treasury Stock"), shares owned by Recoton, or shares as to which appraisal
rights have been perfected ("Dissenters' Shares") under the DGCL) will be
converted into the right to receive cash in the amount of $11.00 per share (or
$8.90 per share in the case of shares held beneficially by the Principal
Stockholders).
BACKGROUND OF THE MERGER. In December 1994, management of Jensen began to
consider and analyze strategic alternatives to enhance the value of Jensen
Common Stock. In April 1995, Jensen retained an investment advisor to advise
Jensen in connection with the evaluation of proposed
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strategic alternatives. Subsequently, the Board of Directors of Jensen (the
"Jensen Board") concluded it was in the best interests of Jensen's stockholders
and Jensen to seek a sale or merger of Jensen with a strategic partner. In June
1995, Jensen engaged the investment banking firm Lehman Brothers, Inc. ("Lehman
Brothers") to identify opportunities for the sale of Jensen and to solicit and
evaluate potential purchasers or merger candidates and proposals. After Lehman
Brothers and Jensen management had solicited interest from and discussed
possible transactions with a number of companies, in August 1995, the Jensen
Board and management of Jensen met with management of Recoton concerning the
possibility of a business combination. Recoton and Jensen subsequently entered
into a due diligence agreement, pursuant to which Recoton undertook to
investigate Jensen's business and operations. In December 1995, Recoton stated
it was willing to acquire only Jensen's brand name businesses (the "Branded
Business") and not the OEM Business. The Jensen Board, which continued to
consider it desirable to sell all of Jensen, determined that any attempt to
contact independent buyers for the OEM Business could adversely affect its
customers and negatively impact the operations and value of the OEM Business.
Consequently, the Jensen Board determined to consider offers from Jensen's
officers or stockholders for the OEM Business. Mr. Robert G. Shaw, the President
and Chief Executive Officer of Jensen, initially offered to purchase the OEM
Business for between $12 million and $15 million and subsequently agreed to
purchase the OEM Business for approximately $15 million plus the assumption of a
mortgage on one of the facilities of the OEM Business and all liabilities
associated with the OEM Business (including contingent and unknown liabilities)
except as otherwise agreed. After further negotiations and deliberations and
after receipt by the Jensen Board of fairness opinions by Lehman Brothers with
respect to the terms of the acquisition proposals from Recoton and Mr. Shaw, the
Jensen Board agreed to the terms of a merger transaction pursuant to which
Recoton would acquire Jensen for $8.90 per share in cash and shares of Recoton,
or, alternatively, all in cash under certain circumstances, subject to the
contemporaneous sale of the OEM Business to a newly formed company of which Mr.
Shaw is the sole stockholder, for approximately $15.0 million plus the
assumption of a mortgage on one of the facilities of the OEM Business and all
liabilities associated with the OEM Business (including contingent and unknown
liabilities) except as otherwise agreed. Subsequently, the OEM Agreement
relating to the sale of the OEM Business was amended to provide that the
purchase price is subject to certain closing adjustments which would reflect the
changing levels of assets and liabilities in the ordinary course of business.
SEE "THE MERGER -- BACKGROUND OF THE MERGER" and "THE OEM ASSET SALE -- THE OEM
AGREEMENT."
Shortly after the merger agreement was signed by Jensen and Recoton in
January 1996, Jensen received unsolicited proposals from Emerson Radio Corp.
("Emerson") to acquire Jensen (initially excluding the OEM Business and
subsequently including the OEM Business) in an all cash merger transaction. In
light of the competing bids, a special committee comprised of independent
directors of the Jensen Board (the "Special Committee") was appointed to
consider and negotiate the offers of Emerson, Recoton and any other party to
acquire Jensen. Since March 1996, and particularly during April, May and June,
the Special Committee (and prior to its formation, the outside directors) and
its advisors have conducted extensive discussions and negotiations with both
Emerson and Recoton.
As a result of these negotiations, on May 8, 1996, Recoton offered $10.00
per share to the public stockholders and $8.90 per share to Mr. Shaw and WBLCF,
with IJI Acquisition agreeing to increase the purchase price for the OEM
Business by approximately $1,300,000. Subsequently, Emerson offered $9.90 per
share to all stockholders, which it later increased to $10.25 per share, or in
the alternative a two tiered structure with $8.90 per share for Mr. Shaw and
$10.75 per share for the remaining shares. On May 31, 1996, the Special
Committee's investment adviser wrote to Recoton and Emerson confirming that a
meeting of the Special Committee was scheduled for June 4, 1996, and requesting
that each submit "its highest and best bid" before that meeting. Prior to the
meeting on June 4, 1996 Recoton increased its offer to the public stockholders
from $10.00 per share to $10.25 per share, with IJI Acquisition agreeing to
increase the purchase price for the OEM Business by approximately $600,000, both
offers payable in a combination of stock and cash. Emerson submitted a draft
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merger agreement which contained its previous $10.25 per share cash offer and
reiterated its willingness to pursue its alternative two tiered proposal. At the
conclusion of the meeting on June 4, the Special Committee determined not to end
the bidding for Jensen and, the next day, advised each bidder of an opportunity
to submit a further bid before the Special Committee's next meeting scheduled
for June 10, 1996.
Prior to or on June 10, 1996, Emerson had submitted four different proposals
each of which Emerson indicated remained open: (i) a $10.25 per share all cash
proposal for all outstanding shares; (ii) $10.75 per share in cash for the
shares of all stockholders other than Mr. Shaw and $8.90 per share in cash for
shares held by Mr. Shaw; (iii) $10.75 per share in cash for the shares of all
stockholders if Mr. Shaw purchased the OEM Business for $27.6 million; and (iv)
$10.75 per share with aggregate consideration composed of 55% cash and 45% in
face value of a new issue of Emerson convertible preferred stock. Recoton
reaffirmed its earlier bid of June 4, 1996.
At the Special Committee meeting on June 10, 1996, the Special Committee did
not make any final decision, but rather determined that it needed further
information and that it should not end the auction process. On June 12, 1996 the
Special Committee's investment adviser informed Recoton and Emerson that the
Special Committee would next meet on June 14, 1996, and again requested that
each submit its best bid to the Special Committee. Prior to the meeting on June
14, 1996, neither Recoton nor Emerson altered their respective bids.
At the Special Committee meeting on June 14, the Special Committee
determined that there were serious problems with each of the bids submitted and,
subsequently, requested that each bidder submit increased or improved proposals
that, in particular, would address the concerns of the Special Committee. On
June 18, 1996, Emerson advised the Special Committee that if the Special
Committee did not accept Emerson's proposal by 5:00 p.m. on June 20, 1996, then
Emerson would consider its proposal as having been rejected.
On June 20, 1996, Recoton advised the Special Committee that Recoton was
prepared to submit a new proposal which would be an improvement over its prior
proposal. That same day the Special Committee's investment adviser informed
Emerson that the Special Committee had been advised that Recoton was prepared to
submit an improved proposal and notified both Recoton and Emerson that the
Special Committee would meet as promptly as possible to consider the new Recoton
proposal and to reconsider Emerson's pre-existing proposals. Emerson was told
that the Special Committee was not able to meet that day, as Emerson had earlier
demanded, and encouraged Emerson not to withdraw its bid or consider it
rejected, but rather asked Emerson to provide an improved or increased bid that
could promptly be considered. The next day, June 21, 1996, Recoton submitted its
enhanced proposal and both Recoton and Emerson were advised that the Special
Committee was scheduled to meet on June 23, 1996, to consider the new Recoton
bid and the pre-existing Emerson bid.
Recoton's enhanced proposal provided for all stockholders, other than Mr.
Shaw and WBLCF, to receive $11.00 per share and for Mr. Shaw and WBLCF, with
their consent, to receive $8.90 per share. Under the proposal, the consideration
to stockholders would be paid all in cash rather than in a combination of cash
and stock as provided in Recoton's prior proposals. The proposal continued to
require Jensen to sell its OEM Business prior to the closing to IJI Acquisition,
but IJI Acquisition also agreed to increase the purchase price for the OEM
Business by an additional $1.2 million to approximately $18.4 million plus the
assumption of all related liabilities except as expressly agreed.
At a meeting of the Special Committee on June 23, 1996, the Special
Committee considered the two offers and concluded that accepting the enhanced
Recoton offer was in the best interest of Jensen stockholders and recommended
proceeding with the enhanced Recoton transaction. The Jensen Board approved the
enhanced Recoton transaction based on this recommendation.
In connection with the Recoton proposal, as discussed above, WBLCF, which
owns approximately 25.9% of the shares of Jensen, has entered into the Stock
Option and Voting Agreement and Mr. Shaw, who owns approximately 36.8% of the
shares of Jensen, has entered into the Spread Agreement.
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On June 25, 1996, Emerson announced a revised offer of $12.00 per share to
the public stockholders and $8.90 per share to the Principal Stockholders and
Recoton if Recoton were to acquire Jensen Common Stock pursuant to the Stock
Option and Voting Agreement with WBLCF. Emerson also indicated that the Recoton
transaction would be challenged in the various stockholder lawsuits and that
Emerson would solicit proxies in opposition to the Recoton proposal.
On June 25, 1996, the Jensen Board, based on the recommendation of the
Special Committee, reaffirmed the Recoton transaction and rejected the Emerson
revised offer based on a number of factors, including issues relating to the
terms of the merger agreement proposed by Emerson and the fact that Mr. Shaw had
indicated that he would not vote in favor of the revised Emerson proposal and
the fact that WBLCF had entered into a voting agreement with Recoton pursuant to
which WBLCF agreed to vote its shares in favor of the Recoton transaction and
against any agreement that would interfere with the Recoton transaction. The
Jensen Board concluded, based on the advice of Delaware counsel, that under such
circumstances the Emerson proposal could not be consummated due to the lack of
the necessary stockholder vote and that it would be improper to recommend the
Emerson transaction to the Jensen stockholders as a matter of Delaware law.
On July 16, 1996, Emerson submitted another offer of $12.00 per share to the
public stockholders and $8.90 per share to Mr. Shaw, but offered WBLCF $10.00
per share. WBLCF has informed Emerson and the Special Committee that its Stock
Option and Voting Agreement with Recoton continues in full force and effect and
prevents WBLCF from selling the Jensen Common Stock it owns to Emerson. The
Special Committee met on July 18, 1996, and rejected this Emerson offer for the
same reasons it rejected Emerson's June 25, 1996, offer.
SEE "SUMMARY -- THE MERGER AGREEMENT -- REASONS FOR THE MERGER" and "THE
MERGER -- RECOMMENDATION AND REASONS FOR THE MERGER."
PENDING LITIGATION. On May 9, 1996, shortly after public statements
encouraging stockholder litigation were made by Emerson's President, a Jensen
stockholder filed an action in Delaware state court against Jensen and its
affiliates and others seeking to enjoin the Recoton transaction. On May 20,
1996, a second stockholder action was filed in Delaware seeking to enjoin the
Merger on various grounds. The stockholder cases have been consolidated into a
single action. On July 8, 1996, an amended consolidated stockholder complaint
was filed by the existing Delaware plaintiffs against the same defendants making
claims similar to those previously made with additional allegations charging
that the wrongful conduct continued through Jensen's acceptance of Recoton's
latest offer and rejection of Emerson's latest offer. On July 16, 1996,
plaintiffs in the case filed a supplement to the consolidated action asserting a
new claim that the Stock Option and Voting Agreement had terminated and that
WBLCF was free to sell its shares to Emerson or vote them in favor of the
Emerson proposal. Also on July 16, 1996, the Delaware court denied a motion by
plaintiffs for an order expediting discovery and to schedule a hearing on the
application of a preliminary injunction in the case.
On May 10, 1996, Jensen filed an action in Federal District Court in
Chicago, Illinois against Emerson and its President for proxy solicitation in
violation of the federal securities laws and for breach of a confidentiality
agreement with Jensen. On May 14, 1996, the court entered a temporary
restraining order against Emerson and Mr. Eugene Davis, Emerson's President,
enjoining them from, among other things, further solicitation of Jensen
stockholders and disclosing confidential information in violation of the
confidentiality agreement. On May 20, 1996, Emerson counterclaimed against
Jensen and Mr. Shaw for fraudulent inducement to enter into the confidentiality
agreement and failure to negotiate in good faith. The temporary restraining
order entered by the Federal District Court has lapsed.
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On July 2, 1996 Emerson filed an amended counterclaim and third party
complaint in the Federal District Court in Chicago making allegations similar to
those in its original counterclaim and additional claims that Jensen and Mr.
Shaw continued to mislead Emerson and negotiate in bad faith, with Recoton and
WBLCF added as alleged co-conspirators with respect to such continuing conduct.
SEE "THE MERGER -- PENDING LITIGATION."
REASONS FOR THE MERGER. The Jensen Board believes that the Merger with
Recoton will provide to the stockholders fair value for their shares of Jensen
Common Stock, as compared with Jensen remaining independent or other potential
business combinations or strategic alternatives previously discussed or under
consideration by the Jensen Board. In reaching its recommendation, the Jensen
Board considered, among other factors, information concerning the financial
condition, asset quality, earnings and prospects of Jensen and the fairness
opinion of Lehman Brothers with respect to both the Merger and the sale of the
OEM Business. In addition, the Special Committee considered the fact that the
Recoton transaction represented higher value to the stockholders of Jensen than
all but Emerson's multi-priced proposals, which proposals were not likely to be
consummated, and, based on the advice of counsel to the Special Committee, would
be improper for the Jensen Board to recommend to stockholders under Delaware
law. SEE "THE MERGER -- RECOMMENDATION AND REASONS FOR THE MERGER" for a full
description of the various factors considered by the Jensen Board in making its
decision.
OPINION OF JENSEN'S FINANCIAL ADVISOR. Lehman Brothers has delivered its
written opinion to the Jensen Board, dated the date of this Proxy Statement, to
the effect that, as of the date of such opinion and based upon and subject to
certain matters stated therein, from a financial point of view (i) the Merger
Consideration to be received by the public stockholders in the Merger is fair to
the public stockholders and (ii) since Recoton requires the prior sale of the
OEM Business as a condition to the consummation of the Merger, the consideration
to be received by Jensen in the proposed OEM Asset Sale, in the context of the
overall transaction and the consideration to be received by the public
stockholders in the Merger, is fair to Jensen. A copy of Lehman Brothers'
opinion, which sets forth certain assumptions made, matters considered and
limitations on the review undertaken, is attached to this Proxy Statement as
Annex IV and should be read carefully by the stockholders in its entirety.
Jensen has agreed to pay Lehman Brothers a fee upon completion of the Merger in
an amount equal to 1% of the Aggregate Merger Consideration plus the amount of
any indebtedness for money borrowed which is assumed by Recoton, less $100,000
already paid to Lehman Brothers. SEE "THE MERGER -- FAIRNESS OPINION BY LEHMAN
BROTHERS."
RECOMMENDATION OF THE JENSEN BOARD. The Jensen Board has determined that
the terms of the Merger are fair to and in the best interests of Jensen and its
stockholders and that the sale of the OEM Business to Mr. Shaw is fair to Jensen
and in the best interests of Jensen and its stockholders. THE JENSEN BOARD (WITH
MR. SHAW ABSTAINING) HAS UNANIMOUSLY RECOMMENDED THAT THE JENSEN STOCKHOLDERS
APPROVE THE MERGER AGREEMENT AND THE TRANSACTIONS CONTEMPLATED THEREBY INCLUDING
THE MERGER AND THE SALE OF THE OEM BUSINESS TO A COMPANY OWNED BY MR. SHAW. SEE
"THE MERGER -- BACKGROUND OF THE MERGER," "-- RECOMMENDATION AND REASONS FOR THE
MERGER" and "-- FAIRNESS OPINION BY LEHMAN BROTHERS."
INTERESTS OF CERTAIN PERSONS IN THE MERGER; MANAGEMENT AFTER THE MERGER. In
considering the recommendation of the Jensen Board, the stockholders should be
aware that directors and executive officers of Jensen have certain interests in
the Merger that are different from, or in addition to, the interests of
stockholders of Jensen generally. These interests include, without limitation,
voting, stock option, asset sale and employment arrangements, acceleration of
vesting of certain stock options, indemnification from certain liabilities and
bonuses to be paid in connection with a sale of Jensen.
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Robert G. Shaw, the Chairman, President and Chief Executive Officer of
Jensen, is the sole stockholder and Director of IJI Acquisition, the corporation
formed to acquire the assets of the OEM Business pursuant to the OEM Agreement.
SEE "THE OEM ASSET SALE -- THE OEM AGREEMENT."
At the Effective Time, the Board of Directors of the Surviving Corporation
shall consist of Robert L. Borchardt, Joseph H. Massot, Stuart Mont, Robert G.
Shaw and Marc T. Tanenberg and the officers of the Surviving Corporation shall
be Robert L. Borchardt, Chairman; Robert G. Shaw, President and Chief Executive
Officer; Marc T. Tanenberg, Vice President and Chief Financial Officer; Stuart
Mont, Secretary; and Joseph H. Massot, Treasurer and Assistant Secretary. Mr.
Shaw will become a member of the Board of Directors of, and an executive officer
of, Recoton following the Merger. Mr. Borchardt is the President, Co-Chairman
and Co-Chief Executive Officer and a Director of Recoton; Mr. Shaw is the
President and Chief Executive Officer and a Director of Jensen and the sole
stockholder, President and Director of IJI Acquisition, the corporation which
has contracted with Jensen to purchase the assets of the OEM Business; Mr. Mont
is the Executive Vice President-Operations, Chief Operating Officer, Chief
Financial Officer and Secretary and a Director of Recoton; Mr. Tanenberg is the
Vice President and Chief Financial Officer of Jensen; and Mr. Massot is the Vice
President, Treasurer and Assistant Secretary and a Director of Recoton.
Robert G. Shaw has entered into an agreement with Recoton and RC Acquisition
Sub to amend his 1991 Employment Agreement with Jensen (the "Amendment").
Pursuant to the Amendment, Mr. Shaw has waived any "change of control" payments
which would be due in connection with or upon consummation of the Merger. Mr.
Shaw has also entered into an employment agreement with Recoton (the "Shaw
Employment Agreement"), which will become effective upon the consummation of the
Merger. SEE "SUMMARY -- CERTAIN OTHER AGREEMENTS -- SHAW EMPLOYMENT AGREEMENTS"
and the other sections referenced therein.
One of the executive officers of Jensen is a party to a transitional
employment agreement providing for severance payments in the event of
termination following a change of control and is entitled to a bonus in the
event of a change of control. SEE "THE MERGER -- INTERESTS OF CERTAIN PERSONS IN
THE MERGER -- TRANSITIONAL EMPLOYMENT AGREEMENTS."
An executive officer and the non-employee directors of Jensen hold options
to purchase shares of Jensen Common Stock, the vesting of which accelerates upon
the Merger. Pursuant to the Merger Agreement, each option will be cancelled and
terminated at the Effective Time in consideration for a payment equal to the
difference between $11.00 and the exercise price of the option, but in no event
less than $50.00 per optionee. One of Jensen's non-employee directors who is a
member of the Special Committee is a partner in a law firm which performs
significant legal services for Jensen. SEE "THE MERGER -- INTERESTS OF CERTAIN
PERSONS IN THE MERGER -- EMPLOYEE STOCK OPTION PROGRAMS."
Three of Jensen's non-employee directors ("Deferred Holders") have elected
to defer the receipt of shares of Jensen Common Stock ("Deferred Shares") owed
to them in lieu of directors' fees pursuant to the 1994 Stock Option and
Purchase Plan for Non-Employee Directors. Pursuant to the Merger Agreement,
immediately prior to the Effective Time, Jensen shall terminate each such
director's right to receive the Deferred Shares and in consideration thereof,
Jensen shall make a cash payment to each Deferred Holder in an amount equal to
the number of Deferred Shares held by such Deferred Holder times $11.00. SEE
"THE MERGER -- INTERESTS OF CERTAIN PERSONS IN THE MERGER -- EMPLOYEE STOCK
OPTION PROGRAMS."
As noted above (SEE "THE SPECIAL MEETING"), WBLCF, which holds approximately
25.9% of the shares of Jensen Common Stock outstanding, has agreed with Recoton
to vote its shares of Jensen Common Stock in favor of the Merger and against any
third party transaction that would interfere with the Merger, to provide a proxy
to Recoton to vote its shares under certain circumstances and has granted
Recoton an option to purchase its shares of Jensen Common Stock at $8.90 per
share plus half of any net proceeds over $8.90 which Recoton receives upon sale
of such shares to the extent such net
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proceeds do not exceed $10.90 per share plus 100% of the net proceeds which
Recoton may receive over $10.90 per share upon such sale. WBLCF also committed
not to sell or transfer its shares of Jensen Common Stock other than pursuant to
the Merger Agreement or the Stock Option and Voting Agreement. SEE "STOCK
OPTION, VOTING AND SIMILAR AGREEMENTS."
Robert G. Shaw, Chairman, President, and Chief Executive Officer of Jensen,
who owns approximately 36.8% of the outstanding Jensen Common Stock, has entered
into the Spread Agreement with Recoton but has not entered into an agreement to
vote his shares in favor of the Merger or granted an option to Recoton to
purchase his shares of Jensen Common Stock. SEE "STOCK OPTION, VOTING AND
SIMILAR AGREEMENTS." As of the Record Date, Mr. Shaw and the other executive
officers and directors of Jensen and their affiliates (including WBLCF)
beneficially owned as a group approximately 63% of the shares of Jensen Common
Stock expected to be outstanding at the time of the Special Meeting, have
indicated that they intend to vote "for" the proposed Merger transaction and the
authorization referred to below. SEE "THE SPECIAL MEETING -- VOTING RIGHTS;
VOTES REQUIRED FOR APPROVAL."
EFFECTIVE TIME OF THE MERGER. The Effective Time of the Merger will occur
when a Certificate of Merger is filed with the Secretary of State of the State
of Delaware. Such filing will occur when all conditions to the Merger contained
in the Merger Agreement, including the requisite approval of the stockholders
and the consummation of the OEM Asset Sale, have been satisfied or waived.
Recoton and Jensen currently anticipate that the Effective Time will occur as
soon as practicable after the Special Meeting. SEE "THE MERGER -- REGULATORY
CONSIDERATIONS" and "-- OTHER CONDITIONS TO THE CONSUMMATION OF THE MERGER."
FINANCING. Recoton has delivered to Jensen copies of commitment letters for
the financing of the Merger Consideration and to replace certain existing credit
facilities of Jensen. Recoton anticipates that it will obtain financing on terms
consistent with commercial lending practices. SEE "THE MERGER -- FINANCING THE
ACQUISITION AND RELATED EXPENSES; CAPITAL NEEDS."
REGULATORY CONSIDERATIONS. The consummation of the transactions
contemplated by the Merger Agreement is subject to the expiration or earlier
termination of all applicable waiting periods under the Hart-Scott-Rodino
Antitrust Improvements Act of 1976, as amended, and the regulations thereunder
(collectively, the "HSR Act"). Pre-merger notification and report forms with
respect to the Merger were filed by Recoton and Jensen under the HSR Act on or
about February 23, 1996. The waiting period expired on or about March 25, 1996
and no inquiries were received from either the Federal Trade Commission or the
Department of Justice. SEE "THE MERGER -- REGULATORY CONSIDERATIONS."
The consummation of the transactions contemplated by the Merger Agreement is
not subject to compliance with any pre-merger notification or waiting period in
any jurisdiction outside the U.S. but is subject to there being no law,
regulation, order, decree or injunction then in effect binding on either Recoton
or Jensen that would prevent the consummation of the Merger or make it illegal
(a "Regulatory Prohibition"), which Regulatory Prohibition could not be avoided
pursuant to the terms of the Merger Agreement as described below under "THE
MERGER," and the violation of which would have a material adverse consequence to
either party. SEE "THE MERGER -- REGULATORY CONSIDERATIONS."
OTHER CONDITIONS TO THE MERGER. In addition to the approval of the Merger
proposals by the stockholders and satisfaction of the regulatory considerations,
as described above, the consummation of the Merger is conditioned, which
conditions can be waived, upon the satisfaction of certain other conditions set
forth in the Merger Agreement, including: (i) the receipt by each party of
various legal opinions, certificates, consents, resolutions and reports from the
other and from third parties; (ii) the consummation of the OEM Asset Sale in
accordance with the OEM Agreement; and (iii) the deposit of cash by Recoton into
a segregated escrow fund in an amount equal to the Aggregate Merger
Consideration. SEE "THE MERGER -- OTHER CONDITIONS TO THE CONSUMMATION OF THE
MERGER."
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CONSIDERATION OF OTHER PROPOSALS. The Merger Agreement provides that Jensen
shall not, directly or indirectly, through any officer, director, employee,
representative, agent, or otherwise, solicit, initiate or encourage the
submission of any proposal or offer from any person (including, without
limitation, a "person" as defined in Section 13(d)(3) of the Exchange Act) or
entity relating to any acquisition or purchase of all or (other than in the
ordinary course of business) any portion of the assets of, or any equity
interest in, or any merger or other business combination with, Jensen or any of
its subsidiaries, other than with respect to the OEM Business or the
transactions contemplated by the Merger Agreement (collectively, a "Jensen
Acquisition Transaction"); PROVIDED, HOWEVER, that Jensen or any of its
subsidiaries may take any of the actions otherwise prohibited above if counsel
to Jensen advises the Jensen Board or any of its subsidiaries that the failure
to take such action or actions might reasonably subject Jensen's or any of its
subsidiary's directors to liability for breach of their fiduciary duties.
Notwithstanding these restrictions, however, (a) following receipt of a BONA
FIDE unsolicited written offer to consummate a Jensen Acquisition Transaction
(an "Acquisition Proposal"), Jensen may take and disclose to Jensen's
stockholders the position of the Jensen Board contemplated by Rule 14e-2 under
the Exchange Act or otherwise make appropriate disclosures to its stockholders,
(b) Jensen may furnish or cause to be furnished information concerning its
business, properties or assets to a third party subject to appropriate
confidentiality restrictions, and (c) Jensen may engage in discussions or
negotiations with a third party concerning a Jensen Acquisition Transaction. If
Jensen should receive an Acquisition Proposal or take any action described in
(b) or (c) above, Jensen has agreed to promptly inform Recoton in reasonable
detail of the material details of such Acquisition Proposal and/or its actions
in response thereto and thereafter to keep Recoton reasonably and promptly
informed of all material facts and material circumstances relating to such
Acquisition Proposal (including the material terms thereof to the extent not
restricted by any other binding agreement). For these purposes, Jensen's actions
shall include the actions of its advisors, agents and representatives.
Subject to the obligation of Jensen to make certain payments to Recoton
(which would effectively be offset in significant part by the obligation of
Recoton to make payments to Jensen under a certain trademark option agreement)
(SEE "THE MERGER -- PAYMENTS AND OTHER RIGHTS UPON TERMINATION"), the Merger
Agreement shall terminate automatically if the Jensen Board shall recommend a
Jensen Acquisition Transaction or authorize or approve the entering into by
Jensen of a Jensen Acquisition Transaction.
Jensen has received written acquisition proposals from Emerson as described
in greater detail under "THE MERGER -- BACKGROUND OF THE MERGER." However, the
Special Committee has been unable to negotiate an acceptable agreement with
Emerson and believes it is in the best interest of Jensen and its stockholders
to proceed with the Merger with Recoton. The Jensen Board has determined to
proceed with the Special Meeting and unanimously (with Mr. Shaw abstaining)
recommends that the Jensen stockholders vote in favor of the Merger proposal.
AMENDMENT, WAIVER AND TERMINATION. The Merger Agreement may be amended by
the parties at any time before or after approval by the stockholders. However,
after the stockholders' approval, no amendment shall be made which changes any
of the principal terms of the Merger Agreement, in each case, without the
further approval of such stockholders. The Merger Agreement also provides that
the parties may extend the time for the performance of any of the obligations or
other acts of the other parties, waive any inaccuracies in the representations
and warranties contained in the Merger Agreement or in any document delivered
pursuant thereto, or waive compliance with any of the agreements or conditions
contained in the Merger Agreement.
The Merger Agreement may be terminated at any time prior to the Effective
Time, whether before or after approval by the stockholders of Jensen, by mutual
written consent of RC Acquisition Sub and Jensen or by either RC Acquisition Sub
or Jensen if (i) the Merger shall not have been consummated on or before
September 2, 1996 or such later date as may be designated by Recoton (but not
later than March 31, 1997) (the "Termination Date"), (ii) the requisite vote of
the Stockholders to approve the Merger Agreement and the transactions
contemplated thereby shall not have been
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obtained at the Special Meeting, or any adjournments thereof, (iii) any
governmental or regulatory body, the consent of which is a condition to the
obligations of the parties to consummate the transactions contemplated thereby,
shall have determined not to grant its consent and any appeals of such
determination shall have been taken and have been unsuccessful or such body
shall have imposed conditions or limitations on its consent that would have a
material adverse effect on the prospects of the Surviving Corporation
unacceptable to Recoton and any appeals from such imposition shall have been
taken and have been unsuccessful, or (iv) any court of competent jurisdiction in
the United States, or any state or any country in which there is a subsidiary of
Jensen, shall have issued an order, judgment or decree (other than a temporary
restraining order) restraining, enjoining or otherwise prohibiting the Merger
and such order, judgment or decree shall have become final and nonappealable. In
addition, RC Acquisition Sub and Jensen each may terminate the Merger in
accordance with specific additional provisions of the Merger Agreement. SEE "THE
MERGER -- AMENDMENT, WAIVER AND TERMINATION." For the consequences of such
termination, SEE "THE MERGER -- PAYMENTS AND OTHER RIGHTS UPON TERMINATION."
CERTAIN FEDERAL INCOME TAX CONSEQUENCES. In general, each Jensen
stockholder, including stockholders who exercise dissenter's rights, will
recognize gain or loss per share equal to the difference between the cash
received per share for the stockholder's shares and the stockholder's tax basis
per share in the Jensen Common Stock. Such gain or loss generally will be
treated as capital gain or loss if a stockholder's shares of Jensen Common Stock
are held as capital assets at the time of the Merger. Shares of Jensen Common
Stock acquired through the exercise of employee qualified stock options and
which have not been held for the requisite holding periods, and any other shares
that are not held as capital assets, will be subject to federal income tax at
ordinary income tax rates. In transactions which are not structured similarly to
the Merger, the Internal Revenue Service (the "Service") has asserted that a
stockholder who voluntarily receives less consideration for his shares than
other stockholders is deemed to have received the average consideration paid for
all shares of that class. If the Service were to extend that position to the
Merger, the Service may assert that the amount of cash into which the Jensen
Common Stock is converted must be treated as received by all the Jensen
stockholders on a pro rata basis and that the Principal Stockholders will then
be deemed to make a payment of a portion of the Merger Consideration to the
public stockholders. If this characterization of the Merger were advanced by the
Service and upheld, the public stockholders would be treated as receiving less
consideration for their Jensen Common Stock than they actually receive (which
could result in a capital loss being recognized as a result of the exchange) and
the difference would possibly be treated as transferred by the Principal
Stockholders to the public stockholders, possibly resulting in ordinary income
to the public stockholders to the extent of such payment. THE FOREGOING TAX
DISCUSSION IS INCLUDED FOR GENERAL INFORMATION ONLY AND IS BASED UPON PRESENT
LAW. EACH STOCKHOLDER SHOULD CAREFULLY REVIEW THE MORE DETAILED DESCRIPTION
CONTAINED IN "THE MERGER -- CERTAIN FEDERAL INCOME TAX CONSEQUENCES" AND CONSULT
SUCH STOCKHOLDER'S OWN TAX ADVISOR AS TO THE SPECIFIC TAX CONSEQUENCES OF THE
MERGER TO SUCH STOCKHOLDER, INCLUDING THE APPLICATION AND EFFECT OF FEDERAL,
STATE, LOCAL AND OTHER TAX LAWS AND THE POSSIBLE EFFECTS OF CHANGES IN SUCH TAX
LAWS. SPECIAL RULES APPLY TO JENSEN COMMON STOCK ACQUIRED PURSUANT TO THE
EXERCISE OF EMPLOYEE STOCK OPTIONS OR OTHERWISE AS COMPENSATION. SEE "THE MERGER
- -- CERTAIN FEDERAL INCOME TAX CONSEQUENCES."
DISSENTERS' RIGHTS. Holders of Jensen Common Stock who follow the
procedures set forth in Section 262 of the DGCL will be entitled to have their
Jensen Common Stock appraised by the Delaware Chancery Court and to receive
payment in cash of the "fair value" of such Jensen Common Stock, exclusive of
any element of value arising from the accomplishment or expectation of the
Merger, together with a fair rate of interest, if any, as determined by such
court.
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A holder of Jensen Common Stock wishing to exercise such holder's appraisal
rights (i) must not vote in favor of adoption of the Merger Agreement and (ii)
must deliver to Jensen, prior to the vote on the Merger Agreement at the Special
Meeting, a written demand for appraisal of such holder's Jensen Common Stock.
Stockholders considering seeking appraisal should be aware that the fair
value of their Jensen Common Stock as determined under Section 262 could be more
than, the same as, or less than the consideration they would receive pursuant to
the Merger Agreement if they did not seek appraisal of their Jensen Common Stock
and that investment banking opinions as to fairness from a financial point of
view are not necessarily opinions as to fair value under Section 262.
Failure to follow the steps required by Section 262 of the DGCL for
perfecting appraisal rights may result in the loss of such rights (in which
event a Stockholder will be entitled to receive the Merger Consideration with
respect to such Jensen Common Stock in accordance with the Merger Agreement).
Delaware courts have decided that the statutory appraisal remedy, depending on
factual circumstances, may or may not be a dissenter's exclusive remedy. SEE
"THE MERGER -- DISSENTERS' RIGHTS" and Section 262 of the DGCL attached hereto
as Annex V.
OEM ASSET SALE
Simultaneous with the execution of the Merger Agreement, Jensen and IJI
Acquisition entered into an agreement which, as subsequently amended, requires
Jensen to sell and IJI Acquisition to purchase the assets associated with
Jensen's OEM Business (the "OEM Assets") for approximately $18.4 million
(subject to certain closing date adjustments which reflect the changing levels
of assets and liabilities in the ordinary course of business and which would
have resulted in a purchase price of approximately $18.2 million if the closing
occurred on May 31, 1996) plus assumption of all related liabilities except as
otherwise expressly agreed; alternatively the parties may designate a purchaser
for all or a portion of Jensen's receivables related to the OEM Business, in
which case corresponding changes shall be made to the purchase price and other
terms. IJI Acquisition is an Illinois corporation which is solely-owned by
Robert G. Shaw, Chairman of the Board, President, and Chief Executive Officer of
Jensen. The financing necessary for the cash purchase of the OEM Assets will be
provided in part by a bank credit facility obtained by IJI Acquisition. The OEM
Asset Sale is to be consummated immediately prior to the closing of the Merger.
Thereafter, Recoton and the Surviving Corporation will provide management and
administrative services to IJI Acquisition under a Management Services
Agreement. SEE "THE OEM ASSET SALE -- THE OEM AGREEMENT" and "-- OEM RELATED
AGREEMENTS."
CERTAIN OTHER AGREEMENTS
AR AGREEMENT. Simultaneous with the execution of the Merger Agreement,
Recoton and Jensen entered into an Exclusive World-Wide License and Option to
Sell and Option to Purchase Proprietary Rights (the "AR Agreement"), pursuant to
which Recoton acquired from Jensen a license to, and an option to purchase, all
rights to the "Acoustic Research" and "AR" trademarks (collectively, the "AR
Marks"), and Jensen acquired an option to sell the AR Marks to Recoton, under
certain circumstances. The AR Agreement was dated as of January 3, 1996, and has
been subsequently amended effective May 9, 1996, and June 23, 1996. The AR
Agreement provides Recoton an option to purchase the AR Marks (which Jensen
acquired in December 1989 for approximately $500,000 as part of its purchase of
the AR business) from Jensen and provides Jensen an option to sell the AR Marks
to Recoton, in each case for $3.5 million. The AR Agreement also provides for a
license fee of $10,000 per month for the use of the AR Marks for the first year
and the greater of $10,000 per month or four percent of net shipments for each
annual period thereafter until the AR Agreement terminates. On May 1, 1996,
Jensen and Recoton entered into an escrow agreement, subsequently amended on May
9, 1996, pursuant to which the escrow agent is obligated to deliver an executed
assignment of the Acoustic Research and AR trademarks to Recoton upon the
occurrence of certain circumstances including Recoton's exercise of the purchase
option and payment of the purchase price for such trademarks. SEE "OTHER JENSEN
AND RECOTON AGREEMENTS."
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LOAN BY RECOTON TO JENSEN. Contemporaneous to the entering into of the
Merger Agreement and the AR Agreement, in lieu of an upfront payment for the AR
Marks, Recoton lent to Jensen $2 million, evidenced by a promissory note, due on
the earlier of January 2, 1997 (or, if later, the extended termination date
under the AR Agreement) or the Effective Time of the Merger. The note bears
interest at the applicable short-term federal interest rate as in effect at the
time of the execution of the note (approximately 6%). Pursuant to the AR
Agreement, Recoton may cancel the note in payment of a portion of the purchase
price for the option under the AR Agreement. SEE "OTHER JENSEN AND RECOTON
AGREEMENTS."
OEM AMENDMENT AGREEMENT. On May 1, 1996, Jensen and Recoton entered into an
agreement (the "OEM Amendment Agreement") which was subsequently restated
effective as of May 9, 1996, and pursuant to which (i) Recoton consented to
Jensen's execution of the OEM Agreement, (ii) Jensen agreed not to agree to any
amendment to the OEM Agreement, or any language for exhibits "to be attached
subsequent to execution of the OEM Agreement," or to the sale of Jensen's
accounts receivable related to the OEM Business at a discount in excess of an
aggregate of $200,000 of the face amount of such receivables, in each case
without Recoton's prior written approval and (iii) Jensen agreed, if so
requested by Recoton and at Recoton's expense, that it would assert whatever
rights it may have under the OEM Agreement to seek to compel specific
performance by IJI Acquisition. SEE "OTHER JENSEN AND RECOTON AGREEMENTS."
SHAW EMPLOYMENT AGREEMENTS. On May 1, 1996, Recoton, RC Acquisition Sub,
Jensen and Robert G. Shaw, Chairman of the Board, President, and Chief Executive
Officer of Jensen, entered into an employment agreement, which becomes effective
upon the Merger, pursuant to which Mr. Shaw will become a Director and executive
officer of Recoton, and will become the President and Chief Executive Officer of
the Surviving Corporation. Mr. Shaw previously entered into an amendment of his
1991 Jensen Employment Agreement with Recoton and RC Acquisition Sub, pursuant
to which Mr. Shaw waived his right to change of control payments effective upon
the consummation of the Merger. SEE "THE MERGER -- INTERESTS OF CERTAIN PERSONS
IN THE MERGER -- EMPLOYMENT AGREEMENT OF ROBERT G. SHAW."
STOCK OPTION, VOTING AND SIMILAR AGREEMENTS. As noted above (SEE "THE
SPECIAL MEETING"), WBLCF, which holds approximately 25.9% of the shares of
Jensen Common Stock outstanding, has entered into a stock option and voting
agreement with Recoton and Robert G. Shaw, Chairman, President, and Chief
Executive Officer of Jensen, who owns approximately 36.8% of the outstanding
Jensen Common Stock, has entered into the Spread Agreement with Recoton. SEE
"STOCK OPTION, VOTING AND SIMILAR AGREEMENTS."
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THE SPECIAL MEETING
This Proxy Statement and the accompanying proxy form are furnished in
connection with the solicitation by the Jensen Board of proxies to be used at
the Special Meeting.
TIME AND PLACE; PURPOSE
The Special Meeting will be held on August 28, 1996, at 9:00 A.M., local
time, at the Tri-State International Office Center, First Floor Auditorium,
Building 200, Lincolnshire, Illinois 60069, including any adjournments or
postponements thereof.
At the Special Meeting, the Jensen stockholders will be asked to consider
and approve the Merger Agreement, pursuant to which RC Acquisition Sub will be
merged with and into Jensen. Approval of the Merger Agreement also will
constitute approval of the transactions contemplated thereby, including the
Merger and OEM Asset Sale. In the OEM Asset Sale, Jensen will sell to IJI
Acquisition (and, possibly, other purchasers) the assets associated with
Jensen's OEM Business for approximately $18.4 million (subject to certain
closing date adjustments) plus assumption of all related liabilities. In the
Merger, the separate existence of RC Acquisition Sub will cease and each
outstanding share of Jensen Common Stock will be converted into the right to
receive the Merger Consideration (I.E., cash in the amount of $11.00 (or $8.90
in the case of shares held beneficially by the Principal Stockholders)). For a
more complete description of the Merger Agreement and the forms of agreement
annexed thereto, the other terms of the Merger and the OEM Asset Sale and
related matters, see "THE MERGER" and "THE OEM ASSET SALE." A copy of the Merger
Agreement is included as Annex I to this Proxy Statement and a copy of the OEM
Agreement is included as Annex II to this Proxy Statement.
STOCKHOLDERS ARE REQUESTED TO COMPLETE, DATE AND SIGN THE ENCLOSED PROXY
FORM AND RETURN IT PROMPTLY TO JENSEN. STOCKHOLDERS WHO ATTEND THE SPECIAL
MEETING IN PERSON MAY VOTE THEIR STOCK PERSONALLY, EVEN IF THEY HAVE PREVIOUSLY
MAILED A PROXY.
VOTING RIGHTS; VOTES REQUIRED FOR APPROVAL
The Jensen Board has fixed the close of business on July 15, 1996, as the
Record Date. Only holders of record of shares of Jensen Common Stock on the
Record Date are entitled to notice of, and to vote at, the Special Meeting,
whether in person or by proxy. On July 15, 1996, there were 5,738,132 shares of
Jensen Common Stock outstanding and entitled to vote at the Special Meeting,
which shares were held by approximately 75 stockholders of record and
approximately 1,200 beneficial stockholders.
Each stockholder of record as of the Record Date is entitled to cast one
vote per share. The presence, in person or by proxy, of the holders of a
majority of the outstanding shares of Jensen Common Stock entitled to vote is
necessary to constitute a quorum at the Special Meeting.
Under the Jensen By-Laws, and the DGCL, the affirmative vote of a majority
of the shares of Jensen Common Stock represented in person or by proxy and
entitled to vote on the Merger Agreement is required to approve the Merger
Agreement and the transactions contemplated thereby, including the Merger and
the OEM Asset Sale.
In addition, approval of the Merger Agreement, which constitutes approval of
the Merger and the OEM Asset Sale, must be by a majority of the shares of Jensen
Common Stock which are voted at the Special Meeting, other than shares held
directly or indirectly by Robert G. Shaw, Chairman of the Board, President, and
Chief Executive Officer of Jensen (a "Disinterested Majority").
As of July 15, 1996, directors and executive officers of Jensen and their
affiliates as a group beneficially owned 3,612,354 shares of Jensen Common
Stock, or approximately 63% of those shares of Jensen Common Stock outstanding
as of such date, including 2,111,854 shares (approximately 36.8% of the
outstanding Jensen Common Stock) held beneficially by Robert G. Shaw and
1,487,500 shares (approximately 25.9%) of the outstanding Jensen Stock held by
WBLCF. See "PRINCIPAL STOCKHOLDERS." All of such persons have advised Jensen
that they intend to vote "for" the
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approval and adoption of the Merger Agreement and the consummation of the
transactions contemplated thereby, and "for" authorizing the person or persons
voting the proxies to vote in favor of adjournment or postponement of the
Special Meeting if management of Jensen determines that such adjournment or
postponement is necessary or appropriate.
WBLCF, which holds approximately 25.9% of the shares of Jensen Common Stock
outstanding, has entered into the Stock Option and Voting Agreement with
Recoton. Pursuant to the Agreement, WBLCF has agreed to vote its shares of
Jensen Common Stock in favor of the Merger and against any third party
transaction that would interfere with the Merger, and has provided a proxy to
Recoton to vote its shares under certain circumstances and has granted Recoton
an option to purchase its shares of Jensen Common Stock at $8.90 per share plus
additional amounts which depend on whether the sales price for such shares is
greater or lesser than $10.90 per share. The stock option may be exercised upon
the happening of certain conditions until the earlier of the Effective Time of
the Merger or 30 days after the termination of the Merger Agreement, as more
fully described below. SEE "STOCK OPTION, VOTING AND SIMILAR AGREEMENTS."
Robert G. Shaw, Chairman, President, and Chief Executive Officer of Jensen,
has entered into the Spread Agreement with Recoton. SEE "STOCK OPTION, VOTING
AND SIMILAR AGREEMENTS." Mr. Shaw, however, has not entered into a voting
agreement or stock option with respect to the shares of Jensen Common Stock
which he beneficially holds.
If fewer shares of Jensen Common Stock are voted in favor of the Merger
proposal than the number required for approval of the Merger, it is expected
that the Special Meeting will be postponed or adjourned for the purpose of
allowing additional time for soliciting and obtaining additional proxies or
votes in order to obtain approval of the Merger. At any subsequent reconvening
of the Special Meeting, all proxies will be voted in the same manner as such
proxies would have been voted at the original convening of the Special Meeting,
except for any proxies that theretofore effectively have been revoked or
withdrawn.
PROXIES
If a proxy is properly executed and timely returned, it will be voted in
accordance with the instructions contained therein and, in the absence of
specific instructions, will be voted to approve and adopt the Merger Agreement
and the transactions contemplated thereby, including the Merger and the OEM
Asset Sale, and for authorizing the person or persons voting the proxies to vote
in favor of adjournment or postponement of the Special Meeting if the Jensen
Board determines that such adjournment or postponement is necessary or
appropriate. In addition, properly executed proxies that are timely returned
will be voted in accordance with the judgment of the person or persons voting
the proxies on any other matter that properly may be brought before the Special
Meeting. A properly executed proxy marked "ABSTAIN" will not be voted.
Accordingly, since the affirmative vote of a majority of the shares of Jensen
Common Stock outstanding on the Record Date is required for approval of the
Merger Agreement, a proxy marked "ABSTAIN" will have the effect of a vote
against the Merger proposal for purposes of meeting the approval level required
under the Jensen By-Laws and the DGCL. Failures to vote and abstentions will
not, however, be considered in determining whether a majority of the shares
voted at the Special Meeting other than shares held by Robert G. Shaw have voted
in favor of the Merger Agreement. Brokers and nominees are precluded from
exercising their voting discretion on the Merger Agreement and thus, absent
specific instructions from the beneficial owner of such shares, are not
empowered to vote such shares on the Merger proposal. A broker non-vote with
respect to the Merger Agreement will have the effect of a vote against the
Merger Agreement for purposes of meeting the approval level required under the
Jensen By-Laws and the DGCL but will not be counted toward the vote required by
the Disinterested Majority. Shares represented by broker non-votes or as to
which the proxy is marked "ABSTAIN" will, however, be counted for purposes of
determining whether there is a quorum at the Special Meeting.
It is not expected that any matter not referred to herein will be presented
for action at the Special Meeting. If any other matters are properly brought
before the Special Meeting, the persons named in
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the proxies will have discretion to vote on such matters in accordance with
their best judgment. However, shares represented by proxies that have been voted
"AGAINST" the Merger Agreement will not be used to vote "FOR" postponement or
adjournment of the Special Meeting for the purpose of allowing additional time
for soliciting additional votes "FOR" the Merger Agreement. The grant of a proxy
will also confer discretionary authority on the persons named in the proxy as
proxy appointees to vote in accordance with their best judgment on matters
incident to the conduct of the Special Meeting, including (except as stated in
the preceding sentence) adjournment for the purpose of soliciting additional
votes.
A stockholder of Jensen may revoke his or her proxy at any time prior to its
use by delivering to the Secretary of Jensen a signed notice of revocation or a
later dated signed proxy or by attending the Special Meeting and voting in
person. Attendance at the Special Meeting will not in itself constitute the
revocation of a proxy.
The expense of filing, printing, assembling and mailing this proxy material
to stockholders will be shared equally by Jensen and Recoton, and the cost of
soliciting proxies will be borne by Jensen. Jensen may use the services of its
directors, officers and employees to solicit proxies without additional salary
or compensation to them. In addition to solicitation by use of the mails,
solicitation may be made in person, or by telephone or telegraph. Jensen also
has retained the services of The Financial Relations Board, Inc. to assist in
the solicitation of proxies for a fee estimated in the range of $15,000 to
$25,000. Brokerage houses, custodians, nominees and fiduciaries will be
requested to forward the proxy soliciting materials to the beneficial owners of
Jensen's shares held of record by such persons, and Jensen will reimburse such
persons for reasonable out-of-pocket expenses incurred by them related thereto.
To the extent necessary in order to ensure sufficient representation at the
Special Meeting, Jensen may request by telephone or telegram the return of
proxies. The extent to which this will be necessary depends entirely upon how
promptly proxies are returned.
No vote of the shareholders of Recoton is required for consummation of the
Merger.
THE MERGER
This section of the Proxy Statement describes certain aspects of the
proposed Merger including the principal provisions of the Merger Agreement. The
Merger Agreement is attached as Annex I to this Proxy Statement and is
incorporated herein by reference. All stockholders of Jensen are urged to read
the Merger Agreement in its entirety and with care.
BACKGROUND OF THE MERGER
In December 1994, Jensen management made a presentation to the Jensen Board
concerning strategic alternatives to enhance stockholder value. Jensen had
recently reported its fourth consecutive quarter of strong financial results
with limited impact on the market price of Jensen stock. Neither management nor
the Jensen Board believed that the then-current Jensen stock price adequately
reflected the recent results and expected future earnings potential of Jensen.
In subsequent meetings with current and prospective investors interested in
investing in Jensen stock, management was informed of investor concerns
regarding the limited float and inadequate trading in Jensen's Common Stock.
Also, there was a perception that Jensen was primarily an original equipment
manufacturing concern, which helped explain why Jensen Common Stock traded at a
price earnings multiple similar to an automotive components company, rather than
at the higher relative price earnings ratio for comparable consumer electronics
businesses.
In April 1995, the Jensen Board continued to discuss such strategic issues
and Jensen retained a leading investment banking firm as financial advisor to
advise Jensen in connection with the consideration of a variety of strategic
alternatives including but not limited to, remaining independent, going private,
selling certain businesses and/or selling through a merger or otherwise, the
entire company. In late April and the first half of May 1995 Jensen management
had extensive discussions with, and provided information to, the investment
banking firm and such firm also reviewed other information
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in connection with its analysis. On May 17, 1995, the Jensen Board and
management received a presentation from the investment banking firm regarding
financial alternatives. At the May 17, 1995, meeting, the Jensen Board, after
consultation with management and its investment banking firm, determined that it
would be in the best interests of the Stockholders to explore a sale or merger
of Jensen as a single entity with a strategic partner. The investment banking
firm advised Jensen that, due to a conflict of interest, it could not proceed in
representing Jensen with respect to the possible sale or merger of Jensen.
Accordingly, in June 1995, Jensen selected and engaged the investment banking
firm Lehman Brothers as its exclusive financial advisor to identify
opportunities for the sale of Jensen and to solicit and evaluate a potential
sale or merger and to advise the Jensen Board in connection therewith.
Lehman Brothers developed an extensive list of potential candidates,
including companies in Europe, Asia and the United States. Lehman Brothers and
Jensen management then attempted to prioritize the potential candidates. Through
Lehman Brothers and/or management, many of these companies were contacted on a
confidential basis from June through August 1995 concerning their interest in
acquiring Jensen. Due to concerns regarding a possible adverse impact on
Jensen's business, these contacts were focused on potential acquirors deemed
most likely to pay a fair price in a negotiated transaction and did not include
a broad-based solicitation. Several companies expressed interest in Jensen and
exploratory discussions were conducted with these entities. One of the companies
that had expressed an interest in Jensen was Semi-Tech (Global) Company Ltd.
("Global"). A number of discussions took place between Lehman Brothers and
Stephen Goodman, a Managing Director of Global's financial advisor, Bankers
Trust Company, Hong Kong ("Bankers Trust"). As a result of these discussions and
investigation by Jensen's financial advisor, Jensen's financial advisor
concluded that Global was generally interested in acquiring less than 100% of a
target company and that Global also sought to buy companies in difficult
financial circumstances at favorable prices. For these reasons, Lehman Brothers
concluded that Global was not likely to be interested in acquiring 100% of
Jensen at a competitive price and did not pursue discussions with Global's
financial advisor. At no time prior to January 3, 1996 (when the Recoton
transaction was announced) did Mr. Goodman or anyone else advise Jensen or its
financial advisor that Bankers Trust also represented Emerson or that Emerson
had an interest in acquiring Jensen.
Recoton was also one of the companies which was contacted by management and
expressed interest in Jensen. On August 21, 1995, management of Recoton met with
the Jensen Board and management of Jensen concerning the possibility of a
business combination involving Recoton and Jensen. Management of the two
companies had previously discussed possible strategic alliances and/ or
licensing arrangements on several occasions from July 1994 through April 1995
(including phone discussions in July 1994, discussions at industry meetings in
August 1994 and February 1995, a meeting in Lake Mary, Florida in March 1995 and
phone discussions in April 1995). A number of potential advantages of combining
Recoton and Jensen were identified, including (i) increased distribution
strength with customers as a result of combining the two companies; (ii)
Recoton's strength in sourcing its products from Asia and Jensen's ability to
benefit from Recoton's sourcing expertise in improving the quality and economics
of Jensen's sourcing efforts; (iii) Recoton's strong distribution in Canada,
where Jensen's distribution is relatively weak; (iv) Jensen's strong presence in
Europe, which Recoton lacks; and (v) increased leverage of Jensen's brand names
by Recoton. Numerous discussions and negotiations concerning a possible
transaction occurred after August 21, 1995. Recoton initially indicated its
interest in a licensing transaction or a purchase of the Branded Business. The
Board made it clear that its objective was to sell Jensen as a whole. Recoton
indicated that it might be interested in considering a purchase of Jensen, but
that it wanted an agreement from Jensen that it would not continue to solicit
other acquisition candidates until September 1, 1995, at which time Recoton
would inform Jensen as to whether it was interested in acquiring Jensen. Jensen
agreed to Recoton's request. The September 1, 1995, date was extended and on
September 18, 1995, Recoton presented a preliminary proposal to purchase Jensen.
Lehman Brothers had numerous discussions with Recoton and its financial advisor,
Furman Selz LLC ("Furman Selz") regarding Recoton's offer between September 18
and September 27, 1995.
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On September 27, 1995, Recoton submitted a proposed draft letter of intent
to acquire Jensen for a combination of cash and Recoton common shares. The total
value of the transaction ranged in value from $10.63 to $12.15 per share of
Jensen Common Stock based upon the price of Recoton common shares. Recoton's
proposal was subject to due diligence investigation and Recoton, through Furman
Selz, informed Lehman Brothers that it would not commence its due diligence
unless it obtained an exclusivity arrangement and an agreement from Jensen to
pay a termination fee if the Jensen Board accepted an alternative acquisition
proposal.
Jensen's Board discussed Recoton's proposal on September 27, 1995, and was
reluctant to enter into a letter of intent with Recoton because it did not want
to have an obligation to disclose a possible transaction prior to Recoton
completing its due diligence and confirming its intention to purchase Jensen.
Further, the Jensen Board wanted to maintain its options and did not want to
enter into any agreement which foreclosed or deterred other offers. The Jensen
Board discussed whether sale of the OEM Business, which had fewer synergies in
the context of a Recoton proposal, should be explored separately but determined
that it was best to continue to negotiate for a sale of the entire company as a
single entity. The Jensen Board requested that its financial advisor and counsel
negotiate a due diligence agreement with Recoton rather than a letter of intent,
which would allow both parties to conduct their due diligence, and proceed to
negotiate a definitive merger agreement. Jensen's Board agreed that Jensen would
pay a termination fee in the event Jensen accepted an alternative transaction on
the condition that the fee was reasonable and would not deter other offers.
Between September 27 and October 4, 1995, Lehman Brothers and Jensen's legal
counsel negotiated a due diligence agreement with Recoton. On October 4, 1995,
the Jensen Board was advised that Recoton was the only company expressing
continued interest in acquiring Jensen and approved a form of agreement which
would allow Recoton to conduct due diligence, and, unless Recoton advised Jensen
in writing within 30 days that it did not intend to make an offer to purchase
Jensen, Jensen would then be permitted to conduct due diligence concerning
Recoton. In addition, until the earlier of 60 days or the date on which Recoton
advised Jensen that it did not intend to make an offer to purchase Jensen,
Jensen would provide Recoton limited exclusivity. However, Jensen would continue
to be permitted to (i) respond to a tender offer, (ii) furnish information
concerning its business, its properties or assets to a third party and (iii)
engage in discussions or negotiations with a third party concerning an
alternative transaction. The due diligence agreement obligated Jensen to pay a
fee of $1,500,000 and Recoton's expenses in an amount not to exceed $500,000
under certain circumstances, including Jensen's acceptance of an alternative
transaction.
The due diligence agreement was signed on October 16, 1995. Towards the end
of the first 30-day period, Recoton's representatives expressed concern about
the OEM Business and its ability to generate adequate returns in relation to the
inherent business risks of the business. During this period, Jensen's financial
performance fell below the projections that Recoton had reviewed and relied upon
in making its original proposal. Recoton and Jensen agreed to delay the
commencement of Jensen's due diligence of Recoton beyond the 30-day period. By
late November, Recoton had expressed additional concerns about buying the OEM
Business and it appeared Recoton would be proposing a different form of
transaction.
On December 4, 1995, Jensen management and Lehman Brothers had a discussion
with management of Recoton and Furman Selz. Recoton stated that its preferred
form of transaction was to enter into a licensing agreement, which Recoton
realized was not acceptable to Jensen. Recoton had stated shortly prior to
December 4, 1995, that it was not interested in acquiring the OEM Business. On
or about December 4, 1995, Recoton proposed a transaction under which Recoton
would buy all of Jensen excluding the OEM Business, which would be sold in a
separate transaction. Under this proposal, Recoton would agree to pay $6.00 per
share of Jensen Common Stock and would pass through to the stockholders of
Jensen the net proceeds from the sale of the OEM Business. Recoton also
requested from Jensen immediate and exclusive access to the AR Marks through
license or purchase so that a Recoton subsidiary could introduce a new product
line under those trademarks at the Consumer Electronics Show in Las Vegas in
early January 1996.
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As of early December 1995, no other entity, including those that had
previously expressed interest or participated in exploratory discussions,
continued to express an interest in pursuing a transaction with Jensen. At a
meeting on December 5, the Jensen Board was advised of and discussed Recoton's
transaction. The Jensen Board decided that, in light of Jensen's deteriorating
financial performance, including the OEM Business, Jensen should negotiate
further with Recoton, continuing to believe that a combination with Recoton was
in the best interests of Jensen's stockholders. Jensen's Board and management,
in consultation with Lehman Brothers, did not feel that it was prudent to
attempt to find an independent buyer of the OEM Business because they were
concerned that marketing the OEM Business could have a material adverse impact
on the business by adversely affecting Jensen's relationships with the OEM
Business' customers, which consist of large automotive manufacturers, and
risking the departure of key employees. Also, in light of Recoton's request for
immediate access to the AR Marks, Jensen did not want to jeopardize the Recoton
proposal through additional delays in trying to find a buyer for the OEM
Business. Accordingly, Lehman Brothers discussed the possibility of selling the
OEM Business to Robert G. Shaw, Jensen's President and Chief Executive Officer
and largest stockholder, and/or WBLCF, Jensen's second largest stockholder. Both
Mr. Shaw and WBLCF analyzed the possible acquisition of the OEM Business. WBLCF
determined that it was not interested in purchasing the OEM Business on its own
but that it might participate with Mr. Shaw in a purchase transaction if
necessary. Mr. Shaw initially offered to pay between $12 and $15 million for the
OEM Business and subsequently agreed to purchase the OEM Business for
approximately $15 million, subject to adjustment, plus the assumption of a
mortgage on one of the facilities of the OEM Business and all other liabilities
(including contingent and unknown liabilities) (except as otherwise scheduled)
of the OEM Business, subject to various conditions, including a simultaneous
sale to Recoton of the Branded Business, receipt of acquisition financing and
satisfactory environmental reports. At December 31, 1995, the net book value of
the assets and known liabilities of the OEM Business being purchased was
approximately $25.5 million. After discussing Jensen's current financial
performance and its prospects as an independent entity, the Jensen Board
instructed Lehman Brothers to pursue the Recoton transaction and continue to
explore with Mr. Shaw and WBLCF terms upon which either or both of them would be
willing to make an offer to acquire the OEM Business.
Jensen's tax advisors reviewed the tax implications of the sale of the OEM
Business for $15 million and determined that such a sale would result in a tax
loss to Jensen and would entitle Jensen to certain tax loss carry-backs and tax
loss carry-forwards. Jensen and its advisors then told Recoton that Jensen's
stockholders should receive a significant portion of the tax benefits resulting
from the sale of the OEM Business. Shortly before December 19, 1995, Recoton
made a proposal pursuant to which Recoton would pay $8.63 a share at the
closing, representing $6.00 a share for the Branded Business, plus $15 million
($2.63 per share) which was equal to the cash to be received from a potential
sale of the OEM Business to Mr. Shaw, and a deferred payment of $.20 per share
assuming no significant offsets by reason of any breached representations in
connection with the transaction and receipt of tax savings associated with the
sale of the OEM Business.
The Jensen Board concluded at a December 19, 1995, meeting that any deferral
or holdback of a portion of the purchase price was not acceptable, all
representations should expire at the closing as is customary in sales of
publicly held companies, and Jensen stockholders should receive immediately at
closing a significant portion of the tax benefits resulting from the sale of the
OEM Business. The Jensen Board also considered Recoton's desire to acquire
immediate access to the AR Marks upon the signing of a definitive agreement and
determined that it would only enter into a license arrangement or sale of the AR
Marks in the event Recoton agreed to make a substantial up front payment upon
signing of an agreement and if Recoton was required to make a substantial
additional payment for the AR Marks in the event the transaction did not close.
Jensen had acquired the AR Marks in December 1989 for a purchase price of
approximately $500,000 as part of its purchase of the AR business.
At the December 19, 1995, meeting, Mr. Shaw stated he would only offer to
buy the OEM Business if the Jensen Board believed that would be in the best
interest of all the stockholders. The other four
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Directors of Jensen (the "Independent Directors") met separately with Lehman
Brothers and Jensen's legal counsel to discuss and consider the sale of the OEM
Business to Mr. Shaw. They also met separately to discuss this transaction with
management of Jensen other than Mr. Shaw. Such management personnel were
questioned regarding their views of any benefits or detriments involved in a
potential transaction with Recoton and as appropriate regarding their views as
to the value and prospects of the OEM Business. With management absent, Mr.
Chandler of WBLCF advised the Jensen Board that WBLCF might somehow participate
with Mr. Shaw in acquiring the OEM Business if necessary but that WBLCF did not
want to buy the OEM Business separately and believed the proposal by Mr. Shaw to
buy the OEM Business was fair to all stockholders, including WBLCF, which owned
about 26% of the stock of Jensen. At the conclusion of the meeting the Jensen
Board authorized two of the Independent Directors to discuss directly with
Recoton's Chairman the fact that Recoton's proposal was not acceptable and to
indicate the terms the Jensen Board desired, including the financial terms that
would be required in connection with any immediate license or sale of the AR
Marks which the Board structured to motivate Recoton to close any transaction.
In a meeting of the Independent Directors on December 21, 1995, the
Independent Directors were apprised of the results of further negotiations with
Recoton which had resulted in an offer by Recoton to acquire the Company for
$8.90 per share and Recoton's agreement that the AR Marks would be acquired for
$2 million if Jensen failed to close the Merger and for $7 million if Recoton
failed to close the Merger. The Jensen Board believed the AR agreement would
provide a strong incentive to Recoton to close and a premium value to Jensen for
the AR Marks if a Recoton transaction did not close. The Jensen Board was
advised that Recoton would, as part of its entire offer, be requesting an
appropriate break-up fee if Jensen wilfully failed to close the transaction with
Recoton, including by accepting a higher offer from a third party. The Jensen
Board was advised that a condition of the offer of Recoton was a concurrent
purchase of the OEM Business by another purchaser. Mr. Chandler again expressed
the view that he believed the sale of the OEM Business for the amount proposed
by Mr. Shaw was fair to Jensen. The Independent Directors of the Jensen Board
approved the transaction subject to appropriate documentation, a fair break-up
fee and receipt of appropriate fairness opinions from Lehman Brothers regarding
the entire transaction and the sale of the OEM Business.
In further negotiations between December 21, 1995, and December 29, 1995, an
integration of the break up fee required by Recoton and the payments for the AR
Marks required by the Jensen Board was accomplished by draft provisions which
varied the amount Recoton would have to pay for the AR Marks, depending on the
circumstances which caused the transaction not to close, with these payments
structured to offset each other and to provide what the Jensen Board and its
advisors believed to be a reasonable termination fee under appropriate
circumstances. Prior to finalizing the Merger Agreement and the AR Agreement,
the structure of these payments was changed so that the payment for the AR Marks
was fixed, but the amount of the termination payment by Jensen varied depending
on certain circumstances; the $6 million price, however, reflected a price in
excess of fair market value and, accordingly, included in it the equivalent of a
break-up fee from Recoton if there was no offsetting fee from Jensen. (Under the
Merger Agreement and AR Agreement as signed on January 3, 1996, if the Merger
Agreement terminated because Jensen entered into a transaction with a third
party, the net effect would be that Recoton would receive the AR Marks, while
the termination fee and payment for the AR Marks would fully offset each other.)
By December 29, 1995, Recoton offered to pay $8.90 per share for Jensen,
subject to the contemporaneous sale of the OEM Business to Mr. Shaw for
approximately $15 million plus assumption of related liabilities as described
above. Recoton also requested an exclusive worldwide license to use the AR Marks
prior to the Merger and an option to purchase such trademarks if the Merger did
not take place. See "OTHER JENSEN AND RECOTON AGREEMENTS."
At a meeting on December 29, 1995, Recoton's Board reviewed the terms of the
proposed offer, and the results of its due diligence and the analysis of the
proposed transaction prepared by Furman
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Selz, and, at that time, approved the terms and conditions of the Merger and
authorized the execution of the Merger Agreement and the AR Agreement relating
to the license of and option to acquire the AR Marks.
Lehman Brothers delivered to the Jensen Board its written fairness opinions
concerning the Merger and the sale of the OEM Business at a meeting of the
Jensen Board on January 2, 1996. At the January 2 meeting, the Jensen Board
subsequently approved the terms and conditions of the Merger Agreement (as
either a cash and stock transaction or an all cash transaction), the AR
Agreement and the OEM Agreement.
On January 3, 1996, Recoton and Jensen signed the Merger Agreement and the
AR Agreement, and Jensen and IJI Acquisition, a corporation formed by Mr. Shaw,
signed the OEM Agreement. At the same time, in lieu of an up front payment for
the AR Marks, Recoton lent to Jensen $2 million, evidenced by a promissory note,
due on the earlier of January 2, 1997 (or, if later, the extended termination
date under the AR Agreement), or the Effective Time of the Merger, bearing
interest at the applicable short-term federal interest rate in effect at the
time of the execution of the note.
Shortly after the agreement between Jensen and Recoton was announced in
early January 1996, Lehman Brothers was contacted by Bankers Trust and Emerson
regarding the possible interest of Emerson in acquiring Jensen. This was the
first time Lehman Brothers or Jensen was informed that Bankers Trust represented
Emerson or that Emerson had an interest in acquiring Jensen. As stated above,
Bankers Trust had discussions with Lehman Brothers on behalf of Global in the
summer of 1995. Promptly following the January contacts by Bankers Trust and
Emerson, Lehman Brothers and Jensen management reviewed public filings of
Emerson in order to gauge the ability of Emerson to finance an acquisition of
Jensen. On January 11, 1996, Emerson's President wrote to Mr. Shaw and stated
that Emerson was prepared to make an offer that was higher than Recoton's offer.
After that date and following various conversations among Jensen's and Emerson's
respective financial advisors and management, Emerson indicated orally that it
would be willing to pay $8.90 in cash per share in a transaction that would
mirror the Recoton transaction (including the sale of the OEM Business to Mr.
Shaw).
On January 15, 1996, the Jensen Board, and its investment and legal advisors
met to discuss the Emerson communications. The Jensen Board decided the Emerson
offer was an inferior proposal to the Recoton agreement because of the
equivalent offering price as that agreed to with Recoton and due to serious
questions regarding Emerson's financial condition and operating performance and
its ability to finance the transaction. The Jensen Board determined that
Emerson's communications did not form a sufficient basis for pursuing additional
discussions with Emerson.
In a letter dated January 31, 1996, from Bankers Trust to Lehman Brothers,
Bankers Trust stated that Emerson would be in a position to acquire Jensen for
cash in an amount materially in excess of the value of the cash and stock
offered in the transaction with Recoton. On February 1, 1996, in a telephone
conference between representatives of Lehman Brothers and Bankers Trust, Bankers
Trust stated that Emerson wanted to conduct due diligence to review Jensen's
performance over the past few months and that Bankers Trust was prepared to
finance Emerson in the transaction, subject, again, to due diligence. After
consultation with Jensen's management, Lehman Brothers requested from Bankers
Trust that Emerson produce a "highly confident" letter with respect to the
merger financing and a specific offering price or range.
On February 5, 1996, the President of Emerson sent a letter to the Jensen
Board, indicating that Emerson was prepared to offer between $9.75 and $10.50
per share for Jensen Common Stock. The letter also indicated that Emerson was
highly confident that the required financing would be in place, but did not
provide a "highly confident" letter.
On February 7, the Jensen Board met to review the Emerson offer. Given a
concern about Emerson's ability to finance the transaction, the Jensen Board
instructed management to communicate to Emerson that it would meet with Emerson
if Emerson could meet certain conditions, including
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providing Jensen with a "highly confident" letter as to its financing. Between
February 8, 1996 and February 29, 1996, representatives of the companies
communicated both by telephone and in writing regarding Emerson's interest in
acquiring Jensen. As required by the Merger Agreement, Recoton and its counsel
were informed of Emerson's offer on or about February 9, 1996.
On February 29, 1996, Bankers Trust stated in a letter to Lehman Brothers
that Emerson would join with Global in a possible joint venture to acquire
Jensen. Global was the same company which Bankers Trust had previously
represented in discussions with Lehman Brothers in the summer of 1995. The
letter indicated that, subject to completion of reasonable due diligence, the
offering range would be between $9.75 and $10.50 per share in cash or, if
desired by the Jensen Board, a combination of cash and some type of Emerson or
affiliated entity's equity securities, and that Emerson and Global would not
require the purchase of the OEM Business by Mr. Shaw or any other party unless
desired by the Jensen Board. Global has a very strong financial position which
provided the Jensen Board with the necessary comfort concerning the ability of
the combined Emerson/Global group to finance an acquisition of Jensen and caused
the Jensen Board to authorize discussions with Emerson/Global.
With the approval of the Jensen Board, beginning March 4, 1996, Jensen and
Emerson representatives met to discuss and otherwise conduct due diligence
activities. At that time, Jensen and Emerson executed a confidentiality
agreement (the "Confidentiality Agreement") pursuant to which Emerson agreed not
to purchase Jensen Common Stock without the consent of the Jensen Board and to
keep confidential the negotiations and discussions with Jensen and all of the
non-public information Emerson obtained about Jensen and its operations during
the course of any due diligence investigations conducted by Emerson. On March 4,
1996, the Jensen Board also communicated to Emerson that Jensen would continue
to finalize and document the Recoton transaction.
On March 15, 1996, the Jensen Board met and was advised that Emerson was
proposing a transaction at $9.90 per share which would "mirror" the Recoton
transaction (including the sale of the OEM Business) but that Emerson would buy
the OEM Business if necessary. Emerson representatives joined the meeting and
described their interest in Jensen and stated that after further due diligence
Emerson would make a formal proposal by April 9, 1996. At this time, Emerson
representatives expressed a desire to expand their due diligence by visiting
Jensen's European subsidiaries and indicated that Global would rely on due
diligence conducted by Emerson. The Jensen Board raised concerns that Emerson's
financing commitments should be in place prior to such expanded due diligence.
The Emerson representatives promised to have all financing commitments in place
by April 1, 1996. The Independent Directors met separately with the Emerson
representatives and emphasized that if Emerson intended to mirror the Recoton
transaction it should have discussions directly with Mr. Shaw concerning the
sale of the OEM Business and other contemplated agreements with Emerson, and
that it would be in Emerson's interest to have as few contingencies as possible
in any proposal Emerson might make.
On April 2, 1996, the Jensen Board met to review a draft acquisition
proposal submitted by Emerson. The draft proposal provided that Emerson would
acquire Jensen in an all cash transaction for $9.90 per share in a merger
transaction which contemplated the sale of the OEM Business to IJI Acquisition
in a fashion similar to the proposed Recoton transaction. Global was not a party
to the proposed acquisition. The draft acquisition proposal also outlined how
Emerson proposed to finance the transaction. Emerson was told that it was not
the Jensen Board's preference to "mirror" the Recoton transaction, but rather,
it was the Jensen Board's preference to sell the OEM Business as part of Jensen.
Emerson responded that it did not want to buy the OEM Business but it would if
it could not reach appropriate agreements with Mr. Shaw concerning his purchase
of the OEM Business. The Jensen Board determined to allow continued due
diligence by Emerson.
On April 12, 1996, the Jensen Board discussed the fact that all that was
necessary to proceed with the Recoton transaction was nearly completed and the
fact that financing commitments Emerson had promised by April 1, 1996, and the
definitive proposal Emerson had promised by April 9, 1996, had not
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been received in a timely manner but that Emerson had stated both would be
accomplished by April 16, 1996. Prior to April 16, 1996, Emerson advised the
Jensen Board that Global was no longer interested in pursuing an acquisition of
Jensen with Emerson.
On April 16, 1996, subsequent to additional negotiations regarding terms of
the acquisition proposal, Emerson submitted its formal written proposal with
respect to the acquisition of Jensen. The proposal provided for a cash purchase
price of $9.90 per share and outlined Emerson's proposed intended financing to
close the transaction, which included capital to be directly provided by
Emerson, acquisition facilities to be arranged by Bankers Trust, and credit
facilities to be provided by Emerson's current senior lender.
On April 17, 1996, Emerson released the press release attached hereto as
Annex III-A. On April 18, 1996, Emerson forwarded a draft merger agreement to
Jensen concerning the proposed acquisition, which draft merger agreement
contemplated the sale of the OEM Business to IJI Acquisition. Emerson requested
until April 27, 1996, to present a final merger agreement with evidence of
necessary financing commitments.
After reviewing Emerson's proposal at a meeting on April 18, 1996, the
Jensen Board indicated to Emerson that, in accordance with Emerson's request, it
would have until April 27, 1996, to finalize a definitive agreement and provide
evidence that it had commitments to finance the merger and all related fees and
expenses, including payments to employees (including payments pursuant to Mr.
Shaw's Employment Agreement) and payments to third parties. Lehman Brothers
indicated that Emerson's financing did not appear to provide a sufficient safety
margin for a financing structure that was heavily based upon asset levels and
related advanced rates, and the Jensen Board discussed the damage that could
occur if an Emerson transaction were approved but failed to close. The Jensen
Board also discussed the need to require a significant down payment by Emerson.
During the period between April 18, 1996 and April 26, 1996, Jensen continued to
provide Emerson and its financial sources with due diligence materials and
access to information.
On April 19, 1996, Emerson communicated to Jensen that it was considering
purchasing all of Jensen, including the OEM Business. On April 23, 1996, the
Jensen Board appointed a Special Committee consisting of all members of the
Jensen Board other than Mr. Shaw. The Special Committee was charged with
negotiations regarding any definitive agreements with Emerson, evaluating the
proposals of Emerson and Recoton and any other third parties and making
recommendations to the full Jensen Board with respect thereto. At a meeting on
April 23, 1996, the Jensen Board again discussed the generally higher level of
leverage involved in the Emerson transaction and reviewed sources and uses
analyses of Lehman Brothers which continued to show that Emerson's financing had
little, if any, safety margin, even if all the financing Emerson contemplated
was in fact available. During the April 23, 1996 meeting, the Jensen Board
received a letter dated April 23, 1996, which had attached an Emerson press
release (attached to this Proxy Statement as Annex III-B), whereby Emerson
formally advised the Jensen Board that Emerson had decided to purchase all of
Jensen, including the OEM Business.
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After the Jensen Board meeting on April 23, 1996, members of the Special
Committee and its advisors met with Emerson and its advisors to negotiate
definitive agreements with Emerson. Several major issues arose. While Emerson
acknowledged the validity and enforceability of Mr. Shaw's 1991 Jensen
Employment Agreement, it asserted that the $9.90 per share merger consideration
payable to Jensen's stockholders would be reduced by any amount in excess of
$750,000 that Emerson would be required to pay to Mr. Shaw pursuant to or in
lieu of his 1991 Jensen Employment Agreement. The Special Committee advised
Emerson that it would have to negotiate directly with Mr. Shaw and his attorneys
concerning his Employment Agreement and that the Special Committee would have to
take into account any possible reduction in the amount payable to Jensen's
stockholders in evaluating the Emerson transaction in comparison to the Recoton
transaction. Emerson also asserted that a condition to its proposal would be
Lehman Brothers' written confirmation that a fairness opinion could not be
rendered as to the sale of the OEM Business to IJI Acquisition as contemplated
in the Recoton Merger Agreement. Emerson's position was that (i) such fairness
opinion could not be delivered because Emerson's lender was willing to advance
approximately $23 million against the assets of the OEM Business, and (ii) if
such fairness opinion was not delivered, Jensen would not be required to pay a
termination fee to Recoton upon termination of the Merger Agreement. The Special
Committee advised Emerson that it would not know whether that condition was
acceptable until Lehman Brothers had completed its analysis. On various
occasions, Jensen communicated to Emerson that, regardless of Emerson's analysis
of any contracts or agreements between Jensen and Recoton, Jensen had an
obligation to honor its contracts and agreements with Recoton.
In response to earlier requests from Emerson, the Special Committee informed
Emerson at the April 23, 1996 meeting that it would agree to Emerson's meeting
with Recoton, provided that Jensen representatives would be present, to discuss
appropriate matters relating to the termination fee provisions in the Recoton
Merger Agreement and the AR Agreement. The Special Committee also indicated a
significant good faith cash deposit would be required from Emerson if an
agreement with Emerson was otherwise acceptable. Emerson said it would not agree
to provide such a deposit. Other issues were discussed and it was decided to
resume negotiations later in the week.
On April 25, 1996, two members of the Special Committee and its advisors met
with Emerson again to negotiate further. After lengthy discussions, it became
apparent that major issues remained unresolved. Emerson continued to take the
position that payments to Mr. Shaw under his Employment Agreement would reduce
the per share cash amount for the Jensen stockholders to the extent such
payments to Mr. Shaw exceeded the amount Emerson was willing to pay Mr. Shaw
under a consulting arrangement. Emerson also asserted that the amount paid to
Recoton as a termination fee might also reduce the amount payable to Jensen's
stockholders. The Special Committee continued to request a substantial cash
payment to be deposited by Emerson in escrow and paid to Jensen in the event
that Jensen signed a definitive agreement with Emerson (which would
automatically terminate the Recoton Merger Agreement and trigger a break-up fee
payable to Recoton) and then Emerson did not close the transaction for any
reason other than a Jensen transaction with another party or Jensen's willful
breach of the merger agreement with Emerson. These and subsequent discussions
between Emerson and the Special Committee did not resolve these and other
issues.
On April 26, 1996, David Chandler of the Special Committee contacted Mr.
Robert Borchardt, the CEO of Recoton, and inquired whether Recoton would be
willing to increase the merger consideration payable to Jensen's stockholders.
Discussions ensued between Jensen representatives and Recoton representatives
between April 26, 1996 and April 29, 1996, concerning this matter. Recoton
offered to increase the purchase price payable with respect to shares held by
Robert Shaw and WBLCF, with which Mr. Chandler is affiliated, to $9.00 per share
and payable to all other stockholders to $9.15 per share if:
1. WBLCF would (i) grant an option to Recoton to purchase its shares
for $9.00 per share plus any net proceeds which Recoton received upon sale
of such shares to the extent the net proceeds exceeded $10.00 per share and
(ii) agree to vote its shares in favor of the Recoton transaction and to
provide a proxy to Recoton to vote its shares under certain circumstances.
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2. Mr. Shaw would agree that in the event a third party other than
Recoton acquired Jensen, he would pay to Recoton the difference between the
net proceeds per share he received, but not to exceed $10.00 per share, and
$9.00 per share, less applicable taxes attributable to the difference.
3. Jensen would deposit into escrow the assignment of the AR Marks that
may be purchased by Recoton in accordance with the AR Agreement. SEE "OTHER
JENSEN AND RECOTON AGREEMENTS." SEE also "STOCK OPTION, VOTING AND SIMILAR
AGREEMENTS."
On April 28, 1996 the Special Committee discussed the Emerson and Recoton
proposals in a telephone conference which included Bruce Stargatt, Esq. of the
Delaware law firm of Young, Conaway, Stargatt & Taylor ("Special Committee
Counsel"), which the Special Committee decided, in the meeting, to retain to
advise the Special Committee. After a lengthy discussion of the Recoton and
Emerson proposals, the Special Committee determined to delay any decision until
it received the analysis of and opinion from Lehman Brothers, which were
anticipated by noon on April 30, 1996.
On April 30, 1996, Emerson sent the Special Committee a letter in which it,
among other things, described a proposal Emerson had made to Mr. Shaw relating
to termination of his Employment Agreement and offered to deposit $4 million in
escrow (or to provide a letter of credit) provided that Emerson would receive a
termination fee from Jensen of $2 million and up to $2 million in compensation
for out-of-pocket fees and expenses, secured by an escrow deposit or letter of
credit on the part of Jensen. The proposal to Mr. Shaw contemplated that he
would waive his rights under his Employment Agreement; in return he would
receive a 3-year, $200,000 per year Consulting Agreement with Emerson, a cash
payment at closing of $600,000, an additional payment of $600,000 approximately
one year after closing and an option to purchase 50,000 shares of Emerson stock.
The amount payable to Jensen stockholders would be reduced as a result of these
payments to $9.80 per share. Mr. Shaw's attorney had previously informed Emerson
and Jensen's counsel that Emerson's proposal to Mr. Shaw was not acceptable.
Further, the proposed termination fee to be paid by Emerson and the related
escrow or letter of credit was not as large as the Special Committee deemed
appropriate in the event Emerson failed to consummate the transaction. Emerson's
proposal was also understood to be subject to written confirmation from Jensen's
financial advisor that it would not be able to issue a fairness opinion in
connection with the sale of the OEM Business to IJI Acquisition.
On April 30, 1996, the Special Committee met to consider the respective
proposals of Emerson and Recoton. At this meeting Jensen's financial advisor
delivered its opinion that from a financial point of view, (i) the consideration
to be received by Jensen's public stockholders in the Recoton transaction was
fair to the public stockholders and (ii) since Recoton required the prior sale
of the OEM Business as a condition to the consummation of the transaction
proposed by Recoton, the consideration to be received by Jensen in the proposed
OEM Asset Sale was fair to Jensen. Because of the open issues with Emerson,
including the possible reduction in the merger consideration payable to
stockholders based on Mr. Shaw's Employment Agreement and the termination fee
payable to Recoton, the Special Committee, with the assistance of its financial
advisor, determined that the Emerson proposal, given Emerson's declared position
regarding reduction of its offer if certain contingencies were not satisfied,
would provide actual merger consideration to Jensen's stockholders in the range
of $8.35 to $9.25 per share, while the Recoton proposal would provide merger
consideration to the stockholders, other than Mr. Shaw and WBLCF, in the amount
of $9.15 per share. Among other considerations, the Special Committee also took
into account the history of its negotiations with Emerson, the amount of the
cash deposit offered by Emerson, and its belief that the Recoton transaction was
much more certain to occur for a number of reasons, including Recoton's stronger
financial position and better access to financing and the fact that the Recoton
transaction appeared much closer to a potential closing date than any Emerson
transaction. The Special Committee also took into account the fact that the
written financing commitment of Congress Financial Corporation ("Congress
Financial") that had been provided by Emerson with respect to a portion of the
financing necessary for Emerson to consummate the transaction contained various
conditions that had to be
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satisfied prior to funding, including the provision of evidence that the
agreements and arrangements between Recoton, Jensen and Mr. Shaw had been
terminated, satisfied or otherwise disposed of, in each case on terms acceptable
to Congress Financial. These particular conditions had not been satisfied and
appeared unlikely to be satisfied in the future. The Special Committee
recommended unanimously that Jensen proceed with the Recoton transaction. Mr.
Chandler resigned from the Special Committee due to the fact that WBLCF would be
entering into the option and voting agreement with Recoton described above. From
that point forward the Special Committee consisted of Robert Jenkins, Norman
McMillan and Donald Jenkins.
On April 30, 1996, after the meeting of the Special Committee, the Jensen
Board met and received the recommendation of the Special Committee. With Robert
Shaw abstaining, the Jensen Board unanimously determined that the Recoton
transaction was more favorable to Jensen's stockholders than the agreement
proposed by Emerson, approved the Recoton transaction and recommended that the
Jensen stockholders vote in favor of the transaction with Recoton.
On May 1, 1996, the Special Committee received a letter from Emerson, which
included the press release attached hereto as Annex III-C, outlining the terms
of a revised acquisition proposal which provided for payment of $9.00 per share
to Mr. Shaw and WBLCF and $9.90 per share (plus possible additional payments of
up to $2.50 per share based on any net recovery Emerson might obtain against Mr.
Shaw or Recoton) for other stockholders of Jensen. Emerson's revised acquisition
proposal was based on the contention that certain agreements between Jensen and
each of Recoton and Mr. Shaw (in connection with the AR Agreement, Mr. Shaw's
1991 Jensen Employment Agreement and the OEM Asset Sale) were invalid or
unenforceable or could be avoided in whole or in part. Notwithstanding Emerson's
contentions, Jensen considered such agreements legal and valid obligations of
Jensen.
On May 4, 1996, a Special Committee member and Special Committee Counsel
called Emerson's counsel and advised that, in the opinion of Special Committee
Counsel, the Special Committee lacked the legal power to recommend a transaction
which discriminated against members of a class of stockholders without their
consent and that, even if the power existed, such discrimination was not
consistent with fiduciary duties the Special Committee owed all stockholders,
including Mr. Shaw and WBLCF. Special Committee Counsel also discussed the
practical obstacles that confronted the Special Committee to the extent Emerson
was proposing a transaction that would likely be opposed by stockholders owning
63% of Jensen's stock. Emerson was invited to respond to these concerns to the
extent it disagreed from a legal perspective or modify its proposal as it deemed
fit to deal with the concerns.
On May 6, 1996, Emerson sent a revised proposal to Lehman Brothers and the
Special Committee stating that earlier proposals remained open and additionally
proposing a payment of $9.90 per share to all stockholders, which included the
stated intent to honor "in an appropriate manner" all of Jensen's valid and
legal obligations. The new proposal stated that Emerson will "remove all
contingencies in its offer except for usual and customary closing conditions"
and that "Emerson will provide a $5 million letter of credit to secure any
termination fee."
On the morning of May 6, 1996, Emerson's President held a conference call
with analysts in which he made statements regarding Jensen that were in
violation of the Confidentiality Agreement, criticized the Recoton transaction
and encouraged stockholders to sue Jensen, the Jensen Board, WBLCF, Lehman
Brothers and possibly others. On May 9, 1996, the individual stockholder suit
described below was filed.
On May 6, 1996, Special Committee Counsel requested that Emerson provide a
copy of its proposed merger agreement to the Special Committee. In discussions
on May 6, 1996, Emerson's financial advisor acknowledged that numerous
contingencies would need to be removed from some of Emerson's financing
commitment letters, stating new letters would be provided promptly. On May 7,
1996, Emerson sent the Special Committee Counsel its proposed form of merger
agreement which required WBLCF to enter into a voting agreement with Emerson
even though it had previously been announced that WBLCF had signed a voting
agreement with Recoton.
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On May 8, 1996, the Special Committee met to discuss the May 6, 1996,
Emerson proposal. The Special Committee discussed its concern that if the
Emerson proposal was recommended but did not close, the Recoton transaction
might be lost and that Jensen stockholders could be damaged substantially. The
Special Committee considered a comparison, prepared by Lehman Brothers, of the
recent financial condition and operating performance of Emerson and Recoton, a
summary of Emerson's debt obligations and a summary of pending litigation and
other contingencies which might impact Emerson's ability to close a transaction.
The Special Committee discussed further the possibility that Emerson could not
or would not close a transaction after the Recoton transaction was lost,
including the history of Emerson's negotiations with Jensen and the Special
Committee and, most recently, Emerson's conscious decision to breach the
Confidentiality Agreement with Jensen.
The Special Committee determined that if the difficulties with Emerson's
proposals were satisfactorily addressed, it would require from Emerson a good
faith deposit of $1.00 per share plus $3,000,000 to reflect at least a portion
of the damage the Special Committee felt could result if the Recoton merger was
lost and an Emerson transaction did not close. The Special Committee concluded
that such an amount would provide a strong incentive to Emerson to close a
transaction and at least in part compensate the Jensen stockholders for their
damages if Emerson failed to close.
During that meeting, the Special Committee was informed that Recoton
proposed to modify the transaction to provide for a payment of $10.00 per share
to Jensen stockholders other than Mr. Shaw and WBLCF, both of which had agreed
to accept $8.90 per share as part of the enhanced transaction. Recoton also
proposed that there be revisions to the previous agreements to provide for an
option to Recoton to acquire, and an option for Jensen to sell, the AR Marks for
$3,500,000 and for Recoton to receive a break-up fee of $2,000,000 plus up to
$2,000,000 of expenses if Jensen accepted an alternative transaction. In return,
Recoton offered to extend the termination date from June 30, 1996, to July 15,
1996, and to pay Jensen a break-up fee of $2,000,000 plus up to $2,000,000 of
expenses if a transaction did not close through the fault of Recoton. The
Special Committee noted that the break-up fee being requested by Recoton
appeared identical to that being requested by Emerson in the Emerson
transaction. After further discussion and consultation with Lehman Brothers and
Special Committee Counsel, the Special Committee concluded that, under all the
facts and circumstances, the break-up fee of $2,000,000 plus expenses of up to
$2,000,000 was reasonable and would not impose any inappropriate obstacle to a
competing bid.
On May 9, 1996, a stockholder of Jensen filed an action in the Court of
Chancery of the State of Delaware against Jensen, its directors, Recoton, RC
Acquisition, IJI Acquisition, William Blair & Company and WBLCF seeking to
enjoin the Recoton Merger. The complaint alleged (i) breaches of fiduciary duty
by Jensen directors and affiliates of some of the directors by taking various
actions, including approving and continuing to pursue the sale of the OEM
Business to Robert G. Shaw, refusing to pursue the allegedly higher priced
Emerson proposal and imposing allegedly inappropriate asset lockups and
termination fees; (ii) that all of the defendants had aided and abetted the
breaches of fiduciary duty and (iii) that various agreements of Jensen with
Recoton and others were invalid as a matter of Delaware law. The plaintiff
requested temporary and permanent injunctive and declaratory relief, rescission
of various agreements, such other equitable or damage relief as the court finds
proper and an award of attorneys' fees and expenses.
On May 10, 1996, the Jensen Board, with Mr. Shaw abstaining, approved an
amended merger agreement with Recoton, which had been recommended by the Special
Committee on May 9, 1996. The agreement provided for all Jensen stockholders,
other than Mr. Shaw and WBLCF, to receive $10.00 per share and for Mr. Shaw and
WBLCF to receive $8.90 per share. The revised transaction included the
previously noted revisions of the termination fee provisions under the Merger
Agreement (except that such provisions had been further modified so that
break-up fees were $1,500,000 plus up to $2,500,000 of expenses) and the
agreement regarding the AR trademarks which originally were structured to
provide offsetting payments upon termination of the Merger Agreement under
certain circumstances. The amended agreement continued to require Jensen to sell
the OEM Business to IJI Acquisition prior to the closing, but IJI Acquisition
agreed to increase the purchase price for the OEM
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Business by approximately $1,300,000. The Jensen Board, with Mr. Shaw
abstaining, also authorized Jensen to commence appropriate legal proceedings
against Emerson and its President for violation of the Confidentiality Agreement
and for unlawful proxy solicitation based upon Emerson's press releases and the
statements of Emerson's President in the conference call on May 6, 1996.
In connection with the revised Recoton offer, WBLCF, which owns
approximately 25.9% of the shares of Jensen Common Stock, amended its prior
stock option and voting agreement with Recoton to provide (i) an option to
Recoton to purchase WBLCF's shares of Jensen Common Stock for $8.90 per share
plus 50% of any net proceeds which Recoton receives upon the sale of such shares
to the extent such net proceeds do not exceed $10.90 per share plus 100% of the
net proceeds which Recoton may receive over $10.90 per share upon such sale, and
(ii) an agreement to vote its shares in favor of the Recoton transaction and
against any third party offer that would interfere with the Merger and to
provide a proxy to Recoton to vote its shares under certain circumstances. WBLCF
has also agreed not to sell or transfer its shares of Jensen Common Stock other
than pursuant to the Merger Agreement or the Stock Option and Voting Agreement.
In addition, Mr. Shaw amended the Spread Agreement with Recoton to provide that
in the event of the transfer of any or all of Mr. Shaw's shares of Jensen Common
Stock by way of merger, tender offer or otherwise to a third person other than
Recoton, he will pay to Recoton 50% of the difference between (i) the net
proceeds per share received by Mr. Shaw, but not to exceed $10.90 per share, and
(ii) $8.90 per share. Recoton shall reimburse Mr. Shaw 50% of Federal and state
income taxes which are incurred by Mr. Shaw as a result of Recoton's receipt of
any portion of the sale proceeds.
On May 10, 1996, pursuant to the instructions of the Jensen Board, Jensen
caused its counsel to file in Federal District Court in Chicago, Illinois, a
complaint against Emerson and its President alleging that Emerson and its
President made misleading statements in connection with the unlawful
solicitation of proxies of Jensen stockholders, and for breach of the
Confidentiality Agreement.
On May 13, 1996, Emerson announced through a press release new merger
proposals which included several alternatives from which Emerson indicated the
Special Committee could choose. The alternative proposals included the following
new offers:
(1) $10.25 per share in cash for each share of Jensen Common Stock
("Alternative No. 1"); and
(2) $10.75 per share in cash for each share of Jensen Common Stock except
for shares held by Mr. Shaw, and either (a) $8.90 per share in cash for
Mr. Shaw's shares, or (b) $10.75 per share in cash for Mr. Shaw's shares
if Mr. Shaw purchased the OEM Business for $27.6 million ("Alternative
No. 2").
The full text of the press release announcing the alternative proposals is set
forth in Annex III-D to this Proxy Statement.
In response to Emerson's Alternative No. 2, on May 14, 1996, Special
Committee Counsel, on behalf of the Special Committee, communicated to Emerson's
counsel again that the Special Committee was unable to recommend Alternative No.
2 under Delaware law. In response to Special Committee Counsel communication,
Emerson's counsel indicated in a letter dated May 13, 1996, that Emerson took
issue with Special Committee Counsel's conclusion as to Delaware law concerning
the two-tiered proposal under Alternative No. 2. In addition, Emerson's counsel
stated that, with respect to Alternative No. 1, Emerson continued to propose the
terms of the draft merger agreement provided to Jensen on May 7, 1996, subject
to the modifications concerning the per share offer price of $10.25 and the
termination payments from Jensen to Emerson of $1.5 million and the payment of
Emerson's expenses of up to $2.5 million (which Emerson contended was identical
to the Recoton transaction). Emerson's counsel indicated, however, that the
draft merger agreement remained subject to clarification and additional
negotiation with Jensen. Further, it was stated that Emerson's proposals would
not be conditioned on Emerson entering into a voting agreement with WBLCF,
although Emerson considered such an agreement desirable. Finally, Emerson's
counsel indicated that Bankers Trust remained available to discuss Emerson's
financing arrangements.
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On May 14, 1996, the Federal District Court entered a temporary restraining
order against Emerson and its President, enjoining them from (i) further
solicitation of Jensen's stockholders or their representatives until Emerson has
filed a proxy statement with the Securities and Exchange Commission which
complies with the provisions of Regulation 14A of the Securities Exchange Act of
1934; (ii) making further solicitation containing false or misleading statements
of material fact or material omissions; and (iii) disclosing confidential
information in violation of the Confidentiality Agreement.
At the request of the Special Committee, both Special Committee Counsel and
Lehman Brothers addressed letters to both Emerson's counsel and its financial
advisor regarding clarification of certain significant aspects of Emerson's
proposals, particularly the two-tiered aspects of Alternative No. 2 and
Emerson's financing capabilities.
On May 15, 1996, the Special Committee met to review the status of Emerson's
offer and stated its general desire to address Emerson's latest proposals as
soon as the information requested by Special Committee Counsel and Lehman
Brothers had been submitted by Emerson or its representatives.
On May 19, 1996, Banker's Trust requested further clarification from the
Special Committee with respect to a number of the concerns of the Special
Committee. On May 21, 1996, Lehman Brothers set forth in a letter to Bankers
Trust the areas of particular concern to the Special Committee and other
requests of the Special Committee. These included: (i) the request to remove all
contingencies from any commitment from Congress Financial to finance its portion
of the acquisition price or an adequate explanation as to why any contingencies
are not removed; (ii) receipt from Bankers Trust of a commitment letter for $30
million which is acceptable to the Special Committee; (iii) evidence as to
Emerson's equity contribution which demonstrates adequate cash or credit
facility sources free from pledges and other encumbrances and the request that
Emerson fund its equity contribution in a cash account at Bankers Trust and
provide assurances that such amount will remain available at closing; and (iv)
an opinion from Emerson's outside counsel that no consent to an acquisition of
Jensen by Emerson would be required by holders of Emerson's subordinated
convertible debentures. Lehman Brothers also confirmed that Emerson should
address other concerns of the Special Committee, namely, Emerson's ability to
close a transaction promptly, the terms of a break-up agreement between Jensen
and Emerson, and whether Emerson's proposal could gain the support of Mr. Shaw
and WBLCF.
On May 20, 1996, Emerson filed a counterclaim against Jensen in the Federal
District Court action alleging that Jensen and Mr. Shaw fraudulently induced
Emerson to enter into the Confidentiality Agreement and failed to negotiate with
Emerson in good faith.
On May 20, 1996, a second stockholder action was filed in the Court of
Chancery of the State of Delaware against Jensen, its directors, Recoton and RC
Acquisition, seeking to enjoin the Merger. The complaint alleged (i) breaches of
fiduciary duty by Jensen's directors, including allegedly failing to act in good
faith to negotiate with both Emerson and Recoton, rejecting an allegedly higher
priced all cash transaction with Emerson and failing to act reasonably in order
to obtain the best price in the sale of Jensen; and (ii) that all of the
defendants had aided and abetted the alleged breaches of fiduciary duty. The
plaintiff requested that the lawsuit be maintained as a class action on behalf
of all public stockholders and sought temporary and permanent injunctive and
declaratory relief, rescission of the Merger should it occur, the establishment
of a stockholders' committee to participate in the sale of Jensen, the awarding
of compensatory damages against the defendants, and such other and further
relief as the court finds proper and an award of attorneys' fees and expenses.
On May 23, 1996, before the Federal District Court, Jensen and Emerson
agreed to proceed with the bidding process, Emerson agreed that the terms of the
temporary restraining order would continue, although by law expiring on May 23,
1996, and Jensen and Emerson agreed to suspend the prosecution of the litigation
until the Special Committee and Jensen Board had had an opportunity to consider
both the Emerson and Recoton proposals.
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The Special Committee met on May 29, 1996, to proceed in its consideration
of the competing proposals from Recoton and Emerson. Mr. Shaw joined the
meeting, and expressed his reservations, as a selling stockholder, with respect
to whether Emerson had the financial capability to close a transaction and/or
good faith intent to close a transaction on the proposed terms. Mr. Shaw left
the meeting and Mr. Davis, President of Emerson, then joined the meeting with
other Emerson representatives. Mr. Davis attempted to address the Special
Committee's questions and concerns. His statements to the Special Committee
included: (i) Emerson could not make a tender offer given that two-thirds of
Jensen stock was unlikely to be tendered and that a tender offer was probably
prohibited by Emerson's agreements with its bond holders; (ii) Emerson would not
agree to a break-up fee if Jensen's stockholders did not approve a transaction,
instead, Jensen should pay Emerson a fee in that event; (iii) Emerson did not
agree with the opinion of Special Committee Counsel concerning the need of
disfavored stockholders to consent to a two-tiered proposal; (iv) that the $5
million break-up fee offered by Emerson was substantial and reasonable; (v) that
Emerson could satisfy questions regarding the Congress Financial financing
(including that Congress Financial was soon to complete its due diligence),
except that Congress Financial continued to insist on a "material adverse
change" contingency in its financing commitment -- a position Mr. Davis believed
could be worked out; (vi) that Bankers Trust's letter could be converted into a
commitment letter satisfactory to Lehman Brothers and Jensen and increased to
$30 million; (vii) that with respect to Emerson's equity contribution, in
addition to Emerson's cash it had additional amounts available under its
revolving credit lines; and (viii) an additional $10 million of equity was
available from another investor. Mr. Davis concluded by stating that Emerson
would have a complete sources and uses of funds statement by June 3, 1996. Mr.
Davis also again raised questions as to the enforceability of Mr. Shaw's
employment agreement and stated his belief that payments under such agreement
could be avoided by a termination of Mr. Shaw for cause.
On May 30, 1996, and again on May 31, 1996, Lehman Brothers, on behalf of
the Special Committee, sent letters to Emerson, Recoton and to Mr. Shaw
indicating that Emerson and Recoton should submit their best and highest bids by
9:00 a.m. on June 4, 1996.
On June 3, 1996, Recoton delivered a letter to Lehman Brothers indicating
that it would increase its offer to the public stockholders to $10.25 per share,
premised on IJI Acquisition increasing its price for the OEM Business by
$623,000. Also on June 3, 1996, counsel to IJI Acquisition sent a letter to
Lehman Brothers confirming that it would increase the purchase price for the OEM
Business by $623,000 to $17,160,000.
On June 4, 1996, shortly before the scheduled meeting of the Special
Committee, Emerson's counsel delivered a letter to Special Committee Counsel
along with a letter from Mr. Davis, a sources and uses of funds statement, a
commitment letter from Bankers Trust, an amendment to the commitment letter from
Congress Financial, a term sheet for a preferred stock investment in Emerson
from Global, and a revised merger agreement. Emerson's counsel indicated in its
letter that Emerson remained willing to proceed with either Alternative No. 1 or
Alternative No. 2, as outlined above. In addition, it was noted that Emerson did
not revise its position on the termination fee and proposed to convert
outstanding Jensen stock options into Emerson options upon a merger.
In Mr. Davis' letter dated June 4, 1996, Mr. Davis indicated again Emerson's
position that a termination fee payable to Jensen by Emerson in the event that
Jensen was unable to obtain the requisite stockholder vote on the Emerson
proposals was unacceptable. Mr. Davis stated that given the lock-up of the WBLCF
shares and the apparent lack of support of Emerson's bid from Mr. Shaw, Emerson
should be in fact entitled to a termination fee "or other inducement" in the
event a majority of outside stockholders approves an Emerson transaction and the
transaction fails because of the neutralization of the WBLCF shares and a
negative vote by Shaw. With regard to other termination fee provisions, Mr.
Davis believed that Emerson's $5 million termination fee proposal was more than
appropriate. Mr. Davis also challenged the bidding deadline established by the
Special Committee as unfair to Emerson.
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On June 4, 1996, the Special Committee met to consider the then pending
proposals, including Recoton's increased offer and Emerson's existing proposals.
At the conclusion of the meeting, the Special Committee determined not to end
the bidding for Jensen and determined to advise each party that an opportunity
to submit a further bid would be extended, thereby providing an opportunity for
Emerson to respond to the increased Recoton proposal.
On June 5, 1996, Lehman Brothers sent a letter to Recoton, Shaw and Emerson
confirming the status of the bids and stating the Special Committee would meet
again on June 10, 1996. On behalf of the Special Committee, Lehman Brothers
invited both Recoton and Emerson to submit a higher or better bid by that date.
Over the period June 5, 1996, to June 10, 1996, representatives of Jensen
and the Special Committee reviewed the materials submitted to Jensen by Emerson
and presented comments to Emerson or its representatives. On June 7, 1996,
Lehman Brothers received from Emerson revised executed commitment letters from
Bankers Trust and Congress Financial. On June 7, 1996, counsel to Emerson
delivered to Jensen's counsel and Special Committee Counsel a revised draft of
its proposed merger agreement.
On June 9, 1996, an extended telephone conference involving Jensen's and the
Special Committee's respective counsel and Mr. Davis and others occurred
concerning, among other matters, issues raised by Emerson's revised proposed
merger agreement delivered by Emerson on June 7, 1996.
On June 10, 1996, Mr. Davis sent a letter to the Special Committee, Lehman
Brothers and WBLCF. Mr. Davis indicated the draft merger agreement submitted on
June 7, 1996 reflected only Alternative No. 1 and that Alternative No. 2 was
still on the table. In addition, the letter described an additional new proposal
("Alternative No. 3"), which Emerson believed was more favorable to Jensen
stockholders from a federal income tax point of view. Under Alternative No. 3,
Emerson would pay to each Jensen stockholder $10.75 with an aggregate
consideration of 55% in cash and 45% in face value of a new issue of Emerson
preferred stock. The liquidation value of the preferred issue would be the
aggregate amount of cash replaced in the revised offer together with unpaid
dividends. The preferred stock would also be convertible into Emerson common
stock at any time at a conversion rate of $4.00 per share for the first four
years escalating 15% per year thereafter and carry cumulative (or,
alternatively, paid-in-kind) dividends of 8% per annum. The preferred issue
could be called by Emerson at any time after one year for an amount equal to the
liquidation preference. The letter indicated that Alternative No. 3 might be of
interest to the majority of Jensen stockholders who have a relatively low basis
in their stock for tax purposes. The letter also indicated that Emerson would
benefit from the proposal by conserving liquidity to fund expected growth in
both the Jensen and Emerson businesses. The letter again challenged the bidding
standards established by the Special Committee, contending that the Recoton/Shaw
agreements and the separate fairness opinion on the sale of the OEM Business
raised legal concerns. The letter also raised concerns regarding further delays
and the attendant costs to Emerson and Jensen and the potential adverse effects
of a delay on Jensen's business.
On June 10, 1996, the Special Committee met to review all of the bids
submitted. Based upon its preliminary review of the bids, the Special Committee
determined it needed additional information. It therefore postponed any final
decision. A letter dated June 12, 1996 from Lehman Brothers informed Recoton,
Shaw and Emerson that the Special Committee had met on June 10, 1996, determined
it needed certain additional information with respect to their proposals, and
had not made a final decision. The letter further advised that the Special
Committee would meet again on June 14, 1996, and invited increases or
improvements of their respective bids.
On June 12, 1996, Mr. Shaw's legal counsel delivered a letter to Emerson's
counsel indicating that Mr. Shaw was willing to attempt to open a dialogue with
Emerson on a number of important issues, including: (i) Emerson must have all
financing in place with no unusual conditions or contingencies; (ii) Emerson
must recognize the agreements between Jensen and Recoton concerning the AR Marks
and the termination fees provided for in the Merger Agreement; (iii) all
transitional employment
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agreements should be honored at closing; (iv) that each long-term employee of
Jensen deserved a reasonable severance package; and (v) Emerson must recognize
the existence and validity of Mr. Shaw's 1991 Employment Agreement with Jensen,
although Mr. Shaw was willing to negotiate a lesser amount given Emerson's
anticipated cash flow problems. Mr. Shaw's counsel invited Emerson to seriously
negotiate the matters set forth in the letter.
In a letter to Mr. Shaw's counsel dated June 12, 1996, Emerson's counsel
indicated his appreciation that Mr. Shaw desired to open a dialogue on these
issues. With respect to the specific issues raised in Mr. Shaw's letter,
Emerson's counsel responded that: (i) Emerson did have its financing in place;
(ii) Emerson requested a meeting with Mr. Shaw and Recoton to discuss the
termination fees and the AR Marks; (iii) since Mr. Shaw was not directly
involved with the transitional employment agreements, Emerson did not feel it
necessary to discuss these agreements with Mr. Shaw; (iv) Emerson did not see
any need for a severance package for Jensen's long term employees and therefore
Emerson did not feel the need to discuss a severance package with Mr. Shaw; and
(v) Emerson acknowledged the existence and validity of Mr. Shaw's 1991
Employment Agreement with Jensen. Emerson's counsel invited Mr. Shaw, his
counsel and Recoton (with Jensen's approval) to Emerson's offices to discuss the
open issues.
On June 14, 1996, the Special Committee met to review the most recent
proposals of both Recoton and Emerson. The Special Committee determined that no
decision would be made given the outstanding issues and concerns with both
proposals. Subsequently, each bidder was advised of the problems the Special
Committee identified with respect to that bidder's offer and each bidder was
invited to submit an increased or improved offer that would address the Special
Committee's concerns. With respect to the Recoton transaction, Lehman Brothers
advised the Special Committee that it was unable to render an opinion that the
sale of the OEM Business was fair to Jensen in light of recently available
financial information concerning the OEM Business through May 31, 1996. Lehman
Brothers communicated its view that based on this recent performance, the
valuation range for the OEM Business would need to be adjusted upward and the
purchase price presently offered by IJI Acquisition and the other consideration
received by Jensen directly or indirectly, as described below, was inadequate
based upon the adjusted valuation range. With respect to Emerson, the issues
related to the amount of the merger consideration and terms of the merger
agreement proposed by Emerson. Special Committee Counsel proceeded to
communicate with Emerson's counsel or its representatives the problems the
Special Committee identified, including that the Emerson proposal did not appear
to have sufficient stockholder support and that Emerson sought to inflict upon
Jensen the risk of non-consummation by insisting that Jensen pay a termination
fee if the Emerson proposal was not approved by the stockholders.
On June 17, 1996, Emerson's counsel delivered a letter to the court in the
Federal District Court action in Chicago asking the court to order an
in-chambers conference involving Jensen and Emerson and their respective
representatives. In the letter, Emerson's counsel expressed its concern over the
Special Committee's delay in acting on its bid. Jensen's counsel on June 18,
1996, delivered its own letter to the court indicating that the Special
Committee was diligently working through the acquisition proposals and continued
to have serious concerns over the Emerson proposal, especially Emerson's demand
for a substantial break-up fee if the Jensen stockholders did not approve an
Emerson transaction. This provision was of particular concern because Mr. Shaw,
holding approximately 37% of the Jensen stock, did not favor any of the Emerson
proposals, and WBLCF, owning approximately 26%, had signed a voting agreement
with Recoton.
On June 18, 1996, Mr. Davis, on behalf of Emerson, sent a letter to the
Special Committee, Lehman Brothers and WBLCF expressing Emerson's concern
regarding the Special Committee's perceived inability to make a decision. Mr.
Davis indicated that Emerson would expect a response to its proposal by the end
of the day on June 20, 1996, or it would be construed that Emerson's proposal
had been rejected. Mr. Davis threatened to hold all parties responsible for
damages to Emerson and any deterioration in Jensen's value as a result of the
delay.
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On June 20, 1996, Lehman Brothers, on behalf of the Special Committee, wrote
to Recoton, Mr. Shaw and Emerson that it had been advised that Recoton was
prepared to submit an improved proposal and that Recoton sought prompt action on
the proposal. Lehman Brothers noted Emerson's position that it sought immediate
action on its pre-existing bid. The Special Committee, for its part, agreed that
the auction process should be brought to a prompt close. Lehman Brothers
indicated that the Special Committee would therefore be scheduling a meeting as
soon as possible to make a final decision on the new Recoton proposal and the
pre-existing Emerson proposal (unless Emerson advised the Special Committee it
was withdrawing its proposal). Lehman Brothers also stated that the Special
Committee was not able to meet on June 20, 1996, as Emerson had earlier
demanded, and encouraged Emerson not to withdraw its bid but rather to submit an
improved or increased bid that could be promptly considered. Lehman Brothers
indicated that the Special Committee would re-evaluate Emerson's pre-existing
bid in comparison to Recoton's new bid if no further communication was received
from Emerson.
On June 20, 1996, Mr. Shaw, solely in his capacity as a stockholder of
Jensen, and Mr. Geoffrey P. Jurick, the Chairman of the Board and Chief
Executive Officer of Emerson, met in Cleveland, Ohio, to discuss the issues
which were still open between Emerson and Mr. Shaw.
On June 21, 1996, Recoton by letter and the delivery of a draft revised
amended and restated merger agreement, submitted its new proposal that provided
for all stockholders, other than Mr. Shaw and WBLCF, to receive $11.00 per
share, and for Mr. Shaw and WBLCF to receive $8.90 per share with their consent.
The consideration to stockholders would be paid all in cash rather than in
combination of cash and stock as provided in the previous Recoton proposal. The
amended and restated agreement continued to require Jensen to sell its OEM
Business prior to the closing to IJI acquisition, but IJI Acquisition agreed to
increase the purchase price for the OEM Business to approximately $18.4 million
plus the assumption of all related liabilities except as otherwise agreed. On
June 21, Lehman Brothers notified Emerson, Recoton and Mr. Shaw that the Special
Committee would meet on June 23, 1996 to consider Recoton's new proposal and the
pre-existing Emerson bid.
On June 21, 1996, Mr. Davis, on behalf of Emerson, sent a letter to the
Special Committee responding to Lehman Brothers' letter of June 20, 1996. Mr.
Davis wrote that the position stated in his June 18, 1996, letter, which
demanded that the Special Committee accept Emerson's existing proposal, required
no further elaboration and that Emerson saw no reason to further respond to
Lehman Brothers' request for an improved or increased bid as sought by Lehman
Brothers' June 20, 1996 letter.
On June 23, 1996, the Special Committee considered the two competing offers
and concluded that accepting the enhanced Recoton offer was in the best interest
of Jensen's stockholders. The Special Committee took into account the opinion of
Lehman Brothers that from a financial point of view (i) the Merger Consideration
to be received by the public stockholders was fair to the public stockholders,
and (ii) the sale of the OEM Business was fair to Jensen. In evaluating the
financial terms of the sale of the OEM Business, Lehman Brothers advised the
Special Committee that it took into account the total consideration received by
Jensen, directly or indirectly, in connection with the sale of the OEM Business,
including the $18.4 million cash consideration to be paid by IJI Acquisition,
the fact that Recoton required Mr. Shaw to waive potential termination benefits
under his 1991 Employment Agreement with Jensen and the fact that Mr. Shaw would
receive approximately $4.4 million less for his Jensen shares pursuant to the
Merger Agreement than he would have received if he received the same price per
share as the public stockholders. The Special Committee considered Lehman
Brothers' determination that Jensen was receiving, directly or indirectly,
consideration equivalent to approximately $25.4 million or approximately 93% of
the book value of the OEM Business. The Special Committee recommended the
Recoton proposal and the full Board, with Mr. Shaw abstaining, upon the
recommendation of the Special Committee, approved the transaction and authorized
that a proxy statement be prepared and distributed promptly in connection with a
special meeting of shareholders to vote on the Recoton merger transaction.
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On June 25, 1996, Emerson, through a press release (attached to this Proxy
Statement as Annex III-E), announced it was prepared to enter into a revised
transaction with respect to the acquisition of Jensen where all stockholders
other than Mr. Shaw, WBLCF and Recoton could receive $12.00 per share in cash,
with Mr. Shaw, WBLCF and Recoton to receive $8.90 per share in cash. In the
press release, Emerson indicated that it believed no proposal from Emerson would
be fairly considered by the Jensen Board and that Emerson would file proxy
solicitation materials with the Commission and actively solicit Jensen
stockholders with respect to the transaction. In addition, Emerson stated it
believed that a final determination of the issues raised in the various
stockholder suits brought against Jensen and related parties in Delaware would,
along with Emerson's solicitation of Jensen's public stockholders, finally
resolve the matter. The press release was delivered to the Special Committee and
the Jensen Board with a letter from Mr. Jurick, who highlighted Emerson's view
that Jensen had no serious interest in pursuing a transaction with Emerson. Mr.
Jurick stated that Emerson believed that only a court's determination would
break the deadlock between Emerson and Jensen.
In a letter dated June 25, 1996, Lehman Brothers responded to overtures by
Bankers Trust that Emerson was interested in a meeting with representatives of
Emerson, Jensen, Mr. Shaw and Recoton. Lehman Brothers indicated that the
Special Committee had conducted an active auction of Jensen in which Emerson had
been given every opportunity to bid. That auction concluded on June 23, 1996,
and Emerson had been encouraged to submit its best and highest offer on or
before that date. Lehman Brothers, noting that if Emerson were prepared to
improve its bid it should have done so by June 23, 1996, and that Emerson had in
fact on prior occasions complained that Jensen was delaying the auction, stated
that the prospect of fruitful or meaningful negotiations with Emerson did not
appear promising.
Toward the close of business on June 25, 1996, the Special Committee met and
recommended that the Jensen Board reject the latest Emerson proposal and
reaffirm the revised Recoton transaction. The Special Committee determined that
neither Mr. Shaw nor WBLCF had agreed to accept less from Emerson than was being
paid to other stockholders and both advised the Special Committee that they
would vote against the Emerson proposal if it was submitted to Jensen's
stockholders. Absent their consent to the lesser amount, and a vote in favor of
a merger on such terms, the Special Committee concluded, based on the advice of
Special Committee Counsel, that the Emerson proposal could not be consummated
due to the lack of the necessary stockholder vote.
In addition, the recommendation of the Emerson proposal would require the
Special Committee, and the Jensen Board, to approve a transaction in which (i)
certain holders of Jensen Common Stock (i.e., the Principal Stockholders) were
to receive less consideration than all other holders of Jensen Common Stock and
(ii) the disfavored stockholders had not consented to the receipt of less
consideration. The Special Committee has been advised by Special Committee
Counsel that there is no Delaware court decision which has sustained a merger
transaction that discriminates against certain holders of a class of stock
without the consent of such holders. By contrast, the Special Committee was
advised that disparate treatment of members of a class of stockholders has been
upheld under Delaware law where the disfavored stockholders have consented to
such treatment. Consequently, the Special Committee was able to recommend the
Recoton merger given the Principal Stockholders' consent to the Recoton
transaction. In recommending rejection of the Emerson proposal, the Special
Committee also took into account the fact that a number of terms in Emerson's
proposed form of merger agreement were unacceptable to Jensen and had not been
resolved despite numerous attempts to negotiate more favorable terms. These
terms included the following: (a) Emerson's proposed merger structure created a
possibility that stockholders of Jensen could be held directly liable to the
extent of the cash merger consideration for any tax liabilities of Jensen unpaid
at the time of the merger; (b) Jensen proposed that all stock options be cashed
out at the effective time of the merger but Emerson insisted on assuming such
options and replacing them with options to purchase Emerson stock; (c) Jensen
proposed language that would make it clear that Jensen's payment of its
obligations under the existing agreements with Recoton would not allow Emerson
to terminate an Emerson merger agreement, but Jensen and Emerson were unable to
agree on appropriate language for this
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purpose and the language proposed by Emerson created ambiguity on this point;
(d) Emerson proposed a limitation on the number of shares which could dissent
from the merger as a condition to its obligation to consummate the merger
(Jensen opposed this condition because it would allow Emerson not to close even
if the requisite stockholder approval had been obtained); and (e) Emerson
insisted that Jensen pay to it a termination fee if the requisite number of its
stockholders did not vote in favor of the Emerson merger whereas Jensen sought a
termination fee from Emerson in such a situation due to the stated opposition of
stockholders holding more than a majority of its shares, but expressed a
willingness to agree to no termination fee to either party under that
circumstance. In addition, Jensen originally requested a $9.7 million break-up
fee from Emerson if Emerson failed to close, but Emerson offered only $5
million. Jensen had expressed a willingness to reach a compromise number between
$9.7 million and $5 million, but Emerson refused to offer more than $5 million.
Following the Special Committee meeting, the Jensen Board met and unanimously
(with Mr. Shaw abstaining) rejected Emerson's proposal and reaffirmed the Merger
Agreement with Recoton.
On June 25, 1996, counsel to Jensen and Emerson appeared in the federal
court action on Emerson's motion to schedule a conference in chambers to discuss
the current status of the transaction. The judge ruled that no conference was
necessary at that time.
On June 27, 1996, Emerson issued a press release (attached to this Proxy
Statement as Annex III-F) in which it stated that it believed the court in the
consolidated Delaware proceedings would be asked to rule on whether a "control
group" made up of company directors can choose to accept a lower price from one
offeror and reject the same lower price from another offeror to the detriment of
independent stockholders.
On July 2, 1996, Emerson filed an amended counterclaim and third party
complaint in the Federal District Court in Chicago making allegations similar to
those in its original counterclaim and additional claims that Jensen and Mr.
Shaw continued to mislead Emerson and negotiate in bad faith, with Recoton and
WBLCF added as alleged co-conspirators with respect to such continuing conduct.
On July 3, 1996, the court in Delaware ordered the stockholder suits
consolidated into one action. On July 8, 1996, an amended consolidated
stockholder complaint was filed by the existing Delaware plaintiffs against the
same defendants making claims similar to those previously made with additional
allegations charging that the wrongful conduct continued through Jensen's
acceptance of Recoton's latest offer and rejection of Emerson's latest offer.
On July 16, 1996, plaintiffs in the Delaware action filed a motion for leave
to file a supplement to their complaint alleging that the Merger Agreement as
amended on June 23, 1996, resulted in the termination of the Stock Option and
Voting Agreement and, further, that the voting and proxy provisions of such
agreement were no longer in effect.
On July 16, 1996, the Delaware court denied plaintiffs' motion for an order
to expedite discovery and to schedule a hearing on plaintiffs' application for a
preliminary injunction to enjoin the Merger, determining that the Merger will
not result in irreparable harm to the plaintiffs because any alleged wrongful
conduct could be adequately remedied by a money damages award.
On July 16, 1996, Emerson's counsel contacted Special Committee Counsel by
letter, indicating that, based upon the allegations set forth in the supplement
to the complaint in the Delaware consolidated stockholder action, it appeared
that WBLCF was free to vote for whichever transaction it preferred and to sell
its stock to Emerson. Emerson's counsel also stated that Emerson had decided to
make a new proposal the terms of which were set forth in an attached proposed
press release to be issued later that day. Emerson's counsel also contacted
WBLCF's counsel by telephone to discuss this proposal. In the press release
(issued by Emerson on July 16, 1996, and attached hereto as
Annex III-G), Emerson described another offer of $12.00 per share to the public
stockholders and $8.90 per share to Mr. Shaw, but Emerson offered to purchase
WBLCF's shares for $10.00 per share. Emerson's proposal contemplated a possible
immediate purchase of WBLCF's shares and asserted that the Stock Option and
Voting Agreement had terminated based upon certain interpretations of the
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Merger Agreement as amended on June 23, 1996. Emerson stated that, as a result,
Emerson believed WBLCF was free to vote in favor of the revised Emerson offer
and to sell its stock to Emerson. In this regard, Emerson also requested from
Jensen a waiver of certain "standstill" provisions of the Confidentiality
Agreement which prohibit Emerson's purchase of shares of Jensen.
On July 17, 1996, WBLCF's counsel stated in a letter to Emerson's counsel
that WBLCF did not agree that the Stock Option and Voting Agreement has
terminated and that WBLCF considered the agreement to continue in full force and
effect. WBLCF's counsel stated that WBLCF would not consider Emerson's offer and
requested that Emerson cease attempting to interfere with WBLCF's contractual
relations.
On July 18, 1996, the Special Committee met to review Emerson's latest
proposal and the response of WBLCF. As was the case with respect to Emerson's
previous two-tiered proposals, neither Mr. Shaw nor WBLCF had agreed to accept
less from Emerson than is being paid to other stockholders and both advised the
Special Committee that they would vote against this Emerson proposal if it were
submitted to Jensen's stockholders. The Special Committee rejected such Emerson
offer for the same reasons it rejected Emerson's June 25, 1996, offer. Further,
in light of WBLCF's view that the Stock Option and Voting Agreement had not
terminated and that WBLCF was prohibited from selling its shares to Emerson, the
Special Committee determined that Emerson's request for a waiver of the
standstill provisions was moot.
RECOMMENDATION AND REASONS FOR THE MERGER
As described above, the Jensen Board, having reviewed and considered the
terms of the Merger, has concluded that the Merger is fair to the stockholders
of Jensen and that consummation of the Merger is in the best interests of
Jensen's stockholders. In reaching these conclusions, the Jensen Board consulted
with its legal counsel and financial advisor and considered, among other things,
the cash offered in the Merger, including the market value, liquidity, book
value, and earnings on Jensen Common Stock. The Jensen Board also has considered
a number of additional factors in approving and recommending the terms of the
Merger, including, without limitation:
(i) information concerning the financial condition, asset quality,
dividends, earnings, and prospects of Jensen and Recoton and information
concerning the financial condition and earnings of Emerson;
(ii) the opinion of Lehman Brothers, its financial advisor, with respect
to the fairness to Jensen's public stockholders of the Merger Consideration
from a financial point of view;
(iii) the willingness of Robert Shaw, through a newly formed corporation,
to purchase the OEM Business -- which purchase was a condition to the
Recoton offer -- at a price that the Jensen Board considered fair, including
all consideration received by Jensen, directly or indirectly, in connection
with the sale of the OEM Business;
(iv) the opinion of Lehman Brothers, since Recoton was requiring the
prior sale of the OEM Business as a condition to the Merger, with respect to
the fairness to Jensen from a financial point of view of the sale of the OEM
Business in the context of the overall transaction and the consideration to
be received by the public stockholders in the Merger;
(v) that the Merger is subject to the approval of a majority of the
outstanding shares of Jensen Common Stock which vote at the Special Meeting
excluding the shares held by Mr. Shaw;
(vi) that the Special Committee has unanimously approved the terms of the
Merger after meeting separately with Jensen's legal advisor and financial
advisor and after full disclosure of the potential and actual conflicts of
interests associated with the transactions relating to the Merger and the
sale of the OEM Business;
(vii) the effects of the Merger and a potential Emerson transaction on
employees and customers;
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(viii) the likelihood of Recoton being able to consummate the transaction
within the contemplated time period;
(ix) the termination fee payable by Jensen under the transaction is
essentially the same as the termination fee required under Emerson's latest
proposal; and
(x) the Jensen Board's conclusion, based primarily upon the factors
discussed under "THE MERGER -- BACKGROUND OF THE MERGER" that the Recoton
transaction represented higher value to the stockholders of Jensen than all
but Emerson's multi-priced proposals, which were not likely to be
consummated and, based upon the advice of Special Committee Counsel, would
be improper for the Jensen Board to recommend to stockholders as a matter of
Delaware law.
In addition to the business reasons for the Merger and the consideration to
be paid by Recoton, the Jensen Board considered that the Merger Agreement did
not provide for any lock-ups relating to the Jensen Common Stock held by Mr.
Shaw or warrants or unreasonable termination fees which may have the effect of
unreasonably discouraging competing bids and that the Jensen Board was able to
withdraw or modify its recommendation to the stockholders regarding the Merger
in the event a more favorable transaction with a third party became available to
Jensen prior to the Closing. The Jensen Board also gave weight to the fact that
all of the stockholders of Jensen would receive, prior to voting on the Merger,
a proxy statement disclosing in detail the terms of the transactions.
ACCORDINGLY, THE JENSEN BOARD UNANIMOUSLY (WITH MR. SHAW ABSTAINING)
RECOMMENDS THAT THE STOCKHOLDERS VOTE FOR APPROVAL OF THE MERGER AGREEMENT.
FAIRNESS OPINION BY LEHMAN BROTHERS
Jensen, pursuant to an engagement letter dated June 12, 1995 (the "Lehman
Engagement Letter"), retained Lehman Brothers as its financial advisor.
In connection with Jensen's proposed Merger with Recoton, Lehman Brothers
delivered its written opinion as of the date of this Proxy Statement that, as of
the date of such opinion and based upon and subject to certain assumptions,
factors and limitations set forth in such written opinion, (i) the consideration
to be received by Jensen's public stockholders in the Merger was fair, from a
financial point of view, to such holders (the "Jensen Opinion") and (ii) since
Recoton requires the prior sale of the OEM Business as a condition to the
consummation of the transaction proposed by Recoton, the consideration to be
received by Jensen in the proposed OEM Asset Sale, within the context of the
Merger, and the consideration to be received by the public stockholders in the
Merger, was fair to Jensen (the "OEM Opinion"). The full text of the written
opinion of Lehman Brothers dated the date hereof is attached as Annex IV hereto.
Jensen stockholders are urged to read the opinion in its entirety for a summary
of assumptions made, matters considered and limits of the review by Lehman
Brothers in arriving at its opinion. The descriptions of the opinion of Lehman
Brothers set forth in this Proxy Statement are qualified in their entirety by
reference to the full text of such opinion. Previously, on January 2, 1996,
Lehman Brothers delivered two written opinions with respect to the Merger as
then proposed by Recoton.
No limitations were imposed by Jensen on the scope of Lehman Brothers'
investigation or the procedures to be followed by Lehman Brothers in rendering
its opinion. However, Jensen did not authorize Lehman Brothers (even after the
public announcement of the merger transaction with Recoton) to solicit any
indications of interest from any third party with respect to the purchase of all
or a part of the OEM Business due to Jensen's concerns that further
solicitations would cause disruptions and increase uncertainties which could
potentially harm customer relationships and lead to the departure of key
employees. Furthermore, additional solicitations would likely delay the timing,
or jeopardize the consummation, of the Recoton merger. The consideration to be
received by Jensen stockholders was determined by arm's-length negotiation
between Jensen and Recoton after consultation by each of such parties with its
respective financial advisor as to various matters, including preliminary ranges
of value, and was not based on a recommendation by Lehman Brothers, although
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Lehman Brothers evaluated the financial terms of the Merger and participated in
discussions concerning the consideration to be received. The consideration to be
received by Jensen for the OEM Business was determined by arm's-length
negotiations between Jensen's Chairman and outside directors of Jensen's Board
after consultation by the outside directors of Jensen's Board with Lehman
Brothers as to various matters, including preliminary ranges of value, and was
not based on a recommendation by Lehman Brothers, although Lehman Brothers
evaluated the financial terms of the sale of the OEM Business and participated
in discussions concerning the consideration to be received. The opinion was
requested by the Jensen Board and is not intended to be and does not constitute
recommendations to any stockholder of Jensen as to how such stockholder should
vote with respect to the approval of the Merger or the sale of the OEM Business.
Lehman Brothers was not requested to opine as to, and the opinion does not in
any manner address, Jensen's underlying business decision to proceed with or
effect either the Merger or the sale of the OEM Business.
In arriving at its opinion, Lehman Brothers reviewed and analyzed: (1) the
Merger Agreement and the specific terms of the transaction proposed thereby (the
"Proposed Transaction") and the OEM Agreement and specific terms of the sale of
the OEM Business, (2) Jensen's Annual Reports to Stockholders and Annual Reports
on Form 10-K for the fiscal years ended the last day of February 1992 through
1996, (3) Recoton's Annual Reports to Shareholders and Annual Reports on Form
10-K for the fiscal years ended December 31, 1991 through 1995 and the Quarterly
Report on Form 10-Q for the quarter ended March 31, 1996, (4) financial and
operating information with respect to the business, operations and prospects of
Jensen and the OEM Business furnished to Lehman Brothers by Jensen, (5) certain
historical financial and operating information with respect to the business and
operations of Recoton furnished to Lehman Brothers by Recoton, (6) trading
history of Jensen's common stock from February 12, 1992 to the present and a
comparison of that trading history with those of other companies that Lehman
Brothers deemed relevant, (7) a comparison of the historical financial results
and present financial condition of Jensen, the OEM Business and Recoton with
those of other companies and businesses that Lehman Brothers deemed relevant,
and (8) a comparison of the financial terms of the Proposed Transaction with the
financial terms of certain other recent transactions that Lehman Brothers deemed
relevant.
In addition, in arriving at its opinion, Lehman Brothers considered the
results of efforts to solicit indications of interest from certain third parties
approved by Jensen with respect to an acquisition of Jensen.
Lehman Brothers also considered the most recent proposal received from
Emerson and the extensive discussions among Emerson, Jensen and their respective
representatives. As discussed above, that proposal provided for Mr. Shaw and
WBLCF to receive less per share than the public stockholders without their
consent, and both Mr. Shaw and WBLCF had advised the Special Committee that they
were unwilling to vote in favor of the Emerson proposal. In arriving at its
opinion Lehman Brothers took into account the advice of Delaware legal counsel
to the Special Committee that without such favorable votes the Emerson proposal
could not be approved by the Company's stockholders as required by the DGCL.
In arriving at its opinion, Lehman Brothers also has had discussions with
the managements of Jensen and Recoton concerning their respective businesses,
operations, assets, financial condition and prospects. In addition, Lehman
Brothers has had discussions with the managements of Jensen and the OEM Business
concerning the business, operations, assets, financial condition and prospects
of the OEM Business, including the OEM Business' future prospects on a
stand-alone basis and the alternatives available to Jensen with respect to the
OEM Business given the requirement of a disposition of the OEM Business imposed
by Recoton as a condition to the consummation of the Proposed Transaction.
Lehman Brothers also has reviewed two reports delivered to Jensen by Key Account
Systems, a consulting firm hired by Jensen, regarding the current status of the
OEM Business' relationships with Ford Motor Company and Chrysler Corporation,
its two principal customers and held discussions with Key Account Systems
regarding these reports, and has reviewed
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certain internal Jensen memoranda regarding the status of the Ford Motor Company
and Chrysler Corporation relationships in light of current business conditions
and ownership uncertainty. Lehman Brothers also undertook such other studies,
analyses and investigations as it deemed appropriate.
In arriving at its opinion, Lehman Brothers assumed and relied upon the
accuracy and completeness of the financial and other information used by it
without assuming any responsibility for independent verification of such
information and further relied upon the assurances of management of Jensen that
it was not aware of any facts that would make such information inaccurate or
misleading. With respect to the financial forecasts of Jensen including those
relating to the OEM Business, since Jensen's and the OEM Business' recent
operating results had fallen significantly below historical results and
management's expectations (with the exception of the most recent fiscal
quarter), for purposes of its analyses Lehman Brothers relied primarily upon
extrapolations of, and sensitivity analyses applied to, Jensen's and the OEM
Business' most recent operating results. Lehman Brothers discussed this approach
with the management of Jensen, and it agreed with the appropriateness of the use
of this approach by Lehman Brothers in performing its analyses. In arriving at
its opinion, Lehman Brothers conducted only a limited physical inspection of the
properties and facilities of Jensen and the OEM Business and did not make or
obtain any evaluations or appraisals of the assets or liabilities of Jensen or
the OEM Business. Lehman Brothers did, however, consider a third party's
indication of loan value on a liquidation basis of the OEM Business as part of
the Proposed Emerson Transaction. In addition, Jensen did not authorize Lehman
Brothers to solicit, and Lehman Brothers did not solicit, any indications of
interest from any third party with respect to the purchase of all or a part of
the OEM Business due to Jensen's concerns that such contacts might have a
materially adverse impact on the OEM Business and/or its relationship with key
customers. Lehman Brothers' opinion necessarily is based upon market, economic
and other conditions as they existed on, and could be evaluated as of, the date
of its opinion.
In connection with the preparation of Lehman Brothers' opinion, Lehman
Brothers performed certain financial and comparative analyses, as summarized
below. The preparation of fairness opinions involves various determinations as
to the most appropriate and relevant methods of financial and comparative
analyses and the application of those methods to the particular circumstances,
and therefore such opinions are not readily susceptible to summary description.
Furthermore, in arriving at its opinion, Lehman Brothers did not attribute any
particular weight to any analysis or factor considered by it, but rather made
qualitative judgments as to the significance and relevance of each analysis and
factor. Accordingly, Lehman Brothers believes that its analyses must be
considered as a whole and that considering any portions of such analyses and of
the factors considered, without considering all analyses and factors, could
create a misleading or incomplete view of the process underlying its opinion. In
its analyses, Lehman Brothers made numerous assumptions with respect to industry
performance, general business and economic conditions and other matters, many of
which are beyond the control of Jensen or the OEM Business. Any estimates
contained in these analyses are not necessarily indicative of actual values or
predictive of future results or values, which may be significantly more or less
favorable than as set forth therein. In addition, analyses relating to the value
of businesses do not purport to be appraisals or to reflect the prices at which
businesses actually may be sold.
JENSEN OPINION ANALYSES
ANALYSIS OF PRETAX BREAKUP VALUE. Using internally available information
for the fiscal year ending February 29, 1996 supplied by Jensen, Lehman Brothers
performed a pretax breakup valuation of Jensen assuming that each of the
company's businesses were sold to third party acquirors. Applying appropriate
valuation multiples to each of Jensen's businesses, Lehman Brothers determined
that the approximate equity value of Jensen based on this analysis ranged from
approximately $7.25 to $10.00 per share of Jensen Common Stock.
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ANALYSIS OF SELECTED PUBLICLY TRADED COMPARABLE COMPANIES. Using publicly
available information, Lehman Brothers compared selected financial data of
Jensen with similar data for five companies engaged in businesses considered by
Lehman Brothers to be comparable to Jensen. Specifically, Lehman Brothers
included in its review Boston Acoustics, Inc., Clarion Co. Limited, Harman
International Industries, Inc., Polk Audio, Inc. and Recoton (the "Jensen
Comparable Company Universe"). Lehman Brothers calculated several standard
industry market valuation multiples for the Jensen Comparable Company Universe
and imputed a per share value for Jensen based on the financial performance of
Jensen for the latest twelve months ended February 29, 1996, and on management's
internal fiscal year 1997 projections. Lehman Brothers determined that an
approximate value of Jensen based upon this analysis ranged from $8.00 to $9.00
per share of Jensen Common Stock. Because of the inherent differences between
the business, operations and prospects of Jensen and the businesses, operations
and prospects of the companies in the Jensen Comparable Companies Universe,
Lehman Brothers believed that it was inappropriate to, and therefore did not,
rely solely on the quantitative results of the analysis, and accordingly also
made qualitative judgments concerning differences between the financial and
operating characteristics and prospects of Jensen and the companies in the
Jensen Comparable Companies Universe which would affect the public trading
values of Jensen and such comparable companies.
ANALYSIS OF SELECTED COMPARABLE TRANSACTIONS. Using publicly available
information, Lehman Brothers compared selected financial data, including total
market value of equity plus debt minus cash ("Firm Value") as a multiple of
sales, earnings before interest, taxes, depreciation and amortization ("EBITDA")
and earnings before interest and taxes ("EBIT"), for Jensen with similar data
for selected transactions in the consumer electronics industry to derive implied
price per share values. Although there have been over 15 major announced
acquisitions in the consumer electronics industry since 1985, there was only one
recent transaction for which there was sufficient information and which Lehman
Brothers believed provided an adequate comparison to Jensen. Specifically, the
transaction Lehman Brothers considered was the acquisition of Kong Wah Holdings
by Akai Holdings. However, Jensen's earnings for the latest twelve months (at
the time of the analysis) were significantly lower than in previous years, and
because there was limited financial information on the acquisitions identified
by Lehman Brothers in the consumer electronics industry and because the reasons
for and the circumstances surrounding the transaction analyzed were specific to
that transaction and because of the inherent differences between the businesses,
operations and prospects of Jensen and the businesses, operations and prospects
of the selected acquired company analyzed, Lehman Brothers did not rely on the
analysis of selected comparable transactions as an appropriate analysis and
provided the analyses to the Jensen Board for illustrative purposes only.
DISCOUNTED CASH FLOW ANALYSES. Lehman Brothers performed five and ten year
discounted cash flow analyses of Jensen utilizing a range of sensitivities with
respect to future financial performance of Jensen. Specifically, Lehman Brothers
noted that Jensen's earnings before interest, taxes and amortization ("EBITA")
margin for fiscal 1993 through fiscal 1996 were 4.3%, 3.1%, 5.0% and 0.7%,
respectively and, as such, performed three sensitivities to the future financial
performance of the company that assumed the company's EBITA margin increased by
fiscal 2001 to 4.5%, 5.0% and 5.5%, respectively. Utilizing these projections,
Lehman Brothers calculated Jensen's unleveraged free cash flows over five and
ten year periods. The cash flow streams and terminal values then were discounted
to present values using a range of discount rates, which were chosen based on
several assumptions regarding factors such as the inflation rate, interest
rates, the inherent business risk of Jensen and the cost of capital. Lehman
Brothers calculated terminal values for Jensen by applying to projected EBITA a
range of multiples based on the analysis of the trading multiples of the Jensen
Comparable Company Universe and on Lehman Brothers' general experience in
mergers and acquisitions. For purposes of this analysis, Lehman Brothers
utilized annual discount rates of 12%, 13% and 14% and terminal multiples of
Jensen's EBITA in the fiscal years 2001 and 2006 of 7.0x, 8.0x, and 9.0x. Lehman
Brothers determined that an equity value of Jensen based on this analysis was
approximately $6.00 to $8.00 per share of Jensen Common Stock assuming EBITA
margins increased by fiscal 2001 to 4.5%,
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approximately $7.50 to $9.50 per share of Jensen Common Stock assuming EBITA
margins increased by fiscal 2001 to 5.0% and approximately $8.50 to $10.50 per
share of Jensen Common Stock assuming EBITA margins increased by fiscal 2001 to
5.5%.
LEVERAGED BUYOUT ANALYSES. Lehman Brothers performed leveraged buyout
analyses of Jensen utilizing the same three sets of projections used in the
discounted cash flow analyses in order to calculate the theoretical maximum
value that an investor would pay in a leveraged buyout using current leveraged
financing market parameters. The parameters considered included, but were not
limited to, appropriate returns to equity holders over a five year horizon of at
least 30%, appropriate capital structure in the current financing environment,
appropriate returns to subordinated debt holders of 17% to 20%, bank debt
paydown in no more than eight years and current market interest rates. However,
no consideration was given to institutions' willingness to provide requisite
financing in light of the recent deteriorating financial performance of Jensen.
Based on these analyses, Lehman Brothers estimated the value of Jensen to be
approximately $5.00 to $7.50 per share of Jensen Common Stock.
OEM OPINION ANALYSES
ANALYSIS OF SELECTED PUBLICLY TRADED COMPARABLE COMPANIES. Using publicly
available information, Lehman Brothers compared selected financial data of the
OEM Business with similar data for companies engaged in businesses considered by
Lehman Brothers to be comparable to the OEM Business. Specifically, Lehman
Brothers included in its review two sets of automotive OEM companies: the
"Diversified OEM Company Universe," which included TRW Inc., Eaton Corp., Dana
Corporation, Magna International Inc., Coltec Industries, Inc. and MascoTech,
Inc. and the "Interior OEM Company Universe," which included Lear Seating
Corporation, Collins & Aikman Corporation, Gentex Corporation, O'Sullivan
Corporation, Masland Corp., Inc., Larizza Industries, Inc. and Douglas & Lomason
Company. Lehman Brothers calculated several standard industry market valuation
multiples for the Diversified OEM Company Universe and the Interior OEM Company
Universe and imputed a per share value for the OEM Business based on the
financial performance of the OEM Business for the latest twelve months ended
February 29, 1996 and on management's internal fiscal year 1997 projections
updated with preliminary financial information for the quarter ending May 31,
1996. Lehman Brothers determined that an approximate equity value of the OEM
Business based upon this analysis ranged from approximately $20.0 million to
$28.0 million. Because of the inherent differences between the business,
operations, size and prospects of the OEM Business and the businesses,
operations, size and prospects of the companies in the Diversified OEM Company
Universe and the Interior OEM Company Universe, Lehman Brothers believed that it
was inappropriate to, and therefore did not, rely solely on the quantitative
results of the analysis, and accordingly also made qualitative judgments
concerning differences between the financial and operating characteristics and
prospects of the OEM Business and the companies in the Diversified OEM Company
Universe and the Interior OEM Company Universe which would affect the public
trading values of the OEM Business and such comparable companies.
ANALYSIS OF SELECTED COMPARABLE TRANSACTIONS. Using publicly available
information, Lehman Brothers compared selected financial data, including Firm
Value as a multiple of sales, EBITDA and EBIT, for the OEM Business with similar
data for selected transactions in the automotive OEM industry to derive implied
price per share values. Although there have been numerous major announced
acquisitions in the automotive OEM industry since 1985, there were no recent
transactions for which there was sufficient information and which Lehman Brother
believed provided an adequate comparison to the OEM Business due to size and
similarity of operations. For these reasons, Lehman Brothers did not rely on the
analysis of selected comparable transactions as an appropriate analysis and
provided the analysis to the Jensen Board for illustrative purposes only.
DISCOUNTED CASH FLOW ANALYSIS. Lehman Brothers performed five and ten year
discounted cash flow analyses of the OEM Business utilizing a sensitivity of
current financial performance with respect to future financial performance of
the OEM Business. Specifically, Lehman Brothers assumed
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that for the fiscal years 1997-2001, the OEM Business would experience little or
no sales growth but would be able to maintain its current EBITA margin for the
twelve months ending May 31, 1996. In fiscal 2002, however, Lehman Brothers
assumed that the OEM Business would experience a 45% decline in sales, would
experience break even earnings, and would partially liquidate existing
inventory. The fiscal 2002 decline is predicted upon concerns arising from
recent discussions with Ford Motor Company, the OEM Business' largest customer.
After fiscal 2002, Lehman Brothers assumed that sales would increase as the OEM
Business would seek to fill its capacity while earnings would gradually recover.
Utilizing this set of projections, Lehman Brothers calculated the OEM Business'
unleveraged free cash flows over five and ten year periods. The cash flow
streams and terminal values then were discounted to present values using a range
of discount rates, which were chosen based on several assumptions regarding
factors such as the inflation rate, interest rates, the inherent business risk
of the OEM Business and the cost of capital. Lehman Brothers calculated terminal
values for the OEM Business by applying to projected EBITA a range of multiples
based on the analysis of the trading multiples of the Diversified OEM Company
Universe and the Interior OEM Company Universe and on Lehman Brothers' general
experience in mergers and acquisitions. For purposes of this analysis, Lehman
Brothers utilized annual discount rates of 11%, 13% and 15% and terminal
multiples of Jensen's EBITA in the fiscal years 2001 and 2006 of 6.0x, 7.0x, and
8.0x. Lehman Brothers determined that an equity value of the OEM Business based
on this analysis was approximately $17.0 million to $23.0 million.
LEVERAGED BUYOUT ANALYSIS. Lehman Brothers performed leveraged buyout
analyses of Jensen utilizing the same set of projections used in the discounted
cash flow analysis in order to calculate the theoretical maximum value that an
investor would pay in a leveraged buyout using current leveraged financing
market parameters. The parameters considered included, but were not limited to,
appropriate returns to equity holders over a five year horizon of at least 30%,
appropriate capital structure in the current financing environment, bank debt
paydown in no more than eight years and current market interest rates. However,
no consideration was given to institutions' willingness to provide requisite
financing in light of the financial performance of the OEM Business and concerns
related to business with Ford Motor Company. Based on this analysis, Lehman
Brothers estimated the value of the OEM Business to be approximately $2.25 to
$2.75 per share of Jensen Common Stock, or in the aggregate from approximately
$11.0 million to $15.0 million.
PROPOSED LOAN VALUE ANALYSIS. In the context of its review, Lehman Brothers
analyzed and considered Congress Financial's indication of loan value on a
liquidation basis of the OEM Business as part of the proposed Emerson
transactions. Specifically, Lehman Brothers considered the approximate $23.0
million that Congress Financial had informed Emerson it was willing to lend
against the OEM Business' assets as part of the transaction. This amount is
based upon the liquidation value of the OEM Business' fixed and working capital
assets and does not address how the OEM Business would satisfy other unsecured
creditors of its business. Lehman Brothers also noted that, as of March 31,
1996, the OEM Business had unsecured liabilities of approximately $8.0 million
which also would need to adequately be funded in the ordinary course of its
business.
PURCHASE PRICE FOR OEM BUSINESS. In evaluating the financial terms of the
sale of the OEM Business, Lehman Brothers took into account the total
consideration received by Jensen, directly or indirectly, in connection with the
sale of the OEM Business, including the $18.4 million cash consideration to be
paid by IJI Acquisition. Specifically, Lehman Brothers noted that as a condition
to Recoton's execution of the Merger Agreement, Mr. Shaw was required to waive
potential termination benefits under his 1991 Employment Agreement with Jensen.
Based upon estimates provided by management, Lehman Brothers determined that the
difference between Mr. Shaw's 1991 Employment Agreement with Jensen and his
employment agreement with Recoton is approximately $2.6 million. In addition,
Mr. Shaw will receive approximately $4.4 million less for his Jensen shares
pursuant to the Merger Agreement than he would have received if he received the
same price per share as the public stockholders. In total, Lehman Brothers
determined that Jensen was receiving consideration equivalent to approximately
$25.4 million.
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Lehman Brothers is an internationally recognized investment banking firm
and, as part of its investment banking activities, is regularly engaged in the
evaluation of businesses and their securities in connection with mergers and
acquisitions, negotiated underwritings, competitive bids, secondary
distributions of listed and unlisted securities, private placements, and
valuations for corporate, estate and other purposes. The Jensen Board selected
Lehman Brothers to act as its financial advisor because of its experience,
reputation and familiarity with the industry in general and because its
investment banking professionals have substantial experience in transactions
similar to the Merger and the sale of the OEM Business.
Pursuant to the terms of the Engagement Letter, Jensen has paid Lehman
Brothers $100,000 and has agreed to pay Lehman Brothers, upon consummation of
the Merger, a fee of 1.00% of the aggregate amount of consideration received by
Jensen and/or its stockholders in the Merger, plus the amount of any
indebtedness for money borrowed which is assumed less the $100,000 already paid
to Lehman Brothers by Jensen. Jensen also has agreed to reimburse Lehman
Brothers up to $50,000 for reasonable expenses incurred by Lehman Brothers in
performing its services, including the reasonable fees and expenses of its legal
counsel, and to indemnify Lehman Brothers and related persons against certain
liabilities that might arise out of Lehman Brothers' engagement. Lehman Brothers
may trade in the equity securities of Jensen and Recoton for its own account and
for the accounts of its customers and, accordingly, may at any time hold a long
or short position in such securities.
INTERESTS OF CERTAIN PERSONS IN THE MERGER
In considering the recommendation of the Jensen Board with respect to the
Merger Agreement and the transactions contemplated thereby, the stockholders of
Jensen should be aware that certain members of the management of Jensen and the
Jensen Board have certain interests in the Merger that are different from, or in
addition to, the interests of stockholders of Jensen generally.
OEM ASSET SALE. Robert G. Shaw, the Chairman, President and Chief Executive
Officer of Jensen, is the sole stockholder and Director of IJI Acquisition, the
corporation formed to acquire the assets of the OEM Business, immediately prior
to the Merger, pursuant to the OEM Agreement. SEE "THE OEM ASSET SALE -- THE OEM
AGREEMENT."
STOCK OPTION, VOTING AND SIMILAR AGREEMENTS. WBLCF, which holds
approximately 25.9% of the shares of Jensen Common Stock outstanding, has
entered into the Stock Option and Voting Agreement with Recoton, and Robert G.
Shaw, Chairman, President, and Chief Executive Officer of Jensen, who owns
approximately 36.8% of the outstanding Jensen Common Stock, has entered into the
Spread Agreement with Recoton. SEE "STOCK OPTION, VOTING AND SIMILAR
AGREEMENTS."
DIRECTORS AND OFFICERS OF RECOTON AND THE SURVIVING CORPORATION AFTER THE
MERGER. Following the Merger, Robert G. Shaw, Chairman, President and Chief
Executive Officer of Jensen and the sole stockholder, President and Director of
IJI Acquisition, the corporation which has agreed to purchase the OEM Assets
immediately prior to the Merger, will become a member of Recoton's and the
Surviving Corporation's Boards of Directors, serve as an executive officer of
Recoton, and become the President and Chief Executive Officer of the Surviving
Corporation. Mr. Shaw has entered into an employment agreement with Recoton. SEE
"EMPLOYMENT AGREEMENT OF ROBERT G. SHAW" below. Marc T. Tanenberg, Vice
President-Finance and Chief Financial Officer of Jensen, will become a member of
the Board of Directors and the Vice President and Chief Financial Officer of the
Surviving Corporation. Mr. Tanenberg has entered into a transitional employment
agreement with Jensen. SEE "TRANSITIONAL EMPLOYMENT AGREEMENTS" below. The other
Directors of the Surviving Corporation will be Robert L. Borchardt, Stuart Mont
and Joseph Massot and the other officers of the Surviving Corporation will be
Robert L. Borchardt as Chairman, Stuart Mont as Secretary and Joseph H. Massot
as Treasurer and Assistant Secretary. The Board and executive officers of
Recoton will remain as they were prior to the Merger except for the election of
Mr. Shaw to the Recoton Board and as an executive officer.
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Mr. Borchardt is the President, Co-Chairman and Co-Chief Executive Officer
and a Director of Recoton; Mr. Mont is the Executive Vice President-Operations,
Chief Operating Officer, Chief Financial Officer and Secretary and a Director of
Recoton; and Mr. Massot is the Vice President, Treasurer and Assistant Secretary
and a Director of Recoton.
EMPLOYEE STOCK OPTION PROGRAMS. Pursuant to the terms of the Jensen Stock
Option Plan (1989) (the "1989 Plan"), the Jensen 1991 Stock Incentive Plan (the
"1991 Plan") and the 1994 Jensen Stock Option and Purchase Plan for Non-Employee
Directors (the "1994 Plan") (together, the "Jensen Stock Option Plans"), the
approval of the Merger Agreement by the stockholders at the Special Meeting will
constitute an "Accelerating Event" resulting in all Jensen stock options under
the Jensen Stock Option Plans becoming exercisable in full.
Immediately prior to the Effective Time, each holder of then outstanding
options to purchase shares of Jensen Common Stock issued pursuant to the Jensen
Stock Option Plans (a "Jensen Stock Option") shall receive, in settlement of
such Jensen Stock Option being cancelled and terminated, a cash payment from
Jensen (the "Option Cancellation Payment"). The Option Cancellation Payment will
be in an amount (less any applicable withholding taxes) equal to the amount, if
any, by which $11.00 exceeds the exercise price per share of Jensen Common Stock
under such Jensen Stock Option multiplied by the number of shares of Jensen
Common Stock covered by such Jensen Stock Option, PROVIDED, HOWEVER, that the
Option Cancellation Payment payable to any such optionee shall not be less than
$50.00 (less any applicable withholding taxes). Jensen is obligated to use its
best efforts to cause each optionee to execute an agreement consenting to the
cancellation of such optionee's Jensen Stock Options. The directors and
executive officers of Jensen will be offered in the aggregate $130,750 in cash
in consideration of the cancellation and termination of the Jensen Stock Options
as set forth above.
Under the 1994 Plan, if a participant's service as a director with Jensen
terminates by reason of retirement from active service as a director of Jensen,
any option held by such participant may be exercised for a period of three years
from the date of such termination or until the expiration of the option,
whichever is shorter.
As of July 15, 1996, directors and executive officers of Jensen held
outstanding Jensen Stock Options to purchase 47,500 shares of Jensen Common
Stock under (i) the 1991 Plan at exercise prices ranging from $6.50 to $9.75 per
share and (ii) the 1994 Plan at exercise prices ranging from $8.50 to $9.75 per
share.
Donald W. Jenkins, a non-employee director who is a member of the Special
Committee, is a partner in a law firm which performs significant legal services
for Jensen. Jensen paid to such law firm $375,000 and $464,000 in legal fees
during fiscal 1995 and fiscal 1996, respectively.
In addition, certain directors of Jensen have elected to defer the receipt
of shares of Jensen Common Stock owed to them in lieu of directors' fees
pursuant to the 1994 Stock Option Plan. As of July 15, 1996, the number of
Deferred Shares held by such Deferred Holders was 12,018. Immediately prior to
the Effective Time, Jensen shall terminate each such director's right to receive
the Deferred Shares, and in consideration thereof, Jensen shall make a cash
payment to each Deferred Holder in an amount equal to the number of Deferred
Shares held by such Deferred Holder times $11.00. Jensen is obligated to use its
best efforts to obtain from each Deferred Holder an agreement consenting to the
cancellation and termination of such Deferred Holder's Deferred Shares.
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The following table sets forth information with respect to the number of
vested Jensen Stock Options, and the acceleration of exercisability of Jensen
Stock Options, held by the persons set forth below.
<TABLE>
<CAPTION>
NUMBER OF UNVESTED WEIGHTED
JENSEN STOCK OPTIONS AVERAGE
NUMBER OF AT JULY 1, 1996 EXERCISE PRICE
VESTED JENSEN TO BECOME PER SHARE OF
STOCK OPTIONS EXERCISABLE UPON VESTED AND
AT STOCKHOLDER APPROVAL UNVESTED JENSEN
NAME & TITLE JULY 1, 1996 OF THE MERGER STOCK OPTIONS
- ------------------------------ --------------- -------------------- ---------------
<S> <C> <C> <C>
David G. Chandler ............ 2,333 2,667 $ 9.2000
Director
Donald W. Jenkins ............ 2,333 2,667 $ 9.2000
Director
Robert H. Jenkins ............ 6,000 3,000 $ 8.7917
Director
Norman H. McMillan ........... 6,000 3,000 $ 8.8750
Director
Marc T. Tanenberg ............ 9,333 10,167 $ 7.2179
Vice President Finance &
Chief Financial Officer
</TABLE>
EMPLOYEE BENEFIT PLANS. The Merger Agreement provides that the Surviving
Corporation will cause to remain in effect for a period of one year after the
consummation of the Merger for the current employees of Jensen, so long as such
persons continue after the Effective Time to hold positions as employees with
the Surviving Corporation, the same employee benefits that are currently in
effect at Jensen, or similar employee benefits on substantially the same terms
and conditions as the Jensen plans, including, but not limited to, health care
and life insurance, pension and retirement benefits and vacation and sick pay.
Thereafter, the Surviving Corporation shall provide a benefits package at least
comparable to the benefit package provided by Recoton to its own employees.
Recoton and the Surviving Corporation have agreed to use their best efforts to
insure that employees of the Surviving Corporation shall not be subject to any
waiting periods or pre-existing condition restrictions under employee benefit
plans offered by Recoton or the Surviving Corporation to the extent that such
periods are longer or such periods impose a greater limitation than the periods
or limitations imposed under employee benefit plans currently offered by Jensen.
Employees of the Surviving Corporation shall be given credit for prior service
with Jensen for purposes of crediting periods of service for eligibility and
vesting of all such substitute employee benefits offered by Recoton or the
Surviving Corporation.
INDEMNIFICATION. The Merger Agreement provides that, to the extent
permitted by applicable law, all rights to indemnification from Jensen or any
subsidiary of Jensen now existing in favor of the directors, officers, employees
or agents of Jensen and any subsidiary of Jensen as provided in their respective
certificates of incorporation or charters, as the case may be, or by-laws, as in
effect on the date of the Merger Agreement, shall survive the Merger and shall
continue in full force and effect and be honored by Recoton, RC Acquisition Sub
and the Surviving Corporation for a period of not less than five years from the
Effective Time; PROVIDED, HOWEVER, that in the event any claim is asserted or
made within such five-year period, all such rights shall continue with respect
to such claim until final disposition of such claim.
DIRECTORS' AND OFFICERS' LIABILITY INSURANCE. Recoton and RC Acquisition
Sub will use their best efforts, and will cause the Surviving Corporation to use
its best efforts, to cause to be maintained in effect a tail, for not less than
three years from the Effective Time, on the current policies of directors' and
officers' liability insurance maintained by Jensen and the subsidiaries of
Jensen (provided that
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the Surviving Corporation or RC Acquisition Sub may substitute therefor policies
of at least the same level of coverage containing terms and conditions which are
in the aggregate no less advantageous so long as no lapse in coverage occurs as
a result of such substitution) with respect to all matters, including the
transactions contemplated by the Merger Agreement, occurring prior to and
including the Effective Time. Notwithstanding the foregoing, neither Recoton, RC
Acquisition Sub nor the Surviving Corporation shall be required to expend in
excess of $150,000 in the aggregate to satisfy the obligations contained in this
paragraph.
EMPLOYMENT AGREEMENT OF ROBERT G. SHAW. Robert G. Shaw will serve as an
executive officer of Recoton and President and Chief Executive Officer of the
Surviving Corporation after the Effective Date pursuant to the Shaw Employment
Agreement which provides for his employment for a period of two years. Mr. Shaw
also will be a Director of Recoton.
Mr. Shaw's base salary will be $300,000 per year, plus an annual guaranteed
bonus of $150,000. In addition, Mr. Shaw's agreement provides for a
discretionary performance-based bonus to be awarded by the Recoton Board of
Directors. Mr. Shaw also receives a two-year "evergreen" severance package in an
amount equal to his base compensation plus his guaranteed bonus. Mr. Shaw's
employment agreement also entitles him to a stock option grant pursuant to the
Recoton Corporation 1991 Stock Option Plan to purchase 50,000 Recoton Common
Shares at the market price for Recoton Common Shares on the date of the grant,
such options to vest in five equal annual installments. Mr. Shaw will receive a
benefits package substantially the same as his current benefits package with
Jensen, except that Recoton will terminate or assign to IJI Acquisition key-man
insurance policies with aggregate death benefits totalling $16.5 million.
Recoton will pay the premiums on a life insurance policy owned by the Robert G.
Shaw 1991 Irrevocable Trust dated February 7, 1991 (the "RGS Trust") in the
principal amount of $2.5 million and currently maintained by Jensen.
If Mr. Shaw's employment is terminated by Recoton without cause, Mr. Shaw
will receive one-half of his severance payments on the effective date of
termination and the remaining one-half of the severance payments in equal
monthly installments over a 24-month period. In addition, all unvested options
will vest immediately. Recoton also will pay the premiums for COBRA coverage for
Mr. Shaw and his dependents, as well as the premiums on the RGS Trust life
insurance policy for two years following termination without cause. The Shaw
Employment Agreement includes a non-competition and non-solicitation covenant
which will apply during the term of Mr. Shaw's employment and for the period in
which Mr. Shaw is receiving severance benefits subject to certain exceptions.
The Shaw Employment Agreement also includes certain confidentiality provisions.
TRANSITIONAL EMPLOYMENT AGREEMENTS. On or about November 9, 1995, the
Company entered into Transitional Employment Agreements with certain of its
employees including Marc T. Tanenberg. Each such agreement would become
effective upon the occurrence of a "Change of Control" (as therein defined). The
Merger will constitute a Change of Control under such agreements. However, if
the applicable executive's employment is terminated or the executive ceases to
be an officer of Jensen before a Change of Control but the executive reasonably
demonstrates that the prior change was connected with or in anticipation of the
Change of Control and not based on substandard performance, then the agreement
will be effective immediately prior to such termination or loss of status as an
officer.
Each Transitional Employment Agreement establishes an employment period
beginning with the date of the Change of Control and ending on the second
anniversary of that date. Under the agreement (i) the executive's position,
authority, duties and responsibilities during the employment period are required
to be at least commensurate in all material respects with the most significant
of those at any time during the 90-day period immediately preceding the Change
of Control; (ii) the executive's services are required to be based at the same
location as prior to the Change of Control or at another location which is the
headquarters of Jensen and is within 35 miles of the prior location; (iii)
annual base salary and bonus opportunities must be at least equal to the annual
base salary and bonus opportunities
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currently in place; and (iv) the executive is entitled to participate in all
incentive savings and retirement plans and all welfare benefit plans and is
entitled to expense reimbursement, fringe benefits, office and support staff and
paid vacations on a basis not less favorable than currently in place.
During the employment period the executive may terminate employment for
"Good Reason" (as therein defined) and become entitled to receive the severance
benefits described below. Good Reason includes assignment of duties inconsistent
with the executive's position or a substantial diminution of the executive's
position, authorities, duties or responsibilities; any substantial failure by
Jensen to comply with its compensation obligations to the executive; Jensen
requiring the executive to be based at a location other than as described above;
any purported termination by Jensen of the executive's employment other than for
cause or disability; or any failure by Jensen to have a successor entity assume
all of the obligations under the Transitional Employment Agreement. If during
the employment period Jensen terminates the executive's employment other than
for cause or for disability or the executive terminates employment for Good
Reason, (i) the executive is entitled to a lump sum equal to executive's unpaid
base salary through the date of termination, any compensation previously
deferred by the executive, any accrued vacation pay and a severance amount equal
to the sum of the executive's current annual base salary and a full annual
bonus, (ii) the agreement provides for continuation of the executive's
employment under any stock option plans or other equity incentive plans or
programs of Jensen for purposes of determining the date on which any option or
similar rights become exercisable or expire and the date on which any stock
restrictions lapse, and (iii) for one year after such termination, Jensen is
required to provide certain welfare plan coverage for the executive and/or the
executive's family. The agreement also provides for certain benefits upon
termination of the employment of the executive by death or disability. The
agreement also provides that after termination of employment, the executive is
required to maintain the confidentiality of all secret or confidential
information related to Jensen and to refrain from accepting employment or
otherwise providing service to a competing entity or from soliciting employees
to leave Jensen for a period of one year following the termination of employment
for any reason.
BONUSES TO JENSEN OFFICERS. The Jensen Board has approved bonuses to two
officers of Jensen in the aggregate amount of $100,000 (including $50,000
payable to Marc T. Tanenberg, Chief Financial Officer of Jensen), payable upon
the sale of Jensen.
CONVERSION OF SHARES OF JENSEN COMMON STOCK
Upon consummation of the Merger, all shares of Jensen Common Stock
outstanding immediately prior to the Effective Time (other than Jensen Treasury
Stock, shares owned by Recoton or Dissenters' Shares) will be converted into the
right to receive cash in the amount of $11.00 per share (or $8.90 per share in
the case of shares held beneficially by the Principal Stockholders).
At the Effective Time, all shares of Jensen Common Stock will be canceled
and cease to exist, and all Jensen Treasury Stock will be canceled and retired
without payment of any consideration therefor.
The Merger Agreement provides that Recoton and Jensen will cause the
Effective Time to occur as promptly as practicable after the approval of the
Merger Agreement by the Stockholders and the satisfaction (or waiver, if
permissible) of the other conditions set forth in the Merger Agreement.
Accordingly, if all other conditions have been met or, if permissible, waived,
the Effective Time could occur on the same day as approval of the Merger by the
Stockholders is obtained.
EXCHANGE PROCEDURES
Promptly after the Effective Time, Recoton will send, or will cause a bank
or trust company designated by Recoton (the "Exchange Agent") to send, to each
holder of record of a certificate or certificates which immediately prior to the
Effective Time represented outstanding shares of Jensen Common Stock, a letter
of transmittal with instructions for use in effecting the surrender of
certificates for payment of the Merger Consideration (the "Exchange
Instructions"). CERTIFICATES
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SHOULD NOT BE SURRENDERED BY THE HOLDERS OF JENSEN COMMON STOCK UNTIL SUCH
HOLDERS RECEIVE THE LETTER OF TRANSMITTAL AND EXCHANGE INSTRUCTIONS.
Each holder of certificates representing shares of Jensen Common Stock that
have been converted into a right to receive the Merger Consideration, upon
surrender to the Exchange Agent of a certificate or certificates representing
such shares, together with a properly completed and executed letter of
transmittal covering such shares and any other documents reasonably required by
the Exchange Agent, will promptly receive the Merger Consideration payable in
respect of such shares of Jensen Common Stock, without any interest thereon,
less any required withholding of taxes, and the certificates so surrendered will
be canceled. Until so surrendered, each such certificate will, at and after the
Effective Time, represent for all purposes only the right to receive the Merger
Consideration.
If any portion of the Merger Consideration is to be paid to a person other
than the registered holder of the shares of Jensen Common Stock represented by
the certificate or certificates surrendered in exchange, the certificate or
certificates so surrendered must be properly endorsed or otherwise be in proper
form for transfer and the person requesting such payment must pay to the
Exchange Agent any transfer or other taxes required as a result of such payment
to a person other than the registered holder of such shares of Jensen Common
Stock or establish to the satisfaction of the Exchange Agent that such tax has
been paid or is not payable. The Exchange Agent may make any tax withholdings
required by law if not provided with the appropriate documents.
At the Effective Time, the stock transfer books of Jensen will be closed and
there will be no further registration of transfers of shares of Jensen Common
Stock on or after the Effective Time on the records of Jensen. On or after the
Effective Time, any certificates presented to the Exchange Agent, Recoton or the
Surviving Corporation for any reason shall be converted into the Merger
Consideration.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following discussion summarizes the material federal income tax
considerations relevant to the Merger that are generally applicable to holders
of Jensen Common Stock who hold their shares as capital assets. The discussion
does not purport to deal with persons in special tax situations, such as
financial institutions, insurance companies, tax-exempt entities, non-resident
aliens, or foreign corporations. This discussion is based on currently existing
provisions of the Internal Revenue Code of 1986, as amended, existing and
proposed Treasury Regulations thereunder and current administrative rulings and
court decisions, all of which are subject to change. Any such change, which may
or may not be retroactive, could alter the tax consequences to Jensen
stockholders as described herein.
The receipt by the stockholders of cash, in the Merger or through the
exercise of appraisal rights, for shares of Jensen Common Stock will be a
taxable transaction for federal income tax purposes. Each stockholder's gain or
loss per share will be equal to the difference between the proceeds per share
received as a result of the Merger or exercise of appraisal rights and the
stockholder's tax basis per share in the Jensen Common Stock. If a stockholder
holds the Jensen Common Stock as a capital asset, the gain or loss from the
exchange will be a capital gain or loss. This gain or loss will be long term if
the stockholder's holding period is more than one year.
Capital losses are deductible against capital gains recognized in the year
plus, for noncorporate taxpayers, up to $3,000 of ordinary income for such year.
Capital losses which exceed this limit may be carried forward to future tax
years, subject to the same limitation being applied in such years.
For shares of Jensen Common Stock which were acquired through the exercise
of employee qualified stock options and which have not been held for a period of
two years since the option was granted and a period of one year since the option
was exercised and other shares that are not held as capital assets, gain on such
shares will be subject to federal income tax at ordinary income tax rates.
In transactions which are not structured similarly to the Merger, the
Service has asserted that a stockholder who voluntarily receives less
consideration for his shares than other stockholders is
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deemed to have received the average consideration paid for all shares of that
class. If the Service were to extend that position to the Merger, the Service
may assert that the amount of cash into which the Jensen Common Stock is
converted must be treated as received by all the Jensen stockholders on a pro
rata basis and that the Principal Stockholders will then be deemed to make a
payment of a portion of the Merger Consideration to the public stockholders. If
this characterization of the Merger were advanced by the Service and upheld, the
public stockholders would be treated as receiving less consideration for their
Jensen Common Stock than they actually receive (which could result in a capital
loss being recognized as a result of the exchange) and the difference would
possibly be treated as transferred by the Principal Stockholders to the public
stockholders, possibly resulting in ordinary income to the public stockholders
to the extent of such payment.
Unless an exemption applies, the Exchange Agent will be required to withhold
31% of the Merger Consideration payable to a holder of Jensen Common Stock or
other payee unless such stockholder or other payee provides the Exchange Agent
with his, her or its taxpayer identification number (in the case of an
individual, a social security number) and certifies certain other information.
The letter of transmittal that will be mailed to Jensen stockholders following
consummation of the Merger will contain a form that may be completed by each
stockholder and other payee to provide the information and certification
necessary to avoid this withholding requirement.
THE FOREGOING TAX DISCUSSION IS INCLUDED FOR GENERAL INFORMATION ONLY AND IS
BASED UPON PRESENT FEDERAL INCOME TAX LAW. EACH STOCKHOLDER SHOULD CONSULT SUCH
STOCKHOLDER'S OWN TAX ADVISOR AS TO THE SPECIFIC TAX CONSEQUENCES OF THE MERGER
TO SUCH STOCKHOLDER, INCLUDING THE APPLICATION AND EFFECT OF FEDERAL, STATE,
LOCAL AND OTHER TAX LAWS AND THE POSSIBLE EFFECT OF CHANGES IN SUCH TAX LAWS.
SPECIAL RULES APPLY TO JENSEN COMMON STOCK RECEIVED PURSUANT TO THE EXERCISE OF
EMPLOYEE STOCK OPTIONS OR OTHERWISE AS COMPENSATION.
REGULATORY CONSIDERATIONS
Under the Merger Agreement, the parties' respective obligations to
consummate the Merger are subject to the expiration or termination of the
requisite waiting periods under the Hart-Scott-Rodino Antitrust Improvements
Act. Pursuant to the HSR Act and the rules promulgated thereunder, on or about
February 23, 1996, Recoton and Jensen filed notification and report forms under
the HSR Act regarding the Merger. The 30-day waiting period expired on or about
March 25, 1996 and no inquiries were received from either the Federal Trade
Commission or the Department of Justice.
The consummation of the transactions contemplated by the Merger Agreement is
not subject to compliance with any pre-merger notification or waiting period in
any jurisdiction outside the U.S., but is subject to there being no Regulatory
Prohibition, or law, regulation, order, decree or injunction then in effect
binding on either Recoton or Jensen that would prevent the consummation of the
Merger or make it illegal and the violation of which would have a material
adverse consequence to either party. There can be no assurance that a
proceeding, investigation or action will not be commenced by regulating
authorities or other persons in foreign jurisdictions with respect to the
transfer of ownership of some or all of the Jensen subsidiaries or their
marketing rights or other assets, whether before or after the Effective Time.
OTHER CONDITIONS TO THE CONSUMMATION OF THE MERGER
In addition to the requisite approval of the Merger Agreement by the
stockholders and satisfaction of the conditions described above under the
subheading "REGULATORY CONSIDERATIONS," the consummation of the Merger is
subject to the satisfaction or waiver of the following joint conditions
(excluding conditions already satisfied):
- the absence of injunctions or other orders or decrees to prevent the
consummation of the Merger;
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- the absence of government provisions or prohibitions to, including
statutes, rules and regulations enacted by state, federal or foreign
governments, prevent the consummation of the Merger or that would have a
material adverse effect on the prospects of the Surviving Corporation
unacceptable to Recoton; and
- receipt of all legally-required government consents and approvals on
terms reasonably acceptable to Recoton.
Jensen may elect not to perform under the Merger Agreement if, among others:
- Recoton or RC Acquisition Sub have not performed in all material respects
or to the representations and warranties of such party are not true in
all material respects as of the date of the Merger Agreement and the
Effective Time as if made on and as of such dates;
- Jensen has not received a legal opinion from Recoton's counsel; or
- Recoton has not deposited the cash for the Aggregate Merger Consideration
into the Exchange Fund for Jensen stockholders.
Recoton and RC Acquisition Sub may elect not to perform under the Merger
Agreement if, among others:
- Jensen has not performed in all material respects or to the
representations and warranties of such party are not true in all material
respects as of the date of the Merger Agreement and the Effective Time as
if made on and as of such dates;
- Recoton and RC Acquisition Sub have not received a legal opinion from
Jensen's counsel;
- Recoton and RC Acquisition Sub have not received a comfort letter from
Jensen's accountants;
- there shall have been a material adverse effect to Jensen;
- Jensen shall not have closed on the OEM Agreement;
- Jensen's environmental liabilities exceed $5 million; or
- greater than 10% of Jensen's stockholders dissent to the Merger.
No assurance can be given as to whether or when all of the conditions to the
Merger can or will be satisfied. Except as limited by applicable law, any party
to the Merger Agreement may waive any of the conditions to such party's
obligations thereunder. SEE "THE MERGER -- AMENDMENT, WAIVER AND TERMINATION --
WAIVER."
REPRESENTATIONS AND WARRANTIES
The Merger Agreement contains various customary representations and
warranties relating to, among other things, (i) each of Recoton's and Jensen's
subsidiaries' organization and similar corporate matters; (ii) Jensen's and its
subsidiaries' capital structures; (iii) delivery of certain corporate documents;
(iv) authorization, execution, delivery, performance and enforceability of the
Merger Agreement and the additional agreements and related matters; (v) absence
of undisclosed Jensen liabilities; (vi) pending or threatened litigation
affecting Jensen; (vii) required governmental and third-party consents,
approvals and authorizations affecting Jensen; (viii) financial statements of
Jensen; (ix) liens on assets and principal properties of Jensen; (x) documents
filed by Jensen with the Commission and the accuracy of information contained
therein; (xi) absence of certain material changes affecting Jensen through the
Effective Time; (xii) validity of permits, certificates, approvals and other
authorizations of governmental authorities necessary to operate Jensen's
business, and compliance with laws generally; (xiii) tax matters relating to
Jensen; (xiv) Jensen's employee benefit plans; (xv) Jensen's material
agreements; (xvi) Jensen's patents, trademark and trade name registrations and
copyright registrations; (xvii) brokers used in connection with the Merger;
(xviii) the accuracy of information supplied by Recoton and Jensen,
respectively, in connection with this Proxy
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Statement; and (xix) the accuracy of the representations and warranties and
other information set forth in the Merger Agreement and any schedule or exhibit
thereto by Jensen and Recoton, respectively.
FINANCING THE ACQUISITION AND RELATED EXPENSES; CAPITAL NEEDS
It is expected that the total cash to be paid to the stockholders of Jensen
will be funded through cash available at the time such cash is paid, through
existing credit facilities and through new borrowings from one or more of
Recoton's and/or Jensen's current lenders. The proceeds from the sale of the OEM
Business will be applied to the reduction of Jensen's outstanding indebtedness
under its existing credit facility and term loan and will not be used to pay
stockholders of Jensen.
The consummation of the Merger and the OEM Asset Sale will give the lenders
under the current multicurrency revolving credit facility which Jensen has with
Harris Trust and Savings Bank and certain other banks for $35 million, under
which approximately $20 million is currently borrowed, and the note agreement
with Massachusetts Mutual Life Insurance Company, under which approximately $15
million is owed, the right to require payment in full of outstanding borrowings.
At May 31, 1996, Jensen was not in compliance with the interest and rent
coverage ratio requirements of such agreements. If the lenders were to exercise
their rights, an additional amount up to $36 million will be necessary to
replace such financing, which includes prepayment fees.
Recoton has delivered to Jensen copies of commitment letters for the
financing of the Merger Consideration and to replace certain existing credit
facilities of Jensen.
AMENDMENT, WAIVER AND TERMINATION
AMENDMENT. The Merger Agreement may be amended by the parties at any time
before or after approval by the stockholders of Jensen, PROVIDED, HOWEVER, after
any such approval by the stockholders of Jensen, no amendment is permitted which
changes the Merger Consideration or principal terms of the Merger Agreement.
WAIVER. At any time prior to the Effective Time the parties may (a) extend
the time for the performance of any of the obligations or other acts of the
other parties hereto, (b) waive any inaccuracies in the representations and
warranties contained in the Merger Agreement or in any document delivered
pursuant thereto or (c) waive compliance with any of the agreements or
conditions contained in the Merger Agreement.
TERMINATION. The Merger Agreement may be terminated at any time prior to
the Effective Time, whether before or after approval by the stockholders:
- by mutual written consent of RC Acquisition Sub and Jensen; or
- by either RC Acquisition Sub or Jensen if (i) the Merger shall not have
been consummated on or before the Termination Date of September 2, 1996
(or such later date as may be designated by Recoton (but in no event
later than March 31, 1997)), (ii) the requisite vote of the stockholders
to approve the Merger Agreement and the transactions contemplated thereby
shall not be obtained at the Special Meeting, or any adjournments
thereof, (iii) any governmental or regulatory body, the consent of which
is a condition to the obligations of RC Acquisition Sub and Jensen to
consummate the transactions contemplated thereby, shall have determined
not to grant its consent and any appeals of such determination shall have
been taken and have been unsuccessful or such body shall have imposed
conditions or limitations on its consent that would have a material
adverse effect on the prospects of the Surviving Corporation unacceptable
to Recoton and any appeals from such imposition shall have been taken and
have been unsuccessful, or (iv) any court of competent jurisdiction in
the United States, or any state or any country in which there is a
subsidiary of Jensen, shall have issued an order, judgment or decree
(other than a temporary restraining order) restraining, enjoining or
otherwise prohibiting the Merger and such order, judgment or decree shall
have become final and nonappealable; or
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- by RC Acquisition Sub (i) if the Board of Directors of Jensen shall have
withdrawn or modified in a manner adverse to RC Acquisition Sub its
approval or recommendation of the Merger, the Merger Agreement or the
transactions contemplated thereby or shall have failed to reaffirm such
approval or recommendation upon RC Acquisition Sub's request, or shall
have resolved to do any of the foregoing, (ii) if Jensen or any other
person acting at Jensen's behest takes any of the actions that would be
proscribed by the Merger Agreement provision on the conduct of Jensen's
business pending the merger, unless such actions were required to be
taken by fiduciary duty upon advice of counsel, (iii) if there has been
(x) a material breach of any covenant or agreement in the Merger
Agreement on the part of Jensen which has not been cured or adequate
assurance of cure given, in either case within five business days
following receipt of notice of such breach, or (y) a representation or
warranty of Jensen in the Merger Agreement is or becomes untrue or
incorrect in a material respect which representation or warranty by its
nature cannot be made true and correct in all material respects prior to
the Termination Date or is not made true and correct prior to the
Termination Date, (iv) if (x) Jensen enters into an agreement with any
corporation, partnership, person, other entity or group (as defined in
Section 13(d)(3) of the Exchange Act) other than Recoton or RC
Acquisition Sub whereby such entity or group would directly or indirectly
acquire all or any substantial part of the assets or capital stock of
Jensen, whether by merger, share exchange, purchase of assets,
consolidation, tender offer or otherwise (other than with regard to the
OEM Business) or (y) any third party commences a tender or exchange offer
for 25% or more of Jensen Common Stock and the Jensen Board does not
recommend, or ceases to recommend, to Jensen's stockholders that they
reject such offer, or (v) if any third party commences a tender or
exchange offer for 25% or more of Jensen Common Stock and shares have
been tendered thereto in an amount equal to the minimum amount for which
the third party conditioned such a tender or exchange; or
- by Jensen if there has been (x) a material breach of any covenant or
agreement in the Merger Agreement on the part of RC Acquisition Sub or
Recoton which has not been cured or adequate assurance of cure given, in
either case within five business days following receipt of notice of such
breach or (y) a representation or warranty of Recoton or Acquisition Sub
in the Merger Agreement is or becomes untrue or incorrect in a material
respect which representation or warranty by its nature cannot be made
true and correct in all material respects prior to the Termination Date
or is not made true and correct prior to the Termination Date; or
- automatically, if the Jensen Board shall recommend a Jensen Acquisition
Transaction or authorize or approve the entering into by Jensen of a
Jensen Acquisition Transaction.
EXTENSION OF TERMINATION DATE. If prior to the date of the Closing (the
"Closing Date"), (i) any preliminary or permanent injunction or other order or
decree by any federal or state court which prevents the consummation of the
Merger shall have been issued, and remains in effect (each party having agreed
to use all reasonable efforts to have any such injunction, order or decree
lifted); (ii) any action shall have been taken, or any statute, rule or
regulation shall have been enacted, by any state, federal or foreign government
or governmental agency which would prevent the consummation of the Merger or
that would have a material adverse effect on the prospects of the Surviving
Corporation; or (iii) any governmental consents and approvals legally required
for the consummation of the Merger and the transactions contemplated hereby,
including, without limitation, approval (if required) by the Department of
Justice, Federal Trade Commission and the Commission, shall not have been
obtained or not be in effect at the Effective Time on terms and conditions that
would not have a material adverse effect on the prospects of the Surviving
Corporation, the Termination Date shall be extended at the option of any party
to the Merger Agreement for a period of up to 120 days and, at Recoton's further
option, for up to an additional 60 days. If, at the end of such 120-day period
(or, if applicable, such additional 60-day period), the matters referred to in
(i), (ii) or (iii) shall not have been satisfied to each party's reasonable
satisfaction, either party may terminate the Merger Agreement in accordance with
its termination provisions.
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PAYMENTS AND OTHER RIGHTS UPON TERMINATION
If the Merger Agreement is terminated pursuant to its terms, or if there is
a breach of any obligation or failure to satisfy any condition to the Merger
(including the willful failure of either party to proceed), neither Recoton nor
Jensen nor any of their affiliates are liable to the other except as described
below.
If the Merger Agreement is terminated for any reason, and Recoton has not
exercised its option to purchase the AR Marks pursuant to the AR Agreement for
$3.5 million (SEE "OTHER JENSEN AND RECOTON AGREEMENTS"), then Jensen may
exercise its right under the AR Agreement to sell to Recoton the AR Marks for
$3.5 million. It is Jensen's intention to immediately exercise its right to sell
such trademarks to Recoton if the Merger Agreement is terminated for any reason.
Payments due under the AR Agreement or any other agreements between Recoton (or
any affiliate thereof) and Jensen (or any affiliate thereof), including the
payment of any termination fee under the Merger Agreement, may, at the election
of either party, be set off against each other.
Jensen is obligated to pay Recoton a breakup fee of $1,500,000 plus an
amount equal to Recoton's expenses not to exceed $2,500,000 if termination of
the Merger Agreement should arise due to any of the following events:
(i) The Jensen Board recommends a Jensen Acquisition Transaction or
authorizes or approves the entering into by Jensen of a Jensen Acquisition
Transaction;
(ii) Jensen's failure to deliver legal opinions from its lawyers,
comfort letters from its auditors or an officer's certificate as to the
accuracy of its representations and warranties, provided that Jensen did not
diligently seek to fulfill or cause others to fulfill these conditions;
(iii) Failure to close the OEM Asset Sale provided that this condition
was not satisfied because IJI Acquisition exercised a right to terminate the
OEM Agreement because of a willful material breach of the OEM Agreement by
Jensen;
(iv) Failure to obtain Jensen stockholder approval of the Merger provided
that contemporaneous with the Special Meeting there shall be outstanding a
competing Jensen Acquisition Transaction proposed by a third party other
than Recoton or RC Acquisition Sub;
(v) If the Jensen Board shall have withdrawn or modified in a manner
adverse to Recoton its approval or recommendation of the Merger, the Merger
Agreement or the transactions contemplated thereby or have failed to
reaffirm such approval or recommendation upon Recoton's request, or shall
have resolved to do any of the foregoing;
(vi) If Jensen or certain other affiliated persons or entities shall have
taken any of the actions that would proscribed by the "no shop" provisions
of the Merger Agreement but for the proviso therein allowing certain actions
to be taken if required by fiduciary duty upon advice of counsel;
(vii) If there has been a willful material breach of any covenant or
agreement in the Merger Agreement on the part of Jensen which has not been
cured, including, but not limited to, a failure to proceed diligently to
obtain approval of the Proxy Statement by the Commission and failure to
proceed diligently to lift any injuction barring completion of the Merger;
or
(viii) If Jensen enters into an agreement with any other person, entity or
group other than Recoton whereby such entity or group would directly or
indirectly acquire all or any substantial part of the assets or capital
stock of Jensen, whether by merger, share exchange, purchase of assets,
consolidation, tender offer or otherwise (other than with regard to the OEM
Business) or any third party commences a tender or exchange offer for 25% or
more of Jensen Common Stock and the Jensen Board does not recommend, or
ceases to recommend to the Jensen stockholders that they reject such offer,
or such tender or exchange offer is successful.
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Jensen is obligated to pay Recoton an amount equal to Recoton's expenses not
to exceed $2,500,000 if termination of the Merger Agreement should arise due to
any of the following events:
(i) The Merger shall not have been consummated by the Termination Date
and the Special Meeting has not been held by such Termination Date (as such
Termination Date may be extended);
(ii) Jensen's failure to obtain stockholder approval of the Merger
provided that contemporaneous with the Special Meeting there shall be no
outstanding competing Jensen Acquisition Transaction proposed by a third
party other than Recoton or RC Acquisition Sub;
(iii) Jensen's failure to deliver legal opinions from its lawyers, or
comfort letters from its auditors provided that Jensen diligently sought to
fulfill or to cause others to fulfill these conditions;
(iv) Jensen's failure to obtain a fairness letter from its financial
advisor or failure to obtain HSR Act approvals and any comparable European
approvals; or
(v) Jensen's failure to consumate the OEM Asset Sale provided that this
condition was not satisified because IJI Acquisition exercised a right to
terminate for failure to satisify a condition under the OEM Agreement other
than the financing condition and Jensen had not otherwise willfully and
materially breached the OEM Agreement;
PROVIDED, HOWEVER, if Jensen is required to make any payment to Recoton
pursuant to the termination events set forth in this paragraph and within
one year following the date of termination of the Merger Agreement (A) the
Jensen Board recommends or approves a Jensen Acquisition Transaction by or
with a third party other than Recoton or RC Acquisition Sub, or enters into
or consummates an agreement with respect to any merger, sale of all or
substantially all the assets or shares of Jensen Common Stock, or one of a
series of similar transactions involving Jensen and/or its subsidiaries
having a comparable effect on Jensen taken as a whole; (B) any third party
commences a tender or exchange offer for 25% or more of Jensen Common Stock
and the Jensen Board does not recommend or ceases to recommend to Jensen's
stockholders that they reject such offer; or (C) a third party succeeds in
acquiring by tender offer or exchange offer 25% or more of the Jensen Common
Stock (item (A), (B) and (C) are collectively referred to herein as a "Post
Termination Transaction"), then Jensen shall pay to Recoton a fee of
$1,500,000 within five business days of the first to occur of any Post
Termination Transaction.
Neither Jensen nor Recoton is obligated to pay the other a fee or expenses
if termination of the Merger Agreement should arise due to either of the
following events:
(i) Failure to resolve the lack of governmental clearances or failure to
lift an injunction within the period ending on the extended Termination Date
(as described above under "-- EXTENSION OF TERMINATION DATE") provided that
the parties terminating the Merger Agreement shall have diligently sought to
satisfy these conditions; or
(ii) Existence of an injunction preventing the Merger, provided that the
party terminating the Merger Agreement shall have diligently sought to
satisfy this condition;
PROVIDED, HOWEVER, that if within one year following the date of termination of
the Merger Agreement pursuant to the events set forth in this paragraph, Jensen
enters into a Post Termination Transaction, then Jensen shall pay Recoton a fee
of $1,500,000 plus Recoton's expenses not to exceed $2,500,000.
Neither Recoton nor Jensen is obligated to pay the other a fee or expenses
if termination should arise due to any of the following events:
(i) Any governmental or regulatory body, the consent of which is a
condition of the obligations of Recoton and Jensen to consummate the
transactions contemplated, shall have determined not to grant its consent
and any appeals of such determination shall have been taken and have been
unsuccessful or such body shall have imposed conditions or limitations on
its consent
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that would have a material adverse affect on the prospects of the Surviving
Corporation unacceptable to Recoton and any appeals from such imposition
shall have been taken and have been unsuccessful;
(ii) If the number of Dissenters' Shares exceeds 10% of the Jensen
Common Stock;
(iii) If there has been a material breach of any covenant or agreement in
Merger Agreement on the part of Jensen which has not been cured, provided
that the breach was not willful;
(iv) If Jensen shall have suffered a material adverse effect on its
business; or
(v) If there has been a material breach of any covenant or agreement in
the Merger Agreement on the part of Recoton which has not been cured,
provided that the breach was not willful.
Recoton is obligated to pay Jensen a fee of $1,500,000 plus Jensen's
expenses not to exceed $2,500,000 if termination of the Merger Agreement should
arise due to any of the following events:
(i) Recoton's failure to deliver legal opinions from its lawyers, or an
officer's certificate as to the accuracy of its representations and
warranties, provided that Recoton did not diligently seek to fulfill or
cause others to fulfill these conditions;
(ii) Recoton's failure to irrevocably deliver the cash to the Exchange
Fund; or
(iii) If there has been a willful material breach of any covenant or
agreement in the Merger Agreement on the part of Recoton which has not been
cured, including, but not limited to, failure to proceed diligently to seek
the lifting of any injunction barring completion of the Merger.
Recoton is obligated to pay to Jensen an amount equal to Jensen's expenses
not to exceed $2,500,000 if termination should arise due to Recoton's failure to
deliver the legal opinions from its lawyers provided that Recoton diligently
sought to fulfill or cause others to fulfill this condition.
The Jensen Board does not consider the payment of any termination fee by
Jensen to Recoton to have a potential material adverse effect given the
intention of Jensen to immediately exercise its rights to sell the AR Marks to
Recoton, as set forth above.
PENDING LITIGATION
On May 9, 1996, a stockholder of Jensen filed an action in the Court of
Chancery of the State of Delaware against Jensen, its directors, Recoton, RC
Acquisition Sub, IJI Acquisition, William Blair & Company and WBLCF seeking to
enjoin the Merger. The complaint alleged (i) breaches of fiduciary duty by
Jensen's directors and affiliates of some of the directors by taking various
actions, including approving and continuing to pursue the sale of the OEM
Business to Mr. Shaw, refusing to pursue the allegedly higher priced Emerson
proposal and imposing allegedly inappropriate asset lockups and termination
fees; (ii) that all of the defendants have aided and abetted the alleged
breaches of fiduciary duty; and (iii) that various agreements of Jensen with
Recoton and others are invalid as a matter of Delaware Law. The plaintiff
requested temporary and permanent injunctive and declaratory relief, rescission
of various agreements, such other equitable or damage relief as the court finds
proper and an award of attorneys' fees and expenses. After the Recoton
transaction was enhanced on May 10, 1996, the plaintiff filed an amended
complaint on May 15, 1996, making comparable and additional claims as to the
enhanced Recoton transaction.
On May 20, 1996, a second stockholder of Jensen filed an action in the Court
of Chancery of the State of Delaware against Jensen, its directors, Recoton and
RC Acquisition, seeking to enjoin the Merger. The complaint alleged (i) breaches
of fiduciary duty by Jensen's directors, including allegedly failing to act in
good faith to negotiate with both Emerson and Recoton, rejecting an allegedly
higher priced all cash transaction with Emerson and failing to act reasonably in
order to obtain the best price in the sale of Jensen; and (ii) that all of the
defendants have aided and abetted the alleged breaches of fiduciary duty. The
plaintiff requested that the lawsuit be maintained as a class action on behalf
of all public stockholders and sought temporary and permanent injunctive and
declaratory relief, rescission
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of the Merger should it occur, the establishment of a stockholders' committee to
participate in the sale of Jensen, the awarding of compensatory damages against
the defendants, and such other and further relief as the court finds proper and
an award of attorneys' fees and expenses. On July 3, 1996, the stockholder cases
were consolidated into a single action. On July 8, 1996, an amended consolidated
stockholder complaint was filed by the existing Delaware plaintiffs against the
same defendants making claims similar to those previously made with additional
allegations charging that the wrongful conduct continued through Jensen's
acceptance of Recoton's latest offer and rejection of Emerson's latest offer.
Jensen believes the complaint is without basis in fact or law and based upon
misleading information. Jensen intends to oppose the litigation vigorously.
On May 10, 1996, Jensen filed an action in Federal District Court in
Chicago, Illinois, against Emerson and its President for violations of proxy
solicitation rules and for breach of the Confidentiality Agreement with Jensen.
On May 14, 1996, the court entered a temporary restraining order against Emerson
and its President, enjoining them from (i) further solicitation of Jensen's
stockholders or their representatives until Emerson has filed a proxy statement
with the Securities and Exchange Commission which complies with the provisions
of Regulation 14A of the Securities Exchange Act of 1934; (ii) making further
solicitation containing false or misleading statements of material fact or
material omissions; and (iii) disclosing confidential information in violation
of the Confidentiality Agreement. On May 20, 1996, Emerson filed a counterclaim
in this action alleging that Jensen and Mr. Shaw fraudulently induced Emerson to
enter into the Confidentiality Agreement and failed to negotiate with Emerson in
good faith. Emerson requested rescission of the Confidentiality Agreement and
such other equitable or damage relief as the court finds proper and an award of
attorneys' fees and expenses. On May 23, 1996 the Federal District Court and the
parties agreed to proceed with the bidding process and Emerson agreed that the
terms of the temporary restraining order would continue and Jensen and Emerson
agreed to suspend the prosecution of the litigation until the Jensen Board had
had an opportunity to consider both the Emerson and Recoton proposals. The
temporary restraining order lapsed on May 23, 1996.
On July 2, 1996 Emerson filed an amended counterclaim and third party
complaint in the Chicago Federal District Court making allegations similar to
those in its original counterclaim and additional claims that Jensen and Mr.
Shaw continued to mislead Emerson and negotiate in bad faith, with Recoton and
WBLCF added as alleged co-conspirators with respect to such continuing conduct.
Jensen intends to vigorously pursue its claim against Emerson and to vigorously
oppose the counterclaim.
On July 16, 1996, plaintiffs in the Delaware action filed a motion for leave
to file a supplement to their complaint alleging that the Merger Agreement as
amended on June 23, 1996, resulted in the termination of the Stock Option and
Voting Agreement and, further, that the voting and proxy provisions of such
agreement were no longer in effect.
On July 16, 1996, the Delaware court denied plaintiffs' motion for an order
to expedite discovery and to schedule a hearing on plaintiffs' application for a
preliminary injunction to enjoin the Merger, determining that the Merger will
not result in irreparable harm to the plaintiffs because any alleged wrongful
conduct could be adequately remedied by a money damages award.
Jensen anticipates that the foregoing litigation matters will continue and
that other similar claims may or could be brought in the future relating to the
Recoton transaction and Emerson proposals. No assurance can be given as to the
outcome or effect of any of the foregoing or any possible future litigation on
Jensen or the Merger.
DISSENTERS' RIGHTS
Holders of record of Jensen Common Stock who comply with the applicable
procedures summarized herein will be entitled to appraisal rights under Section
262 of the DGCL. A person having a
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beneficial interest in Jensen Common Stock held of record in the name of another
person, such as a broker or nominee, must act promptly to cause the record
holder to follow the steps summarized below properly and in a timely manner to
perfect appraisal rights.
THE FOLLOWING DISCUSSES THE LAW PERTAINING TO APPRAISAL RIGHTS UNDER SECTION
262 OF THE DGCL WHICH IS REPRINTED IN ITS ENTIRETY AS ANNEX V TO THIS PROXY
STATEMENT AND INCORPORATED HEREIN BY REFERENCE. ALL STOCKHOLDERS OF JENSEN WHO
WISH TO EXERCISE RIGHTS UNDER SECTION 262 ARE URGED TO READ ANNEX V IN ITS
ENTIRETY. ALL REFERENCES IN SECTION 262 AND IN THIS SUMMARY TO A "STOCKHOLDER"
ARE TO THE RECORD HOLDER OF JENSEN COMMON STOCK AS TO WHICH APPRAISAL RIGHTS ARE
ASSERTED. VOTING AGAINST, ABSTAINING FROM VOTING OR FAILING TO VOTE ON APPROVAL
AND ADOPTION OF THE MERGER AGREEMENT WILL NOT CONSTITUTE A DEMAND FOR APPRAISAL
WITHIN THE MEANING OF SECTION 262 OF THE DGCL.
Under the DGCL, holders of Jensen Common Stock who follow the procedures set
forth in Section 262 will be entitled to have their Jensen Common Stock
appraised by the Chancery Court and to receive payment in cash of the "fair
value" of such Jensen Common Stock, exclusive of any element of value arising
from the accomplishment or expectation of the Merger, together with a fair rate
of interest, if any, as determined by such court.
Under Section 262, where a proposed merger is to be submitted for approval
at a meeting of stockholders, the corporation, not less than 20 days prior to
the meeting, must notify each of its stockholders who was a stockholder on the
record date for such meeting with respect to shares for which appraisal rights
are available, that appraisal rights are so available, and must include in such
notice a copy of Section 262.
This Proxy Statement constitutes such notice to the holders of Jensen Common
Stock and the applicable statutory provisions of the DGCL are attached to this
Proxy Statement as Annex V. Any stockholder who wishes to exercise such
appraisal rights or who wishes to preserve his right to do so should review the
following discussion and Annex V carefully because failure to timely and
properly comply with the procedures specified will result in the loss of
appraisal rights under the DGCL.
A holder of Jensen Common Stock wishing to exercise such holder's appraisal
rights (i) must not vote in favor of adoption of the Merger Agreement or consent
in writing and (ii) must deliver to Jensen, prior to the vote on the Merger
Agreement at the Special Meeting, a written demand for appraisal of such
holder's Jensen Common Stock. A proxy or vote against the Merger does not
constitute such a demand. In addition, any holder of Jensen Common Stock who
returns an unmarked signed proxy, which is not timely revoked and which is voted
by the proxy holders in their discretion, will be precluded from exercising
appraisal rights. A holder of Jensen Common Stock wishing to exercise such
holder's appraisal rights must be the record holder of such Jensen Common Stock
on the date the written demand for appraisal is made and must continue to hold
such Jensen Common Stock of record until the Effective Time of the Merger.
Accordingly, a holder of Jensen Common Stock who is the record holder of Jensen
Common Stock on the date the written demand for appraisal is made, but who
thereafter transfers such Jensen Common Stock prior to the Effective Time of the
Merger, will lose any right to appraisal in respect of such Jensen Common Stock.
Only a holder of record of Jensen Common Stock is entitled to assert
appraisal rights for the Jensen Common Stock registered in that holder's name. A
demand for appraisal should be executed by or on behalf of the holder of record,
fully and correctly, as such holder's name appears on such holder's stock
certificates. If the Jensen Common Stock is owned of record in a fiduciary
capacity, such as by a trustee, guardian or custodian, execution of the demand
should be made in that capacity, and if the Jensen Common Stock is owned of
record by more than one person as in a joint tenancy or tenancy in common, the
demand should be executed by or on behalf of all joint owners. An authorized
agent, including an agent for two or more joint owners, may execute a demand for
appraisal on behalf of a holder of record; however, the agent must identify the
record owner or owners and expressly disclose the fact that, in executing the
demand, the agent is agent for such owner or owners. A record holder such as a
broker who holds Jensen Common Stock as nominee for several beneficial owners
may exercise appraisal rights with respect to the Jensen Common Stock held for
one or more beneficial
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owners while not exercising such rights with respect to the Jensen Common Stock
held for other beneficial owners; in such case, the written demand should set
forth the number of shares of Jensen Common Stock as to which appraisal is
sought and where no number of Jensen Common Stock is expressly mentioned the
demand will be presumed to cover all Jensen Common Stock held in the name of the
record owner. Stockholders who hold their Jensen Common Stock in brokerage
accounts or other nominee forms and who wish to exercise appraisal rights are
urged to consult with their brokers to determine the appropriate procedures for
the making of a demand for appraisal by such a nominee.
All written demands for appraisal should be sent or delivered to Jensen at
25 Tri-State International Office Center, Suite 400, Lincolnshire, IL. 60069;
Attn: Secretary.
The Surviving Corporation shall within 10 days after the Effective Time of
the Merger notify each stockholder who has complied with the statutory
requirements summarized above that the Merger has become effective. Within 120
days after the Effective Time of the Merger, but not thereafter, the Surviving
Corporation or any stockholder who has complied with the statutory requirements
summarized above may file a petition in the Chancery Court demanding a
determination of the fair value of the Jensen Common Stock. Jensen is under no
obligation to and has no present intention to file a petition with respect to
the appraisal of the fair value of the Jensen Common Stock. Accordingly, it will
be the obligation of the stockholders to initiate all necessary action to
perfect their appraisal rights within the time prescribed in Section 262.
Within 120 days after the Effective Time of the Merger, any stockholder who
has complied with the requirements for exercise of appraisal rights will be
entitled, upon written request, to receive from the Surviving Corporation a
statement setting forth the aggregate number of shares of Jensen Common Stock
not voted in favor of adoption of the Merger Agreement and with respect to which
demands for appraisal have been received and the aggregate number of holders of
such Jensen Common Stock. Such statements must be mailed within 10 days after a
written request therefor has been received by the Surviving Corporation.
If a petition for an appraisal is timely filed, after a hearing on such
petition, the Chancery Court will determine the stockholders entitled to
appraisal rights and will appraise the "fair value" of their Jensen Common
Stock, exclusive of any element of value arising from the accomplishment or
expectation of the Merger, together with a fair rate of interest, if any, to be
paid upon the amount determined to be the fair value. Stockholders considering
seeking appraisal should be aware that the fair value of their Jensen Common
Stock as determined under Section 262 could be more than, the same as or less
than the consideration they would receive pursuant to the Merger Agreement if
they did not seek appraisal of their Jensen Common Stock and that investment
banking opinions as to fairness from a financial point of view are not
necessarily opinions as to fair value under Section 262.
The Chancery Court will determine the amount of interest, if any, to be paid
upon the amounts to be received by persons whose Jensen Common Stock have been
appraised. The costs of the action may be determined by the Chancery Court and
taxed upon the parties as the Chancery Court deems equitable in the
circumstances. Upon application of the stockholders, the Chancery Court may also
order that all or a portion of the expenses incurred by any stockholder in
connection with an appraisal, including, without limitation, reasonable
attorneys' fees and the fees and expenses of experts utilized in the appraisal
proceeding, be charged pro rata against the value of all of the Jensen Common
Stock entitled to appraisal.
Any holder of Jensen Common Stock who has duly demanded an appraisal in
compliance with Section 262 will not, after the Effective Time of the Merger, be
entitled to vote the Jensen Common Stock subject to such demand for any purpose
or be entitled to the payment of dividends or other distributions on those
Jensen Common Stock (except dividends or other distributions payable to holders
of record of Jensen Common Stock as of a record date prior to the Effective Time
of the Merger).
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If any stockholder who properly demands appraisal of such stockholder's
Jensen Common Stock under Section 262 fails to perfect, or effectively withdraws
or loses, such stockholder's right to appraisal as provided in the DGCL, the
Jensen Common Stock of such stockholder will be converted into the right to
receive the consideration receivable with respect to such Jensen Common Stock in
accordance with the Merger Agreement. A stockholder will fail to perfect, or
effectively lose or withdraw, his or her right to appraisal if, among other
things, no petition for appraisal is filed within 120 days after the Effective
Time of the Merger, or if the stockholder delivers to Jensen a written
withdrawal of its demand for appraisal and acceptance of the Merger. Any such
attempt to withdraw an appraisal demand more than 60 days after the Effective
Time of the Merger will require the written approval of the Surviving
Corporation.
Failure to follow the steps required by Section 262 of the DGCL for
perfecting appraisal rights may result in the loss of such rights (in which
event a Stockholder will be entitled to receive the Merger Consideration with
respect to such Jensen Common Stock in accordance with the Merger Agreement).
OTHER JENSEN AND RECOTON AGREEMENTS
Simultaneous with the execution of the Merger Agreement, Recoton and Jensen
entered into the AR Agreement pursuant to which Recoton acquired from Jensen a
license to, and an option to purchase, all rights to the AR Marks and Jensen
acquired an option to sell the AR Marks to Recoton, under certain circumstances.
The AR Agreement was dated as of January 3, 1996, and has been subsequently
amended effective as of May 9, 1996 and June 23, 1996. The AR Agreement provides
Recoton an option to purchase the AR Marks from Jensen for $3.5 million at any
time prior to the termination date of the AR Agreement, which termination date
is set to occur at the earlier of (i) the effective time of the Merger, (ii) the
date of exercise of either the purchase option or sale option or (iii) December
31, 2000 (the "AR Termination Date"). The AR Agreement provides Jensen an option
to sell the AR Marks to Recoton for $3.5 million at any time after the
termination of the Merger Agreement and before the AR Termination Date. Pursuant
to the AR Agreement, Recoton is obligated to pay Jensen a fee of $4,000 per
month for the purchase option and Jensen is obligated to pay Recoton $4,000 per
month for the sale option. The AR Agreement also provides for a license fee of
$10,000 per month for the use by Recoton of the AR Marks for the first year and
the greater of $10,000 per month or four percent of net shipments for each
annual period thereafter until the AR Termination Date. If any dispute should
arise between Recoton and Jensen regarding the AR Agreement, the AR Termination
Date would be extended until such dispute is resolved by either agreement or
adjudication (the "AR Extended Termination Date"). Payments due under the AR
Agreement or any other agreements between Recoton and Jensen may be set off
against each other, including by way of cancellation of outstanding notes. A
copy of the AR Agreement is attached to this Proxy Statement as Annex VI.
On May 1, 1996, Jensen and Recoton entered into an escrow agreement,
subsequently amended effective as of May 9, 1996, pursuant to which the escrow
agent is obligated to deliver an executed assignment of the AR Marks to Recoton
upon the occurrence of certain circumstances including Recoton's exercise of the
purchase option and payment of the purchase price for such trademarks pursuant
to the AR Agreement. The escrow agent, which under the escrow agreement acts
solely in a ministerial capacity, is Vedder, Price, Kaufman & Kammholz, legal
counsel to Jensen.
Contemporaneous to the entering into of the Merger Agreement and the AR
Agreement, in lieu of an upfront payment for the AR Marks, Recoton lent to
Jensen $2 million, evidenced by a promissory note, due on the earlier of January
2, 1997 (or, if later, the AR Extended Termination Date under the AR Agreement)
or the Effective Time of the Merger. The note bears interest at the applicable
short-term federal interest rate as in effect at the time of the execution of
the note (approximately 6%). Pursuant to the AR Agreement, Recoton may cancel
the note in payment of a portion of the purchase price for the option under the
AR Agreement.
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On May 1, 1996, Jensen and Recoton entered into the OEM Amendment Agreement,
which was subsequently restated as of May 9, 1996, and pursuant to which (i)
Recoton consented to Jensen's execution of the OEM Agreement, (ii) Jensen agreed
not to agree to any amendment to the OEM Agreement, or any language for exhibits
"to be attached subsequent to execution of the OEM Agreement", or to the sale of
Jensen's accounts receivable related to the OEM Business at a discount in excess
of an aggregate of $200,000 of the face amount of such receivables, in each case
without Recoton's prior written approval, and (iii) Jensen agreed, if so
requested by Recoton and at Recoton's expense, that it would assert whatever
rights it may have under the OEM Agreement to seek to compel specific
performance by IJI Acquisition.
Mr. Shaw will serve as an executive officer of Recoton and as President and
Chief Executive Officer of the Surviving Corporation pursuant to the Shaw
Employment Agreement. SEE "THE MERGER -- INTERESTS OF CERTAIN PERSONS IN THE
MERGER -- EMPLOYMENT AGREEMENT OF ROBERT G. SHAW."
STOCK OPTION, VOTING AND SIMILAR AGREEMENTS
WBLCF, which holds approximately 25.9% of the shares of Jensen Common Stock
outstanding, has entered into a Stock Option and Voting Agreement with Recoton,
pursuant to which WBLCF has (i) agreed to vote its shares of Jensen Common Stock
in favor of the Merger and against any third party transaction that would
interfere with the Merger, (ii) granted a proxy to Recoton to vote its shares
under certain circumstances, (iii) granted Recoton an option to purchase all of
its shares of Jensen Common Stock at $8.90 per share plus 50% of any net
proceeds which Recoton receives upon sale of such shares over $8.90 to the
extent such net proceeds do not exceed $10.90 per share plus 100% of the net
proceeds which Recoton may receive over $10.90 per share upon such sale, and
(iv) committed not to sell or transfer its shares of Jensen Common Stock other
than pursuant to the Merger Agreement and the Stock Option and Voting Agreement.
Pursuant to the agreement, WBLCF will (i) vote all of its shares of Jensen
Common Stock in favor of the Merger, the Merger Agreement, and any transactions
contemplated thereby and against any third party transaction that would
interfere with the Merger; (ii) vote its shares against any action or agreement
that would result in a breach in any material respect of any covenant,
representation or warranty or any other obligation of Jensen under the Merger
Agreement; and (iii) vote its shares against any action or agreement that would
materially impede, interfere with or attempt to discourage the Merger.
WBLFC also has agreed to grant Recoton an irrevocable proxy in the event
that WBLCF breaches its covenants set forth in Stock Option and Voting
Agreement, with full power of substitution, to vote, and otherwise act (by
written consent or otherwise) with respect to all shares of Jensen Common Stock
that WBLCF is entitled to vote at any meeting of stockholders of Jensen.
Pursuant to the agreement with WBLCF, Recoton shall not have the right (and such
proxy shall not confer the right) to vote to reduce the consideration payable to
the stockholders of Jensen pursuant to the Merger Agreement or to otherwise
modify or amend the Merger Agreement to reduce the rights or benefits of Jensen
or any stockholders of Jensen (including the Stockholders) under the Merger
Agreement or to reduce the obligations of Recoton and/or RC Acquisition Sub
thereunder.
Recoton may exercise its stock option, in whole or in part, at any time or
from time to time, following the execution and delivery of the Merger Agreement
until December 31, 1996.
The stock option is conditioned on there being no preliminary or permanent
injunction or other order by any court of competent jurisdiction restricting,
preventing or prohibiting the exercise of the stock option or the delivery of
WBFLC's shares in respect of such exercise (a "Court Order"); the December 31,
1996 expiration date is extended by a period of time equal to the period of any
Court Order.
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Robert G. Shaw, who beneficially owns approximately 36.8% of the outstanding
Jensen Common Stock, has entered into an agreement with Recoton pursuant to
which Mr. Shaw will pay to Recoton half of the difference between (i) the net
proceeds per share received by Mr. Shaw, but not to exceed $10.65 per share,
from the transfer of any or all of his shares, by way of merger, tender offer or
otherwise, to a third person other than Recoton, and (ii) $8.90 per share, less
50% of any applicable taxes payable by Mr. Shaw attributable to any portion of
the proceeds received by Recoton. The agreement further provides that Mr. Shaw
shall retain any proceeds received in excess of $10.65 per share and that
Recoton will reimburse Mr. Shaw for 50% of Federal and State income taxes which
are incurred by Mr. Shaw as a result of Recoton's receipt of any portion of the
sales proceeds. The agreement will terminate March 31, 1997.
Mr. Shaw has not entered into any voting agreements or stock options with
respect to his shares of Jensen Common Stock. Mr. Shaw, however, has indicated
that he presently intends to vote "for" the Merger proposal.
OEM BUSINESS
The following discussion provides certain information with respect to
Jensen's OEM Business. The OEM Business will be sold to IJI Acquisition, a
corporation solely-owned by Mr. Shaw, immediately prior to and as a condition to
the consummation of the Merger. A vote for the Merger Agreement will constitute
approval of the sale of the OEM Business to IJI Acquisition. See "The OEM ASSET
SALE."
AUTOMOTIVE OEM
The OEM Business manufactures and sells loudspeakers to the automotive OEM
market for installation in new vehicles manufactured in North America and in
Japan. The OEM Business' customers include Ford, Chrysler, Mazda and Honda.
The OEM Business works closely with automobile manufacturers' engineers,
generally over a two- or three-year period, to develop new loudspeaker products
for a particular vehicle. It then supplies product and support for each model
year of the vehicle until substantial modification of such vehicle. The OEM
Business exports loudspeakers to Honda and Mazda for OEM installation in
vehicles manufactured in Japan to be sold in North America, Japan and Europe.
LOUDSPEAKER COMPONENTS
The OEM Business manufactures a major portion of the components used in its
automotive loudspeakers, including ceramic magnets, voice coils, loudspeaker
cones, stamped and plated metal parts and plastic injection molded parts. The
OEM Business also sells magnets and loudspeaker cones to other loudspeaker
manufacturers.
General Magnetic Company ("General Magnetic"), a division of Jensen and part
of the OEM Business located in Dallas, Texas, produces ceramic magnets used in
loudspeakers. Most of the OEM Business' magnet needs are supplied by General
Magnetic. During the fourth quarter of fiscal 1995 General Magnetic completed an
internal expansion which increased capacity by approximately 20%. Magnet
production is a capital intensive operation which requires specialized technical
and manufacturing expertise.
FujiCone, a wholly-owned subsidiary of Jensen and part of the OEM Business,
manufactures cones used in loudspeakers. FujiCone supplies most of Jensen's and
the OEM Business' loudspeaker cone requirements. FujiCone began selling to other
loudspeaker manufacturers in 1988 and is seeking to further expand its external
sales base. The design and quality of the cone are critical to the loudspeaker's
performance. Automated mass production technology is utilized to maintain a high
quality of manufacturing, product consistency and lower manufacturing cost on
high volume orders.
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SALES, MARKETING AND DISTRIBUTION
The OEM Business' loudspeaker products are marketed directly to automotive
manufacturers through its sales office in suburban Detroit, Michigan. Through
this office and its Tokyo office, the OEM Business serves its OEM customers by
managing its new product development and continuous improvement programs.
Loudspeaker components such as magnets and cones are sold through a
combination of the OEM Business' sales personnel and sales representative firms.
PRODUCTION
The OEM Business designs and manufactures most of the component parts used
in its loudspeakers and assembles finished product at its various facilities.
Magnets are manufactured at the General Magnetic plant in Dallas, Texas and
loudspeaker cones are manufactured at the FujiCone facility located in Clinton,
North Carolina. In the Punxsutawney, Pennsylvania plant, coiled steel is slit,
stamped and plated, fabricating the loudspeaker housing and related parts, and
plastic injection molded parts are manufactured from molding compounds. Jensen
believes that the raw materials needed for products of the OEM Business are
readily available. Loudspeakers are assembled at the Lumberton, North Carolina
plant which also manufactures loudspeaker voice coils.
ENGINEERING
The engineering facility of the OEM Business located in Schiller Park,
Illinois, serves as its primary design location. The engineers at this facility
are not only involved in new product design, but also provide support in both
acoustics and materials.
Jensen believes that technology is one of the keys to maintaining a strong
competitive position for the OEM Business. Basic materials research in such
areas as magnets, cones, adhesives and plastics, coupled with a strong
manufacturing engineering capability, enables the OEM Business to manufacture
loudspeakers having superior performance at competitive prices.
In addition to its efforts in product research, the OEM Business employs
sophisticated computer equipment and software to create, design, and test new
products. The extensive use of computer equipment and in-house developed
software enables the designers to more accurately predict a system's acoustical
performance. A CAD/CAM system provides direct data exchange capabilities with
several major OEM customers and suppliers.
FACILITIES
The OEM Business owns the following manufacturing and production facilities:
<TABLE>
<CAPTION>
LOCATION PURPOSE NO. SQ. FT.
- ---------------------- ----------------------------------------------------------------- -----------
<S> <C> <C>
Lumberton, NC Loudspeaker assembly 156,000
Punxsutawney, PA Metal and plastic parts manufacturing/home loudspeaker assembly 134,000
Dallas, TX (1) Magnet manufacturing and general offices of General Magnetic 103,000
Clinton, NC Cone manufacturing and general offices of FujiCone 48,000
</TABLE>
- ------------------------
(1) This facility is subject to a mortgage dated June 8, 1977 securing a note in
the original principal amount of $1,247,000 with a maturity date of July 1,
2007. Currently, the principal balance outstanding under the note is
approximately $867,000.
The OEM Business leases office facilities in Michigan. The OEM Business is
operating near capacity at its General Magnetic and FujiCone locations and has
commenced internal expansion at FujiCone. Management believes the OEM Business'
facilities are otherwise adequate for its foreseeable needs.
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RECENT DEVELOPMENTS
In connection with its Ford 2000 Program, Ford Motor Company market tested
with Jensen and several other speaker manufacturers design and supply programs
intended to cover a majority of Ford's future global speaker requirements.
During recent informal discussions with its key contacts at Ford, Jensen was
informed that it would not be selected to participate in the design phase of
these programs.
Although the design decision does not necessarily impact Ford's sourcing
direction, feedback received from Ford during the quotation process raised
questions regarding certain of the OEM Business' capabilities. Furthermore, past
practices at Ford would indicate that the designer of a particular product
ultimately becomes the predominant supplier for that product.
In the event that Ford goes forward with these programs and the OEM Business
is not selected to participate in the manufacturing phase, its sales to Ford
could be reduced by as much as 75% by fiscal year 2001. The OEM Business' sales
to Ford in fiscal year 1996 represented 60% of the OEM Business' net sales.
CAUTIONARY STATEMENT FOR PURPOSES OF THE "SAFE HARBOR" PROVISIONS OF THE
PRIVATE SECURITIES REFORM ACT OF 1995. The matters discussed above contain
forward-looking statements that involve risks and uncertainties which could
cause the OEM Business' actual results during fiscal 1997 and beyond to differ
materially from those expressed in any forward-looking statements made by or on
behalf of the OEM Business.
OEM BUSINESS FINANCIAL HIGHLIGHTS (UNAUDITED)
The unaudited OEM Business financial highlights presented below as of
February 29, 1996 and May 31, 1996, for the years ended February 29, 1992,
February 28, 1993, February 28, 1994, February 28, 1995, and February 29, 1996,
and for the quarters ended May 31, 1995 and 1996 are derived from the internal
accounting records of Jensen.
<TABLE>
<CAPTION>
YEAR ENDED QUARTER ENDED (1)
------------------------------------------------------------- ------------------------
FEB. 29, FEB. 28, FEB. 28, FEB. 28, FEB. 29, MAY 31, MAY 31,
1992 1993 1994 1995 1996 1995 1996
----------- ----------- ----------- --------- ----------- ----------- -----------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT HIGHLIGHTS
Net sales (2)............................. $ 62.0 $ 79.6 $ 90.9 $ 100.4 $ 88.1 $ 25.4 $ 24.7
Operating income (3)...................... 6.6 10.0 9.6 9.6 2.3 1.3 2.8
BALANCE SHEET HIGHLIGHTS
Total current assets (4).................. $ 20.9 $ 21.3
Total non-current assets (5).............. 14.3 13.9
Total liabilities (6)..................... 8.6 8.8
Net book value.......................... 26.6 26.4
</TABLE>
- ------------------------
(1) Net sales and operating income for the quarter ended May 31, 1995 and 1996
are not necessarily indicative of full year results.
(2) Net sales represents sales to external OEM Business customers including
sales of components to external loudspeaker manufacturers.
(3) Operating income represents net sales less cost of goods sold, selling,
marketing, and administrative expenses directly attributable to the OEM
Business. Operating income does not reflect the impact of bonuses
attributable to OEM Business personnel, corporate office overhead costs,
corporate research and development expenses, certain OEM Business profit
sharing adjustments, interest expense and income tax expense. Additionally,
operating income excludes the impact of the 1994 restructuring charge and
severance costs incurred in 1996.
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(4) Total current assets consist primarily of accounts receivable and
inventories (FIFO basis) directly attributable to the OEM Business.
(5) Total non-current assets consist primarily of property, plant, and equipment
directly attributable to the OEM Business.
(6) Total liabilities consist primarily of accounts payable, accrued
liabilities, and a mortgage note directly attributable to the OEM Business.
THE OEM ASSET SALE
This section of the Proxy Statement describes certain aspects of the OEM
Agreement entered into between Jensen and IJI Acquisition dated as of January 3,
1996, as subsequently amended, pursuant to which Jensen will sell all or
substantially all of the assets associated with its OEM Business as a going
concern to IJI Acquisition and IJI Acquisition will acquire the related
liabilities; alternatively, the parties may designate a purchaser for all or a
portion of Jensen's receivables related to the OEM Business, in which case
corresponding changes shall be made to the purchase price and other terms. The
initial OEM Agreement was entered into contemporaneous with the execution of the
Merger Agreement and subsequently amended. The following is a discussion of the
principal provisions of the OEM Agreement, which is attached as Annex II to this
Proxy Statement and is incorporated herein by reference. All Stockholders of
Jensen are urged to read the OEM Agreement in its entirety. APPROVAL OF THE
MERGER CONSTITUTES APPROVAL OF THE OEM ASSET SALE. SEE "THE SPECIAL MEETING --
TIME AND PLACE; PURPOSE."
The OEM Asset Sale is to be effected in accordance with the terms and
conditions set forth in the OEM Agreement. The following agreements will be
entered into at the time of the closing of the OEM Asset Sale: (i) an assumption
agreement between Jensen and IJI Acquisition pursuant to which IJI Acquisition
will assume the liabilities associated with the OEM Business; (ii) a management
services agreement pursuant to which Recoton or the Surviving Corporation will
supply certain management services to IJI Acquisition (the "Management Services
Agreement"); (iii) a supply agreement pursuant to which IJI Acquisition will
supply certain products to the Surviving Corporation (the "Supply Agreement");
(iv) a shared facilities agreement pursuant to which the Surviving Corporation
will make available to IJI Acquisition space at certain facilities (the "Shared
Facilities Agreement"); (v) a noncompetition agreement pursuant to which each of
the Surviving Corporation and Recoton and IJI Acquisition will abstain from
competition in certain areas of the other's business (the "Noncompetition
Agreement"); and (vi) a license agreement pursuant to which Jensen will license
certain proprietary rights to IJI Acquisition (the "License Agreement"). In
addition, a condition of the closing of the OEM Agreement is that Robert G. Shaw
shall have entered into the Shaw Employment Agreement, which condition has been
satisfied. SEE "THE MERGER -- INTERESTS OF CERTAIN PERSONS IN THE MERGER --
EMPLOYMENT AGREEMENT OF ROBERT G. SHAW."
The closing of the OEM Asset Sale on the terms set forth in the OEM
Agreement is a condition to the consummation of the Merger.
THE OEM AGREEMENT
Pursuant to the OEM Agreement, the OEM Assets are to be sold to IJI
Acquisition (or, with respect to accounts receivable, such other purchaser as
the parties agree) for approximately $18.4 million (subject to adjustment to
reflect the changing levels of assets and liabilities as described below) in the
aggregate plus the assumption by IJI Acquisition of the liabilities related to
the OEM Business, except as otherwise agreed. The purchase price for the OEM
Assets shall be increased or decreased on a dollar for dollar basis to the
extent that the "Pro Forma Shaw Payment" (as defined below) is more or less than
$18.4 million. The Pro Forma Shaw Payment is defined as the Return on Investment
Capital equity for the OEM Business (plus or minus, as applicable, accrued
corporate accounts of Jensen attributable to the OEM Business) less a discount
of $8.2 million. If the purchase price for the OEM Assets were calculated as of
the end of May 1996 (the most recent date for which a Return on
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Investment Capital balance sheet is available), the purchase price for the OEM
Assets would be approximately $18.2 million. At May 31, 1996, the book value of
the assets of the OEM Business was approximately $35.2 million and the amount of
debt, known liabilities and accruals of the OEM Business were approximately $8.8
million. Emerson has stated that its lender was prepared to advance
approximately $23 million against the assets of the OEM Business.
IJI Acquisition is wholly-owned by Robert G. Shaw, Chairman of the Board,
President, and Chief Executive Officer of Jensen. The cash purchase price will
be paid out of funds available to IJI Acquisition from its initial equity
investment and a $16.9 million bank credit facility. As more fully discussed
below, it is anticipated that Mr. Shaw initially will devote approximately 25%
of his time to the management of IJI Acquisition under the Management Services
Agreement after the consummation of the Merger and the OEM Asset Sale.
In addition, Jensen has agreed that, if requested by Recoton and at
Recoton's expense, Jensen will assert any rights it has under the OEM Agreement
to seek to compel specific performance by IJI Acquisition.
ASSETS TO BE PURCHASED. The assets which will be purchased by IJI
Acquisition shall include the following: (i) all of Jensen's right, title and
interest (including leasehold interest as a tenant, if any) in the lands and
buildings pertaining to the OEM Business, consisting of (A) the loudspeaker
assembly plant facility and operations in Lumberton, North Carolina, (B) the
metal and plastic parts manufacturing/home loudspeaker assembly plant facility
and operations in Punxsutawney, Pennsylvania, (C) the magnet manufacturing and
general offices of the General Magnetic division in Dallas, Texas, (D) the cone
manufacturing and general offices of FujiCone, Inc. in Clinton, North Carolina
and (E) the Bingham Farms, Michigan sales office; (ii) all of Jensen's
machinery, equipment, and other personal property and fixed assets pertaining to
the OEM Business; (iii) all of Jensen's accounts receivable and other
receivables pertaining to the OEM Business (except as otherwise agreed, SEE
"SALE OF ACCOUNTS RECEIVABLE TO ANOTHER PURCHASER," below); (iv) all of the
assets and liabilities of FujiCone, Inc., a Delaware corporation; (v) all of
Jensen's books, financial and business records, insurance policies and any
claims or credits thereunder pertaining exclusively to the OEM Business; (vi)
all inventories and supplies on hand or at third-party premises pertaining to
the OEM Business; (vii) Jensen's right to the corporate name "International
Jensen Incorporated" and the trade name "IJI" for purposes of corporate
identification only, together with all intellectual property rights pertaining
exclusively to the OEM Business (to the extent such intellectual property rights
are used for both the OEM Business and other Jensen businesses, Jensen shall
retain ownership subject to a perpetual nonassignable royalty-free world-wide
license to IJI Acquisition; PROVIDED, HOWEVER, as noted below, certain
trademarks are to be licensed to IJI Acquisition pursuant to certain royalty
arrangements only); and (viii) all of Jensen's right, title, and interest in
franchises, licenses, permits, options and any inventions, developments, and
ideas to the extent pertaining exclusively to the OEM Business and assignable or
sublicensable. To the extent the OEM Assets are used by Jensen in both the
conduct of the OEM Business and other businesses of Jensen ("Joint Use
Property"), Jensen (with the concurrence of Recoton) and IJI Acquisition will
endeavor to agree on an appropriate bifurcation or allocation by the Closing
Date, which shall be immediately prior to the Effective Time of the Merger. If
an agreement cannot be reached with respect to the Joint Use Property, Jensen
and the Surviving Corporation will retain such Joint Use Property subject to IJI
Acquisition's reasonable access and/or use.
ASSETS NOT TO BE PURCHASED. Jensen will retain (i) cash and cash
equivalents pertaining to the OEM Business; (ii) leases for facilities in
Lincolnshire, Illinois and Schiller Park, Illinois; (iii) any right, title and
interest to any of Jensen's registered trademarks and other forms of
intellectual property not pertaining exclusively to the OEM Business; (iv) any
other asset to the extent it does not pertain to the OEM Business.
LIABILITIES TO BE ASSUMED. IJI Acquisition has agreed to assume and
discharge, and indemnify Jensen against, all liabilities (known or unknown,
matured or unmatured, absolute or contingent, or otherwise) associated with,
pertaining to, arising out of, connected with, or relating to the conduct of
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the OEM Business, except as otherwise agreed (known liabilities and accruals
consisting as of May 31, 1996 primarily of $4.4 million of trade accounts
payable, $3.6 million of accrued liabilities and a first mortgage in the amount
of approximately $800,000).
SALE OF ACCOUNTS RECEIVABLE TO ANOTHER PURCHASER. If the parties designate
a purchaser for all or any portion of Jensen's accounts receivable related to
the OEM Business, then those accounts receivable will not be purchased by IJI
Acquisition and the purchase price shall be reduced by the face amount of the
accounts receivable sold to such third party. As of May 31, 1996, the OE
accounts receivable were approximately $14.3 million. If such OE accounts
receivable were sold to a third party purchaser, the price for the remaining OE
assets would be reduced by the face amount of the receivables sold, subject to
the adjustments for the Pro Forma Shaw Payment as discussed above. Recoton's
consent must be received in the event that any discount on the sale of the
accounts receivable to a third party exceeds $200,000.
OEM RELATED AGREEMENTS
As noted above, at the time of the closing of the OEM Asset Sale, certain
additional agreements will be entered into between Jensen and IJI Acquisition
relating to the post-closing operation of IJI Acquisition and Jensen. These
agreements include the Management Services Agreement, the Supply and Services
Agreement, the Shared Facilities Agreement, the Noncompetition Agreement and one
or more License Agreements which are described in greater detail below and
attached as exhibits to the OEM Agreement, as well as a liabilities assumption
agreement.
MANAGEMENT SERVICES AGREEMENT. After the Closing, Robert G. Shaw, Marc T.
Tanenberg and certain other employees of Jensen are expected to be employees of
Recoton or the Surviving Corporation, and will be authorized to perform various
managerial and administrative duties for IJI Acquisition during the course of
their employment by the Surviving Corporation or Recoton. A condition of the OEM
Asset Sale is that Mr. Shaw will have entered into an employment agreement with
Recoton Corporation in the form attached to the OEM Agreement. SEE "THE MERGER
- -- INTERESTS OF CERTAIN PERSONS IN THE MERGER -- EMPLOYMENT AGREEMENT OF ROBERT
G. SHAW" and "-- TRANSITIONAL EMPLOYMENT AGREEMENTS" for a description of the
agreements with Mr. Shaw and Mr. Tanenberg.
It is estimated that the above-noted individuals will devote approximately
25% of their time performing functions for IJI Acquisition. This assessment will
be reviewed approximately three months after the Closing. IJI Acquisition will
pay the Surviving Corporation for its proportionate share based on time spent in
their performance of duties for IJI Acquisition of all appropriate allocable
costs of these individuals (including salary, bonus and benefits). The term of
the Management Services Agreement will be for a minimum of one year but IJI
Acquisition may terminate such agreement at any time upon 90 days notice and the
Surviving Corporation may terminate such agreement at any time after six months
upon 180 days notice.
SUPPLY AND SERVICES AGREEMENT. The Supply and Services Agreement provides
for IJI Acquisition to supply the Surviving Corporation's requirements for
certain products currently manufactured at the plants in Punxsutawney,
Pennsylvania and Lumberton, North Carolina for the Jensen/Advent Branded
Products Division and IJI-European Holdings, including Jensen car aftermarket
speakers, Advent mobile aftermarket speakers, Jensen home hi-fi speakers, and
Advent home hi-fi speakers. The Surviving Corporation's obligations to purchase
any product will cease if IJI Acqusition is unable to fulfill its supply
obligations for such product. The Supply and Services Agreement provides that
pricing will be consistent with current Jensen internal transfer pricing
policies, plus $5,000 per month in purchasing agent's costs, but if annual price
increases (limited to increases to cover inflation) exceed 5% on a particular
product, the Surviving Corporation can cease purchasing its requirements for
such product upon 90 days notice. In addition, IJI Acquisition will provide, as
requested, management information systems equipment, operations support and
programming support, and travel agent support as requested by the Surviving
Corporation. Pricing will be consistent with Jensen's current internal cost
allocation policies; however, no cost will be attributable for services of of
the travel agency personnel. The terms of both the manufactured goods supply and
services supply components of the Supply and Services Agreement run for twelve
months from the Closing Date.
71
<PAGE>
SHARED FACILITIES AGREEMENT. Jensen's facilities in Schiller Park, Illinois
and Lincolnshire, Illinois are used for both the OEM Business and the other
businesses of Jensen. IJI Acquisition will be allowed to use such facilities on
a shared basis, with the rent and other operating expenses, being apportioned on
a square footage basis. The term of the Shared Facilities Agreement will
commence on the Effective Date and continue until the underlying lease expires.
Either party may terminate such agreement at any time upon six (6) months'
notice.
NON-COMPETITION AGREEMENT. For a period of not more than three years, the
Surviving Corporation and the related companies and IJI Acquisition each agree
not to compete in certain of the other's business, with certain exceptions. The
exceptions to competition include: (1) the Surviving Corporation may sell
antennas and airplane headsets and 12 volt products to vehicular customers for
aftermarket applications; (2) IJI Acquisition may design, manufacturer, market
and sell "non-branded speakers," speaker components and related products to any
original equipment manufacturer customer, whether or not such customer competes
with the Surviving Corporation; (3) IJI Acquisition may sell assembled speakers
to other speaker companies for vehicular installation; and (4) IJI Acquisition
may sell licensed trademarked speakers to vehicular original equipment
manufacturers, as permitted under the License Agreement. The Non-Competition
Agreement also includes certain confidentiality, non-solicitation and
enforcement provisions.
LICENSE AGREEMENT. The Surviving Corporation will grant to IJI Acquisition
a world-wide, royalty-bearing license permitting IJI Acquisition to use all of
the Surviving Corporation's trademarks in OEM applications in the automotive,
truck, recreational vehicle, aircraft or other motorized vehicle markets. The
term of the license shall be ten years, subject to renewal for up to an
additional ten years. The royalties to be paid by IJI Acquisition shall be: (i)
no less than one percent and no more than two percent of Net Revenues (i.e.,
gross sales to third parties less returns actually credited) with respect to OEM
speaker equipment utilizing the mark "Jensen" or any derivative of "Jensen"; and
(ii) five percent of Net Revenues with respect to OEM speaker equipment
utilizing any trademark other than "Jensen" or any derivative of "Jensen." The
license provides for a minimum annual royalty of $100,000 for each trademark
commencing two years after a Change of Control and an increase in the royalties
on the "Jensen" mark to three percent immediately upon a Change of Control.
Generally, a Change of Control shall be deemed to have occurred at such time as
Mr. Shaw: (i) ceases to be a member of the Board of Directors of IJI
Acquisition; (ii) ceases to be an executive officer or Chairman of the Board of
IJI Acquisition; or (iii) ceases to own beneficially more shares of the voting
stock of IJI Acquisition than any other IJI Acquisition shareholder but in any
event more than 30 percent of the outstanding voting stock of IJI Acquisition.
72
<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth the beneficial ownership of Jensen Common
Stock as of July 15, 1996 with respect to (i) each person known to Jensen
currently to own more than 5% of the issued and outstanding Jensen Common Stock,
(ii) each director of Jensen and (iii) all directors and executive officers as a
group.
<TABLE>
<CAPTION>
NUMBER OF
NAME SHARES PERCENT
- ------------------------------------------------------------------------------------------- ----------- -----------
<S> <C> <C>
Robert G. Shaw (1)......................................................................... 2,111,854 36.8%
William Blair Leveraged Capital Fund (2)................................................... 1,487,500 25.9%
Recoton Corporation (2).................................................................... 1,487,500 25.9%
Fidelity Management and Research Company ("Fidelity") (2),(3).............................. 567,000 9.9%
Fidelity Low-Priced Stock Fund (the "Fund") (2)............................................ 567,000 9.9%
David G. Chandler (4)...................................................................... 3,333 *
Donald W. Jenkins (5)...................................................................... 9,339 *
Robert H. Jenkins (6)...................................................................... 10,339 *
Norman H. McMillan (7)..................................................................... 11,339 *
All directors and executive officers as a group (6 persons) (8)............................ 2,163,537 37.5%
</TABLE>
- ------------------------
* represents less than 1%
(1) Includes 15,000 shares held by a charitable foundation for which Mr. Shaw
and his wife serve as trustees. Mr. Shaw disclaims beneficial ownership of
all shares held in trust. Mr. Shaw's address is 25 Tri-State International
Office Center, Suite 400, Lincolnshire, Illinois 60069.
(2) WBLCF's address is 222 West Adams, Chicago, Illinois 60606. The address for
each of Fidelity and the Fund is 82 Devonshire Street, Boston, Massachusetts
02109. WBLCF has granted Recoton an option to purchase WBLCF's shares and
voting rights to vote the shares held by WBLCF under the Stock Option and
Voting Agreement. Recoton's address is 2950 Lake Emma Road, Lake Mary,
Florida 32746.
(3) Includes 567,000 shares held by the Fund. Pursuant to Rule 13d-3 under the
Securities Exchange Act of 1934, Fidelity, a wholly-owned subsidiary of FMR
Corp. and a registered investment adviser, is deemed to be a beneficial
owner of 567,000 shares as a result of acting as investment advisor to
several stock companies, including the Fund. FMR Corp. and Edward C. Johnson
III, 34% stockholder of FMR Corp., are also deemed to have beneficial
ownership as a result of their direct and indirect control of Fidelity.
(4) Includes 2,333 shares subject to option granted under the 1994 Plan which
are currently exercisable or will be exercisable within sixty days of the
date hereof. Excludes 1,487,500 shares held by WBLCF. Mr. Chandler is a
general partner of the general partner of WBLCF and therefore may be deemed
to share beneficial ownership of such shares.
(5) Includes 3,000 shares held in the individual retirement accounts of Mr.
Jenkins and his wife and 2,333 shares subject to options granted under the
1994 Plan which are currently exercisable within sixty days of the date
hereof. Also includes 4,006 shares deferred under the 1994 Plan.
(6) Includes 4,000 shares subject to options granted under the 1991 Plan and
2,333 shares subject to options granted under the 1994 Plan which are
currently exercisable or will be exercisable within sixty days of the date
hereof. Also includes 4,006 shares deferred under the 1994 Plan.
(7) Includes 4,000 shares subject to options granted under the 1991 Plan and
2,333 shares subject to options granted under the 1994 Plan which are
currently exercisable or will be exercisable within sixty days of the date
hereof. Also includes 4,006 shares deferred under the 1994 Plan.
(8) Includes 38,683 shares subject to options granted under the 1989 Plan, the
1991 Plan and the 1994 Plan which are currently exercisable or will be
exercisable with sixty days of the date hereof.
73
<PAGE>
Does not include an aggregate of 20,835 shares which certain directors and
executive officers of Jensen have rights to acquire under options granted
pursuant to the 1989 Plan, the 1991 Plan and the 1994 Plan, which options
are not currently exercisable and will not be exercisable within sixty days
of the date hereof.
SELECTED FINANCIAL DATA
The selected historical financial data presented below as of and for the
years ended February 29, 1992, February 28, 1993, February 28, 1994, February
28, 1995, and February 29, 1996, and the quarters ended May 31, 1995, and May
31, 1996, are derived from the consolidated financial statements of Jensen and
its Subsidiaries. The consolidated financial statements as of February 28, 1995
and February 29, 1996, and for each of the three years in the period ended
February 29, 1996, and the report of Coopers & Lybrand L.L.P. thereon, are
included in Jensen's Annual Report on Form 10-K for the fiscal year ended
February 29, 1996, and the consolidated financial statements for the quarterly
periods ended May 31, 1995, and May 31, 1996, are included in Jensen's Quarterly
Report on Form 10-Q, each incorporated herein by reference. This selected
historical financial information should be read in conjunction with the
consolidated financial statements, related notes, management's discussion and
analysis of financial condition and results of operations and other financial
information incorporated herein by reference.
<TABLE>
<CAPTION>
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
YEAR ENDED QUARTER ENDED
---------------------------------------------------------- ----------------------
FEB. 29, FEB. 28, FEB. 28, FEB. 28, FEB. 29, MAY 31, MAY 31,
1992 1993 1994 1995 1996 1995 1996
---------- ---------- ---------- ---------- ---------- ---------- ----------
INCOME STATEMENT DATA
Net sales.............................. $ 153,346 $ 188,318 $ 220,601 $ 252,772 $ 249,695 $ 65,284 $ 62,796
Gross profit........................... 46,108 56,868 62,435 74,385 66,630 17,851 17,774
Operating income....................... 10,039 8,978 2,008 13,717 2,670 2,054 2,099
Net income (loss) (1).................. 6,530 5,385 3,167 6,942 (883) 767 751
Net income (loss) per share (1)........ $1.59 $0.93 $0.55 $1.21 $(0.15) $0.13 $0.13
Average shares outstanding............. 4,102,802 5,765,211 5,737,174 5,757,762 5,711,888 5,763,995 5,800,273
<CAPTION>
FEB. 29, FEB. 28, FEB. 28, FEB. 28, FEB. 29, MAY 31,
1992 1993 1994 1995 1996 1996
---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA
Total assets........................... $ 74,098 $ 103,839 $ 128,041 $ 142,548 $ 132,634 $ 141,887
Total debt (2)......................... $ 1,016 $ 21,083 $ 34,873 $ 44,994 $ 43,299 $ 49,150
</TABLE>
- ------------------------------
(1) 1994 includes income of $3,595 or $0.63 per share of income related to the
cumulative effect of an accounting change.
(2) Includes long-term debt, short-term debt and amount due to preferred
stockholder, if any, for all periods.
74
<PAGE>
PRO FORMA FINANCIAL DATA
The following unaudited pro forma financial data gives effect to the sale of
the OEM Business to IJI Acquisition. The pro forma financial data is based on
the historical consolidated financial statements of Jensen and the assumptions
and adjustments described in the accompanying footnotes. Such assumptions and
adjustments include the impact of bonuses, corporate office overhead costs, and
certain profit sharing adjustments attributable to the OEM Business which have
not historically been allocated to the OEM Business in the internal accounting
records maintained by Jensen. The pro forma income statements were prepared as
if the sale of the OEM Business to IJI Acquisition had occurred at the beginning
of the periods presented. The pro forma balance sheet was prepared as if the
sale of the OEM Business to IJI Acquisition had occurred on the balance sheet
date. The pro forma financial data do not purport to represent Jensen's actual
results of operations or financial position had the sale of the OEM Business
been consummated on the dates assumed. The pro forma results of operations for
the three months ended May 31, 1996, are not necessarily indicative of the
results to be expected for the entire year. The unaudited pro forma financial
data should be read in conjunction with the consolidated financial statements of
Jensen and the notes thereto incorporated by reference in this Proxy Statement.
UNAUDITED HISTORICAL AND PROFORMA FINANCIAL INFORMATION
INTERNATIONAL JENSEN INCORPORATED AND SUBSIDIARIES
UNAUDITED PROFORMA INCOME STATEMENT
FOR THE YEAR ENDED FEBRUARY 29, 1996
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
INTERNATIONAL JENSEN PROFORMA ADJUSTMENTS
INCORPORATED & --------------------------
SUBSIDIARIES OEM BUSINESS OTHER PROFORMA
-------------------- ------------ ----------- ----------
<S> <C> <C> <C> <C>
Net sales..................... $ 249,695 $(88,160)(1) $ -- $ 161,535
Cost of goods sold............ 183,065 (76,039)(1) -- 107,026
----------- ------------ ----------- ----------
Gross profit.................. 66,630 (12,121) -- 54,509
Selling, marketing &
administration............... 63,960 (9,545)(2) -- 54,415
----------- ------------ ----------- ----------
Operating income.............. 2,670 (2,576) -- 94
Interest income............... (278) -- -- (278)
Interest expense.............. 4,574 (85)(3) (1,579)(4) 2,910
Other (income) -- net......... (225) -- -- (225)
----------- ------------ ----------- ----------
Income (loss) before provision
for income taxes............. (1,401) (2,491) 1,579 (2,313)
Provision for/(benefit from)
income taxes................. (518) (1,000)(5) 584(6) (934)
----------- ------------ ----------- ----------
Net income (loss)............. $ (883) $ (1,491) $ 995 $ (1,379)
----------- ------------ ----------- ----------
----------- ------------ ----------- ----------
Average shares outstanding.... 5,711,888 5,711,888
Net loss per share............ $ (0.15) $ (0.24)
----------- ----------
----------- ----------
</TABLE>
75
<PAGE>
UNAUDITED HISTORICAL AND PROFORMA FINANCIAL INFORMATION
INTERNATIONAL JENSEN INCORPORATED AND SUBSIDIARIES
UNAUDITED PROFORMA INCOME STATEMENT
FOR THE THREE MONTHS ENDED MAY 31, 1996
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
INTERNATIONAL PROFORMA ADJUSTMENTS
JENSEN INCORPORATED -----------------------------
& SUBSIDIARIES OEM BUSINESS OTHER PROFORMA
------------------- -------------- ------------- -------------
<S> <C> <C> <C> <C>
Net sales....................................... $ 62,796 $ (24,705)(1) $ -- $ 38,091
Cost of goods sold.............................. 45,022 (20,032)(1) -- 24,990
------------------- -------------- ------ -------------
Gross profit.................................... 17,774 (4,673) -- 13,101
Selling, marketing & administration............. 15,675 (2,485)(2) -- 13,190
------------------- -------------- ------ -------------
Operating income (loss)......................... 2,099 (2,188) (89)
Interest income................................. (46) -- -- (46)
Interest expense................................ 942 (21)(3) (384)(4) 537
Other expense, net.............................. 11 -- -- 11
------------------- -------------- ------ -------------
Income (loss) before provision for income
taxes.......................................... 1,192 (2,167) 384 (591)
Provision for/(benefit from) income taxes....... 441 (900)(5) 142(6) (317)
------------------- -------------- ------ -------------
Net income (loss)............................... $ 751 $ (1,267) $ 242 $ (274)
------------------- -------------- ------ -------------
------------------- -------------- ------ -------------
Average shares outstanding...................... 5,800,273 5,800,273
Net income (loss) per share..................... $ 0.13 $ (0.05)
------------------- -------------
------------------- -------------
</TABLE>
- ------------------------
Notes to ProForma Income Statements
(1) To eliminate the net sales and cost of goods sold of the OEM Business,
including certain corporate income and expenses that are attributable to the
OEM Business.
(2) To eliminate the selling, marketing and administration expenses directly
attributable to the OEM Business and certain corporate income and expenses
that are attributable to the OEM Business.
(3) To reduce interest expense due to the assumption of a mortgage note, bearing
interest at 9.50%, by IJI Acquisition.
(4) To reduce interest expense based on the application of the $18.4 million
estimated proceeds from the sale of the OEM Business to reduce outstanding
borrowings. The entire senior note of $15 million bearing a fixed interest
rate of 8.02% would be repaid. Additionally, the remaining proceeds of $3.4
million would be used to reduce short-term borrowings at an average interest
rate of 7.72%.
(5) To record the income tax effect of pro forma adjustments described in Notes
1, 2 and 3, assuming an effective tax rate of approximately 41%.
(6) To record the income tax effect of the pro forma adjustment described in
Note 4, assuming an effective tax rate of approximately 37%.
76
<PAGE>
UNAUDITED HISTORICAL AND PROFORMA FINANCIAL INFORMATION
INTERNATIONAL JENSEN INCORPORATED AND SUBSIDIARIES
UNAUDITED PROFORMA BALANCE SHEET
AS OF MAY 31, 1996
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
INTERNATIONAL JENSEN PROFORMA ADJUSTMENTS
INCORPORATED & ---------------------------
SUBSIDIARIES OEM BUSINESS OTHER PROFORMA
-------------------- ------------ ------------ --------
<S> <C> <C> <C> <C>
Cash.......................... $ 3,635 $ 246(1) $ -- $ 3,881
Accounts receivable, net...... 60,988 (14,598)(1) -- 46,390
Inventories................... 39,390 (4,979)(1) -- 34,411
Deferred income taxes......... 3,715 --(1) -- 3,715
Other current assets.......... 4,381 (698)(1) -- 3,683
---------- ------------ ------------ --------
Total current assets.......... 112,109 (20,029) -- 92,080
Property, plant and
equipment.................... 37,717 (19,879)(1) -- 17,838
Accumulated depreciation...... (20,212) 5,884(1) -- (14,328)
---------- ------------ ------------ --------
Net fixed assets.............. 17,505 (13,995) -- 3,510
Deferred income taxes......... 4,272 -- -- 4,272
Other assets.................. 8,001 -- -- 8,001
---------- ------------ ------------ --------
Total assets.................. $141,887 $(34,024) $ -- $107,863
---------- ------------ ------------ --------
---------- ------------ ------------ --------
Short-term borrowings......... $ 33,287 $ -- $ (3,400)(2) $ 29,887
Accounts payable.............. 13,125 (4,455)(1) -- 8,670
---------- ------------ ------------ --------
Current maturities of
long-term debt............... 38 (38)(1) -- --
---------- ------------ ------------ --------
Long-term debt reclassified as
current...................... 15,000 -- (15,000)(2) --
Accrued taxes................. 2,357 (900)(1) -- 1,457
Accrued liabilities........... 17,887 (3,558)(1) -- 14,329
---------- ------------ ------------ --------
Total current liabilities..... 81,694 (8,951) (18,400)(2) 54,343
Long-term debt................ 825 (825)(1) -- --
Other noncurrent
liabilities.................. 429 -- -- 429
Excess of fair value of
acquired assets over cost,
net.......................... 4,047 -- -- 4,047
---------- ------------ ------------ --------
Total liabilities............. 86,995 (9,776) (18,400)(2) 58,819
Total stockholder's equity.... 54,892 (24,248) 18,400(2) 49,044
Total liabilities and
stockholder's equity......... $141,887 $(34,024) $ -- $107,863
---------- ------------ ------------ --------
---------- ------------ ------------ --------
</TABLE>
- ------------------------
Notes to ProForma Balance Sheet
(1) To eliminate the assets acquired and the related liabilities to be assumed
by IJI Acquisition of the OEM Business.
(2) To apply the $18.4 million estimated proceeds from the sale of the OEM
Business to reduce certain existing Jensen short-term bank borrowings and
long-term debt reclassified as current.
77
<PAGE>
MARKET PRICES AND DIVIDEND INFORMATION
Jensen Common Stock is listed on the Nasdaq National Market System under the
symbol IJIN.
The table below sets forth, for the calendar quarters indicated, the
reported high and low sales prices of Jensen Common Stock as reported on the
Nasdaq, in each case based on published financial sources and adjusted for
splits. No cash dividends ever have been declared on shares of Jensen Common
Stock.
<TABLE>
<CAPTION>
JENSEN COMMON STOCK
-----------------------
HIGH LOW
------------ ---------
<S> <C> <C>
1993
First Quarter............................................................................ $10.50 $8.50
Second Quarter........................................................................... $9.75 $7.25
Third Quarter............................................................................ $8.25 $7.25
Fourth Quarter........................................................................... $8.00 $6.00
1994
First Quarter............................................................................ $9.00 $6.75
Second Quarter........................................................................... $10.25 $6.50
Third Quarter............................................................................ $10.25 $8.50
Fourth Quarter........................................................................... $10.00 $6.75
1995
First Quarter............................................................................ $12.00 $8.50
Second Quarter........................................................................... $9.50 $6.75
Third Quarter............................................................................ $8.75 $6.75
Fourth Quarter........................................................................... $7.75 $6.25
1996
First Quarter............................................................................ $9.25 $7.00
Second Quarter........................................................................... $11.75 $8.50
Third Quarter (through July 15, 1996).................................................... $12.00 $11.00
</TABLE>
On January 2, 1996, the last full trading day prior to the public
announcement of the proposed Merger, the closing price per share of Jensen
Common Stock on the Nasdaq was $8.50. On July 18, 1996, the most recent
practicable date prior to the printing of this Proxy Statement, the closing
price per share of Jensen Common Stock on the Nasdaq was $11.00. Holders of
shares of Jensen Common Stock are urged to obtain current market quotations
prior to making any decision with respect to the Merger.
78
<PAGE>
EXPERTS
The financial statements and the related financial statement schedule
incorporated in this Proxy Statement by reference from Jensen's Annual Report on
Form 10-K for the year ended February 29, 1996, have been audited by Coopers &
Lybrand L.L.P., independent auditors, as stated in their reports, which are
incorporated herein by reference, and have been so incorporated in reliance upon
the reports of such firm given upon their authority as experts in accounting and
auditing.
STOCKHOLDER PROPOSALS
Jensen intends to hold an Annual Meeting of Stockholders in 1996 only if the
Merger is not consummated on or before September 2, 1996. Any eligible
stockholder who wishes to submit written proposals for possible inclusion in
this year's proxy statement for the Annual Meeting, if any, must have been
received by Jensen no later than September 15, 1996.
OTHER BUSINESS
Jensen knows of no other matters that are to be presented for action at the
Special Meeting. If any other matters are properly presented at the Special
Meeting, the persons named in the enclosed proxy, or authorized substitutes,
will vote on such matters in accordance with their best judgment.
79
<PAGE>
ANNEX I
FOURTH AMENDED AND RESTATED AGREEMENT AND PLAN OF MERGER
FOURTH AMENDED AND RESTATED AGREEMENT AND PLAN OF MERGER, dated as of
January 3, 1996 (the "Agreement"), by and between RECOTON CORPORATION, a New
York corporation ("Recoton"), RC ACQUISITION SUB, INC., a Delaware corporation
("Acquisition Sub") and wholly-owned subsidiary of Recoton, and INTERNATIONAL
JENSEN INCORPORATED, a Delaware corporation ("Jensen").
W I T N E S S E T H:
WHEREAS, the Boards of Directors of Recoton, Acquisition Sub and Jensen have
approved the merger of Acquisition Sub with and into Jensen (the "Merger")
pursuant to the terms and conditions set forth in this Agreement and the sole
stockholder of Acquisition Sub has approved the Merger;
WHEREAS, Jensen and Recoton entered into an agreement on January 3, 1996
(the "AR Agreement") by which Recoton has acquired a license to and an option to
purchase, and Jensen has acquired an option to sell, the trademarks and
associated copyrights and other intellectual properties of Jensen associated
with the name "Acoustic Research" or "AR" (the "AR Rights"), which agreement is
being amended contemporaneous to execution of this Agreement; and
WHEREAS, Jensen and IJI Acquisition Corp. ("IJI") have entered into an
agreement, which is being amended contemporaneous to execution of this Agreement
(the "OE Agreement") by which IJI has agreed to acquire the assets associated
with the original equipment business of Jensen (the "Original Equipment
Business") and assume related liabilities prior to the Effective Time (as
defined in Section 1.2), which agreement Recoton has approved.
NOW, THEREFORE, in consideration of the premises and the representations,
warranties, covenants and agreements contained herein, Recoton, Acquisition Sub
and Jensen, 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 of
this Agreement, at the Effective Time in accordance with the Delaware General
Corporation Law (the "GCL") Acquisition Sub shall be merged with and into Jensen
in accordance with this Agreement and the form of certificate of merger attached
hereto as Exhibit 1.1 (the "Certificate of Merger") and the separate existence
of Acquisition Sub shall thereupon cease. Jensen shall be the surviving
corporation in the Merger (hereinafter sometimes referred to as the "Surviving
Corporation").
Section 1.2 EFFECTIVE TIME OF THE MERGER. The Merger shall become
effective at such time (the "Effective Time") after the Closing (as defined
below) as a copy of the duly completed Certificate of Merger (the "Merger
Filing") is delivered to the Secretary of State of the State of Delaware for
filing and is filed by the Secretary of State of the State of Delaware or at
such later time as the parties may agree to specify in the Certificate of
Merger.
Section 1.3 EFFECTS OF THE MERGER. The Merger shall have the effects set
forth in Section 259 of the GCL.
Section 1.4 CLOSING. The closing (the "Closing") of the transactions
contemplated by this Agreement shall take place at the offices of Stroock &
Stroock & Lavan, 7 Hanover Square, New York, New York on August 15, 1996 at 9:30
A.M. New York time, or, if later, on the second business day
ANNEX I-1
<PAGE>
immediately following the date on which the last of the conditions set forth in
Article VIII hereof is fulfilled or waived, or at such other time and place as
Acquisition Sub and Jensen shall agree (the "Closing Date").
ARTICLE II
THE SURVIVING CORPORATION
Section 2.1 CERTIFICATE OF INCORPORATION; AMENDMENT. The Certificate of
Incorporation of Acquisition Sub as in effect immediately prior to the Effective
Time shall be the Certificate of Incorporation of the Surviving Corporation
after the Effective Time until amended in accordance with the provisions of the
GCL, except that Article FIRST shall be amended as of and from the Effective
Time to read "The name of the Corporation shall be Recoton Audio Corporation."
Section 2.2 BY-LAWS. The By-Laws of Acquisition Sub shall be the By-Laws
of the Surviving Corporation after the Effective Time, and thereafter may be
amended in accordance with their terms and as provided by the Certificate of
Incorporation of the Surviving Corporation and the GCL.
Section 2.3 DIRECTORS AND OFFICERS. (a) At the Effective Time, the Board
of Directors of the Surviving Corporation shall consist of the following
persons:
Robert L. Borchardt
Joseph H. Massot
Stuart Mont
Robert G. Shaw
Marc T. Tanenberg
(b) At the Effective Time, the officers of the Surviving Corporation shall
be as follows:
<TABLE>
<CAPTION>
OFFICE HOLDER
- --------------------------------------------- ---------------------------------------------
<S> <C>
Chairman Robert L. Borchardt
President & CEO Robert G. Shaw
Vice President & CFO Marc T. Tanenberg
Secretary Stuart Mont
Treasurer & Assistant Secretary Joseph H. Massot
</TABLE>
ARTICLE III
CONVERSION OF SHARES
Section 3.1 CONVERSION OF JENSEN SHARES IN THE MERGER.
(a) At the Effective Time, by virtue of the Merger and without any action on
the part of any holder of any capital stock of Jensen except as set forth in
this Section 3.1, subject to the other provisions of this Section 3.1, each
share of common stock, par value $.01 per share, of Jensen ("Jensen Common
Stock") issued and outstanding immediately prior to the Effective Time
(excluding any treasury shares and Dissenting Shares (as defined in Section
3.5)) shall be converted into the right to receive merger consideration (the
"Merger Consideration") in the amount of $11.00 in cash (hereinafter the "Per
Share Cash Amount") or $8.90 in cash in the case of shares held beneficially by
Robert G. Shaw ("Shaw") and William Blair Leveraged Capital Fund, L.P. ("WBLCF")
(WBLCF and Shaw being referred to herein as the "Principal Stockholders") (the
"Principal Stockholders Per Share Cash Amount"). At the Effective Time, all
shares of Jensen Common Stock shall no longer be outstanding and shall
automatically be canceled and retired and shall cease to exist, and each
certificate previously evidencing any such shares shall thereafter represent the
right to receive the Merger Consideration. The holders of certificates
previously evidencing shares of Jensen Common Stock outstanding immediately
prior to the Effective Time shall cease to have any rights with respect to
ANNEX I-2
<PAGE>
shares of Jensen Common Stock except as otherwise provided herein or by law.
Certificates previously evidencing shares of Jensen Common Stock shall be
exchanged for the Per Share Cash Amount or the Principal Stockholders Per Share
Cash Amount, as applicable, multiplied by the number of shares previously
evidenced by the canceled certificate.
(b) Notwithstanding the foregoing, if between the date of this Agreement and
the Effective Time the outstanding shares of Jensen 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 Per Share Cash Amount and the Principal
Stockholders Per Share Cash Amount shall be correspondingly adjusted to reflect
such stock dividend, subdivision, reclassification, recapitalization, split,
combination or exchange of shares.
(c) Each share of Jensen Common Stock held in the treasury of Jensen and
each share of Jensen Common Stock owned by Recoton or any direct or indirect
wholly owned subsidiary of Recoton or of Jensen immediately prior to the
Effective Time shall be canceled and extinguished without any conversion thereof
and no payment shall be made with respect thereto.
3.2 EXCHANGE OF CERTIFICATES.
(a) EXCHANGE AGENT. Prior to the Effective Time, Recoton or Acquisition
Sub shall deposit, or shall cause to be deposited, with a bank or trust company
designated by Recoton (the "Exchange Agent"), for the benefit of the holders of
shares of Jensen Common Stock, for exchange in accordance with this Article III,
through the Exchange Agent cash in the amount equal to the sum of (i) the number
of shares of Jensen Common Stock outstanding excluding shares held beneficially
by the Principal Stockholders multiplied by the Per Share Cash Amount plus (ii)
the number of shares of Jensen Common Stock held beneficially by the Principal
Stockholders multiplied by the Principal Stockholders Per Share Cash Amount. The
Exchange Agent shall, pursuant to irrevocable instructions, deliver the cash out
of the Exchange Fund in accordance with Section 3.1. Except as contemplated by
Section 3.2(f) hereof, the Exchange Fund shall not be used for any other
purpose. The Exchange Fund shall be invested by the Exchange Agent as directed
by Recoton (so long as such directions do not impair the rights of the holders
of the shares of Jensen Common Stock) in direct obligations of the United States
of America, obligations for which the full faith and credit of the United States
of America is pledged to provide for the payment of principal and interest,
commercial paper rated P-1 or better by Moody's Investors Services, Inc. or A-1
or better by Standard & Poor's Corporation or certificates of deposit issued by
the Exchange Agent or a commercial bank having at least $1,000,000,000 in
assets, and any net earnings with respect thereto shall be paid to Recoton as
and when requested by Recoton.
(b) Promptly after the Effective Time, Recoton will send, or will cause the
Exchange Agent to send, to each holder of record of a certificate or
certificates which immediately prior to the Effective Time represented
outstanding shares of Jensen Common Stock, other than holders of certificates
which represent Shares canceled and retired pursuant to Section 3.1(c) hereof,
(i) a letter of transmittal for use in such exchange (which shall specify that
the delivery shall be effected, and risk of loss and title shall pass, only upon
proper delivery of the certificates representing shares of Jensen Common Stock
to the Exchange Agent) and (ii) instructions for use in effecting the surrender
of certificates for payment therefor (the "Exchange Instructions").
(c) Each holder of certificates representing shares of Jensen Common Stock
that have been converted into a right to receive the Merger Consideration which
holders of such certificates are entitled to receive pursuant to this Article
III, upon surrender to the Exchange Agent of a certificate or certificates
representing such shares of Jensen Common Stock, together with a properly
completed and executed letter of transmittal covering such shares of Jensen
Common Stock and any other documents reasonably required by the Exchange
Instructions, will promptly receive the Merger
ANNEX I-3
<PAGE>
Consideration payable in respect of such shares of Jensen Common Stock as
provided in this Article III, without any interest thereon, less any required
withholding of taxes, and the certificates so surrendered shall forthwith be
canceled. Until so surrendered, each such certificate shall, at and after the
Effective Time, represent for all purposes only the right to receive such Merger
Consideration.
(d) If any portion of the Merger Consideration is to be paid to a person
other than the registered holder of the shares of Jensen Common Stock
represented by the certificate or certificates surrendered in exchange therefor,
it shall be a condition to such payment that the certificate or certificates so
surrendered shall be properly endorsed or otherwise be in proper form for
transfer and that the person requesting such payment shall pay to the Exchange
Agent any transfer or other taxes required as a result of such payment to a
person other than the registered holder of such shares of Jensen Common Stock or
establish to the satisfaction of the Exchange Agent that such tax has been paid
or is not payable. The Exchange Agent may make any tax withholdings required by
law if not provided with the appropriate documents.
(e) NO FURTHER RIGHTS IN JENSEN COMMON STOCK. All cash paid upon
conversion of the shares of Jensen 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 of Jensen Common Stock.
(f) TERMINATION OF EXCHANGE FUND. Any portion of the Exchange Fund
(including, without limitation, all interest and other income received by the
Exchange Agent in respect of all funds made available to it) which remains
undistributed to the holders of Jensen Common Stock for one year after the
Effective Time shall be delivered to the Surviving Corporation, upon demand, and
any holders of Jensen Common Stock who have not theretofore complied with this
Article III shall thereafter look only to the Surviving Corporation for the
Merger Consideration to which they are entitled.
(g) NO LIABILITY. Neither Recoton nor the Surviving Corporation shall be
liable to any holder of shares of Jensen Common Stock for any cash from the
Exchange Fund delivered in good faith to a public official pursuant to any
applicable abandoned property, escheat or similar law.
(h) WITHHOLDING RIGHTS. Recoton and/or the Surviving Corporation shall be
entitled to deduct and withhold from the consideration otherwise payable
pursuant to this Agreement to any holder of shares of Jensen Common Stock such
amounts as Recoton and/or the Surviving Corporation is required to deduct and
withhold with respect to the making of such payment under the Internal Revenue
Code of 1986, as amended (the "Code"), or any provision of state, local or
foreign tax law. To the extent that amounts are so withheld by Recoton and/or
the Surviving Corporation, such withheld amounts shall be treated for all
purposes of this Agreement as having been paid to the holder of the shares of
Jensen Common Stock in respect of which such deduction and withholding was made
by Recoton and/or the Surviving Corporation.
(i) LOST CERTIFICATES. In the event any certificate shall have been lost,
stolen or destroyed, upon the making of an affidavit of that fact by the person
claiming such certificate to be lost, stolen or destroyed and, if reasonably
required by the Surviving Corporation (which determination may be delegated to
the Exchange Agent), the posting by such person of a bond in such amount as the
Surviving Corporation or such Exchange Agent may determine is reasonably
necessary as indemnity against any claim that may be made against it with
respect to such certificate, the Exchange Agent will issue in exchange for such
lost, stolen or destroyed certificate the Merger Consideration deliverable in
respect thereof pursuant to this Agreement.
Section 3.3 STOCK TRANSFER BOOKS. At the Effective Time, the stock
transfer books of Jensen shall be closed and there shall be no further
registration of transfers of shares of Jensen Common Stock thereafter on the
records of Jensen. On or after the Effective Time, any certificates presented to
the Exchange Agent, Recoton or the Surviving Corporation for any reason shall be
converted into the Merger Consideration.
ANNEX I-4
<PAGE>
Section 3.4 STOCK OPTIONS AND OTHER RIGHTS.
(a) Immediately prior to the Effective Time, each holder of then outstanding
options ("Options") to purchase shares (whether or not then presently
exercisable) granted under the Jensen Stock Option Plan (1989), the Jensen 1991
Stock Incentive Plan and the 1994 Jensen Stock Option and Purchase Plan for
Non-Employee Directors (collectively, the "Option Plans") will be entitled to
receive, and shall receive, in settlement of each such Option a cash payment
from Jensen in an amount equal to the product of (i) the Merger Consideration
minus the exercise price per share of the Option and (ii) the number of shares
of Jensen Common Stock covered by such Option; PROVIDED, HOWEVER, that each
optionee shall receive a payment of at least $50. Jensen shall use its best
efforts to cause each holder of Options (whether or not then presently
exercisable) to execute an agreement consenting to the cancellation of such
Options as aforesaid.
(b) Pursuant to Section 3.2 of the 1994 Stock Option and Purchase Plan For
Non-Employee Directors (the "Jensen Directors Plan"), certain directors of
Jensen ("Deferred Holders") have elected to defer the receipt of shares of
Jensen Common Stock ("Deferred Shares") owed to them in lieu of directors' fees
pursuant to the Jensen Directors Plan. Immediately prior to the Effective Time,
Jensen shall terminate each such director's right to receive the Deferred
Shares, and in consideration thereof, Jensen shall make a cash payment to each
Deferred Holder at the time provided in the final two sentences of this Section
3.4(b) (and subject, in the case of each such Deferred Holder, to the receipt
from such Deferred Holder of a Cancellation Agreement, as that term is defined
in the next sentence), in an amount equal to the number of Deferred Shares held
by such Deferred Holder times the Per Share Cash Amount. Jensen shall use its
best efforts to obtain from each Deferred Holder a written agreement
substantially in the form of Exhibit 3.4 (a "Cancellation Agreement") prior to
the Effective Time. A Deferred Holder who has delivered to Jensen a Cancellation
Agreement prior to the Effective Time shall be paid pursuant to this Section
3.4(b) at or prior to the Effective Time. In the case of any Deferred Holder who
does not deliver a Cancellation Agreement to Jensen prior to the Effective Time,
Recoton shall cause the Surviving Corporation to pay such Deferred Holder after
the Effective Time the amount to which the Deferred Holder is entitled pursuant
to this Section 3.4(b) promptly after the receipt by the Surviving Corporation
from the Deferred Holder of a Cancellation Agreement.
Section 3.5 DISSENTING SHARES. Notwithstanding any other provisions of
this Agreement to the contrary, shares of Jensen Common Stock that are
outstanding immediately prior to the Effective Time and which are held by
stockholders who shall have not voted in favor of the Merger or consented
thereto in writing and who shall have demanded properly in writing appraisal for
such shares in accordance with Section 262 of the GCL (collectively, the
"Dissenting Shares") shall not be converted into or represent the right to
receive the Merger Consideration. Such stockholders shall be entitled to receive
payment of the appraised value of such shares of Jensen Common Stock held by
them in accordance with the provisions of such Section 262, except that all
Dissenting Shares held by stockholders who shall have failed to perfect or who
effectively shall have withdrawn or lost their rights to appraisal of such
shares of Jensen Common Stock under such Section 262 shall thereupon be deemed
to have been converted into and to have become exchangeable, as of the Effective
Time, for the right to receive, without any interest thereon, the Merger
Consideration upon surrender, in the manner provided in Section 3.2, of the
certificate or certificates that formerly evidenced such shares of Jensen Common
Stock.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF JENSEN
Jensen represents and warrants to Recoton and Acquisition Sub as follows:
Section 4.1 ORGANIZATION AND QUALIFICATION. Jensen is a corporation duly
organized, validly existing and in good standing under the laws of its state of
incorporation and has the requisite corporate power and authority to own, lease
and operate its assets and properties and to carry on its
ANNEX I-5
<PAGE>
businesses as it is now being conducted. Jensen is qualified to do business and
is in good standing in each jurisdiction in which the properties owned, leased
or operated by it or the nature of the businesses conducted by it makes such
qualification necessary, except where the failure to be so qualified and in good
standing will not, when taken together with all other such failures, have a
Jensen Material Adverse Effect. For purposes of this Agreement, a Jensen
Material Adverse Effect shall be a material adverse effect on the business,
operations, properties, assets, condition (financial or otherwise), results of
operations or prospects of Jensen and its subsidiaries taken as a whole,
excluding the Original Equipment Business (except that for purposes of
determining whether a Jensen Material Adverse Effect arising out of the matters
described in Section 4.17 has occurred, "Jensen Material Adverse Effect" shall
mean potential liabilities and costs that reasonably may exceed $5,000,000).
True and complete copies of Jensen's Certificate of Incorporation and By-Laws,
as in effect on the date hereof, including all amendments thereto, have
heretofore been delivered to Recoton.
Section 4.2 JENSEN COMMON STOCK. Jensen has 10,000,000 authorized shares
of Common Stock, of which 5,714,799 shares are outstanding as of November 30,
1995, all of which are or shall be validly issued and are fully paid,
nonassessable and free of preemptive rights. Except as set forth in Section 4.2
of the separate disclosure schedule executed and delivered by Jensen
simultaneous with the execution and delivery of the Agreement ("Jensen's
Disclosure Schedule"), as of the date hereof, there are no outstanding
subscriptions, options, warrants, rights, calls, contracts, voting trusts,
proxies or other commitments, understandings, restrictions, or arrangements,
including any right of conversion or exchange under any outstanding security,
instrument or other agreement obligating Jensen to issue, deliver or sell, or
cause to be issued, delivered or sold, additional shares of the capital stock of
Jensen or obligating Jensen or any subsidiary of Jensen to grant, extend or
enter into any such agreement or commitment except pursuant to this Agreement.
Section 4.3 SUBSIDIARIES. Each direct and indirect subsidiary of Jensen is
a corporation duly organized, validly existing and in good standing under the
laws of its jurisdiction of incorporation and has the requisite power and
authority to own, lease and operate its assets and properties and to carry on
its business as it is now being conducted. Each of such subsidiaries is
qualified to do business, and is in good standing, in each jurisdiction in which
the properties owned, leased or operated by it or the nature of the business
conducted by it makes such qualification necessary, except where the failure to
be so qualified and in good standing will not, when taken together with all such
other failures, have a Jensen Material Adverse Effect. Except as set forth in
Section 4.3 of Jensen's Disclosure Schedule, all of the outstanding shares of
capital stock of each subsidiary are validly issued, fully paid, nonassessable
and free of preemptive rights, and those owned directly or indirectly by Jensen
are owned free and clear of any liens, claims, encumbrances, security interests,
equities, charges and options of any nature whatsoever. Except as set forth in
Section 4.3 of Jensen's Disclosure Schedule or in Jensen's Annual Report on Form
10-K for the year ended February 28, 1995 or the exhibits and schedules thereto
(the "Jensen 10-K" and, together with any reports filed by Jensen with the
Securities and Exchange Commission (the "SEC") under the Securities Exchange Act
of 1934, as amended, (the "Exchange Act") after the Jensen 10-K and prior to the
date of this Agreement, the "Jensen 1995 Reports"), Jensen owns directly or
indirectly all of the issued and outstanding shares of the capital stock of each
of its subsidiaries. Except as set forth in Section 4.3 of Jensen's Disclosure
Schedule or in the Jensen 1995 Reports, there are no outstanding subscriptions,
options, warrants, rights, calls, contracts, voting trusts, proxies or other
commitments, understandings, restrictions or arrangements relating to the
issuance, sale, voting, transfer, ownership or other rights affecting any shares
of capital stock of any subsidiary of Jensen, including any right of conversion
or exchange under any outstanding security, instrument or agreement. Section 4.3
of Jensen's Disclosure Schedule sets forth a list of all material corporations,
partnerships, joint ventures and other business entities in which Jensen or any
of its subsidiaries directly or indirectly owns an interest and such
subsidiaries' direct and indirect share, partnership or other ownership interest
of each such entity.
Section 4.4 AUTHORITY; NON-CONTRAVENTION; APPROVALS. (a) Jensen has full
corporate power and authority to enter into this Agreement and, subject to
Jensen Stockholders' Approval (as defined in
ANNEX I-6
<PAGE>
Section 4.18) and the Jensen Required Approvals (as defined in Section 4.4(c)),
to consummate the transactions contemplated hereby. The execution, delivery and
performance of this Agreement and the consummation by Jensen of the transactions
contemplated hereby have been duly authorized by Jensen's Board of Directors,
and no other corporate proceedings on the part of Jensen are necessary to
authorize the execution and delivery of this Agreement and the consummation by
Jensen of the transactions contemplated hereby, except for the Jensen
Stockholders' Approval and the obtaining of the Jensen Required Approvals. This
Agreement has been duly and validly executed and delivered by Jensen and
constitutes a valid and legally binding agreement of Jensen enforceable against
it in accordance with its terms.
(b) Except as set forth in Section 4.4(b) of Jensen's Disclosure Schedule,
the execution and delivery of this Agreement by Jensen does not, and the
consummation by Jensen of the transactions contemplated hereby will not,
violate, conflict with or result in a breach of any provision of, or constitute
a default (or an event which, with notice or lapse of time or both, would
constitute a default) under, or result in the termination of, or accelerate the
performance required by, or result in a right of termination or acceleration
under, or result in the creation of any lien, security interest, charge or
encumbrance upon any of the properties or assets of Jensen or any of its
subsidiaries under any of the terms, conditions or provisions of (i) the
respective charters or By-Laws of Jensen or any of its subsidiaries, (ii)
subject to obtaining the Jensen Required Approvals and the receipt of the Jensen
Stockholders' Approval, any statute, law, ordinance, rule, regulation, judgment,
decree, order, injunction, writ, permit or license of any court or governmental
authority applicable to Jensen or any of its subsidiaries or any of their
respective properties or assets, or (iii) any note, bond, mortgage, indenture,
deed of trust, license, franchise, permit, concession, contract, lease or other
instrument, obligation or agreement of any kind to which Jensen or any of its
subsidiaries is now a party or by which Jensen or any of its subsidiaries or any
of their respective properties or assets may be bound or affected, excluding
from the foregoing clauses (ii) and (iii) such violations, conflicts, breaches,
defaults, terminations, accelerations or creations of liens, security interests,
charges or encumbrances that would not, in the aggregate, have a Jensen Material
Adverse Effect.
(c) Except for (i) the filings by Jensen required by Title II of the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR
Act"), (ii) any filings required by comparable European or European Community
regulation ("EC Filings"), (iii) the filing of the Proxy Statement (as
hereinafter defined) with the SEC pursuant to the Exchange Act, and the
Securities Act of 1933, as amended (the "Securities Act") and (iv) the making of
the Merger Filing with the Secretary of State of the State of Delaware in
connection with the Merger (the filings and approvals referred to in clauses (i)
through (iv) are collectively referred to as the "Jensen Required Approvals"),
no declaration, filing or registration with, or notice to, or authorization,
consent or approval of, any governmental or regulatory body or authority is
necessary for the execution and delivery of this Agreement by Jensen or the
consummation by Jensen of the transactions contemplated hereby.
Section 4.5 REPORTS AND FINANCIAL STATEMENTS; DERIVATIVE
TRANSACTIONS. Since February 28, 1995, Jensen and each of its subsidiaries
required to make filings under the Securities Act, the Exchange Act and
applicable state laws and regulations, as the case may be, have filed all forms,
statements, reports and documents (including all exhibits, amendments and
supplements thereto) required to be filed by them under each of the Securities
Act, the Exchange Act, applicable laws and regulations of Jensen's and its
subsidiaries' jurisdictions of incorporation and the respective rules and
regulations thereunder, all of which complied in all material respects with all
applicable requirements of the appropriate act and the rules and regulations
thereunder. Jensen has previously delivered to Recoton true and complete copies
of its (a) Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, and
Current Reports on Form 8-K filed by Jensen or any of its subsidiaries with the
SEC from February 28, 1992, until the date hereof, (b) proxy and information
statements relating to all meetings of its stockholders (whether annual or
special) and actions by written consent in lieu of a stockholders' meeting from
February 28, 1992 until the date hereof and (c) all other reports or
registration statements filed by Jensen with the SEC from February 28, 1992
until the date hereof
ANNEX I-7
<PAGE>
(collectively, the "Jensen SEC Reports"), and (d) audited consolidated financial
statements for the fiscal year ended February 28, 1995 and its unaudited
consolidated financial statements for the nine months ended November 30, 1995
(the "Nine Month Jensen Financial Statements") (collectively the "1995 Jensen
Financial Statements"). As of their respective dates, the Jensen SEC Reports did
not contain any untrue statement of a material fact or omit to state a material
fact required to be stated therein or necessary to make the statements therein,
in light of the circumstances under which they were made, not misleading. The
audited consolidated financial statements and unaudited interim financial
statements of Jensen included in the Jensen SEC Reports and the 1995 Jensen
Financial Statements (collectively, the "Jensen Financial Statements") fairly
present the financial position of Jensen and its subsidiaries as of the dates
thereof and the results of their operations and cash flows for the periods then
ended in conformity with generally accepted accounting principles applied on a
consistent basis (except as may be indicated therein or in the notes thereto),
subject, in the case of the unaudited interim financial statements, to normal
year-end and audit adjustments and any other adjustments described therein.
Jensen and its subsidiaries do not, and will not, use any derivative financial
instruments other than as disclosed in Section 4.5 of Jensen's Disclosure
Schedule.
Section 4.6 ABSENCE OF UNDISCLOSED LIABILITIES. Except as set forth in
Section 4.6 of Jensen's Disclosure Schedule or in the Jensen 1995 Reports,
neither Jensen nor any of its subsidiaries had at February 28, 1995, or has
incurred since that date, any liabilities or obligations (whether absolute,
accrued, contingent or otherwise) of any nature, except liabilities, obligations
or contingencies (a) which are accrued or reserved against in the 1995 Jensen
Financial Statements or reflected in the notes thereto or (b) which were
incurred after February 28, 1995, and were incurred in the ordinary course of
business and consistent with past practices and, in either case, except for any
such liabilities, obligations or contingencies which (i) would not, in the
aggregate, have a Jensen Material Adverse Effect or (ii) have been discharged or
paid in full prior to the date hereof.
Section 4.7 ABSENCE OF CERTAIN CHANGES OR EVENTS. Except as set forth in
Section 4.7 of Jensen's Disclosure Schedule or in the Jensen 1995 Reports, since
February 28, 1995 there has not been any material adverse change in the business
(including, without limitation, any actual or threatened loss of significant
customers (excluding customers of the Original Equipment Business) or any
cancellation or threatened cancellation of any orders with an aggregate value of
$1,000,000 or more (excluding orders of the Original Equipment Business)),
operations, properties, assets, liabilities, condition (financial or other),
results of operations or prospects of Jensen and its subsidiaries, taken as a
whole (excluding the original equipment business), and Jensen and its
subsidiaries have in all material respects conducted their respective businesses
in the ordinary course consistent with past practice.
Section 4.8 LITIGATION. Except as disclosed in the Jensen 1995 Reports,
the 1995 Jensen Financial Statements, or Section 4.8 of Jensen's Disclosure
Schedule, (a) there are no claims, suits, actions or proceedings pending or, to
the knowledge of Jensen, threatened, nor to the knowledge of Jensen are there
any investigations or reviews pending or threatened, against, relating to or
affecting Jensen or any of its subsidiaries, which, if adversely determined,
would have a Jensen Material Adverse Effect; (b) there have not been any
developments since the date of the Jensen 10-K with respect to such claims,
suits, actions, proceedings, investigations or reviews which, individually or in
the aggregate, may have a Jensen Material Adverse Effect; and (c) except as
contemplated by the Jensen Required Approvals, neither Jensen nor any of its
subsidiaries is subject to any judgment, decree, injunction, rule or order of
any court, governmental department, commission, agency, instrumentality or
authority or any arbitrator which prohibits or restricts the consummation of the
transactions contemplated hereby or may have a Jensen Material Adverse Effect.
Section 4.9 PROXY STATEMENT. The proxy statement to be distributed in
connection with the Jensen Stockholders' Meeting (the "Proxy Statement") will
not at the time of the mailing of the Proxy Statement and any amendment or
supplement thereto, and at the time of the Jensen Stockholders' Meeting, 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 are made, not misleading
or necessary to correct any statement in any earlier filing
ANNEX I-8
<PAGE>
with the SEC of such Proxy Statement or any amendment or supplement thereto or
any earlier communication to stockholders of Jensen with respect to the
transactions contemplated by this Agreement. The Proxy Statement will comply as
to form in all material respects with all applicable laws, including the
provisions of the Exchange Act and the rules and regulations promulgated
thereunder. Notwithstanding the foregoing, no representation is made by Jensen
with respect to information supplied by Recoton or Acquisition Sub or their
representatives specifically for inclusion in the Proxy Statement.
Section 4.10 NO VIOLATION OF LAW. Except as set forth in Section 4.10 of
Jensen's Disclosure Schedule, neither Jensen nor any of its subsidiaries is in
violation of, or, to the knowledge of Jensen, is under investigation with
respect to or has been given notice or been charged with any violation of, any
law, statute, order, rule, regulation, ordinance, or judgment of any
governmental or regulatory body or authority, except for violations which in the
aggregate do not have a Jensen Material Adverse Effect. Jensen and its
subsidiaries have all material permits, licenses, franchises and other
governmental authorizations, consents and approvals (the "Jensen Government
Approvals") necessary to conduct their businesses as presently conducted and,
except as set forth in Section 4.10 of Jensen's Disclosure Schedule, all such
Jensen Government Approvals shall be transferred to the Surviving Corporation.
Section 4.11 COMPLIANCE WITH AGREEMENTS. Except as disclosed in the Jensen
1995 Reports, the Jensen 1995 Financial Statements or Section 4.11 of Jensen's
Disclosure Schedule, Jensen and each of its subsidiaries are not in breach or
violation of or in default in the performance or observance of any term or
provision of, and no event has occurred which, with lapse of time or action by a
third party, could result in a default under, (i) the respective charters or
by-laws of Jensen or any of its subsidiaries or (ii) any contract, commitment,
agreement, indenture, mortgage, loan agreement, note, lease, bond, license,
approval or other instrument to which Jensen or any of its subsidiaries is a
party or by which any of them is bound or to which any of their property is
subject, which breaches, violations and defaults, in the case of clause (ii) of
this Section 4.11 would have, in the aggregate, a Jensen Material Adverse
Effect.
Section 4.12 TAXES. (a) Jensen and its subsidiaries have duly filed with
the appropriate federal, state, local, and foreign taxing authorities all tax
returns required to be filed by them on or prior to the Effective Time and such
tax returns are true and complete in all material respects, and duly paid in
full or made adequate provision for the payment of all taxes for all periods
ending at or prior to the Effective Time. The liabilities and reserves for taxes
reflected in the Jensen balance sheets (x) as of February 28, 1995, contained in
the Jensen 10-K, are adequate to cover all taxes for any period ending on or
prior to February 28, 1995; and (y) as of August 31, 1995, contained in the Form
10-Q filed with the SEC on or about October 15, 1995 (the "Six Month 1995
Financial Statements"), are adequate to cover all taxes for any period ending on
or prior to August 31, 1995; and (z) as of November 30, 1995, contained in the
Nine Month Financial Statements are adequate to cover all taxes for any period
ending on or prior to November 30, 1995. Except as set forth in Section 4.12 of
Jensen's Disclosure Schedule, (i) there are no material liens for taxes upon any
property or asset of Jensen or any subsidiary thereof, except for (x) liens for
taxes not yet due and (y) any such liens for taxes shown on such Section 4.12 of
Jensen's Disclosure Statement, which are being contested in good faith through
appropriate proceedings; (ii) Jensen has not made any change in accounting
method, received a ruling from any taxing authority or signed an agreement with
any taxing authority which will materially and adversely affect Jensen in future
periods; (iii) during the past three years neither Jensen nor any of its
subsidiaries has received any notice of deficiency, proposed deficiency or
assessment from any governmental taxing authority with respect to taxes of
Jensen or any of its subsidiaries, except any such notice of deficiency,
proposed deficiency or assessment which will not in the aggregate cause a Jensen
Material Adverse Effect, and, any such deficiency or assessment shown on such
Section 4.12 of Jensen's Disclosure Schedule has been paid or is being contested
in good faith through appropriate proceedings; (iv) the income tax returns for
Jensen and its subsidiaries are not currently the subject of any audit by the
Internal Revenue Service (the "IRS") or any other national taxing authority, and
such federal income tax returns have been examined by the IRS (or the applicable
statutes of
ANNEX I-9
<PAGE>
limitation for the assessment of federal taxes for such periods have expired)
for all periods through and including February 28, 1990, and no material
deficiencies were asserted as a result of such examinations which have not been
resolved and fully paid; (v) there are no outstanding requests, agreements,
consents or waivers to extend the statutory period of limitations applicable to
the assessment of any taxes or deficiencies against Jensen or any of its
subsidiaries, and no power of attorney granted by either Jensen or any of its
subsidiaries with respect to any taxes is currently in force; and (vi) neither
Jensen nor any of its subsidiaries is a party to any agreement providing for the
allocation or sharing of taxes. Neither Jensen nor any of its subsidiaries has,
with regard to any assets or property held, acquired or to be acquired by any of
them, filed a consent to the application of Section 341(f) of the Code. Except
as set forth on Section 4.12(b) of Jensen's Disclosure Schedule, Jensen will not
have any carryovers subject to limitation under Section 382 or Section 383 of
the Code immediately after the Merger. Jensen and its subsidiaries, in
accordance with Section 482 of the Code, properly conducted intercompany pricing
studies for the tax year ended February 1995, and is conducting such study in a
timely manner with respect to the tax year ending February 1996.
(b) The term "tax" shall include any tax, assessment, levy, impost, duty, or
withholding of any nature now or hereafter imposed by a government authority and
any interest, additional tax, deficiency, penalty, charge or other addition
thereon, including without limitation any income, gross receipts, profits,
franchise, sales, use, property (real and personal), transfer, payroll,
unemployment, social security, occupancy and excise tax and customs duty, except
that for purposes of Section 4.12(a), such term shall not include any amount
resulting from the Merger. The term "return" shall include any return,
declaration, report, estimate, information return and statement required to be
filed with or supplied to any taxing authority in connection with any taxes.
Section 4.13 CUSTOMS. Except as set forth in the Jensen 1995 Reports or in
Section 4.13 of Jensen's Disclosure Schedule, Jensen and its subsidiaries have
at all times been in compliance with all requirements administered and enforced
by the U.S. Customs Service, including, but not limited to the classification,
valuation, and marking of articles imported into the United States in a way so
as not to give rise to a Jensen Material Adverse Effect.
Section 4.14 EMPLOYEE BENEFIT PLANS; ERISA. (a) Section 4.14 of Jensen's
Disclosure Schedule lists all material employee benefit plans, employment
contracts or other arrangements for the provision of benefits for employees or
former employees of Jensen and its subsidiaries (other than its foreign
subsidiaries as to which such disclosure shall be provided within ten business
days after the date hereof and as to which the agreements, plans, contracts, or
other arrangements thereof shall not be unduly burdensome or out of the
ordinary), and, except as set forth in Section 4.14(a) of Jensen's Disclosure
Schedule, neither Jensen nor its subsidiaries have any commitment to create any
additional plan, contract or arrangement or to amend any such plan, contract or
arrangement so as to increase benefits thereunder, except as required under
existing collective bargaining agreements. Section 4.14(a) of Jensen's
Disclosure Schedule identifies all "employee benefit plans" within the meaning
of Section 3(3) of the Employee Retirement Income Security Act of 1974, as
amended ("ERISA"), other than "multiemployer plans" within the meaning of
Section 3(37) of ERISA, covering current or former employees of Jensen and its
subsidiaries (the "Jensen Plans"), other than Jensen Plans which are described
in Jensen 1995 Reports or the Proxy Statement for the 1995 Annual Meeting of
Stockholders of Jensen. A true and correct copy of each of the employee benefit
plans, employment contracts and other arrangements for the provision of benefits
for employees and former employees of Jensen and its subsidiaries described in
the Jensen SEC Reports, the Jensen Plans listed on Section 4.14(a) of Jensen's
Disclosure Schedule, except for any multiemployer plans, and all contracts
relating thereto, or to the funding thereof (including, without limitation, all
trust agreements, insurance contracts, investment management agreements,
subscription and participation agreements and recordkeeping agreements), each as
will be in effect at the Effective Time, has been provided to Recoton. In the
case of any employee benefit plan, employment contract or other benefit
arrangement which is not in written form, an accurate description of such plan,
contract or arrangement as will be in effect at the Effective Time has been
provided to Recoton. A true and correct copy of
ANNEX I-10
<PAGE>
the most recent annual report, actuarial report, summary plan description, and
Internal Revenue Service determination letter with respect to each such Jensen
plan, to the extent applicable, and a current schedule of assets (and the fair
market value thereof assuming liquidation of any asset which is not readily
tradeable) held with respect to any funded plan, Jensen Plan, or benefit
arrangement has been provided to Recoton by Jensen, and there have been no
material changes in the financial condition in the respective plans, Jensen
Plans or benefit arrangements from that stated in such annual report and
actuarial reports.
(b) Except as disclosed in the Jensen 1995 Reports or as set forth in
Section 4.14(b) of Jensen's Disclosure Schedule, (i) there have been no
prohibited transactions within the meaning of Section 406 of ERISA or Section
4975 of the Code with respect to any of the Jensen Plans which, assuming that
the taxable period of such transaction expired as of the date hereof, could
subject Jensen or its subsidiaries to a material tax or penalty under Section
502(i) of ERISA or Section 4975 of the Code; (ii) no liability (except for
premiums due) has been or is expected to be incurred by Jensen or any of its
subsidiaries under Title IV of ERISA with respect to any of the Jensen Plans or
with respect to any ongoing, frozen or terminated "single employer plan" within
the meaning of Section 4001(a)(15) of ERISA currently or formerly maintained by
any of them, or by any entity which is considered a single employer with Jensen
under Section 4001 of ERISA or Section 414 of the Code (a "Jensen ERISA
Affiliate"); (iii) all amounts which Jensen or its subsidiaries are required to
pay as contributions to the Jensen Plans have been timely made or have been
reflected in the Jensen Financial Statements; (iv) none of the Jensen Plans has
incurred any "accumulated funding deficiency" (as defined in Section 302 of
ERISA and Section 412 of the Code), whether or not waived; (v) the current value
of all "benefit liabilities" within the meaning of Section 4001(a)(16) of ERISA
(as determined on the basis of the actuarial assumptions used in the Plan's most
recent actuarial valuation) under each of the Jensen Plans which is subject to
Title IV of ERISA did not exceed the then current value of the assets of such
plan allocable to such benefit liabilities by more than the amount disclosed in
the Jensen 10-K as of February 28, 1995; (vi) each of the Jensen Plans has been
operated and administered in all material respects in accordance with applicable
laws, including, but not limited to, the reporting and disclosure requirements
of Part 1 of Subtitle I of ERISA and the group health plan continuation
requirements of Section 4980B of the Code and Part 6 of Subtitle B of Title I of
ERISA; (vii) each of the Jensen Plans which is intended to be "qualified" within
the meaning of Section 401(a) of the Code has been determined by the IRS to be
so qualified and Jensen is not aware of any circumstances likely to result in
revocation of any such determination; (viii) there are no material pending,
threatened or anticipated claims involving any of the Jensen Plans other than
claims for benefits in the ordinary course; (ix) no notice of a "reportable
event" within the meaning of Section 4043 of ERISA for which the 30-day
reporting requirement has not been waived has been required to be filed for any
of the Jensen Plans; (x) neither Jensen nor any of its subsidiaries is a party
to, nor participates or has any liability or contingent liability with respect
to, any multiemployer plan (regardless of whether based on contributions of a
Jensen ERISA affiliate); and (xi) neither Jensen nor its subsidiaries has any
liability or contingent liability for retiree life and health benefits under any
of the Jensen Plans other than statutory liability for providing group health
plan continuation coverage under Part 6 of Subtitle B of Title I of ERISA and
Section 4980B of the Code, except as set forth on Section 4.14(b) of Jensen's
Disclosure Schedule.
(c) Except as set forth in Section 4.14(c) of Jensen's Disclosure Schedule,
neither the execution and delivery of this Agreement nor the consummation of the
transactions contemplated hereby will accelerate benefits or any payments under
any Jensen employee agreement, plan or arrangement.
Section 4.15 MATERIAL DEFAULTS. Except as set forth on Section 4.15 of
Jensen's Disclosure Schedule, neither Jensen nor its subsidiaries is, or has
received any notice or has any knowledge that any other party is, in default in
any respect under any contract, agreement, commitment, arrangement, lease,
insurance policy, or other instrument to which Jensen or any of its subsidiaries
is a party or by which Jensen or any of its subsidiaries or the assets,
business, or operations receives benefits,
ANNEX I-11
<PAGE>
except for those defaults which would not have, individually or in the
aggregate, a Jensen Material Adverse Effect; and there has not occurred any
event that with the lapse of time or the giving of notice or both would
constitute such a default.
Section 4.16 LABOR MATTERS. Except as set forth on Section 4.16 of
Jensen's Disclosure Schedule, there are no material controversies pending or, to
the knowledge of Jensen, threatened between Jensen or its subsidiaries and any
representatives of its employees, and, to the knowledge of Jensen, there are no
material organizational efforts presently being made involving any of the
presently unorganized employees of Jensen or its subsidiaries. Jensen and its
subsidiaries have complied in all material respects with all laws relating to
the employment of labor, including, without limitation, any provisions thereof
relating to wages, hours, collective bargaining, and the payment of social
security and similar taxes, and no person has, to the knowledge of Jensen,
asserted that Jensen or its subsidiaries are is liable in any material amount
for any arrears of wages or any taxes or penalties for failure to comply with
any of the foregoing.
Section 4.17 ENVIRONMENTAL MATTERS.
(a) Except as set forth in the Jensen 1995 Reports or in Section 4.17 to
Jensen's Disclosure Schedule, Jensen and its subsidiaries have complied in all
respects with all Environmental Laws (as defined below in this Section). Jensen
and its subsidiaries have obtained and will maintain through the Closing Date
all permits, licenses, certificates and other authorizations which are required
with respect to its operation under any Environmental Laws and all such permits,
licenses, certificates and other authorizations are listed on Section 4.17 to
Jensen's Disclosure Schedule.
(b) Except as set forth in the Jensen 1995 Reports or in Section 4.17 to
Jensen's Disclosure Schedule, Jensen and its subsidiaries are in compliance in
all respects with all permits, licenses and authorizations required by any
Environmental Laws, and is also in full compliance with all other limitations,
restrictions, conditions, standards, prohibitions, requirements, obligations,
schedules and timetables contained in any Environmental Laws or contained in any
regulation or code promulgated or approved under the Environmental Laws, or any
plan, order, decree, judgment, injunction, notice or demand letter issued to or
entered, against Jensen thereunder. All products manufactured and services
provided by Jensen or its subsidiaries prior to the date hereof are in
compliance with all Environmental Laws applicable thereto and all such products
and services so manufactured or provided prior to the Closing Date will as of
such date be in compliance with all Environmental Laws applicable thereto.
Jensen has hereto delivered to Buyer true and complete copies of all
environmental studies made in the last ten years relating to the business or
assets of Jensen and its subsidiaries.
(c) Except as set forth in the Jensen 1995 Reports or Section 4.17 to
Jensen's Disclosure Schedule, there is no pending or, to Jensen's knowledge,
threatened civil, criminal or administrative Action, demand, claim, hearing,
notice of violation, investigation, proceeding, notice or demand letter that
affects or applies to Jensen or its subsidiaries, their business or assets, the
products they have manufactured or the services they have provided relating in
any way to any Environmental Laws or any regulation or code promulgated or
approved under the Environmental Laws, or any plan, order, decree, judgment,
injunction, notice or demand letter issued to or entered against Jensen or its
subsidiaries thereunder.
(d) Except as set forth in the Jensen 1995 Reports or in Section 4.17 to
Jensen's Disclosure Schedule, there are no past or present (or, to the knowledge
of Jensen, anticipated) events, conditions, circumstances, activities,
practices, incidents, Actions or plans which may interfere with or prevent
compliance or continued compliance by Jensen or its subsidiaries with any
Environmental Laws or with any regulation or code promulgated or approved under
the Environmental Laws, or any plan, order, decree, judgment, injunction, notice
or demand letter issued to or entered against Jensen or its subsidiaries
thereunder, or which may give rise to any common law or legal liability, or
otherwise form the basis of any claim, action, demand, suit, proceeding,
hearing, notice of violation, study or investigation, based on or related to the
manufacture, processing, distribution, use, treatment, storage,
ANNEX I-12
<PAGE>
disposal, transport or handling, or the emission, discharge, release or
threatened release into the environment, by Jensen or its subsidiaries of any
pollutant, contaminant, chemical, or industrial, toxic or hazardous substance or
waste.
(e) Except as set forth in Section 4.17 to the Jensen Disclosure Schedule
and except in accordance with a valid governmental permit, license, certificate
or approval listed in Section 4.17 to Jensen's Disclosure Schedule there has
been no emission, spill, release or discharge by Jensen or its subsidiaries,
from any of their assets, from any site at which any of such assets are or were
located, into or upon (i) the air, (ii) soils or improvements, (iii) surface
water or ground water, or (iv) the sewer, septic system or waste treatment,
storage or disposal system servicing such assets of any toxic or hazardous
substances or wastes used, stored, generated, treated or disposed at or from any
of such assets (any of which events is hereinafter referred to as "Hazardous
Discharge").
(f) Prior to the Closing Date, there shall not occur any Hazardous Discharge
(except in accordance with a valid governmental permit, license, certificate or
approval listed in Section 4.17 to Jensen's Disclosure Schedule).
(g) The term "Environmental Laws" means all federal, state, local and
foreign environmental, health and safety laws, codes and ordinances and all
rules and regulations promulgated under the Environmental Laws, including,
without limitation laws relating to emissions, discharges, releases or
threatened releases of pollutants, contaminants, chemicals, or industrial, toxic
or hazardous substances or wastes into the environment (including, without
limitation, air, surface water, ground water, land surface or subsurface strata)
or otherwise relating to the manufacture, processing, distribution, use,
treatment, storage, disposal, transport or handling of pollutants, contaminants,
chemicals, or industrial, solid, toxic or hazardous substances or wastes. As
used in this Agreement, the term "hazardous substances or wastes" includes,
without limitation, (i) all substances which are designated pursuant to Section
311(b)(2)(A) of the Federal Water Pollution Control Act ("FWPCA"), 33 U.S.C
Section 1251 ET SEQ.; (ii) any element, compound, mixture, solution, or
substance which is designated pursuant to Section 102 of the Comprehensive
Environmental Response, Compensation and Liability Act ("CERCLA"), 42 U.S.C.
Section 9601 ET SEQ.; (iii) any hazardous waste having the characteristics which
are identified under or listed pursuant to Section 3001 of the Resource
Conservation and Recovery Act ("RCRA"), 42 U.S.C. Section 6901 ET SEQ.; (iv) any
toxic pollutant listed under Section 307(a) of the FWPCA; (v) any hazardous air
pollutant which is listed under Section 112 of the Clean Air Act, 42 U.S.C.
Section 7401 ET SEQ.; (vi) any imminently hazardous chemical substance or
mixture with respect to which action has been taken pursuant to Section 7 of the
Toxic Substances Control Act, 15 U.S.C. Section 2601 ET SEQ.; and (vii) waste
oil.
(h) Notwithstanding anything in the foregoing to the contrary, the
representations and warranties contained in this Section 4.17 shall be deemed to
be true and correct unless the aggregate exposure to Recoton, Acquisition Sub
and/or the Surviving Corporation of undisclosed and disclosed liabilities which
have either arisen or which may arise under the Environmental Laws exceeds $5
million.
Section 4.18 CERTAIN BUSINESS PRACTICES. As of the date of this Agreement,
except for such action which would not have a Jensen Material Adverse Effect,
neither Jensen nor any of its subsidiaries nor any directors, officers, agents,
or employees of Jensen or any of its subsidiaries has (i) used any funds for
unlawful contributions, gifts, entertainment, or other unlawful expenses
relating to political activity, (ii) made any unlawful payment to foreign or
domestic government officials or employees or to foreign or domestic political
parties or campaigns or violated any provision of the Foreign Corrupt Practices
Act of 1977, as amended, or (iii) made any other unlawful payment.
Section 4.19 NO EXCESS PARACHUTE PAYMENTS. Sections 4.14(a), 4.14(b), and
4.14(c) of Jensen's Disclosure Schedule set forth all written contracts,
arrangements, or undertakings (excluding Options (as defined in Section 3.4))
pursuant to which any person may receive any amount or entitlement from Jensen
or the Surviving Corporation or any of their respective subsidiaries (including
cash or property or the vesting of property) that may be characterized as an
"excess parachute payment" (as
ANNEX I-13
<PAGE>
such term is defined in Section 280G(B)(1) of the Code) (any such amount being
an "Excess Parachute Payment") as a result of any of the transactions being
contemplated by this Agreement. Except as set forth in Section 4.14(c) of
Jensen's Disclosure Schedule, no person is entitled to receive any additional
payment from Jensen, the Surviving Corporation, their respective subsidiaries,
or any other person (a "Parachute Gross-Up Payment") in the event that the 20
percent parachute excise tax of Section 4999(a) of the Code is imposed on such
person. The Board of Directors of Jensen has not during the six months prior to
the date of this Agreement granted to any officer, director, or employee of
Jensen any right to receive any Parachute Gross-Up Payment.
Section 4.20 TRADEMARKS, ETC. Section 4.20 of Jensen's Disclosure Schedule
sets forth a true and complete list of all patents, trademarks (registered or
unregistered), trade names, service marks, and registered copyrights and
applications therefor owned, used, or filed by or licensed to Jensen and its
subsidiaries ("Intellectual Property Rights") and, with respect to registered
trademarks, contains a list of all jurisdictions in which such trademarks are
registered or applied for and all registration and application numbers. Except
as disclosed on Section 4.20 of Jensen's Disclosure Schedule, the Intellectual
Property Rights which are trademark or copyright registrations and issued
patents are valid and in good standing, and are owned by Jensen, free and clear
of all liens, encumbrances, equities, or claims and, along with applications
therefor, are not involved in any interferences, litigations, oppositions, or
cancellation proceedings. Jensen or its subsidiaries owns or has the right to
use, without payment to any other party, the patents, trademarks, trade names,
service marks, copyrights, and applications therefor referred to in such
Schedule or otherwise used by Jensen or its subsidiaries, and the consummation
of the transactions contemplated hereby will not alter or impair such rights in
any material respect. Except as set forth in Section 4.20 to Jensen's Disclosure
Schedule, Jensen is not a licensor or licensee in respect of any Intellectual
Property Rights, nor has it granted any rights thereto or interest therein to
any person or entity. Except as set forth in Section 4.20 of Jensen's Disclosure
Schedule, no claims are pending or threatened by any person with respect to the
ownership, validity, enforceability, or use of any such Intellectual Property
Rights challenging or questioning the validity or effectiveness of any of the
foregoing which claims reasonably could be expected to have a Jensen Material
Adverse Effect. Jensen shall make all required filings to ensure the continued
validity and enforceability of its Intellectual Property Rights up to the
Effective Time.
Section 4.21 JENSEN STOCKHOLDERS' APPROVAL. Jensen will take all necessary
action so that stockholder approval of the Merger and the transactions
contemplated hereby will require the affirmative vote of (i) a majority of the
outstanding shares of Jensen Common Stock, and (ii) a majority of the
outstanding shares of Jensen Common Stock which are voted at the Jensen
Stockholders' Meeting other than shares held directly or indirectly by Robert G.
Shaw.
Section 4.22 TAKEOVER PROVISIONS. The Board of Directors of Jensen has
approved this Agreement and the OE Agreement by a vote of a majority of the
disinterested directors within the meaning of Article EIGHTH of Jensen's
Certificate of Incorporation. The Certificate of Incorporation of Jensen
expressly elects not to be governed by Section 203 of the GCL.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF
ACQUISITION SUB AND RECOTON
Acquisition Sub and Recoton hereby jointly and severally represent and
warrant to Jensen as follows:
Section 5.1 ORGANIZATION AND QUALIFICATION. Acquisition Sub and Recoton
are each corporations duly organized, validly existing and in good standing
under the laws of their states of incorporation and have the requisite corporate
power and authority to own, lease and operate their assets and properties and to
carry on their businesses as they are now being conducted. Acquisition Sub was
formed for the purpose of engaging in the Merger and has not and will not engage
prior to the Effective
ANNEX I-14
<PAGE>
Time in any activities other than those necessary to effectuate the terms of
this Agreement. Acquisition Sub and Recoton are each qualified to do business
and is in good standing in each jurisdiction in which the properties owned,
leased or operated by each or the nature of the businesses conducted by each
makes such qualification necessary, except where the failure to be so qualified
and in good standing will not, when taken together with all other such failures,
have a Recoton Material Adverse Effect. For purposes of this Agreement, a
Recoton Material Adverse Effect shall be a material adverse effect on the
business, operations, properties, assets, condition (financial or otherwise),
results of operations or prospects of Recoton and its subsidiaries taken as a
whole. True and complete copies of Acquisition Sub's and Recoton's Certificate
of Incorporation and By-Laws, as in effect on the date hereof, including all
amendments thereto, have heretofore been delivered to Jensen. Recoton directly
owns and has the power to vote all of the outstanding capital stock of
Acquisition Sub, and, as the sole stockholder of Acquisition Sub, has approved
this Merger Agreement and the transactions contemplated hereunder.
Section 5.2 AUTHORITY; NON-CONTRAVENTION; APPROVALS. (a) Recoton and
Acquisition Sub have full corporate power and authority to enter into this
Agreement and the Recoton Required Approvals (as hereinafter defined), to
consummate the transactions contemplated hereby. The execution, delivery and
performance of this Agreement and the consummation by Recoton and Acquisition
Sub of the transactions contemplated hereby have been duly authorized by
Recoton's and Acquisition Sub's Boards of Directors, and no other corporate
proceedings on the part of Recoton and Acquisition Sub are necessary to
authorize the execution and delivery of this Agreement and the consummation by
Recoton and Acquisition Sub of the transactions contemplated hereby except for
the obtaining of the Recoton Required Approvals. This Agreement has been duly
and validly executed and delivered by Recoton and Acquisition Sub, and, assuming
the due authorization, execution and delivery hereof by Jensen, constitutes a
valid and legally binding agreement of Recoton and Acquisition Sub enforceable
against them in accordance with its terms.
(b) Except as set forth in Section 5.2(b) (formerly 5.3(b)) of Recoton's
Disclosure Schedule, the execution and delivery of this Agreement by Recoton and
Acquisition Sub does not, and the consummation by Recoton and Acquisition Sub of
the transactions contemplated hereby will not, violate, conflict with or result
in a breach of any provision of, or constitute a default (or an event which,
with notice or lapse of time or both, would constitute a default) under, or
result in the termination of, or accelerate the performance required by, or
result in a right of termination or acceleration under, or result in the
creation of any lien, security interest, charge or encumbrance upon any of the
properties or assets of Recoton or Acquisition Sub or any of its subsidiaries
under any of the terms, conditions or provisions of (i) the respective charters
or By-Laws of Recoton or any of its subsidiaries, (ii) subject to obtaining the
Recoton Required Approvals, any statute, law, ordinance, rule, regulation,
judgment, decree, order, injunction, writ, permit or license of any court or
governmental authority applicable to Recoton or any of its subsidiaries or any
of their respective properties or assets, and (iii) any note, bond, mortgage,
indenture, deed of trust, license, franchise, permit, concession, contract,
lease or other instrument, obligation or agreement of any kind to which Jensen
or any of its subsidiaries is now a party or by which Jensen or any of its
subsidiaries or any of their respective properties or assets may be bound or
affected, excluding from the foregoing clauses (ii) and (iii) such violations,
conflicts, breaches, defaults, terminations, accelerations or creations of
liens, security interests, charges or encumbrances that would not, in the
aggregate, have a Recoton Material Adverse Effect.
(c) Except for (i) the filings by Recoton, Acquisition Sub and Jensen
required by Title II of the HSR Act, (ii) any EC Filings, and (iii) the making
of the Merger Filing with the Secretary of State of the State of Delaware in
connection with the Merger (the filings and approvals referred to in clauses (i)
through (iii) collectively are referred to as the "Recoton Required Approvals"),
no declaration, filing or registration with, or notice to, or authorization,
consent or approval of, any governmental or regulatory body or authority is
necessary for the execution and delivery of this Agreement by Recoton or
Acquisition Sub or the consummation by Recoton or Acquisition Sub of the
transactions
ANNEX I-15
<PAGE>
contemplated hereby, other than such filings, registrations, authorizations,
consents or approvals the failure of which to make or obtain, as the case may
be, will not, in the aggregate, have a Recoton Material Adverse Effect.
ARTICLE VI
CONDUCT OF BUSINESS PENDING THE MERGER
Section 6.1 CONDUCT OF BUSINESS BY JENSEN PENDING THE MERGER. Except as
set forth in Section 6.1 of Jensen's Disclosure Schedule or as otherwise
contemplated by this Agreement, after the date hereof and prior to the Effective
Time or earlier termination of this Agreement, unless Recoton shall otherwise
agree in writing (it being agreed, however, that Jensen shall be solely
responsible for its operations and those of its subsidiaries in accordance with
the provisions of this Agreement), Jensen shall and shall cause each of its
subsidiaries, to:
(a) conduct their respective businesses in the ordinary and usual course
of business and consistent with past practice;
(b) not (i) amend or propose to amend their respective charters or
by-laws; (ii) split, combine or reclassify their outstanding capital stock
or declare, set aside or pay any dividend or distribution payable in cash,
stock, property or otherwise; or (iii) knowingly take any action which would
result in a failure to maintain the trading of Jensen Common Stock on
Nasdaq;
(c) not (i) except for the issuance of shares of Common Stock upon the
exercise of currently outstanding Options, authorize the issuance of, or
issue, sell, pledge or dispose of, or agree to issue, sell, pledge or
dispose of, any additional shares of, or any options, warrants or rights of
any kind to acquire any shares of, their capital stock of any class or any
debt or equity securities convertible into or exchangeable for such capital
stock, (ii) except for the sale of the assets associated with the Original
Equipment Business as described in Section 8.3(e) and the sale of the AR
Rights pursuant to the AR Agreement, sell (including, without limitation, by
sale/leaseback), pledge, dispose of, license or encumber any material assets
(including without limitation intellectual property), or any interests
therein, other than in the ordinary course of business and consistent with
past practice; (iii) redeem, purchase, acquire or offer to purchase or
acquire any (x) shares of its capital stock, other than in accordance with
the governing terms of such securities or (y) long-term debt, other than as
required by the governing instruments relating thereto; (iv) take or fail to
take any action which action or failure to take action would cause
Acquisition Sub or Jensen to recognize gain or loss for federal income tax
purposes as a result of the consummation of the Merger or (v) enter into any
contract, agreement, commitment or arrangement with respect to any of the
foregoing; PROVIDED, HOWEVER, that Jensen or any of its subsidiaries, after
consulting with Recoton, may take any of the actions otherwise prohibited by
this Section 6.1(c) if counsel to Jensen advises the Board of Directors of
Jensen or any of its subsidiaries that the failure to take such action or
actions might reasonably subject Jensen's or any of its subsidiaries'
directors to liability for breach of their fiduciary duties;
(d) use their best efforts to preserve intact their respective business
organizations and goodwill, keep available the services of their respective
present officers and key employees, and preserve the goodwill and business
relationships with suppliers, distributors, customers, and others having
business relationships with them;
(e) confer on a regular and frequent basis with one or more
representatives of Recoton to discuss operational matters of materiality and
the general status of ongoing operations;
(f) promptly notify Recoton of any significant changes in the business,
properties, assets, financial condition, or results of operations or
prospects of (i) Jensen or its subsidiaries taken as a whole (excluding the
Original Equipment Business) or (ii) the Original Equipment Business
separately;
ANNEX I-16
<PAGE>
(g) not acquire, or publicly propose to acquire, all or any substantial
part of the business and properties or capital stock of any person not a
party to this Agreement, whether by merger, purchase of assets, tender offer
or otherwise;
(h) not, directly or indirectly, through any officer, director,
employee, representative, agent, or otherwise, solicit, initiate or
encourage the submission of any proposal or offer from any person
(including, without limitation, a "person" as defined in Section 13(d)(3) of
the Exchange Act) or entity relating to any acquisition or purchase of all
or (other than in the ordinary course of business) any portion of the assets
of, or any equity interest in, or any merger or other business combination
with, Jensen or any of its subsidiaries, other than with respect to the
Original Equipment Business or the transactions contemplated hereby
(collectively, a "Jensen Acquisition Transaction"); PROVIDED, HOWEVER, that
Jensen or any of its subsidiaries may take any of the actions otherwise
prohibited by this Section 6.1(h) if counsel to Jensen advises the Board of
Directors of Jensen or any of its subsidiaries that the failure to take such
action or actions might reasonably subject Jensen's or any of its
subsidiary's directors to liability for breach of their fiduciary duties;
and PROVIDED, FURTHER HOWEVER, that notwithstanding the foregoing sentence,
(a) following receipt of a BONA FIDE unsolicited written offer to consummate
a Jensen Acquisition Transaction (an "Acquisition Proposal"), Jensen may
take and disclose to Jensen's stockholders the position of the Board of
Directors of Jensen contemplated by Rule 14e-2 under the Exchange Act or
otherwise make appropriate disclosures to its stockholders, (b) Jensen may
furnish or cause to be furnished information concerning its business,
properties or assets to a third party subject to appropriate confidentiality
restrictions, and (c) Jensen may engage in discussions or negotiations with
a third party concerning a Jensen Acquisition Transaction. If Jensen should
receive an Acquisition Proposal or take any action described in (b) or (c)
above, Jensen shall promptly inform Recoton in reasonable detail of the
material details of such Acquisition Proposal and/or its actions in response
thereto or its actions described in clauses (b) or (c) and shall thereafter
keep Recoton reasonably and promptly informed of all material facts and
material circumstances relating to such Acquisition Proposal (including the
material terms thereof to the extent not restricted by any other binding
agreement) and Jensen's actions shall include the actions of its advisors,
agents and representatives;
(i) not enter into or amend any employment, severance, special pay
arrangement with respect to termination of employment or other similar
arrangements or agreements with any directors, officers or key employees,
except with the prior written approval of Recoton;
(j) not adopt, enter into or amend any bonus, profit sharing,
compensation (except ordinary course salary adjustments consistent with
historic practice), stock option, pension, retirement, deferred
compensation, health care, employment or other employee benefit plan,
agreement, trust, fund or arrangement for the benefit or welfare of any
employee or retiree, except as required to comply with changes in applicable
law occurring after the date hereof, except with the prior written approval
of Recoton;
(k) maintain with financially responsible insurance companies, insurance
on its tangible assets and its businesses in such amounts and against such
risks and losses as are consistent with past practice and customary for
companies engaged in the business engaged in by Jensen and its subsidiaries;
(l) not introduce any new product or plan which would substantially
increase the risk exposure of Jensen and its subsidiaries taken as a whole
(excluding the Original Equipment Business);
(m) not enter into any material arrangement, agreement, or contract with
any third party (other than customers in the ordinary course of business)
which provides for an exclusive arrangement with that third party or is
substantially more restrictive on Jensen or substantially less advantageous
to Jensen than arrangements, agreements, or contracts existing on the date
hereof;
ANNEX I-17
<PAGE>
(n) not establish any new lines of credit or other credit facilities or
incur any indebtedness other than pursuant to existing credit facilities
except for trade liabilities incurred in the ordinary course of business;
and
(o) not agree in writing, or otherwise, to take any of the foregoing
actions or any other action which would make any representation or warranty
contained in Article IV untrue or incorrect in any material respect as of
the time of the Closing.
Section 6.2 SITE TESTING AND EVALUATION. Prior to the later of March 1,
1996 or the date of the Proxy Statement (which Recoton may cause to be delayed
if it is still conducting its study and testing), Recoton may at its own expense
perform or have performed such environmental site inspections and reasonable
testing relating to the real property owned or operated by Jensen or its
subsidiaries as it may deem appropriate. If based upon the written reports of
independent environmental consultants, Recoton determines in its sole and
reasonable discretion that the results of the inspections or tests performed
indicate that any of such property or a number of such properties is, or that
there is a material risk that such property(ies) may be, contaminated in a way
as to give rise to possible liability, contingent or otherwise, under the
Environmental Laws in an aggregate amount of $5,000,000 or greater, Recoton may
terminate this Agreement by notice to Jensen prior to the date of the Proxy
Statement.
ARTICLE VII
ADDITIONAL AGREEMENTS
Section 7.1 ACCESS TO INFORMATION. (a) Jensen and its subsidiaries shall
afford to Recoton and Acquisition Sub and its accountants, counsel, and other
representatives full access during normal business hours throughout the period
prior to the Effective Time to all of their respective properties, books,
contracts, commitments and records (including, but not limited to, tax returns)
and to their customers, vendors, employees, consultants and professional
advisors and, during such period, shall furnish promptly to Recoton and
Acquisition Sub (i) a copy of each report, schedule and other document filed or
received by any of them pursuant to the requirements of federal or state
securities laws or the HSR Act or filed or received by any of them with or from
the SEC, Federal Trade Commission ("FTC") or Department of Justice ("DOJ") and
(ii) all other information concerning their respective businesses, properties
and personnel as Acquisition Sub may reasonably request; PROVIDED, HOWEVER, that
no investigation pursuant to this Section 7.1(a) shall affect any
representations or warranties made herein or the conditions to the obligations
of the respective parties to consummate the Merger. Jensen and its subsidiaries
shall promptly advise Recoton and Acquisition Sub in writing of any change or
occurrence of any event after the date of this Agreement having, or which,
insofar as can reasonably be foreseen, in the future may have, a Jensen Material
Adverse Effect.
(b) Recoton has provided Jensen with information pursuant to the
Confidentiality Agreement and in the course of its performance under this
Agreement.
(c) Any information received pursuant to Sections 7.1(a) and 7.1(b) above
shall be considered Evaluation Material (as defined in the letter agreements
dated August 21, 1995 and October 16, 1995, as applicable (the "Confidentiality
Agreements"), between Recoton and Jensen, and such information shall be held in
confidence by Recoton, Acquisition Sub and Jensen in accordance with the terms
of the Confidentiality Agreements.
Section 7.2 PROXY STATEMENT. Jensen shall prepare and file with the SEC as
soon as reasonably practicable after the date hereof the Proxy Statement and any
revisions thereof as may be responsive to SEC comments or changed facts. The
information provided and to be provided by Recoton and Jensen and by their
auditors, attorneys, financial advisors or other consultants or advisors for use
in the Proxy Statement shall be true and complete in all material respects
without omission of any material fact which is required to make such information
not false or misleading.
ANNEX I-18
<PAGE>
Section 7.3 STOCKHOLDERS' APPROVAL. Subject to the provisions of Section
6.1(h) and 9.1(e), Jensen shall promptly submit this Agreement and the
transactions contemplated hereby for the approval of its stockholders at the
Jensen Stockholders' Meeting to be held as soon as practicable after the Proxy
Statement has been amended to satisfy all comments of the staff of the SEC and,
subject to the fiduciary duties of the Board of Directors of Jensen under
applicable law, shall recommend and use its best efforts to obtain stockholder
approval (the "Jensen Stockholders' Approval") of this Agreement and the
transactions contemplated hereby in accordance with Section 4.21.
Section 7.4 EXPENSES. Except as otherwise set forth in Section 9.2, all
costs and expenses incurred in connection with this Agreement and the
transactions contemplated hereby shall be paid by the party incurring such
expenses; PROVIDED, HOWEVER, that Recoton and Jensen shall share equally the
expenses of printing, filing and mailing the Proxy Statement and any drafts of
any registration statement required under prior versions of this Agreement.
Section 7.5 AGREEMENT TO COOPERATE. Subject to the terms and conditions
provided in this Agreement, each of the parties hereto shall use all reasonable
efforts to take, or cause to be taken, all action 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, including using its reasonable efforts to obtain all necessary or
appropriate waivers, consents and approvals and SEC "no-action" letters
(including, but not limited to, required approvals under applicable Delaware
state laws and regulations), to effect all necessary registrations and filings
(including, but not limited to, filings under the HSR Act) and to lift any
injunction or other legal bar to the Merger (and, in such case, to proceed with
the Merger as expeditiously as possible), subject, however, to the provisions of
Sections 6.1(h) and 9.1(e) and to the requisite votes of the stockholders of
Jensen. Each party hereto agrees to allow the other to review each regulatory
filing made by such party prior to the filing thereof during the term of this
Agreement.
Section 7.6 PUBLIC STATEMENTS. The parties shall release a press release
immediately upon the signing of this Agreement in the form set forth as Exhibit
7.6 (formerly Exhibit 7.8) to this Agreement. None of the parties hereto shall
issue any press release or make any other public statements, in each case
relating to or connected with or arising out of this Agreement or the matters
contained therein, without obtaining the prior written approval of the other
parties to the contents and the manner of presentation and publication thereof,
PROVIDED, HOWEVER, that nothing herein shall prevent any party from making any
disclosures required by applicable law or regulation (including regulation of
the SEC and the NASD).
Section 7.7 ACCOUNTANT'S LETTERS. Jensen shall use its best efforts to
cause to be delivered to Recoton letters of Coopers and Lybrand, LLP,
independent auditors for Jensen, dated the date of the Proxy Statement and the
Effective Time (or such other dates reasonably acceptable to Recoton) with
respect to certain financial statements and other financial information included
in the Proxy Statement, which letters shall be in customary form and substance
reasonably satisfactory to Recoton.
Section 7.8 INDEMNIFICATION OF CERTAIN OFFICERS AND DIRECTORS. (a) To the
extent permitted by applicable law, Recoton and Acquisition Sub agree that all
rights to indemnification from Jensen or any subsidiary of Jensen now existing
in favor of the directors, officers, employees or agents of Jensen and any
subsidiary of Jensen as provided in their respective certificates of
incorporation or charters, as the case may be, or by-laws, as in effect on the
date of this Agreement, shall survive the Merger and shall continue in full
force and effect and be honored by Recoton, Acquisition Sub and the Surviving
Corporation for a period of not less than five years from the Effective Time;
PROVIDED, HOWEVER, that in the event any claim or claims are asserted or made
within such five-year period, all such rights shall continue until final
disposition of any such claim or claims.
(b) Recoton and Acquisition Sub will use their best efforts, and will cause
the Surviving Corporation to use its best efforts, to cause to be maintained in
effect a tail, for not less than three years from the Effective Time, on the
current policies of directors' and officers' liability insurance maintained by
Jensen and the subsidiaries of Jensen (provided that the Surviving Corporation
or Acquisition Sub
ANNEX I-19
<PAGE>
may substitute therefor policies of at least the same level of coverage
containing terms and conditions which are in the aggregate no less advantageous
so long as no lapse in coverage occurs as a result of such substitution) with
respect to all matters, including the transactions contemplated hereby,
occurring prior to and including the Effective Time. Notwithstanding the
foregoing, neither Recoton, Acquisition Sub nor the Surviving Corporation shall
be required to expend in excess of $150,000 in the aggregate pursuant to this
Section 7.8(b).
Section 7.9 EMPLOYEE BENEFITS. For a period of one year after the
Effective Time, the Surviving Corporation shall make available to the current
employees of Jensen, so long as such persons continue after the Effective Time
to hold positions as employees with the Surviving Corporation, the same employee
benefits that are currently in effect at Jensen, or similar employee benefits on
substantially the same terms and conditions as the Jensen plans, including, but
not limited to, health care and life insurance, pension and retirement benefits
and vacation and sick pay. Thereafter, the Surviving Corporation shall provide a
benefits package at least comparable to the benefit package provided by Recoton
to its own employees. Recoton and the Surviving Corporation shall use their best
efforts to insure that employees of the Surviving Corporation shall not be
subject to any waiting periods or pre-existing condition restrictions under
employee benefit plans offered by Recoton or the Surviving Corporation to the
extent that such periods are longer or such periods impose a greater limitation
than the period or limitations imposed under employee benefit plans currently
offered by Jensen. Employees of the Surviving Corporation shall be given credit
for prior service with Jensen for purposes of crediting periods of service for
eligibility and vesting of all such substitute employee benefits offered by
Recoton or the Surviving Corporation.
ARTICLE VIII
CONDITIONS
Section 8.1 CONDITIONS TO EACH PARTY'S OBLIGATION TO EFFECT THE
MERGER. The respective obligations of each party to effect the Merger shall be
subject to the fulfillment at or prior to the Effective Time of the following
conditions:
(a) This Agreement and the transactions contemplated hereby shall have
been approved and adopted by the requisite vote of the stockholders of
Jensen pursuant to Section 4.21;
(b) The waiting period applicable to the consummation of the Merger
under the HSR Act shall have expired or been terminated and any EC Filings
shall have been made and no additional requirements relating thereto shall
be applicable;
(c) No preliminary or permanent injunction or other order or decree by
any federal or state court which prevents the consummation of the Merger
shall have been issued and remain in effect (each party agreeing to use all
reasonable efforts to have any such injunction, order or decree lifted);
(d) No action shall have been taken, and no statute, rule or regulation
shall have been enacted, by any state, federal or foreign government or
governmental agency which would prevent the consummation of the Merger or
that would have a material adverse effect on the prospects of the Surviving
Corporation unacceptable to Recoton;
(e) All governmental consents and approvals legally required for the
consummation of the Merger and the transactions contemplated hereby,
including, without limitation, approval (if required) by the DOJ, FTC and
the SEC, shall have been obtained and be in effect at the Effective Time on
terms and conditions that would not have a material adverse effect on the
prospects of the Surviving Corporation unacceptable to Recoton; and
(f) Jensen shall have received one or more letters from Lehman Brothers
dated the date of the Proxy Statement or reasonably prior thereto (or such
other dates reasonably acceptable to Jensen and Recoton), which letters
shall be of the opinion that (1) the Merger Consideration is
ANNEX I-20
<PAGE>
"fair from a financial point of view" to Jensen's stockholders; and (2) that
the proceeds received by Jensen from the sale of the assets of the Original
Equipment Business are "fair from a financial point of view" to Jensen.
Section 8.2 CONDITIONS TO OBLIGATION OF JENSEN TO EFFECT THE MERGER. The
obligation of Jensen to effect the Merger shall be subject to the fulfillment at
or prior to the Effective Time of the following additional conditions or the
waiver thereof by Jensen:
(a) Acquisition Sub and Recoton shall have performed in all material
respects their agreements contained in this Agreement required to be
performed on or prior to the Effective Time and the representations and
warranties of Acquisition Sub and Recoton contained in this Agreement shall
be true and correct in all material respects on and as of the date of this
Agreement and on and as of the Effective Time as if made on and as of such
date, except as contemplated or permitted by this Agreement, and Jensen
shall have received a certificate of the President and the Chief Operating
Officer (or, in the case of Acquisition Sub, its Secretary) of each of
Acquisition Sub and Recoton to that effect;
(b) Jensen shall have received an opinion addressed to Jensen from
Stroock & Stroock & Lavan, counsel to Recoton and Acquisition Sub, or other
counsel reasonably acceptable to Jensen, dated the Closing Date,
substantially in the form set forth in Exhibits 8.2(b); and
(c) Recoton shall have deposited the cash into the Exchange Fund in
accordance with Section 3.2(a) and the Exchange Agent shall have delivered
to Jensen a certificate acknowledging receipt of such cash.
Section 8.3 CONDITIONS TO OBLIGATION OF RECOTON AND ACQUISITION SUB TO
EFFECT THE MERGER. The obligation of Recoton and Acquisition Sub to effect the
Merger shall be subject to the fulfillment at or prior to the Effective Time of
the additional following conditions or the waiver thereof by Recoton and
Acquisition Sub:
(a) Jensen shall have performed in all material respects its agreements
contained in this Agreement required to be performed on or prior to the
Effective Time and the representations and warranties of Jensen contained in
this Agreement shall be true and correct in all material respects on and as
of the date of this Agreement and on and as of the Effective Time as if made
on and as of such date, except as contemplated or permitted by this
Agreement, and Recoton and Acquisition Sub shall have received a Certificate
of the President and the Chief Financial Officer of Jensen to that effect;
(b) Recoton and Acquisition Sub shall have received an opinion from
Vedder, Price, Kaufman & Kammholz, counsel to Jensen, or other counsel
reasonably acceptable to Recoton and Acquisition Sub, dated the Closing
Date, substantially in the form set forth in Exhibit 8.3(b);
(c) Recoton and Acquisition Sub shall have received the letters of
Coopers & Lybrand, LLP contemplated by Section 7.7;
(d) Since the date hereof, no Jensen Material Adverse Effect shall have
occurred;
(e) The closing of the sale of the assets of the Original Equipment
Business pursuant to the OE Agreement shall have occurred prior to the
Effective Time;
(f) Recoton shall not have elected to terminate due to the results of
the inspections or tests performed in accordance with Section 6.2; and
(g) The number of Dissenting Shares shall not exceed 10% of the Jensen
Common Stock outstanding.
ANNEX I-21
<PAGE>
ARTICLE IX
TERMINATION, AMENDMENT AND WAIVER
Section 9.1 TERMINATION. This Agreement may be terminated at any time
prior to the Effective Time, whether before or after approval by the
stockholders of Jensen:
(a) by mutual written consent of Acquisition Sub and Jensen; or
(b) by either Acquisition Sub or Jensen if (i) the Merger shall not have
been consummated on or before September 2, 1996 or such later date as may be
designated by Recoton (but in no event later than March 31, 1997) (the
"Termination Date"), (ii) the requisite vote of the stockholders of Jensen
to approve this Agreement pursuant to Section 8.1(a) and the transactions
contemplated hereby shall not be obtained at the Jensen Stockholders'
Meeting, or any adjournments thereof, (iii) any governmental or regulatory
body, the consent of which is a condition to the obligations of Acquisition
Sub and Jensen to consummate the transactions contemplated hereby, shall
have determined not to grant its consent and any appeals of such
determination shall have been taken and have been unsuccessful or such body
shall have imposed conditions or limitations on its consent that would have
a material adverse effect on the prospects of the Surviving Corporation
unacceptable to Recoton and any appeals from such imposition shall have been
taken and have been unsuccessful, or (iv) any court of competent
jurisdiction in the United States, or any state or any country in which
there is a subsidiary of Jensen, shall have issued an order, judgment or
decree (other than a temporary restraining order) restraining, enjoining or
otherwise prohibiting the Merger and such order, judgment or decree shall
have become final and nonappealable; or
(c) by Acquisition Sub (i) if the Board of Directors of Jensen shall
have withdrawn or modified in a manner adverse to Acquisition Sub its
approval or recommendation of the Merger, this Agreement or the transactions
contemplated hereby or shall have failed to reaffirm such approval or
recommendation upon Acquisition Sub's request, or shall have resolved to do
any of the foregoing, (ii) if Jensen or any of the other persons or entities
described in Section 6.1(c) or 6.1(h) shall take any of the actions that
would be proscribed by Section 6.1(c) or 6.1(h) but for the PROVISO therein
allowing certain actions to be taken if required by fiduciary duty upon
advice of counsel, (iii) if there has been (x) a material breach of any
covenant or agreement herein on the part of Jensen which has not been cured
or adequate assurance of cure given, in either case within five business
days following receipt of notice of such breach, or (y) a representation or
warranty of Jensen herein is or becomes untrue or incorrect in a material
respect which representation or warranty by its nature cannot be made true
and correct in all material respects prior to the Termination Date or is not
made true and correct prior to the Termination Date, (iv) if (x) Jensen
enters into an agreement with any corporation, partnership, person, other
entity or group (as defined in Section 13(d)(3) of the Exchange Act) other
than Recoton or Acquisition Sub whereby such entity or group would directly
or indirectly acquire all or any substantial part of the assets or capital
stock of Jensen, whether by merger, share exchange, purchase of assets,
consolidation, tender offer or otherwise (other than with regard to the
Original Equipment Business), (y) any third party commences a tender or
exchange offer for 25% or more of Jensen's Common Stock and Jensen's Board
of Directors does not recommend, or ceases to recommend, to Jensen's
stockholders that they reject such offer, or (v) if any third party
commences a tender or exchange offer for 25% or more of Jensen's Common
Stock and shares have been tendered thereto in an amount equal to the
minimum amount for which the third party conditioned such tender or
exchange; or
(d) by Jensen if there has been (x) a material breach of any covenant or
agreement herein on the part of Acquisition Sub or Recoton which has not
been cured or adequate assurance of cure given, in either case within five
business days following receipt of notice of such breach or (y) a
ANNEX I-22
<PAGE>
representation or warranty of Recoton or Acquisition Sub herein is or
becomes untrue or incorrect in a material respect which representation or
warranty by its nature cannot be made true and correct in all material
respects prior to the Termination Date or is not made true and correct prior
to the Termination Date; or
(e) automatically, if the Jensen Board of Directors shall recommend a
Jensen Acquisition Transaction or authorize or approve the entering into by
Jensen of a Jensen Acquisition Transaction.
Notwithstanding the foregoing, if prior to the Effective Time, (i) any
preliminary or permanent injunction or other order or decree by any federal or
state court which prevents the consummation of the Merger shall have been
issued, and remains in effect (each party agreeing to use all reasonable efforts
to have any such injunction, order or decree lifted); (ii) any action shall have
been taken, or any statute, rule or regulation shall have been enacted, by any
state, federal or foreign government or governmental agency which would prevent
the consummation of the Merger or that would have a material adverse effect on
the prospects of the Surviving Corporation; or (iii) any governmental consents
and approvals legally required for the consummation of the Merger and the
transactions contemplated hereby, including, without limitation, approval (if
required) by the DOJ, FTC and the SEC (including the satisfaction of the staff
of the SEC regarding the Proxy Statement), shall not have been obtained or not
be in effect at the Effective Time on terms and conditions that would not have a
material adverse effect on the prospects of the Surviving Corporation, the
Termination Date shall be extended at the option of any party hereto for a
period of up to 120 days and thereafter if so requested by Recoton for a period
of up to an additional 60 days. If, at the end of such 120-day (or, if
applicable, such further 60-day period) period, the matters referred to in (i),
(ii) or (iii) shall not have been satisfied to each party's reasonable
satisfaction, either party may terminate this Agreement pursuant to the
applicable provisions of this Section 9.1.
Section 9.2 FEES AND EXPENSES.
(a) GENERAL. In the event of termination of this Agreement by either
Recoton, Acquisition Sub or Jensen as provided in Section 9.1 or any breach of
any party or any failure of condition giving rise to a right to terminate this
Agreement, there shall be no liability on the part of either Jensen or Recoton
or Acquisition Sub or their respective officers or directors except as set forth
in this Section 9.2 or in Section 7.1(c). Language appearing in brackets in this
Section 9.2 is for reference purposes only and shall not affect in any way the
meaning or interpretation of this Agreement. The agreements contained in this
Section 9.2 are an integral part of the transactions contemplated by this
Agreement and constitute liquidated damages or other appropriate payments and
not a penalty. If a party fails promptly pay to perform in accordance with this
Article IX, such party shall pay the costs and expenses (including legal fees
and expenses) of the other party in connection with any action, including the
filing of any lawsuit or other legal action, taken to enforce the terms of this
Agreement. Except as otherwise set forth herein, payments under this Section
shall be made within five business days of, as applicable, termination of this
Agreement or the demand for reimbursement of Expenses (as that term is defined
below).
(b) JENSEN PAYMENT OF BREAK-UP FEE. Jensen shall promptly, but in no event
later than five business days after the first to occur of any of the following
clauses (i) through (iii) (the "Payment Date"), pay to Recoton a fee of
$1,500,000, such amount to be paid on the Payment Date in cash in immediately
available funds by wire transfer to an account designated by Recoton if:
(i) the Agreement terminates pursuant to Section 9.1(e) [RECOMMENDING OF
A JENSEN ACQUISITION TRANSACTION];
(ii) either Acquisition Sub or Jensen shall become entitled to
terminate, and shall terminate, this Agreement pursuant to (1) Section
9.1(b)(i) [FAILURE TO CLOSE BY THE TERMINATION DATE] because of a failure to
satisfy any of the conditions set forth in Sections 8.3(a)(as to the receipt
of the Officer's Certificate only), 8.3(b) or 8.3(c) [CONDITIONS REQUIRING
DELIVERY
ANNEX I-23
<PAGE>
OF OFFICER'S CERTIFICATES, LEGAL OPINION, COMFORT LETTER] provided that
Jensen did not diligently seek to fulfill or cause others to fulfill these
conditions; (2) Section 9.1(b)(i) [FAILURE TO CLOSE BY THE TERMINATION DATE]
because of a failure to satisfy the conditions set forth in Section 8.3(e)
[OE SALE] provided that this condition was not satisfied because IJI
exercised a right to terminate the OE Agreement because of a willful and
material breach of the OE Agreement by Jensen; or (3) Section 9.1(b)(ii)
[FAILURE OF JENSEN STOCKHOLDERS TO APPROVE THE MERGER AT THE STOCKHOLDERS'
MEETING] provided that contemporaneous with the Jensen Stockholders' Meeting
there shall be outstanding a competing Jensen Acquisition Transaction
proposed by a third party other than Recoton or Acquisition Sub; or
(iii) Acquisition Sub shall become entitled to terminate, and shall
terminate, this Agreement pursuant to (1) Section 9.1(c)(i) [JENSEN BOARD
WITHDRAWS APPROVAL OR RECOMMENDATION ETC.]; (2) Section 9.1(c)(ii) [JENSEN
SELLS ASSETS, ISSUES STOCK, OR SOLICITS JENSEN ACQUISITION PROPOSAL WITHOUT
FIDUCIARY RIGHT TO DO SO]; (3) Section 9.1(c)(iii)(x) [MATERIAL BREACH OF
COVENANT OR AGREEMENT BY JENSEN], (including, but not limited to, a failure
to proceed diligently to obtain approval of the Proxy Statement by the SEC
and failure to proceed diligently to seek to lift any injunction barring
completion of the Merger) provided that the breach was willful; (4) Section
9.1(c)(iv)(x) [JENSEN ENTERS INTO AN ACQUISITION AGREEMENT WITH A PERSON
OTHER THAN RECOTON OR ACQUISITION SUB]; (5) Section 9.1(c)(iv)(y)
[COMMENCEMENT OF TENDER OFFER AND JENSEN DOES NOT RECOMMEND OR CEASES TO
RECOMMEND REJECTION OF OFFER]; or (6) Section 9.1(c)(v) [SUCCESSFUL TENDER
OFFER].
(c) JENSEN PAYMENT OF RECOTON EXPENSES. Jensen shall promptly, but in no
event later than five business days after demand has been made pursuant to
Section 9.2(g) after the first to occur of any of the events enumerated in (A)
Section 9.2(b) or in (B) any of the following clauses (i) through (v) (such date
of required payment being referred to as the "Payment Date"), pay to Recoton an
amount equal to Recoton's Expenses (as defined below) not to exceed $2,500,000,
such amount to be paid on the Payment Date in cash in immediately available
funds by wire transfer to an account designated by Recoton, (i) if either
Acquisition Sub or Jensen shall become entitled to terminate, and shall
terminate, this Agreement pursuant to Section 9.1(b)(i) [FAILURE TO CLOSE BY THE
TERMINATION DATE] and the Stockholders Meeting has not been held by the
Termination Date (as such Termination Date has been extended pursuant to the
penultimate sentence of Section 9.1) unless the provisions of the last sentence
of Section 9.1 are applicable; (ii) if either Acquisition Sub or Jensen shall
become entitled to terminate, and shall terminate, this Agreement pursuant to
Section 9.1(b)(ii) [FAILURE OF JENSEN STOCKHOLDERS TO APPROVE AT STOCKHOLDERS'
MEETING] provided that contemporaneous with the Jensen Stockholders' Meeting
there shall be no outstanding competing Jensen Acquisition Transaction proposed
by a third party other than Recoton or Acquisition Sub; (iii) if either
Acquisition Sub or Jensen shall become entitled to terminate, and shall
terminate, this Agreement pursuant to Section 9.1(b)(i) because of a failure to
satisfy any of the conditions set forth in Sections 8.3(b) or 8.3(c) [CONDITIONS
REQUIRING DELIVERY OF LEGAL OPINION, COMFORT LETTER] provided that Jensen
diligently sought to fulfill or cause others to fulfill these conditions; (iv)
if either Acquisition Sub or Jensen shall become entitled to terminate, and
shall terminate, this Agreement pursuant to Section 9.1(b)(i) because of a
failure to satisfy any of the conditions set forth in Section 8.1(f) [FAILURE TO
OBTAIN FAIRNESS OPINION] or Section 8.1(b) [HSR/EC FILINGS]; or (v) if either
Acquisition Sub or Jensen shall become entitled to terminate, and shall
terminate, this Agreement pursuant to Section 8.3(e) [OE SALE] provided that
this condition was not satisfied because IJI exercised a right to terminate for
failure to satisfy a condition under the OE Agreement other than the financing
condition and Jensen has not otherwise willfully and materially breached the OE
Agreement. If Jensen is required to make any payment to Recoton pursuant to
clause (B) of the first sentence of this Section 9.2(c) and within 12 months
following the date of termination of this Agreement (1) the Board of Directors
of Jensen recommends or approves a Jensen Acquisition Transaction by or with a
third party other than Recoton or Acquisition Sub, or enters into
ANNEX I-24
<PAGE>
or consummates an agreement with respect to any merger, sale of all of or
substantially all of the assets or shares of capital stock of Jensen, or one of
a series of similar transactions involving Jensen and/or its Subsidiaries having
a comparable effect on Jensen taken as a whole; (2) any third party commences a
tender or exchange offer for 25% or more of Jensen's Common Stock and Jensen's
Board of Directors does not recommend or ceases to recommend to Jensen's
stockholders that they reject such offer; or (3) a third party succeeds in
acquiring by tender offer or exchange offer 25% or more of the Jensen Common
Stock, then Jensen shall pay to Recoton a fee of $1,500,000 within five business
days of the first of such events occurring.
(d) SITUATIONS NOT REQUIRING PAYMENT. Except as provided by clause (i)
below of this Section 9.2(d), no payments shall be owed by Recoton, Acquisition
Sub or Jensen if:
(i) Any party shall become entitled to terminate, and shall terminate,
this Agreement pursuant to the last sentence of Section 9.1 [FAILURE TO
RESOLVE GOVERNMENTAL CLEARANCES OR TO LIFT INJUNCTION WITHIN 120 DAY
EXTENSION PERIOD]; PROVIDED, HOWEVER, that if within 12 months following the
date of termination of this Agreement pursuant to the last sentence of
Section 9.1 (1) the Board of Directors of Jensen recommends or approves a
Jensen Acquisition Transaction by or with a third party other than Recoton
or Acquisition Sub, or enters into or consummates an agreement with respect
to any merger, sale of all of or substantially all of the assets or shares
of capital stock of Jensen, or one of a series of similar transactions
involving Jensen and/or its Subsidiaries having a comparable effect on
Jensen taken as a whole; (2) any third party commences a tender or exchange
offer for 25% or more of Jensen's Common Stock and Jensen's Board of
Directors does not recommend or ceases to recommend to Jensen's stockholders
that they reject such offer; or (3) a third party succeeds in acquiring by
tender offer or exchange offer 25% or more of the Jensen Common Stock, then
Jensen shall pay to Recoton a fee of $1,500,000 within five business days of
the first of such events occurring, plus Recoton's Expenses (such Expenses
not to exceed $2,500,000) within five business days after the demand has
been made pursuant to Section 9.2(g);
(ii) Jensen or Acquisition Sub shall become entitled to terminate, and
shall terminate, this Agreement pursuant to (1) Section 9.1(b)(i) [FAILURE
TO CLOSE BY THE TERMINATION DATE] because of a failure to satisfy the
conditions of Section 8.1(e) [GOVERNMENT ACTION]; Section 9.1(b)(iii)
[GOVERNMENTAL APPROVALS] or (3) Section 9.1(b)(iv) [INJUNCTION] provided
that the party terminating this Agreement shall have diligently sought to
satisfy these conditions; PROVIDED, HOWEVER, that if within 12 months
following the date of termination of this Agreement by Jensen due to the
events noted in this clause (ii) (1) the Board of Directors of Jensen
recommends or approves a Jensen Acquisition Transaction by or with a third
party other than Recoton or Acquisition Sub, or enters into or consummates
an agreement with respect to any merger, sale of all of or substantially all
of the assets or shares of capital stock of Jensen, or one of a series of
similar transactions involving Jensen and/or its Subsidiaries having a
comparable effect on Jensen taken as a whole; (2) any third party commences
a tender or exchange offer for 25% or more of Jensen's Common Stock and
Jensen's Board of Directors does not recommend or ceases to recommend to
Jensen's stockholders that they reject such offer; or (3) a third party
succeeds in acquiring by tender offer or exchange offer 25% or more of the
Jensen Common Stock, then Jensen shall pay to Recoton a fee of $1,500,000
within five business days of the first of such events occurring, plus
Recoton's Expenses (such Expenses not to exceed $2,500,000) within five
business days after the demand has been made pursuant to Section 9.2(g);
(iii) Acquisition Sub shall become entitled to terminate, and shall
terminate, this Agreement pursuant to (1) 9.1(c)(iii) [MATERIAL BREACH OF
COVENANT OR AGREEMENT BY JENSEN] provided that the breach was not willful;
or (2) Section 9.1(b)(i) [FAILURE TO CLOSE BY THE TERMINATION DATE] because
of Section 8.3(d) [JENSEN MATERIAL ADVERSE CHANGE] or (B) Section 8.3(g)
[DISSENTING SHARES]; or
ANNEX I-25
<PAGE>
(iv) Jensen shall become entitled to terminate, and shall terminate, this
Agreement pursuant to Section 9.1(d) [MATERIAL BREACH OF COVENANT OR
AGREEMENT BY RECOTON] provided that the breach was not willful.
(e) RECOTON PAYMENT OF BREAK-UP FEE. Recoton shall promptly, but in no
event later than five business days after the first to occur of any of the
following clauses (i) through (iv) (the "Payment Date"), pay to Jensen a fee of
$1,500,000, such amount to be paid on the Payment Date in cash in immediately
available funds by wire transfer to an account designated by Jensen if Jensen
shall become entitled to terminate, and shall terminate, this Agreement pursuant
to (i) 9.1(b)(i) [FAILURE TO CLOSE BY THE TERMINATION DATE] because of a failure
to satisfy any of the conditions set forth in Sections 8.2(a) (as to the
Officer's Certificate, only) and 8.2(b) [CONDITIONS REQUIRING DELIVERY OF
OFFICER'S CERTIFICATES AND LEGAL OPINION] provided that Recoton did not
diligently seek to fulfill or cause other to fulfill these conditions; (ii)
Section 9.1(b)(i) [FAILURE TO CLOSE BY THE TERMINATION DATE] because of a
failure to satisfy any of the conditions set forth in Section 8.2(c) [DELIVERY
OF CASH TO EXCHANGE FUND]; or (iii) Section 9.1(d)(x) [MATERIAL BREACH OF
COVENANT OR AGREEMENT] (including, but not limited to, a failure to proceed
diligently to seek the lifting of any injunction barring completion of the
Merger) provided that the breach was willful.
(f) RECOTON'S PAYMENT OF JENSEN EXPENSES. Promptly, but in no event later
than five business days after demand has been made pursuant to Section 9.2(g)
after the first to occur of any of the events enumerated in paragraph (e) or if
either Acquisition Sub or Jensen shall become entitled to terminate, and shall
terminate, this Agreement pursuant to Section 9.1(b)(i) [FAILURE TO CLOSE BY THE
TERMINATION DATE] because of a failure to satisfy any of the conditions set
forth in Section 8.2(b) [CONDITIONS REQUIRING DELIVERY OF LEGAL OPINION]
provided that Recoton diligently sought to fulfill or cause others to fulfill
these conditions (such day of required payment being referred to as the "Payment
Date"), Recoton shall pay to Jensen an amount equal to Jensen's Expenses not to
exceed $2,500,000, such amount to be paid on the Payment Date in cash in
immediately available funds by wire transfer to an account designated by Jensen.
(g) DEFINITION OF EXPENSES, ETC. "Expenses" as used in this Agreement
shall include all reasonable out-of-pocket expenses (including without
limitation all fees and expenses of counsel, accountants, investment bankers,
experts and consultants to a party hereto and its affiliates) incurred by a
party or on its behalf in connection with or related to the authorization,
preparation, negotiation, execution and performance of this Agreement and all of
the matters and agreements referred to herein or related hereto, the
preparation, printing, filing and mailing of the Proxy Statement and any drafts
of registration statements required under any prior versions of this Agreement,
the solicitation of stockholder approvals, defending or prosecuting any
litigation or other legal proceedings related to or arising out of the
transactions contemplated herein and all other matters related to the closing of
the transactions contemplated herein. Whenever a party shall be obligated to pay
the other party's Expenses, such payment shall be made within five business days
after the presentment of a demand for reimbursement (which may be made in one or
more parts), which demands may be made up to two months after the event giving
rise to the payment of costs and expenses; provided, however, that no expense
payments need be made once expense payments to such party equal to $2,500,000
have been made.
Section 9.3 AMENDMENT. This Agreement may be amended by the parties
hereto, at any time before or after approval hereof by the stockholders of
Jensen, but, after any such approval, no amendment shall be made which (a)
changes the Per Share Cash Amount (or the Principal Stockholders Per Share Cash
Amount) or (b) changes any of the other principal terms of this Agreement, in
each case, without the further approval of such stockholders. This Agreement may
not be amended except by an instrument in writing signed on behalf of each of
the parties hereto.
Section 9.4 WAIVER. At any time prior to the Effective Time, the parties
hereto may (a) extend the time for the performance of any of the obligations or
other acts of the other parties hereto,
ANNEX I-26
<PAGE>
(b) waive any inaccuracies in the representations and warranties contained
herein or in any document delivered pursuant hereto and (c) waive compliance
with any of the agreements or conditions contained herein; PROVIDED, HOWEVER,
that waiver of compliance with any agreements or conditions herein shall not
limit the parties' obligations to comply with all other agreements or conditions
herein. Any agreement on the part of a party hereto to any such extension or
waiver shall be valid if set forth in an instrument in writing signed on behalf
of the parties.
ARTICLE X
GENERAL PROVISIONS
Section 10.1 NON-SURVIVAL OF REPRESENTATIONS, WARRANTIES AND
AGREEMENTS. None of the representations, warranties and agreements in this
Agreement shall survive the Merger, except for the agreements contained in this
Section 10.1, Article III, and in Sections 2.3, 7.1(c), 7.4, 7.6, 7.8, 7.9, and
Article IX. This Section 10.1 shall not limit any covenant or agreement of the
parties which by its terms contemplates performance after the Effective Time of
the Merger.
Section 10.2 BROKERS. Jensen represents and warrants that, except for its
investment banking firm, Lehman Brothers, whose fee arrangement has been
disclosed to Recoton prior to the date hereof, no broker, finder or investment
banker is entitled to any brokerage, finder's or other fee or commission in
connection with the Merger or the transactions contemplated by this Agreement
based upon arrangements made by or on behalf of Jensen. Acquisition Sub and
Recoton represent and warrant that, except for its investment banking firm,
Furman Selz LLC, whose fee arrangement has been disclosed to Jensen prior to the
date hereof, no broker, finder or investment banker is entitled to any
brokerage, finder's or other fee or commission in connection with the Merger or
the transactions contemplated by this Agreement based upon arrangements made by
or on behalf of Acquisition Sub.
Section 10.3 NOTICES. All notices and other communications hereunder shall
be in writing and shall be deemed given if delivered personally or mailed by
registered or certified mail (return receipt requested) to the parties at the
following addresses (or at such other address for a party as shall be specified
by like notice):
(a) If to Acquisition Sub or Recoton, to:
c/o Recoton Corporation
2950 Lake Emma Road
Lake Mary, FL 32746
Attn: Stuart Mont, Chief Operating Officer
with a copy to:
Stroock & Stroock & Lavan
7 Hanover Square
New York, NY 10004
Attn: Theodore S. Lynn, Esq.
(b) If to Jensen, to:
International Jensen Incorporated
25 Tri-State International Office Center
Suite 400
Lincolnshire, Illinois 60069
Attn: Marc T. Tanenberg, Chief Financial Officer
ANNEX I-27
<PAGE>
with a copy to:
Vedder, Price, Kaufman & Kammholz
222 North La Salle Street
Chicago, IL 60601-1003
Attn: John R. Obiala, Esq.
Section 10.4 GENERAL TERMS. The following definitions shall apply to the
extent not otherwise defined, or used in capitalized form, in this Agreement:
(a) The terms "agreements" and "contracts" shall include any contract,
purchase or sales order, franchise, insurance policy, license, undertaking,
arrangement, understanding, commitment, document, lease, sublease, deed,
mortgage plan, plan, indenture, bill of sale, assignment, proxy, voting
trust or other agreement or instrument.
(b) The term "approval" shall include any consent, waiver, license,
permit, certificate or authorization.
(c) The term "breach" shall include any default, event of default or
event, occurrence, condition or act which, with notice or lapse of time or
both, would constitute a breach, default, or event of default or give the
other party or parties a right to accelerate any obligation under the
applicable agreement.
(d) The term "governmental authority" means any agency, instrumentality,
department, commission, court, tribunal or board of any government, whether
foreign or domestic and whether national, federal, state, provincial or
local.
(e) The term "law" shall mean, unless specifically stated otherwise
herein, means laws, rules, regulations, codes, orders, ordinances,
judgments, injunctions, decrees and government policies.
(f) The terms "liability" and "liabilities" shall include any direct or
indirect indebtedness, claim, loss, damage, penalty, deficiency (including
deferred income tax and other net tax deficiencies), cost, expense,
obligation, duties or guarantee, whether accrued, absolute, or contingent,
known or unknown, fixed or unfixed, liquidated or unliquidated, matured or
unmatured or secured or unsecured.
(g) The term "person" shall include an individual, a partnership, a
joint venture, a corporation, a limited liability company, a trust, an
unincorporated organization and a government or other legal body thereof.
(h) The term "subsidiary" shall include each entity controlled by
Jensen.
(i) The term "transfer" shall include any sale, pledge, gift,
assignment, conveyance, lease or disposition and the term "transferred"
shall include sold, pledged, gave, assigned, conveyed, leased or disposed
of.
Section 10.5 INTERPRETATION. The headings contained in this Agreement are
for reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement. Whenever the words "include," "includes," or
"including" are used in this Agreement, they shall be deemed to be followed by
the words "without limitation."
Section 10.6 MISCELLANEOUS. This Agreement (including the documents and
instruments referred to herein) (a) together with the Confidentiality
Agreements, constitutes the entire agreement and supersedes all other prior
agreements and understandings, both written and oral, among the parties, or any
of them, with respect to the subject matter hereof; (b) is not intended to
confer upon any other person any rights or remedies hereunder; (c) shall not be
assigned by operation of law or otherwise; (d) shall be governed in all
respects, including validity, interpretation and effect, by the laws of the
State of Delaware (without giving effect to the provisions thereof relating to
conflicts of
ANNEX I-28
<PAGE>
law) and service of process may be made upon any party by using the notification
procedure set forth in Section 10.3; (e) all disputes that arise with respect to
this Agreement shall be brought only in the Federal District Court, located in
or having jurisdiction for New York County, New York or in a state court in and
for New York County, New York; (f) to the fullest extent permitted by law, the
parties hereby waive all rights to a trial by jury in connection with this
Agreement; (g) by execution and delivery of this Agreement, each of the parties
accepts for himself or itself the jurisdiction of the aforesaid courts, and
irrevocably agrees to be bound by any judgment rendered thereby in connection
with this Agreement; (h) references to Exhibits and Schedules shall be
references to the exhibits of, and schedules, to this Agreement. Such Exhibits
and Schedules form an integral part of this Agreement and are hereby
incorporated in this Agreement. The invalidity or unenforceability of any
provision of this Agreement shall not affect the validity or enforceability of
any other provision of this Agreement, which shall remain in full force and
effect.
Section 10.7 COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed to be an original, but all of which
shall constitute one and the same agreement.
Section 10.8 PARTIES IN INTEREST. This Agreement shall be binding upon and
inure solely to the benefit of each party hereto and nothing in this Agreement,
express or implied, is intended to confer upon any other person any rights or
remedies of any nature whatsoever under this Agreement.
Section 10.9 SEVERABILITY; ENFORCEABILITY. Any term or provision of this
Agreement which is invalid or unenforceable in any jurisdiction shall, as to
that jurisdiction, be ineffective to the extent of such invalidity or
unenforceability without rendering invalid or unenforceable the remaining terms
and provisions of this Agreement in any other jurisdiction. Such term or
provision, however, shall be modified to the extent allowable by law so that it
becomes enforceable to the greatest extent permissible, as modified, and shall
be enforced as any other term or provision hereof. The parties further agree to
negotiate in good faith to modify this Agreement so as to effect the original
intent of the parties as closely as possible in an acceptable manner to the end
that transactions contemplated hereby are fulfilled to the greatest extent
possible.
Section 10.10 RIGHT TO OFFSET. Payments due under this Agreement or any
other agreements or obligation between Recoton (or any affiliate thereof) and
Jensen (or any affiliate thereof) may, at the election of either party, be set
off against each other including by way of (but not limited to) cancellation of
outstanding notes.
ANNEX I-29
<PAGE>
IN WITNESS WHEREOF, Recoton, Acquisition Sub and Jensen have caused this
Agreement to be signed by their respective officers thereunto duly authorized on
the 23rd day of June, 1996 as of the date first written above.
RECOTON CORPORATION
By: /s/ Stuart Mont
-----------------------------------
Stuart Mont
EXECUTIVE VICE PRESIDENT-OPERATIONS
&
CHIEF OPERATING OFFICER
RC ACQUISITION SUB, INC.
By: /s/ Stuart Mont
-----------------------------------
Stuart Mont
SECRETARY
INTERNATIONAL JENSEN INCORPORATED
By: /s/ Marc T. Tanenberg
-----------------------------------
Marc T. Tanenberg
VICE PRESIDENT &
CHIEF FINANCIAL OFFICER
ANNEX I-30
<PAGE>
ANNEX II
THIRD AMENDED AND RESTATED
AGREEMENT FOR PURCHASE AND SALE OF ASSETS
THIS THIRD AMENDED AND RESTATED AGREEMENT (this "Agreement"), dated as of
the 3rd day of January, 1996, is made by and between INTERNATIONAL JENSEN
INCORPORATED, a Delaware corporation (hereinafter referred to as "Seller"),
FUJICONE, INC., a Delaware corporation (hereinafter referred to as "FujiCone"),
and IJI ACQUISITION CORP., an Illinois corporation (hereinafter referred to as
"Purchaser").
ARTICLE I
PURCHASE AND SALE OF ASSETS
1.1 PURCHASE AND SALE. In consideration of the purchase price and the
assumption by Purchaser of the "Assumed Liabilities" as defined in Section 1.4,
and subject to the terms and conditions set forth in this Agreement, Seller will
sell to Purchaser and Purchaser will purchase from Seller, at the Closing Date
(as hereinafter defined), all or substantially all of the assets of Seller's
original equipment manufacturer's business (the "OEM Business") as a going
concern, as the same are more specifically set forth in Section 1.2 hereof. For
purposes of this Agreement, the OEM Business consists of the business associated
with and the assets comprising (i) the loudspeaker assembly plant facility and
operations in Lumberton, North Carolina, (ii) the metal and plastic parts
manufacturing/home loudspeaker assembly plant facility and operations in
Punxsutawney, Pennsylvania, (iii) the magnet manufacturing and general offices
of the General Magnetic division in Dallas, Texas, (iv) the cone manufacturing
and general offices of FujiCone in Clinton, North Carolina, (v) the OEM
value-add facility in Livonia, Michigan, (vi) the Bingham Farms, Michigan sales
office, and (vii) the original equipment manufacturing portion of the
engineering, research and development center and distribution facility in
Schiller Park, Illinois (but only to the extent such operation can be
bifurcated).
1.2 PURCHASED ASSETS. The assets to be purchased are all of Seller's
assets, properties and rights (real and personal, tangible and intangible) to
the extent owned or used in the conduct of the OEM Business on November 30, 1995
(the "Financial Statement Date") and all of Seller's assets, properties and
rights (real and personal, tangible and intangible) acquired after said date to
the extent owned by Seller or used by Seller in the conduct of the OEM Business
on the Closing Date except for those assets which have since been sold,
transferred or disposed of in the ordinary and regular course of business and
except for the "Excluded Assets" (as defined in Section 1.6) (hereinafter
collectively referred to as the "Purchased Assets"). To the extent assets owned
or used by Seller are used in both the conduct of the OEM Business and other
businesses of Seller ("Joint Use Property"), the parties shall endeavor to agree
on an appropriate bifurcation or other allocation of such Joint Use Property; to
the extent that the parties cannot agree on such bifurcation or allocation by
the Closing Date, Seller shall retain such Joint Use Property subject to
Purchaser's right of reasonable access and/or use. The Purchased Assets shall
include, without limitation, the following (subject, however, to the provisions
set forth above regarding Joint Use Property) at the Closing Date:
1.2.1 All of Seller's right, title and interest (including leasehold
interests as tenant, if any) in the lands, buildings and any and
all improvements thereon pertaining to the OEM Business to the extent noted
in Exhibit 1.2.1 hereto.
1.2.2 All of Seller's machinery, equipment, patterns, tools, dies,
furniture, office equipment, vehicles, fixtures, telephone numbers
(toll-free and others) and other personal property and all of Seller's fixed
assets pertaining to the OEM Business. A schedule thereof as of the
Financial Statement Date is set forth on Exhibit 1.2.2.
ANNEX II-1
<PAGE>
1.2.3 All of Seller's accounts receivable and all other receivables of
any other kind pertaining to the OEM Business. A schedule thereof
as of the Financial Statement Date is set forth on Exhibit 1.2.3.
1.2.4 All of FujiCone's assets, properties and rights (real and personal,
tangible and intangible) to the extent owned by FujiCone in the
conduct of its business as of the Financial Statement Date and all of
FujiCone's assets, properties and rights (real and personal, tangible and
intangible) acquired after said date to the extent owned by FujiCone or used
by FujiCone in the conduct of its business on the Closing Date except for
those assets which have since been sold, transferred or disposed of in the
ordinary and regular course of business and except for the "Excluded Assets"
(as defined in Section 1.6), but including, without limitation, as assets to
be transferred all of FujiCone's interests and rights to the FujiCone name
and any common law and/or registered trade names, trademarks and service
marks relating or pertaining to the FujiCone name.
1.2.5 All of Seller's books, financial and business records, insurance
policies and any claims and credits thereunder pertaining
exclusively to the OEM Business. Seller shall retain ownership of all books,
financial and business records, insurance policies and any claims and
credits thereunder to the extent not exclusively pertaining to the OEM
Business, which shall be held for the benefit of each of Seller and
Purchaser as their interests may appear and as to which Seller shall give
Purchaser reasonable access.
1.2.6 All inventories and other supplies pertaining to the OEM Business
on hand or at third party premises or in transit, including raw
materials, work in process and finished goods, and including any rights of
Seller to warranties received from suppliers. A schedule thereof as of the
Financial Statement Date is set forth on Exhibit 1.2.6.
1.2.7 All of Seller's interests and rights to the corporate name
"International Jensen Incorporated" and the trade name "IJI" (for
purposes of corporate identification only), patents, copyrights, tradenames,
service marks, product designations, trade secrets, formulae, processes,
know-how and other intellectual property to the extent pertaining
exclusively to the OEM Business and set forth on Exhibit 1.2.7 ("Proprietary
Rights") and all registrations, applications, assignments, amendments,
research, development, updates and modifications pertaining thereto and all
drawings, art work, designs, printing plates, dies, molds, samples and the
like exclusively related thereto. To the extent the Proprietary Rights are
currently used for both the OEM Business and other businesses of Seller,
Seller shall retain ownership of such rights (other than ownership of the
corporate name International Jensen Incorporated and the IJI trade name for
purposes of corporate identification) subject to a perpetual nonassignable
royalty-free worldwide license to Purchaser; provided, however, that
Seller's trademarks shall be licensed to Purchaser as provided in Section
6.8.
1.2.8 All of Seller's right, title and interest in franchises, licenses,
permits, options and any inventions, developments and ideas to the
extent pertaining to the OEM Business and to the extent assignable or
sublicenseable. If such rights are not assignable or licensable, the parties
shall cooperate to effect an appropriate written agreement regarding the
sharing of such rights. A schedule of such rights, whether assignable or
sublicenseable, as of the Financial Statement Date is set forth on Exhibit
1.2.8.
1.2.9 All of Seller's rights and privileges arising from Seller's
unshipped orders, prepaid expenses (including all insurance
prepayments and rights to refunds thereof), prepayments, deposits, customer
contracts, customer lists, outstanding offers, sales records, advertising
materials, and all agreements for the sale, purchase or lease of goods or
services, and all other contracts, agreements, assets and things of value
beneficially owned as of the date of this Agreement or acquired by Seller at
or before the Closing Date, whether tangible or intangible, real or
personal, inchoate, partial or complete, fixed or contingent, of every kind
and description and wherever situated to the extent pertaining to the OEM
Business.
ANNEX II-2
<PAGE>
1.2.10All of Seller's right, title and interest in and to the assets
comprising Seller's travel agency business.
1.3 PURCHASE PRICE.
(a) Subject to the terms and conditions of this Agreement, the adjustments
set forth herein and the transaction described in Section 1.8 hereof, if any,
Purchaser agrees to pay to Seller at the Closing an aggregate purchase price of
$18,405,000, as it may be modified pursuant to this Agreement (the "Purchase
Price") by delivery of a certified or cashier's check or funds by wire transfer
to Seller's account.
(b) The Purchase Price shall be increased or decreased, as the case may be,
on a dollar for dollar basis, to the extent that on the Closing Date the "Pro
Forma Shaw Payment," calculated utilizing the most recently available Return on
Investment Capital ("ROIC") balance sheet in consideration of the transaction
contemplated in Section 1.8, and in a manner consistent with Exhibit 1.3
attached hereto is more or less than $18,405,000. The "Pro Forma Shaw Payment"
is the amount deemed to be due by Purchaser to Seller as of the Closing Date. If
the "Pro Forma Shaw Payment" exceeds $18,405,000, then Purchaser shall have
until thirty (30) days after the Closing to pay that portion of the Purchase
Price which exceeds $18,405,000. If the "Pro Forma Shaw Payment" is less than
$18,405,000, then Purchaser shall pay such lesser amount on the Closing Date.
Sixty (60) days after the Closing, the parties shall prepare an actual ROIC
balance sheet as of the Closing Date which shall calculate the final actual
Purchase Price ("Final Purchase Price") in consideration of the transaction
contemplated in Section 1.8, if any, and in a manner consistent with Exhibit
1.3. Any payments due either party after the preparation of the actual ROIC
balance sheet shall be made within thirty (30) days after the actual calculation
of the amount due. If the parties disagree as to the calculation of the Final
Purchase Price based upon the ROIC balance sheet as of the Closing Date, each
party shall submit a calculation of the Final Purchase Price with supporting
documentation to an accounting firm mutually acceptable to the parties (the
"accounting firm"). The accounting firm shall determine the amount of the Final
Purchase Price in accordance with the terms of this Section 1.3 and Exhibit 1.3.
The determination of the Final Purchase Price by the accounting firm shall be
made within ninety (90) days of submission of the calculation to it and shall be
binding upon the parties. Any payments due to a party after the determination of
the accounting firm shall be made within thirty (30) days after such
determination. The cost of such accounting firm will be shared equally by the
parties.
The "Pro Forma Shaw Payment" and the Final Purchase Price shall be
calculated in accordance with and in a manner consistent with the ROIC balance
sheet set forth on Exhibit 1.3. As set forth on Exhibit 1.3, the "Pro Forma Shaw
Payment" and the Final Purchase Price shall be calculated as follows: (i) ROIC
Equity (as that term is defined and calculated in a manner consistent with
Exhibit 1.3) for the OEM Business (plus or minus, as applicable, accrued Seller
corporate accounts attributable to the operations of the OEM Business); less
(ii) a discount of $8,195,000. For purposes of illustration and guidance,
Exhibit 1.3 sets forth the calculation of the "Pro Forma Shaw Payment" for the
months ended 10/95, 11/95, 12/95, 1/96, 2/96, 3/96, 4/96 and 5/96. Seller
represents that the "Pro Forma Shaw Payment" for each month-end as set forth on
Exhibit 1.3 is true and correct and based on such representation, the parties
agree that the "Pro Forma Shaw Payment" shall be based on the most recent
available ROIC balance sheet and the Final Purchase Price calculation shall be
made on the basis of the actual ROIC balance sheet on the day of Closing in a
manner consistent with Exhibit 1.3.
(c) In the event the parties elect to sell the accounts receivable for the
OEM Business as described in Section 1.8 hereof, the parties shall calculate the
"Pro Forma Shaw Payment" and the "Final Purchase Price" in a manner consistent
with subsection (b) above, provided that the "Pro Forma Shaw Payment" shall be
reduced by the face amount of the accounts receivable sold to a third party. In
addition, the "Final Purchase Price" shall be increased by any amounts paid by
Seller to the purchaser of the accounts receivable subsequent to the sale of
such accounts receivable, pursuant to the terms of that transaction.
ANNEX II-3
<PAGE>
1.4 ASSUMPTION OF LIABILITIES. Provided that the transactions herein
contemplated are consummated, and as a precondition of the sale of the Purchased
Assets to Purchaser, Purchaser will assume and discharge, and will indemnify
Seller against all liabilities (whether known or unknown, matured or unmatured,
absolute or contingent, or otherwise) associated with, pertaining to, arising
out of, connected with or relating to the conduct of the OEM Business or the
Purchased Assets other than the Excluded Liabilities listed in Section 1.5 (the
"Assumed Liabilities"), including the following:
(a) all liabilities of Seller pertaining to the OEM Business shown in
the 1995 Seller Financial Statements (as defined in Section 2.5), except for
federal, state and local income taxes of Seller (including FujiCone) which
shall be Excluded Liabilities;
(b) any products liability (related to OEM Business products sold to
customers other than those customers in the markets listed in Paragraph 1(a)
of Exhibit 6.7 prior to the Closing), liability arising from or relating to
Environmental Laws (as defined herein) or other environmental matters,
liability for violations of laws (including customs laws), liability for
termination of employees working exclusively or primarily for the OEM
Business prior to or after the Closing (provided, however, that the
outstanding balance of the severance payments to be made to Donald J. Cowie
and James B. Ross at Closing shall be allocated between Seller and Purchaser
in proportion to the percentage of sales of the OEM Business and the non-OEM
Business for the fiscal year ended February 29, 1996 (the "Cowie/Ross
Severance Payment")), or any other liabilities in each case pertaining to,
associated with, arising out of, connected with or related to the conduct of
the OEM Business (including acts or omissions) prior to and after the
Closing Date; and
(c) liabilities and obligations incurred by Seller in the ordinary
course of the OEM Business prior to the Financial Statement Date, between
the Financial Statement Date and the Closing Date and after the Closing Date
under leases, contracts, purchase orders, sales commitments, and outstanding
offers for purchase or sale or guarantees.
1.5 EXCLUDED LIABILITIES. Purchaser shall not be responsible for the
following liabilities (whether known or unknown, matured or unmatured, absolute
or contingent, or otherwise) (the "Excluded Liabilities"):
(a) liabilities incurred by Seller and FujiCone in connection with this
Agreement and the transactions contemplated herein as set forth in Section
12.3(a);
(b) any liability of Seller insured against to the extent such liability
is paid by an insurer and does not thereby result in an increase in Seller's
premiums;
(c) any liability or obligation of Seller with respect to any Excluded
Asset;
(d) any federal, state or local income tax liability of Seller and
FujiCone;
(e) any liability or obligation of Seller pertaining to, associated
with, arising out of, connected with or related to any of Seller's employee
benefit plans (other than the FujiCone benefit plans);
(f) Seller's share of the Cowie/Ross Severance Payment;
(g) Note Agreement by and between Seller and Connecticut Mutual Life
Insurance Company; and
(h) Credit Agreement by and between Seller and Harris Trust and Savings
Bank.
1.6 EXCLUDED ASSETS. The term "Excluded Assets" shall mean:
(a) cash and cash equivalents pertaining to Seller's OEM Business;
(b) Leases for the leased facilities located in Lincolnshire, Illinois
and Schiller Park, Illinois;
ANNEX II-4
<PAGE>
(c) any right, title and interest in and to any of Seller's registered
trademarks and other intellectual property not pertaining to the OEM
Business; and
(d) any other asset of Seller to the extent that it does not pertain to
Seller's OEM Business.
1.7 ALLOCATION OF THE PURCHASE PRICE. The Purchase Price shall be
attributed to the Purchased Assets according to their respective fair market
values as of the Closing in conformity with the applicable provisions of the
Internal Revenue Code of 1986, as amended, governing transactions of this type
as determined by mutual agreement of the parties on or before the Closing.
1.8 INDEPENDENT ACCOUNTS RECEIVABLE TRANSACTION. Notwithstanding anything
to the contrary contained in this Agreement, the parties shall have the right to
designate a purchaser for all or any portion of Seller's accounts receivable
related to the OEM Business at any time prior to the Closing, which accounts
receivable sale shall take place prior to or simultaneous with the Closing Date.
In the event a purchaser is designated to purchase all or any portion of
Seller's accounts receivable related to the OEM Business as provided in this
Section 1.8 and such purchase is consummated upon terms and conditions
acceptable to the parties, then: (i) those accounts receivable which are not
purchased by Purchaser shall not be "Purchased Assets," but shall be "Excluded
Assets" for all purposes of this Agreement, including, without limitation, the
provisions of Section 1.4 (Assumption of Liabilities) and Section 11.2
(Indemnification by Purchaser); and (ii) the "Pro Forma Shaw Payment" and the
Final Purchase Price shall be calculated in accordance with Section 1.3(c)
above.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF SELLER
Seller hereby represents and warrants to Purchaser, as follows:
2.1 ORGANIZATION AND QUALIFICATION. Seller is a corporation duly
organized, validly existing and in good standing under the laws of its state of
incorporation and has the requisite corporate power and authority to own, lease
and operate its assets and properties and to carry on the OEM Business as it is
now being conducted. Seller is qualified to do the OEM Business and is in good
standing in each jurisdiction in which the properties owned, leased or operated
by it or the nature of the OEM Business makes such qualification necessary,
except where the failure to be so qualified and in good standing will not, when
taken together with all other such failures, have a material adverse effect on
the OEM Business; (financial or other), results of operations or prospects of
Seller and its subsidiaries as related to the OEM Business, taken as a whole (a
"Seller Material Adverse Effect"). True and complete copies of Seller's
Certificate of Incorporation and By-Laws, as in effect on the date hereof,
including all amendments thereto, have heretofore been delivered to Purchaser.
2.2 TITLE AND RELATED MATTERS. Except as set forth in Section 2.2 of
Seller's Disclosure Schedule, Seller has good and marketable title to all of the
properties and assets owned or used in the conduct of the OEM Business whether
reflected in the Seller Financial Statements or acquired after the date thereof
(except properties sold or otherwise disposed of since the date thereof in the
ordinary course of business and consistent with past practices) including,
without limitation, the specific assets referred to in paragraphs (a), (b) and
(c) below, free and clear of all mortgages, security interests, liens, pledges,
claims, escrows, options, rights of first refusal, indentures, easements,
licenses, security agreements or other agreements, arrangements, contracts,
commitments, understandings, obligations, charges or encumbrances of any kind or
character, except as reflected in the 1995 Seller Financial Statements. Seller
owns or leases, directly or indirectly, all of such assets and properties, and
is a party to all licenses and other agreements, presently used or necessary to
carry on its OEM Business, and its OEM Business operations as presently
conducted.
(a) REAL PROPERTY. Seller does not currently have, and in the past has
not had, any interest (as owner, tenant or otherwise) in any real property
related to the OEM Business except as disclosed in Section 2.2(a) of
Seller's Disclosure Statement.
ANNEX II-5
<PAGE>
(b) PERSONAL PROPERTY. Seller has good and marketable title to all the
personal property and assets, tangible or intangible, related to the OEM
Business shown in the 1995 Seller Financial Statements, except to the extent
sold or disposed of in transactions entered into in the ordinary course of
business consistent with past practices since the Financial Statement Date.
The personal property related to the OEM Business in the aggregate is in
good condition and working order, and each individual item of such personal
property which would cost in excess of $10,000 to replace is in good
condition and working order. None of such assets are subject to any (i)
contracts of sale or lease, except contracts for the sale of inventory in
the ordinary and regular course of business; or (ii) security interests,
encumbrances, liens or charges of any kind or character, except as set forth
in Section 2.2(a) of Seller's Disclosure Statement. Except as set forth in
Section 2.2(a) of Seller's Disclosure Statement, there are no lease
restrictions with respect to the personal property leased by Seller related
to the OEM Business.
(c) INVENTORIES. In addition to subsection (b) of this Section, the
inventories of Seller related to the OEM Business included in the Seller
Financial Statements, to be included on interim balance sheets provided
pursuant to Section 4.8 and owned by Seller on the Closing Date: (i) are
valued with respect to each category of inventory at the lower of cost (on a
LIFO basis) or market; and (ii) do not include any items which are below
standard quality, damaged or spoiled, obsolete or of a quality or quantity
not usable or saleable in the normal course of the OEM Business as currently
conducted within normal inventory "turn" experience, the value of which has
not been fully written down, or with respect to which adequate reserves have
not been provided. Seller has the proper amount of inventories to conduct
the OEM Business consistent with past practices. There has not been since
the Financial Statement Date any provision for markdowns or shrinkage with
respect to inventories of the OEM Business other than in the ordinary and
regular course of business consistent with past activities or as otherwise
consented to by Purchaser.
(d) NO DISPOSITION OF ASSETS. There has not been since the Financial
Statement Date any sale, lease or any other disposition or distribution by
Seller of any of the assets or properties of the OEM Business and any other
assets of the OEM Business now or hereafter owned by Seller, except
transactions in the ordinary and regular course of business consistent with
past practices or as otherwise consented to by Purchaser.
2.3 SUBSIDIARIES. FujiCone is a corporation duly organized, validly
existing and in good standing under the laws of its jurisdiction of
incorporation and has the requisite power and authority to own, lease and
operate its assets and properties and to carry on its business as it is now
being conducted. FujiCone is qualified to do business, and is in good standing,
in each jurisdiction in which the properties owned, leased or operated by it or
the nature of the business conducted by it makes such qualification necessary,
except where the failure to be so qualified and in good standing will not, when
taken together with all such other failures, have a Seller Material Adverse
Effect. Except as set forth in Section 2.3 of Seller's Disclosure Schedule or in
Seller's Annual Report on Form 10-K for the year ended February 28, 1995 or the
exhibits and schedules thereto (the "Seller 10-K") and, together with any
reports filed by Seller with the Securities and Exchange Commission (the "SEC")
under the Securities Exchange Act of 1934, as amended (the "Exchange Act") after
the Seller 10-K and prior to the date of this Agreement (the "Seller 1995
Reports"), Seller owns directly or indirectly all of the issued and outstanding
shares of the capital stock of FujiCone. Except as set forth in Section 2.3 of
Seller's Disclosure Schedule or in the Seller 1995 Reports, there are no
outstanding Subscriptions, options, warrants, rights, calls, contracts, voting
trusts, proxies or other commitments, understandings, restrictions or
arrangements relating to the issuance, sale, voting, transfer, ownership or
other rights affecting any shares of capital stock of any subsidiary of Seller,
including any right of conversion or exchange under any outstanding security,
instrument or agreement. Section 2.3 of Seller's Disclosure Schedule sets forth
a list of all material corporations, partnerships, joint ventures and other
business entities in which Seller or any of its subsidiaries directly or
indirectly owns an interest which
ANNEX II-6
<PAGE>
are involved in the OEM Business, and such subsidiaries' direct and indirect
share, partnership or other ownership interest of each such entity. FujiCone is
the only subsidiary of Seller which, directly or indirectly, conducts or is
involved in the OEM Business.
2.4 AUTHORITY; NON-CONTRAVENTION; APPROVALS.
(a) Seller has full corporate power and authority to enter into this
Agreement and, subject to Seller Stockholders' Approval (as defined in Section
2.21) and the Seller Required Approvals (as defined in Section 2.4(c)), to
consummate the transactions contemplated hereby. The execution, delivery and
performance of this Agreement and the consummation by Seller of the transactions
contemplated hereby have been duly authorized by Seller's Board of Directors,
and no other corporate proceedings on the part of Seller are necessary to
authorize the execution and delivery of this Agreement and the consummation by
Seller of the transactions contemplated hereby, except for the Seller
Stockholders' Approval and the obtaining of the Seller Required Approvals. This
Agreement has been duly and validly executed and delivered by Seller and
constitutes a valid and legally binding agreement of Seller enforceable against
it in accordance with its terms.
(b) Except as set forth in Section 2.4(b) of Seller's Disclosure Schedule,
the execution and delivery of this Agreement by Seller does not, and the
consummation by Seller of the transactions contemplated hereby will not,
violate, conflict with or result in a breach of any provision of, or constitute
a default (or an event which, with notice of lapse of time or both, would
constitute a default) under, or result in the termination of, or accelerate the
performance required by, or result in a right of termination or acceleration
under, or result in the creation of any lien, security interest, charge or
encumbrance upon any of the properties or assets of Seller or any of its
subsidiaries under any of the terms, conditions or provisions of (i) the
respective charters or By-Laws of Seller or any of its subsidiaries, (ii)
subject to obtaining the Seller Required Approvals and the receipt of the Seller
Stockholders' Approval, any statute, law, ordinance, rule, regulation, judgment,
decree, order, injunction, writ, permit or license of any court or governmental
authority applicable to Seller or any of its subsidiaries or any of their
respective properties or assets, or (iii) any note, bond, mortgage, indenture,
deed of trust, license, franchise, permit, concession, contract, lease or other
instrument, obligation or agreement of any kind to which Seller or any of its
subsidiaries is now a party or by which Seller or any of its subsidiaries or any
of their respective properties or assets may be bound or affected, excluding
from the foregoing clauses (ii) and (iii) such violations, conflicts, breaches,
defaults, terminations, accelerations or creations of liens, security interests,
charges or encumbrances that would not, in the aggregate, have a Seller Material
Adverse Effect.
(c) Except for the filing of the Proxy Statement (as hereinafter defined)
with the SEC pursuant to the Securities Exchange Act of 1934 (the "Exchange
Act") (the "Seller Required Approval"), no declaration, filing or registration
with, or notice to, or authorization, consent or approval of, any governmental
or regulatory body or authority is necessary for the execution and delivery of
this Agreement by Seller or the consummation by Seller of the transactions
contemplated hereby.
2.5 REPORTS AND FINANCIAL STATEMENTS. Since February 28, 1995, Seller and
each of its subsidiaries required to make filings under the Securities Act, the
Exchange Act and applicable state laws and regulations, as the case may be, have
filed all forms, statements, reports and documents (including all exhibits,
amendments and supplements thereto) required to be filed by them under each of
the Securities Act, the Exchange Act, applicable laws and regulations of
Seller's and its subsidiaries' jurisdictions of incorporation and the respective
rules and regulations thereunder, all of which complied in all material respects
with all applicable requirements of the appropriate act and the rules and
regulations thereunder. Seller has previously delivered to Purchaser true and
complete copies of its (a) Annual Reports on Form 10-K, Quarterly Reports on
Form 10-Q, and Immediate Reports on Form 8-K filed by Seller or any of its
subsidiaries with the SEC from February 28, 1992, until the date hereof, (b)
proxy and information statements relating to all meetings of its stockholders
(whether annual or special) and actions by written consent in lieu of a
stockholders' meeting from February 28, 1992 until the date hereof, (c) all
other reports or registration statements filed by Seller with the SEC
ANNEX II-7
<PAGE>
from February 28, 1992 until the date hereof (collectively, the "Seller SEC
Reports"), and (d) the audited consolidated financial statements of Seller for
the fiscal year ended February 28, 1995 and its unaudited consolidated financial
statements for the nine months ended November 30, 1995 (the "Nine Month Seller
Financial Statements") (collectively the "1995 Seller Financial Statements"). As
of their respective dates, the Seller SEC Reports and the 1995 Seller Financial
Statements did not contain any untrue statement of a material fact or omit to
state a material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading. The audited financial statements of Seller included in the
Seller SEC Reports and the 1995 Seller Financial Statements (collectively, the
"Seller Financial Statements") fairly represent the financial position of Seller
and its subsidiaries related to the OEM Business as of the dates thereof and the
results of their operations and cash flows for the periods then ended in
conformity with generally accepted accounting principles applied on a consistent
basis (except as may be indicated therein or in the notes thereto, subject in
the case of the unaudited interim financial statements, to the normal year-end
and audit adjustments and any other adjustments described therein.
2.6 ABSENCE OF UNDISCLOSED LIABILITIES. Except as set forth in Section 2.6
of Seller's Disclosure Schedule or in the Seller 1995 Reports, neither Seller
nor any of its subsidiaries had at February 28, 1995, or has incurred since that
date, any liabilities or obligations related to the OEM Business (whether
absolute, accrued, contingent or otherwise) of any nature, except liabilities,
obligations or contingencies (a) which are accrued or reserved against in the
1995 Seller Financial Statements or reflected in the notes thereto or (b) which
were incurred after February 28, 1995, and were incurred in the ordinary course
of business and consistent with past practices and, in either case, except for
any such liabilities, obligations or contingencies which (i) would not, in the
aggregate have a Seller Material Adverse Effect or (ii) have been discharged or
paid in full prior to the date hereof.
2.7 ABSENCE OF CERTAIN CHANGES OR EVENTS. Except as set forth in Section
2.7 of Seller's Disclosure Schedule or in the Seller 1995 Reports, since
February 28, 1995 there has not been any material adverse change in the OEM
Business (including, without limitation, any actual or threatened loss of
significant customers or any cancellation or threatened cancellation of any
orders with an aggregate value of $500,000 or more), operations, properties,
assets, liabilities, condition (financial or other), results of operations or
prospects of Seller and its subsidiaries, taken as a whole, and Seller and its
subsidiaries have in all material respects conducted the OEM Business in the
ordinary course consistent with past practice.
2.8 LITIGATION. Except as disclosed in the Seller 1995 Reports, the 1995
Seller Financial Statements, or Section 2.8 of Seller's Disclosure Schedule, (a)
there are no claims, suits, actions or proceedings pending or, to the knowledge
of Seller, threatened, nor to the knowledge of Seller are there any
investigations or reviews pending or threatened, against, relating to or
affecting Seller or any of its subsidiaries related to the OEM Business, which,
if adversely determined, would have a Seller Material Adverse Effect; (b) there
have not been any developments since the date of the Seller 10-K with respect to
such claims, suits, actions, proceedings, investigations or reviews which,
individually or in the aggregate, may have a Seller Material Adverse Effect; and
(c) except as contemplated by the Seller Required Approvals, neither Seller nor
any of its subsidiaries is subject to any judgment, decree, injunction, rule or
order of any court, governmental department, commission, agency, instrumentality
or authority or any arbitrator which prohibits or restricts the consummation of
the transactions contemplated hereby or may have a Seller Material Adverse
Effect.
2.9 PROXY STATEMENT. The proxy statement to be distributed in connection
with the Seller stockholders' meeting (the "Proxy Statement") will not at the
time of the mailing of the Proxy Statement and any amendment or supplement
thereto, and at the time of the Seller stockholders' meeting, 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 are made, not misleading or necessary to
correct any statement in any earlier filing with the SEC of such Proxy Statement
or any amendment or supplement thereto or any earlier
ANNEX II-8
<PAGE>
communication to stockholders of Seller with respect to the transactions
contemplated by this Agreement. The Proxy Statement will comply as to form in
all material respects with all applicable laws, including the provisions of the
Exchange Act and the rules and regulations promulgated thereunder.
Notwithstanding the foregoing, no representation is made by Seller with respect
to information supplied by Purchaser specifically for inclusion in the Proxy
Statement.
2.10 NO VIOLATION OF LAW. Except as set forth in Section 2.10 of Seller's
Disclosure Schedule, neither Seller nor any of its subsidiaries is in violation
of, or, to the knowledge of Seller, is under investigation with respect to or
has been given notice or been charged with any violation of, any law, statute,
order, rule, regulation, ordinance, or judgment of any governmental or
regulatory body or authority, except for violations which in the aggregate, do
not have a Seller Material Adverse Effect. Seller and its subsidiaries have all
material permits, licenses, franchises and other governmental authorizations,
consents and approvals necessary to conduct the OEM Business as presently
conducted.
2.11 COMPLIANCE WITH AGREEMENTS. Except as disclosed in the Seller 1995
Reports, the Seller 1995 Financial Statements or Section 2.11 of Seller's
Disclosure Schedule, Seller and FujiCone are not in breach or violation of or in
default in the performance or observance of any term or provision of, and no
event has occurred which, with lapse of time or action by a third party, could
result in a default under, (i) the respective charters or by-laws of Seller or
FujiCone or (ii) any contract, commitment, agreement, indenture, mortgage, loan
agreement, note, lease, bond, license, approval or other instrument to which
Seller or any of its subsidiaries is a party or by which any of them is bound or
to which any of their property is subject, which breaches, violations and
defaults, in the case of clause (ii) of this Section 2.11 would have, in the
aggregate, a Seller Material Adverse Effect.
2.12 TAXES.
(a) Seller and its subsidiaries have duly filed with the appropriate
federal, state, local, and foreign taxing authorities all tax returns required
to be filed by them on or prior to the Closing Date as related to the OEM
Business and the Purchased Assets and such tax returns are true and complete in
all material respects, and duly paid in full or made adequate provision for the
payment of all taxes for all periods ending at or prior to the Closing Date. The
liabilities and reserves for taxes as related to the OEM Business and the
Purchased Assets reflected in the Seller balance sheets as of February 28, 1995,
contained in the Seller 10-K, are adequate to cover all taxes for any period
ending on or prior to February 28, 1995 and as of October 31, 1995, are adequate
to cover all taxes for any period ending on or prior to October 31, 1995. Except
as set forth in Section 2.12 of Seller's Disclosure Schedule, (i) there are no
material liens for taxes upon any property or asset of Seller or any subsidiary
thereof as related to the OEM Business and the Purchased Assets, except for
liens for taxes not yet due and any such liens for taxes shown on such Section
2.12 of Seller's Disclosure Statement are being contested in good faith through
appropriate proceedings; (ii) Seller has not made any change in accounting
method, received a ruling from any taxing authority or signed an agreement with
any taxing authority which will materially and adversely affect the OEM Business
in future periods; (iii) during the past 10 years neither Seller nor any of its
subsidiaries has received any notice of deficiency, proposed deficiency or
assessment from any governmental taxing authority with respect to taxes of
Seller or any of its subsidiaries related to Seller's OEM Business and, any such
deficiency or assessment shown on such Section 2.12 of Seller's Disclosure
Schedule has been paid or is being contested in good faith through appropriate
proceedings; (iv) the federal income tax returns for Seller and its subsidiaries
are not currently the subject of any audit by the Internal Revenue Service (the
"IRS"), and such federal income tax returns have been examined by the IRS (or
the applicable statutes of limitation for the assessment of federal taxes for
such periods have expired) for all periods through and including February 28,
1990, and no material deficiencies were asserted as a result of such
examinations which were related to the OEM business which have not been resolved
and fully paid and similar adjustments cannot reasonably be expected to be made
for subsequent periods; (v) there are no outstanding requests, agreements,
consents or waivers to extend the statutory period of limitations applicable to
the assessment of any taxes or deficiencies against Seller or any of its
subsidiaries, and no power of
ANNEX II-9
<PAGE>
attorney granted by either Seller or any of its subsidiaries with respect to any
taxes is currently in force; and (vi) neither Seller nor any of its subsidiaries
is a party to any agreement providing for the allocation or sharing of taxes
which are related to or in any way connected to the OEM Business. Neither Seller
nor any of its subsidiaries has, with regard to any assets or property held
related to the OEM Business, acquired or to be acquired by any of them, which
assets or properties are related to the OEM Business, filed a consent, to the
application of Section 341(f) of the Code. Seller and its subsidiaries, in
accordance with Section 482 of the Code, properly conducted intercompany pricing
studies related to the OEM Business for the tax year ended February 28, 1995,
and is conducting such study in a timely manner with respect to the tax year
ending February 28, 1996.
(b) The term "tax" shall include any tax, assessment, levy, impost, duty, or
withholding of any nature now or hereafter imposed by a governmental authority
and any interest, additional tax, deficiency, penalty, charge or other addition
thereon, including without limitation any income, gross receipts, profits,
franchise, sales, use, property (real and personal), transfer, payroll,
unemployment, social security, occupancy and excise tax and customs duty. The
term "return" shall include any return, declaration, report, estimate,
information return and statement required to be filed with or supplied to any
taxing authority in connection with any taxes.
2.13 CUSTOMS. Except as set forth in the Seller 1995 Reports or in Section
2.13 of Seller's Disclosure Schedule, Seller and its subsidiaries have at all
times been in compliance with all requirements administered and enforced by the
U.S. Customs Service related to the OEM Business, including, but not limited to
the classification, valuation, and marking of articles imported into the United
States in a way so as not to give rise to a Seller Material Adverse Effect.
2.14 EMPLOYEE BENEFIT PLANS; ERISA.
(a) Section 2.14 of Seller's Disclosure Schedule lists all material employee
benefit plans, employment contracts or other arrangements for the provision of
benefits for employees or former employees of Seller and its subsidiaries
related to the OEM Business, and, except as set forth in Section 2.14(a) of
Seller's Disclosure Schedule, neither Seller nor its subsidiaries have any
commitment to create any additional plan, contract or arrangement related to the
OEM Business or to amend any such plan, contract or arrangement related to the
OEM Business so as to increase benefits thereunder, except as required under
existing collective bargaining agreements. Section 2.14(a) of Seller's
Disclosure Schedule identifies all "employee benefit plans" within the meaning
of Section 3(3) of the Employee Retirement Income Security Act of 1974, as
amended ("ERISA"), other than "multiemployer plans" within the meaning of
Section 3(37) of ERISA, covering current or former employees of Seller and its
subsidiaries (the "Seller Plans"), other than Seller Plans which are described
in Seller 1995 Reports or the Proxy Statement for the 1995 Annual Meeting of
Stockholders of Seller. A true and correct copy of each of the employee benefit
plans, employment contracts and other arrangements for the provision of benefits
for employees and former employees of Seller and its subsidiaries related to the
OEM Business described in the Seller SEC Reports, the Seller Plans listed on
Section 2.14(a) of Seller's Disclosure Schedule, except for any multiemployer
plans, and all contracts relating thereto, or to the funding thereof including,
without limitation, all trust agreements, insurance contracts, investment
management agreements, subscription and participation agreements and
recordkeeping agreements), each as will be in effect on the Closing Date, has
been provided to Purchaser. In the case of any employee benefit plan, employment
contract or other benefit arrangement related to the OEM Business which is not
in written form, an accurate description of such plan, contract or arrangement
as will be in effect on the Closing Date, has been provided to Purchaser. A true
and correct copy of the most recent annual report, actuarial report, summary
plan description, and Internal Revenue Service determination letter with respect
to each such Seller plan, to the extent applicable, and a current schedule of
assets (and the fair market value thereof assuming liquidation of any asset
which is not readily tradeable) held with respect to any funded plan, Seller
Plan, or benefit arrangement has been provided to Purchaser by Seller, and there
have been no material changes in the financial condition in the respective
plans, Seller Plans or benefit arrangements from that stated in such annual
report and actuarial reports.
ANNEX II-10
<PAGE>
(b) Except as disclosed in the Seller 1995 Reports or as set forth in
Section 2.14(b) of Seller's Disclosure Schedule, (i) there have been no
prohibited transactions within the meaning of Section 406 of ERISA or Section
4975 of the Code with respect to any of the Seller Plans which, assuming that
the taxable period of such transaction expired as of the date hereof, could
subject Seller or its subsidiaries to a material tax or penalty under Section
502(i) of ERISA or Section 4975 of the Code; (ii) no liability (except for
premiums due) has been or is expected to be incurred by Seller or any of its
subsidiaries under Title IV of ERISA with respect to any of the Seller Plans or
with respect to any ongoing, frozen or terminated "single employer plan" within
the meaning of Section 4001(a)(15) of ERISA currently or formerly maintained by
any of them, or by any entity which is considered a single employer with Seller
under Section 4001 of ERISA or Section 414 of the Code (a "Seller ERISA
Affiliate"); (iii) all amounts which Seller or its subsidiaries are required to
pay as contributions to the Seller Plans have been timely made or have been
reflected in the Seller Financial Statements; (iv) none of the Seller Plans has
incurred any "accumulated funding deficiency" (as defined in Section 302 of
ERISA and Section 412 of the Code), whether or not waived; (v) the current value
of all "benefit liabilities" within the meaning of Section 4001(a)(16) of ERISA
(as determined on the basis of the actuarial assumptions used in the Plan's most
recent actuarial valuation) under each of the Seller Plans which is subject to
Title IV of ERISA did not exceed the then current value of the assets of such
plan allocable to such benefit liabilities by more than the amount disclosed in
the Seller 10-K as of February 28, 1995; (vi) each of the Seller Plans has been
operated and administered in all material respects in accordance with applicable
laws, including, but not limited to, the reporting and disclosure requirements
of Part 1 of Subtitle I of ERISA and the group health plan continuation
requirements of Section 4980B of the Code and Part 6 of Subtitle B of Title I of
ERISA; (vii) each of the Seller Plans which is intended to be "qualified" within
the meaning of Section 401(a) of the Code has been determined by the IRS to be
so qualified and Seller is not aware of any circumstances likely to result in
revocation of any such determination; (viii) there are no material pending,
threatened or anticipated claims involving any of the Seller Plans other than
claims for benefits in the ordinary course; (ix) no notice of a "reportable
event" within the meaning of Section 4043 of ERISA for which the 30-day
reporting requirement has not been waived has been required to be filed for any
of the Seller Plans; (x) neither Seller nor any of its subsidiaries is a party
to, or participates or has any liability or contingent liability with respect
to, any multiemployer plan (regardless of whether based on contributions of a
Jensen ERISA affiliate); and (xi) neither Seller nor its subsidiaries has any
liability or contingent liability for retiree life and health benefits under any
of the Seller Plans other than statutory liability for providing group health
plan continuation coverage under Part 6 of Subtitle B of Title I of ERISA and
Section 4980B of the Code, except as set forth on Section 2.14(b) of Seller's
Disclosure Schedule; and each of (i) through (xii) being qualified to the extent
such matters relate to or are a party of the OEM Business.
(c) Except as set forth in Section 2.14(c) of Seller's Disclosure Schedule,
neither the execution and delivery of this Agreement nor the consummation of the
transactions contemplated hereby will accelerate benefits or any payments under
any Seller employee agreement, plan or arrangement related to the OEM Business.
2.15 MATERIAL DEFAULTS. Except as set forth on Section 2.15 of Seller's
Disclosure Schedule, neither Seller nor its subsidiaries is, or has received any
notice or has any knowledge that any other party is, in default in any respect
under any contract, agreement, commitment, arrangement, lease, insurance policy,
or other instrument to which Seller or any of its subsidiaries is a party which
is related to the OEM Business or by which Seller or any of its subsidiaries or
the assets, business, or operations receives benefits, except for those defaults
which would not have, individually or in the aggregate, a Seller Material
Adverse Effect, and there has not occurred any event that with the lapse of time
or the giving of notice or both could constitute such a default.
2.16 LABOR MATTERS. Except as set forth on Section 2.16 of Seller's
Disclosure Schedule, there are no material controversies pending or, to the
knowledge of Seller, threatened between Seller or its subsidiaries and any
representatives of its employees, and, to the knowledge of Seller, there are no
material organizational efforts presently being made involving any of the
presently unorganized
ANNEX II-11
<PAGE>
employees of Seller or its subsidiaries related to the OEM Business. With regard
to the OEM Business, Seller and its subsidiaries have complied in all material
respects with all laws relating to the employment of labor, including, without
limitation, any provisions thereof relating to wages, hours, collective
bargaining, and the payment of social security and similar taxes, and no person
has, to the knowledge of Seller, asserted that Seller or its subsidiaries are
liable in any material amount for any arrears of wages or any taxes or penalties
for failure to comply with any of the foregoing.
2.17 ENVIRONMENTAL MATTERS.
(a) Except as set forth in the Seller 1995 Reports or in Section 2.17 to
Seller's Disclosure Schedule, Seller and its subsidiaries have complied in all
respects with all Environmental Laws (as defined below in this Section) in
connection with the OEM Business or the Purchased Assets. Seller has obtained
and will maintain through the Closing Date all permits, licenses, certificates
and other authorizations which are required with respect to the OEM Business
under any Environmental Laws and all such permits, licenses, certificates and
other authorizations are listed on Section 2.17 to Seller's Disclosure Schedule.
(b) Except as set forth in the Seller 1995 Reports or in Section 2.17 to
Seller's Disclosure Schedule, Seller and its subsidiaries are in compliance in
all respects with all permits, licenses and authorizations required by any
Environmental Laws for the OEM Business, and are also in full compliance with
all other limitations, restrictions, conditions, standards, prohibitions,
requirements, obligations, schedules and timetables contained in any
Environmental Laws or contained in any regulation or code promulgated or
approved under the Environmental Laws, or any plan, order, decree, judgment,
injunction, notice or demand letter issued to or entered against Seller
thereunder and related to the OEM Business. All products manufactured and
services provided by Seller or its subsidiaries related to the OEM Business
prior to the date hereof are in compliance with all Environmental Laws
applicable thereto. Seller has hereto delivered to Purchaser true and complete
copies of all environmental studies made in the last ten years relating to the
OEM Business and the Purchased Assets.
(c) Except as set forth in the Seller 1995 Reports or Section 2.17 to
Seller's Disclosure Schedule, there is no pending or, to Seller's knowledge,
threatened civil, criminal or administrative Action, demand, claim, hearing,
notice of violation, investigation, proceeding, notice or demand letter that
affects or applies to the OEM Business or the Purchased Assets, the products the
OEM Business has manufactured or the services it has provided relating in any
way to any Environmental Laws or any regulation or code promulgated or approved
under the Environmental Laws, or any plan, order, decree, judgment, injunction,
notice or demand letter issued to or entered against Seller or its subsidiaries
related to the OEM Business.
(d) Except as set forth in the Seller 1995 Reports or in Section 2.17 to
Seller's Disclosure Schedule, there are no past or present (or, to the knowledge
of Seller, anticipated) events, conditions, circumstances, activities,
practices, incidents, Actions or plans which may interfere with or prevent
compliance or continued compliance by Seller with any Environmental Laws or with
any regulation or code promulgated or approved under any Environmental Law, or
any plan, order, decree, judgment, injunction, notice or demand letter issued to
or entered against Seller or its subsidiaries thereunder, or which may give rise
to any common law or legal liability, or otherwise form the basis of any claim,
action, demand, suit, proceeding, notice of violation, study or investigation,
based on or related to the manufacture, processing, distribution, use,
treatment, storage, disposal, transport or handling, or the emission, discharge,
release or threatened release into the environment, by Seller or its
subsidiaries of any pollutant, contaminant, chemical, industrial, toxic or
hazardous substance or waste; all as related to the OEM Business.
(e) Except as set forth in Section 4.17 to the Jensen Disclosure Schedule
and except in accordance with a valid governmental permit, license, certificate
or approval listed in Section 2.17 to Seller's Disclosure Schedule, there has
been no emission, spill, release or discharge by Seller or its subsidiaries,
from any of its assets, from any site at which any of such assets are or were
located or at
ANNEX II-12
<PAGE>
any other location or disposal site, into or upon (i) the air, (ii) soils or
improvements, (iii) surface water or ground water, or (iv) the sewer, septic
system or waste treatment, storage or disposal system servicing such asset is
any toxic or hazardous substances or wastes used, stored, generated, treated or
disposed at or from any of such assets (any of which events is hereinafter
referred to as "Hazardous Discharge"), all as related to the OEM Business.
(f) Prior to the Closing Date, there shall not occur any Hazardous Discharge
which occurs or is related to the OEM Business (except in accordance with a
valid governmental permit, license, certificate or approval listed in Section
2.17 to Seller's Disclosure Schedule).
(g) The term "Environmental Laws" means all federal, state, local and
foreign environmental, health and safety laws, codes and ordinances and all
rules and regulations promulgated under the Environmental Laws, including,
without limitation, laws relating to emissions, discharges, releases or
threatened releases of pollutants, contaminants, chemicals, or industrial, toxic
or hazardous substances or wastes into the environment, (including, without
limitation, air, surface water, ground, water, land surface or subsurface
strata) or otherwise relating to the manufacture, processing, distribution, use,
treatment, storage, disposal, transport or handling of pollutants, contaminants,
chemicals, or industrial, solid, toxic or hazardous substances or wastes. As
used in this Agreement, the term "hazardous substances or wastes" includes,
without limitation, (i) all substances which are designated pursuant to Section
311(b)(2)(A) of the Federal Water Pollution Control Act ("FWPCA"), 33 U.S.C.
Section 1251 ET SEQ.; (ii) any element, compound, mixture, solution, or
substance which is designated pursuant to Section 102 of the Comprehensive
Environmental Response, Compensation and Liability Act ("CERCLA"), 42 U.S.C.
Section 9601 ET SEQ.; (iii) any hazardous waste having the characteristics which
are identified under or listed pursuant to Section 3001 of the Resource
Conservation and Recovery Act ("RCRA"), 42 U.S.C. Section 6901 ET SEQ.; (iv) any
toxic pollutant listed under Section 307(a) of the FWPCA; (v) any hazardous air
pollutant which is listed under Section 112 of the Clean Air Act, 42 U.S.C.
Section 7401 ET SEQ.; (vi) any imminently hazardous chemical substance or
mixture with respect to which action has been taken pursuant to Section 7 of the
Toxic Substances Control Act, 15 U.S.C. Section 2601 ET SEQ.; and (vii) waste
oil.
(h) Notwithstanding anything in the foregoing to the contrary, the
representations and warranties contained in this Section 4.17 shall be deemed to
be true and correct unless the aggregate exposure to Purchaser of undisclosed
and disclosed liabilities which have either arisen or which may arise under
Environmental Laws exceeds in the aggregate $1 million.
2.18 CERTAIN BUSINESS PRACTICES. As of the date of this Agreement, except
for such action which would not have a Seller Material Adverse Effect, neither
Seller nor any of its subsidiaries, nor any directors, officers, agents, or
employees of Seller or any of its subsidiaries has (i) used any funds for
unlawful contributions, gifts, entertainment, or other unlawful expenses
relating to political activities, (ii) made any unlawful payment to foreign or
domestic government officials or employees or to foreign or domestic political
parties or campaigns or violated any provision of the Foreign Corrupt Practices
Act of 1977, as amended, or (iii) made any unlawful payment.
2.19 [INTENTIONALLY OMITTED.]
2.20 TRADEMARKS, ETC. Section 2.20 of Seller's Disclosure Schedule sets
forth a true and complete list of all patents, trademarks (registered or
unregistered), trade names, service marks, and registered copyrights and
applications therefor owned, used, or filed by or licensed to Seller and its
subsidiaries ("Intellectual Property Rights") and, with respect to registered
trademarks, contains a list of all jurisdictions in which such trademarks are
registered or applied for and all registration and application numbers. Except
as set forth in Section 2.20 of Seller's Disclosure Schedule, the Intellectual
Property Rights which are trademark or copyright registrations and issued
patents are valid and in good standing and, along with applications therefor,
are not involved in any interferences, oppositions, or cancellation proceedings,
and are owned by Seller, free and clear of all liens, encumbrances, equities, or
claims. Seller or its subsidiaries owns or has the right to use, without payment
to any other party, the patents, trademarks, trade names, service marks,
copyrights, and applications therefor
ANNEX II-13
<PAGE>
referred to in such Schedule or otherwise used by Seller or its subsidiaries,
and the consummation of the transactions contemplated hereby will not alter or
impair such rights in any material respect. Except as set forth in Section 2.20
to Seller's Disclosure Schedule, Seller is not a licensor or licensee in respect
of any Intellectual Property Rights, nor has it granted any rights thereto or
interest therein to any person or entity. Except as set forth in Section 2.20 to
Seller's Disclosure Schedule, no claims are pending or threatened by any person
with respect to the ownership, validity, enforceability, or use of any such
Intellectual Property Rights challenging or questioning the validity or
effectiveness of any of the foregoing which claims reasonably could be expected
to have a Seller Material Adverse Effect. Seller shall make all required filings
to ensure the continued validity and enforceability of its Intellectual Property
Rights up to the Closing Date.
2.21 SELLER STOCKHOLDERS' APPROVAL. Seller will take all necessary action
so that stockholder approval of this Agreement and the transactions contemplated
hereby (the "Seller Stockholders' Approval"), will require only the affirmative
vote of the holders of (i) a majority of the outstanding shares of Seller Common
Stock, and (ii) a majority of the outstanding shares of Seller Common Stock
which are voted at the Seller stockholders' meeting other than shares held of
record or beneficially by Robert G. Shaw.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF PURCHASER
Purchaser hereby represents and warrants to Seller, as follows:
3.1 CORPORATE ORGANIZATION. ETC. Purchaser is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Illinois and will be qualified to do business in Illinois on the Closing Date.
3.2 CAPITALIZATION. As of the date of this Agreement, Purchaser has
authorized capital stock consisting of 1,000 shares of common stock, no par
value per share.
3.3 AUTHORIZATION, ETC. Purchaser has full corporate power and authority
to enter into this Agreement and to carry out the transactions contemplated
hereby. The Board of Directors of Purchaser has duly authorized the execution
and delivery of this Agreement and the transactions contemplated hereby, and no
other corporate proceedings on its part are necessary to authorize this
Agreement and the transactions contemplated hereby.
3.4 NO VIOLATION. Purchaser is not subject to or obligated under any
certificate of incorporation, bylaw, Law, or any agreement or instrument, or any
license, franchise or permit which would be breached or violated by its
execution, delivery or performance of this Agreement. Purchaser will comply with
all Laws in connection with its execution, delivery and performance of this
Agreement and the transactions contemplated hereby.
3.5 GOVERNMENTAL AUTHORITIES. Purchaser is not required to submit any
notice, report or other filing with and no consent, approval or authorization is
required by any governmental or regulatory authority in connection with
Purchaser's execution or delivery of this Agreement or the consummation of the
transactions contemplated hereby.
ARTICLE IV
COVENANTS OF SELLER
Except as otherwise consented to or approved by Purchaser in writing, Seller
covenants and agrees as follows:
4.1 REGULAR COURSE OF BUSINESS. Seller will operate the OEM Business in
the ordinary course, diligently and in good faith, consistent with past
management practices; will maintain all of the OEM Business properties in
customary repair, order and condition, reasonable wear and tear excepted; will
ANNEX II-14
<PAGE>
maintain (except for expiration due to lapse of time) all leases and contracts
described herein and related to the OEM Business in effect without change except
as expressly provided herein; will comply with the provisions of all Laws
applicable to the conduct of the OEM Business; will not engage in any
significant or unusual transaction related to the OEM Business; will not cancel,
release, waive or compromise any debt, claim or right in its favor having a
value in excess of $5,000 other than in connection with returns for credit or
replacement in the ordinary course of the OEM Business; will not convert its
assets into cash except in the ordinary course of business consistent with prior
practices; and will maintain insurance coverage up to the Closing Date in
amounts adequate to protect and insure Seller against perils which good business
practice demands be insured against or which are normally insured against by
other industry members similarly situated.
4.2 AMENDMENTS. Except as required for the transactions contemplated in
this Agreement and in that certain Third Amended and Restated Agreement and Plan
of Merger dated as of this date by and among Recoton Corporation, RC Acquisition
Sub, Inc. and Seller (the "Merger Agreement"), no change or amendment shall be
made in or to FujiCone's articles or certificate of incorporation or bylaws.
Seller will not merge FujiCone into or consolidate FujiCone with any other
corporation or person, or change the character of FujiCone's business.
4.3 CAPITAL CHANGES. Seller will not issue or sell any shares of
FujiCone's capital stock of any class or issue or sell any securities
convertible into, or options, warrants to purchase or rights to subscribe to,
any shares of FujiCone's capital stock of any class.
4.4 BONUSES. Except as set forth in Exhibit 4.4, Seller will not pay, set
aside, accrue, agree to or become liable in any manner for any bonus, of any
nature or type, to any employee or officer of the OEM Business.
4.5 CAPITAL AND OTHER EXPENDITURES. Seller will not make any capital
expenditures related to the OEM Business, or commitments with respect thereto,
in excess of $10,000, except as set forth in Exhibit 4.5. Except as set forth on
Exhibit 4.5, Seller will not pay any debt or obligation of the OEM Business
(except for prepaying trade accounts payable in the normal course of business to
take advantage of cash discounts) or make any other payments or distributions.
4.6 BORROWING. Except as disclosed on Exhibit 4.6, Seller will not incur,
assume or guarantee any indebtedness or capital leases in connection with the
OEM Business. Seller will not create or permit to become effective any mortgage,
pledge, lien, encumbrance or charge of any kind upon the Purchased Assets other
than in the ordinary course of business.
4.7 OTHER COMMITMENTS. Except in the ordinary course of business
consistent with past practices, Seller will not enter into any material
transaction related to the OEM Business, make any material commitment related to
the OEM Business or incur any material obligation related to the OEM Business.
4.8 FULL ACCESS AND DISCLOSURE.
(a) Seller shall afford to Purchaser and its lenders and their respective
counsel, accountants and other authorized representatives access during business
hours to Seller's plants, properties, books and records related to the OEM
Business in order that Purchaser and its lenders may have full opportunity to
make such reasonable investigations as they shall desire to make of the affairs
of Seller, and Seller will cause its officers and employees to furnish such
additional financial and operating data and other information related to the OEM
Business as Purchaser and its lenders shall from time to time reasonably
request.
(b) From time to time prior to the Closing Date, Seller will promptly
supplement or amend in writing information previously delivered to Purchaser
with respect to any matter hereafter arising which, if existing or occurring at
the date of this Agreement, would have been required to be set forth or
disclosed.
ANNEX II-15
<PAGE>
4.9 CONSENTS. Seller will use all necessary means at its disposal to
obtain on or prior to the Closing Date all consents necessary to the
consummation of the transactions contemplated hereby.
4.10 BREACH OF AGREEMENT. Seller will not take any action which, if taken
prior to the Closing Date, would constitute a breach of this Agreement.
4.11 FURTHER ASSURANCES. Seller and Seller's counsel will furnish
Purchaser with such other and further documents, certificates, opinions,
consents and information as Purchaser shall reasonably request to enable
Purchaser to borrow funds from a bank or other lending entity or individual(s)
to acquire the Purchased Assets and to evidence compliance with the terms and
conditions of any credit agreement in existence or to be entered into between
Purchaser and a bank and/or other lending entities or individuals.
4.12 FULFILLMENT OF CONDITIONS. Seller will take all commercially
reasonable steps necessary or desirable and proceed diligently and in good faith
to satisfy each condition to the obligations of Purchaser contained in this
Agreement and will not take or fail to take any action that could reasonably be
expected to result in the nonfulfillment of any such condition.
4.13 TITLE AND SURVEY. Seller shall furnish to Purchaser as soon as
possible but in no event later than May 6, 1996, commitments from a title
company or companies designated by Purchaser and reasonably satisfactory to
Seller (the "Title Company"), to issue to Purchaser at Closing ALTA Form B
Extended Coverage Owner's Title Policies reasonably acceptable to Purchaser in
the amount of the appraised value of the real property to be conveyed by Seller
to Purchaser pursuant hereto (the "Subject Real Property") naming the Purchaser
as proposed insured. Seller shall procure all utility letters necessary for the
Title Company to issue its extended coverage endorsement. Seller shall also
cause to be delivered to Purchaser copies of all recorded documents listed in
Schedule B of the title commitment. Seller shall cause the Title Company to
issue an endorsement deleting all Schedule B general exceptions, a 3.1 zoning
endorsement and any other endorsements desired or requested by Purchaser or
Purchaser's lenders. Seller shall also furnish to Purchaser ALTA/ACSM surveys,
prepared by a surveyor designated by Purchaser and dated subsequent to the date
of this Agreement, certified in favor of the Purchaser, Purchaser's lenders and
the Title Company depicting each parcel comprising the Subject Real Property,
manholes, structures and utility lines in, over, under or upon each parcel
comprising the Subject Real Property, the locations of all easements upon each
parcel comprising the Subject Real Property or appurtenant thereto (identified
by the recorder's document number) and showing that there are no encroachments
from or upon adjoining property or upon any easements located on each parcel
comprising the Subject Real Property, and containing such certifications as may
be required by the Title Company to issue its extended coverage endorsements.
ARTICLE V
COVENANTS OF PURCHASER
Purchaser hereby covenants and agrees with Seller that:
5.1 CONFIDENTIALITY. Purchaser will hold in strict confidence and not
disclose to any other party (other than its counsel and other advisors), without
Seller's prior consent, all information received by Purchaser from Seller, and
any of Seller's officers, directors, employees, agents, counsel or auditors in
connection with the transactions contemplated hereby except as may be required
by applicable law or as otherwise contemplated herein.
5.2 BOOKS AND RECORDS. Purchaser shall preserve and keep Seller's books
and records delivered hereunder for a period of not less than three (3) years
from the date hereof and shall, during such period, make such books and records
available to officers and directors of Seller for any reasonable purpose.
ANNEX II-16
<PAGE>
5.3 FULFILLMENT OF CONDITIONS. Purchaser will take all commercially
reasonable steps necessary or desirable and proceed diligently and in good faith
to satisfy each condition to the obligations of Seller contained in this
Agreement and will not take or fail to take any action that could reasonably be
expected to result in the non-fulfillment of any such condition.
ARTICLE VI
OTHER AGREEMENTS
Purchaser and Seller covenant and agree that:
6.1 AGREEMENT TO COOPERATE/DEFEND. In the event any action, suit,
proceeding or investigation of the nature specified in Section 7.5 or Section
8.4 hereof is commenced, whether before or after the Closing Date, all the
parties hereto agree to cooperate and use their best efforts to defend against
and respond thereto.
6.2 CONSULTANTS, BROKERS AND FINDERS. Except for Lehman Brothers, Seller's
investment banking firm, whose fee arrangement has been disclosed to Purchaser
prior to the date hereof, each of Seller and Purchaser represents and warrants
to the other that each has not retained any consultant, broker or finder in
connection with the transactions contemplated by this Agreement. Purchaser
hereby agrees to indemnify, defend and hold Seller and its respective officers,
directors, employees and affiliates, harmless from and against any and all
claims, liabilities or expenses for any brokerage fees, commissions or finders
fees due to any consultant, broker or finder retained by Purchaser. Seller
hereby agrees to indemnify, defend and hold Purchaser and its officers,
directors, employees and affiliates, harmless from and against any and all
claims, liabilities or expenses for any brokerage fees, commissions or finders
fees due to any consultant, broker or finder retained by Seller, including,
without limitation, Lehman Brothers.
6.3 ASSUMPTION AGREEMENT. At the Closing, Purchaser and Seller will enter
into the Assumption Agreement, as contemplated by Section 9.2(e) hereof, in the
form set forth in Exhibit 6.3.
6.4 MANAGEMENT SERVICES AGREEMENT. At the Closing, Purchaser and Seller
will enter into a Management Services Agreement in the form set forth in Exhibit
6.4.
6.5 SUPPLY AGREEMENT. At the Closing, Purchaser and Seller will enter into
a Supply Agreement in the form set forth in Exhibit 6.5.
6.6 SHARED FACILITIES AGREEMENT. At the Closing, Purchaser and Seller will
enter into a Shared Facilities Agreement in the form set forth in Exhibit 6.6.
6.7 NONCOMPETITION AGREEMENT. At the Closing, Purchaser and Seller and
FujiCone will enter into a Noncompetition Agreement in the form set forth in
Exhibit 6.7.
6.8 LICENSE AGREEMENT. At the Closing, Purchaser and Seller will enter
into a limited license agreement for use of Seller's trademarks in connection
with the OEM Business in the form set forth in Exhibit 6.8.
ARTICLE VII
CONDITIONS TO THE OBLIGATIONS OF PURCHASER
Each and every obligation of Purchaser under this Agreement shall be subject
to the satisfaction, on or before the Closing Date, of each of the following
conditions unless waived in writing by Purchaser:
7.1 REPRESENTATIONS AND WARRANTIES; PERFORMANCE. The representations and
warranties made by Seller herein shall be true and correct in all material
respects on the date of this Agreement and on the Closing Date with the same
effect as though made on such date; Seller shall have performed and complied in
all material respects with all agreements, covenants and conditions required by
this
ANNEX II-17
<PAGE>
Agreement to be performed and complied with by it prior to the Closing Date; the
Vice President of Seller shall have delivered to Purchaser a certificate, dated
the Closing Date, in the form designated Exhibit 7.1 hereto, certifying to such
matters and the other conditions contained in this Article VII.
7.2 CONSENTS AND APPROVALS. All consents from and filings with third
parties, regulators and governmental agencies required to consummate the
transactions contemplated hereby, or which, either individually or in the
aggregate, if not obtained, would cause a materially adverse effect on Seller's
financial condition or business shall have been obtained and delivered to
Purchaser.
7.3 OPINION OF COUNSEL TO SELLER. Purchaser shall have received an opinion
of counsel to Seller, dated the Closing Date, substantially in the form attached
hereto as Exhibit 7.3.
7.4 NO MATERIAL ADVERSE CHANGE. There shall have been no material adverse
change since the date of this Agreement in the business, prospects, financial
condition, earnings or operations of Seller's OEM Business.
7.5 NO PROCEEDING OR LITIGATION. No action, suit or proceeding before any
court or any governmental or regulatory authority shall have been commenced or
threatened, and no investigation by any governmental or regulatory authority
shall have been commenced or threatened against Seller or Purchaser or any of
their respective principals, officers or directors seeking to restrain, prevent
or change the transactions contemplated hereby or questioning the validity or
legality of any of such transactions or seeking damages in connection with any
of such transactions.
7.6 FINANCING. Purchaser shall have obtained, on terms satisfactory to it,
such financing as it deems necessary to enable it to consummate the transactions
contemplated hereby. It is expressly understood that all proposed financing will
be conditioned on completion of any environmental, business and financial due
diligence of Purchaser's proposed lender(s) and Seller's ability to obtain any
and all necessary consents to the proposed transactions in any contracts or
other agreements requiring such consents, provided, however, that Purchaser
shall have undertaken reasonable good faith efforts to obtain such financing.
7.7 CONSUMMATION OF MERGER WITH RECOTON. The transactions contemplated in
the Merger Agreement shall be consummated as a post closing condition. In the
event the transactions contemplated by the Merger Agreement do not occur within
one (1) business day of the Closing of the transaction contemplated by this
Agreement, this transaction shall automatically be unwound and the Purchase
Price shall be immediately returned to Purchaser.
7.8 [INTENTIONALLY OMITTED.]
7.9 ENVIRONMENTAL DUE DILIGENCE REVIEW. Prior to April 2, 1996 (which date
may be extended if Purchaser is still conducting its study and testing),
Purchaser may perform or have performed such environmental site inspections and
reasonable testing relating to the real properties owned or operated by Seller
and FujiCone in which the OEM Business is operated as Purchaser may deem
appropriate. If based upon the written reports of independent environmental
consultants, Purchaser determines in its sole and reasonable discretion that the
results of the inspections or tests performed indicate that any of such property
or a number of such properties is, or that there is a material risk that such
property(ies) may be, contaminated in a way as to give rise to possible
liability, contingent or otherwise, under the Environmental Laws in an aggregate
amount of $1 million or greater, Purchaser may terminate this Agreement by
written notice to Seller. The parties acknowledge that Recoton has engaged
certain environmental consultants to perform certain tests and inspections on
the real properties described above as to which Purchaser shall have full access
and Purchaser shall be entitled to rely upon such reports prepared or generated
by such consultants as the written reports of independent environmental
consultants referred to above. In consideration for access to such
Recoton-retained consultants and resulting reports, Purchaser shall make
available to Recoton its consultants, if any, and any resulting reports.
ANNEX II-18
<PAGE>
7.10 SHAW EMPLOYMENT AGREEMENT. At the Closing, the employment agreement
with Robert G. Shaw in the form set forth in Exhibit 7.10 shall be effective.
7.11 TRANSFER/ASSIGNMENT OF LICENSES. Purchaser shall have received and
entered in a satisfactory license agreement or sublicense agreement regarding
the Goodman Speaker Licenses referenced in Exhibit 1.2.8.
7.12 OTHER DOCUMENTS. Seller will furnish Purchaser with such other and
further documents and certificates of Seller's officers and others as Purchaser
shall reasonably request to evidence compliance with the conditions set forth in
this Agreement.
7.13 OTHER AGREEMENTS. The agreements described in Article VI shall have
been entered into and delivered.
7.14 GOVERNMENTAL APPROVALS, ETC. Purchaser, its legal counsel,
consultants and others appointed by Purchaser shall have received satisfactory
evidence that all governmental, regulatory and third-party approvals required to
complete the acquisition of the Purchased Assets have been obtained.
7.15 MSP LETTERS. At the Closing, Recoton Corporation shall have delivered
a letter to each of the persons described as "MSPs" in the Management Services
Agreement between Seller and Purchaser ("MSA") stating that the services being
performed under the MSA by such MSP does not violate such MSP's Transitional
Employment Agreement.
7.16 ACCOUNTS RECEIVABLE SALE. If the parties designate a purchaser of the
accounts receivable pursuant to Section 1.8 hereof, such sale shall have been
consummated.
ARTICLE VIII
CONDITIONS TO THE OBLIGATIONS OF SELLER
Each and every obligation of Seller under this Agreement shall be subject to
the satisfaction, on or before the Closing Date, of each of the following
conditions unless waived in writing by Seller:
8.1 REPRESENTATIONS AND WARRANTIES; PERFORMANCE. The representations and
warranties made by Purchaser herein shall be true and correct in all material
respects on the date of this Agreement and on the Closing Date with the same
effect as though made on such date; Purchaser shall have performed and complied
with in all material respects all agreements, covenants and conditions required
by this Agreement to be performed and complied with by it prior to the Closing
Date; Purchaser shall have delivered to Seller a certificate of its President,
dated the Closing Date, certifying to the fulfillment of the conditions set
forth herein, in the form designated as Exhibit 8.1 and the other conditions
contained in this Article VIII.
8.2 STOCKHOLDER APPROVAL. The Agreement and the transaction contemplated
hereby shall have been approved and adopted by the vote of the stockholders of
Seller in accordance with Section 2.21.
8.3 FAIRNESS OPINION. Seller shall have received from Lehman Brothers an
opinion letter stating that the transaction contemplated by this Agreement is
"fair from a financial point of view" to Seller.
8.4 NO PROCEEDING OR LITIGATION. No action, suit or proceeding before any
court or any governmental or regulatory authority shall have been commenced, or
threatened, and no investigation by any governmental or regulatory authority
shall have been commenced, or threatened, against Seller, Purchaser or any of
their respective principals, officers or directors, seeking to restrain, prevent
or change the transactions contemplated hereby or questioning the validity or
legality of any of such transactions or seeking damages, in connection with any
of such transactions.
ANNEX II-19
<PAGE>
8.5 OPINION OF COUNSEL. Seller shall have received an opinion of counsel
to Purchaser dated the Closing Date substantially in the form of Exhibit 8.5.
8.6 [INTENTIONALLY OMITTED.]
8.7 PAYMENT. The payment described in Section 1.3 shall have been made.
8.8 OTHER DOCUMENTS. Purchaser will furnish Seller with such other
documents and certificates to evidence compliance with the conditions set forth
in this Article as may be reasonably requested by Seller.
8.9 OTHER AGREEMENTS. The agreements described in Article VI shall have
been entered into and delivered.
8.10 CONSUMMATION OF MERGER WITH RECOTON. The transactions contemplated in
the Merger Agreement shall be consummated as contemplated on Section 7.7.
8.11 CONSENTS AND APPROVALS. All consents from and filings with third
parties, regulators and governmental agencies required to consummate the
transactions contemplated hereby, or which, either individually or in the
aggregate, if not obtained, would cause a materially adverse effect on Seller's
financial condition or business shall have been obtained and delivered to
Seller.
8.12 GOVERNMENTAL APPROVALS, ETC. Seller, its legal counsel, consultants
and others appointed by Seller shall have received satisfactory evidence that
all governmental, regulatory and third-party approvals required to complete the
acquisition of the Purchased Assets have been obtained.
ARTICLE IX
CLOSING
9.1 CLOSING. Unless this Agreement shall have been terminated or abandoned
pursuant to the provisions of Article X hereof, a closing (the "Closing") shall
be held at the location of the closing of the Merger, immediately prior to such
closing.
9.2 DELIVERIES AT CLOSING.
(a) At the Closing, Seller and/or FujiCone, as applicable, shall transfer
and assign to Purchaser all of the Purchased Assets, and the other agreements,
certifications and other documents required to be executed and delivered
hereunder at the Closing shall be duly and validly executed and delivered by the
parties thereto. Notwithstanding anything to the contrary contained in this
Agreement, Purchaser shall have the right at any time prior to Closing to direct
Seller and/or FujiCone, as applicable, to convey title to all or any portion of
the Subject Real Property to a corporation, limited partnership, or limited
liability company which is under common control with Purchaser. In the event of
such direction, the recipient of the Subject Real Property shall become a party
to the Noncompetition Agreement described in Exhibit 6.7.
(b) At and after the Closing, Seller and/or FujiCone, as applicable, shall
have the right to review and obtain copies of any financial records of Seller
and/or FujiCone, as applicable, in the possession of Purchaser, necessary for
the preparation of Seller's and/or FujiCone's, as applicable, tax returns, and
Purchaser agrees to retain such records until the statute of limitations
pertaining to the final tax returns filed by Seller and/or FujiCone, as
applicable, expires, and Purchaser shall have the right to review and obtain
copies of the minute book, stock book and stock register of Seller and/or
FujiCone, as applicable.
(c) At the Closing, Seller and/or FujiCone shall deliver to Purchaser, in
form reasonably satisfactory to counsel for Purchaser, such bills of sale,
assignments, deeds or other conveyances and all third party consents as may be
appropriate or necessary to effect the transfer to Purchaser of the property and
rights as contemplated herein.
ANNEX II-20
<PAGE>
(d) From time to time after the Closing, at Purchaser's request and without
further consideration from Purchaser, Seller and/or FujiCone shall execute and
deliver such other instruments of conveyance and transfer and take such other
action as Purchaser reasonably may require to convey, transfer to and vest in
Purchaser and to put Purchaser in possession of any assets or property to be
sold, conveyed, transferred and delivered hereunder.
(e) The assumption of liabilities and obligations hereunder shall be by
assumption agreement (as set forth in Exhibit 6.3). Purchaser and its successors
and assigns will forever defend, indemnify and hold Seller and/or FujiCone
harmless from any and all liabilities and obligations of Seller and/or FujiCone
which have been assumed by Purchaser at the Closing, or which shall arise from
any acts or omissions of Purchaser after the Closing. Purchaser agrees at
Seller's and/or FujiCone's request from time to time (but no earlier than ninety
(90) days after the Closing) to supply to Seller and/or FujiCone proof of or a
certificate by its Chief Financial Officer of the payment and satisfaction by
Purchaser of liabilities and obligations of Seller and/or FujiCone due to date
and assumed by Purchaser.
9.3 LEGAL ACTIONS. If, prior to the Closing Date, any action or proceeding
shall have been instituted by any third party before any court or governmental
agency to restrain or prohibit this Agreement or the consummation of the
transactions contemplated herein, the Closing shall be adjourned at the option
of any party hereto for a period of up to one hundred twenty (120) days. If, at
the end of such 120-day period, the action or proceeding shall not have been
favorably resolved, any party hereto may, by written notice thereof to the other
party or parties, terminate its obligation hereunder.
9.4 SPECIFIC PERFORMANCE. The parties agree that if any party hereto is
obligated to, but nevertheless does not, consummate this transaction, then any
other party, in addition to all other rights or remedies, shall be entitled to
the remedy of specific performance mandating that the other party or parties
consummate this transaction. In an action for specific performance by any party
against any other party, the other party shall not plead adequacy of damages at
law.
9.5 BULK SALES AND BULK TRANSFER LAWS. Subject to the indemnification
provisions set forth in this Agreement, Seller and Purchaser hereby waive all
filings required and/or permitted under the Illinois bulk sales statutes
(Section 9-902(d) of the Illinois Income Tax Act (35 ILCS 210/2(d), Section 5j
of the Illinois Retailers' Occupation Tax Act (35 ILCS 120/5j) and Section 2600
of the Illinois Unemployment Compensation Act (820 ILCS 405/2600)).
9.6 NAME CHANGE. Upon the Closing, Seller shall change its name to another
name different from its present name and do such other things as shall be
necessary or desirable to permit Purchaser to assume and use the corporate name
"International Jensen Incorporated" and the trade name "IJI" for corporate
identification purposes, including, without limitation, the filing of a charter
amendment with the Delaware Secretary of State and appropriate amendatory
documentation with the Secretaries of State of each State were Seller is
qualified to do business as a foreign corporation as of the Closing. Upon the
Closing, FujiCone shall change its name to another name different from its
present name and do such other things as shall be necessary or desirable to
permit Purchaser to assume and use the FujiCone name, including, without
limitation, (i) the filing of a charter amendment with the Delaware Secretary of
State and appropriate amendatory documentation with the Secretary of State of
each state where FujiCone is qualified to do business as a foreign corporation
as of the Closing, and (ii) the filing with the U.S. Patent and Trademark Office
and any state trademark office appropriate transfers of any trademark, trade
name or service mark registrations relating or pertaining to the FujiCone name,
to the extent requested by and prepared by Purchaser.
ANNEX II-21
<PAGE>
ARTICLE X
TERMINATION AND ABANDONMENT
10.1 METHODS OF TERMINATION. This Agreement may be terminated and the
transactions herein contemplated may be abandoned at any time (notwithstanding
approval by the Board of Directors of Purchaser):
(a) by mutual consent of Purchaser and Seller;
(b) by either Seller or Purchaser if (i) such party is not in breach
hereunder and the other party is in breach hereunder, and (ii) this
Agreement is not consummated on or before the Closing Date, including
extensions; or
(c) by either Seller or Purchaser if (i) such party is not in breach
hereunder and (ii) this Agreement is not consummated because one or more of
the conditions contained in Article VII or Article VIII, whichever is
appropriate, was not satisfied and the other party did not waive such
condition.
10.2 PROCEDURE UPON TERMINATION. In the event of termination and
abandonment pursuant to Section 10.1 hereof, this Agreement shall terminate and
shall be abandoned, without further action by any of the parties hereto. If this
Agreement is terminated as provided herein:
(a) each party will upon request redeliver all documents and other
materials of any other party relating to the transactions contemplated
hereby, whether so obtained before or after the execution hereof, to the
party furnishing the same;
(b) no party hereto shall have any liability or further obligation to
any other party to this Agreement; and
(c) each party shall bear its own expenses; provided, however, that if
this Agreement is terminated as provided herein and Purchaser is not in
breach hereunder and the Merger has not occurred, all expenses incurred by
Purchaser and/or Robert G. Shaw in furtherance of this Agreement (including,
without limitation, reasonable attorneys' fees and costs) shall be promptly
reimbursed by Seller upon submission of invoices, statements or other
expense documentation by Purchaser and/or Robert G. Shaw.
ARTICLE XI
INDEMNIFICATION
11.1 INDEMNIFICATION BY SELLER. Seller shall indemnify Purchaser and its
shareholders, officers and directors against, and save and hold them harmless
from, any and all liability, loss, cost, expense or damage (including reasonable
attorneys' fees) ("Damages") incurred or sustained by Purchaser or any of its
shareholders, officers or directors as a result of, by reason of, or arising
from: (a) the failure of Seller and/or FujiCone to perform promptly any covenant
or agreement made by Seller and/or FujiCone in this Agreement to be performed in
any period after the Closing Date; or (b) any liability of Purchaser arising out
of or in any way related to the Excluded Liabilities.
11.2 INDEMNIFICATION BY PURCHASER. Purchaser shall indemnify Seller and
its shareholders, officers and directors against, and save and hold them
harmless from, any and all Damages incurred or sustained by Seller or any of its
shareholders, officers or directors as a result of, by reason of, or arising
from: (a) the failure of Purchaser to perform promptly any covenant or agreement
made by Purchaser in this Agreement to be performed in any period after the
Closing Date; or (b) any Assumed Liability.
11.3 MECHANICS. Any notice of a claim by either party shall state the
facts giving rise to such claim and the alleged basis for the claim and, if
known by the party giving notice, the amount of liability asserted by reason
thereof. If an indemnified Party ("Indemnitee") shall give notice of claim for
indemnity to the other Party ("Indemnitor"), Indemnitor shall have the right, at
its own expense,
ANNEX II-22
<PAGE>
to be represented by counsel of its choosing, and to contest or defend any claim
asserted by any third person (including any governmental agency or department)
against Indemnitee which constitutes the basis of the notice of claim made by
Indemnitee. If Indemnitor elects to make such contest or defense, it shall give
written notice of such election within fifteen (15) days following receipt of
the notice of claim from Indemnitee and indemnification shall be suspended until
the final determination of the claim asserted by such third person against
Indemnitee. Indemnitor shall have such access to records, files and personnel of
Indemnitee as it may reasonably require in connection with contesting or
defending any such claim, and Indemnitee shall reasonably cooperate in such
defense. If Indemnitor does not elect to make such contest or defense,
Indemnitee may, at Indemnitor's expense, contest or defend against, such claim
in such manner as it may deem appropriate including, but not limited to,
settling such claim on such terms as Indemnitee may deem appropriate, provided
that no settlement shall be made without the written consent of Indemnitor which
consent shall not be unreasonably withheld. Indemnitor shall reimburse
Indemnitee for its costs (including reasonable attorneys' fees and any cost of
settlement) and no action taken by Indemnitee in accordance with such defense
and settlement shall relieve Indemnitor of its indemnification obligations
herein provided.
ARTICLE XII
MISCELLANEOUS PROVISIONS
12.1 AMENDMENT AND MODIFICATION. Subject to applicable law, this Agreement
may be amended, modified and supplemented only by written agreement of Seller
and Purchaser with the prior written consent of Recoton Corporation.
12.2 WAIVER OF COMPLIANCE; CONSENTS. Any failure of Seller on the one
hand, or Purchaser on the other hand, to comply with any obligation, covenant,
agreement or condition herein may be waived in writing by Purchaser or by
Seller, respectively, but such waiver or failure to insist upon strict
compliance with such obligation, covenant, agreement or condition shall not
operate as a waiver of, or estoppel with respect to, any subsequent or other
failure. Whenever this Agreement requires or permits consent by or on behalf of
any party hereto, such consent shall be given in writing in a manner consistent
with the requirements for a waiver of compliance as set forth in this Section
12.2.
12.3 EXPENSES. In the event the Closing under this Agreement and the
transactions contemplated in the Merger Agreement occur:
(a) Seller shall pay the following expenses related to the transaction
contemplated by this Agreement:
(i) all legal (including all fees of Stroock & Stroock & Lavan and
Vedder Price Kaufman & Kammholz), accounting and other expenses incurred
by Seller and/or FujiCone or on its behalf in connection with this
Agreement and the transactions contemplated herein.
(ii) all investment banking fees payable in connection with the
transactions contemplated herein, including without limitation, all fees
of Lehman Brothers, Inc. and Furman Selz Incorporated, but excluding fees
for any investment bankers retained by Purchaser.
(iii) up to $43,000.00 for the cost of environmental site testing and
evaluation as contemplated by Section 7.9 hereof plus the cost of any
additional environmental site testing and evaluations commissioned solely
by Seller; and
(iv) up to $100,000.00 for the following: (A) sales, transfer, stamp,
excise and other taxes (other than income taxes), foreign or domestic,
federal or state, required to be paid in respect to or as a result of
Seller's and/or FujiCone's conveyance, assignment or transfer of the
Purchased Asset to Purchaser; (B) costs of title policies and all related
endorsements, surveys, recording charges and escrow charges as set forth
in Section 4.13; (C) all costs of environmental site testing and
evaluation, to the extent such costs exceed the amounts
ANNEX II-23
<PAGE>
incurred pursuant to Section 12.3(a)(iii) above, including, without
limitation, reasonable attorneys' fees related to the procurement and
evaluation of environmental reports incurred by Purchaser.
(b) Purchaser shall pay the following expenses:
(i) all legal (including all fees of Wildman, Harrold, Allen & Dixon
(other than those set forth in Section 12.3(a)(iv)(C) above)), accounting
and other expenses incurred by or on its behalf in connection with this
Agreement and the transactions contemplated herein;
(ii) all fees and expenses incurred by Purchaser in connection with
obtaining the financing described in Section 7.6 hereof; and
(iii) to the extent the expenses listed in (a)(iv) above exceed
$100,000.00, Purchaser shall be responsible for such excess.
12.4 NOTICES. Any notice, request, consent or communication (collectively
a "Notice") under this Agreement shall be effective only if it is in writing and
(i) personally delivered, (ii) sent by certified or registered mail, return
receipt requested, postage prepaid, (iii) sent by a nationally recognized
overnight delivery service, with delivery confirmed, or (iv) telexed or
telecopied, with receipt confirmed, addressed as follows:
(a) If to Seller and/or FujiCone:
International Jensen Incorporated
25 Tri-State International Office Center
Suite 400
Lincolnshire, Illinois 60069
Attention: Mr. Marc T. Tanenberg
Telecopier: (847) 317-3855
Telephone: (847) 317-3700
in each case with a copy to each of:
Vedder, Price, Kaufman & Kammholz
222 North LaSalle Street
Chicago, Illinois 60601-1003
Attention: John R. Obiala
Telecopier: (312) 609-5005
Telephone: (312) 609-7522
Stroock & Stroock & Lavan
Seven Hanover Square
New York, New York 10004
Attention: Theodore S. Lynn
Telecopier: (212) 806-6006
Telephone: (212) 806-5400
(b) If to Purchaser to:
IJI Acquisition Corp.
25 Tri-State International Office Center
Suite 400
Lincolnshire, Illinois 60069
Attention: Mr. Robert G. Shaw
Telecopier: (847) 317-3774
Telephone: (847) 317-3777
ANNEX II-24
<PAGE>
with a copy to:
Wildman, Harrold, Allen & Dixon
225 West Wacker Drive
Chicago, Illinois 60606-1229
Attention: Richard B. Thies
Telecopier: (312) 201-2555
Telephone: (312) 201-2521
or such other persons or addresses as shall be furnished in writing by any party
to the other party. A Notice shall be deemed to have been given as of the date
when (i) personally delivered, (ii) five (5) days after the date when deposited
with the United States mail properly addressed, (iii) when receipt of a Notice
sent by an overnight delivery service is confirmed by such overnight delivery
service, or (iv) when receipt of the telex or telecopy is confirmed, as the case
may be, unless the sending party has actual knowledge that a Notice was not
received by the intended recipient.
12.5 DEFINITIONS. For the purpose of this Agreement, "Laws" shall include,
without limitation, all foreign, federal, state and local laws, statutes, rules,
regulations, codes, ordinances, plans, orders, judicial decrees, writs,
injunctions, notices, decisions or demand letters issued, entered or promulgated
pursuant to any foreign, federal, state or local law. For the purpose of this
Agreement, "generally accepted accounting principles" shall mean such
principles, applied on a consistent basis, as set forth in Opinions of the
Accounting Principles Board of the American Institute of Certified Public
Accountants and/or in statements of the Financial Accounting Standards Board
which are applicable in the circumstances as of the date in question, and the
requirement that such principles be applied on a "consistent basis" means that
accounting principles observed in the current period are comparable in all
material respects to those applied in the preceding periods, except as change is
permitted or required under or pursuant to such accounting principles. For
purposes of this Agreement, "material" means one or more matters having in
aggregate an economic consequence in excess of $25,000. References herein to
"Seller" shall mean the Surviving Corporation (as defined in the Merger
Agreement) after the Merger.
12.6 ASSIGNMENT. This Agreement and all of the provisions hereof shall be
binding upon and inure to the benefit of the parties hereto and their respective
heirs, successors and permitted assigns, but neither this Agreement nor any of
the rights, interests or obligations hereunder shall be assigned by Seller
without the prior written consent of Purchaser.
12.7 GOVERNING LAW; WAIVER OF JURY TRIAL. This Agreement shall be governed
by the laws of the state of Illinois (regardless of the laws that might
otherwise govern under applicable Illinois principles of conflicts of law of the
state of Illinois) as to all matters including, but not limited to, matters of
validity, construction, effect, performance and remedies. IN THE EVENT OF ANY
LITIGATION WITH RESPECT TO ANY MATTER CONNECTED WITH THIS AGREEMENT OR THE
TRANSACTIONS CONTEMPLATED HEREUNDER THE PARTIES HERETO WAIVE ALL RIGHTS TO A
TRIAL BY JURY.
12.8 COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
12.9 NEUTRAL INTERPRETATION. This Agreement constitutes the product of the
negotiation of the parties hereto and the enforcement hereof shall be
interpreted in a neutral manner, and not more strongly for or against any party
based upon the source of the draftsmanship hereof.
12.10 HEADINGS. The article and section headings contained in this
Agreement are for reference purposes only and shall not affect in any way the
meaning or interpretation of this Agreement.
12.11 ENTIRE AGREEMENT. This Agreement, which term as used throughout
includes the Exhibits hereto, embodies the entire agreement and understanding of
the parties hereto in respect of the
ANNEX II-25
<PAGE>
subject matter contained herein. There are no restrictions, promises,
representations, warranties, covenants or undertakings other than those
expressly set forth or referred to herein. This Agreement supersedes all prior
agreements and understandings between the parties with respect to such subject
matter.
12.12 NON-SURVIVAL OF REPRESENTATIONS, WARRANTIES AND AGREEMENTS. None of
the representations, warranties and agreements in this Agreement shall survive
the Closing, except for the agreements contained in this Section 12.12, Sections
1.4, 1.5, 5.1, 5.2, 6.1, 6.2, 10.2, Article XI and Section 12.3. This Section
12.12 shall not limit any covenant or agreement of the parties which by its
terms, contemplates performance after the Closing Date.
IN WITNESS WHEREOF, the parties hereto have entered into this Agreement as
of the date first hereinabove set forth.
PURCHASER:
IJI ACQUISITION CORP.
/s/ Robert G. Shaw
--------------------------------------
By: Robert G. Shaw
Its: President
SELLER:
INTERNATIONAL JENSEN INCORPORATED
/s/ Marc T. Tanenberg
--------------------------------------
By: Marc T. Tanenberg
Its: Vice President
FUJICONE, INC.
/s/ Marc T. Tanenberg
--------------------------------------
By: Marc T. Tanenberg
Its: Vice President
ANNEX II-26
<PAGE>
SCHEDULE OF CERTAIN EXHIBITS TO
AGREEMENT FOR PURCHASE AND SALE OF ASSETS
<TABLE>
<CAPTION>
EXHIBITS TITLE
- --------------- ------------------------------------------------------
<S> <C>
Exhibit 6.4 Management Services Agreement
Exhibit 6.5 Supply and Services Agreement
Exhibit 6.6 Shared Facilities Agreement
Exhibit 6.7 Non-Competition Agreement
Exhibit 6.8 License Agreement
Exhibit 7.10 Shaw Employment Agreement
</TABLE>
ANNEX II-27
<PAGE>
(This page has been left blank intentionally.)
<PAGE>
ANNEX II
EXHIBIT 6.4
MANAGEMENT SERVICES AGREEMENT
THIS MANAGEMENT SERVICES AGREEMENT (the "Agreement"), is made as of this
day of , 1996 (the "Effective Date"), by and
between IJI ACQUISITION CORP., an Illinois corporation, the name of which is
about to be changed to INTERNATIONAL JENSEN INCORPORATED ("Purchaser"), and
INTERNATIONAL JENSEN INCORPORATED, a Delaware corporation, the name of which is
about to be changed to RECOTON AUDIO CORPORATION ("Seller") after its merger
into a subsidiary of Recoton Corporation, a New York corporation ("Recoton") and
Recoton.
W I T N E S S E T H:
WHEREAS, Seller has agreed to sell to Purchaser and Purchaser has agreed to
purchase from Seller substantially all of the assets of Seller's original
equipment manufacturer's business on the terms and conditions as set forth in
the Amended and Restated Agreement for the Purchase and Sale of Assets of
International Jensen Incorporated, dated as of January 3, 1996, by and between
Purchaser and Seller (the "Purchase Agreement");
WHEREAS, Seller currently employs Robert G. Shaw ("Shaw"), Marc T. Tanenberg
("Tanenberg"), James E. Sula ("Sula"), Larry P. Bentley ("Bentley"), Jule DuBach
("DuBach"), and Rae Seeley ("Seeley") (Shaw, Tanenberg, Sula, Bentley, DuBach
and Seeley and any accepted replacements thereof together are the "Management
Service Providers" or "MSPs"); and
WHEREAS, Seller wishes to provide to Purchaser, and Purchaser wishes to
receive from Seller, the services of the MSPs.
NOW, THEREFORE, in consideration of the foregoing, and other good and
valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, the parties hereto agree as follows:
ARTICLE I
SERVICES
1.1 SERVICES PERFORMED. During the Term, as defined herein, Seller shall
direct the following individuals, so long as they are employed by Seller or an
affiliate of Seller and so long as requested by Purchaser, to provide services
(the "Duties") to Purchaser as set forth below:
(A) SHAW: Shaw shall perform various managerial and administrative duties
for Purchaser as the Chief Executive Officer of Purchaser, which
duties are consistent with those typically performed by a Chief Executive
Officer in the OEM Business (as defined in the Purchase Agreement);
(B) TANENBERG: Tanenberg shall perform various managerial and
administrative duties for Purchaser which duties are consistent with
those typically performed by a Chief Financial Officer in the OEM Business;
(C) SULA: Sula shall perform various managerial and administrative duties
for Purchaser, which duties are consistent with those typically
performed by a Controller in the OEM Business;
(D) BENTLEY: Bentley shall perform various managerial and administrative
duties for Purchaser, which duties are consistent with those
typically performed by a Vice President of Human Resources in the OEM
Business;
Annex II
Ex. 6.4 -- 1
<PAGE>
(E) DUBACH: DuBach shall perform various managerial and administrative
duties for Purchaser, which duties are consistent with those
typically performed by an Administrative Assistant in the OEM Business; and
(F) SEELEY: Seeley shall perform various managerial and administrative
duties for Purchaser, which duties are consistent with those
typically performed by an Administrative Assistant in the OEM Business.
1.2 STANDARD ALLOCATION. Seller shall cause each of the MSPs to devote
approximately twenty-five percent (25%) of his or her business time and
attention to the performance of his or her Duties if so required by Purchaser
(the "Standard Allocation").
1.3 METHOD OF DETERMINING TIME ALLOCATED TO DUTIES. Seller shall cause
each of the MSPs to submit a written report to Tanenberg, or his successor, and
to the Treasurer of Recoton, on a weekly basis, setting forth his or her
respective percentage time spent in the performance of his or her Duties
("Report") during such week.
1.4 REVIEW OF PERCENTAGE OF TIME ALLOCATED TO DUTIES. Promptly after the
conclusion of each calendar quarter after the Effective Date ("Quarterly"), the
parties to this Agreement shall review the Reports submitted with respect to the
quarter just ended in order to determine the actual percentage of time spent by
each of the MSPs in the performance of his or her Duties for such quarterly
period (the "Actual Allocation").
1.5 TERMINATION OF ONE OR MORE OF THE MSPS. If Seller terminates the
employment of any MSPs or any MSP terminates his or her employment with Seller,
Seller shall not be obligated to replace said terminated MSP. If Seller hires
any person to replace a terminated MSP, then Seller shall offer the services of
such newly hired person to Purchaser on the same terms and conditions as set
forth in this Agreement. Notwithstanding anything to the contrary contained in
the Agreement, Purchaser shall be under no obligation to either accept the
services of any such replacement MSP or to reimburse the costs to Seller of the
replacement MSP unless Purchaser accepts the services of such replacement MSP.
Furthermore, Purchaser may elect to exclude any MSP from the terms of this
Agreement, for any reason and at any time, upon Purchaser providing thirty (30)
days prior written notice to Seller. Under no circumstances shall Purchaser be
under any obligation to make severance or termination payments or other
separation benefits to an MSP which has been terminated by Seller or has been
excluded by Purchaser from this Agreement; PROVIDED, HOWEVER, that if Purchaser
employs an MSP (other than Shaw) who was not terminated (actually or
constructively) by Seller prior to the employment of the MSP (other than Shaw)
by Purchaser, Purchaser shall assume all obligations of Seller to such MSP
(other than Shaw) under any employment or severance agreement with such MSP
(other than Shaw) and Purchaser shall indemnify and hold harmless Seller for any
liability under any such agreements.
ARTICLE II
TERM
2.1 TERM. The term of this Agreement shall commence on the Effective Date
and shall continue for a period of twelve (12) consecutive months (the "Term"),
which Term shall renew automatically for additional twelve (12) month periods
unless otherwise terminated pursuant to this Agreement.
2.2 TERMINATION OF THIS AGREEMENT. Purchaser may terminate this Agreement
at any time upon giving Seller ninety (90) days prior written notice and Seller,
upon the expiration of the first six (6) months of the Term, may terminate this
Agreement at any time upon giving Purchaser one hundred eighty (180) days prior
written notice.
Annex II
Ex. 6.4 -- 2
<PAGE>
2.3 CHANGE IN CONTROL. Upon a change of control of Purchaser, this
Agreement shall terminate. A change of control of Purchaser shall have occurred
if Shaw shall not: (i) be a member of the Board of Directors of Purchaser; (ii)
be either an executive officer or Chairman of the Board of Purchaser; and (iii)
own beneficially more shares of the voting stock of Purchaser than any other
stockholder of Purchaser (or "group" of stockholders, as referred to in Section
13(d)(3) of the Securities Exchange Act of 1934, as amended) but in any event
more than 30% of the outstanding voting stock. For purposes of this Agreement, a
person shall be deemed to own beneficially any shares of Purchaser which are
owned by himself, his spouse, any descendant of his, or any trust, partnership,
corporation, joint venture, or limited liability company which has been created
primarily for his benefit and/or for the benefit of his spouse or any descendant
of such person. Notwithstanding anything to the contrary contained herein, if
Shaw dies during the Term of this Agreement, the Agreement shall continue for a
period of six (6) months after his death.
ARTICLE III
BASE COMPENSATION AND BENEFITS
3.1 BASE COMPENSATION AND BENEFITS.
(a) COMPENSATION. On the Effective Date and on each anniversary
thereafter (or annually on a date consistent with the date at which Recoton
generally awards annual salary increases), Seller shall determine the gross
compensation and benefits (including without limitation salary, benefits,
perquisites, car allowances, 401(k) pension and profit sharing arrangements)
to be paid to each of the MSPs for the subsequent twelve month period
("Compensation") and so advise Purchaser.
(b) PAYMENT. On a monthly basis, Purchaser shall pay to Seller an
amount equal to twenty-five percent (25%) of the Compensation of each MSP
for such month, the amount payable shall be subject to adjustment, pursuant
to the Actual Allocation as described below.
(i) If the Actual Allocation for any MSP is less than twenty-five
percent (25%), then Seller shall credit Purchaser an amount for such MSP
computed as follows:
<TABLE>
<S> <C> <C> <C> <C> <C>
(ai) Standard (-) Actual = Allocation
Allocation Allocation Difference
(aii) Quarterly
Allocation (x) Compensation = Amount
Difference for an MSP Credited
</TABLE>
Example:
Standard Allocation = 25%
Actual Allocation = 20%
Quarterly Compensation = $100,000
<TABLE>
<S> <C> <C> <C> <C> <C>
(ai) 25% (-) 20% = 5%
(aii) 5% (x) $100,000 = $5,000
</TABLE>
Result: $5,000 is the amount credited by Seller to Purchaser subject to
the netting provisions set forth in (iii) below;
(ii) If the Actual Allocation for any MSP exceeds twenty-five percent
(25%), then Purchaser shall remit to Seller an amount for such MSP
computed as follows:
<TABLE>
<S> <C> <C> <C> <C> <C>
(ai) Actual (-) Standard = Allocation
Allocation Allocation Difference
</TABLE>
Annex II
Ex. 6.4 -- 3
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C>
(aii) Quarterly
Allocation (x) Compensation = Amount
Difference for an MSP Reimbursed
</TABLE>
Example:
Standard Allocation = 25%
Actual Allocation = 30%
Quarterly Compensation = $100,000
<TABLE>
<S> <C> <C> <C> <C> <C>
(ai) 30% (-) 25% = 5%
(aii) 5% (x) $100,000 = $5,000
</TABLE>
Result: $5,000 is the amount reimbursed by Purchaser to Seller,
subject to the netting provisions set forth in (iii) below;
(iii) All credits and reimbursements for the MSPs as a group shall be
netted prior to any credit or reimbursement accruing to Seller or
Purchaser, as the case may be.
(iv) All credits or reimbursements due to Purchaser shall be appended
to the next monthly payment due to Seller from Purchaser without
interest.
(v) Any amounts which remain due and owing as of the expiration of
the Term shall be paid to the owed party within thirty (30) days of the
expiration of the Term.
(c) THE COST OF BENEFITS. The cost of vacation days, sick days and
similar benefits, as set forth in Section 3.1(a), shall be allocated between
Seller and Purchaser on the basis of the Standard Allocation, unless
otherwise agreed upon by the parties.
3.2 PAYMENT OF BONUS. If Seller shall pay a bonus to an MSP (a "Bonus"),
Seller shall advise Purchaser of such Bonus in writing and after receipt of such
notice Purchaser shall promptly reimburse Seller for the amount of such Bonus
multiplied by the Actual Allocation for such MSP for the applicable bonus period
and multiplied by a fraction the numerator of which is the number of days in
such bonus period which are within the Term and the denominator of which is the
number of days in such bonus period. To the extent that such Bonus is awarded
under any formula plan requiring an evaluation of the MSP's performance, Seller
shall seek the advice of Purchaser regarding the performance of such MSP and
take such advice into account in determining the Bonus.
Notwithstanding anything to the contrary contained herein, Purchaser, in its
sole discretion and at its sole expense, may pay a bonus to an MSP (a
"Discretionary Bonus"). Seller shall have no obligation to pay all or a portion
of any Discretionary Bonus.
3.3 TRAVEL, DIRECT AND UNALLOCABLE EXPENSES. Travel and direct expenses
incurred by any MSP shall be paid or reimbursed by that entity for which the
travel or direct expenses were incurred. Any expenses which cannot be allocated
directly to Seller or Purchaser shall be reimbursed by Purchaser in an amount
equal to the Actual Allocation multiplied by the amount of the unallocable
expense.
ARTICLE IV
MISCELLANEOUS
4.1 NOT A CONTRACT OF EMPLOYMENT. The parties to this Agreement
acknowledge that this is not a contract of employment, that the MSPs are not
employees of Purchaser and the MSPs shall not be entitled to any employment
rights or other benefits from Purchaser except as otherwise provided herein.
4.2 INDEMNIFICATION.
Annex II
Ex. 6.4 -- 4
<PAGE>
(a) It is acknowledged by the parties to this Agreement that while the
MSPs are employees of Seller or Recoton, they shall be acting at the
direction of, or under instructions from, Purchaser or its designees or
other MSPs in performing their Duties. Accordingly, if, in the performance
of their Duties, any MSP takes any action or fails to take any action, which
action or failure to take action results in any loss, cost, damage or
expense (including reasonable attorneys fees) to Recoton or Seller,
Purchaser shall indemnify and hold harmless Seller, Recoton and their
subsidiaries and respective officers, directors and employees therefor,
unless such action or failure to take action was at the direction of or with
the knowing approval of a Recoton executive officer (other than Shaw).
(b) It is further acknowledged by the Parties to the Agreement that
while the MSPs may be operating under this Agreement at the direction of or
under instructions from Purchaser or its designee, or other MSPs, they
frequently will be acting at the direction of, or under instructions from,
Recoton or its designees (other than MSPs) in performing their duties.
Accordingly, if in the performance of their responsibilities on behalf of
Recoton, any MSP takes any action or fails to take any action, which action
or failure to take action results in any loss, cost, damage or expense
(including reasonable attorneys fees) to Purchaser, Recoton and Seller shall
indemnify and hold harmless Purchaser and its subsidiaries and its officers,
directors and employees therefore, unless such action or failure to take
action was at the direction or with the knowing approval of Purchaser or its
designees or another MSP.
4.3 NOTICE. Any notice, request, consent or communication (collectively
"Notice") sent under this Agreement shall be effective only if it is in writing
and (a) personally delivered, (b) sent by certified or registered mail, return
receipt requested, postage prepaid, (c) sent by a nationally recognized
overnight delivery service, with delivery confirmed, or (d) telexed or
telecopied with receipt confirmed, addressed as follows:
If to Seller:
International Jensen Incorporated/Recoton Audio Corporation
25 Tri-State International Office Center
Suite 400
Lincolnshire, Illinois 60069
Attention: Mr. Marc T. Tanenberg
Telecopier: (847) 317-3855
Telephone: (847) 317-3700
and
Recoton Corporation
2950 Lake Emma Road
Lake Mary, FL 32746
Attention: Mr. Stuart Mont
Telecopier: (407) 333-8903
Telephone: (407) 333-8900
with a copy to:
Stroock & Stroock & Lavan
Seven Hanover Square
New York, New York 10004
Attention: Theodore S. Lynn, Esq.
Telecopier: (212) 806-6006
Telephone: (212) 806-5400
Annex II
Ex. 6.4 -- 5
<PAGE>
If to Purchaser:
IJI Acquisition Corp./International Jensen Incorporated
25 Tri-State International Office Center
Suite 400
Lincolnshire, Illinois 60069
Attention: Mr. Robert G. Shaw
Telecopier: (847) 317-3774
Telephone: (847) 317-3777
with a copy to:
Wildman, Harrold, Allen & Dixon
225 West Wacker Drive
Chicago, Illinois 60606-1229
Attention: Richard B. Thies, Esq.
Telecopier: (312) 201-2555
Telephone: (312) 201-2000
or such other persons or addresses as shall be furnished in writing by any party
to the other party. A Notice shall be deemed to have been given as of the date
when (i) personally delivered, (ii) five (5) days after the date when deposited
with the United States mail properly addressed, (iii) when receipt of a Notice
sent by an overnight delivery service is confirmed by such overnight delivery
service, or (iv) when receipt of the telex or telecopy is confirmed, as the case
may be, unless the sending party has actual knowledge that a Notice was not
received by the intended recipient.
4.4 WAIVER. The failure of either of the parties to insist, in any one or
more instances, upon performance of any of the terms or conditions of this
Agreement, shall not be construed as a waiver or relinquishment of any rights
granted hereunder or the future performance of any such term, covenant or
condition.
4.5 COMPLETE UNDERSTANDING. This Agreement constitutes the complete
understanding among the parties. No alteration or modification of any of this
Agreement's provisions shall be valid unless made in writing and signed by all
the parties to this Agreement.
4.6 APPLICABLE LAW. The laws of the State of Illinois shall govern all
aspects of this Agreement, irrespective of the fact that one or more of the
parties now is or may become a resident of a different state, or that the one or
more of the parties now or hereafter locates its principal office outside the
State of Illinois. The parties shall submit all disputes which arise under this
Agreement to state or federal courts located in the City of Chicago, Illinois
for resolution. The parties acknowledge the aforesaid courts shall have
exclusive jurisdiction over this Agreement and specifically waive any claims
which they may have that involve jurisdiction or venue, including but not
limited to forum non conveniens. Service of process for any claim which arises
under this Agreement shall be valid if made in accordance with the notice
provisions set forth in Section 4.3 of this Agreement. If service of process is
made as aforesaid, the party served agrees that such service shall constitute
valid service, and specifically waives any objections the party served may have
under any state or federal law or rule concerning service of process. Service of
process in accordance with this Section shall be in addition to and not to the
exclusion of any other service of process method legally available.
4.7 DESCRIPTIVE HEADINGS. All section headings, titles and subtitles are
inserted in this Agreement for the convenience of reference only, and are to be
ignored in any construction of this Agreement's provisions.
Annex II
Ex. 6.4 -- 6
<PAGE>
4.8 SEVERABILITY. If a court of competent jurisdiction rules that any one
or more of this Agreement's provisions are invalid, illegal or unenforceable in
any respect, such invalidity, illegality or unenforceability shall not affect
any of this Agreement's other provisions, and this Agreement shall be construed
as if it had never contained such invalid, illegal or unenforceable provision.
4.9 SUCCESSORS AND ASSIGNS AND THIRD PARTY BENEFICIARIES. This Agreement
may not be assigned without the prior written consent of all parties hereto.
This Agreement shall inure to the benefit of and be binding upon the parties
hereto and their respective successors and permitted assigns. Nothing in this
Agreement, expressed or implied, is intended to confer on any person other than
the parties hereto or their respective successors and permitted assigns, any
rights, remedies, obligations or liabilities under or by reason of this
Agreement.
4.10 COUNTERPARTS. This Agreement may be executed in any number of
counterparts and each of such counterparts for all purposes shall constitute an
original.
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed and delivered as of the Effective Date.
IJI ACQUISITION CORP.,
an Illinois corporation
<TABLE>
<S> <C>
By: ----------------------------------------
Its:
----------------------------------------
INTERNATIONAL JENSEN INCORPORATED,
a Delaware corporation
By:
----------------------------------------
Its:
----------------------------------------
RECOTON CORPORATION,
a New York corporation
By:
----------------------------------------
Its:
----------------------------------------
</TABLE>
Annex II
Ex. 6.4 -- 7
<PAGE>
ANNEX II
EXHIBIT 6.5
SUPPLY AND SERVICES AGREEMENT
THIS SUPPLY AND SERVICES AGREEMENT (the "Agreement") is made as of ,
1996 (the "Effective Date"), by and among IJI ACQUISITION CORP., an Illinois
corporation, the name of which is about to be changed to INTERNATIONAL JENSEN
INCORPORATED, an Illinois corporation ("Supplier"), and INTERNATIONAL JENSEN
INCORPORATED, a Delaware corporation, the name of which is about to be changed
to RECOTON AUDIO CORPORATION ("Customer").
W I T N E S S E T H:
WHEREAS, Customer has agreed to sell to Supplier and Supplier has agreed to
purchase from Customer substantially all of the assets of Customer's original
equipment manufacturer's business comprising (i) the loudspeaker assembly plant
facility and operations in Lumberton, North Carolina, (ii) the metal and plastic
parts manufacturing/home loudspeaker assembly plant facility and operations in
Punxsutawney, Pennsylvania, (iii) the magnet manufacturing facilities and
general offices of the General Magnetic division in Dallas, Texas, (iv) the cone
manufacturing facilities and general offices of Fuji Cone, Inc. in Clinton,
North Carolina, (v) the OEM value-add facility in Livonia, Michigan, (vi) the
Bingham Farms, Michigan sales office, and (vii) the original equipment
manufacturing portion of the engineering, research and development center and
distribution facility in Schiller Park, Illinois (the "OEM Business Assets"), on
the terms and conditions as set forth in the Amended and Restated Agreement For
the Purchase and Sale of Assets, dated as of January 3, 1996, by and between
Supplier and Customer (the "Purchase Agreement");
WHEREAS, the original equipment manufacturer's business consists of the
business of designing, manufacturing and marketing of speakers and speaker
components and related products for and to domestic and international
automotive, truck, recreational vehicle, aircraft or other motorized vehicle
("Vehicular") original equipment manufacturers (the "OEM Business"); and
WHEREAS, Supplier is not purchasing Customer's business which consists of
designing, manufacturing, and marketing of speakers and speaker components, and
related branded products in the domestic and international Vehicular aftermarket
and home audio market (the "Branded Business").
NOW, THEREFORE, in consideration of the above premises, and other good and
valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, the parties hereto agree as follows:
ARTICLE I
SUPPLY OBLIGATIONS
1.1 GENERAL DUTIES. Upon the terms and conditions set forth in this
Agreement, Customer shall purchase from Supplier all of its requirements for
products currently manufactured in Punxsutawney, Pennsylvania and Lumberton,
North Carolina for and as required by Customer's Branded Products Division and
IJI-European Holdings (the "Products"). The broad product groupings of the
Products are as follows: (a) Jensen Car Aftermarket Speakers; (b) Advent Mobile
Aftermarket Speakers; (c) Jensen Home Hi-Fi Speakers; and (d) Advent Home Hi-Fi
Speakers. The term "Supply Obligation" shall mean Supplier's obligation to
supply Customer with Seller's requirements for the Products which satisfy all
warranties and quality standards identified in this Agreement, within the time
periods agreed to by the parties, which time periods shall include adequate lead
time for production of Products and in a manner consistent with past practices
and for the prices identified in
Annex II
Ex. 6.5 -- 1
<PAGE>
this Agreement. Supplier shall devote that portion of its professional time,
attention and personnel to the Supply Obligation as is necessary for Supplier to
fulfill said Supply Obligation in accordance with the terms of this Agreement.
1.2 NEW PRODUCTS. Supplier shall have the opportunity to bid on new
products required by Customer during the Term (as that term is defined in
Section 1.5 of this Agreement).
1.3 PRODUCT STANDARDS. All Products which Supplier supplies to Customer
under this Agreement shall satisfy quality and warranty standards which are
consistent with the Products produced by Supplier prior to this Agreement and
shall meet all applicable legal requirements.
1.4 RETENTION OF RIGHTS. If Supplier is unable to satisfy the Supply
Obligation for any Product in accordance with Customer's delivery requirements
and such inability is not cured within ten (10) days after written notice,
Customer may terminate its obligations under this Agreement to purchase its
requirements for such Product, unless the Supplier's inability to perform is due
to: (a) "Force Majeure," as defined herein; or (b) Customer's failure to fulfill
its obligations under this Agreement. For the purposes of this Agreement "Force
Majeure" means the consequences, direct or indirect, of strikes, lockouts or any
other labor disputes, fires, accidents, floods, hostilities, shortages of
transportation equipment or facilities, the failure, suspension or curtailment
of the production or delivery due to shortages of supply of components or
materials from any available sources or due to the acts, regulations,
allocations or other requirements of any federal, state or local government, and
any and all like or different causes, each of which is beyond the reasonable
control of the Supplier, to the extent performance is prevented thereby. During
any period of shortage due to any of said causes, the Supplier shall allocate
the supply of the Products to its customers in a fair and reasonable manner,
which takes into account the fact that Customer has an obligation to source from
Supplier.
1.5 TERM. The term of this Agreement shall commence on the Effective Date
and shall continue for a period of twelve (12) consecutive months (the "Term"),
unless otherwise terminated pursuant to this Agreement.
1.6 TERMINATION FOR CAUSE. The occurrence of any of the following events
shall give rise to the rights of the parties to terminate this Agreement for
cause:
a. Either party is in breach of any of the substantial and material
provisions of this Agreement, and such breach continues for thirty (30) days
after the non-breaching party has given notice in writing to the other party
demanding cure thereof;
b. (i) A court of competent jurisdiction shall enter a decree or
order, not stayed within sixty (60) days from the date of entry hereof,
appointing a trustee or receiver of a party, or any substantial part of its
property, or shall approve a petition for or effecting an arrangement in
bankruptcy, a reorganization pursuant to a bankruptcy act, or other judicial
modification or alteration of the rights of its creditors, (ii) a party
itself shall file such petition or take or consent to take any other action
seeking any such judicial decree or order, or shall make an assignment for
the benefit of creditors, or shall admit in writing its inability to pay its
debts generally as they become due, or (iii) any court of competent
jurisdiction shall enter a decree or order adjudicating a party as bankrupt
or insolvent.
1.7 STATUS. Supplier and Customer expressly acknowledge that the status of
Supplier shall be that of an independent contractor and not that of an agent or
employee of Customer.
ARTICLE II
PRICING
2.1 PRICING. Supplier shall charge Customer for the Products at its cost
in an amount consistent with the current internal pricing policies of Customer
and which pricing policies shall be consistent with past practice ("Product
Cost"). Furthermore, Supplier shall charge Customer Five
Annex II
Ex. 6.5 -- 2
<PAGE>
Thousand Dollars ($5,000) each month for costs associated with the purchasing
agents' duties with respect to Products supplied to Customer. The charge for
each Product shall be updated annually on each March 1 to reflect changes to the
Product Costs. If the charge for any Product or Products increases more than
five percent (5%) from the prior year and Customer gives Supplier ninety (90)
days prior written notice of its intent to discontinue purchasing such Product
or Products, then Customer shall no longer be obligated to purchase such Product
or Products under this Agreement. Cancellation of the obligation to purchase
certain Products shall not eliminate or relieve Customer from the obligation to
purchase Products which are not subject to cancellation.
2.2 TAXES. The prices for Products and the increase in Product Cost are
exclusive of any taxes, excises or other governmental charges applicable to the
sale of the Products. Supplier's invoices shall include as a separate item all
taxes, excises or other governmental charges imposed on Supplier by reason of
the sale of the Products to Customer, except taxes based upon net income of
Supplier.
2.3 PAYMENT AND OTHER TERMS. Payment by Customer for Products delivered by
Supplier shall be made in full within ten (10) days of the Friday of each week
during which invoices were received from Seller, but in no event shall Customer
be obligated to issue more than one (1) check, with respect to the invoices
received, each week.
ARTICLE III
CERTAIN OBLIGATIONS OF SUPPLIER
3.1 INSURANCE. During the Term, Supplier shall obtain and maintain
products liability and general comprehensive insurance, in the minimum coverage
amount of One Million Dollars ($1,000,000) (the "Minimum Coverage"). Supplier
shall maintain such insurance with insurance companies having a Best's rating of
no less than A+.
3.2 TERMS AND CONDITIONS. The terms and conditions set forth in this
Agreement shall apply to and govern all sales from Supplier to Customer,
irrespective of any contrary terms and conditions stated on invoices, billing
notices, bills of lading or other forms of any type or nature which Supplier or
Customer may submit. Supplier shall have no right to alter the terms and
conditions set forth in this Agreement for sales from Supplier to Customer.
3.3 DELIVERY. Supplier shall deliver Product to Customer F.O.B. a common
carrier (a "Common Carrier") at Supplier's business premises. Customer assumes
all risk of loss from the time it deposits any such items with a Common Carrier,
until actual delivery to Customer. Risk of loss prior to actual receipt by
Customer shall be borne by Customer. Customer shall pay all shipping, freight,
transportation and related costs associated with shipping any items under this
Agreement.
3.4 WORKING CAPITAL MANAGEMENT. All raw material stock and piece parts
used in the manufacture of Products shall be billed to Customer at the time such
inventory is delivered to Supplier's premises. Supplier shall take all
appropriate actions requested by Customer to protect Customer's ownership
interest in any of these goods or to grant Customer a security interest in any
inventory financed by Customer.
ARTICLE IV
SERVICES
4.1 PERSONNEL. To the extent requested by Customer, Supplier shall make
available to Customer the services of Supplier's MIS Equipment, MIS Operations
Support, MIS Programming Support and Travel Agency personnel during the Term.
4.2 COST. Supplier shall charge Customer for such services at Supplier's
cost in an amount consistent with the current internal cost allocation practice
of Supplier. However, no direct charge shall be made to Customer for the
services of any Travel Agency personnel.
Annex II
Ex. 6.5 -- 3
<PAGE>
4.3 PAYMENT. Payment by Customer for such services shall be made within
ten (10) days after the beginning of a month with respect to invoiced services
in the prior month.
ARTICLE V
GENERAL
5.1 NOTICE. Any notice, request, consent or communication (collectively
"Notice") sent under this Agreement shall be effective only if it is in writing
and (a) personally delivered, (b) sent by certified or registered mail, return
receipt requested, postage prepaid, (c) sent by a nationally recognized
overnight delivery service, with delivery confirmed, or (d) telexed or
telecopied, with receipt confirmed, addressed as follows:
<TABLE>
<S> <C>
If to Customer: International Jensen Incorporated/Recoton Audio Corporation
25 Tri-State International Office Center
Suite 400
Lincolnshire, Illinois 60069
Attention: Mr. Marc T. Tanenberg
Telecopier: (847) 317-3855
Telephone: (847) 317-3700
AND
Recoton Corporation
2950 Lake Emma Road
Lake Mary, Florida 32746
Attention: Mr. Stuart Mont
Telecopier: (407) 333-8903
Telephone: (407) 333-8900
with a copy to: Stroock & Stroock & Lavan
Seven Hanover Square
New York, New York 10004
Attention: Theodore S. Lynn, Esq.
Telecopier: (212) 806-6006
Telephone: (212) 806-5400
If to Supplier: IJI Acquisition Corp./International Jensen Incorporated
25 Tri-State International Office Center
Suite 400
Lincolnshire, Illinois 60069
Attention: Mr. Robert G. Shaw
Telecopier: (847) 317-3774
Telephone: (847) 317-3777
with a copy to: Wildman, Harrold, Allen & Dixon
225 West Wacker Drive
Chicago, Illinois 60606-1229
Attention: Richard B. Thies, Esq.
Telecopier: (312) 201-2555
Telephone: (312) 201-2521
</TABLE>
or such other persons or addresses as shall be furnished in writing by any party
to the other party. A Notice shall be deemed to have been given as of the date
when (i) personally delivered, (ii) five (5) days after the date when deposited
with the United States mail properly addressed, (iii) when receipt of a
Annex II
Ex. 6.5 -- 4
<PAGE>
Notice sent by an overnight delivery service is confirmed by such overnight
delivery service, or (iv) when receipt of the telex or telecopy is confirmed, as
the case may be, unless the sending party has actual knowledge that a Notice was
not received by the intended recipient.
5.2 PATENT INFRINGEMENT. Customer shall indemnify and hold harmless
Supplier, its successors and assigns, against any and all loss, damage or injury
arising out of a claim or suit for alleged infringement of any patents related
to the Products to the extent such infringement arises from Customer's
specifications and Customer shall assume the defense of any and all such suits
and pay all costs and expenses incidental thereto.
5.3 NONDISCLOSURE. Data, drawings, specifications or other technical
information furnished directly or indirectly, in writing or otherwise, to either
party hereto by the other party pursuant to this Agreement shall in no event
become the property of the recipient and shall be used only in fulfilling the
obligations imposed by this Agreement and shall not be duplicated or disclosed
to others or used in whole or in part for any other purpose. Such furnishing of
data, drawings, specifications or other technical information shall not be
construed as granting any rights whatsoever, express or implied, under any
patents of the furnishing party. The parties acknowledge the existence of a
certain Management Services Agreement dated as of , 1996 between Customer
and Supplier ("MS Agreement") and recognize that such agreement shall govern
information transmitted to either party as a result of the MS Agreement.
5.4 WAIVER. The failure of either of the parties to insist, in any one or
more instances, upon performance of any of the terms or conditions of this
Agreement, shall not be construed as a waiver or relinquishment of any rights
granted hereunder for the future performance of any such term, covenant or
condition.
5.5 COMPLETE UNDERSTANDING. This Agreement constitutes the complete
understanding among the parties. No alteration or modification of any of this
Agreement's provisions shall be valid unless made in writing and signed by all
the parties to this Agreement.
5.6 APPLICABLE LAW. The laws of the State of Illinois shall govern all
aspects of this Agreement, irrespective of the fact that one or more of the
parties now is or may become a resident of a different state, or that one or
more of the parties now or hereafter locates its principal office outside the
State of Illinois. The parties shall submit all disputes which arise under this
Agreement to state or federal courts located in the City of Chicago, Illinois
for resolution. The parties acknowledge the aforesaid courts shall have
exclusive jurisdiction over this Agreement and specifically waive any claims
which they may have that involve jurisdiction or venue, including but not
limited to forum non conveniens. Service of process for any claim which arises
under this Agreement shall be valid if made in accordance with the notice
provisions set forth in Section 5.1 of this Agreement. If service of process is
made as aforesaid, the party served agrees that such service shall constitute
valid service, and specifically waives any objections the party served may have
under any state or federal law or rule concerning service of process. Service of
process in accordance with this Section shall be in addition to and not to the
exclusion of any other service of process method legally available.
5.7 DESCRIPTIVE HEADINGS. All section headings, titles and subtitles are
inserted in this Agreement for convenience of reference only, and are to be
ignored in any construction of this Agreement's provisions.
5.8 SEVERABILITY. If a court of competent jurisdiction rules that any one
or more of this Agreement's provisions are invalid, illegal or unenforceable in
any respect, such invalidity, illegality or unenforceability shall not affect
any of this Agreement's other provisions, and this Agreement shall be construed
as if it had never contained such invalid, illegal or unenforceable provision.
5.9 ASSIGNMENT. This Agreement shall not be assignable without the prior
written consent of all parties hereto. This Agreement and all of the provisions
hereof shall be binding upon and inure to the benefit of the parties hereto and
their respective heirs, successors and permitted assigns.
Annex II
Ex. 6.5 -- 5
<PAGE>
5.10 COUNTERPARTS. This Agreement may be executed in any number of
counterparts and each of such counterparts for all purposes shall constitute an
original.
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed and delivered as of the Effective Date.
IJI ACQUISITION CORP.,
an Illinois corporation
By: __________________________________
Its: _________________________________
INTERNATIONAL JENSEN INCORPORATED,
a Delaware corporation,
By: __________________________________
Its: _________________________________
Annex II
Ex. 6.5 -- 6
<PAGE>
ANNEX II
EXHIBIT 6.6
SHARED FACILITIES AGREEMENT
THIS SHARED FACILITIES AGREEMENT (the "Agreement") is made as of ,
1996 ("Effective Date"), by and between IJI ACQUISITION CORP., an Illinois
corporation the name of which is about to be changed to INTERNATIONAL JENSEN
INCORPORATED ("Licensee"), and INTERNATIONAL JENSEN INCORPORATED, a Delaware
corporation, the name of which is about to be changed to RECOTON AUDIO
CORPORATION ("Licensor").
W I T N E S S E T H:
WHEREAS, Licensor has agreed to sell to Licensee and Licensee has agreed to
purchase from Licensor substantially all of the assets of Licensor's original
equipment manufacturer's business (the "OEM Business") on the terms and
conditions as set forth in the Amended and Restated Agreement for Purchase and
Sale of Assets, dated as of January 3, 1996, by and between Licensee and
Licensor (the "Purchase Agreement").
WHEREAS, Licensor currently leases space at (i) 4136 North United Parkway,
Schiller Park, Illinois (the "Schiller Park Facility") pursuant to the terms as
outlined in the Schiller Park Facility Lease, a copy of which is attached hereto
and incorporated herein as Schedule A(i) (the "Schiller Lease"); and (ii) the
fourth (4th) floor in Building 25 of the Tri-State International Office Center,
Lincolnshire, Illinois (the "Lincolnshire Facility"), pursuant to the terms as
outlined in the Lincolnshire Facility Lease, a copy of which is attached hereto
and incorporated herein as Schedule A(ii), the ("Lincolnshire Lease") (the
Schiller Park Facility and the Lincolnshire Facility are collectively referred
to as the "Shared Facilities").
WHEREAS, Licensor desires to permit Licensee to utilize a portion of the
space located at the Schiller Park Facility and a portion of the space located
at the Lincolnshire Facility, and Licensee wishes to utilize a portion of the
space located at the Schiller Park Facility and a portion of the space located
at the Lincolnshire Facility, and in connection therewith Licensee and Licensor
shall share certain costs and expenses attributable to the Shared Facilities,
all in accordance with the terms and provisions of this Agreement.
NOW, THEREFORE, in consideration of the above premises and other good and
valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, the parties hereto agree as follows:
ARTICLE 1
DESCRIPTION OF THE LICENSED PREMISES
1.1 SCHILLER PARK FACILITY. Subject to and in accordance with the terms
and conditions of this Agreement, Licensor hereby grants to Licensee, and
Licensee hereby accepts from Licensor, a non-transferable license (the "Schiller
License") to use and occupy that portion of the Schiller Park Facility (the
"Schiller Park Licensed Portion") for office use, engineering use and for no
other purpose. "Licensee's Schiller Park Proportionate Share" shall be based on
a fraction, the numerator of which is the total square footage of the office
portion of the Schiller Park Facility utilized exclusively by Licensee and the
denominator of which shall be the total square footage of the Schiller Park
Facility utilized exclusively by Licensee plus the total square footage of the
office portion of the Schiller Park Facility utilized exclusively by Licensor.
In no event shall any part of the warehouse portion of the Schiller Park
Facility be included within the Schiller Park Licensed Portion, and no expenses,
of any nature or kind, attributable to the warehouse portion of the Schiller
Park Facility shall be included as
Annex II
Ex. 6.6 -- 1
<PAGE>
a portion of the License Fee (defined below) or the Operation Costs (defined
below). As of the date of this Agreement, based upon the foregoing formula, the
Licensee's Schiller Park Proportionate Share shall be fifty-eight percent (58%).
1.2 LINCOLNSHIRE FACILITY. Subject to and in accordance with the terms and
conditions of this Agreement, Licensor hereby grants to Licensee, and Licensee
hereby accepts from Licensor, a non-transferable license (the "Lincolnshire
License") to use and occupy that portion of the Lincolnshire Facility described
below (the "Lincolnshire Licensed Portion") for office use and for no other
purpose. "Licensee's Lincolnshire Proportionate Share" shall be based on a
fraction, the numerator of which is the square footage in the Lincolnshire
Facility to be utilized exclusively by Licensee (which shall include, as of the
date of this Agreement, the square footage occupied by the IJI accounting
department cubicles, the MIS department cubicles, the travel desk cubicles plus
twenty-five percent (25%) of the gross square footage of all offices and
cubicles utilized by persons subject to that certain Management Services
Agreement, of even date herewith, by and between Licensor and Licensee (the "MS
Agreement")) and the denominator shall be the total square footage of the
Lincolnshire Facility utilized exclusively by Licensee exclusively plus the
total square footage of the Lincolnshire Facility utilized exclusively by
Licensor. As of the date of this Agreement, based on the foregoing formula, the
Licensee's Lincolnshire Proportionate Share shall be twenty-one and 7/10ths
percent (21.7%). The Schiller Park Licensed Portion and the Lincolnshire
Licensed Portion are sometimes referred to as the "Licensed Premises."
1.3 ADJUSTMENT OF LICENSED PORTION. The Schiller Park Licensed Portion and
the Lincolnshire Licensed Portion, and the corresponding Schiller Park
Proportionate Share and Lincolnshire Proportionate Share, shall be adjusted from
time in accordance with the formulae set forth in Sections 1.1 and 1.2 hereof.
1.4 NOT A LEASE. This Agreement does not and shall not be deemed to
constitute a lease or a conveyance of the Licensed Premises by Licensor to
Licensee, or to confer upon Licensee any right, title, estate or interest in the
Licensed Premises. This Agreement grants to Licensee only a personal privilege
to use and occupy the Licensed Premises for the License Period on and subject to
the terms and conditions set forth herein. Licensee shall not permit the whole
or any portion of the Licensed Premises to be occupied by any person or entity
other than Licensee, and its officers, directors and employees in the
performance of their duties on behalf of Licensee and Licensee's invitees, in
the ordinary course of business.
1.5 LICENSOR'S DEPARTURE FROM LINCOLNSHIRE FACILITY. Licensor shall have
no obligation under this Agreement to remain in occupancy at the Lincolnshire
Facility. Licensor shall, however, give Licensee at least six month's prior
notice of its intention to vacate space at Lincolnshire and, if Licensor no
longer occupies the Lincolnshire Facility, Licensor shall offer Licensee
suitable space at the Schiller Park Facility or such other facilities to which
Licensor shall have moved the operation currently conducted at the Lincolnshire
Facility.
ARTICLE 2
SHARING OF RENT AND BUSINESS OPERATION COSTS
2.1 LICENSE FEE. Licensee shall pay to Licensor, on a monthly basis within
ten (10) days after Licensee's receipt of a written invoice from Licensor (but
in no event prior to the date that Licensor is required to pay monthly rent
pursuant to the Schiller Lease and the Lincolnshire Lease, as applicable) an
amount equal to (x) Licensee's Schiller Park Proportionate Share of the monthly
base rent, additional rent and all other charges payable by Licensor under the
Schiller Lease (exclusive of any portion of such items attributable or
apportioned or allocated to the warehouse portion of the Schiller Park
Facility), and (y) Licensee's Lincolnshire Proportionate Share of the monthly
base rent, additional rent and all other charges payable by Licensor under the
Lincolnshire Lease.
Annex II
Ex. 6.6 -- 2
<PAGE>
2.2 BUSINESS OPERATION COSTS. Licensee shall pay Licensor, on a monthly
basis within ten (10) days after Licensee's receipt of a written invoice from
Licensor, an amount equal to the sum of (x) Licensee's Schiller Park
Proportionate Share of all Operation Costs (as hereinafter defined) attributable
to the Schiller Park Facility, and (y) Licensee's Lincolnshire Proportionate
Share of all Operation Costs attributable to the Lincolnshire Facility. For
purposes of this Agreement, the term "Operation Costs" shall mean any and all
costs and expenses incurred in operating and maintaining the Shared Facilities
(exclusive of any and all amounts payable as or included within base rent or
additional rent or otherwise charged to Licensee pursuant to Section 2.1 above)
including without limitation utilities, property taxes, property and liability
insurance to the extent payable by Licensor under the Schiller Lease or the
Lincolnshire Lease, maintenance, repairs, telephone costs (including, without
limitation, the telephone charges attributable to facsimile machines, but
specifically excluding, with respect to the Lincolnshire Facility, the cost of
the 800 telephone number and the cost of all international calls and with
respect to the Schiller Park Facility the cost of all international calls), the
cost of depreciation (based upon generally accepted accounting principles) of
all furniture and fixtures owned by Licensor and located within the Shared
Facilities (other than any furniture or equipment located within the warehouse
portion of the Schiller Park Facility and other than MIS equipment located in
the Lincolnshire Facility, which MIS equipment is owned by Licensee), coffee
service costs, mail room supply costs, the salary and benefits payable to
reception and mail room personnel employed by Licensor and servicing the Shared
Facilities (other than the warehouse portion of the Schiller Park Facility) and
costs of personnel providing building and similar services, such as
receptionists, housekeepers, custodians and operators and similar support
personnel. In no event shall licensee be responsible for any Operation Costs
attributable to the warehouse portion of the Schiller Park Facility.
2.3 SUBSEQUENT ADJUSTMENTS. Any subsequent adjustments to the monthly base
rent, additional rent and all other charges pursuant to this Agreement shall be
borne and/or enjoyed by Licensee in an amount equal to the Licensee's Schiller
Park Proportionate Share and the Licensee's Lincolnshire Proportionate Share of
such adjustment, as such shares may be adjusted from time to time. In addition,
under no circumstances shall Licensee be liable to Licensor for any charges or
costs related to Licensor's failure to pay, or late payments made by Licensor of
any amounts due under the Schiller Lease or the Lincolnshire Lease.
2.4 AUDIT. Licensee, upon reasonable prior written request to Licensor,
may at its expense examine the books and records of the Licensor pertaining to
Operation Costs, monthly base rent, additional rent and all other charges
pursuant to this Agreement. Any such audit shall be conducted at the facility of
Licensor where such records are maintained and shall be during normal business
hours. Licensee shall maintain the results of any such audits in confidence
except as otherwise required by law.
ARTICLE 3
TERM
3.1 LICENSE PERIOD. The license period for each of the Licensed Premises
under this Shared Facilities Agreement will commence on the Effective Date and
will continue until such time as the lease term for such Shared Facility expires
(the "License Period"), subject to earlier termination as set forth in Section
5.1 below.
ARTICLE 4
CERTAIN COVENANTS
4.1 BUSINESS INTERFERENCE. Neither party shall take any action which would
violate the other's labor contracts, if any, affecting the building, or create
any unreasonable building construction
Annex II
Ex. 6.6 -- 3
<PAGE>
interruption, work stoppage, picketing, labor disruption or dispute, or take any
action which is likely to interfere with the business of the other party at the
Shared Facilities without the prior written consent of the other party, which
consent shall not be unreasonably withheld or delayed.
4.2 INDEMNIFICATION.
(a) Licensee shall, irrespective of whether it shall have been negligent
in connection therewith, indemnify, protect, defend and save harmless
Licensor and Licensor's officers, directors, contractors, agents and
employees from and against any and all liability (statutory or otherwise),
claims, suits, demands, damages (other than consequential damages),
judgments, costs, fines, penalties, interest and expenses (including
reasonable counsel and other professional fees and disbursements incurred in
any action or proceeding), to which Licensor and/or any such officer,
director, contractor, agent or employee may be subject or suffer arising
from, or in connection with (i) the use and occupancy of the Licensed
Premises by Licensee, or from any work, installation or thing whatsoever
done or omitted (other than by Licensor or its agents or employees other
than MSPs acting on behalf of Licensee) in or about the Licensed Premises
during the License Period, (ii) any default by Licensee in the performance
of Licensee's obligations under this Agreement, or (iii) any act, omission,
carelessness, negligence or misconduct of Licensee or of Licensee's agents,
representatives, invitees, guests, and employees (including MSPs acting for
or with the knowing approval of Licensee).
(b) Licensor shall, irrespective of whether it shall have been negligent
in connection therewith, indemnify, protect, defend and save harmless
Licensee and Licensee's officers, directors, contractors, agents and
employees from and against any and all liability (statutory or otherwise),
claims, suits, demands, damages (other than consequential damages),
judgments, costs, fines, penalties, interest and expenses (including
reasonable counsel and other professional fees and disbursements incurred in
any action or proceeding), to which Licensee and/or any such officer,
director, contractor, agent or employee may be subject or suffer arising
from, or in connection with (i) the use and occupancy of the Shared
Facilities, or from any work, installation or thing whatsoever done or
omitted (other than by Licensee or its agents or employees) in or about the
Shared Facilities during the License Period, (ii) any default by Licensor in
the performance of Licensor's obligations under this Agreement, or (iii) any
act, omission, carelessness, negligence or misconduct of Licensor or
Licensor's agents, representatives, invitees, guests and employees (other
than MSPs acting for or with the knowing approval of Licensee).
4.3 INSURANCE. During the License Period, Licensee shall, at its own cost
and expense:
(a) Provide and keep in force commercial general liability insurance
against liability for death, personal injury and property damage in an
amount that shall not be less than (i) FIVE MILLION DOLLARS ($5,000,000.00)
in respect of injuries to any one person, (ii) FIVE MILLION DOLLARS
($5,000,000.00) in respect of injuries from any one occurrence, and (iii)
TWO MILLION DOLLARS ($2,000,000.00) in respect of property damage from any
one occurrence. Licensor shall be named as an additional insured and covered
under the insurance contracts.
(b) Provide and keep in force insurance providing against loss by fire,
lightning, the perils of extended coverage and malicious mischief covering
the assets of Licensee at the Shared Facilities and any other alterations,
improvements, equipment, furnishings, fixtures, property and contents in the
Licensed Premises (collectively, "Licensee's Property"), at full replacement
value.
Each of Licensee and Licensor shall cause each policy carried by such
parties insuring, as to Licensee, the Licensed Premises and Licensee's Property
and, as to Licensor, the Licensor's Premises and the Licensor's personal
property, against loss, damage, or destruction by fire or other casualty, to be
written in a manner so as to provide that the insurance company waives all
rights of recovery by way of subrogation against Licensor or Licensee, as the
case may be, in connection with any loss or damage covered by any such policy.
Annex II
Ex. 6.6 -- 4
<PAGE>
All policies of insurance required to be obtained and maintained pursuant to
Section 4.3(a) shall name Licensor as an additional insured. All policies of
insurance required hereunder shall be written and signed by solvent and
responsible insurance companies reasonably satisfactory to Licensor. Unless
otherwise provided herein, certificates of insurance for insurance coverages
required hereunder shall be deposited with Licensor prior to occupancy of either
of the Shared Facilities by Licensee. Not less than fifteen (15) days prior to
the expiration dates of said insurance coverages, renewal certificates shall be
deposited with Licensor. If Licensee fails to deposit with Licensor any
certificate of insurance required hereunder, after thirty (30) days advance
notice and prior to the provision of such certificate, Licensor may, at its
option, obtain the insurance coverages in respect of which the required policy
or certificate was not provided, at the expense of the Licensee, and the cost
thereof shall be paid to the Licensor upon written demand.
4.4 ALTERATION OF LICENSED PREMISES. Licensor shall have no obligation to
alter, improve, decorate, or otherwise prepare the Licensed Premises for
Licensee's use and occupancy. Licensee shall make no installations, changes,
alterations, restorations, renovations, replacements, additions, improvements
and betterments, whether structural or non-structural, without Licensor's prior
written consent and then only by contractors or mechanics approved in writing by
Licensor.
4.5 USE OF LICENSED PREMISES. Licensee shall, at all times, use the
Licensed Premises only in a manner which is in full compliance with all present
and future laws, orders, rules and regulations of all state, federal, municipal
and local governments, departments, commissions and boards asserting
jurisdiction over Licensee, Licensor or the Shared Facilities, and any direction
of any public officer pursuant to law.
4.6 REPAIR OF LICENSED PREMISES. Licensee shall, throughout the License
Period, take good care of the Licensed Premises and the fixtures and
appurtenances therein. The parties acknowledge and agree that all repairs that
may arise in the ordinary course of business shall be made by Licensor, and the
cost thereof shall be included within the definition of Operation Costs. All
damage or injury to the Licensed Premises or to any other part of the Shared
Facilities or the buildings in which the Shared Facilities are located, or to
their fixtures, equipment and appurtenances, whether requiring structural or
non-structural repairs, but specifically excluding ordinary wear and tear,
caused by or resulting from carelessness, omission, neglect or improper conduct
of Licensee, or Licensee's agents, employees, contractors, representatives or
guests, shall be repaired promptly by Licensee at its sole cost and expense, to
the reasonable satisfaction of Licensor. All damage or injury to the Shared
Facilities or the buildings in which the Shared Facilities are located, or to
their fixtures, equipment and appurtenances, whether requiring structural or
non-structural repairs, but specifically excluding ordinary wear and tear,
caused by or resulting from carelessness, omission, neglect or improper conduct
of Licensor, or Licensor's agents, employees, contractors, representatives or
guests, shall be repaired promptly by Licensor at its sole cost and expense, to
the reasonable satisfaction of the Licensee. Licensee shall also repair all
damage to the Shared Facilities and the Licensed Premises and to the buildings
in which the Shared Facilities are located caused by the installation of any
improvements by or on behalf of Licensee or the moving of Licensee's Property.
All of the aforesaid repairs shall be of quality or class equal to the original
work or construction.
4.7 COVENANTS OF LICENSOR. Licensor covenants and agrees that throughout
the License Period, Licensor shall:
(a) Pay all minimum rent, additional rent and other charges due and
payable under the Schiller Park Lease and the Lincolnshire Lease and
otherwise full comply with all terms and conditions of the Schiller Park
Lease and the Lincolnshire Lease; and
(b) Cause Licensee to be named an additional insured under all liability
insurance policies covering the Shared Facilities.
Annex II
Ex. 6.6 -- 5
<PAGE>
ARTICLE 5
TERMINATION
5.1 TERMINATION.
(a) The license granted by this Agreement with respect to a Shared
Facility shall terminate upon the earlier of the following events:
(i) The expiration of the underlying lease term for each such Shared
Facility;
(ii) If all or a material portion of such Licensed Premises or such
Shared Facility shall be appropriated or taken under the power of eminent
domain by any public or quasi-public authority, or conveyance shall be
made in lieu of appropriation or taking, or are destroyed by fire, in
which case all items required to be paid by Licensee pursuant to Article
2 of this Agreement shall be prorated to the date of the taking;
(iii) For any reason or no reason: (i) by Licensee, upon not less than
six (6) month's prior written notice to Licensor; and (ii) after the
first six (6) months of the Term, by Licensor, upon not less than six (6)
month's prior written notice to Licensee, provided that in no event shall
any such termination by Licensor be effective prior to the first
anniversary of the date of full execution and delivery of this Agreement
except as otherwise set forth in Section 1.5; or
(b) If Licensee shall default in fulfilling any of its covenants or
obligations hereunder and such default shall remain uncured for a period in
excess of ten (10) days after written notice of such default with respect to
monetary defaults and thirty (30) days after written notice of such default
with respect to non-monetary defaults (provided that if Licensee commences
any such cure of a non-monetary default within such thirty (30) day period
and thereafter diligently pursues such cure to completion, such thirty (30)
day cure period shall be automatically extended to such period as is
reasonably necessary to cure such non-monetary default but in no event
longer than 90 days), in addition to any other rights and remedies available
to Licensor, Licensor may terminate the license for either or both Licensed
Premises by the giving of written notice to Licensee, whereupon such license
shall terminate on the date set forth in said notice, and Licensee shall
vacate such Licensed Premise(s) on said date as if that date were the date
of the expiration of the License Period as set forth herein.
5.2 REMOVAL OF PURCHASED ASSETS. All of Licensee's Property, including the
Purchased Assets as that term is defined in the Purchase Agreement, shall be
removed by Licensee from a Shared Facility not later than thirty (30) days
following the termination of the license for such facility, at the expense of
Licensee.
ARTICLE 6
CONDEMNATION, DAMAGE OR DESTRUCTION OF PREMISES
6.1 CONDEMNATION. In the event of any condemnation or taking of all or a
portion of either of both of the Shared Facilities, Licensor shall, except as
specifically set forth in this sentence, be entitled to receive the entire award
in the condemnation proceeding, and Licensee hereby expressly assigns to
Licensor any and all right, title and interest of Licensor now or hereafter
arising in or to any award or any part thereof, and Licensee shall be entitled
to receive no part of any award except to the extent that any award is related
to the cost of Licensee moving out to the Licensed Premises. Licensor shall have
no obligation to relocate Licensee or substitute new facilities for the Shared
Facility.
6.2 DAMAGE OR DESTRUCTION OF THE PREMISES. Except as otherwise set forth
herein, Licensor shall have no obligation to relocate Licensee, restore any
damaged premises, or substitute new premises for any damaged or destroyed
portions of a Shared Facility in question.
Annex II
Ex. 6.6 -- 6
<PAGE>
ARTICLE 7
MISCELLANEOUS
7.1 LANDLORD CONSENT. If either or both of the Schiller Lease or the
Lincolnshire Lease require that Licensor obtain the consent of the landlord
thereunder in connection with the performance of this Agreement, Licensor shall
exercise commercially reasonable efforts to obtain such consent from the
landlord in question at Licensee's sole cost and expense. Licensee shall
exercise commercially reasonable efforts to cooperate with Licensor in obtaining
all such consents. If Licensor shall not be able to obtain such consent, the
License with respect to such Leased Premises shall be of no force or effect.
7.2 NOTICE. Any notice, request, consent or communication (collectively
"Notice") sent under this Agreement shall be effective only if it is in writing
and (a) personally delivered, (b) sent by certified or registered mail, return
receipt requested, postage prepaid, or (c) sent by a nationally recognized
overnight delivery service, with delivery confirmed, or (d) telexed or
telecopied with receipt confirmed, addressed as follows:
<TABLE>
<S> <C>
If to International Jensen Incorporated/Recoton Audio Corporation
Licensor: 25 Tri-State International Office Center
Suite 400
Lincolnshire, Illinois 60069
Attention: Mr. Marc T. Tanenberg
Telecopier: (847) 317-3855
Telephone: (847) 317-3700
AND
Recoton Corporation
2950 Lake Emma Road
Lake Mary, Florida 32746
Attention: Mr. Stuart Mont
Telecopier: (407) 333-8903
Telephone: (407) 333-8900
with a copy Stroock & Stroock & Lavan
to: Seven Hanover Square
New York, New York 10004
Attention: Theodore S. Lynn, Esq.
Telecopier: (212) 806-6006
Telephone: (212) 806-5400
If to IJI Acquisition Corp.
Licensee: 25 Tri-State International Office Center
Suite 400
Lincolnshire, Illinois 60069
Attention: Mr. Robert G. Shaw
Telecopier: (847) 317-3774
Telephone: (847) 317-3777
with a copy Wildman, Harrold, Allen & Dixon
to: 225 West Wacker Drive
Chicago, Illinois 60606-1229
Attention: Richard B. Thies, Esq.
Telecopier: (312) 201-2555
Telephone: (312) 201-2000
</TABLE>
Annex II
Ex. 6.6 -- 7
<PAGE>
or such other persons or addresses as shall be furnished in writing by any party
to the other party. A Notice shall be deemed to have been given as of the date
when (i) personally delivered, (ii) five (5) days after the date when deposited
with the United States mail properly addressed, (iii) when receipt of a Notice
sent by an overnight delivery service is confirmed by such overnight delivery
service, or (iv) when receipt of the telex or telecopy is confirmed, as the case
may be, unless the sending party has actual knowledge that a Notice was not
received by the intended recipient.
7.3 WAIVER. The failure of either of the parties to insist, in any one or
more instances, upon performance of any of the terms or conditions of this
Agreement, shall not be construed as a waiver or relinquishment of any rights
granted hereunder or the future performance of any such term, covenant or
condition.
7.4 APPLICABLE LAW. The laws of the State of Illinois shall govern all
aspects of this Agreement, irrespective of the fact that one or more of the
parties now is or may become a resident of a different state, or that one or
more of the parties now or hereafter locates its principal office outside the
State of Illinois. The parties shall submit all disputes which arise under this
Agreement to state or federal courts located in the City of Chicago, Illinois
for resolution. The parties acknowledge the aforesaid courts shall have
exclusive jurisdiction over this Agreement and specifically waive any claims
which they may have that involve jurisdiction or venue, including but not
limited to forum non conveniens. Service of process for any claim which arises
under this Agreement shall be valid if made in accordance with the notice
provisions set forth in Section 7.2 of this Agreement. If service of process is
made as aforesaid, the party served agrees that such service shall constitute
valid service, and specifically waives any objections the party served may have
under any state or federal law or rule concerning service of process. Service of
process in accordance with this Section shall be in addition to and not to the
exclusion of any other service of process method legally available.
7.5 DESCRIPTIVE HEADINGS. All section headings, titles and subtitles are
inserted in this Agreement for the convenience of reference only, and are to be
ignored in any construction of this Agreement's provisions.
7.6 SEVERABILITY. If a court of competent jurisdiction rules that any one
or more of this Agreement's provisions are invalid, illegal or unenforceable in
any respect, such invalidity, illegality or unenforceability shall not affect
any of this Agreement's other provisions, and this Agreement shall be construed
as if it had never contained such invalid, illegal or unenforceable provision.
7.7 COUNTERPARTS. This Agreement may be executed in any number of
counterparts and each of such counterparts for all purposes shall constitute an
original.
7.8 COMPLETE UNDERSTANDING. This Agreement constitutes the complete
understanding among the parties with respect to the subject matter of this
Agreement. No alteration or modification of any of this Agreement's provisions
shall be valid unless made in writing and signed by all the parties to this
Agreement.
7.9 SURVIVAL. Notwithstanding anything herein to the contrary, the
provisions of Sections 2.4, 4.2, 4.6 and 5.2 shall survive termination of the
licenses granted herein.
7.10 NO AGENCY. Neither party shall be considered as, or hold itself out
to be, an agent of the other party or act for or bind the other party in any
dealing with a third party.
Annex II
Ex. 6.6 -- 8
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed and delivered as of the Effective Date.
LICENSEE:
IJI ACQUISITION CORP.,
an Illinois corporation
By: __________________________________
Its: _________________________________
LICENSOR:
INTERNATIONAL JENSEN INCORPORATED,
a Delaware corporation
By: __________________________________
Its: _________________________________
Annex II
Ex. 6.6 -- 9
<PAGE>
ANNEX II
EXHIBIT 6.7
NON-COMPETITION AGREEMENT
THIS NON-COMPETITION AGREEMENT (the "Agreement") is made as of , 1996
(the "Effective Date"), by and among IJI ACQUISITION CORP., an Illinois
corporation, the name of which is about to be changed to INTERNATIONAL JENSEN
INCORPORATED ("Purchaser"), INTERNATIONAL JENSEN INCORPORATED, a Delaware
corporation, the name of which is about to be changed to RECOTON AUDIO
CORPORATION after its acquisition by RC Acquisition Sub, Inc. ("Seller"),
RECOTON CORPORATION, a New York corporation ("Recoton"), RC ACQUISITION SUB,
INC., a Delaware corporation and wholly-owned subsidiary of Recoton
("Acquisition Sub"), and FUJI CONE, INC., a Delaware corporation and
wholly-owned subsidiary of Seller ("Fuji Cone") (Recoton, Acquisition Sub and
Fuji Cone together are the "Related Companies").
W I T N E S S E T H:
WHEREAS, Seller has agreed to sell to Purchaser and Purchaser has agreed to
purchase from Seller substantially all of the assets of Seller's original
equipment manufacturer's business (the "Purchased Assets"), on the terms and
conditions as set forth in the Amended and Restated Agreement for the Purchase
and Sale of Assets of International Jensen Incorporated, dated as of January 3,
1996, by and between Purchaser and Seller (the "Purchase Agreement");
WHEREAS, the original equipment manufacturer's business consists of the
business of designing, manufacturing and marketing of speakers and speaker
components and related products for and to domestic and international
automotive, truck, recreational vehicle, aircraft or other motorized vehicle
("Vehicular") original equipment manufacturers (the "OEM Business") (the term
"related products" shall include, without limitation, new products or extensions
of existing product lines which are complimentary to the OEM Business and not
competitive with the Branded Business (as defined below) as now conducted);
WHEREAS, Purchaser is not purchasing that portion of Seller's business which
consists of designing, manufacturing, and marketing of speakers and speaker
components and related branded products in the domestic and international
Vehicular aftermarket and home audio markets (the "Branded Business") (the term
"related branded products" shall include, without limitation, new products or
extensions of existing product lines which are complimentary to the Branded
Business and not competitive with the OEM Business as now conducted);
WHEREAS, the continued involvement by Seller in a business in competition
with Purchaser would diminish the value of the Purchased Assets;
WHEREAS, the involvement by Purchaser in a business in competition with
Seller would diminish the value of those assets retained and used by Seller with
respect to the Branded Business; and
WHEREAS, as an inducement to Purchaser to consummate its purchase of the OEM
Business, Seller is willing to not compete with Purchaser, or any of its
affiliates, with respect to the OEM Business, as more fully set forth herein,
and, as an inducement to Seller to consummate its sale of the OEM Business to
Purchaser, Purchaser is willing to not compete with Seller or any of its
affiliates with respect to the Branded Business, as more fully set forth herein.
Annex II
Ex. 6.7 -- 1
<PAGE>
NOW, THEREFORE, in consideration of the above premises, the consideration
under the Purchase Agreement and other good and valuable consideration, the
receipt and sufficiency of which is hereby acknowledged, the parties hereto
agree as follows:
1. RESTRICTIVE COVENANT BY SELLER AND RELATED COMPANIES. Except as
otherwise stated herein, for a period of time which is the lesser of (A) three
(3) consecutive years commencing as of the Effective Date, or (B) so long as a
change in control of Purchaser (within the meaning of Section 2.3 of the MS
Agreement), has not occurred, Seller and the Related Companies shall not:
(a) Directly or indirectly, either individually or as a principal,
partner, agent, employer, consultant, stockholder, joint venturer, or
investor, or in any other manner or capacity whatsoever, engage in, assist
or have any active interest in a business that engages in the OEM Business
as it exists on the Effective Date, located anywhere in the United States of
America or any foreign country in which Purchaser, Seller or any of the
Related Companies have conducted business within the past three (3) years.
Notwithstanding anything to the contrary contained herein, this Section
shall not preclude Seller or any of the Related Companies from owning less
than five percent (5%) of the outstanding securities of a corporation which
is publicly traded either on a securities exchange or over-the-counter and
which engages in a business or lines of business similar to the OEM
Business.
(b) Directly or indirectly, either individually or as a principal,
partner, agent, employer, consultant, stockholder, joint venturer, or
investor, or in any other manner or capacity whatsoever:
(i) divert or attempt to divert from Purchaser, or any of its
affiliates, any OEM Business with respect to any customer or account with
which Seller or any of the Related Companies had any contact or
association, or which was under the supervision of Seller or any of the
Related Companies or the identity of which was learned by Seller as a
result of Seller's ownership of the Purchased Assets, in each case within
three (3) years prior thereto; or
(ii) induce any employee, salesperson, distributor, supplier, vendor,
manufacturer, representative, agent, jobber or other person transacting
OEM Business with Purchaser or any of its affiliates, to terminate their
relationship or association with Purchaser, or any of its affiliates or
to represent, distribute or sell services or products in competition with
services or products relating to the OEM Business of Purchaser, or any of
its affiliates.
2. RESTRICTIVE COVENANT BY PURCHASER. Except as otherwise stated herein,
for a period of time which is the lesser of (A) three (3) consecutive years
commencing as of the Effective Date, or (B) so long as a change in control of
Purchaser (within the meaning of Section 2.3 of the MS Agreement), has not
occurred, Purchaser shall not:
(a) Directly or indirectly, either individually or as a principal,
partner, agent, employer, consultant, stockholder, joint venturer, or
investor, or in any other manner or capacity whatsoever, engage in, assist
or have any active interest in a business that engages in the Branded
Business or any business of Recoton or its affiliates as it exists on the
Effective Date, located anywhere in the United States of America or any
foreign country in which Purchaser, Seller or any of the Related Companies
have conducted business within the past three (3) years. Notwithstanding
anything to the contrary contained herein, this Section shall not preclude
Purchaser from owning not more than five percent (5%) of the outstanding
securities of a corporation which is publicly traded either on a securities
exchange or over-the-counter and which engages in a business or lines of
business similar to the Branded Business.
Annex II
Ex. 6.7 -- 2
<PAGE>
(b) Directly or indirectly, either individually or as a principal,
partner, agent, employer, consultant, stockholder, joint venturer, or
investor, or in any other manner or capacity whatsoever:
(i) divert or attempt to divert from Seller or any of the Related
Companies or any of their affiliates any Branded Business with respect to
any customer or account with which Seller or any of the Related Companies
had any contact or association, or which was under the supervision of
Seller or any of the Related Companies, in each case within three (3)
years prior thereto; or
(ii) induce any employee, salesperson, distributor, supplier, vendor,
manufacturer, representative, agent, jobber or other person transacting
business relating to the Branded Business with Seller, any of the Related
Companies, or any of their affiliates, to terminate their relationship or
association with Seller, any of the Related Companies, or any of their
affiliates, or to represent, distribute or sell services or products in
competition with services or products relating to the Branded Business of
Seller, any of the Related Companies, or any of their affiliates.
3. NON-DISCLOSURE BY SELLER. Seller and the Related Companies shall not at
any time or in any manner, directly or indirectly use or disclose to any party,
other than Purchaser, any OEM Business Confidential Information (as that term is
defined below). "OEM Business Confidential Information" means trade secrets or
other information known, learned or obtained by Seller and/or the Related
Companies or disclosed to Seller and/or the Related Companies as a consequence
of Seller's ownership of the OEM Business or otherwise, and which is not
generally known in the industry, and that relates solely to the OEM Business or
its products, processes, services, inventions (whether patentable or not),
formulas, techniques or know-how, including, but not limited to, information
relating to distribution systems and methods, research, development,
manufacturing, purchasing, accounting, engineering, marketing, merchandising and
selling.
4. NON-DISCLOSURE BY PURCHASER. Purchaser shall not at any time or in any
manner, directly or indirectly use or disclose to any party, other than Seller
and/or the Related Companies, any Branded Business Confidential Information (as
that term is defined below). "Branded Business Confidential Information" means
trade secrets or other information known, learned, or obtained by Purchaser or
disclosed to Purchaser as a consequence of its purchase of the OEM Business or
otherwise, and which is not generally known in the industry and which relates
solely to the Branded Business or its products, processes, services, inventions
(whether patentable or not), formulas, techniques or know-how, including, but
not limited to, information relating to distribution systems and methods,
research, development, manufacturing, purchasing, accounting, engineering,
marketing, merchandising and selling.
5. EXCEPTION TO NON-DISCLOSURE. The parties acknowledge the existence of a
certain Management Services Agreement dated as of , 1996 between
Purchaser and Seller (the "MS Agreement") and the Supply and Services Agreement
dated as of , 1996 between Purchaser and Seller (the "Supply Agreement")
and recognize that the non-disclosure provisions as set forth in Sections 3 and
4 of this Agreement will not apply to information properly transmitted to either
party pursuant to the MS Agreement and the Supply Agreement.
6. EXCLUSIONS TO AGREEMENT. Notwithstanding anything to the contrary
contained herein, the following activities shall be excluded from the scope of
this Agreement and shall not constitute a violation of this Agreement:
(a) Selling by Seller and/or the Related Companies of antennas and
airplane headsets and selling by Seller and/or the Related Companies of
12-Volt products to Vehicular customers for aftermarket applications;
Annex II
Ex. 6.7 -- 3
<PAGE>
(b) Designing, manufacturing, marketing and selling of "non-branded
speakers" and speaker components and related products by Purchaser to any
original equipment manufacturer customer, whether or not such customer
competes with the Seller or any of the Related Companies. For purposes of
this Agreement "non-branded speakers" shall mean any speakers to be sold
under the trademark of an original equipment manufacturer or without any
trademark;
(c) Selling by Purchaser of assembled speakers to other speaker
companies for Vehicular installation;
(d) Selling of licensed trademarked speakers by Purchaser to Vehicular
original equipment manufacturers as permitted under the License Agreement,
dated , 1996 by and between Purchaser and Seller; and
(e) Purchaser inducing or causing any MSP, as that term is defined in
the MS Agreement, to leave the employ of Seller or any Related Company
within the period during of the term of employment of Robert G. Shaw by
Seller or any Related Company and ending six months thereafter on condition
that Purchaser shall assume all obligations to such employee (other than
Robert G. Shaw) under any then-existing employment or severance agreements
and shall indemnify and hold the prior employer harmless from any liability
under any such agreements. Notwithstanding the foregoing, if the MSP is
terminated (actually or constructively) by Seller or any Related Company,
Purchaser may employ such MSP and shall not be required to assume the
obligations to such MSP under any employment agreement or severance
agreement and shall not indemnify the Seller or any Related Company.
7. REMEDIES.
(a) The parties to this Agreement acknowledge that this Agreement is
intended to protect and preserve legitimate business interests of Seller, the
Related Companies and Purchaser. Each of Seller, the Related Companies and
Purchaser acknowledge that any violation of the provisions of this Agreement by
the other may cause serious and irreparable damage to the non-breaching party,
and further acknowledge that it might not be possible to measure such damages in
money in such event. Accordingly, the parties agree that, in the event of a
violation of the provisions of this Agreement, the non-breaching party may seek,
in addition to any other rights or remedies, including money damages, an
injunction or restraining order restraining the breaching party from doing or
continuing to do or performing any acts constituting such a violation.
(b) The parties' remedies under this Agreement shall be cumulative and not
exclusive and the recovery of money damages hereunder or under any other
agreement to which Seller and Purchaser are a party shall not preclude the
non-breaching party from pursuing temporary or permanent injunctive relief as
otherwise provided herein.
8. NOTICE. Any notice, request, consent or communication (collectively
"Notice") sent under this Agreement shall be effective only if it is in writing
and (a) personally delivered, (b) sent by
Annex II
Ex. 6.7 -- 4
<PAGE>
certified or registered mail, return receipt requested, postage prepaid, (c)
sent by a nationally recognized overnight delivery service, with delivery
confirmed addressed as follows, or (d) telexed or telecopied with receipt
confirmed, addressed as follows:
<TABLE>
<S> <C>
If to Seller and the International Jensen Incorporated/Recoton Audio Corporation
Related Companies: 25 Tri-State International Office Center
Suite 400
Lincolnshire, Illinois 60069
Attention: Mr. Marc T. Tanenberg
Telecopier: (847) 317-3855
Telephone: (847) 317-3700
AND
Recoton Corporation
2950 Lake Emma Road
Lake Mary, Florida 32746
Attention: Mr. Stuart Mont
Telecopier: (407) 333-8903
Telephone: (407) 333-8900
with a copy to: Stroock & Stroock & Lavan
Seven Hanover Square
New York, New York 10004
Attention: Theodore S. Lynn, Esq.
Telecopier: (212) 806-6006
Telephone: (212) 806-5400
If to Purchaser: IJI Acquisition Corp./International Jensen Incorporated
25 Tri-State International Office Center
Suite 400
Lincolnshire, Illinois 60069
Attention: Mr. Robert G. Shaw
Telecopier: (847) 317-3774
Telephone: (847) 317-3777
with a copy to: Wildman, Harrold, Allen & Dixon
225 West Wacker Drive
Chicago, Illinois 60606-1229
Attention: Richard B. Thies, Esq.
Telecopier: (312) 201-2555
Telephone: (312) 201-2521
</TABLE>
or such other persons or addresses as shall be furnished in writing by any party
to the other party. A Notice shall be deemed to have been given as of the date
(i) when personally delivered, (ii) five (5) days after the date when deposited
with the United States mail properly addressed, (iii) when receipt of a Notice
sent by an overnight delivery service is confirmed by such overnight delivery
service, or (iv) when receipt of the telex or telecopy is confirmed, as the case
may be, unless the sending party has actual knowledge that a Notice was not
received by the intended recipient.
9. COMPLETE UNDERSTANDING. This Agreement constitutes the complete
understanding among the parties. No alteration or modification of any of this
Agreement's provisions shall be valid unless made in writing and signed by all
the parties to this Agreement.
10. APPLICABLE LAW. The laws of the State of Illinois shall govern all
aspects of this Agreement, irrespective of the fact that one or more of the
parties now is or may become a resident of a different
Annex II
Ex. 6.7 -- 5
<PAGE>
state, or that one or more of the parties now or hereafter locates its principal
office outside the State of Illinois. The parties shall submit all disputes
which arise under this Agreement to state or federal courts located in the City
of Chicago, Illinois for resolution. The parties acknowledge the aforesaid
courts shall have exclusive jurisdiction over this Agreement and specifically
waive any claims which they may have that involve jurisdiction or venue,
including but not limited to forum non conveniens. Service of process for any
claim which arises under this Agreement shall be valid if made in accordance
with the notice provisions set forth in Section 8 of this Agreement. If service
of process is made as aforesaid, the party served agrees that such service shall
constitute valid service, and specifically waives any objections the party
served may have under any state or federal law or rule concerning service of
process. Service of process in accordance with this Section shall be in addition
to and not to the exclusion of any other service of process method legally
available.
11. DESCRIPTIVE HEADINGS. All section headings, titles and subtitles are
inserted in this Agreement for the convenience of reference only, and are to be
ignored in any construction of this Agreement's provisions.
12. SEVERABILITY. If a court of competent jurisdiction rules that any one
or more of this Agreement's provisions are invalid, illegal or unenforceable in
any respect, such invalidity, illegality or unenforceability shall not affect
any of this Agreement's other provisions, and this Agreement shall be construed
as if it had never contained such invalid, illegal or unenforceable provision.
13. COUNTERPARTS. This Agreement may be executed in any number of
counterparts and each of such counterparts for all purposes shall constitute an
original.
14. WAIVER. The failure of either of the parties to insist, in any one or
more instances, upon performance of any of the terms or conditions of this
Agreement, shall not be construed as a waiver or relinquishment of any rights
granted hereunder or the future performance of any such term, covenant or
condition.
Annex II
Ex. 6.7 -- 6
<PAGE>
IN WITNESS WHEREOF, the parties have made and entered into this Agreement as
of the Effective Date.
INTERNATIONAL JENSEN INCORPORATED,
a Delaware corporation
By: __________________________________
Its: _________________________________
IJI ACQUISITION CORP., an Illinois
corporation
By: __________________________________
Its: _________________________________
RECOTON CORPORATION, a New York
corporation
By: __________________________________
Its: _________________________________
RC ACQUISITION SUB, INC., a Delaware
corporation
By: __________________________________
Its: _________________________________
FUJI CONE, INC., a Delaware
corporation
By: __________________________________
Its: _________________________________
Annex II
Ex. 6.7 -- 7
<PAGE>
ANNEX II
EXHIBIT 6.8
LICENSE AGREEMENT
THIS LICENSE AGREEMENT (the "Agreement") is made as of , 1996 (the
"Effective Date"), by and between INTERNATIONAL JENSEN INCORPORATED, a Delaware
corporation the name of which is about to be changed to RECOTON AUDIO
CORPORATION ("Licensor"), and IJI ACQUISITION CORP., an Illinois corporation the
name of which is about to be changed to INTERNATIONAL JENSEN INCORPORATED
("Licensee").
W I T N E S S E T H:
WHEREAS, Licensor has been engaged in the business of, inter alia,
designing, manufacturing and marketing speakers and speaker components and
related products, including, without limitation, new products or extensions of
existing product lines which are complimentary to the OEM Business as defined
below (collectively hereinafter "Speaker Equipment") for and to domestic and
international automotive, truck, recreational vehicle, aircraft or other
motorized vehicle ("Vehicular") original equipment manufacturers (the "OEM
Business");
WHEREAS, Licensor has used various trademarks in connection with the OEM
Business and its other businesses, including, but not limited to, the trademarks
identified in Schedule 1 of this Agreement (the "Trademarks") which are
registered in the countries noted in Schedule 1;
WHEREAS, Licensor has sold the OEM Business to Licensee pursuant to the
terms and conditions of that certain Amended and Restated Agreement for Purchase
and Sale of Assets by and between Licensor and Licensee, dated as of January 3,
1996; and
WHEREAS, Licensee desires to utilize the Trademarks in the conduct of the
OEM Business.
NOW, THEREFORE, in consideration of the mutual promises contained herein,
and for other good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, Licensor and Licensee agree as follows:
1. GRANT OF LICENSE. Licensor hereby grants to Licensee, and Licensee
hereby accepts, upon the terms and conditions set forth in this Agreement, the
exclusive right (the "License") to use the Trademarks in the countries where
Licensor has registered rights for the Trademarks (and in those countries where
Licensor subsequently acquires registered rights for the Trademarks) for Speaker
Equipment sold to Vehicular original equipment manufacturers through the OEM
Business ("OEM Speaker Equipment").
2. TERM OF LICENSE. Subject to the terms of Paragraph 5 hereof, the term
of the License is ten (10) years from the Effective Date (the "Original Term").
Upon written notice to Licensor given no earlier than one hundred eighty (180)
days or no later than thirty (30) days before the then-scheduled expiration of
the term, Licensee, in its sole discretion may elect to renew this Agreement for
two (2) additional five (5) year terms (the "Renewal Terms") (the Original Term
and the Renewal Terms, if applicable, hereinafter collectively are referred to
as the "Term") if Licensee is in compliance with the terms of this Agreement at
the time of such notice. Any written notice to renew the Term of the License
shall be made not less than thirty (30) days prior to the end of the Original
Term or the first Renewal Term, as the case may be.
3. ROYALTY.
(a) Licensee shall pay to Licensor during the Term the following
royalties (collectively hereinafter referred to as the "Royalty" or the
"Royalties"):
Annex II
Ex. 6.8 -- 1
<PAGE>
(i) with respect to OEM Speaker Equipment utilizing the mark "Jensen"
or any derivative of "Jensen," a royalty to be agreed upon by the parties
which shall be no less than one percent (1%) and no more than two percent
(2%) of Net Revenues (as defined below); and
(ii) with respect to OEM Speaker Equipment utilizing any Trademark
other than "Jensen" or any derivative of "Jensen," the royalty shall be
five percent (5%) of Net Revenues.
OEM Speaker Equipment sold in connection with the use of any of the
Trademarks is hereinafter referred to as "Licensed Products."
(b) Such Royalty shall accrue when the Licensed Products are shipped by
Licensee or a wholly-owned subsidiary of Licensee to a party not wholly
owned by Licensee (a "Third Party"). If a Third Party is owned in part by
Licensee or an affiliate of Licensee, a further Royalty shall be due
(against which any prior Royalty may be credited) upon any further sale of a
Licensed Product by such Third Party.
(c) As used herein, the term "Net Revenues" shall mean gross sales to
Third Parties, less returns actually credited.
4. SUBLICENSE. Licensee may sublicense, subject to the terms of this
Agreement (including without limitation the right of Licensor to audit the books
of the sublicensee), any rights (other than the right to sublicense) granted to
it under this Agreement to any domestic or international Vehicular original
equipment manufacturer for the term of the license hereunder. Any royalties
derived from any such sublicense shall be divided equally between Licensor and
Licensee.
5. CHANGE IN CONTROL. Upon a "Change of Control of Licensee" (as defined
below), the terms and conditions governing the License granted to Licensee
hereunder shall change, as follows:
a. There shall be a minimum annual royalty for each trademark of One
Hundred Thousand Dollars ($100,000) commencing two (2) years after the
Change of Control (prior to the end of the two (2) year period, as described
herein and by written notice to Licensor, the successor licensee may elect
not to retain its License for any one or more Trademark or Trademarks);
b. No sublicenses shall be granted after the Change of Control of
Licensee other than with Licensor's prior written approval and the royalties
on such sublicenses shall be divided seventy percent (70%) to Licensor and
thirty percent (30%) to the Licensee;
c. The successor licensee may renew the Term of this Agreement for a
period of up to ten (10) years, which when added to the expired portion of
the Term does not exceed twenty (20) years; and
d. Royalties on the mark "Jensen" shall immediately increase to three
percent (3%).
A "Change of Control of Licensee" shall have occurred if Robert G. Shaw
("Shaw") shall not: (i) be a member of the Board of Directors of Licensee; (ii)
be either an executive officer or chairman of the Board of Licensee; and (iii)
own beneficially more shares of the voting stock of Licensee than any other
stockholder of Licensee (or "group" of stockholders, as referred to in Section
13(d)(3) of the Securities Exchange Act of 1934, as amended) but in any event
more than thirty percent (30%) of the outstanding voting stock; PROVIDED,
HOWEVER, that the death or permanent disability of Shaw shall not be considered
a "Change of Control of Licensee" so long as Shaw's estate or heirs, or any
trust for the benefit solely of the heirs of Shaw, collectively, meet the test
set forth above in clause (iii). For purposes of this Agreement, a person shall
be deemed to own beneficially any shares of Licensee which are owned by himself,
his spouse, any descendant of his, or any trust, partnership, corporation, joint
venture, or limited liability company which has been created primarily for his
benefit and/or for the benefit of his spouse or any descendant of such person.
6. ACCOUNTING.
Annex II
Ex. 6.8 -- 2
<PAGE>
(a) Licensee shall deliver to Licensor on the fifteenth (15th) day
following the end of each calendar year quarter, and on the thirtieth (30th)
day of the month following termination or expiration of this Agreement, a
complete and accurate statement (a "Royalty Statement") of sales of Licensed
Products (including sales by any sublicensee), for the immediately preceding
calendar year quarter or portion thereof by Licensee and its affiliates
thereof ("Royalty Period"). Each Royalty Statement shall be certified as
accurate by an officer of Licensee and shall include a computation of Gross
Revenues and Royalty due. A Royalty Statement shall be furnished to Licensor
with respect to each Royalty Period whether or not any Licensed Products
have been shipped, distributed or sold, and whether or not Royalties have
been earned during such Royalty Period.
(b) The amount shown in the Royalty Statements as being due Licensor,
unless otherwise directed in writing by Licensor, shall be paid by wire
transfer to an account designated in writing by Licensor on the dates
provided herein for submission of such statements and Licensee shall
transmit by facsimile to Licensor on such payment date a copy of the
applicable Royalty Statement.
7. BOOKS AND RECORDS.
(a) Licensee shall keep accurate books of account and records at its
principal place of business, or such other reasonable locations at it may
designate in writing to Licensor, covering all transactions relating to the
License. Licensor and its duly authorized representatives shall have the
right, upon two (2) business days written notice, during normal business
hours, to audit the books of account and records of Licensee and its
sublicensees, and to make copies and extracts thereof. If any underpayment
is in excess of five percent (5%) and Ten Thousand Dollars ($10,000), the
cost of any such audit shall be borne by Licensee.
(b) All books of account and records of Licensee concerning transactions
relating to the License granted herein shall be retained by Licensee for at
least five (5) years after the end of the year in which such transaction
occurs for possible inspection by Licensor in accordance with the terms
hereof.
Licensor shall not at any time or in any manner, directly or indirectly use
or disclose to any party other than Licensee, Books and Records Confidential
Information (as that term is defined below). "Books and Records Confidential
Information" means trade secrets or other information known, learned or obtained
by Licensor or disclosed to Licensor as a consequence of the inspection rights
as provided under this Section, which is not generally known in the industry.
8. OWNERSHIP OF TRADEMARKS. Licensee confirms and acknowledges, and each
sublicensee shall confirm and acknowledge, Licensor's exclusive ownership of
each of the Trademarks, and agrees, and each sublicensee shall agree, that at no
time will it take any actions which challenge, contest or otherwise dispute
Licensor's ownership, use, or registration of any of the Trademarks, and/or the
validity and/or enforceability thereof. Neither Licensee nor any sublicensee
shall seek to register, use, license, cancel or otherwise seek trademark
protection for any Trademarks in any jurisdiction where such marks are not
registered or otherwise protected by Licensor.
9. AGREEMENT TO ASSIGN. All use by Licensee and any sublicensee of any of
the Trademarks will inure to Licensor's benefit. If Licensee or any sublicensee
should acquire any rights in any of the Licensor Trademarks other than as a
result of the grant of rights made in this Agreement, upon thirty (30) days
written notice and at Licensor's expense, Licensee or such sublicensee shall
assign all such rights to Licensor.
10. ADDITIONAL AGREEMENT. Licensee will, at Licensor's expense, execute
and deliver such documents as Licensor reasonably deems necessary for Licensor
to register, and/or to protect Licensor's rights in, each of the Trademarks,
including, without limitation, any separate licenses for foreign Trademarks.
Annex II
Ex. 6.8 -- 3
<PAGE>
11. COOPERATION TO PROTECT RIGHT. Licensee and any sublicensee will inform
Licensor of any uses of any of the Trademarks by third parties which become
known to it. Licensor shall have no obligation to take any action against any
such infringement. Licensee and any sublicensee will take no action against such
third-party use, unless Licensor, within thirty (30) days of receiving notice of
such third party use from Licensee or such sublicensee, fails to file a civil
action against such use or to take other action which is intended to cause such
use to cease. If Licensor takes action respecting such use, it will be at
Licensor's cost and expense, and Licensor will be entitled to all monetary
awards granted therein, other than awards of damages based upon lost sales of
Licensee. If Licensee or a sublicensee brings an action against such third party
use, it will be at Licensee's or such sublicensee's cost and expense (including
attorneys' fees), and Licensee or such sublicensee will be entitled to all
monetary awards granted therein. Each party hereto, at the other's request and
expense, shall provide all reasonable cooperation, including execution of all
reasonably necessary documents, with respect to the other's efforts to protect
the Trademarks.
12. TERMINATION.
(a) Except as otherwise provided herein, the License may be terminated
by Licensor for a breach of any material term of this Agreement by Licensee,
provided that Licensor first gives Licensee written notice of such breach
and such breach is not cured within forty-five (45) days of delivery of such
written notice with respect to domestic trademarks and ninety (90) days of
delivery of such written notice with respect to foreign trademarks.
(b) The License may be terminated by Licensee upon ninety (90) days
written notice.
13. RIGHTS FOLLOWING TERMINATION. Upon the expiration or termination of
the License for any reason, Licensee will discontinue permanently all use of any
of the Trademarks, or any trademark confusingly similar thereto, provided,
however, that Licensee shall have the right to continue to sell Licensed
Products for the longer of (i) one hundred and eighty (180) days to exhaust its
existing inventory of Licensed Products, or (ii) such time as is reasonably
necessary to fill product orders or complete product programs in effect as of
the effective date of expiration or termination of this Agreement, on condition
that all obligations of Licensee with respect thereto, including, without
limitation, the obligation to pay Royalties, shall continue.
14. QUALITY. All Licensed Products and any products sold by any
sublicensee bearing any of the Trademarks shall be of a quality at least equal
to OEM Speaker Equipment sold by Licensor immediately prior to the date of this
Agreement and shall comply in all respects with all applicable federal, state
and local rules, regulations and other laws.
15. CLAIMS AND INDEMNIFICATION.
(a) Except to the extent that such claims fall within the scope of
subsection (b) of this section, Licensee shall indemnify and defend and hold
Licensor harmless, during the term of this Agreement and at any time
thereafter, from any and all claims, causes of action, costs, expenses,
fines, penalties, liabilities (including statutory and other liability under
worker's compensation and other employer's liability laws), damages, suits
or judgments, including costs of investigation, court costs and reasonable
attorney's fees (hereinafter collectively "Claims"), arising directly or
indirectly from, as a result of, or in connection with the manufacture,
marketing, advertising, distributing or sale of Licensed Products, and
Licensor will have no obligation or liability in connection therewith or
arising from such Claims. Licensee will, within ten (10) days of notice of
any such action in which Licensor is named, notify Licensor in writing
thereof.
(b) Licensor shall indemnify and defend and hold Licensee harmless,
during the term of this Agreement and at any time thereafter, from Claims
made by third parties against Licensee or Licensor for trademark
infringement or the like respecting any of the (i) U.S. Trademarks and (ii)
any foreign Trademarks obtained after the date of this Agreement and
Licensee will have no
Annex II
Ex. 6.8 -- 4
<PAGE>
obligation or liability in connection therewith or arising from such claims.
Licensor will, within ten (10) days of notice of any such action in which
Licensee is named, notify Licensee in writing thereof.
16. NO AGENCY. Neither party will be considered as, or hold itself out to
be, an agent of the other party, or act for or bind the other party in any
dealing with a third party.
17. NOTICES. Any notice, request, consent or communication (collectively
"Notice") sent under this Agreement shall be effective only if it is in writing
and (a) personally delivered, (b) sent by certified or registered mail, return
receipt requested, postage prepaid, or (c) sent by a nationally recognized
overnight delivery service, with delivery confirmed addressed as follows, or (d)
telexed or telecopied, with receipt confirmed, addressed as follows:
<TABLE>
<S> <C>
If to International Jensen Incorporated/Recoton Audio Corporation
Licensor: 25 Tri-State International Office Center
Suite 400
Lincolnshire, Illinois 60069
Attention: Mr. Marc T. Tanenberg
Telecopier: (847) 317-3855
Telephone: (847) 317-3700
AND
Recoton Corporation
2950 Lake Emma Road
Lake Mary, Florida 32746
Attention: Mr. Stuart Mont
Telecopier: (407) 333-8903
Telephone: (407) 333-8900
with a copy Stroock & Stroock & Lavan
to: Seven Hanover Square
New York, New York 10004
Attention: Theodore S. Lynn, Esq.
Telecopier: (212) 806-6006
Telephone: (212) 806-5400
If to Jensen Acquisition Corp./International Jensen Incorporated
Licensor: 25 Tri-State International Office Center
Suite 400
Lincolnshire, Illinois 60069
Attention: Mr. Robert G. Shaw
Telecopier: (847) 317-3774
Telephone: (847) 317-3777
with a copy Wildman, Harrold, Allen & Dixon
to: 225 West Wacker Drive
Chicago, Illinois 60606-1229
Attention: Richard B. Thies, Esq.
Telecopier: (312) 201-2555
Telephone: (312) 201-2521
</TABLE>
or such other persons or addresses as shall be furnished in writing by any party
to the other party. A Notice shall be deemed to have been given as of the date
(i) when personally delivered, (ii) five (5) days after the date when deposited
with the United States mail properly addressed, (iii) when receipt of a
Annex II
Ex. 6.8 -- 5
<PAGE>
Notice sent by an overnight delivery service is confirmed by such overnight
delivery service, or (iv) when receipt of the telex or telecopy is confirmed, as
the case may be, unless the sending party has actual knowledge that a Notice was
not received by the intended recipient.
18. WAIVER. The failure of either of the parties to insist, in any one or
more instances, upon performance of any of the terms or conditions of this
Agreement, shall not be construed as a waiver or relinquishment of any rights
granted hereunder or the future performance of any such term, covenant or
condition.
19. COMPLETE UNDERSTANDING. This Agreement constitutes the complete
understanding among the parties. No alteration or modification of any of this
Agreement's provisions shall be valid unless made in writing and signed by all
the parties to this Agreement.
20. APPLICABLE LAW. The laws of the State of Illinois shall govern all
aspects of this Agreement, irrespective of the fact that one or more of the
parties now is or may become a resident of a different state, or that the one or
more of the parties now or hereafter locates its principal office outside the
State of Illinois. The parties shall submit all disputes which arise under this
Agreement to state or federal courts located in the City of Chicago, Illinois
for resolution. The parties acknowledge the aforesaid courts shall have
exclusive jurisdiction over this Agreement and specifically waive any claims
which they may have that involve jurisdiction or venue, including but not
limited to forum non conveniens. Service of process for any claim which arises
under this Agreement shall be valid if made in accordance with the notice
provisions set forth in Section 17 of this Agreement. If service of process is
made as aforesaid, the party served agrees that such service shall constitute
valid service, and specifically waives any objections the party served may have
under any state or federal law or rule concerning service of process. Service of
process in accordance with this Section shall be in addition to and not to the
exclusion of any other service of process method legally available. In the event
of litigation hereunder, the court shall be authorized to award the prevailing
party in such action or proceeding any or all reasonable attorney fees and
disbursements paid by it in pursuing or defending such action.
21. DESCRIPTIVE HEADINGS. All section headings, titles and subtitles are
inserted in this Agreement for the convenience of reference only, and are to be
ignored in any construction of this Agreement's provisions.
22. SEVERABILITY. If a court of competent jurisdiction rules that any one
or more of this Agreement's provisions are invalid, illegal or unenforceable in
any respect, such invalidity, illegality or unenforceability shall not affect
any of this Agreement's other provisions, and this Agreement shall be construed
as if it had never contained such invalid, illegal or unenforceable provision.
23. SUCCESSORS AND ASSIGNS AND THIRD PARTY BENEFICIARIES. This Agreement
may not be assigned without the prior written consent of all parties hereto.
This Agreement shall inure to the benefit of and be binding upon the parties
hereto and their respective successors and permitted assigns. Nothing in this
Agreement, expressed or implied, is intended to confer on any person other than
the parties hereto or their respective successors and permitted assigns, any
rights, remedies, obligations or liabilities under or by reason of this
Agreement.
Annex II
Ex. 6.8 -- 6
<PAGE>
24. COUNTERPARTS. This Agreement may be executed in any number of
counterparts and each of such counterparts for all purposes shall constitute an
original.
IN WITNESS WHEREOF, the parties have made and entered into this Agreement as
of the Effective Date.
INTERNATIONAL JENSEN INCORPORATED
By: __________________________________
Title: _______________________________
IJI ACQUISITION CORP.
By: __________________________________
Title: _______________________________
Annex II
Ex. 6.8 -- 7
<PAGE>
ANNEX II
EXHIBIT 7.10
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT is entered into as of the 1st day of May, 1996
(the "Commencement Date"), between RC Acquisition Sub, Inc., a Delaware
corporation to be renamed Recoton Audio Corporation (the "Corporation"), Robert
Shaw (the "Employee"), International Jensen Incorporated, a Delaware corporation
("Jensen") and Recoton Corporation, a New York corporation ("Recoton").
W I T N E S S E T H:
WHEREAS, the Employee is currently employed by Jensen as its President and
Chief Executive Officer;
WHEREAS, the Corporation, Recoton and Jensen have entered into a Second
Amended and Restated Agreement and Plan of Merger dated as of January 3, 1996
(the "Merger Agreement"), pursuant to which Jensen will merge with and into the
Corporation;
WHEREAS, the Corporation and the Employee desire to enter into an agreement
pursuant to which the Employee is employed by the Corporation effective as of
the filing date of the Merger Agreement with the Delaware Secretary of State's
office (the "Effective Time");
WHEREAS, in consideration for this Agreement, the Employee has agreed to
release Jensen and the Corporation from any and all compensation, benefits and
fees, payable or owing under the Employment Agreement dated December 19, 1991,
but effective as of January 1, 1992, by and between Jensen and the Employee (the
"1991 Employment Agreement") as of the Effective Time;
WHEREAS, Jensen, the Corporation and Recoton have agreed to release Employee
from any duties or obligations and any claims arising under the 1991 Employment
Agreement as of the Effective Time;
WHEREAS, the Employee also may serve as President, or in another executive
capacity, of IJI Acquisition Corporation, an Illinois Corporation ("IJI
Acquisition"); and
WHEREAS, the Corporation and the Employee desire to assure the service of
the Employee to the Corporation as of the Effective Time.
NOW, THEREFORE, in consideration of the premises and the mutual covenants,
representations, warranties and conditions herein contained, the parties hereto
agree as follows:
1. EFFECT OF THIS AGREEMENT ON THE 1991 EMPLOYMENT AGREEMENT. As of the
Effective Time, the 1991 Employment Agreement shall automatically terminate. By
executing this Agreement, the Employee, on behalf of himself, his heirs,
executors, administrators and assigns, or anyone else acting on his behalf,
hereby unconditionally and irrevocably releases Jensen, the Corporation, and its
successors and assigns, subsidiaries, affiliates, directors, officers, agents
and employees, in both their individual and representative capacities, from any
obligations under the 1991 Employment Agreement, and unconditionally and
irrevocably waives any compensation, benefits, termination payments, or other
payments provided for in the 1991 Employment Agreement, as of the Effective
Time. By executing this Agreement, Jensen, Recoton and the Corporation, jointly
and severally, and on behalf of their respective successors and assigns,
subsidiaries affiliates, directors, officers, agents and employees, in their
representative capacities, hereby unconditionally and irrevocably release
Employee from any obligations or duties arising under the 1991 Employment
Agreement and any claims arising thereunder, as of the Effective Time. This
Agreement shall terminate AB INITIO if the Merger Agreement is terminated and
the 1991 Employment Agreement shall remain in full force and effect.
Annex II
Ex. 7.10 -- 1
<PAGE>
2. EMPLOYMENT AND DUTIES.
(a) The Corporation shall employ the Employee, and the Employee shall
accept employment, effective as of the Effective Time for the period of time
set forth in Section 3(a), upon such terms and conditions as set forth in
this Agreement. The Employee shall serve the Corporation as President and as
Chief Executive Officer subject to the conditions set forth in this
Agreement, under the direction of the Board of Directors of the Corporation,
and shall exercise such responsibilities and perform such duties for the
Corporation as the Board of Directors shall from time to time reasonably
designate and which are commensurate with the typical duties of a President
or Chief Executive Officer of a wholly-owned subsidiary of a public company
in the business in which the Corporation is engaged. The Employee also shall
be elected to the Board of Directors of Recoton and the Board of Directors
of the Corporation as of the Effective Date and shall serve as an executive
officer of Recoton (in which capacity he shall exercise such
responsibilities and perform such duties for Recoton as the
President/Co-Chief Executive Officer and the Chief Operating Officer shall
from time to time designate commensurate with the Employee's position as the
President and Chief Executive Officer of a significant subsidiary. As set
forth following this Agreement, Robert L. Borchardt ("Borchardt"), the
President and Co-Chief Executive Officer of Recoton, has agreed to vote the
common shares of Recoton, which he beneficially owns or as to which he has
discretionary voting authority in favor of the election and reelection of
the Employee to serve as a director of Recoton for so long as the Employee
is employed by Recoton or the Corporation or any affiliate thereof whether
during or after the termination of this Agreement. Recoton shall vote the
common shares of the Corporation in favor of the election and reelection of
the Employee to serve as a director of the Corporation, for so long as the
Employee is employed by the Corporation or any affiliate thereof whether
during or after the termination of this Agreement. For purposes of the
foregoing, Borchardt shall be deemed to own beneficially any common shares
of Recoton which are owned by himself, his spouse, any descendant of his,
any trust, partnership, corporation, joint venture, and limited liability
company which has been created primarily for his benefit or the benefit of
his spouse or any descendant of Borchardt, or over which he has
discretionary voting authority. At such time as the Employee ceases to be
employed by the Corporation, the Employee shall resign as a director of the
Corporation and Recoton.
(b) The Employee shall report to the President/Co-Chief Executive
Officer, or to the President/Co-Chief Executive Officer and the Chief
Operating Officer of Recoton, together, as an officer of Recoton and to the
Board of Directors of the Corporation as the President or as an executive
officer of the Corporation. With the exception of that business time which
will be devoted to the performance of the Employee's responsibilities to IJI
Acquisition pursuant to an agreement to be entered into between Recoton,
Jensen and IJI Acquisition captioned Management Services Agreement (the "MS
Agreement"), the form of which is attached to the Third Amended and Restated
Agreement for Purchase and Sale of the Assets of International Jensen
Incorporation by and between Jensen and IJI Acquisition dated as of January
3, 1996 (the "Purchase Agreement") and such other business time as is
devoted to other responsibilities as set forth herein, the Employee shall
devote all of his business time and attention to the performance of his
duties under this Agreement and to promoting the best interests of the
Corporation and Recoton and the Employee shall not, either during or outside
of such normal business hours, directly or indirectly engage in any activity
inimical to such best interests. The Employee shall not perform services for
compensation and/or bonuses for himself or for any entity or person other
than the Corporation, or Recoton, without the prior express written
permission of Recoton's Board of Directors. Notwithstanding anything to the
contrary contained herein, it shall not be a violation of this Agreement for
the Employee to (i) serve on civic or charitable boards; (ii) participate in
professional activities and organizations; (iii) manage his personal
investments and his real estate development concerns at a level of activity
currently so engaged so long as those activities do not interfere with the
Employee's performance of his responsibilities under this Agreement; and
(iv) be an officer of or serve on the Board of Directors and be an employee
of
Annex II
Ex. 7.10 -- 2
<PAGE>
IJI Acquisition and receive compensation in connection therewith, so long as
those activities do not interfere with the Employee's performance of his
responsibilities under this Agreement. The Employee shall exert his best
efforts in the performance of his duties under this Agreement.
(c) The Employee and the Corporation acknowledge that there may be
situations which arise, in light of the Employee being an officer, director,
stockholder and/or employee of IJI Acquisition and an officer, director
and/or employee of Recoton or the Corporation, which would constitute, or
give rise to the possibility of, a conflict of interest or the appearance of
a conflict of interest. The Employee agrees that he shall refrain from
taking action which would constitute a violation of his fiduciary duties to
Recoton or the Corporation. To the extent that he is aware of any conflicts
(or potential conflicts) of interest, he shall promptly so advise the
Corporation and Recoton. Recoton and the Corporation may take such
reasonable efforts as they deem appropriate (including without limitation
the establishment of a "Chinese Wall" between the Employee and other
employees of Recoton and the Corporation working on, or with knowledge of,
the matter or matters in conflict or potential or possible conflict (the
"Conflicting Matters") and the reasonable exclusion of the Employee from
those portions of meetings which are relevant and from having access to
those portions of the files, documents, data bases and communications
regarding or relating to the Conflicting Matters) in order to reasonably
insulate the Employee from any such Conflicting Matters). The purpose of
this paragraph is to protect the Corporation and Recoton against injury due
to the Employee's conflict of interest. In no event shall the parties
construe this provision as a means to derogate the Employee's duties, as
described herein, or otherwise negate the Corporation's obligations and
responsibilities under the MS Agreement (as defined in Section 2(b)), or the
Supply Agreement (as defined in Section 5(a)). Any reasonable action taken
by Recoton or the Corporation in good faith, pursuant to this Section 2(c),
shall not constitute an event giving the Employee the right to terminate
this Agreement pursuant to the third sentence of Section 3(d). Subject to
the terms and conditions set forth in Section 5, the Employee shall not use
or transmit, to IJI Acquisition or others, Recoton or Corporation
Proprietary Information relating to any Conflicting Matters.
3. TERM; PAYMENT UPON TERMINATION.
(a) The term of the Employee's employment under this Agreement shall
commence as of the Effective Time and shall terminate on the earlier of the
death of the Employee, the Employee ceasing to be employed by the
Corporation other than by reason of breach by the Corporation of this
Agreement, or 5:00 p.m. on the second anniversary of the Effective Time (the
"Employment Term"). Except with respect to the provisions of Sections 2,
3(d) and 3(e) which expressly survive the termination of this Agreement, the
continued employment of the Employee following the expiration of the
Employment Term shall be other than pursuant to this Agreement.
(b) The Corporation, in the sole discretion of its Board of Directors,
may terminate the employment of the Employee, and its obligation to pay
compensation pursuant to Section 4, during the Employment Term at any time
for "cause." "Cause" as used in this Agreement shall mean (i) conviction of
a felony or any crime having larceny as an essential element, (ii) willful
conduct that is materially injurious to the Corporation or Recoton, (iii)
willful and repeated dereliction of duty or breach of the Employee's
material obligations under this Agreement, (iv) failure to perform any
material covenants under the agreement dated as of January 3, 1996 among the
Employee and the Corporation entitled Shareholders' Agreement (the
"Shareholders' Agreement") and (v) serious violation of law relating to the
Corporation's or Recoton's business or securities. For the purpose of this
section, no act or failure to act on the Employee's part will be considered
"willful" unless done, or omitted to be done, by him not in good faith and
without the reasonable belief that his action or omission was in the
interest of the Corporation or not opposed to the interests of the
Corporation. For termination for cause, written notice of the termination
shall be served upon the Employee and, except as otherwise provided herein,
shall be effective as of the date of such service ("Termination Notice").
With respect to items (iii) and (iv) of this
Annex II
Ex. 7.10 -- 3
<PAGE>
subsection 3(b), Employee shall have ten (10) days within receipt of the
Termination Notice to cure the cause violation, and his failure to do so
shall result in his termination. Such written notice shall specify in
reasonable detail the act or acts of the Employee underlying such
termination.
(c) The Corporation may terminate the employment of the Employee for
reasons other than for cause provided that the Corporation shall continue to
pay or provide the Employee the salary and other benefits (including bonus
which would be paid if the Employee were still employed hereunder) provided
for in this Agreement until the expiration of the Employment Term.
(d) The Employee may terminate his employment hereunder at any time upon
sixty (60) days prior written notice. If the Employee has been employed by
the Corporation for a period of two (2) years or more, at the time he gives
his written notice of termination, the Corporation shall pay Employee a
severance payment in an amount equal to one (1) year of his then-current
Base Salary and Guaranteed Bonus, payable in one lump sum upon the
termination of his employment. If the Employee has been employed by the
Corporation for less than two (2) years, his compensation and benefits under
this Agreement shall cease at the time of the termination of his employment.
Notwithstanding anything herein to the contrary, the Employee's rights under
the Option Plan, shall be governed by the terms and conditions of the Option
Agreement, a form of which is attached hereto as Exhibit 4(d). If the
Employee terminates his employment hereunder or notifies the Corporation of
his intent to terminate his employment hereunder, the Corporation in its
sole discretion may require the Employee to cease the exercise of his
responsibilities and the performance of his services for the Corporation at
any time prior to the effective date of the notice of termination and to
refrain from entering the Corporation's premises but the Employee's
compensation hereunder shall continue until the effective date of
termination. If the Corporation shall: (i) materially breach any term of
this Agreement, which breach shall not have been cured within ten (10) days
after written notice thereof has been given to the Corporation by the
Employee, (ii) assign duties or a title to the Employee or delegate powers
to the Employee inconsistent, in any material respect with the Employee's
position as President or as an executive officer of the Corporation; (iii)
(A) relocate the Employee to an office or location outside of a radius of
ten (10) miles from the Lincolnshire office and which is further than two
(2) miles from an expressway (excluding the Employee's relocation to the
Corporation's Schiller Park Facility), or (B) require the Employee to travel
out-of-town in excess of an average of three (3) days per week over any
period of twelve (12) consecutive weeks, other than with the prior written
consent of the Employee, (iv) fail to require a successor of Recoton to
perform under the Employment Agreement; and/or (v) materially change the
Employee's reporting requirements; then the Employee may terminate his
employment under this Agreement and the Corporation shall continue to be
obligated to pay or provide to the Employee the salary and bonus provided
for in this Agreement until the expiration of the Employment Term and the
Corporation shall be obligated to provide to the Employee the payments and
benefits specified in Section 3(e).
(e) If the employment of the Employee is terminated by the Corporation
at any time, whether during the Employment Term or thereafter (including,
but not limited to, termination due to the death or disability of the
Employee and the "constructive termination" specified in the last sentence
of Section 3(d) above), unless terminated by the Corporation for cause, (i)
the Employee will receive a severance payment equal to twice the sum of the
Base Salary (as defined below) in effect at the time of termination and the
Guaranteed Bonus (as defined below), of which one-half shall be paid upon
the effective date of such termination and one-half of which shall be paid
in equal monthly installments over a 24-month period commencing upon the
effective date of such termination, (ii) all options to purchase the common
shares of the Corporation in the Employee's name shall immediately vest,
(iii) the Corporation shall pay (or, if desired by the Employee, reimburse
the Employee for) all premiums for COBRA insurance coverage for 18 months
and shall reimburse the Employee for any comparable coverage obtained
thereafter (but
Annex II
Ex. 7.10 -- 4
<PAGE>
not for an amount in the aggregate in excess of the premiums paid or
reimbursed for COBRA coverage) until the second anniversary of such
termination and (iv) the Corporation shall pay the premiums for the life
insurance policy noted in Section 4(c) for two years. Recoton agrees to
guaranty the obligations of the Corporation under Sections 3 and 4.
4. COMPENSATION; BENEFITS; AND EXPENSES. For all services to be rendered
to the Corporation or any affiliate thereof in any capacity, including services
as an officer, director, member of any committee or otherwise, so long as the
Employee is employed by the Corporation or Recoton during the Employment Term
pursuant to Section 3(a) or as otherwise set forth in the last sentence of
Section 3(d);
(a) The Corporation or the Surviving Corporation shall pay the Employee
a salary at the rate of $300,000 per year (the "Base Salary"). Such Base
Salary shall be payable in equal installments, less any usual payroll
deductions, in accordance with prevailing payroll practices of the
Corporation from time to time. The Board of Directors may in its sole
discretion increase the Employee's Base Salary and benefits over those
provided for hereunder. Other than as provided in this Agreement, in no
event may Employee's compensation or benefits be decreased by the Board of
Directors except to the extent that such benefits (other than Base Salary
and Guaranteed Bonus, as defined below) are provided to other employees and
such employee benefits are similarly generally reduced.
(b) The Employee shall receive an annual bonus in respect of services
for each twelve (12) month period during the Employment Term in the amount
of at least $150,000 (the "Guaranteed Bonus"). The Guaranteed Bonus shall be
paid in one (1) installment, payable on the fifteenth day following the end
of each twelve month period. The Employee also shall be eligible for an
additional annual performance-based bonus which may be granted by the Board
of Directors of the Corporation in its sole discretion (the "Performance
Bonus").
(c) The Employee shall be eligible to participate in all executive
medical, dental, life, long-term disability, and qualified or non-qualified
retirement benefit plans and all key executive and other employee benefit
plans or arrangements of the Corporation, including, without limitation, any
Section 401(k) savings and profit sharing plan, and any standard life,
disability, accidental death and dismemberment and retirement plans or
programs consistent with the terms and coverages of such plans or
arrangements and such other individual plans and arrangements applicable to
key executives or employees generally, each as may from time to time be
established, amended or terminated; PROVIDED, HOWEVER, that the value of all
such benefits shall not be less than the aggregate value of those benefits
provided to the Employee under Section 4(e) of the 1991 Employment Agreement
except that the key man life insurance policies with aggregate benefits
totalling $16.5 million can be terminated or assigned to IJI Acquisition but
the Corporation shall pay the premiums on the Transamerica Life insurance
policy owned by the Robert G. Shaw Trust in the principal amount of $2.5
million during the Employment Term, and for a period of two (2) years
following the termination of the Employment Term, to the extent required
pursuant to Section 3(e).
(d) On the Effective Date, the Employee shall be granted a nonqualified
option pursuant to the terms of the Recoton Corporation 1991 Stock Option
Plan (the "Option Plan") to purchase 50,000 Recoton Common Shares, par value
$.20 (the "Common Shares") at the closing price for the Common Shares on the
day prior to the Effective Time which option shall vest in five equal annual
installments, commencing on the first anniversary of the grant, and shall
have a term of ten years from the date hereof. The options granted under
this paragraph (d) shall be issued under the form of option agreement
attached hereto as Exhibit 4(d).
Annex II
Ex. 7.10 -- 5
<PAGE>
(e) The Corporation shall reimburse the Employee for all reasonable and
necessary expenses incurred by the Employee requested or authorized by the
Corporation in connection with the Corporation's business where such
expenses are properly documented and accounted for in accordance with the
current policy of the Corporation.
5. RESTRICTIONS ON THE DISCLOSURE OF PROPRIETARY INFORMATION; INVENTIONS.
(a) During the period from the Effective Time until the expiration of
the Employment Term and thereafter, and except as may be necessary in the
ordinary course of the Corporation's business, the Employee shall not,
without the prior written consent of the Corporation, directly or indirectly
(i) record, photograph, photocopy or by any other means copy or cause to be
copied any document, list, drawing, writing, photograph, sketch, sound
recording or other material that embodies Proprietary Information as defined
herein or (ii) use, or disclose or divulge to any person, firm or
corporation, any Proprietary Information. Notwithstanding the above, the
parties acknowledge that the MS Agreement will be entered into pursuant to
the Purchase Agreement and that a certain Supply and Services Agreement will
be entered into between Jensen and IJI Acquisition (the "Supply Agreement"),
the form of which is attached to the Purchase Agreement, and recognize that
the non-disclosure limitation as set forth herein does not apply to
information properly transmitted to any of the parties in the performance of
the MS Agreement and/or the Supply Agreement and maintained in confidence by
the recipient. As used in this Agreement, "Proprietary Information" means
information disclosed to or obtained by the Employee, whether or not
acquired during business hours, concerning Jensen's, the Corporation's,
Recoton's and/or their subsidiaries' business, operations, products,
manufacturing or other processes, services, customers, vendors, costs and
pricing policies, research, development, formulae, specifications, methods,
expertise, techniques, inventions, equipment, purchasing, merchandising and
selling including, but not limited to, customer lists, financial and/or
marketing reports and plans, product configurations and compositions,
pricing guidelines or information, financial reports, financial projections
and other financial information, business plans and any other information
not readily known or obtainable by the general public, and any proprietary
software. Notwithstanding the foregoing sentence, Proprietary Information
does not include (i) information acquired by the Employee before the
Employee became an employee of Jensen, (ii) information acquired by the
Employee pursuant to his employment by or ownership of IJI Acquisition,
(iii) information which is or becomes public knowledge (except as may be
disclosed by the Employee in violation of this Agreement), (iv) information
acquired by the Employee from a source other than Jensen, the Corporation,
Recoton or an affiliate thereof or a party providing such information to
Jensen, the Corporation, Recoton or such affiliate that legally acquired
such information and was free to disclose the same or, (iv) information
independently developed by the Employee without the use of Proprietary
Information or the Corporation's, Recoton's, Jensen's or an affiliates'
facilities. Upon termination of employment hereunder for any reason,
Employee shall, to the extent feasible, promptly return to the Corporation
that portion of all books, records, lists, tapes and other written, typed,
computer or printed materials or data and all copies thereof which contain
any Proprietary Information, and the Employee shall not make or retain any
copies thereof.
(b) If at any time during the term of employment by the Corporation the
Employee conceives, develops, participates in the development of or causes
to be developed any products, methods, techniques, inventions, improvements,
works, techniques, processes, programs, software, works of art, products,
ideas or formulae which are not related to any of the businesses conducted
by IJI Acquisition or any of its affiliates (collectively, the "Corporation
Intellectual Property"), whether or not patentable or copyrightable and
whether or not done within or after normal business hours or alone or in
conjunction with others, relating exclusively to the business of the
Corporation or any of its affiliates, or their affiliates or any part
thereof, such Corporation Intellectual Property shall be and remain the sole
and exclusive property of the Corporation. The Employee shall promptly
communicate and disclose all such Corporation Intellectual Property or
Annex II
Ex. 7.10 -- 6
<PAGE>
Employee Intellectual Property, as defined below, to the Corporation, and to
further effectuate the purposes of this provision, each of the Corporation
and the Employee shall execute and deliver to the other at the requesting
party's expense any instruments deemed necessary by the requesting party to
effect the disclosure thereof to, and ownership thereof by, the requesting
party, including without limitation any assignments of rights to patents,
copyrights and all other proprietary interests which the Employee or the
Corporation, as applicable, might have in any Corporation Intellectual
Property or Employee Intelectual Property, defined below, and shall further
assist the requesting party as the requesting party may reasonably request,
to obtain patent, trademark or copyright registration, or other protections
for the Corporation Intellectual Property/or Employee Intellectual Property,
as defined below, including testifying in any hearings, depositions or
trials related thereto.
If at any time during the term of employment the Employee conceives,
develops, participates in the development of or causes to be developed any
products, methods, techniques, inventions, improvements, works, techniques,
processes, programs, software, works of art, products, ideas or formulae
which are not related to any of the business conducted by the Corporation or
any of its affiliates (collectively, the "Employee Intellectual Property"),
whether or not patentable or copyrightable and whether or not done within or
after normal business hours or alone or in conjunction with others, relating
exclusively to the business of IJI Acquisition, or its affiliates or any
part thereof, such Employee Intellectual Property shall be and remain the
sole and exclusive property of the Employee. To the extent the Employee
conceives, develops, participates in the development of or causes to be
developed any products, methods, techniques, inventions, improvements,
works, techniques, processes, programs, software, works of art, products,
ideas or formulae which are related to the business conducted by both the
Corporation or any of its affiliates and IJI Acquisition or any of its
affiliates (collectively the "Shared Intellectual Property"), whether or not
patentable or copyrightable and whether or not done within or after normal
business hours or alone or in conjunction with others, which does not relate
exclusively to the business of IJI Acquisition, the Corporation or any of
their affiliates, shall be and remain the shared property of the Employee,
IJI Acquisition, and the Corporation, as the case may be. The parties shall,
in good faith, endeavor to agree on an appropriate bifurcation or other
allocation of such Shared Intellectual Property, to the extent the parties
cannot agree on such bifurcation or allocation or other appropriate
arrangement, the parties shall each hold a perpetual worldwide royalty free
license to use such Shared Intellectual Property on a non-exclusive basis.
6. RESTRICTIONS ON COMPETITION. During the period of time during which the
Employee is employed by the Corporation (for the purpose of this section, the
term "Corporation" shall include the Corporation's subsidiaries and Recoton)
(the "Employment Period") and for that period of time after the Employment
Period in which the Employee is deemed to receive benefits pursuant to Section
3(d) (i.e. one (1) year after termination of the Employment Agreement if the
severance payment referenced in the second sentence of Section 3(d) is made), or
Section 3(e), as applicable, the Employee shall not:
(a) directly or indirectly, either individually or as a principal,
partner, agent, employer, consultant, stockholder, joint venturer, or
investor, or in any other manner or capacity whatsoever, engage in, assist
or have any active interest in a business that engages in the Branded
Business or any business of Recoton or its affiliates as that term is
defined in that certain Non-Competition Agreement to be entered into by and
among Jensen, IJI Acquisition, the Corporation, Recoton, and Fuji Cone,
Inc., a Delaware corporation (the "Non-Competition Agreement") the form of
which is attached to the Purchase Agreement as it exists on the Commencement
Date, located anywhere in the United States of America or any foreign
country in which the Corporation has conducted business in the last three
(3) years. Notwithstanding anything to the contrary contained herein: (A)
this Section shall not preclude the Employee from owning not more than 5% of
the outstanding securities of a corporation which is publicly traded, either
on a securities exchange or over-the-counter; and which engages in a
business or lines of business similar to the Branded Business, as that term
is defined in the Non-Competition Agreement; and (B) it shall not be a
violation of this Agreement for Employee (whether during employment or after
termination
Annex II
Ex. 7.10 -- 7
<PAGE>
of employment of the Employee hereunder) to: (i) provide services pursuant
to the MS Agreement, (ii) act as an executive officer or director of IJI
Acquisition, so long as those activities do not interfere with the
Employee's performance of his responsibilities under this Agreement, (iii)
own stock in IJI Acquisition, or (iv) be employed by IJI Acquisition so long
as those activities do not interfere with the Employee's performance of his
responsibilities under this Agreement.
(b) directly or indirectly, either individually or as a principal,
partner, agent, employer, consultant, stockholder, joint venturer, or
investor, or in any other manner or capacity whatsoever:
(i) divert or attempt to divert from the Corporation or an affiliate
any Branded Business, as that term is defined in the Non-Competition
Agreement, with respect to any customer or account, with which the
Corporation or any of its affiliates had any contact or association, or
which was under the supervision of the Corporation within three (3) years
prior thereto;
(ii) induce any employee, salesperson, distributor, supplier, vender,
manufacturer, representative, agent, jobber, or other person transacting
business relating to the Branded Business, as that term is defined in the
Non-Competition Agreement, with the Corporation, or any of the
affiliates, to terminate their relationship or association with the
Corporation or any of its affiliates, or to represent or sell services or
products in competition with services or products relating to the Branded
Business, as that term is defined in the Non-Competition Agreement, of
the Corporation or any of its affiliates, excluding, however, any
employee first hired after the Employee's employment with the Corporation
terminated (a "Prohibited Employee") for employment by any person,
business, firm or corporation, or any other entity;
(iii) employ or retain, directly or indirectly, a Prohibited Employee;
or
(iv) be an officer, director, partner, sole proprietor, the holder of
outstanding securities (except the holder of not more than 5% of the
securities of any corporation which is publicly traded, either on a
securities exchange or over-the-counter, or principal of any person,
business, firm, corporation or other entity that employs or retains a
Prohibited Employee; PROVIDED, HOWEVER, that nothing in this Section 6
shall be construed to in any way prohibit IJI Acquisition's right to hire
any of the persons named as Management Service Providers in the MS
Agreement as an officer, director, employee or agent of IJI Acquisition
during the course of the Employee's employment with the Corporation and
for six months after termination of such employment pursuant to the
Non-Competition Agreement.
Nothing contained in this Agreement shall prevent Employee during the
Employment Period or thereafter, from performing his duties as an employee of
IJI Acquisition while IJI Acquisition engages in activities consistent with the
Non-Competition Agreement, so long as such performance conforms with Section
2(c). The Employee acknowledges that the time, scope, geographic area and other
provisions of this Section 6 have been specifically negotiated by sophisticated
commercial parties and that all such provisions are reasonable under the
circumstances of the transactions contemplated by this Agreement. It is
understood that the Employee is agreeing to the terms of this Section 6 in order
to induce the Corporation and Recoton to enter into this Agreement. The parties
acknowledge that the business which the Corporation plans to conduct will be
conducted throughout the United States and worldwide and that, given the current
sophistication of the information and telecommunication "highway," a narrow
geographic limitation would deny the Corporation protection to which it is
entitled in this Agreement.
7. PRIOR AGREEMENTS. The Employee represents and warrants to the
Corporation that, except for his current employment by Jensen and the Purchase
Agreement and all ancillary documents
Annex II
Ex. 7.10 -- 8
<PAGE>
thereto, he is not currently subject to any agreements, obligations or
restrictions regarding prior employment, competition, solicitation of employees
or customers or disclosure of proprietary information.
8. CERTAIN BUSINESS PRACTICES. The Employee shall not during the term of
his employment by the Corporation take or cause or knowingly permit others to
take any action which would cause the Corporation or Recoton to be in violation
of the United States Foreign Corrupt Practices Act or any other similar
legislation of the United States or any other country or any subdivision
thereof.
9. GOVERNING LAW; ARBITRATION; ATTORNEYS FEES.
(a) This Agreement and its validity, construction and performance shall
be governed in all respects by the law of the State of Illinois, without
giving effect to principles of conflict of law.
(b) The parties shall promptly cooperate in good faith to carry out the
provisions of this Agreement and the activities contemplated hereby and
shall also cooperate in good faith to resolve any disputes or differences
which may arise in connection with the provisions hereof and the activities
contemplated hereby. Except as otherwise noted in this Agreement, any
dispute, question, difference, controversy or claim arising out of or
relating to this Agreement, or the breach thereof, shall be finally settled
by arbitration in the jurisdiction where the Corporation's main offices are
located at the time of institution of such action (the "Main Office") in
accordance with the Commercial Arbitration Rules of the American Arbitration
Association, as then in effect at the time of filing of the notice of
demand. The parties consent to the jurisdiction of the trial court for the
county where the Main Office is located and of the United States Federal
District Court for the District where the Main Office is located for all
purposes in connection with arbitration. The parties consent that any
process or notice of motion or other application to either of said courts,
and any paper in connection with arbitration, may be served by certified
mail, return receipt requested or by personal service or in such other
manner as may be permissible under the rules of the applicable court or
arbitration tribunal, provided a reasonable time for appearance is allowed.
The arbitrators shall not alter or disregard any express provisions of this
Agreement. Any arbitration award in accordance with this Section 9(b) shall
be final and binding upon the parties and judgment thereon may be entered in
any court having jurisdiction over such party. The arbitrators are hereby
authorized to award to the prevailing party the costs (including reasonable
attorneys' fees and expenses) of any such arbitration.
(c) In the event of litigation or arbitration hereunder, the court or
arbitration panel shall be authorized to award the prevailing party in such
action or proceeding any or all reasonable attorney fees and disbursements
paid by it in pursuing or defending such action.
10. ENFORCEABILITY. Any provision of this Agreement which is prohibited
by, or unlawful or unenforceable under, any applicable law of any jurisdiction
shall be ineffective as to such jurisdiction without affecting any other
provision of this Agreement in such jurisdiction or all of the provisions of
this Agreement in other jurisdictions. To the full extent, however, that the
provisions of such applicable law may be waived, or the provisions of this
Agreement "blue-penciled" or reformed by any competent court or arbitration
panel, so that they become enforceable, such provisions of law shall be hereby
deemed waived or such provisions of this Agreement shall be so blue-penciled or
reformed to the end that this Agreement is deemed to be a valid and binding
agreement enforceable in accordance with its terms. If any term or provision of
this Agreement shall be held invalid by a competent court or arbitration panel,
the remainder of this Agreement shall not be affected thereby and the parties
hereto shall continue to be bound by the remaining terms hereof. In such event,
the relevant term or provision (or should such term(s) or provision(s) be such a
material element of this Agreement, then the entire Agreement) shall be
renegotiated by the parties in a good faith effort to achieve mutual agreement
consistent with such holding and the parties shall continue to perform under
this Agreement in a manner consistent with the intent and objectives of the
parties to this Agreement.
Annex II
Ex. 7.10 -- 9
<PAGE>
11. EQUITABLE REMEDIES. The Employee acknowledges that because of the
nature of the business of the Corporation and the subject matter of this
Agreement, a breach of Section 5 or 6 of this Agreement will cause irreparable
injury to the Corporation for which money damages will not provide an adequate
remedy, and the Employee agrees that the Corporation shall have the right to
have the provisions of such Sections specifically enforced by a court having
equity jurisdiction, in addition to, and not in limitation of, any remedies at
law that the Corporation may have.
12. NO WAIVER. The failure by either party at any time to require
performance or compliance by the other of any of its obligations or agreements
shall in no way affect the right to require such performance or compliance at
any time thereafter. The waiver by either party of a breach of any provision
hereof shall not be taken or held to be a waiver of any preceding or succeeding
breach of such provision or as a waiver of the provision itself. No waiver of
any kind shall be effective or binding, unless it is in writing and is signed by
the party against which such waiver is sought to be enforced.
13. ASSIGNMENT. This Agreement and all rights hereunder are personal to
the Employee and may not be transferred or assigned by the Employee at any time.
The Corporation may assign its rights to any parent or subsidiary or, with the
Employee's consent (not to be unreasonably withheld), any successor or in
connection with any sale, transfer or other disposition of all, or substantially
all, of its business and assets, provided, however, that any such assignee
assumes the Corporation's obligations hereunder and PROVIDED, FURTHER, that such
assignment and assumption shall not relieve the Corporation of its obligations
hereunder.
14. ENTIRE AGREEMENT. This Agreement constitutes the entire and only
agreement between the parties relating to employment of the Employee by or with
the Corporation, and this Agreement supersedes and cancels any and all previous
contracts, arrangements or understandings with respect thereto.
15. AMENDMENT. This Agreement may be amended, modified, superseded,
canceled, renewed or extended only by a written instrument executed by both of
the parties hereto.
16. NOTICES. Any notice, request, consent or communication (collectively
"Notice") sent under this Agreement shall be effective only if it is in writing
and (a) personally delivered, (b) sent by certified or registered mail, return
receipt requested, postage prepaid, (c) sent by a nationally recognized
overnight delivery service, with delivery confirmed, or (d) telexed or
telecopied with receipt confirmed, addressed as follows:
<TABLE>
<S> <C>
(i) To the Employee: Robert G. Shaw
c/o International Jensen Incorporated/
Recoton Audio Corporation
25 Tri-State International Office Center
Suite 400
Lincolnshire, Illinois 60069
Telecopier: (847) 317-3855
Telephone No.: (847) 317-3700
-- copy to (which shall not constitute notice) --
Wildman Harrold Allen & Dixon
225 W. Wacker Drive
Chicago, IL 60606-229
Attn.: Richard B. Thies, Esq.
Telecopier: (312) 201-2555
Telephone No.: (312) 201-2000
</TABLE>
Annex II
Ex. 7.10 -- 10
<PAGE>
<TABLE>
<S> <C>
(ii) To the RC Acquisition Sub, Inc./Recoton Audio Corporation
Corporation: 2950 Lake Emma Road
Lake Mary, Florida 32746
Attn: Stuart Mont
Telecopier No.: (407) 333-8903
Telephone No.: (407) 333-8900
-- copy to (which shall not constitute notice) --
Stroock & Stroock & Lavan
7 Hanover Square
New York, New York 10004
Attn: Theodore S. Lynn, Esq.
Telecopier No.: (212) 806-6006
Telephone No.: (212) 806-5400
(iii) To Jensen International Jensen Incorporated
25 Tri-State International Office Center
Suite 400
Lincolnshire, Illinois 60069
Attention: Mr. Marc T. Tanenberg
Telecopier: (847) 317-3855
Telephone: (847) 317-3700
(iv) To the RC Acquisition Sub, Inc./Recoton Audio Corporation
Corporation: 2950 Lake Emma Road
Lake Mary, Florida 32746
Attn: Stuart Mont
Telecopier No.: (407) 333-8903
Telephone No.: (407) 333-8900
</TABLE>
Annex II
Ex. 7.10 -- 11
<PAGE>
<TABLE>
<S> <C>
-- copy to (which shall not constitute notice) --
Stroock & Stroock & Lavan
7 Hanover Square
New York, New York 10004
Attn: Theodore S. Lynn, Esq.
Telecopier No.: (212) 806-6006
Telephone No.: (212) 806-5400
</TABLE>
or such other persons or addresses as shall be furnished in writing by any party
to the other parties. A notice shall be deemed to have been given as of the date
when (i) personally delivered, (ii) five days after the date when deposited with
the United States mail properly addressed, (iii) when a receipt of a Notice sent
by a overnight delivery service is confirmed by such overnight delivery service,
or (iv) when receipt of the telex or telecopy is confirmed, as the case may be,
unless the sending party has actual knowledge that a Notice was not received by
the intended recipient.
17. BINDING NATURE. This Agreement shall be binding upon and inure to the
benefit of the personal representatives and successors of the respective parties
hereto.
18. HEADINGS; LANGUAGE. The headings contained in this Agreement are for
reference purposes only and shall in no way affect the meaning or interpretation
of this Agreement. In this Agreement, the singular includes the plural, the
plural the singular and the word "or" is used in the inclusive sense and all
references to "including" shall mean "including without limitation," unless the
context requires otherwise.
19. SURVIVAL. Unless otherwise provided herein, the provisions of Sections
2, 3(d), 3(e), 4(b), 4(d), 5, 6, 9, 10, 11, 12, 13 and 16 of this Agreement
shall survive the termination of this Agreement as a continuing agreement of the
Corporation and the Employee.
20. CROSS-REFERENCES; EXHIBITS. References in this Agreement to Articles,
Sections, Schedules and Exhibits are references to Articles and Sections of this
Agreement and to Schedules and Exhibits attached to or delivered pursuant to
this Agreement. Any Schedules and Exhibits are hereby made a part of this
Agreement.
21. COUNTERPARTS. This Agreement may be executed in counterparts, each of
which shall be deemed to be an original.
22. ADVICE OF COUNSEL. The Employee acknowledges that he was given the
opportunity to receive the advice of counsel before signing this Agreement and
has consulted counsel.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the day
and year first above written.
<TABLE>
<CAPTION>
INTERNATIONAL JENSEN INCORPORATED RECOTON CORPORATION
<S> <C>
By: /s/ Marc Tanenberg By: /s/ Stuart Mont
------------------------
-------------------------
Name: Marc Tanenberg Name: Stuart Mont
Title: Executive Vice
Title: Vice President President--Operations
<CAPTION>
RC ACQUISITION SUB, INC.
<S> <C>
By: /s/ Stuart Mont /s/ Robert G. Shaw
------------------------
------------------------
Name: Stuart Mont Robert G. Shaw
Title: Secretary
</TABLE>
Annex II
Ex. 7.10 -- 12
<PAGE>
AGREEMENT REGARDING ELECTION AND RE-ELECTION
OF ROBERT G. SHAW AS A RECOTON CORPORATION DIRECTOR
The undersigned hereby agrees to vote the Common Shares of Recoton
Corporation beneficially held by him as set forth in this Employment Agreement
or as to which he has discretionary voting authority in favor of the election
and reelection of Robert G. Shaw as a director of Recoton Corporation so long as
Employee is employed by Recoton Corporation or any affiliate thereof.
/s/ Robert L. Borchardt
--------------------------------------
Robert L. Borchardt
Annex II
Ex. 7.10 -- 13
<PAGE>
EXHIBIT 4(D)
No. of shares subject to option: 50,000 Option No.:
RECOTON CORPORATION
1991 STOCK OPTION PLAN AGREEMENT
This AGREEMENT dated as of the day of , 1996 between
RECOTON CORPORATION, a New York corporation (the "Company"), and Robert G. Shaw
(the "Optionee").
W I T N E S S E T H:
1. GRANT OF OPTION. Pursuant to the provisions of the Recoton Corporation
1991 Stock Option Plan (the "Plan"), the Company hereby grants to the Optionee,
subject to the terms and conditions set forth in the Plan and this Agreement,
the right and option (the "Option") to purchase from the Company all or any part
of an aggregate of 50,000 Common Shares, $.20 par value ("Common Shares"), of
the Company at the purchase price of $ per share. The Option is [not]*
intended to qualify as an incentive stock option pursuant to Section 422A of the
Internal Revenue Code of 1986, as amended.
2. TERMS AND CONDITIONS. The Option is subject to the following terms and
conditions:
(a) EXPIRATION DATE. The Option shall expire ten years after the date
of this Agreement (the "Expiration Date"), except as otherwise noted in
subparagraph (d) of this paragraph 2.
(b) EXERCISE OF OPTION. The Option may be exercised, to the extent
otherwise exercisable by its terms, in five equal annual cumulative
installments with the first installment occurring on the first anniversary
date of the Agreement; PROVIDED, HOWEVER, that no options granted to
executive officers, directors and beneficial owners of more than ten percent
of any class of the Company's equity securities ("Section 16 Persons") may
be exercised in part or in full prior to six months from the date of grant
of the Option. Notwithstanding the foregoing, all or any part of any
remaining unexercised Option (without regard to any installment limitations)
may be exercised in the following circumstances (but in the case of Section
16 Persons in no event during the six month period commencing on the date of
grant of the Option): (i) immediately upon Employee's termination of
employment with the Company (other than "for cause") pursuant to the
Employment Agreement (as defined in Section 2(d)(4)), (ii) immediately upon
(but prior to the expiration of the term of the Option) the Optionee's
retirement from the Company and all Subsidiaries on or after the Optionee's
65th birthday, (iii) upon the disability or death of the Optionee, (iv) upon
the occurrence of such special circumstances or event as in the opinion of
the Stock Option Committee constituted pursuant to the Plan (the
"Committee") merits special consideration, or (v) if, while the Optionee is
employed by the Company or a Subsidiary (as defined below), there occurs a
Change in Control.
For purposes of this Plan, a "Change in Control" shall be deemed to have
occurred if (i) any "person" or group of "persons" (as the term "person" is used
in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended
and the rules and regulations promulgated thereunder (the "Exchange Act"))
("Person"), including any Affiliate or Associate of such Person, as defined in
Rule 12b-2 of the Exchange Act, acquires (or has acquired during the
twelve-month period ending on the date of the most recent acquisition by such
Person) the beneficial ownership, directly or indirectly, of securities of the
Company representing 20% or more of the combined voting power of the then
outstanding securities of the Company; (ii) during any period of twelve months,
individuals who at the beginning of such period constitute the Board of
Directors of the Company ("Board"), and any new director whose election or
nomination was approved by the individuals who either were members of
* optionee shall have the right prior to grant to designate all or any portion
of the options as incentive stock options within applicable legal limitations
Annex II
Ex. 7.10 -- 14
<PAGE>
the Board at the beginning of the period, cease for any reason to constitute at
least a majority of the Board; (iii) a Person acquires ownership of Common
Shares of the Company that, together with Common Shares held immediately prior
to such acquisition by such Person, possesses more than 50% of the total fair
market value or total voting power of the Common Shares ("50% Ownership") of the
Company, unless the additional Common Shares is acquired by a Person possessing,
immediately prior to such acquisition, ownership of 40% or more of the Common
Shares; or (iv) a Person acquires (or has acquired during the twelve-month
period ending on the date of the most recent acquisition by such Person) assets
from the Company that have a total fair market value equal to or more than
one-third ( 1/3) of the total fair market value of all of the assets of the
Company immediately prior to such acquisition. Notwithstanding the foregoing,
for purposes of subsections (i) and (ii) above, a Change in Control will not be
deemed to have occurred if the power to control (directly or indirectly) the
management and policies of the Company is not transferred from a Person to
another Person; and for purposes of subsection (iv), a Change in Control will
not be deemed to occur if the assets of the Company are transferred: (A) to a
shareholder in exchange for his stock, (B) to an entity in which the Company has
(directly or indirectly) 50% Ownership, or (C) to a Person that has (directly or
indirectly) at least 50% ownership of the Company with respect to its stock
outstanding, or to any entity in which such Person possesses (directly or
indirectly) 50% Ownership.
To the extent otherwise permitted by this Agreement, Common Shares with
respect to which the Option becomes exercisable may be purchased in whole or
from time to time in part at any time prior to the expiration of the Option. Any
exercise shall be accompanied by a written notice to the Company in a form
substantially as attached to this Agreement as Exhibit 1 (including the last
paragraph of such Exhibit if applicable), specifying the number of shares as to
which the Option is being exercised. Notation of any partial exercise shall be
made by the Company on Schedule 1 to this Agreement.
(c) PAYMENT OF PURCHASE PRICE UPON EXERCISE. At the time of any
exercise, the purchase price of the shares as to which the Option shall be
exercised shall be paid (i) in cash or by check (subject to clearance) made
payable to the Company, (ii) in stock of the Company valued at its fair
market value on the date of exercise by the Committee, (iii) by providing an
order to a designated broker to sell part or all of the shares being
purchased pursuant to exercise of the Option and to deliver sufficient
proceeds to the Company, in cash or by check payable to the order of the
Company, to pay the full purchase price of such shares and all applicable
withholding taxes, or (iv) by such other methods as the Committee may permit
from time to time. As soon as practicable following receipt of such cash,
check, stock, option or order, the Company shall issue to Optionee a
certificate for the number of shares as to which the Option is being
exercised. Delivery of such shares shall be at the principal office of the
Company and the obligation of the Company with respect to the purchase of
such shares shall be fulfilled by delivery of such shares registered in the
name of the Optionee.
(d) EXERCISE UPON DEATH OR TERMINATION OF EMPLOYMENT.
(i) In the event of the death of Optionee while an employee of the
Company or of a subsidiary of the Company as defined in the Plan (a
"Subsidiary") all unexercised Options may be exercised by the person or
persons to whom Optionee's rights under the Option pass by will or
applicable law, or if no such person has such right, by Optionee's
executors or administrators, at any time, or from time to time within one
year after the date of Optionee's death, but not later than the
Expiration Date.
(ii) If Optionee's employment by the Company or a Subsidiary shall
terminate because
of Optionee's permanent disability, Optionee may exercise all unexercised
Options at any time, or from time to time within one year after such
termination, but not later than the Expiration Date.
Annex II
Ex. 7.10 -- 15
<PAGE>
(iii) If Optionee's employment by the Company or a Subsidiary shall
terminate for any reason other than death or permanent disability as
aforesaid, Optionee may exercise all unexercised Options, at any time, or
from time to time within three months from the date of termination, but
not later than the Expiration Date.
(iv) Notwithstanding anything in this subparagraph (d) to the
contrary, if Optionee's employment is terminated "for cause" as that term
is defined in the Employment Agreement between the Company and the
Optionee dated , 1996 ("Employment Agreement"), all
unexercised Options of Optionee shall terminate immediately upon such
termination of Optionee's employment by the Company and all subsidiaries,
the Optionee shall have no right after such termination "for cause" to
exercise any unexercised Option which Optionee might have exercised prior
to the termination of employment.
(e) NONTRANSFERABILITY. The Option and any rights hereunder shall not
be transferable or assignable other than by will or by the laws of descent
and distribution. During the lifetime of Optionee, the Option shall be
exercisable only by Optionee.
(f) ADJUSTMENTS. In the event of any change in the Common Shares of
the Company by reason of any stock dividend, recapitalization,
reorganization, merger, consolidation, split-up, combination or exchange of
shares, or any rights offering to purchase Common Shares at a price
substantially below fair market value, or of any similar change affecting
the Common Shares, then the number and kind of shares subject to the Option
and their purchase price per share shall be appropriately adjusted
consistent with such change in such manner as the Committee may deem
equitable to prevent substantial dilution or enlargement of the rights
granted to Optionee hereunder. Any adjustment so made shall be final and
binding upon Optionee.
(g) NO RIGHTS AS STOCKHOLDER. Optionee shall have no rights as a
stockholder with respect to any shares of Common Shares subject to the
Option prior to the date of issuance of a certificate or certificates for
such shares.
(h) NO RIGHT TO CONTINUED EMPLOYMENT. The Option shall not confer upon
Optionee any right with respect to continuance of employment by the Company
or any Subsidiary, nor shall it interfere in any way with the right of the
Company to terminate Optionee's employment pursuant to and in accordance
with the terms of the Employment Agreement.
(i) COMPLIANCE WITH OTHER LAWS AND REGULATIONS. The Option and the
obligation of the Company to sell shares and deliver certificates for shares
of Common Shares pursuant to the Option shall be subject to all applicable
federal and state laws, rules and regulations and to such approvals by any
government or regulatory agency as may be required. No Option may be granted
pursuant to the Plan or exercised at any time when such Option, or the
granting, exercise or payment thereof, may result in the violation of any
law or governmental order or regulation. The Plan is intended to comply with
the Rule 16b-3 under the Exchange Act. Any provision inconsistent with such
Rule shall be inoperative and shall not affect the validity of the Plan. If
at any time
the Committee shall determine in its discretion that the listing,
registration or qualification of the shares covered by the Plan upon any
national securities exchange or under any state or federal law, or the
consent or approval of any governmental regulatory body, is necessary as a
condition of, or in connection with, the sale or purchase of shares under
the Plan, no Common Shares will be delivered unless and until such listing,
registration, qualification, consent or approval shall have been effected or
obtained, or otherwise provided for, free of any conditions not acceptable
to the Committee. If Common Shares are not required to be registered, but
are exempt from registration, upon exercising all or any portion of the
Option the Company may require Optionee (or any person acting under
subparagraph (d) of paragraph 2), to represent that the Common Shares is
being acquired for investment only and not with a view to their sale or
distribution, and to make such other representations and furnish such
information deemed appropriate by counsel to the
Annex II
Ex. 7.10 -- 16
<PAGE>
Company. Stock certificates evidencing unregistered Common Shares acquired
upon exercise of an Option may be subject to stop orders and shall bear any
legend required by applicable state securities laws and a restrictive legend
substantially as follows:
"The securities represented hereby have not been registered under
the Securities Act of 1933, as amended (the "Act"), and may not be
transferred in the absence of such registration or an opinion of
counsel acceptable to the Company that such transfer will not
require registration under such Act."
3. OPTIONEE BOUND BY PLAN. Optionee acknowledges receipt of a copy of the
Plan and agrees to be bound by all the terms and provisions of the Plan.
4. NOTICES. All notices, requests, demands and other communications
provided for in this Agreement shall be in writing and addressed to the address
(or telecopier number) of the parties stated below or to such changed address as
such party may have fixed by notice:
<TABLE>
<S> <C>
(a) To the Employee: Robert G. Shaw
c/o International Jensen Incorporated/
Recoton Audio Corporation
25 Tri-State International Office Center
Suite 400
Lincolnshire, Illinois 60069
Telecopier: (847) 317-3855
Telephone No.: (847) 317-3700
--copy to (which shall not constitute notice) --
Wildman Harrold Allen & Dixon
225 W. Wacker Drive
Chicago, IL 60606-229
Attn.: Richard B. Thies, Esq.
Telecopier: (312) 201-2555
Telephone No.: (312) 201-2521
(b) To the Recoton Corporation
Corporation: 2950 Lake Emma Road
Lake Mary, Florida 32746
Attn: Stuart Mont
Telecopier No.: (407) 333-8903
Telephone No.: (407) 333-0900
copy to (which shall not constitute notice) --
Stroock & Stroock & Lavan
7 Hanover Square
New York, New York 10004
Attn: Theodore S. Lynn, Esq.
Telecopier No.: (212) 806-6006
Telephone No.: (212) 806-5400
</TABLE>
(or to such other address or telecopier number as any party may specify by
notice to all other parties as aforesaid). Unless otherwise specifically
provided in this Agreement, such communications shall be deemed to have been
given (a) three days after mailing, when mailed by registered or certified
postage-paid mail, (b) on the next business day, when delivered to a same-day or
overnight national courier
Annex II
Ex. 7.10 -- 17
<PAGE>
service or the U.S. Post Office Express Mail or (c) upon the date of receipt by
the addressee when delivered personally or by telecopier; PROVIDED, HOWEVER,
that any notice of change of address shall be effective only upon receipt.
Notice may be given on behalf of a party by his or its counsel.
5. COUNTERPARTS. This Agreement has been executed in two counterparts,
each of which shall constitute one and the same instrument.
IN WITNESS WHEREOF, Recoton Corporation has caused this Agreement to be
executed by its President or a Vice President and Optionee has executed this
Agreement, both as of the day and year first above written.
RECOTON CORPORATION
By:
--------------------------------------
Name:
Title:
- --------------------------------------- (L.S.)
Optionee
Annex II
Ex. 7.10 -- 18
<PAGE>
SCHEDULE 1 -- NOTATIONS AS TO PARTIAL EXERCISE
<TABLE>
<CAPTION>
NUMBER OF BALANCE OF
OPTION SHARES AUTHORIZED NOTATION
DATE OF EXERCISE PURCHASED SHARES SIGNATURE DATE
- ---------------------------------------------------------------- --------------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
</TABLE>
Annex II
Ex. 7.10 -- 19
<PAGE>
EXHIBIT 1
STOCK OPTION EXERCISE FORM
[Date]
Recoton Corporation
2950 Lake Emma Road
Lake Mary, FL 32746
Attention: Secretary
Dear Sirs:
The undersigned elects to exercise the option to purchase shares,
$.20 par value, of the Common Shares ("Common Shares") of Recoton Corporation
(the "Company") under and pursuant to 1991 Stock Option Plan Agreement No.
between the Company and the undersigned dated .
Delivered herewith is a [check in the amount of $ ][certificate for
shares of Common Shares of the Company][order to a broker to sell part or
all of the shares being purchased and to deliver sufficient proceeds to the
Company, in cash or by check payable to the order of the Company, to pay the
full purchase price of the shares and all applicable withholding taxes]
[unexercised options sufficient to pay the full purchase price of the shares of
Common Shares and all applicable withholding taxes] in payment of the option
price.
[The undersigned hereby represents and agrees that all of the Common Shares
being purchased hereunder is being acquired for investment and not with a view
to the sale or distribution thereof and that the undersigned understands that
such Common Shares has not been registered under the Securities Act of 1933 (the
"Act"), as amended, and such Common Shares may not be sold, pledged,
hypothecated, alienated, or otherwise assigned or transferred in the absence of
registration under the Act, or an opinion of counsel which opinion is
satisfactory to the Company to the effect that such registration is not
required.]
Very truly yours,
[Optionee]
Annex II
Ex. 7.10 -- 20
<PAGE>
ANNEX III-A
EMERSON PRESS RELEASE DATED APRIL 17, 1996
PARSIPPANY, N.J., April 17, 1996 -- Emerson Radio Corp. (AMEX:MSN) announced
today that, pursuant to discussions held over the past several weeks with the
management and Board of Directors of International Jensen Incorporated
("Jensen"), it has submitted a definitive proposal for the acquisition of
Jensen.
The Emerson proposal generally follows the structure of Jensen's current
proposed merger transaction with Recoton Corporation ("Recoton"), except that
Emerson proposes to acquire the approximately 5.7 million issued and outstanding
shares of common stock of Jensen at a price of $9.90 per share (or an aggregate
of approximately $57 million), payable entirely in cash, and to replace Jensen's
current working capital facilities. The Recoton transaction, which, among other
things, is still subject to completion of documents and stockholder approval,
offers Jensen stockholders $8.90 per share in stock and cash, of which only
approximately $5.34 per share is payable in cash based on the currently
disclosed structure. Including the planned assumption of Jensen's existing debt,
the total consideration to be paid by Emerson in the transaction will be
approximately $100 million.
Both the Emerson and the original Recoton transactions currently contemplate
the sale of certain Jensen assets relating to its original equipment
manufacturing business to a group led by Robert G. Shaw, currently Jensen's
Chairman and CEO, for approximately $15 million, payable in cash immediately
prior to closing of the acquisition transaction. However, unlike the Recoton
transaction, the Emerson proposal is not necessarily contingent on the sale of
such assets.
Emerson has provided Jensen's Board of Directors with certain evidence of
its financial capability to close the transaction, including capital to be
directly provided by Emerson and through acquisition facilities arranged by
Emerson's financial advisor with respect to the transaction, Bankers Trust
Company. Emerson has received an indication of interest from Congress Financial
Corp., Emerson's current senior lender, for a working capital facility. Congress
continues and thereby expands its longstanding financial relationship with
Emerson.
Jensen's Board of Directors has advised Emerson that it is considering the
proposal and has agreed to continue to permit Emerson to conduct due diligence
of its domestic and international operations and to continue discussions with
Emerson with respect to Emerson's proposal.
Jensen, which had sales of $194 million for the nine months ended Nov. 30,
1995, is a leading designer, manufacturer and marketer of quality loudspeakers
for the domestic and international automotive OEM, automotive aftermarket and
home audio markets.
Eugene Davis, President of Emerson Radio Corp., said, "We are very
optimistic regarding the enhanced possibilities for growth and profitability of
Emerson through acquiring the branded, after-market businesses of Jensen. This
transaction is in conformity with our stated objective of enhancing the reach
and scope of Emerson's business.
This transaction will further advance our business strategy of selling and
marketing higher margin products, including car audio and home loudspeakers,
while capitalizing on Jensen's successful and sizeable expansion into Europe. It
will allow us to take advantage of our core capabilities of sourcing,
distribution, trademark management and customer service over a wider breadth of
products and markets. We intend to close this transaction by the end of June,
1996 and to begin operation of the combined entities by the second quarter of
our current fiscal year.
ANNEX III-A-1
<PAGE>
Jensen and Advent are highly recognized names in the mid-level branded
automotive audio products and home loudspeaker categories, and the company's Now
Hear This (NHT), Acoustic Research (AR), and Phase Linear brands are well
established in the higher end niche categories. In addition, the company's
Magnat and Mac Audio brands are profitable and highly regarded European brands
with significant existing market share and strong growth opportunities.
Jensen has strong distributions capabilities, selling products through mass
merchandisers, electronic superstores, mail order catalogs and specialty audio
retailers throughout the world. In addition, Jensen is a technological leader
and product innovator. The Jensen after-market organization fits the Emerson
operating profile providing quality consumer products which are sold to large
retailers and sourced primarily in Asia, but also in Europe and North America.
We are gratified that so soon after our successful, but extremely
challenging, financial reorganization, and at a time when all companies in the
consumer electronics industry are facing the pressures of a difficult market
environment, Emerson is able to marshall the necessary financial resources for
such a transaction and attract the assistance of significant financial
institutions. We look forward to successful completion of our due-diligence
review and entering into formal agreements to consummate this acquisition, which
fits our business objectives so well."
EMERSON RADIO CORP., founded in 1948, is headquartered in Parsippany, N.J.
The Company designs and markets, throughout the world, full lines of
televisions, home and personal security equipment, timepieces, car audio, home
theater, video, audio and microwave oven products.
ANNEX III-A-2
<PAGE>
ANNEX III-B
EMERSON PRESS RELEASE DATED APRIL 23, 1995
PARSIPPANY, N.J., April 23, 1996 -- Emerson Radio Corp. (AMEX:MSN) announced
today that it had received and responded to certain questions and requests for
clarification contained in a letter from International Jensen Incorporated
("Jensen") dealing with Emerson's previously announced proposal to acquire
Jensen. In its response, Emerson reiterated certain information previously
supplied to Jensen regarding the financing arrangement it expects from Congress
Financial Corporation and the "highly confident" letter it had received from
Bankers Trust Company with regard to the working capital and acquisition capital
requirements, respectively, referenced in its initial proposal.
Emerson further advised Jensen that it now intends to purchase the entirety
of Jensen for $9.90 a share and eliminate all contingencies with respect to the
simultaneous purchase of Jensen's original equipment manufacturing ("OEM")
business by Robert Shaw, Jensen's current Chairman and Chief Executive Officer.
Under the terms of Emerson's original proposal and the acquisition transaction
that has been pending between Jensen and Recoton Corporation since early
January, Mr. Shaw was to have purchased the OEM assets with a book value of
approximately $27 million for approximately $15 million. Emerson's due diligence
review indicates that the OEM assets and business have a far greater realizable
value than $15 million and Emerson has, accordingly, elected to pursue
additional financing so as to allow it to retain and maintain that business.
Emerson anticipates that the necessary additional financing can be confirmed by
later this week.
Emerson has also advised Jensen's Board that it continues to pursue
negotiations with Mr. Shaw to mitigate or substantially reduce certain "golden
parachute" payments which might be called for under the terms of Mr. Shaw's
current employment agreement with Jensen. In light of the substantial cash
enhancement being offered to all of Jensen's shareholders by Emerson, including
Mr. Shaw who owns approximately 40% of the company, and certain modifications to
his employment arrangement which Mr. Shaw had discussed in anticipation of a
Recoton transaction, Emerson is hopeful that a reasonable accommodation can be
reached.
Emerson has also advised the Jensen Board of its positions with respect to
certain purported termination fees contained in the pending agreement between
Recoton and Jensen and is awaiting the response of Jensen's Board with regard to
these significant matters.
Gene Davis, President of Emerson Radio Corp., said, "We continue to actively
pursue our due diligence investigation and are, so far, pleasantly surprised at
what appears to be previously unappreciated but significant enhanced value
contained within the OEM business. Retention of this business has now become a
priority in this transaction and we are confident that our lenders can confirm
the necessary additional financial support to make retention of these assets
possible.
While we were not pleased with the manner in which the Jensen Board elected
to express its request for clarification of our financing, their continuing
cooperation in allowing us to complete expedited due diligence of the OEM
business should allow us to complete negotiation and documentation of the
transaction as close to our original target date of April 27, 1996 as possible.
We do not understand why the Jensen Board has chosen to apparently link
mailing of the Recoton transaction proxy statement to completion of our due
diligence review by the April 27, 1996 target date, especially since we
understand that final documentation for that transaction remains to be completed
and a number of significant valuation questions remain to be resolved. We do,
however,
ANNEX III-B-1
<PAGE>
maintain a constructive dialogue and assume that these statements reflect their
good faith efforts to honor the terms of the Recoton transaction pending
completion of our negotiations and final review of both transactions. We look
forward to the acquisition of Jensen and its integration into a larger and more
successful Emerson."
Emerson Radio Corp., founded in 1948, is headquartered in Parsippany, N.J.
The Company designs and markets, throughout the world, full lines of
televisions, home and personal security equipment, timepieces, car audio, home
theater, video, audio and microwave oven products.
ANNEX III-B-2
<PAGE>
ANNEX III-C
EMERSON PRESS RELEASE DATED MAY 1, 1996
PARSIPPANY, N.J., May 1, 1996 -- Emerson Radio Corp. (AMEX:MSN) announced
today that it has provided the Special Committee of the Board of Directors of
International Jensen Incorporated ("Jensen") with a definitive proposal to
acquire Jensen through a merger in which all of Jensen's stockholders would
receive at least $9.90 per share in cash other than Robert G. Shaw, Jensen's
Chairman and CEO, and William Blair Leveraged Capital Fund, L.P. (The "Blair
Fund") (which would receive $9.00 per share in cash). In the previously
announced revised merger agreement between Jensen and Recoton Corporation
("Recoton"), Mr. Shaw and the Blair Fund have agreed to accept the same lesser
consideration as Emerson has proposed. Emerson has supplied Jensen certain
information including a commitment letter it has received from its asset-based
lender and the "highly confident" letter it has received from the acquisition
financing lender to fund this transaction.
Emerson has advised Jensen that it now intends to purchase the entirety of
Jensen for $9.90 a share (other than shares owned by Mr. Shaw and the Blair
Fund) and has eliminated all contingencies with respect to the simultaneous
purchase of Jensen's original equipment manufacturing ("OEM") business by Robert
Shaw. Under the terms of the Recoton acquisition transaction proposal, Mr. Shaw
was to have purchased the OEM assets with a book value of approximately $27
million for approximately $15 million. Based on the advance rates set forth in
the commitment letter of its asset-based lender (which is based on an orderly
liquidation value of the OEM business), such lender would be willing to advance
150% or more above Mr. Shaw's offered purchase price for the OEM business.
Emerson's definitive proposal consists of the following:
* At least $9.90 per share, in cash, to all Jensen stockholders, other
than Robert Shaw and the Blair Fund (which will receive $9.00 per share, as
they agreed to in connection with the Recoton merger transaction).
* Emerson will honor Mr. Shaw's "golden parachute" as set forth in his
employment agreement and will place the approximately $4.8 million relating
thereto in escrow. Such amount will remain in escrow pending resolution of
the propriety of Mr. Shaw's actions in connection with his attempted
purchase, on a highly favorable basis to himself, of Jensen's OEM business
as well as his activities in rebuffing Emerson's attempts to acquire Jensen.
* To the extent of any recovery of the $4.8 million payable to Robert
Shaw as described above, Emerson would cause Jensen to distribute to all of
Jensen's stockholders, other than Mr. Shaw and the Blair Fund, 50% of such
recovery net of any costs and expenses.
* Emerson also intends to pursue the value of the Acoustic Research
trademark from all responsible parties and will also cause Jensen to
distribute to all of Jensen's stockholders, other than Mr. Shaw and the
Blair Fund, 50% of such recovery, net of any costs and expenses.
* Emerson has agreed to obtain a letter of credit for $5 million to
secure a termination fee with Jensen of a like amount if Emerson fails to
close its merger transaction due to its actions.
Under Emerson's proposal, Jensen stockholders could receive up to an
additional $2.50 per share from the recoveries set forth above.
In response to Jensen's listed factors in considering the Emerson and
Recoton proposals, Gene Davis, President of Emerson, stated:
ANNEX III-C-1
<PAGE>
" * The Emerson merger consideration is clearly superior, and is
payable entirely in cash.
* Emerson's proposal contains no contingencies, except for normal and
customary conditions to closing, such as Hart-Scott-Rodino antitrust
clearances.
* Since there are no contingencies to its proposal, Emerson's offer is
definitively $9.90 per share in cash to Jensen's outside stockholders, and
the proposal provides for no contingencies with regard to Mr. Shaw's
substantial "golden parachute" payment and resolution of Recoton's
termination fees.
* Emerson does not understand what possible "conditions" to its
financing Jensen is concerned with, and reiterates that it has, and has
binding commitments on, the full amounts necessary for its proposed
transaction.
* Emerson has agreed to a very substantial deposit of a $5 million
letter of credit to secure a termination fee of a like amount if Emerson
causes the merger not to close.
* Emerson believes its merger will close on or before June 30, 1996."
Mr. Davis also expressed his concerns regarding the options, voting
agreements, and sharing of topping offers agreed to by Robert Shaw and the Blair
Fund. Mr. Davis stated, "I believe that such arrangements are of questionable
validity."
Mr. Davis said, "We do not understand why the Jensen Board has approved a
substantially lower Recoton offer, with substantial conflicts of interest. We
regret the actions of the Special Committee of the Jensen Board and look forward
to the acquisition of Jensen."
EMERSON RADIO CORP., founded in 1948, is headquartered in Parsippany, N.J.
The Company designs and markets, throughout the world, full lines of
televisions, home and personal security equipment, timepieces, car audio, home
theater, video, audio and microwave oven products.
ANNEX III-C-2
<PAGE>
ANNEX III-D
EMERSON PRESS RELEASE DATED MAY 13, 1996
PARSIPPANY, N.J., MAY 13, 1996 -- Emerson Radio Corp. (AMEX: MSN) announced
today that it has provided the Special Committee of the Board of Directors of
International Jensen Incorporated ("Jensen") alternative proposals to acquire
Jensen through a merger, with cash merger consideration of up to $10.75 per
share, as determined by the Special Committee. The alternatives, both of which
assume that Emerson Radio will assume responsibility for Jensen's proper and
valid obligations, and will enforce all of Jensen's contractual and fiduciary
rights, are as follows:
ALTERNATIVE #1:
$10.25 per share in cash for each outstanding share of Jensen's common stock
(the "Stock").
ALTERNATIVE #2:
$10.75 per share in cash for the Stock of all holders other than Robert G.
Shaw, Jensen's Chairman, President, and Chief Executive Officer and largest
stockholder; and either
a) $8.90 per share in cash for the Stock of Mr. Shaw, reflecting his
recently reconfirmed intention to sell all of his shares for $8.90 per share
even though a higher price was being paid to other stockholders; or
b) $10.75 per share in cash for the Stock owned by Mr. Shaw if he
purchases Jensen's OEM business for $27.6 million, which is equal to the net
book value of such business as represented by Jensen and Mr. Shaw in his
capacity as Chairman of the Board and CEO, rather than the substantially
smaller sum Mr. Shaw is proposing to pay under his recently approved
proposal.
Emerson Radio also expressed its belief that the Special Committee could
properly recommend a merger transaction with disparate consideration to holders
of the Stock under Delaware law consistent with its fiduciary duties, and has
provided legal support for its position to the Special Committee. Emerson Radio
previously sought the legal basis for Jensen's refusal to consider a two-price
proposal from Emerson Radio, which mirrored transactions the Special Committee
previously approved for Jensen's largest stockholders in connection with the
proposed transaction with Recoton Corporation ("Recoton"). Jensen has so far
failed to justify its position or to respond at all.
In making these alternative proposals, Gene Davis, President of Emerson
Radio, noted that: "Once again, Emerson Radio has made clearly superior
acquisition proposals to Jensen's public stockholders and to the William Blair
Leveraged Capital Fund, L.P. (the "Blair Fund") as well, over those contained in
Jensen's agreements with Recoton and Mr. Shaw. The most recent Recoton/Shaw
proposal reflects a significant reduction both overall and to the public
stockholders in the cash consideration payable for Jensen's shares and a
significantly reduced valuation for the important "Acoustic Research" and "AR"
trademarks."
Emerson Radio noted the following factors in its analysis of the
Jensen/Recoton situation:
1. Recoton's current proposal, with a total consideration of
approximately $53 million in stock and cash, offers stockholders
significantly less than either the approximately $58 million, all in cash,
Emerson Radio had previously proposed for purchasing the Jensen shares and
the approximately $60-$62.5 million in cash Emerson Radio is now offering.
ANNEX III-D-1
<PAGE>
2. Emerson Radio's proposal offers approximately $31 million more in
cash than the current Recoton transaction. Indeed, Recoton is now offering
approximately $1.5 million less in cash than they were offering under the
prior agreement. Jensen stockholders under the Emerson proposal would be
paid the book value of Jensen's stock plus a premium, all in cash. All of
Recoton's offers have provided aggregate consideration to Jensen's
stockholders at discounts to Jensen's book value, with an increasing
percentage in Recoton stock.
3. Even with the so-called "enhanced" offer from Recoton on May 10,
Jensen stockholders will not receive significantly more actual shares of
Recoton stock than they would have under the original Recoton proposal.
Jensen stockholders have had to bear the risk of dilution on the Recoton
shares since January with no offsetting market benefit.
4. Mr. Shaw and the Blair Fund continue to express their unwillingness
to accept $8.90 per share in cash from Emerson Radio when each is willing to
accept such amount from Recoton, which is paying only 55% in cash and 45% in
restricted stock.
5. Mr. Shaw, through his purchase of the OEM business, is taking an
almost $13 million benefit (approximately $6.00 per share on Mr. Shaw's
shares only) from Jensen while all other stockholders are being asked to
accept a discount from book value in the sale of their shares to Recoton.
6. The Jensen Board and the Special Committee, in connection with their
sale to Recoton, have inexplicably reduced the valuation of the "Acoustic
Research" and "AR" trademarks from $6 million in January to $3.5 million in
May of this year.
7. Mr. Shaw has been willing to waive his claim for up to $4.8 million
in "golden parachute" payments in the $8.90 per share Recoton transaction
but has not been willing to consider this with Emerson Radio's $9.90 per
share all cash bid.
8. The Special Committee includes a partner from the law firm which
regularly advises Jensen, and which is also acting as an escrow agent for
the benefit of Recoton in acquiring the "Acoustic Research" and "AR"
trademarks.
Finally, Mr. Davis stated: "There should be no mistake. Emerson Radio
intends to acquire Jensen, in spite of the repeated attempts to derail our
efforts. As highlighted by the complaint filed in the Delaware Chancery Court by
a Jensen stockholder to enjoin the consummation of the Recoton transaction, the
OEM agreement with Mr. Shaw and the various side agreements contemplated by that
agreement are clearly one-sided self-dealing in favor of Mr. Shaw, and Jensen's
Board has not adequately protected Jensen or obtained a fair transaction for
itself or its stockholders. The current Emerson Radio proposals are extremely
fair to Jensen's stockholders, reflect verified values for all assets of Jensen,
contain no insider, unfairly preferential deals, and will be mutually beneficial
to Jensen's stockholders and to Emerson Radio and its stockholders."
Mr. Davis observed that late last Friday, Jensen filed a lawsuit against
Emerson Radio in federal court in Chicago, Illinois, alleging violations of
Section 14 of the Securities Exchange Act of 1934, and state law breach of
contract claims. "This litigation is an unfounded attempt to keep Emerson from
discussing the merits of its superior proposals, and we will contest this
litigation vigorously." Mr. Davis also noted that shareholders of Jensen have
questioned the decisions by the Jensen board of directors in accepting the
Recoton proposal and rejecting the Emerson proposal in a lawsuit filed in the
Delaware Chancery Court, seeking temporary and permanent injunctive relief.
EMERSON RADIO CORP., founded in 1948, is headquartered in Parsippany, N.J.
The Company designs and markets, throughout the world, full lines of
televisions, home and personal security equipment, timepieces, car audio, home
theater, video, audio, and microwave oven products.
ANNEX III-D-2
<PAGE>
ANNEX III-E
EMERSON PRESS RELEASE DATED JUNE 25, 1996
PARSIPPANY, N.J., JUNE 25, 1996 -- Emerson Radio Corp. (AMEX: MSN) announced
today that Emerson has advised International Jensen Incorporated ("Jensen") it
is prepared to enter into a revised transaction where all stockholders other
than the Recoton Corporation ("Recoton")/Robert G. Shaw/William Blair Leveraged
Capital Fund, L.P. ("Blair") group would receive all cash consideration of
$12.00 per share, with the Recoton/Shaw/Blair group to receive the same $8.90
per share in cash to which they have recently agreed with Recoton. The higher
offer was announced in response to a press release issued by Jensen yesterday
morning, in which Emerson, for the first time, learned of a new proposal from
Recoton and Robert G. Shaw, Jensen's current Chairman, CEO, and largest
stockholder, with regard to the proposed acquisition of Jensen by Recoton/Shaw.
The latest Recoton/Shaw proposal preserves the two-tier pricing embodied in
previous Recoton/ Shaw proposals, where Shaw agrees to receive $8.90 per share
for his shares and is allowed to purchase the original equipment manufacturing
("OEM") business of Jensen at a significant discount to book value. In addition,
the shares currently held in Blair's name, for which Recoton holds a voting
proxy and an option to acquire, would also be purchased by Recoton for $8.90 per
share. Shares held by stockholders outside of the Recoton/Shaw/Blair group would
be purchased at $11.00 per share.
Emerson has, on a number of occasions, presented proposals to Jensen which
have proposed uniform pricing per share for all stockholders, including Shaw and
Blair. The most recent unconditional proposal by Emerson was at $10.25 per
share, for all outstanding shares of Jensen. Emerson has also offered all-cash
proposals at $10.75 per share predicated upon Mr. Shaw purchasing the OEM
business at its undiscounted net book value or agreeing to take the same $8.90
per share to which he has agreed on numerous occasions with Recoton.
Emerson believes no proposal from Emerson will be fairly considered by the
Jensen Board. Accordingly, in advising the Jensen Board of its latest proposal,
Emerson has further notified the Jensen Board that it intends to file proxy
solicitation materials with the Securities and Exchange Commission and, upon
approval of such materials, will actively solicit Jensen stockholders with
respect to the transaction. In addition, Emerson believes that final
determination of the issues raised in the various stockholder lawsuits brought
against Jensen, Jensen Board members, Shaw, and Recoton in the Delaware Chancery
Court, when coupled with solicitation of Jensen's outside stockholders, will
finally resolve this matter.
EMERSON RADIO CORP., founded in 1948, is headquartered in Parsippany, N.J.
The Company designs and markets, throughout the world, full lines of
televisions, home and personal security equipment, timepieces, car audio, home
theater, video, audio and microwave oven products.
ANNEX III-E-1
<PAGE>
(This page has been left blank intentionally.)
<PAGE>
ANNEX III-F
EMERSON PRESS RELEASE DATED JUNE 27, 1996
PARSIPPANY, N.J.--(BUSINESS WIRE)-- June 27, 1996--Emerson Radio Corp.
(AMEX: MSN) announced today that it had received certain correspondence from
Lehman Brothers, investment bankers representing the Board of Directors of
International Jensen Incorporated ("Jensen"), and had reviewed the text of a
press release issued by Jensen regarding its position with respect to the
rejection of Emerson's latest $12.00 per share proposal to acquire all of the
issued and outstanding shares held by stockholders other than the Recoton
Corporation/Robert Shaw/William Blair Leveraged Capital Fund, L.P. control
group.
The members of the control group would receive the same $8.90 per share that
they have agreed to accept from Recoton Corporation ("Recoton") on at least
three previous occasions, including the latest action of the Jensen Board on
June 24, 1996.
Emerson will not publicly respond to material misstatements made by Jensen
in its press release and by Lehman Brothers in its correspondence until such
time as Emerson has filed proxy solicitation materials with the Securities and
Exchange Commission. In addition Emerson expects to be called as a material
witness in the Delaware stockholder actions pending against Jensen, Recoton, the
Jensen Board members, Shaw and the Blair Fund. Emerson believes that the
Delaware court will be asked to decide whether a control group made up of
company directors can deny outside stockholders a higher price per share by
voluntarily agreeing to accept a Lower price per share for themselves from one
member of their group while rejecting an identical proposal from an outside
bidder that further enhances the premium to be paid to disinterested
stockholders. Accordingly, at this time, Emerson will only reaffirm its
continued commitment to acquire Jensen and its commitment to its most recent
$12.00 per share proposal to Jensen's outside stockholders.
EMERSON RADIO CORP., founded in 1948, is headquartered in Parsippany, N.J.
The company designs and markets, throughout the world, full lines of
televisions, home and personal security equipment, timepieces, car audio, home
theater, video, audio and microwave oven products.
ANNEX III-F-1
<PAGE>
ANNEX III-G
EMERSON PRESS RELEASE DATED JULY 16, 1996
PARSIPPANY, N.J., July 16, 1996 -- Emerson Radio Corp. (AMEX: MSN) announced
today that it had revised the terms of its previous proposal to acquire all of
the issued and outstanding shares of International Jensen Incorporated
("Jensen"). Under the terms of the revised proposal, Emerson would purchase all
outstanding shares other than those held by Robert Shaw, Jensen's Chairman,
Chief Executive Officer, and largest stockholder, and the William Blair
Leveraged Capital Fund ("Blair Fund"), Jensen's second largest stockholder, at a
purchase price of $12.00 per share. The Shaw shares would be purchased at $8.90
per share as set forth in Emerson's proposal of June 25, 1996, the same price as
previously agreed to between Shaw and Recoton Corporation ("Recoton"), a
competing bidder for Jensen. However, as a result of new information contained
in Jensen's public disclosures with respect to the revised Recoton transaction,
and in a Supplemental Complaint filed in the Delaware stockholder litigation
seeking to enjoin the Recoton transaction, Emerson is prepared to offer Blair a
purchase price of $10.00 per share, a price higher than the $8.90 per share
Blair had originally agreed to accept from Recoton.
Emerson attributed the revised purchase price offered to Blair to the fact
that the agreements embodying the most recent Recoton transaction had only
become available within the last few days. Under the revised Recoton documents,
it appears that the agreement previously entered into between the Blair Fund and
Recoton, under which Blair had given voting control over its shares to Recoton
and had agreed not to sell its shares to any other party, had terminated on July
15, 1996. A similar interpretation is contained in the Supplemental Complaint
filed in the Delaware stockholder litigation. As a result, Emerson believes
Blair is now free to vote in favor of any proposal, including Emerson's, and is
also free to sell its stock to Emerson.
Emerson has also proposed to Blair that it purchase Blair's stock
immediately. However, under the terms of a Confidentiality Agreement entered
into between Jensen and Emerson, such a purchase may require the consent of
Jensen's Board of Directors. This Confidentiality Agreement is the subject of a
counterclaim by Emerson against Jensen in the Chicago Federal Court that seeks,
among other things, to set aside the Confidentiality Agreement. Accordingly,
Emerson has indicated to Blair that the purchase of its stock for approximately
$14,875,000 could be closed as soon as possible if Emerson or Blair can secure
the consent of the Jensen Board or if a favorable ruling in the Chicago
litigation is obtained. Otherwise, Blair would receive its payment at the same
time as the other stockholders upon closing of a merger transaction between
Emerson and Jensen.
Emerson Radio Corp., founded in 1948, is headquartered in Parsippany, N.J.
The Company designs and markets, throughout the world, full lines of
televisions, home and personal security equipment, timepieces, car audio, home
theater, video, audio and microwave oven products.
ANNEX III-G-1
<PAGE>
ANNEX IV
[LETTERHEAD]
July 23, 1996
Board of Directors
International Jensen Incorporated
25 Tri-State International Office Center
LincolnShire, IL 60069
Members of the Board:
We understand that pursuant to a proposed Fourth Amended and Restated
Agreement and Plan of Merger dated as of January 3, 1996 (the "Merger
Agreement") among International Jensen Incorporated ("IJI" or the "Company"),
Recoton Corporation ("Recoton") and RC Acquisition Sub, Inc., a wholly-owned
subsidiary of Recoton ("Acquisition Sub"), IJI and Recoton intend to consummate
a transaction in which Acquisition Sub will merge with and into IJI (the
"Proposed Transaction"), with IJI as the surviving corporation and a subsidiary
of Recoton. In the Proposed Transaction, each outstanding share of common stock
of IJI held by stockholders other than Robert Shaw, Chief Executive Officer of
the Company, and William Blair Leveraged Capital Fund, L.P. (the "Public
Stockholders") will be converted into the right to receive $11.00 in cash, while
each outstanding share held by Robert Shaw and William Blair Leveraged Capital
Fund, L.P. will be converted into the right to receive $8.90 in cash. The terms
and conditions of the Proposed Transaction are set forth in more detail in the
Merger Agreement and related documents.
We further understand that William Blair Leveraged Capital Fund, L.P. has
agreed with Recoton to vote its 1,487,500 shares of IJI common stock in favor of
the Proposed Transaction and has granted Recoton an option to purchase its
shares of IJI for $8.90 per share plus 50% of any net proceeds which Recoton
receives upon sale of such shares to the extent such net proceeds do not exceed
$10.90 per share plus 100% of the net proceeds which Recoton may receive over
$10.90 per share upon such sale. Robert Shaw has agreed with Recoton to give
Recoton 50% of the difference between the net after-tax proceeds he receives
from the sale of his 2,111,854 shares to a third person other than Recoton and
$8.90 per share, up to a maximum of $0.88 per share.
At the insistence of Recoton, the Proposed Transaction is conditioned upon
the prior sale of the Company's OEM and Manufacturing businesses (together, the
"OEM Business"). The Company has reached an agreement to sell the OEM Business
(the "Proposed OEM Sale") to a new company formed by Robert Shaw. The terms and
conditions of the Proposed OEM Sale, including certain restrictive agreements
relating to the future operation of the OEM business, are set forth in more
detail in the proposed Third Amended and Restated Agreement for Purchase and
Sale of the Assets of the OEM Business (the "OEM Agreement"). The consideration
to be received by the Company for the OEM Business is set forth in the OEM
Agreement and the other agreements contemplated thereby or required to be
entered into thereunder, including the Merger Agreement.
We have been requested by the Board of Directors of the Company to render
our opinion with respect to the fairness, from a financial point of view, (i) to
the Public Stockholders of the consideration to be received by the Public
Stockholders in the Proposed Transaction and (ii) to the Company of the
consideration to be received by the Company in the Proposed OEM Sale. We have
not been requested to opine as to, and our opinion does not in any manner
address, the Company's underlying business decision to proceed with or effect
the Proposed Transaction or the Proposed OEM Sale.
In arriving at our opinion, we reviewed and analyzed: (1) the Merger
Agreement and the specific terms of the Proposed Transaction and the OEM
Agreement and specific terms of the Proposed OEM
ANNEX IV-1
<PAGE>
sale, (2) the Company's Annual Reports to Shareholders for the fiscal years
ended the last day of February 1992 through 1995 and Annual Reports on Form 10-K
for the fiscal years ended the last day of February 1992 through 1996, (3)
Recoton's Annual Reports to Shareholders and Annual Reports on Form 10-K for the
fiscal years ended December 31, 1991 through 1995 and the Quarterly Reports on
Form 10-Q for the quarter ended March 31, 1996, (4) financial and operating
information with respect to the business, operations and prospects of the
Company and the OEM Business furnished to us by the Company, (5) certain
historical financial and operating information with respect to the business and
operations of Recoton furnished to us by Recoton, (6) the trading history of the
Company's common stock from February 12, 1992 to the present and a comparison of
that trading history with those of other companies that we deemed relevant, (7)
a comparison of the historical financial results and present financial condition
of the Company, the OEM Business and Recoton with those of other companies and
businesses that we deemed relevant, and (8) a comparison of the financial terms
of the Proposed Transaction with the financial terms of certain other recent
transactions that we deemed relevant.
In addition, in arriving at our opinion, we considered the results of
efforts to solicit indications of interest from certain third parties approved
by the Company with respect to an acquisition of the Company. We also considered
the terms of the offer to purchase the Company received from Emerson Radio Corp.
for $12.00 per share in cash for all of the Public Stockholders, with Robert
Shaw and the William Blair Leveraged Capital Fund, L.P. to receive $8.90 per
share in cash (the "Proposed Emerson Transaction"), and the extensive
discussions among Emerson Radio Corp., the Company and their respective
representatives. We also took into account the advice from Robert Shaw and
William Blair Leveraged Capital Fund, L.P. that they are unwilling to vote in
favor of the Proposed Emerson Transaction and the advice of Delaware legal
counsel to the Special Committee of the Company's Board of Directors that,
without such favorable votes, the Proposed Emerson Transaction could not be
approved by the Company's stockholders as required by the Delaware General
Corporation Law.
In arriving at our opinion, we also have had discussions with the
managements of the Company and Recoton concerning their respective businesses,
operations, assets, financial condition and prospects. In addition, we have had
discussions with the managements of the Company and the OEM Business concerning
the business, operations, assets, financial condition and prospects of the OEM
Business, including the OEM Business' future prospects on a stand-alone basis
and the alternatives available to the Company with respect to the OEM Business
given the requirement of a disposition of the OEM Business imposed by Recoton as
a condition to the consummation of the Proposed Transaction. We also have
reviewed two reports delivered to the Company by Key Account Systems, a
consulting firm hired by the Company, regarding the current status of the OEM
Business' relationships with Ford Motor Company and Chrysler Corporation, its
two principal customers, held discussions with Key Account Systems regarding
these reports and have reviewed certain internal IJI memorandum regarding the
status of the Ford Motor Company and Chrysler Corporation relationships in light
of current business conditions and ownership uncertainty. We also undertook such
other studies, analyses and investigations as we deemed appropriate.
In arriving at our opinion, we have assumed and relied upon the accuracy and
completeness of the financial and other information used by us without assuming
any responsibility for independent verification of such information and have
further relied upon the assurances of management of the Company that they are
not aware of any facts that would make such information inaccurate or
misleading. With respect to the financial forecasts of the Company, including
the OEM Business, since the Company's recent operating results have fallen
significantly below historical results and, with the exception of the most
recent fiscal quarter, management's expectations, for purposes of our analysis
we have relied primarily upon extrapolations of and sensitivity analyses to the
Company's most recent operating results. We have discussed with the management
of the Company, and they have agreed with, the appropriateness of the use of
this approach in performing our analysis. In arriving at our opinion, we have
conducted only a limited physical inspection of the properties and facilities of
the Company and the OEM Business and have not made or obtained any evaluations
or appraisals of the
ANNEX IV-2
<PAGE>
assets or liabilities of the Company or the OEM Business. We did, however,
consider a third party's indication of loan value on a liquidation basis of the
OEM Business as a part of the Proposed Emerson Transaction. In addition, you
have not authorized us to solicit, and we have not solicited, any indications of
interest from any third party with respect to the purchase of all or a part of
the OEM Business due to your concerns that such contacts might have a material
adverse impact on the OEM Business and/or its relationships with key customers.
Our opinion necessarily is based upon market, economic and other conditions as
they exist on, and can be evaluated as of, the date of this letter.
Based upon and subject to the foregoing, we are of the opinion as of the
date hereof that, from a financial point of view, (i) the consideration to be
received by the Public Stockholders in the Proposed Transaction is fair to the
Public Stockholders, and (ii) since Recoton requires the prior sale of the OEM
Business as a condition to the consummation of the Proposed Transaction, the
consideration to be received by the Company in the Proposed OEM Sale, within the
context of the overall Proposed Transaction and the consideration to be received
by the Public Stockholders in the Proposed Transaction, is fair to the Company.
We have acted as financial advisor to the Company in connection with the
Proposed Transaction and will receive a fee for our services which is contingent
upon the consummation of the Proposed Transaction. In addition, the Company has
agreed to indemnify us for certain liabilities that may arise out of the
rendering of this opinion. In the ordinary course of our business, we may trade
in the equity securities of the Company and Recoton for our own account and for
the accounts of our customers and, accordingly, may at any time hold a long or
short position in such securities.
This opinion is for the use and benefit of the Board of Directors of the
Company (including the Special Committee thereof) and has been rendered to the
Board of Directors of the Company in connection with its consideration of the
Proposed transaction. This opinion is not intended to be and does not constitute
a recommendation to any stockholder of the Company as to how such stockholder
should vote with respect to the Proposed Transaction.
Very truly yours,
LEHMAN BROTHERS
ANNEX IV-3
<PAGE>
(This page has been left blank intentionally.)
<PAGE>
ANNEX V
SECTION 262 OF DGCL
APPRAISAL RIGHTS. -- (a) Any stockholder of a corporation of this State who
holds shares of stock on the date of the making of a demand pursuant to
subsection (d) of this section with respect to such shares, who continuously
holds such shares through the effective date of the merger or consolidation, who
has otherwise complied with subsection (d) of this section and who has neither
voted in favor of the merger or consolidation nor consented thereto in writing
pursuant to Section228 of this title shall be entitled to an appraisal by the
Court of Chancery of the fair value of his shares of stock under the
circumstances described in subsections (b) and (c) of this section. As used in
this section, the word "stockholder" means a holder of record of stock in a
stock corporation and also a member of record of a nonstock corporation; the
words "stock" and "share" mean and include what is ordinarily meant by those
words and also membership or membership interest of a member of a nonstock
corporation; and the words "depository receipt" mean a receipt or other
instrument issued by a depository representing an interest in one or more
shares, or fractions thereof, solely of stock of a corporation, which stock is
deposited with the depository.
(b) Appraisal rights shall be available for the shares of any class or
series of stock of a constituent corporation in a merger or consolidation to be
effected pursuant to SectionSection251 (other than a merger effected pursuant to
subsection (g) of Section251), 252, 254, 257, 258, 263 or 264 of this title:
(1) Provided, however, that no appraisal rights under this section shall
be available for the shares of any class or series of stock, which stock, or
depository receipts in respect thereof, at the record date fixed to
determine the stockholders entitled to receive notice of and to vote at the
meeting of stockholders to act upon the agreement of merger or
consolidation, were either (i) listed on a national securities exchange or
designated as a national market system security on an interdealer quotation
system by the National Association of Securities Dealers, Inc. or (ii) held
of record by more than 2,000 holders; and further provided that no appraisal
rights shall be available for any shares of stock of the constituent
corporation surviving a merger if the merger did not require for its
approval the vote of the holders of the surviving corporation as provided in
subsection (f) of Section251 of this title.
(2) Notwithstanding paragraph (1) of this subsection, appraisal rights
under this section shall be available for the shares of any class or series
of stock of a constituent corporation if the holders thereof are required by
the terms of an agreement of merger or consolidation pursuant to
SectionSection251, 252, 254, 257, 258, 263 and 264 of this title to accept
for such stock anything except:
a. Shares of stock of the corporation surviving or resulting from
such merger or consolidation, or depository receipts in respect thereof;
b. Shares of stock of any other corporation, or depository receipts
in respect thereof, which shares of stock or depository receipts at the
effective date of the merger or consolidation will be either listed on a
national securities exchange or designated as a national market system
security on an interdealer quotation system by the National Association
of Securities Dealers, Inc. or held of record by more than 2,000 holders;
c. Cash in lieu of fractional shares or fractional depository
receipts described in the foregoing subparagraphs a. and b. of this
paragraph; or
d. Any combination of the shares of stock, depository receipts and
cash in lieu of fractional shares or fractional depository receipts
described in the foregoing subparagraphs a., b. and c. of this paragraph.
(3) In the event all of the stock of a subsidiary Delaware corporation
party to a merger effected under Section253 of this title is not owned by
the parent corporation immediately prior to the merger, appraisal rights
shall be available for the shares of the subsidiary Delaware corporation.
ANNEX V-1
<PAGE>
(c) Any corporation may provide in its certificate of incorporation that
appraisal rights under this section shall be available for the shares of any
class or series of its stock as a result of an amendment to its certificate of
incorporation, any merger or consolidation in which the corporation is a
constituent corporation or the sale of all or substantially all of the assets of
the corporation. If the certificate of incorporation contains such a provision,
the procedures of this section, including those set forth in subsections (d) and
(e) of this section, shall apply as nearly as is practicable.
(d) Appraisal rights shall be perfected as follows:
(1) If a proposed merger or consolidation for which appraisal rights are
provided under this section is to be submitted for approval at a meeting of
stockholders, the corporation, not less than 20 days prior to the meeting,
shall notify each of its stockholders who was such on the record date for
such meeting with respect to shares for which appraisal rights are available
pursuant to subsections (b) or (c) hereof that appraisal rights are
available for any or all of the shares of the constituent corporations, and
shall include in such notice a copy of this section. Each stockholder
electing to demand the appraisal of his shares shall deliver to the
corporation, before the taking of the vote on the merger or consolidation, a
written demand for appraisal of his shares. Such demand will be sufficient
if it reasonably informs the corporation of the identity of the stockholder
and that the stockholder intends thereby to demand the appraisal of his
shares. A proxy or vote against the merger or consolidation shall not
constitute such a demand. A stockholder electing to take such action must do
so by a separate written demand as herein provided. Within 10 days after the
effective date of such merger or consolidation, the surviving or resulting
corporation shall notify each stockholder of each constituent corporation
who has complied with this subsection and has not voted in favor of or
consented to the merger or consolidation of the date that the merger or
consolidation has become effective; or
(2) If the merger or consolidation was approved pursuant to
SectionSection228 or 253 of this title, the surviving or resulting
corporation, either before the effective date of the merger or consolidation
or within 10 days thereafter, shall notify each of the stockholders entitled
to appraisal rights of the effective date of the merger or consolidation and
that appraisal rights are available for any or all of the shares of the
constituent corporation, and shall include in such notice a copy of this
section. The notice shall be sent by certified or registered mail, return
receipt requested, addressed to the stockholder at his address as it appears
on the records of the corporation. Any stockholder entitled to appraisal
rights may, within 20 days after the date of mailing of the notice, demand
in writing from the surviving or resulting corporation the appraisal of his
shares. Such demand will be sufficient if it reasonably informs the
corporation of the identity of the stockholder and that the stockholder
intends thereby to demand the appraisal of his shares.
(e) Within 120 days after the effective date of the merger or consolidation,
the surviving or resulting corporation or any stockholder who has complied with
subsections (a) and (d) hereof and who is otherwise entitled to appraisal
rights, may file a petition in the Court of Chancery demanding a determination
of the value of the stock of all such stockholders. Notwithstanding the
foregoing, at any time within 60 days after the effective date of the merger or
consolidation, any stockholder shall have the right to withdraw his demand for
appraisal and to accept the terms offered upon the merger or consolidation.
Within 120 days after the effective date of the merger or consolidation, any
stockholder who has complied with the requirements of subsections (a) and (d)
hereof, upon written request, shall be entitled to receive from the corporation
surviving the merger or resulting from the consolidation a statement setting
forth the aggregate number of shares not voted in favor of the merger or
consolidation and with respect to which demands for appraisal have been received
and the aggregate number of holders of such shares. Such written statement shall
be mailed to the stockholder within 10 days after his written request for such a
statement is received by the surviving or resulting corporation or within 10
days after expiration of the period for delivery of demands for appraisal under
subsection (d) hereof, whichever is later.
ANNEX V-2
<PAGE>
(f) Upon the filing of any such petition by a stockholder, service of a copy
thereof shall be made upon the surviving or resulting corporation, which shall
within 20 days after such service file in the office of the Register in Chancery
in which the petition was filed a duly verified list containing the names and
addresses of all stockholders who have demanded payment for their shares and
with whom agreements as to the value of their shares have not been reached by
the surviving or resulting corporation. If the petition shall be filed by the
surviving or resulting corporation, the petition shall be accompanied by such a
duly verified list. The Register in Chancery, if so ordered by the Court, shall
give notice of the time and place fixed for the hearing of such petition by
registered or certified mail to the surviving or resulting corporation and to
the stockholders shown on the list at the addresses therein stated. Such notice
shall also be given by 1 or more publications at least 1 week before the day of
the hearing, in a newspaper of general circulation published in the City of
Wilmington, Delaware or such publication as the Court deems advisable. The forms
of the notices by mail and by publication shall be approved by the Court, and
the costs thereof shall be borne by the surviving or resulting corporation.
(g) At the hearing on such petition, the Court shall determine the
stockholders who have complied with this section and who have become entitled to
appraisal rights. The Court may require the stockholders who have demanded an
appraisal for their shares and who hold stock represented by certificates to
submit their certificates of stock to the Register in Chancery for notation
thereon of the pendency of the appraisal proceedings; and if any stockholder
fails to comply with such direction, the Court may dismiss the proceedings as to
such stockholder.
(h) After determining the stockholders entitled to an appraisal, the Court
shall appraise the shares, determining their fair value exclusive of any element
of value arising from the accomplishment or expectation of the merger or
consolidation, together with a fair rate of interest, if any, to be paid upon
the amount determined to be the fair value. In determining such fair value, the
Court shall take into account all relevant factors. In determining the fair rate
of interest, the Court may consider all relevant factors, including the rate of
interest which the surviving or resulting corporation would have had to pay to
borrow money during the pendency of the proceeding. Upon application by the
surviving or resulting corporation or by any stockholder entitled to participate
in the appraisal proceeding, the Court may, in its discretion, permit discovery
or other pretrial proceedings and may proceed to trial upon the appraisal prior
to the final determination of the stockholder entitled to an appraisal. Any
stockholder whose name appears on the list filed by the surviving or resulting
corporation pursuant to subsection (f) of this section and who has submitted his
certificates of stock to the Register in Chancery, if such is required, may
participate fully in all proceedings until it is finally determined that he is
not entitled to appraisal rights under this section.
(i) The Court shall direct the payment of the fair value of the shares,
together with interest, if any, by the surviving or resulting corporation to the
stockholders entitled thereto. Interest may be simple or compound, as the Court
may direct. Payment shall be so made to each such stockholder, in the case of
holders of uncertificated stock forthwith, and the case of holders of shares
represented by certificates upon the surrender to the corporation of the
certificates representing such stock. The Court's decree may be enforced as
other decrees in the Court of Chancery may be enforced, whether such surviving
or resulting corporation be a corporation of this State or of any state.
(j) The costs of the proceeding may be determined by the Court and taxed
upon the parties as the Court deems equitable in the circumstances. Upon
application of a stockholder, the Court may order all or a portion of the
expenses incurred by any stockholder in connection with the appraisal
proceeding, including, without limitation, reasonable attorney's fees and the
fees and expenses of experts, to be charged pro rata against the value of all
the shares entitled to an appraisal.
(k) From and after the effective date of the merger or consolidation, no
stockholder who has demanded his appraisal rights as provided in subsection (d)
of this section shall be entitled to vote such stock for any purpose or to
receive payment of dividends or other distributions on the stock (except
dividends or other distributions payable to stockholders of record at a date
which is prior to
ANNEX V-3
<PAGE>
the effective date of the merger or consolidation); provided, however, that if
no petition for an appraisal shall be filed within the time provided in
subsection (e) of this section, or if such stockholder shall deliver to the
surviving or resulting corporation a written withdrawal of his demand for an
appraisal and an acceptance of the merger or consolidation, either within 60
days after the effective date of the merger or consolidation as provided in
subsection (e) of this section or thereafter with the written approval of the
corporation, then the right of such stockholder to an appraisal shall cease.
Notwithstanding the foregoing, no appraisal proceeding in the Court of Chancery
shall be dismissed as to any stockholder without the approval of the Court, and
such approval may be conditioned upon such terms as the Court deems just.
(l) The shares of the surviving or resulting corporation to which the shares
of such objecting stockholders would have been converted had they assented to
the merger or consolidation shall have the status of authorized and unissued
shares of the surviving or resulting corporation. (Last amended by Ch. 299, L.
'95, eff. 2-1-96.)
ANNEX V-4
<PAGE>
ANNEX VI
AMENDED AND RESTATED EXCLUSIVE WORLD-WIDE LICENSE AND OPTION TO SELL AND OPTION
TO PURCHASE PROPRIETARY RIGHTS
THIS AMENDED AND RESTATED AGREEMENT made by and entered into as of the 3rd
day of January, 1996, by and between International Jensen Incorporated, a
Delaware corporation, with its principal place of business at 25 Tri-State
International Office Center, Suite 400, Lincolnshire, IL 60069 ("Jensen") and
Recoton Corporation, a New York corporation, with its principal place of
business at 2950 Lake Emma Road, Lake Mary, FL 32746 ("Recoton").
W I T N E S S E T H:
WHEREAS, Jensen is the owner of the trademarks "Acoustic Research" and "AR"
and certain other trademarks (registered or unregistered), trademark
applications, service marks, trade names, copyrights, trade secrets, and similar
intangible rights associated with such trademarks, including the marks and other
rights described on Exhibit "A", and the good will associated therewith, whether
or not reflected on the books and records of Jensen (collectively, the
"Intellectual Property Rights"); and
WHEREAS, Jensen and Recoton entered into an agreement captioned "EXCLUSIVE
WORLD-WIDE LICENSE AND OPTION TO SELL AND OPTION TO PURCHASE PROPRIETARY RIGHTS"
effective as of January 3, 1996 (the "License and Option Agreement") pursuant to
which Jensen granted to Recoton, INTER ALIA, an option to purchase the
trademarks "Acoustic Research" and "AR" (the "Marks") from Jensen and Recoton
granted to Jensen an option to sell the Marks to Recoton under certain
conditions;
WHEREAS, the License and Option Agreement was amended on or about May 9,
1996 pursuant to a written amendment;
WHEREAS, the parties desire to further amend the License and Option
Agreement.
NOW, THEREFORE, in consideration of the premises and mutual covenants
hereinafter set forth, the parties mutually agree to amend and restate the
License and Option Agreement, as previously amended, to read as follows:
1. LICENSE OF PROPRIETARY RIGHTS.
(a) Jensen herewith grants to Recoton an exclusive worldwide license of
the Intellectual Property Rights (the "License") in consideration of a
payment of a License Fee (as provided for in Section 5, below) by Recoton to
Jensen during the term of the License. The License shall commence upon the
date hereof and expire upon the earlier of (i) the Effective Time as defined
in the Plan and Agreement of Merger between, INTER ALIA, Recoton and Jensen
dated the date hereof (the "Merger Agreement") or (ii) the date of the
exercise of either the Purchase Option (as defined below) or the Sale Option
(as defined below) (the Purchase Option and the Sale Option sometimes being
referred to collectively as the "Options") or (iii) December 31, 2000 (the
"Termination Date"). As used throughout this Agreement, the period from
January 1 (January 3 for 1996) through December 31 of each year during the
term of this Agreement is referred to herein as an "Annual Period."
2. OPTION TO PURCHASE AND OPTION TO SELL THE PROPRIETARY RIGHTS.
(a) Jensen herewith grants to Recoton an option to purchase all of the
Intellectual Property Rights together with the goodwill associated therewith
on a world-wide basis from Jensen (the "Purchase Option"), exercisable by
Recoton on at least five days prior written notice given at any time after
the date hereof such that the purchase shall occur at a time stated (the
"Purchase
ANNEX VI-1
<PAGE>
Date") prior to the Termination Date. In consideration of the grant of the
Purchase Option, Recoton shall pay Jensen a fee of $4,000 per month from the
date hereof until exercise of either of the Options or until the Termination
Date.
(b) Recoton herewith grants to Jensen an option to sell all of the
Intellectual Property Rights together with the goodwill associated therewith
on a world-wide basis to Recoton (the "Sale Option"), exercisable by Jensen
at any time after the termination of the Merger Agreement and before the
Termination Date. The sale shall occur on the later of the fifth business
day following the day upon which the Merger Agreement is terminated or the
second business day following the exercise of the Sale Option (the "Purchase
Date"). In consideration of the grant of the Sale Option, Jensen shall pay
Recoton a fee of $4,000 per month from the date hereof until exercise of
either of the Options or until the Termination Date.
(c) On the Purchase Date, Recoton shall pay to Jensen $3.5 million (the
"Purchase Price") by wire transfer or by certified check and Jensen shall
execute and deliver to Recoton the Assignment of Trademarks and Assignment
of Copyrights and, if applicable, the Assignment of Patents attached hereto
as Exhibits "B", "C" and "D" respectively. All assets of Jensen other than
the Intellectual Property Rights are specifically excluded from the assets
subject to the Options.
3. EXTENSION OF TERM OF LICENSE AND OPTIONS. If any dispute should arise
between Jensen and Recoton during the term of the License or the Option
regarding or otherwise affecting the ability of Recoton or Jensen to exercise
one or both of the Options, or regarding the validity of the License, the
License shall remain in full force and effect notwithstanding any such dispute,
and the License and the Options shall otherwise continue on the terms and
conditions set forth herein, until the earlier of resolution of such dispute by
the parties or the expiration of 30 days following the time within which to
appeal any final judgement in any litigation arising from such dispute has
lapsed (the "Extended Termination Date") and all references herein to the
Termination Date shall be deemed references to the Extended Termination Date.
4. TERMINATION
(a) This Agreement shall continue until the end of the term provided in
Section 1 except that Jensen may at any time, immediately upon written
notice to Recoton, terminate this Agreement upon the occurrence of any of
the following events:
(1) Recoton (i) becomes subject to a receiver or trustee, (ii)
becomes insolvent, (iii) becomes subject to an involuntary petition under
the United States Bankruptcy Act, as amended, for whatever reason, or
(iv) makes an assignment for the benefit of its creditors and any of the
foregoing exists for more than 30 days, and Recoton or any person or
entity acting in its behalf fails to provide Jensen with adequate
assurance, as reasonably determined by Jensen, of Recoton's ability to
fully perform its obligations under this Agreement within 30 days of any
of the above-mentioned acts or events;
(2) Recoton materially breaches or fails to perform any material
obligation under this Agreement and such breach or failure continues for
30 days (or such other extended time as may be agreed upon between the
parties) after receiving written notice from Jensen of such breach or
failure; or
(3) any warranty or representation made by Recoton under Section 9 is
materially false or misleading.
Any such termination by Jensen shall be without prejudice to any of Jensen's
other rights or remedies.
(b) If the License should terminate other than pursuant to exercise of
the Options or effectiveness of the merger pursuant to the Merger Agreement,
Recoton shall cease manufacturing products bearing the licensed trademarks
and refrain from further use of the Intellectual
ANNEX VI-2
<PAGE>
Property Rights; PROVIDED, HOWEVER, that Recoton shall, for a period of 12
months following the date of said termination have the right to continue to
sell products manufactured prior to such termination bearing the licensed
trademarks and use related advertising, promotion and packaging materials on
a non-exclusive basis.
5. ROYALTIES, RECORDS AND REPORTS
(a) For the rights and privileges granted under the License, Recoton
shall pay Jensen, in the manner hereinafter provided, the following
royalties:
(i) For the first Annual Period of this Agreement, royalties of
$10,000 per month, due by the tenth day of the succeeding month.
(ii) For the balance of the term of this Agreement, a sum equal to
the greater of (i) $10,000 per month (the "Minimum Royalty"), or (ii)
four percent (4%) of Net Shipments (the "Earned Royalties"). As used
throughout this Agreement, the term "Net Shipments" shall mean the
aggregate of the gross invoiced amounts of articles subject to this
License (the "Licensed Products") which are sold, shipped, distributed,
and/or provided by Recoton, less (1) refunds, credits, and allowances
made or allowed by Recoton to customers with respect to Licensed
Products, (2) freight charges paid by Recoton and (3) sales and excise
taxes paid by Recoton.
(b) The Minimum Royalty for each month during the terms of this
Agreement ending after January 1, 1997 shall be paid by the tenth day of the
succeeding month. Within 30 days of the end of each calendar quarter ending
after January 1, 1997, Recoton shall deliver to Jensen a report, giving such
particulars of the business conducted by Recoton and its affiliates during
the preceding three months under this Agreement as are required for a
determination of Earned Royalties due under this Agreement. The information
in such reports shall be held in confidence by Jensen and shall not be
disclosed to any other person or used for any purpose other than to verify
the activities of Recoton under this Agreement. Simultaneously with the
delivery of such report, Recoton shall pay to Jensen the Earned Royalties
under this Agreement for the periods covered by such report less the Minimum
Royalties for the months in such quarterly period previously paid or paid
therewith. If no Earned Royalties are due, the report shall so state. The
excess of Minimum Royalties for any quarterly period over the Earned
Royalties for such quarterly period shall be credited to any future payments
of Earned Royalties during such Annual Period.
6. BOOKS AND RECORDS
(a) Recoton shall keep true and accurate books of account containing all
particulars which may be necessary for the purpose of showing the amounts
due and payable to Jensen. Such books of account shall be kept at Recoton's
principal place of business. Said books and the supporting data shall be
open at reasonable times for three years following the end of the Annual
Period to which they pertain for the inspection of an independent certified
public accountant retained by Jensen and reasonably acceptable to Recoton
for the purpose of verifying Recoton's royalty statements. If any
underpayment is in excess of five percent (5%) and $10,000, the cost of any
such review by Jensen's independent certified public accountant shall be
borne by Recoton.
(b) Jensen and Recoton shall require any public accountant retained by
Jensen to hold in confidence any information the public accountant obtains
from such inspection, except to the extent of verifying to Jensen the
correctness of Recoton's reports and royalty payments as provided herein,
and Jensen shall not disclose to any competitor of Recoton the amount of the
Earned Royalties, sales or any other information provided by Recoton to
Jensen in said reports except as expressly required by applicable law, rule
or regulation.
ANNEX VI-3
<PAGE>
7. TERMS OF LICENSE OR SALE
(a) The Intellectual Property Rights are being licensed or, if either of
the Options is exercised, sold by Jensen to Recoton free and clear of all
debts, mortgages, pledges, liens (including without limitation federal,
state, and local tax liens), taxes, claims, defaults, assessments, fines,
penalties, charges, security interests, encumbrances, options or other
restrictions (whether matured or unmatured) (together, the "Restrictions").
(b) Jensen shall pay any applicable sales, gains, documentary, use,
filing, transfer and similar taxes payable as a result of the licensing or,
if either of the Options is exercised, sale of the Intellectual Property
Rights and file all appropriate returns related thereto. Recoton shall
reasonably cooperate in the preparation of such returns, if necessary and,
if required, sign such returns if true and complete. All taxes on, or
measured by, the net income or revenues of Recoton or Jensen (including,
without limitation, income, gross receipts, and net-worth taxes) imposed or
levied by, or payable to, any federal, state, or local taxing authority
shall be paid or payable by the party upon which such taxes are imposed or
levied.
(c) Jensen shall promptly execute and deliver from time to time at the
request and expense of Recoton all such further instruments and further
assurances as may be required in order to effect the license to, or, if
either of the Options is exercised, the sale to, Recoton of, and the right
to use and enjoy, the Intellectual Property Rights.
(d) During the term of the License, the nature and quality of all
products manufactured by Recoton bearing the licensed trademark shall
conform to or exceed the quality of those speakers and consumer electronic
products, as appropriate, held in the inventory of Jensen as of January 1,
1996 which used the Acoustic Research brand.
8. REPRESENTATIONS AND WARRANTIES OF JENSEN. Jensen represents and warrants
to Recoton as follows:
(a) Jensen has the corporate power to execute and deliver this Agreement
and has taken all action required by law, its Certificate of Incorporation,
its By-Laws or otherwise to authorize such execution and delivery; this
Agreement has been, and the other agreements to be executed pursuant to this
Agreement by Jensen will be, duly executed and delivered by Jensen; and this
Agreement is a valid and binding agreement, and all such agreements will be
valid and binding agreements, of Jensen enforceable in accordance with the
terms thereof.
(b) Neither the execution and delivery of this Agreement nor the
performance of its terms will conflict with, be a breach of, or constitute a
default under, any agreement or instrument to which Jensen is a party.
(c) To the best of Jensen's knowledge, the Intellectual Property Rights
which are trademark or copyright registrations are valid, in good standing,
and are not involved in any interferences, litigation, oppositions, or
cancellation proceedings, and are owned by Jensen, free and clear of all
liens, encumbrances, equities, or claims. Jensen owns or has the right to
use, without payment to any other party, trademarks, trade names, service
marks, copyrights and applications therefor referred to in such Exhibit A
(all of which are being licensed herewith), and the consummation of the
transactions contemplated hereby will not alter or impair such rights in any
material respect. Jensen has no patents or patent rights covering the
products which are currently used in connection with the Intellectual
Property Rights. Jensen is not a licensor or licensee in respect of any
Intellectual Property Rights, nor has it granted any rights thereto or
interest therein to any person or entity. No claims are pending or
threatened by any person with respect to the ownership, validity,
enforceability, or use of any such Intellectual Property Rights challenging
or questioning the validity or effectiveness of any of the foregoing.
ANNEX VI-4
<PAGE>
9. REPRESENTATIONS AND WARRANTIES OF RECOTON. Recoton represents and
warrants to Jensen as follows:
(a) Recoton has the corporate power to execute and deliver this
Agreement and has taken all action required by law, its Certificate of
Incorporation, its By-Laws or otherwise to authorize such execution and
delivery; this Agreement has been, and the other agreements to be executed
pursuant to this Agreement by Recoton will be, duly executed and delivered
by Recoton; and this Agreement is a valid and binding agreement, and all
such agreements will be valid and binding agreements, of Recoton enforceable
in accordance with the terms thereof.
(b) Neither the execution and delivery of this Agreement, nor the
performance of its terms, will conflict with, be a breach of or constitute a
default under any agreement or instrument to which Recoton is a party.
10. ENTIRE AGREEMENT. This Agreement constitutes the entire agreement
between the parties with respect to the subject matter contained herein and no
modification or addition hereto shall be binding unless in writing and signed by
both parties.
11. PARTIES IN INTEREST. This Agreement shall inure to the benefit of, and
be binding upon, the parties hereto, and their respective heirs, representatives
and permitted assigns.
12. EXPENSES. Except as otherwise provided in this Agreement, Jensen and
Recoton shall pay their own expenses incidental to the carrying out of this
Agreement, including all fees and expenses of counsel and accountants.
13. GENERAL LAWS; SERVICE OF PROCESS. This Agreement shall be governed by
the laws of the State of New York without reference to its choice-of-law rules.
Service of process may be made upon each of the parties hereto by using the
notification procedure set forth in Section 17. All disputes that arise with
respect to this Agreement shall be brought only in the Federal District Court
located in or having jurisdiction for New York County, New York or in a state
court in and for New York County, New York. To the fullest extent permitted by
law, the parties hereby waive all rights to a trial by jury in connection with
this Agreement. By execution and delivery of this Agreement, each of the parties
accepts for himself or itself the jurisdiction of the aforesaid courts, and
irrevocably agrees to be bound by any judgment rendered thereby in connection
with this Agreement.
14. SURVIVAL. All warranties, representations, and covenants made by each
party in or pursuant to this Agreement shall survive for the benefit of the
other parties notwithstanding the significance thereof or any examination,
examination opportunity or knowledge (whether implied or actual).
15. HEADINGS. The headings contained in this Agreement are for reference
purposes only and shall not affect the meaning or interpretation of this
Agreement.
16. EXECUTION IN COUNTERPARTS. This Agreement may be executed in two or
more counterparts, each of which shall be deemed an original and all of which
shall constitute one and the same instrument.
17. NOTICES. All notices and other communications hereunder shall be in
writing and shall be deemed given if delivered personally or mailed by
registered or certified mail (return receipt requested) to the parties at the
following addresses (or at such other address for a party as shall be specified
by like notice):
(a) If to Recoton, to:
c/o Recoton Corporation
2950 Lake Emma Road
Lake Mary, FL 32746
Attn: Stuart Mont, Chief Operating Officer
ANNEX VI-5
<PAGE>
with a copy to:
Stroock & Stroock & Lavan
7 Hanover Square
New York, NY 10004
Attn: Theodore S. Lynn, Esq.
(b) If to Jensen, to:
International Jensen Incorporated
25 Tri-State International Office Center
Suite 400
Lincolnshire, IL 60069
Attn: Marc T. Tanenberg
with a copy to:
Vedder, Price, Kaufman & Kammholz
222 North LaSalle Street
Chicago, IL 60601-1003
Attn: John R. Obiala, Esq.
Notice of any change in any such address shall be given in the manner set forth
above. Whenever the giving of notice is required, the giving of such notice may
be waived by the Party entitled to receive such notice. Notice shall be
effective upon receipt.
18. FURTHER ASSURANCES. Recoton and Jensen shall execute all documentation
necessary or appropriate to effect the agreements set forth in this Agreement,
including without limitation any assignment of patents or patent rights if the
representation regarding the lack of patents made in Section 8(c) is incorrect.
19. ASSIGNMENT. No party may assign its rights or obligations hereunder
without the written consent of the other parties.
20. EXHIBITS. References to Exhibits and Schedules shall be references to
the exhibits of, and schedules, to this Agreement. Such Exhibits and Schedules,
whether attached to or provided subsequent to the execution of, this Agreement
form an integral part of this Agreement and are hereby incorporated in this
Agreement.
21. ENFORCEABILITY. If any provision of this Agreement is held illegal,
invalid or unenforceable, such illegality, invalidity or unenforceability will
not affect any other provision hereof. This Agreement shall, in such
circumstances, be deemed modified to the extent necessary to render enforceable
the provisions hereof.
22. COSTS OF COLLECTION. Each party shall pay all costs of litigation,
including reasonable attorney's fees, incurred by the other party in
successfully enforcing any provision of this Agreement.
23. WAIVER. The failure of any party to insist upon strict performance of
any of the terms or conditions of this Agreement will not constitute a waiver of
any of its rights hereunder.
24. RIGHT TO OFFSET. Payments due under this Agreement or any other
agreements between Recoton (or any affiliate thereof) and Jensen (or any
affiliate thereof) may, at the election of either party, be set off against each
other including by way of (but not limited to) cancellation of outstanding
notes. If the provisions of Section 3 hereof are applicable and the terms of the
License and Options are extended thereunder, payments otherwise due from Jensen
(or any affiliate thereof) to Recoton (or any affiliate thereof) at any time up
to the amount of the Purchase Price shall not be due and payable until the
earlier of payment of the Purchase Price by Recoton to Jensen or the Extended
Termination Date.
ANNEX VI-6
<PAGE>
25. REMEDIES. If any party shall fail to make payment in full of any fees
due pursuant to Section 2 or Section 5(a)(i), such failure shall not give the
other party the right to terminate this Agreement unless such payment has not
been made within 30 days after entry of a final judgment requiring such payment.
IN WITNESS WHEREOF, the parties have hereto executed this Agreement on the
23rd day of June, 1996 as of the date set forth above.
<TABLE>
<S> <C>
INTERNATIONAL JENSEN INCORPORATED
Witnesses:
By: /s/ Marc T. Tanenberg
-----------------------------------
Marc T. Tanenberg
Vice President and Chief
Financial Officer
- ------------------------------------
RECOTON CORPORATION
By: /s/ Stuart Mont
-----------------------------------
Stuart Mont
Executive Vice President
and Chief Operating Officer
- ------------------------------------
</TABLE>
ANNEX VI-7
<PAGE>
EXHIBIT A
TRADEMARKS REGISTRATIONS
<TABLE>
<CAPTION>
Trademark Country Registration No.
- ----------------- ------------- ----------------
<S> <C> <C>
Acoustic Research United States 1,778,708
AR United States 1,430,911
AR United States 927,195
</TABLE>
Additional trademarks are on attachment.
UNREGISTERED TRADEMARKS
None
COPYRIGHT REGISTRATIONS AND APPLICATIONS
None
ANNEX VI-8
<PAGE>
PROXY
INTERNATIONAL JENSEN INCORPORATED
25 TRI-STATE INTERNATIONAL OFFICE CENTER
SUITE 400
LINCOLNSHIRE, ILLINOIS 60069
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned shareholder(s) of International Jensen Incorporated, a
Delaware corporation ("Jensen"), does (do) hereby constitute and appoint Marc
T. Tanenberg and James E. Sula, and each of them, the true and lawful
attorney(s) of the undersigned with full power of substitution, to appear and
act as the proxy or proxies of the undersigned at the Special Meeting of
Stockholders of said corporation to be held at the International Office
Center, First Floor Auditorium, Building 200, Lincolnshire, Illinois 60069,
on August 28, 1996, at 9:00 a.m. and at any adjournment thereof, and to vote
all the shares of Jensen standing in the name of the undersigned, or which
the undersigned may be entitled to vote, as fully as the undersigned might or
could do if personally present, as set forth below.
This proxy when properly executed will be voted in the manner directed
herein by the undersigned stockholder(s). If no direction is made, this
proxy will be voted FOR the approval and adoption of the Fourth Amended and
Restated Agreement and Plan of Merger dated as of January 3, 1996, among
Jensen, Recoton Corporation, a New York corporation ("Recoton"), and RC
Acquisition Sub, Inc., a Delaware corporation and wholly-owned subsidiary of
Recoton, and the transactions contemplated thereby, including the Merger and
sale of the assets of the OEM Business.
PLEASE MARK, SIGN, DATE AND RETURN THIS PROXY CARD PROMPTLY USING THE
ENCLOSED ENVELOPE
(Continued and to be signed on reverse)
<PAGE>
PLEASE MARK VOTE IN OVAL IN THE FOLLOWING MANNER USING DARK INK ONLY. /X/
1. The approval and adoption of the Fourth Amended and Restated Agreement
and Plan of Merger dated as of January 3, 1996, among Jensen, Recoton
Corporation, a New York corporation ("Recoton"), and RC Acquisition Sub,
Inc., a Delaware corporation and wholly-owned subsidiary of Recoton, and
the transactions contemplated thereby, including the Merger and the sale
of the assets of the OEM Business.
FOR AGAINST ABSTAIN
/ / / / / /
2. In their discretion, the proxies are authorized to vote upon such other
business as may properly come before the Special Meeting.
Please sign exactly as name appears hereon. When shares are held by joint
tenants, both should sign. When signing as attorney, executor, administrator,
trustee or guardian, please give full title as such. If a corporation, please
sign the full corporate name by President or other authorized officer. If a
partnership, please sign in partnership name by authorized person.
- -------------------------------------------------
Signature
- -------------------------------------------------
Signature if held jointly
DATED
------------------------------------------
