<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
DATE OF REPORT (DATE OF EARLIEST EVENT REPORTED):
DECEMBER 10, 1998 (NOVEMBER 25, 1998)
CUSTOMTRACKS CORPORATION
------------------------
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
TEXAS 0-17995 75-2216818
----- ------- ----------
(STATE OR OTHER (COMMISSION FILE NUMBER) (IRS EMPLOYER
JURISDICTION OF IDENTIFICATION NO.)
INCORPORATION)
13355 NOEL ROAD, SUITE 1555
DALLAS, TEXAS 75240-6604
------------------------
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
COMPANY'S TELEPHONE NUMBER, INCLUDING AREA CODE:
(972) 702-7055
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ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS.
On November 25, 1998, CustomTracks Corporation (the "Company") completed
the previously announced sale (the "Sale") of its electronic security products
business to Johnson Controls, Inc. The Sale consisted of the sale of all of the
issued and outstanding capital stock of three of the Company's wholly-owned
subsidiaries, Cardkey Systems, Inc., Cardkey European Holdings Limited and
Cardkey Systems Pacific Pty. Limited (collectively, "Cardkey").
The Sale was valued using a net book value analysis plus a premium. The
all-cash purchase price is approximately $41 million, with the final amount
depending on the book value of Cardkey's net assets on November 30, 1998, the
effective date of the Sale for accounting purposes. Included in the Sale are the
Company's electronic security systems technologies, the brand name Cardkey(R),
and all current operations associated with Cardkey.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS.
(b) Pro Forma Financial Information
Pro forma condensed consolidated balance sheet
as of September 30, 1998 (unaudited)
Pro forma condensed consolidated statement of operations
for the year ended December 31, 1997 (unaudited)
Pro forma condensed consolidated statement of operations
for the nine months ended September 30, 1998 (unaudited)
Notes to pro forma condensed financial statements
The pro forma condensed consolidated balance sheet at September 30, 1998
reflects the financial position of the Company after giving effect to the
disposition of Cardkey discussed in Item 2 and assumes the disposition took
place on September 30, 1998. The pro forma condensed consolidated statements of
operations for the year ended December 31, 1997 and the nine months ended
September 30, 1998 assume that the disposition occurred on January 1, 1997. The
pro forma condensed consolidated financial statements also give effect to the
disposition of the Company's Transportation System Group and its Cotag
International unit, as previously reported.
The following pro forma data are not necessarily indicative of the results of
operations which would have been reported had the disposition taken place during
those periods or which may be reported in the future. These unaudited pro forma
condensed consolidated financial statements should be read in conjunction with
the financial statements and notes thereto included in the Company's latest
annual report on Form 10-K and quarterly report on Form 10-Q.
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CustomTracks Corporation
Pro Forma Condensed Consolidated Balance Sheet
September 30, 1998
(Unaudited)
<TABLE>
<CAPTION>
Pro Forma
Adjustments
------------
Cardkey
Historical Systems Pro Forma
---------- ------------ ----------
(In thousands)
<S> <C> <C> <C>
ASSETS
Cash and cash equivalents $ 39,410 $ 41,000 (3) $ 80,410
Accounts receivable, net 16,819 (13,507)(4) 3,312
Inventories 3,844 (3,844)(4) --
Prepaid expenses 436 (413)(4) 23
-------- -------- --------
Total current assets 60,509 23,236 83,745
Property and equipment, net 2,829 (2,682)(4) 147
Intangible assets, net 3,423 (3,423)(4) --
Other assets 601 (110)(4) 491
-------- -------- --------
$ 67,362 $ 17,021 $ 84,383
======== ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable $ 2,861 $ (2,861)(4) $ --
Accrued expenses 6,957 154 (3)(4) 7,111
Deferred income 1,961 (1,961)(4) --
-------- -------- --------
Total current liabilities 11,779 (4,668) 7,111
Preferred stock -- -- --
Common stock 172 -- 172
Additional paid-in capital 86,998 -- 86,998
Treasury stock, at cost (11,314) -- (11,314)
Accumulated earnings (deficit) (20,273) 21,689 (3)(4) 1,416
-------- -------- --------
Total stockholders' equity 55,583 21,689 77,272
-------- -------- --------
$ 67,362 $ 17,021 $ 84,383
======== ======== ========
</TABLE>
See accompanying Notes to Pro Forma Condensed Financial Statements.
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CustomTracks Corporation
Pro Forma Condensed Consolidated Statement of Operations
For the Year Ended December 31, 1997
(Unaudited)
<TABLE>
<CAPTION>
Pro Forma Adjustments
------------------------------------------
Transportation
Systems Cotag Cardkey
Historical Group(1) International(2) Systems Pro Forma
---------- -------------- ---------------- --------- -------------------
(In thousands, except per share data)
<S> <C> <C> <C> <C> <C>
Sales $ 117,706 $ (50,745) $ (10,319) $ (55,442)(5) $ 1,200
Operating costs and expenses:
Cost of sales 80,557 (40,206) (5,450) (32,336)(5) 2,565
Research and development 11,332 (6,869) (1,773) (1,719)(5) 971
Marketing, general and administrative 41,615 (12,539) (3,571) (19,480)(5) 6,025
--------- --------- --------- --------- ---------
133,504 (59,614) (10,794) (53,535) 9,561
--------- --------- --------- --------- ---------
Operating loss (15,798) 8,869 475 (1,907) (8,361)
Investment income 1,133 (498) (12) -- 623
Interest expense (65) -- -- 65 (5) --
--------- --------- --------- --------- ---------
Loss before income taxes (14,730) 8,371 463 (1,842) (7,738)
Provision for income taxes 2,887 17 (82) (186)(5) 2,636
--------- --------- --------- --------- ---------
Net loss $ (17,617) $ 8,354 $ 545 $ (1,656) $ (10,374)
========= ========= ========= ========= =========
Basic and diluted loss per share $ (1.17) $ (0.69)
========= =========
Shares used in computing basic and
diluted loss per share 15,081 15,081
========= =========
</TABLE>
See accompanying Notes to Pro Forma Condensed Financial Statements.
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CustomTracks Corporation
Pro Forma Condensed Consolidated Statement of Operations
For the Nine Months Ended September 30, 1998
(Unaudited)
<TABLE>
<CAPTION>
Pro Forma Adjustments
--------------------------------------------
Transportation
Systems Cotag Cardkey
Historical Group (1) International(2) Systems Pro Forma
------------ --------------- ----------------------------------------------
(In thousands, except per share data)
<S> <C> <C> <C> <C>
Sales $ 76,024 $(25,873) $ (5,181) $(44,970)(6) $ --
Operating costs and expenses:
Cost of sales 43,774 (15,652) (2,431) (25,691)(6) --
Research and development 4,818 (2,488) (870) (1,260)(6) 200
Marketing, general and administrative 24,892 (4,938) (1,742) (15,137)(6) 3,075
-------- -------- -------- -------- --------
73,484 (23,078) (5,043) (42,088) 3,275
-------- -------- -------- -------- --------
Operating income (loss) 2,540 (2,795) (138) (2,882) (3,275)
Investment income 1,154 (108) (6) (16)(6) 1,024
Loss on sale of businesses, net (1) (2) (1,561) -- -- -- (1,561)
-------- -------- -------- -------- --------
Income (loss) before income taxes 2,133 (2,903) (144) (2,898) (3,812)
Provision for income taxes 280 (11) -- (269)(6) --
-------- -------- -------- -------- --------
Net income (loss) $ 1,853 $ (2,892) $ (144) $ (2,629) $ (3,812)
======== ======== ======== ======== ========
Basic and diluted earnings (loss) per share $ 0.11 $ (0.24)
======== ========
Shares used in computing earnings (loss) per share:
Basic 16,134 16,134
======== ========
Diluted 16,157 16,157
======== ========
</TABLE>
See accompanying Notes to Pro Forma Condensed Financial Statements.
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CustomTracks Corporation
Notes to Pro Forma Condensed Financial Statements
(1) To reflect the Company's sale of its Transportation Systems Group on June
11, 1998 to UNOVA, Inc., as previously reported.
(2) To reflect the Company's sale of its Cotag International unit on July 7,
1998 to Metric Gruppen AB, as previously reported.
(3) To reflect estimated proceeds of $41,000,000 cash, subject to certain post-
closing adjustments, and estimated accrued expenses for the tax effects of
the transaction and the associated transaction costs relative to the sale of
Cardkey, as discussed in Item 2. The gain from this transaction will be
recorded in the Company's fourth quarter and is not reflected in the pro
forma statements of operations.
(4) To reflect the elimination of the assets and liabilities from the sale of
Cardkey as discussed in Item 2.
(5) To eliminate the operating results of Cardkey for the year ended December
31, 1997.
(6) To eliminate the operating results of Cardkey for the nine months ended
September 30, 1998.
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(C) EXHIBITS
2.1 Stock Purchase Agreement, dated November 9, 1998, by and between
Johnson Controls, Inc. and CustomTracks Corporation (excluding the
exhibits and schedules) relating to the Sale.
99.1 Press Release issued by the Company on November 25, 1998, relating to
the Sale.
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SIGNATURES
----------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Company has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Dated: December 10, 1998 CUSTOMTRACKS CORPORATION
By: /s/Steve M. York
--------------------------------------
Steve M. York
Senior Vice President, Chief Financial
Officer, and Treasurer
(Principal Financial Officer and
Duly Authorized Officer)
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INDEX TO EXHIBITS
-----------------
Exhibit
Number Description
------- -----------
2.1 Stock Purchase Agreement, dated November 9, 1998, by and between
Johnson Controls, Inc. and CustomTracks Corporation (excluding the
exhibits and schedules) relating to the Sale.
99.1 Press Release issued by the Company on November 25, 1998, relating to
the Sale.
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EXHIBIT 2.1
EXECUTION VERSION
-----------------
STOCK PURCHASE AGREEMENT
BETWEEN
JOHNSON CONTROLS, INC.
"Buyer"
AND
CUSTOMTRACKS CORPORATION
"Seller"
NOVEMBER 9, 1998
<PAGE>
TABLE OF CONTENTS
Page
----
ARTICLE I Definitions.......................................... 2
1.01 Definitions.......................................... 2
1.02 Interpretation....................................... 6
ARTICLE II PURCHASE AND SALE OF SHARES......................... 6
2.01 Stock Purchase....................................... 6
2.02 Consideration for Purchase of Shares................. 6
2.03 Time and Place of the Closing........................ 7
2.04 Procedure at Closing................................. 7
2.05 Closing Balance Sheet................................ 7
ARTICLE III CONDITIONS TO CLOSING.............................. 9
3.01 Conditions to Buyer's Obligations.................... 9
3.02 Conditions to Seller's Obligations................... 12
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF THE SELLER........ 14
4.01 Corporate Organization............................... 14
4.02 Capitalization....................................... 14
4.03 Equity Investments................................... 15
4.04 Authorization; No Violation.......................... 15
4.05 Financial Statements................................. 16
4.06 Absence of Certain Changes........................... 16
4.07 Title to and Condition of Properties and Assets...... 17
4.08 Real Property........................................ 18
4.09 Tax Matters.......................................... 18
4.10 Permits.............................................. 21
4.11 Personal Property.................................... 22
4.12 Personal Property Leases............................. 22
4.13 Intellectual Property................................ 22
4.14 Accounts Receivable; Inventories..................... 24
4.15 Employees............................................ 24
4.16 Employee Relations................................... 25
4.17 Employee Benefit Plans............................... 25
4.18 Contracts............................................ 28
4.19 Status of Contracts.................................. 29
4.20 No Violation, Litigation or Regulatory Action........ 30
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4.21 Insurance............................................ 31
4.22 Product Liability Claims; Product Warranties......... 32
4.23 Environmental Protection............................. 32
4.24 Customers and Suppliers.............................. 34
4.25 Books and Records.................................... 34
4.26 Depositaries; Powers of Attorney..................... 34
4.27 Ownership and Transfer of Shares..................... 35
4.28 Year 2000 Compliance................................. 35
ARTICLE V Representations and Warranties of Buyer.............. 35
5.01 Corporation Organization............................. 35
5.02 Authorization; No Violation.......................... 35
5.03 Sufficient Funds..................................... 36
5.04 Inspection........................................... 36
ARTICLE VI COVENANTS........................................... 37
6.01 Access, Information and Documents.................... 37
6.02 Preserve Accuracy of Representations and Warranties.. 37
6.03 Further Action....................................... 37
6.04 Operations Prior to the Closing Date................. 38
6.05 No Public Announcement............................... 38
6.06 Exclusivity.......................................... 38
6.07 Confidentiality...................................... 39
6.08 Tax Matters; 338(h)(10) Election; German NOL......... 40
6.09 Transfers and Equity Contributions................... 42
6.10 Release of Guarantees................................ 42
6.11 Employee Benefit Transition Matters.................. 43
6.12 Supplements to Schedules............................. 44
6.13 Allocation of Purchase Price......................... 45
6.14 Metric Purchase Agreement............................ 45
6.15 Cardkey UK Audit..................................... 45
ARTICLE VII Termination; Specific Performance.................. 45
7.01 Termination by Mutual Consent........................ 45
7.02 Termination by Buyer................................. 45
7.03 Termination by the Seller............................ 46
7.04 Effect of Termination................................ 46
7.05 Specific Performance................................. 46
ARTICLE VIII INDEMNIFICATION................................... 47
8.01 Indemnification by Seller............................ 47
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8.02 Indemnification by Buyer............................. 48
8.03 Limitations on Indemnification....................... 48
8.04 Consequential Damages: Mitigation.................... 49
8.05 Exclusive Remedy..................................... 50
8.06 Indemnity Payments................................... 50
8.07 Notice and Resolutions of Claims..................... 50
8.08 Other Indemnities.................................... 51
ARTICLE IX MISCELLANEOUS SURVIVAL; INDEMNIFICATION............. 51
9.01 Expenses............................................. 51
9.02 Governing Law........................................ 51
9.03 Binding Arbitration.................................. 52
9.04 Notices.............................................. 53
9.05 Successors and Assigns; Benefit...................... 55
9.06 Entire Agreement; Amendments; Waiver................. 55
9.07 Consents; Waivers.................................... 55
9.08 Partial Invalidity................................... 55
9.09 Finder's Fee......................................... 56
9.10 Competitive Activities............................... 56
9.11 Knowledge............................................ 58
9.12 No Third-Party Beneficiary........................... 58
9.13 Execution in Counterparts............................ 58
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EXHIBITS:
A - Form of Legal Opinion of Seller's Counsel
B - Form of Legal Opinion of Buyer's Counsel
SCHEDULES:
Schedule 2.05 - Closing Balance Sheet Inclusions/Exclusions
Schedule 3.01(d) - Seller's Material Consents, Authorizations and Approvals
Schedule 3.02(d) - Buyer's Material Consents, Authorizations and Approvals
Schedule 4.02 - Capitalization
Schedule 4.03 - Equity Investments
Schedule 4.04 - Authorizations; No Violation
Schedule 4.05 - Financial Statements
Schedule 4.08 - Real Property Leases
Schedule 4.09(a) - Tax Matters
Schedule 4.09(f) - Income and Sales Tax Jurisdictions
Schedule 4.09(g) - Examined Taxable Years and Pending Assessments
Schedule 4.09(i) - Prior Taxable Income
Schedule 4.10 - Material Permits
Schedule 4.11 - Material Personal Property - Fixed Assets
Schedule 4.12 - Material Personal Property Leases
Schedule 4.13 - Intellectual Property
Schedule 4.14 - Accounts Receivable; Inventories
Schedule 4.15 - Employees
Schedule 4.17(a) - Employee Benefit Plans
Schedule 4.17(b) - ERISA Benefit Plans
Schedule 4.18 - Material Contracts
Schedule 4.19 - Consents, Approvals and Potential Breaches Under Material
Contracts
Schedule 4.20 - Violation, Litigation or Regulatory Action
Schedule 4.21(a) - Insurance Policies
Schedule 4.21(b) - Worker's Compensation Claims
Schedule 4.22 - Product Liability Claims and Warranties
Schedule 4.24 - Customers and Suppliers
Schedule 4.26 - Depositories; Powers of Attorney
Schedule 4.28 - Year 2000 Compliance
Schedule 5.02 - Buyer's Consents, Authorizations and Approvals
Schedule 6.10 - Guarantees
Schedule 6.11(b) - Former and Inactive Employees
Schedule 6.13 - Allocation of Purchase Price
Schedule 8.01 - Indemnity Matters
Schedule 9.11 - Certain Officers of Seller and Cardkey
iv
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STOCK PURCHASE AGREEMENT
THIS AGREEMENT is entered into as of this 9th day of November, 1998,
between Johnson Controls, Inc., a corporation organized under the laws of
Wisconsin ("Buyer"), and CustomTracks Corporation, a corporation organized under
the laws of Texas ("Seller").
WHEREAS, Cardkey Systems, Inc., a corporation organized under the laws
of Delaware ("Cardkey US"), Cardkey Sicherheitssysteme GmbH, a corporation
organized under the laws of Germany and a wholly-owned subsidiary of Cardkey US
("Cardkey Germany"), Cardkey Systems Sdn. Bhd., a corporation organized under
the laws of Malaysia and a wholly-owned subsidiary of Cardkey US ("Cardkey
Malaysia"), Cardkey European Holdings Limited, a corporation organized under the
laws of the United Kingdom, including its subsidiaries and its branch office in
Benelux ("Cardkey UK"), and Cardkey Systems Pacific Pty. Limited, a corporation
organized under the laws of Australia ("Cardkey Australia"), are individually
and collectively referred to herein as "Cardkey";
WHEREAS, Cardkey is engaged in the business of the supply, installation,
service and support of products, software and systems for electronic security
and access control (the "Business").
WHEREAS, upon the terms and subject to the conditions set forth herein,
Buyer desires to purchase from Seller and Seller desires to sell to Buyer all of
the issued and outstanding capital stock of each of Cardkey US, Cardkey UK and
Cardkey Australia owned by Seller;
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NOW, THEREFORE, the parties hereto agree as follows:
ARTICLE I
DEFINITIONS
SECTION 1.01 DEFINITIONS. The following terms have the following
meanings:
"Affiliate" means, with respect to any Person, any other Person
controlling, controlled by, or under common control with such Person. For
purposes of this Agreement, the term "control" (including, with correlative
meanings, the terms "controlled by" and "under common control with") as used
with respect to any Person means the possession, directly or indirectly, of the
power to direct or cause the direction of the management and policies of such
Person whether through ownership of voting securities, by contract or otherwise.
"Balance Sheet" means the consolidated unaudited balance sheet of Cardkey
as of July 31, 1998.
"Code" means the Internal Revenue Code of 1986, as amended.
"Contamination" means any presence or Release of any Hazardous Material
existing or occurring in whole or in part on or before the Closing Date, at, in,
on, onto, into, from, under or about the Facilities.
"Encumbrance" means any lien, claim, charge, security interest, mortgage,
pledge, easement, conditional sale or other title retention agreement, defect in
title, covenant or other restriction or limitation on title of any kind.
"Environmental Laws" means any federal, state or local law, ordinance,
rule, regulation, permit, license, or any other binding determination of any
Governmental Body in effect on the date hereof and imposing liability for or
standards concerning environmental matters, including,
2
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but not limited to, (i) the Comprehensive Environmental Response, Compensation,
and Liability Act (42 U.S.C. (S)(S) 9601 et seq.); (ii) the Solid Waste Disposal
Act, as amended by the Resource Conversation and Recovery Act (42 U.S.C. (S)(S)
6901 et seq.); (iii) the Emergency Planning and Community Right to Know Act (42
U.S.C. (S)(S) 11001 et seq.); (iv) the Clean Air Act (42 U.S.C. (S)(S) 7401 et
seq.); (v) the Clean Water Act (33 U.S.C. (S)(S) 1251 et seq.); (vi) the Toxic
Substance Control Act (15 U.S.C. (S)(S) 2601 et seq.); (vii) the Hazardous
Materials Transportation Act (49 U.S.C. (S)(S) 1801 et seq.); (viii) the Federal
Insecticide, Fungicide and Rodenticide Act (7 U.S.C. (S)(S) 136 et seq.); (ix)
the Safe Drinking Water Act (42 U.S.C. (S)(S) 300f et seq.); (x) any state,
municipal or local statutes, laws or ordinances similar or analogous to the
federal statutes listed in the foregoing clauses (i) through (ix); (xi) any
amendments to the statutes, laws or ordinances listed in the foregoing clauses
(i) through (x), regardless of whether in existence on the date hereof; and
(xii) any rules, regulations, guidelines, directives, orders or the like adopted
pursuant to or implementing the statutes, laws, ordinances and amendments listed
in the foregoing clauses (i) through (xi).
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"ERISA Affiliate" means (i) any corporation which at, or at any time
before, the Closing Date (as defined in Section 2.03) is or was a member of the
same controlled group of corporations (within the meaning of Section 414(b) of
the Code) as Cardkey; (ii) any partnership, trade or business which at, or at
any time before, the Closing Date is or was under common control (within the
meaning of Section 414(c) of the Code) with Cardkey; and (iii) any entity, which
at, or at any time before, the Closing Date is or was a member of the same
affiliated service group (within the meaning of Section 414(m) of the Code) as
Cardkey, any corporation described in clause (i) or any partnership, trade or
business described in clause (ii).
"Expenses" means any and all out-of-pocket expenses reasonably incurred in
connection with investigating, preparing, defending, bringing or prosecuting any
claim, action, suit or proceeding (including court filing fees, court costs,
arbitration fees or costs, witness fees and fees
3
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and disbursements of legal counsel, investigators, expert witnesses,
accountants, consultants and other professionals) or by any other Person.
"Facility" means any real or personal property, plant, building,
structure, underground storage tank or unit (including soil, surface water and
ground water) owned, leased or operated prior to the Closing by Cardkey.
"Governmental Body" means any court, government (federal, state, local or
foreign), department, commission, board, agency, bureau, official or other
regulatory, administrative or governmental authority.
"Hazardous Materials" means any chemical, substance, waste, material,
equipment or fixture defined as or deemed hazardous, toxic, a pollutant, a
contaminant, or otherwise regulated under any Environmental Law, including, but
not limited to, petroleum and petroleum products, waste oil, halogenated and
non-halogenated solvents, PCBs, and asbestos.
"Legal Requirement" means any law, statute, rule, regulation, license,
franchise, Permit, judgment, decree, Order, ordinance, variance, directive, code
or requirement of any Governmental Body.
"Liabilities" means any direct or indirect indebtedness, guaranty,
endorsement, claim, loss, damage, deficiency, cost, expense, obligation or
responsibility of any nature whatsoever, whether fixed or unfixed, known or
unknown, asserted or unasserted, choate or inchoate, matured or unmatured,
liquidated or unliquidated, absolute or contingent, secured or unsecured.
"Losses" means any and all losses, costs, obligations, liabilities,
settlement payments, awards, judgments, fines, penalties, damages, expenses,
deficiencies or other charges, but shall not include Expenses.
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"Order" means any order, writ, injunction, ruling, judgment, stipulation or
decree by or with any Governmental Body.
"Permitted Encumbrance" means (i) liens for current real or personal
property taxes not yet due and payable or that are being contested in good faith
by appropriate proceedings and as to which adequate reserves have been
established, (ii) worker's, carrier's and materialman's liens arising in the
ordinary course of business, (iii) Encumbrances that are individually and in the
aggregate, immaterial in character, amount and extent, and which do not detract
from the value or interfere with the present or proposed use of the properties
they affect or otherwise interfere with the operations of the entity that owns,
leases or uses any of the properties affected thereby, (iv) retention of title
agreements with suppliers entered into in the ordinary course of business, (v)
the rights of others to customer deposits, (vi) Encumbrances securing any
liabilities disclosed on the Closing Balance Sheet (as defined in Section 2.05),
(vii) Encumbrances incurred in the ordinary course of business under leases or
securing purchase money indebtedness, and (viii) entitlement, building and other
land use regulations imposed by Governmental Bodies having jurisdiction over any
property that are not violated by the current use and operation of such
property.
"Person" means and includes an individual, a partnership, a corporation, a
trust, a joint venture, an unincorporated organization and any Governmental Body
or other agency or authority.
"Release" means any release, spill, emission, leaking, pumping, injection,
deposit, disposal, discharge, dispersal, leaching or migration into the indoor
or outdoor environment or into or out of any Facility, including the movement of
Hazardous Material through or in the air, soil, surface water or groundwater.
"Remedial Action" means any and all clean-up, removal, or abatement or
remedial action relating to Contamination located on, in, at, under, or about
the Facilities, whether voluntary or required by a Governmental Body.
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"Shares" means, collectively, (a) all of the issued and outstanding capital
stock of Cardkey US, (b) all of the issued and outstanding capital stock of
Cardkey UK, and (c) all of the issued and outstanding capital stock of Cardkey
Australia.
"WARN Act" means the Worker Adjustment and Retraining Notification Act of
1988.
SECTION 1.02 INTERPRETATION. Article and Section titles are inserted
for convenience of reference only and are not intended to be a part of or to
affect the meaning of this Agreement. The Schedules and Exhibits shall be
construed with and as an integral part of this Agreement. Words used herein,
regardless of the number and gender specifically used, shall be deemed and
construed to include any other number, and any other gender, as the context
requires.
ARTICLE II
PURCHASE AND SALE OF SHARES
SECTION 2.01 STOCK PURCHASE. On the basis of the representations,
warranties, covenants and agreements and subject to the satisfaction or waiver
of the conditions set forth herein, Seller agrees to and will sell, transfer,
assign and deliver to Buyer on the Closing Date, free and clear of all
Encumbrances (other than any Encumbrances related to the one ordinary share of
Cardkey Australia which represents a "director's qualifying share" (the
"Australian Director's Share")), and Buyer agrees to and will purchase and
accept from Seller, all of the Shares (the "Stock Purchase").
SECTION 2.02 CONSIDERATION FOR PURCHASE OF SHARES. In consideration for the
transfer, sale and delivery to Buyer of all of the issued and outstanding
Shares, Buyer will pay to Seller an amount equal to the sum (such sum being
referred to herein as the "Purchase Price") of $41,000,000 (as may be adjusted
after the Closing Date pursuant to Section 2.05) plus the amount of all cash and
cash equivalents of Cardkey on hand and in financial institutions as of the
Closing (the "Cash Balances").
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SECTION 2.03 TIME AND PLACE OF THE CLOSING. The closing of the Stock
Purchase (the "Closing") shall take place at the offices of Hughes & Luce,
L.L.P. located at 1717 Main Street, Suite 2800, Dallas, Texas 75201 on December
4, 1998, or such earlier or later day as is the second business day after all
conditions set forth in Article III shall have been satisfied or, where
permissible, waived or on such other date as is mutually agreed by Buyer and
Seller (the date and time on which the closing actually occurs is the "Closing
Date").
SECTION 2.04 PROCEDURE AT CLOSING. On the Closing Date, the parties agree
to take the following steps listed below (provided, however, that upon their
completion, all such steps shall be deemed to have occurred simultaneously):
(a) Seller shall deliver to Buyer the closing documents specified
in Section 3.01(g).
(b) Buyer shall deliver to Seller the closing documents specified
in Section 3.02(g).
(c) Seller shall deliver to Buyer certificates in valid form
representing the Shares duly endorsed by Seller in blank or accompanied by
duly executed stock powers.
(d) Buyer shall pay to Seller $41,000,000 of the Purchase Price
by wire transfer of immediately available funds to such account at such
bank as is designated to Buyer at least three (3) business days prior to
the Closing Date by Seller.
SECTION 2.05 CLOSING BALANCE SHEET.
(a) Within forty-five (45) days following the effective date of
the Closing for accounting purposes, which will be mutually agreed upon by
Buyer and Seller (the "Effective Date"), Seller, with the assistance and
cooperation of Cardkey, shall furnish
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Buyer with an unaudited balance sheet for Cardkey as of the Effective Date
fairly stated in all respects and determined in accordance with U.S.
generally accepted accounting principles ("GAAP") applied on a basis
consistent with the preparation of the Balance Sheet (the "Closing Balance
Sheet"); provided, however, the Closing Balance Sheet shall include or
exclude, as the case may be, the items detailed on Schedule 2.05. The
Closing Balance Sheet shall be stated in U.S. Dollars and all account
balances denominated in foreign currencies shall be translated into U.S.
Dollars using the currency exchange rates in effect on the Effective Date,
as published in the Wall Street Journal on the first business day following
the Effective Date. The Closing Balance Sheet shall be accompanied by such
other financial information and methods of calculation as may be reasonably
necessary for Buyer to evaluate the accuracy thereof. Buyer shall have a
period of ten (10) days after receipt of the Closing Balance Sheet to
notify Seller of its election to accept or reject (and in the case of a
rejection, there shall be included in such notice the reasons for such
rejection in reasonable detail) the Closing Balance Sheet. In the event no
notice is received by Seller during such ten (10) day period, the Closing
Balance Sheet shall be deemed accepted by Buyer and final and binding on
the parties hereto.
(b) In the event Buyer shall timely reject the Closing Balance
Sheet, Buyer and Seller shall promptly attempt to make a joint
determination of the Closing Balance Sheet and such determination and any
required adjustments resulting therefrom shall be final and binding on the
parties hereto. In the event Seller and Buyer shall be unable to agree
upon the determination of the Closing Balance Sheet as herein provided
within ninety (90) days from the Effective Date, such determination shall
promptly be made by one of the five largest national accounting firms,
which accounting firm shall be jointly selected by the parties, or if the
parties are unable to agree upon an accounting firm, selected by lot (the
"Independent Firm"), and such determination by the Independent Firm and any
required adjustments resulting therefrom shall be final and binding on all
the parties hereto. The Independent Firm will allocate its costs and
expenses in reviewing the issues in dispute to Seller and Buyer based on
the percentage determined by dividing (A) that portion of the contested
amount not awarded to such party, by (B) the amount actually contested by
the
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parties. For example, if Buyer claims that the assets set forth on the
Closing Balance Sheet should be $1,000 lower, and Seller contests only $500
of the amount claimed by Buyer, and if the dispute is ultimately resolved
by lowering the assets by $800 ($300 lower than the contested amount), the
costs and expenses of the Independent Firm will be allocated 60% (i.e., 300
divided by 500) to Seller and 40% (i.e., 200 divided by 500) to Buyer.
(c) If the amount of the assets (excluding cash, cash equivalents
and intangible assets) less the liabilities on the Closing Balance Sheet
shall exceed $11,761,000, the amount of such excess, as finally determined
in accordance with the provisions of this Section 2.05, shall be payable by
Buyer to Seller as an adjustment to the Purchase Price. If the amount of
the assets (excluding cash, cash equivalents and intangible assets) less
the liabilities on the Closing Balance Sheet shall be less than
$11,761,000, the amount of such difference, as finally determined in
accordance with this Section 2.05, shall be payable by Seller to Buyer as
an adjustment to the Purchase Price. Any such amounts due as determined
under this clause (c) is herein referred to as the "Purchase Price
Adjustment Amount."
(d) The Purchase Price Adjustment Amount, if any, and the Cash
Balances shall accrue interest at the rate of six percent (6%) per annum
from the Closing Date until the date of payment. Payment of the Purchase
Price Adjustment Amount, the Cash Balances and accrued interest thereon
shall be made in immediately available funds within five (5) business days
of the final determination of the Closing Balance Sheet under this Section
2.05.
ARTICLE III
CONDITIONS TO CLOSING
SECTION 3.01 CONDITIONS TO BUYER'S OBLIGATIONS. The obligation of Buyer to
consummate the transactions contemplated by this Agreement is subject to the
satisfaction of the
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conditions set forth in this Section 3.01 on or before the Closing Date. Buyer
may expressly waive any or all of such conditions, in whole or in part, without
prior notice.
(a) the Board of Directors of Buyer shall approve this Agreement,
the Stock Purchase and the other transactions contemplated hereby;
(b) the representations and warranties of Seller set forth in
Article IV shall be true and correct in all material respects at and as of
the Closing Date as though then made and as though the Closing Date were
substituted for the date of this Agreement throughout such representations
and warranties;
(c) Seller shall have performed in all material respects all of
the covenants and agreements required to be performed by Seller under this
Agreement prior to the Closing Date;
(d) all filings, authorizations, consents, approvals or other
actions listed in Schedule 3.01(d) hereto shall have been filed, obtained
or taken, as the case may be;
(e) there shall have been no material adverse change in the
condition, results of operations, business, properties, assets, profits, or
liabilities of Cardkey taken as a whole (referred to herein as a "Material
Adverse Effect") from that reflected or disclosed in the Balance Sheet or
the Schedules or Exhibits to this Agreement;
(f) no Legal Requirement (including, without limitation, any
temporary, preliminary or permanent order) shall have been enacted, issued,
promulgated, enforced or entered by any Governmental Body of competent
jurisdiction which enjoins or prohibits the consummation of the
transactions contemplated by this Agreement;
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(g) on the Closing Date, Seller shall have delivered to Buyer the
following:
(i) a certificate dated the Closing Date executed on behalf
of Seller by a duly authorized officer stating that the
preconditions set forth in Sections 3.02(a), 3.01(b), 3.01(c),
3.01(e) and 3.01(f) have been satisfied;
(ii) good standing certificates for Seller and Cardkey US
from the State of Texas and the State of Delaware, respectively;
(iii) copies of all third party and governmental consents,
filings, authorizations or approvals listed in Schedule 3.01(d);
(iv) signed resignations, effective as of the Closing Date,
of such officers, directors and trustees of employee benefit plans
of Cardkey as may be specified by Buyer in writing prior to the
date of this Agreement;
(v) the opinion of Seller's counsel, dated the Closing Date
and in substantially the form of Exhibit A;
(vi) evidence reasonably satisfactory to Buyer that all
inter-company payables or receivables or other inter-company
obligations between Cardkey and Seller have been paid, contributed
to equity or otherwise settled prior to the Closing;
(vii) evidence reasonably satisfactory to Buyer that Seller
has transferred to Cardkey the Transferred Assets (as defined in
Section 6.09) in accordance with Section 6.09; and
(viii) such other documents as Buyer may reasonably request
in connection with the transactions contemplated by this
Agreement.
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SECTION 3.02 CONDITIONS TO SELLER'S OBLIGATIONS. The obligation of Seller
to consummate the transactions contemplated by this Agreement is subject to the
satisfaction of the following conditions on or before the Closing Date, any or
all of which may be expressly waived, in whole or in part, without prior notice
by Seller:
(a) the Board of Directors of Seller shall approve this
Agreement, the Stock Purchase and the other transactions contemplated
hereby;
(b) the representations and warranties of Buyer set forth in
Article V shall be true and correct in all material respects at and as of
the Closing Date as though then made and as though the Closing Date were
substituted for the date of this Agreement throughout such representations
and warranties;
(c) Buyer shall have performed in all material respects the
covenants and agreements required to be performed by it under this
Agreement prior to the Closing Date;
(d) all filings, authorizations, consents, approvals or other
actions listed in Schedule 3.02(d) shall have been filed, obtained or
taken, as the case may be;
(e) no Legal Requirement (including without limitation any
temporary, preliminary or permanent Order) shall have been enacted, issued,
promulgated, enforced or entered by any Governmental Body of competent
jurisdiction which enjoins or prohibits the consummation of the
transactions contemplated by this Agreement;
(f) no offer or proposal for a Competing Transaction (as defined
in Section 6.06) shall be outstanding;
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(g) on the Closing Date, Buyer shall have delivered to Seller the
following:
(i) a certificate dated the Closing Date executed on behalf
of Buyer by a duly authorized officer stating that the
preconditions specified in Sections 3.01(a), 3.02(b), 3.02(c) and
3.02(e) have been satisfied;
(ii) evidence that the German Federal Cartel Office has
approved the purchase and sale of Cardkey Germany;
(iii) evidence reasonably satisfactory to Seller that
effective on the Closing, the credit of Buyer has been or will be
substituted for the credit of Seller on the Guarantees (as defined
in Section 6.10); provided, that if Buyer is unable to obtain such
evidence with respect to any such Guarantee, Buyer agrees to
indemnify and hold harmless the Seller Parties (as defined in
Section 8.01) with respect to any obligations arising under any
such Guarantee subsequent to the Closing Date;
(iv) the opinion of Buyer's counsel, dated the Closing Date
and in substantially the form of Exhibit B;
(v) the $41,000,000 of the Purchase Price to be paid at
Closing; and
(vi) such other documents as Seller may reasonably request
in connection with the transactions contemplated by this Agreement.
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ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE SELLER
Seller represents and warrants to Buyer as follows:
SECTION 4.01 CORPORATE ORGANIZATION. Cardkey is comprised of the
following corporations, duly organized, validly existing and in good standing
under the laws of the respective jurisdictions: (a) Cardkey European Holdings
Limited, a corporation organized under the laws of the United Kingdom, (b)
Cardkey Systems Pacific Pty. Limited, a corporation organized under the laws of
Australia, (c) Cardkey Systems, Inc., a corporation organized under the laws of
Delaware, (d) Cardkey Sicherheitssysteme GmbH, a corporation organized under the
laws of Germany, and (e) Cardkey Systems Sdn. Bhd., a corporation organized
under the laws of Malaysia. Cardkey has, and at all times has had, full
corporate power and authority to own its properties and to conduct its business.
Cardkey is duly qualified as a foreign corporation and authorized to do business
in all jurisdictions in which the failure to be so qualified would have a
Material Adverse Effect.
SECTION 4.02 CAPITALIZATION.
(a) Schedule 4.02 sets forth a description of the authorized
capital stock of the entities comprising Cardkey and the Cardkey UK
Subsidiaries (as defined in Section 4.03), the issued and outstanding
capital stock of the entities comprising Cardkey and the Cardkey UK
Subsidiaries and the record and beneficial owners of all such issued and
outstanding capital stock. All of the Shares have been duly authorized and
validly issued and are fully-paid and nonassessable, and none of them was
issued in violation of any preemptive or other right or Legal Requirement.
(b) Except for this Agreement and the Australian Director's
Share, there are no agreements, arrangements, options, warrants, puts,
calls, rights or commitments of any character relating to the issuance,
sale, purchase, redemption, registration, voting or
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transfer of any shares of capital stock or other securities of the entities
comprising Cardkey or the Cardkey UK Subsidiaries.
SECTION 4.03 EQUITY INVESTMENTS. Except as set forth on Schedule 4.03 and
for Cardkey UK's ownership of all of the issued and outstanding capital stock of
each of Cardkey Systems Limited, a corporation organized under the laws of the
United Kingdom ("Cardkey Systems UK"), and Cotag International Limited, a
corporation organized under the laws of the United Kingdom ("Cotag UK", and
collectively with Cardkey Systems UK, the "Cardkey UK Subsidiaries"), Cardkey
neither owns, beneficially or of record, nor is obligated to acquire, directly
or indirectly, voting securities or other equity interests in any corporation,
partnership, joint venture, association or other business organization. Except
as set forth on Schedule 4.03 and for Cardkey UK's ownership of all the issued
and outstanding capital stock of the Cardkey UK Subsidiaries, Cardkey does not,
directly or indirectly, control any corporation, partnership, joint venture,
association or other business organization. Cotag UK is an inactive corporation
with no assets or liabilities and is in the process of being dissolved. Cardkey
Systems UK is an inactive corporation with no assets or liabilities other than
three leasehold interests that are utilized by Cardkey UK.
SECTION 4.04 AUTHORIZATION; NO VIOLATION. Seller has the sole right to
sell the Shares and has full corporate power and corporate authority to execute,
deliver and, subject to the conditions provided in this Agreement, perform this
Agreement in accordance with its terms. The shares of Cardkey UK are sold with
full title guarantee, and for this purpose the words "full title guarantee"
shall be interpreted in accordance with the Laws of Property (Miscellaneous
Provisions) Act 1994 (an English statute) save that the provisions of Sections
6(1) and 6(2) of that Act shall be deemed not to apply. This Agreement has been
duly executed and delivered by Seller and constitutes its legal, valid and
binding obligation, enforceable against it in accordance with its terms, except
to the extent the same may be limited by bankruptcy, insolvency, reorganization,
moratorium or similar laws affecting creditor's rights generally or by general
equitable principles. Except as set forth on Schedule 4.04, neither the
execution, delivery and performance of this Agreement nor the consummation of
the transactions contemplated herein
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will: (i) conflict with any of the terms or conditions of, or constitute a
default under, (a) the Articles of Incorporation or By-laws or similar
organizational documents of Seller or Cardkey or (b) any Legal Requirement
affecting Cardkey or Seller, (ii) require the approval, consent or authorization
of any Governmental Body, or (iii) result in the imposition of any Encumbrance
on any of the properties or assets of Cardkey.
SECTION 4.05 FINANCIAL STATEMENTS. Seller has delivered to Buyer complete
copies of the following financial statements:
(a) the consolidated unaudited balance sheets of Cardkey as of
December 31, 1996 and December 31, 1997, and related consolidated unaudited
statements of operations and cash flows for the fiscal years then ended;
and
(b) the consolidated unaudited balance sheet of Cardkey as of
July 31, 1998 and related consolidated unaudited statement of operations
for the seven (7) months then ended.
The financial statements listed in Sections 4.05(a) and (b) are attached as
Schedule 4.05 and are collectively referred to as the "Financial Statements."
The Financial Statements are not accompanied by supplemental footnote
information normally found in publicly-filed GAAP financial statements. The
Financial Statements have been prepared in accordance with GAAP, consistently
applied with prior periods and present fairly the financial position of Cardkey
as of the respective dates of such balance sheets, and the results of the
operations and cash flows of Cardkey for the respective periods then ended in
all material respects, except as indicated therein.
SECTION 4.06 ABSENCE OF CERTAIN CHANGES. Since the date of the Balance
Sheet ("Balance Sheet Date") there has been no event or occurrence that has had
a Material Adverse Effect. Since the Balance Sheet Date, Cardkey has conducted
its business in all material respects only in the ordinary course and in
conformity with past practice.
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SECTION 4.07 TITLE TO AND CONDITION OF PROPERTIES AND ASSETS.
(a) Cardkey has good and marketable title to, or a valid and
subsisting leasehold interest in, (i) all of the properties and assets on
the Balance Sheet (except as thereafter sold or otherwise disposed of in
accordance with the terms of this Agreement) or acquired after the Balance
Sheet Date, (ii) all properties and assets which are subject to operating
leases as defined in Financial Accounting Standards Board Statement No. 13
and which are not reflected in the Balance Sheet, and (iii) except for the
Transferred Assets (as defined in Section 6.09), all other properties or
assets owned or used by it in the conduct of its business, including,
without limitation, the Wiegand machine owned by Cardkey but not reflected
on the Balance Sheet, and in each case set forth in clauses (i), (ii) and
(iii), subject to no Encumbrances, except Permitted Encumbrances.
(b) The assets owned or leased by Cardkey (other than the
Transferred Assets) constitute all the assets used in the conduct of its
business.
(c) All plants, structures, machinery, equipment, automobiles,
trucks, tools and other properties and assets owned or leased by Cardkey
are in reasonably good operating condition and repair (except for ordinary
wear and tear and routine maintenance in the ordinary course of business)
and usable in a manner consistent with their current use. All plants,
structures, facilities, machinery, equipment, automobiles, trucks, tools
and other properties and assets owned or leased by Cardkey conform in all
material respects with, and Cardkey is in compliance in all material
respects with, all applicable Legal Requirements with respect to the use,
maintenance, condition and operation thereof, and no written notice of any
violation of any such Legal Requirement has been received by Cardkey or
Seller that has not been cured.
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SECTION 4.08 REAL PROPERTY.
(a) Schedule 4.08 sets forth a complete and accurate list of all
leases of real property and all options to lease such real property to
which Cardkey is a party, as lessor, lessee or otherwise (the "Leases").
True and correct copies of the Leases, as amended, have been made available
to Buyer, and each of the Leases is binding and in full force and effect,
except as indicated on Schedule 4.08 or to the extent the same may be
limited by bankruptcy, insolvency, reorganization, moratorium or similar
laws affecting creditor's rights generally or by general equitable
principles. To the knowledge of Seller, except as indicated in Schedule
4.08, there is no default by any party under any of such Leases, nor has
any event occurred which, with notice or the passage of time, or both,
would constitute a default under any of such Leases.
(b) Except for the real property leased under the Leases
(collectively, the "Real Property"), Cardkey does not own, have any
interest in, or any right or obligation to acquire, any real property, or
interest in real property. Cardkey has not owned any real property since
August 1, 1995. Cardkey's operations on and use of all the Real Property
conform in all material respects to applicable zoning regulations
(including use and other restrictions and covenants on the use thereof) and
all other applicable Legal Requirements. All material Permits required for
Cardkey's operations on and use of the Real Property have been obtained and
are in full force and effect.
SECTION 4.09 TAX MATTERS.
(a) All material Tax (as defined below) and material information
returns, reports and declarations of every nature relating to Cardkey that
are required to have been filed with any Governmental Body have been timely
filed, are complete and accurate in all material respects and disclose all
Taxes required to be paid for the periods covered thereby. All Taxes for
which Cardkey is liable have been paid as required by law in a timely
manner or, if not yet due and payable, have been properly accrued for. All
Taxes
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that Cardkey is required by law to withhold or to collect for payment have
been duly withheld and collected, and have been paid or will be paid when
due to the proper Governmental Body. No adjustments relating to such
returns, reports and declarations have been proposed by any Governmental
Body for which there has not been an accrual on the Balance Sheet. The
accruals for current Taxes due by Cardkey on the Balance Sheet are
sufficient for all unpaid Taxes, whether or not disputed, in respect of its
business and operations for the period then ended and all prior periods.
Schedule 4.09(a) sets forth the latest income tax return or return based on
Cardkey's income that has been examined by the appropriate taxing authority
or closed by applicable statute. Except as disclosed in Schedule 4.09(a),
Cardkey has not been advised in writing or, to the knowledge of Seller,
orally by any such Governmental Body, of any issue or question relating to
any return, report or declaration that, if determined adversely to Cardkey,
would result in the assertion of any deficiency for any Tax or interest or
penalties in connection therewith. Except as disclosed in Schedule 4.09(a),
Cardkey has neither (i) agreed to, or is bound by, any extension or waiver
of the statute of limitations relating to the assessment or collection of
any Tax, nor (ii) has incurred any Tax liability except in the ordinary
course of business consistent with past practice or any material
liabilities for interest or penalties with respect to the foregoing. There
are no Tax liens on any assets of Cardkey, other than any liens for current
Taxes which are not yet due and payable.
(b) For the purposes of this Agreement, "Tax" or "Taxes" means all
income, gross receipts, sales, use, employment, franchise, profits,
property, excise, value added, transfer, or other taxes, estimated import
duties, fees, stamp taxes and duties, assessments or charges of any kind
whatsoever (whether payable directly or by withholding) imposed by any
taxing authority, together with any interest and any penalties, additions
to tax or additional amounts imposed by any taxing authority with respect
thereto.
(c) To Seller's knowledge, (i) neither Seller nor any of its
Affiliates has made, with respect to any asset held by Cardkey, any consent
under Section 341 of the Code, (ii) none of the assets of Cardkey is "tax
exempt use property" within the meaning of Section
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168(h) of the Code, (iii) Cardkey is not a party to any lease made pursuant
to Section 168(f)(8) of the Internal Revenue Code of 1954, and (iv) (A)
Cardkey is not required to make any adjustment pursuant to Section 481 of
the Code (or any similar provision of other laws or regulations) by reason
of a change in accounting method or otherwise, and (B) Cardkey does not
have an application pending with any taxing authority requesting permission
for any change in accounting method that relates to its business or
operations.
(d) Cardkey has complied in all material respects with all applicable
laws, rules and regulations relating to the withholding of, and payment of
withheld, Taxes (including, without limitation, withholding of Taxes
pursuant to Sections 1441, 1442, 3121 and 3402 of the Code or similar
provisions under state, local or foreign laws) and has, within the time and
the manner prescribed by law, withheld from and paid over to the proper
Governmental Bodies all amounts required to be so withheld and paid over
under applicable laws.
(e) Seller is not a "foreign person" within the meaning of Section
1445 of the Code.
(f) Each of the jurisdictions in which Cardkey is required to file
income and sales tax returns are listed on Schedule 4.09(f), and no taxing
authority has notified Seller or Cardkey that Cardkey is required to file
an income or sales tax return in a jurisdiction where it has not done so.
(g) To Seller's knowledge, the tax returns of Cardkey have been
examined by the Internal Revenue Service (or a similar authority under
foreign law) for the taxable years indicated on Schedule 4.09(g). Any
deficiencies resulting from such examinations have either been paid or
adequately provided for. Except as set forth on Schedule 4.09(g) and for
refund claims, no action, suit, proceeding, investigation, arbitration,
audit, claim or assessment is presently pending or, to Seller's knowledge,
has been proposed or
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threatened to be asserted or commenced by any taxing authority with regard
to any Taxes for which Cardkey may be liable.
(h) Except for Cardkey Australia, which was purchased by Seller from
another tax group effective as of August 1, 1995, (i) Cardkey has not been
a member of a consolidated, combined or unitary tax group (or corresponding
provisions under foreign law) other than the group in which it currently is
a member, and (ii) Cardkey is not a member of a Tax sharing or similar
agreement and does not have any tax indemnity obligations.
(i) Except as otherwise indicated on Schedule 4.09(i), Cardkey will
not be required to include in a taxable period ending after the Closing
Date any taxable income (whether earned by Cardkey or an Affiliate of
Cardkey) attributable to income that accrued in a prior taxable period (or
the portion of the taxable period that ends on the Closing Date that was
before the Closing Date) but was not recognized in any prior taxable period
as a result of the installment method of accounting, the cash method of
accounting or Section 481 of the Code or comparable provisions of state,
local or foreign law, or for any other reason, unless the relevant accrued
income taxes will be adequately reflected on the Closing Balance Sheet.
(j) Cardkey is not a real property holding company within the
meaning of Section 897 of the Code.
SECTION 4.10 PERMITS.
(a) Cardkey owns or holds all material licenses, franchises, permits
(including permits issued pursuant to any Environmental Laws), privileges,
immunities, variances, approvals, registrations, easements, rights and
other authorizations issued by any Governmental Body that are necessary to
entitle it to own, lease, operate and use its assets and properties and to
carry on and conduct its business substantially as currently
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conducted (collectively, "Permits"), free and clear of all Encumbrances,
except Permitted Encumbrances. Schedule 4.10 sets forth a list of each such
material Permit held by Cardkey as of the date of this Agreement, and a
copy of each such Permit has been made available to Buyer.
(b) Cardkey is in compliance in all material respects with each of
the Permits listed on Schedule 4.10, and to Seller's knowledge, no event
has occurred or condition or state of facts exists which constitutes or,
after notice or lapse of time or both, would constitute, a breach or
default under any such Permit. No written notice of cancellation, of
default or of any dispute or inquiry concerning any Permit listed on
Schedule 4.10, or of any event, condition or state of facts described in
the preceding sentence, has been received by Seller or Cardkey.
SECTION 4.11 PERSONAL PROPERTY. Schedule 4.11 contains lists dated
on or about September 30, 1998 of all machinery, equipment, vehicles, furniture
and other fixed assets owned by Cardkey having a book value of $5,000 or more.
SECTION 4.12 PERSONAL PROPERTY LEASES. Schedule 4.12 contains a list
of each lease or other agreement or right, whether written or oral, involving a
term of more than 12 months and rental obligations exceeding $5,000 per year,
under which Cardkey is lessee of, or holds or operates, any machinery,
equipment, vehicle or other tangible personal property owned by a third party.
SECTION 4.13 INTELLECTUAL PROPERTY.
(a) Schedule 4.13 contains a list of:
(i) all United States and foreign patents and patent
applications, all United States, state and foreign trademarks, service
marks, trade names and copyrights for which registrations have been
issued or applied for, and all other
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United States, state and foreign trademarks, service marks, trade
names and copyrights owned by Cardkey or in which Cardkey holds any
right, license or interest (collectively, the "Intellectual
Property");
(ii) all agreements, licenses, assignments and indemnities
relating to any Intellectual Property to which Cardkey is a party;
(iii) all licenses or agreements pertaining to mailing lists,
know-how, trade secrets, inventions, disclosures or uses of ideas to
which Cardkey is a party; and
(iv) all registered, assumed or fictitious names under which
Cardkey is conducting its business or has within the previous three
(3) years conducted its business.
(b) All patents listed in Schedule 4.13 as being owned by Cardkey
are, except as indicated in Schedule 4.13, valid and in force and all of
Cardkey's or Seller's patent applications listed therein are pending, all
without challenge of any kind, and, except as otherwise disclosed in such
Schedule, Cardkey owns the entire right, title and interest in and to such
patents and patent applications free and clear of all Encumbrances, except
Permitted Encumbrances. All of the registrations for trade names,
trademarks, service marks and copyrights listed in Schedule 4.13 as being
owned by Cardkey or Seller are, except as indicated in Schedule 4.13, valid
and in force and all applications for such registrations are pending and in
good standing, all without challenge of any kind, and either Cardkey or
Seller owns the entire right, title and interest in and to all such trade
names, trademarks, service marks and copyrights so listed as well as the
registrations and applications for registration therefor free and clear of
all Encumbrances, except Permitted Encumbrances. Correct and complete
copies of all the patents and patent applications and of all the
trademarks, trade names, service marks and copyrights and registrations,
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applications or deposits therefor and all the licenses listed in Schedule
4.13 have heretofore been made available to Buyer.
(c) Except as set forth in Schedule 4.13, there are no pending, or to
the knowledge of Seller, threatened claims (i) that the use and/or
commercialization of any product or technology as is necessary for the
operation of the business of Cardkey (A) infringes any copyright or mask
work rights of any Person, (B) misappropriates any trade secrets of any
Person, or (C) infringes any claim contained in any patent issued as of the
Closing Date, or (ii) challenging the ownership of any of the Intellectual
Property.
SECTION 4.14 ACCOUNTS RECEIVABLE; INVENTORIES.
(a) Seller has made available to Buyer a list of all accounts
receivable of Cardkey as at September 30, 1998, which list is true, correct
and complete and sets forth the aging of such accounts receivable as of the
date thereof. The accounts receivable of Cardkey as set forth on the
Balance Sheet or arising since the date thereof are valid and genuine, have
arisen solely in the ordinary course of business consistent with past
practice, and, to Seller's knowledge, except as set forth on Schedule 4.14,
are not subject to valid defenses, setoff or counterclaims.
(b) All inventory of Cardkey reflected on the Balance Sheet or
acquired since the date thereof was acquired and has been maintained in the
ordinary course of business, consistent with past practice, and is of a
quality and quantity usable and salable in the ordinary course of business,
consistent with past practice. No inventory is held on consignment by or
for Cardkey, nor is Cardkey otherwise under any liability or obligation
with respect to the return of inventory in the possession of wholesalers,
retailers or other customers.
SECTION 4.15 EMPLOYEES. Schedule 4.15 contains complete lists of (a)
the employees of Cardkey on or about September 30, 1998, (b) the then current
annual base compensation of such
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employees, (c) a description of the fringe benefits (other than those generally
available to its employees) provided to any such employees, and (d) any
increase, effective after September 30, 1998, in the rate of compensation of any
of such employees.
SECTION 4.16 EMPLOYEE RELATIONS.
(a) Cardkey has complied in all material respects with all applicable
Legal Requirements relating to wages, hours, discrimination in employment,
collective bargaining and other employment matters and is not liable for
any arrears of wages or any taxes or penalties for failure to comply with
any of the foregoing.
(b) There is no (i) unfair labor practice charge or complaint against
Cardkey pending before the National Labor Relations Board, any state labor
relations board or any court or tribunal and, to the knowledge of Seller,
none is or has been threatened, or (ii) employee grievance, complaint, or
claim pending against Cardkey and, to the knowledge of Seller, none is or
has been threatened which, in any such case set forth in clause (i) or (ii)
of this sentence, if adversely determined in respect of Cardkey, would have
a Material Adverse Effect.
(c) Cardkey's employees are not currently, and have not at any time
in the past been, represented by any union or labor organization, and
Cardkey has never been subject to any collective bargaining agreement
regarding or applying to any of its employees.
SECTION 4.17 EMPLOYEE BENEFIT PLANS.
(a) Set forth in Schedule 4.17(a) is a true and complete list of each
of the following to which Cardkey is a party or by which it is bound:
(i) each retirement, savings, thrift, deferred compensation,
severance, stock ownership, stock purchase, stock option, performance,
bonus, incentive,
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vacation or holiday pay, hospitalization or other medical, disability,
life or other insurance, or other welfare, retiree welfare or benefit
plan, policy, trust, understanding or arrangement of any kind, whether
written or oral (collectively, the "Employee Plans");
(ii) each agreement or understanding with any senior officer of
Cardkey relating to the payment of compensation to such officer upon
the consummation of the Stock Purchase (collectively, the "Incentive
Agreements"); and
(iii) other than those described in the foregoing clauses (i) and
(ii), each employee collective bargaining agreement and each
agreement, commitment, understanding, plan, policy or arrangement of
any kind, whether written or oral, with or for the benefit of any
current or former officer, director, employee or consultant
(including, without limitation, each employment, compensation,
deferred compensation, severance, supplemental pension, life
insurance, termination or consulting agreement or arrangement and any
agreements or arrangements associated with a change in control)
(collectively, the "Compensation Commitments").
True, complete and accurate copies or descriptions of all Employee Plans and
Compensation Commitments and of all related insurance and annuity policies and
contracts and other documents with respect to each Employee Plan and
Compensation Commitment that have been requested by Buyer have been made
available to Buyer.
(b) Except as set forth on Schedule 4.17(b), Cardkey has never
maintained, been required to contribute to, or been required to pay any
amount with respect to, any "employee pension benefit plan" (as such term
is defined in Section 3(2) of ERISA) or "multi-employer plan" (as such term
is defined in Section 3(37) of ERISA). Set forth in Schedule 4.17(b) is a
true and complete list of each "employee welfare benefit plan" (as such
term is defined in Section 3(1) of ERISA) maintained by Cardkey, or to
which
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Cardkey is or will be required to contribute (the "ERISA Benefit Plans").
Cardkey has never made contributions to a voluntary employees' beneficiary
association described in Section 501(c)(9) of the Code.
(c) Cardkey has made available to Buyer, with respect to each ERISA
Benefit Plan, correct and complete copies of the following that have been
requested by Buyer: (i) all plan documents and amendments, trust agreements
and insurance and annuity contracts and policies, (ii) the Annual Reports
(Form 5500 Series) and accompanying schedules, as filed, for the most
recently completed three plan years, (iii) the current summary plan
description, (iv) the financial statements for the most recently completed
three plan years, and (v) all correspondence with the IRS and Department of
Labor (including IRS determination letters) relating to any material
matter. Seller agrees to use commercially reasonable efforts to assist
Buyer in obtaining any of such documents, agreements and items and such
other information as Buyer deems necessary to investigate any Employee Plan
or Compensation Commitment as anticipated pursuant to Section 6.01.
(d) Neither Cardkey nor any ERISA Affiliate of Cardkey maintains or
contributes to, or has ever maintained or contributed to or been obligated
to contribute to, a multiemployer plan (as defined in Section 4001(a)(3) of
ERISA) or an employee benefit plan that is subject to Title IV of ERISA.
Cardkey has no liability, potential or otherwise, under Section 4062, 4063,
4064, 4068, 4069 or Section 4212(c) of ERISA.
(e) There is no pending or, to the knowledge of Seller, threatened
claim in respect of any of the Employee Plans or Compensation Commitments.
Each of the Employee Plans or Compensation Commitments (i) has been
administered in all material respects in accordance with its terms and (ii)
complies in form, and has been administered in all material respects in
accordance, with the requirements of ERISA and, where applicable, the Code.
Cardkey has complied with the health care requirements of Part 6 of Title I
of ERISA so as not to be liable for any tax under Section 4980B or 4980D of
the Code. Cardkey has no obligations under any of the Employee Plans,
Incentive
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Agreements or Compensation Commitments or otherwise to provide health
benefits to its former employees or any other person, except as
specifically required by continuation requirements of Part 6 of Title I of
ERISA.
(f) No "disqualified person" (within the meaning of Section 4975 of
the Code) or "party in interest" (within the meaning of Section 3(14) of
ERISA) has taken any action, or failed to take any action, with respect to
any of the Employee Plans, Incentive Agreements or Compensation Commitments
which could subject any such plan (or its related trust), Cardkey or any
officer, director or employee of any of the foregoing to a material penalty
or tax under Section 502(i) of ERISA or Section 4975 of the Code.
(g) Except with respect to any Incentive Agreements and as provided
in Section 6.11, the consummation of the transactions contemplated by this
Agreement will not entitle any employee or former employee of Cardkey to
severance pay, or accelerate the time of payment or vesting, or increase
the amount of compensation or benefits due to any such employee or former
employee.
SECTION 4.18 CONTRACTS. Except as set forth in Schedule 4.18, Cardkey is
not a party to or bound by:
(a) any purchase order, agreement or commitment obligating it to
purchase or sell any products or services and which (i) is not terminable
by it without payment or penalty upon sixty (60) days' (or less) notice,
(ii) relates to purchases or sales in an aggregate amount exceeding
$200,000 or (iii) is presently expected to result in a loss upon completion
or performance thereof in an amount in excess of $200,000;
(b) any indebtedness, obligation or liability for borrowed money,
any liability for the deferred purchase price of property in excess of
$200,000 (excluding normal trade payables), any instrument guaranteeing any
indebtedness, obligation or liability in excess
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of $200,000, or any obligation to incur or guarantee any such indebtedness,
obligation or liability in excess of such amounts;
(c) any joint venture, partnership or other arrangement involving
a sharing of its profits;
(d) any confidentiality agreement or other agreement, in each case,
limiting its ability to engage in any business, or to compete in any
manner, anywhere in the world;
(e) any contract not made in the ordinary course that is material
to its business;
(f) any material contract with any Governmental Body;
(g) any contract or other commitment for any charitable or political
contribution in excess of $5,000;
(h) any bond or surety arrangement issued or entered into in
connection with its business, assets or liabilities; or
(i) any other contract, agreement, commitment, understanding or
instrument which is not cancelable upon 60 days or less notice without
penalty and either (i) does not by its terms expire on or before November
1, 1999, (ii) provides for payments or receipts by it exceeding $200,000 or
(iii) is material to the business of Cardkey and is not otherwise required
to be disclosed by any of Section 4.08(a), 4.12, 4.13, 4.17(a) or this
Section 4.18.
SECTION 4.19 STATUS OF CONTRACTS.
(a) Each of the leases, contracts and other agreements listed in
Schedules 4.08, 4.12, 4.13 (parts (a)(ii) and (a)(iii) of such Schedule),
4.17(a) and 4.18 (collectively, the
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"Material Contracts"), constitutes a valid and binding obligation of
Cardkey and, to Seller's knowledge, each other party thereto, and is in
full force and effect, except to the extent the same may be limited by
bankruptcy, insolvency, reorganization, moratorium or similar laws
affecting creditor's rights generally or by general equitable principles.
Except as set forth in Schedule 4.19, the consummation of the transactions
contemplated hereby will not cause a breach of or constitute a default
under any of the Material Contracts, result in the forfeiture or impairment
of any rights thereunder, or require the consent or approval of any other
Person pursuant to the terms thereof. Except as set forth on Schedule 4.19,
Cardkey has fulfilled in all material respects its obligations under each
of the Material Contracts when due, and is not in, or to Seller's
knowledge, alleged to be in, breach or default under, nor to Seller's
knowledge, is there or is there alleged to be any basis for termination of,
any of the Material Contracts and, to the knowledge of Seller, no other
party to any of the Material Contracts has breached or defaulted
thereunder, and no event has occurred and no condition or state of facts
exists which, with the passage of time or the giving of notice or both,
would constitute such a default or breach by Cardkey or, to the knowledge
of Seller, by any such other party. Cardkey is neither renegotiating any of
the Material Contracts nor paying liquidated damages in lieu of performance
thereunder. Complete and correct copies of each of the Material Contracts
have been made available to Buyer.
SECTION 4.20 NO VIOLATION, LITIGATION OR REGULATORY ACTION. Except as
set forth on Schedule 4.20:
(a) Cardkey has complied in all material respects with each, and is
not in violation of, any material Legal Requirement to which it or its
business, operations, assets or properties is subject;
(b) Prior to the Closing Cardkey has not taken any action that would
require notification of its employees pursuant to the provisions of the
WARN Act (or similar plant
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closing law) or that would cause it or, after the Closing Date, Buyer to
have any liability thereunder;
(c) No written notice has been served upon Cardkey by any Person of
any pending violation of any Legal Requirement or calling attention to the
current necessity of any work or alteration of any real or personal
property owned or used by Cardkey; and
(d) There are no actions, suits, proceedings or investigations
pending or, to the knowledge of Seller, threatened against Cardkey and
there are no actions, suits or proceedings pending or contemplated in which
Cardkey is the plaintiff, which, in any such case if adversely determined
in respect of Cardkey would have a Material Adverse Effect.
SECTION 4.21 INSURANCE.
(a) Schedule 4.21(a) sets forth a list of all insurance policies
maintained, owned or held by Cardkey on the date hereof. Such policies are
in full force and effect, insure against risks and liabilities to an extent
and in a manner customary in businesses similar to Cardkey's business, and
are adequate to provide coverage against risks of a material nature to
which Cardkey would normally be exposed in the operation of its business.
Cardkey has complied in all material respects with each of such insurance
policies and has not failed to give any notice or present any claim
thereunder in a due and timely manner. Except as set forth on Schedule
4.21(a), there are no outstanding unpaid claims under any of such insurance
policies and neither Seller nor Cardkey has received any notice of
cancellation or nonrenewal of any such policy. There is no material
inaccuracy in any application for such policies. At no time subsequent to
August 1, 1995 has Cardkey been denied any insurance or indemnity bond
coverage which it has requested or made any reduction in the scope or
amount of its insurance coverage. Since August 1, 1995, no insurance
carrier has cancelled or reduced any insurance coverage for Cardkey or has
given any notice or other indication of its intention to cancel or reduce
any such
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coverage. All premiums due and payable under any such insurance policies
have been duly paid.
(b) Schedule 4.21(b) sets forth (i) all worker's compensation claims
that are open on the date hereof, (ii) the amounts paid thereon to the date
hereof, (iii) the current status of each, and the amounts reserved
therefor.
SECTION 4.22 PRODUCT LIABILITY CLAIMS; PRODUCT WARRANTIES. Schedule 4.22
sets forth (a) all product liability claims pending or, to the knowledge of
Seller, threatened against Cardkey, (b) the standard product warranty policies
of Cardkey covering products sold or distributed by Cardkey, and (c) any
material variations to the standard warranty policies of Cardkey covering
products sold or distributed by Cardkey which are in effect on the date hereof
or will be in effect on the Closing Date.
SECTION 4.23 ENVIRONMENTAL PROTECTION.
(a) Cardkey's operations on and its use of the Facilities are and
since August 1, 1995, have been, in material compliance with all applicable
Environmental Laws.
(b) There have been no past, and there are no pending or, to Seller's
knowledge threatened, claims, Orders, complaints, notices, citations,
written requests for information or written inquiries received by or naming
Seller or Cardkey with respect to any alleged violation by Cardkey of any
Environmental Law which would result in a Material Adverse Effect.
(c) There has been no Release of any Hazardous Material by Cardkey in
violation of applicable Environmental Laws, which violation would have a
Material Adverse Effect.
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(d) Neither Seller nor Cardkey has been notified in writing that any
property now or previously leased by Cardkey is listed on the National
Priorities List, or on the Comprehensive Environmental Response
Compensation, Liability Information System List ("CERCLIS") or on any
similar federal or state list of sites requiring investigation or cleanup.
(e) Cardkey does not maintain and has not maintained underground
storage tanks ("USTs"), on or under any property now leased or previously
leased by Cardkey, and Cardkey has neither abandoned nor closed any USTs on
any previously leased property.
(f) To the knowledge of Seller, Cardkey has not transported or
arranged for the transportation of any Hazardous Material to any location
which is listed or proposed for listing on the National Priorities List
pursuant to CERCLA, on CERCLIS or on any similar state list or which is the
subject of federal, state or local enforcement actions or other
investigations which may lead to claims against Cardkey for any remedial
work, damage to natural resources or personal injury, including, but not
limited to, claims under CERCLA.
(g) Cardkey's operations on, or its use of, Facilities is not
subject to any investigation, judicial or administrative proceeding, order,
judgment, decree, settlement or other agreement respecting (i) any
Environmental Law, (ii) any Remedial Action or (iii) any claims or
liabilities and costs arising from the Release or threatened Release of a
Hazardous Material into the environment.
(h) Cardkey's current or previous operations on, and use of, the
Facilities does not include any of the following:
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(i) any treatment, recycling, storage or disposal of any
hazardous waste, as that term is defined under 40 C.F.R. Part 261 or
any state equivalent, requiring a Permit that was not obtained;
(ii) any landfill, waste pile or surface impoundment; or
(iii) any polychlorinated biphenyls (PCBs) used in hydraulic
oils, electrical transformers or other equipment.
SECTION 4.24 CUSTOMERS AND SUPPLIERS. Set forth in Schedule 4.24 is
a list of the names and addresses of up to the ten (10) largest customers and
suppliers of Cardkey (measured by dollar volume of purchases or sales in each
case) with dollar volume of purchases or sales, as applicable, in excess of
$200,000 for each of Cardkey's 1996 fiscal year or 1997 fiscal year. There
exists no actual or, to the knowledge of Seller, threatened termination,
cancellation or limitation of, or any modification or change in, Cardkey's
business relationship with any customer listed in Schedule 4.24, except as set
forth in such Schedule.
SECTION 4.25 BOOKS AND RECORDS. The books and records of Cardkey
have been maintained in accordance with good business practices and applicable
legal, regulatory and accounting requirements, reflect only valid transactions,
are complete and correct in all material respects and accurately reflect in all
material respects the basis for the financial position and results of Cardkey's
operations.
SECTION 4.26 DEPOSITARIES; POWERS OF ATTORNEY. Schedule 4.26 sets
forth (i) the name and a brief description of all bank accounts, lockboxes, safe
deposit boxes, money market funds, certificates of deposit, stocks, bonds, notes
and other securities in the name of or owned or controlled by Cardkey and the
names of all Persons authorized to draw thereon or to have access thereto and
(ii) the name of each Person holding a general or special power of attorney from
Cardkey.
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SECTION 4.27 OWNERSHIP AND TRANSFER OF SHARES. Seller is the record
and beneficial owner of the Shares (other than the Australian Director Share, of
which Seller is the beneficial owner) and has the absolute right to transfer
them to Buyer. Such Shares are, and upon transfer to Buyer will be, free and
clear of any Encumbrances other than those imposed by this Agreement or related
to the Australian Director Share. The transfer of the Shares at the Closing
will be effective and rightful and the Shares are genuine and have not been
altered.
SECTION 4.28 YEAR 2000 COMPLIANCE. Except as otherwise indicated on
Schedule 4.28, the Cardkey Software (as defined below) will provide accurate
processing of date and date dependent data within and between the twentieth and
twenty first centuries; provided, however, that any Cardkey Software will not be
considered non-Y2K compliant by reason of (a) the existence of an error or other
failure that is attributable to the receipt of data in an incorrect format, or
(b) the interfacing with non-Y2K compliant hardware or software that has not
been provided by Cardkey. For purposes of this Agreement, "Cardkey Software"
means computer programs (excluding pre-packaged or off the shelf software)
included in products being sold by Cardkey as of the date hereof or computer
programs being sold or licensed by Cardkey for use with products sold by Cardkey
as of the date hereof. The Y2K compliance of products previously sold by
Cardkey, which are still being supported by Cardkey, is set forth in Schedule
4.28.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF BUYER
Buyer represents and warrants to Seller as follows:
SECTION 5.01 CORPORATE ORGANIZATION. Buyer is a corporation duly
organized, validly existing and in good standing under the laws of Wisconsin and
has the corporate power and authority to carry on its business as now being
conducted by it.
SECTION 5.02 AUTHORIZATION; NO VIOLATION. Buyer has full corporate
power and corporate authority to execute, deliver and perform this Agreement and
to consummate the
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transactions contemplated hereby in accordance with its terms. Buyer's
execution, delivery and performance of this Agreement have been duly authorized
by all requisite corporate action. This Agreement has been duly executed and
delivered by Buyer and constitutes its legal, valid and binding obligation,
enforceable against Buyer in accordance with its terms. Except as set forth on
Schedule 5.02, neither the execution, delivery and performance of this Agreement
nor the transactions contemplated herein will: (i) conflict with any of the
terms or conditions of, or constitute a default under, (a) the Articles of
Incorporation or By-laws of Buyer or any material instrument, agreement or
mortgage to which Buyer is a party, or by which any of its properties is
subject, or by which it is bound or (b) any Legal Requirement affecting Buyer;
(ii) require the approval, consent or authorization of any Governmental Body; or
(iii) give any party with rights under any material instrument, agreement,
mortgage or Legal Requirement the right to terminate, modify or otherwise change
the rights or obligations of Buyer thereunder.
SECTION 5.03 SUFFICIENT FUNDS. Buyer has the financial capability to
purchase the Shares on the terms and subject to the conditions set forth in this
Agreement.
SECTION 5.04 INSPECTION. Anything herein to the contrary notwithstanding,
Buyer acknowledges that it is acquiring the Shares without any representation or
warranty, express or implied, by Seller or any of its Affiliates except as
expressly set forth herein. In furtherance of the foregoing, and not in
limitation thereof, Buyer acknowledges that none of Seller, any of Seller's
Affiliates or any of their respective advisors or representatives have made any
representation or warranty, express or implied, with respect to, and Buyer is
not relying upon, any financial projection or forecast delivered to Buyer with
respect to the revenues or profitability which may arise from the operation of
Cardkey either before or after the Closing Date. With respect to any projection
or forecast delivered by or on behalf of Seller or Cardkey to Buyer, Buyer
acknowledges that (a) there are uncertainties inherent in attempting to make
such projections and forecasts, (b) it is familiar with such uncertainties, (c)
it is taking full responsibility for making its own evaluation of the adequacy
and accuracy of all such projections and forecasts furnished to it and (d) it
shall not have a claim against Seller, Seller's Affiliates or any of their
respective advisors or representatives with respect to such projections or
forecasts.
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ARTICLE VI
COVENANTS
The respective parties hereto covenant and agree with each other as
follows:
SECTION 6.01 ACCESS, INFORMATION AND DOCUMENTS. Pending the Closing
Date, Seller shall provide Buyer and Buyer's representatives with reasonable
access, during normal business hours upon reasonable prior notice, to all of
Cardkey's properties, assets, books, records, and other documents of or relating
to Cardkey. Seller shall make available to Buyer and Buyer's representatives
all data and information (excluding information that is subject to the attorney-
client privilege) concerning the business, finances, and properties of Cardkey
that may be reasonably requested. As part of such examination, Buyer may, with
the prior approval of Seller, make such inquiries of such Persons having
business relationships with Cardkey as Buyer shall reasonably request, and
Seller will cause Cardkey to cooperate fully in connection therewith. Buyer and
its representatives and agents will take all action deemed reasonably necessary
by Seller or Cardkey to schedule Buyer's access through an officer of Seller
designated by Seller and in such a manner as to avoid disrupting the normal
business operations of Cardkey.
SECTION 6.02 PRESERVE ACCURACY OF REPRESENTATIONS AND WARRANTIES.
Without the other party's prior consent, each of Seller and Buyer shall use
commercially reasonable efforts to refrain from taking, and Seller shall use
commercially reasonable efforts to cause Cardkey to refrain from taking, any
action that would render any representation or warranty contained herein
inaccurate as of the Closing Date.
SECTION 6.03 FURTHER ACTION. Each of the parties hereto shall, and
Seller shall cause Cardkey to, (a) execute such documents and other papers and
take such further actions as may be reasonably necessary or desirable to carry
out the provisions hereof and the transactions contemplated hereby, and (b) use
commercially reasonable efforts to cooperate with and assist the other party in
preparing and reviewing, as applicable, the Closing Balance Sheet, in providing
an
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efficient transfer of the control and management of Cardkey's business to Buyer
and avoiding any undue interruption in the activities and operations of Cardkey
following the Closing Date.
SECTION 6.04 OPERATIONS PRIOR TO THE CLOSING DATE. Between the date
hereof and the Closing Date, Seller shall cause Cardkey to carry on its business
only in the ordinary course and substantially as presently operated, preserve
its business and assets intact and preserve the goodwill of customers and others
having material business relations with Cardkey.
SECTION 6.05 NO PUBLIC ANNOUNCEMENT. Buyer agrees and acknowledges that it
is the intention of Seller to issue a press release or make a public
announcement with respect to this Agreement and the transactions contemplated
hereby prior to the Closing, and Seller agrees and acknowledges that it will
afford Buyer reasonable approval rights with respect thereto. Except as set
forth in the preceding sentence, without written approval of the other party,
neither party will issue any press release or make any public announcement
concerning the transactions contemplated herein, except as may be necessary for
a party to meet the requirements or regulations of any applicable law,
governmental unit or agency, or stock exchange or inter-dealer quotation system
on which the securities of the party may be listed, and in such event, the party
required to make such statement shall afford the other party advance written
notice and reasonable approval rights with respect thereto.
SECTION 6.06 EXCLUSIVITY.
(a) From the date hereof until the Closing Date or the date this
Agreement is terminated and the transactions provided for in this Agreement
are abandoned as contemplated by Article VII, except as permitted by
Section 6.05, neither Seller nor Cardkey, nor their respective directors,
officers, or employees, will directly or indirectly, solicit, or encourage
any proposal or offer from any third party relating to the purchase of the
Shares or assets of Cardkey or any similar transaction (a "Competing
Transaction"), or enter into discussions with, or furnish any information
concerning Cardkey to, any such third party in connection therewith. In
addition, except as permitted by Section 6.05,
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neither Buyer nor Seller, nor their respective directors, officers, or
employees, will discuss the terms of this Agreement with any third party
(other than to its financial advisors, attorneys and accountants) without
the written consent of the other party hereto. Subject to the provisions of
clause (b) below and so long as Seller has not breached the preceding
provisions of this clause (a) or Section 6.05, this clause (a) shall not
preclude Seller from accepting an offer or proposal for a Competing
Transaction with a purchase price and other material economic terms, taken
as a whole, that are more favorable to Seller than the Purchase Price and
other material economic terms of this Agreement, taken as a whole.
(b) If Seller receives an offer or proposal for a Competing
Transaction from a third party with a purchase price and other material
economic terms that are more favorable on the whole to Seller than the
Purchase Price and other material economic terms set forth herein and
Seller is considering accepting such offer or proposal, Seller will
promptly provide Buyer with a copy of such offer or proposal. Upon receipt
of such offer or proposal, Buyer has a right of first refusal, which must
be exercised within three (3) business days of receiving the offer or
proposal, to match the terms and conditions of the Competing Transaction.
If Buyer does not match the offer or proposal within the aforesaid period,
then upon written notice from Seller, this Agreement shall terminate and be
of no force or effect; provided, however, if Seller has violated the
provisions of clause (a) above in any material respect and such violation
results in Seller receiving an offer or proposal for a Competing
Transaction, Buyer may compel Seller to reject the competing offer or
proposal and proceed with the acquisition of the Shares pursuant to the
terms and conditions set forth herein.
SECTION 6.07 CONFIDENTIALITY. The terms and provisions of the
Confidentiality Agreement, dated July 29, 1998, by and between the parties are
hereby incorporated by reference herein with the same effect as though set forth
herein in full. If any of the terms of such Confidentiality Agreement are
inconsistent with or conflict with the terms of this Agreement, the terms of
this Agreement shall prevail.
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SECTION 6.08. TAX MATTERS; 338(h)(10) ELECTION; GERMAN NOL.
(a) In the event any tax authority informs either Seller or Buyer
(including Cardkey within the meaning of Buyer after the Closing) of any
notice of proposed audit, claim, assessment or other dispute concerning an
amount of income Taxes with respect to which the other party may be liable,
the party so informed shall promptly notify the other party of such matter.
Such notice shall contain factual information (to the extent known)
describing any asserted income Tax liability in reasonable detail and shall
be accompanied by copies of any notice or other documents received from any
tax authority with respect to such matter. Each party, at its own expense,
with reasonable cooperation from the other party will manage, negotiate and
resolve, the audits, claims, assessments or disputes involving Cardkey for
which it is liable.
(b) Seller and Buyer shall cooperate (and cause their Affiliates to
cooperate) with each other and with each other's agents, including
accounting firms and legal counsel, in connection with Tax matters relating
to Cardkey arising on or prior to the Closing Date, including (i)
preparation and filing of Tax returns, (ii) determining the liability and
amount of any Taxes due or the right to and amount of any refund of Taxes,
(iii) examinations of Tax returns, and (iv) any administrative or judicial
proceeding in respect of Taxes assessed or proposed to be assessed. Such
cooperation shall include each party using commercially reasonable efforts
to make all information and documents in its possession relating to Cardkey
available to the other party. The parties shall retain all Tax returns,
schedules and work papers, and all material records and other documents
relating thereto, for at least one (1) year following the expiration of the
applicable statute of limitations (including, to the extent notified by any
party, any extension thereof) of the Tax period to which such Tax returns
and other documents and information relate. Each of the parties shall use
commercially reasonable efforts to also make available to the other party,
as reasonably required, personnel responsible for preparing, maintaining
and interpreting information and documents relevant to Taxes, and personnel
reasonably required as witnesses or for purposes of providing information
or documents in connection with any administrative or judicial proceedings
relating to Taxes.
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(c) Seller shall, on a timely basis, prepare (in a manner consistent
with prior practice and this Agreement), execute and file on behalf of
Cardkey: (i) the U.S. federal income tax returns and U.K. Corporate Tax
Return to be filed on behalf of Cardkey for the period ending as of the
close of business on the Closing Date; and (ii) any corresponding state and
local income tax returns required to be filed on behalf of Cardkey for the
period ending as of the close of business on the Closing Date. Buyer shall
cooperate with Seller in connection with the preparation and filing of such
returns by making the books, records and personnel of Cardkey available to
Seller and taking such other actions as Seller may reasonably request.
Buyer shall have the right to review and approve the portion of such
returns that relate to Cardkey prior to filing, which approval will not be
unreasonably withheld or delayed.
(d) At Buyer's request, Seller will join with Buyer in making an
election under Section 338(h)(10) of the Code and any comparable elections
under state, local or foreign tax law (collectively, the "Section
338(h)(10) Election") with respect to the purchase and sale of the Shares
of Cardkey US under this Agreement (the "Cardkey US Stock Purchase
Transaction"). Buyer and Seller shall cooperate fully with each other in
the making of the Section 338(h)(10) Election and the preparation of all
necessary forms and filings. Buyer shall be responsible for the
preparation of IRS Form 8023 and shall include therein a purchase price
allocation prepared by Seller in accordance with the requirements of the
Code and the regulations thereunder. Seller shall deliver such purchase
price allocation to Buyer within sixty (60) days after the final
determination of the Closing Balance Sheet. Buyer shall have the right to
review and approve Seller's allocation. Unless Buyer notifies the Seller
within 30 days after the receipt thereof, the purchase price allocation
will be final pursuant to the Seller's proposal. If Buyer does not agree
with the proposed allocation and notifies Seller within 30 days after
receipt, Seller and Buyer shall negotiate, in good faith, towards the
resolution of any disputes. If the parties are unable to agree, the
allocation shall be submitted to a mutually agreeable appraiser with such
results being final and binding on both parties. This allocation will be
binding on Buyer and Seller for
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all Tax purposes, and Buyer and Seller agree to file the Section 338(h)(10)
Election and their respective Tax returns in accordance with such
allocation and shall not take any position inconsistent with such
allocation. Buyer and Seller shall report the Cardkey Stock Purchase
Transaction consistent with the Section 338(h)(10) Election and shall take
no position contrary thereto or inconsistent therewith in any Tax return,
or in any discussion with or any proceeding before any Governmental Body or
otherwise.
(e) Buyer promptly will remit to Seller an amount equal to fifty
percent (50%) of Buyer's and Cardkey's reduction in German corporate income
tax liability during the seven (7) year period following the Closing
realized from Cardkey or Buyer utilizing the tax net operating losses of
Cardkey Germany which are in existence on the Closing Date. Buyer will
make payments to Seller for use of the losses pursuant to this Section
6.08(e) within thirty (30) days after the expiration of the statute of
limitations for the year in which such losses are utilized.
Section 6.09 TRANSFERS AND EQUITY CONTRIBUTIONS. The parties agree and
acknowledge that at or prior to the Closing, (a) Seller will validly transfer to
Cardkey beneficial ownership of all Intellectual Property owned by Seller that
is used or held for use by Cardkey (it being agreed and understood that
individual formal assignment documents and registration thereof in the relevant
jurisdictions will occur promptly following the Closing Date) and (b) all
inter-company payables or receivables or other intercompany obligations between
Cardkey and Seller will be paid, contributed to equity or otherwise settled at
or prior to the Closing. The Intellectual Property referred to in the preceding
sentence is referred to herein as the "Transferred Assets."
SECTION 6.10 RELEASE OF GUARANTEES. Prior to the Closing Date, Buyer will
use all commercially reasonable efforts to replace the credit of Seller with the
credit of Buyer, effective as of the Closing with respect to the obligations
listed on Schedule 6.10 (the "Guarantees").
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SECTION 6.11 EMPLOYEE BENEFIT TRANSITION MATTERS.
(a) With respect to each employee of Cardkey US on the Closing Date,
Seller shall vest and make nonforfeitable the interest of such employee
under the Amtech Corporation Retirement Plan. As soon as practicable
following the Closing Date, the Amtech Corporation Retirement Plan will
make available distributions to Cardkey participants in accordance with
Section 401(k)(10)(A)(iii) of the Code. Effective no more than thirty (30)
days after the Closing Date, Cardkey US's employees shall be eligible to
participate in a tax-qualified retirement savings arrangement under
Sections 401(k) and 401(m) of the Code maintained by Buyer ("Buyer's
Plan"), and shall be permitted to transfer their distributions from the
Amtech Corporation Retirement Plan to Buyer's Plan in direct rollovers in
accordance with Section 401(a)(31) of the Code. Any participant loans
outstanding as of the Closing Date may be transferred in kind in such
direct rollovers to Buyer's Plan, subject to Buyer's receipt of
satisfactory documentation that such loans satisfy the applicable
requirements of Sections 72(p) and 4975(d)(1) of the Code. Buyer's Plan
shall credit Cardkey US's employees with their service with Cardkey prior
to the Closing Date for eligibility and vesting purposes.
(b) Buyer agrees to provide group medical coverage effective
immediately after Closing (or such later date as any continued coverage
under Section 6.11(c) ceases), with no preexisting condition exclusion,
active at work or similar requirement, and no waiting period, to: (i) all
active employees of Cardkey who are covered by a group medical coverage
plan of Cardkey or Seller immediately prior to Closing; (ii) the former
employees of Cardkey, identified on Schedule 6.11(b), who have continuation
coverage under Part 6 of Title I of ERISA as a result of their prior
employment with Cardkey; (iii) the employees of Cardkey, identified on
Schedule 6.11(b), who are on leave or inactive status as of the Closing and
who are entitled to group medical coverage by law or Cardkey policy (such
as, without limitation, FMLA or USERRA); and (iv) any dependents, spouses,
or former spouses of employees listed in the foregoing clauses (i), (ii),
or (iii) who are covered by a group health plan of Cardkey or Seller
immediately prior
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to the Closing. The classes of individuals referred to in the foregoing
clauses (i) through (iv) are referred to as the "Cardkey Health Plan
Participants."
(c) To and including December 31, 1998, Seller agrees to use
reasonable efforts to cause its insurers and administrators to permit the
Cardkey Health Plan Participants to continue their coverage under Seller's
group health plans indicated in bold on Schedule 4.17(a) and to permit
Cardkey's employees to continue coverage under other welfare benefit plans
indicated in bold on Schedule 4.17(a). Buyer agrees to promptly reimburse
Seller for the cost of any such coverage (eligible claims paid with respect
to self-insured programs and premiums paid with respect to insured
programs) for the Cardkey Health Plan Participants from the Closing Date to
and including December 31, 1998. The Closing Balance Sheet will contain an
accrual for the estimated amount of covered claims incurred but unpaid
prior to the Closing under Seller's group health and dental benefit plans.
Buyer shall be responsible for the payment of all such covered claims.
Seller shall have no responsibility for any claim incurred after Closing
with respect to welfare benefits, occupational injury or worker's
compensation.
(d) Seller shall be solely responsible for all payments due under the
Incentive Agreements and for all obligations under Item Nos. 5, 6 and 7 of
Schedule 4.17(a).
SECTION 6.12 SUPPLEMENTS TO SCHEDULES. If, to Seller's knowledge, after
the date hereof but prior to the Closing, any event occurs or condition changes
that causes any of its representations or warranties in this Agreement to be
inaccurate, Seller will notify Buyer thereof in writing. Seller may supplement
the Schedules to account for any such event or change. If Seller gives written
notice to Buyer of any proposed supplement to the Schedules and Buyer fails to
deliver a written objection to such proposed supplement within seven (7) days of
Seller's notice, Buyer will be deemed to have consented to such proposed
supplement. Any such supplement to the Schedules not objected to by Buyer within
such seven day period will be deemed incorporated in all respects into the
Schedules in effect on the date hereof for all purposes, including, without
limitation, for purposes of determining any breach of any warranty,
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agreement or obligation of Seller or inaccuracy of any representation or
warranty of Seller contained or referred to in this Agreement.
SECTION 6.13 ALLOCATION OF PURCHASE PRICE. In addition to the allocation
set forth in Section 6.08(d), Buyer and Seller agree that the Purchase Price
will be allocated to the Shares in accordance with the allocation of the
Purchase Price set forth on Schedule 6.13, and that such allocation of the
Purchase Price will be used, reported and implemented by Buyer and Seller for
federal, state, local and other tax purposes.
SECTION 6.14 METRIC PURCHASE AGREEMENT. Buyer agrees that the amount of any
fixed or contingent payments, net of taxes (the "Metric Payments"), received by
Cardkey UK after the Closing pursuant to that certain Sale and Purchase
Agreement, dated July 6, 1998, by and between Cardkey UK and Metric Gruppen AB,
shall be for the account of Seller and shall be promptly remitted to Seller.
Buyer also agrees not to allow Cardkey UK to compromise the amount of the Metric
Payments for a lesser sum or to take any actions that affect the amount to be
paid to Seller.
SECTION 6.15 CARDKEY UK AUDIT. Buyer and Seller agree to use Ernst & Young-
Cambridge Office for the 1998 Cardkey UK statutory audit.
ARTICLE VII
TERMINATION; SPECIFIC PERFORMANCE
SECTION 7.01 TERMINATION BY MUTUAL CONSENT. This Agreement may be
terminated at any time prior to the Closing Date by written consent of Seller
and Buyer.
SECTION 7.02 TERMINATION BY BUYER. Buyer may terminate this Agreement by
notice to Seller at any time prior to the Closing Date (i) if Seller shall have
breached in any material respect or failed to comply in any material respect
with any of Seller's covenants, agreements or obligations under this Agreement
or if any of Seller's representations and warranties contained in
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this Agreement shall have been materially inaccurate when made or (subject to
Section 6.12) become materially inaccurate at any time thereafter, (ii) if,
since the date of this Agreement, there shall have occurred any change or event
(whether or not covered by insurance) that has resulted in a Material Adverse
Effect or (iii) if the Closing shall not have occurred by December 15, 1998 (or,
if the sole reason for the delay of the Closing is that the evidence referred to
in Section 3.02(g)(ii) has not yet been received by Buyer, by December 31, 1998)
and Buyer shall then be in compliance in all material respect with all of its
covenants, obligations and agreements contained herein.
SECTION 7.03 TERMINATION BY THE SELLER. Seller may terminate this
Agreement by notice to Buyer at any time prior to the Closing Date (i) if Buyer
shall have breached in any material respect or failed to comply in any material
respect with any of its covenants, agreements or obligations under this
Agreement or if any of Buyer's representations or warranties contained in this
Agreement shall have been materially inaccurate when made or become materially
inaccurate at any time thereafter, (ii) if the closing shall not have occurred
by December 15, 1998 (or, if the sole reason for the delay of the Closing is
that the evidence referred to in Section 3.02(g)(ii) has not yet been received
by Buyer, by December 31, 1998) and Seller shall then be in compliance in all
material respect with all of its covenants, obligations and agreements contained
herein, or (iii) Seller has accepted a bid or proposal for a Competing
Transaction as permitted by Section 6.06.
SECTION 7.04 EFFECT OF TERMINATION. If this Agreement is terminated
pursuant to this Article VII, all further obligations of the parties hereunder
(other than those contained in Sections 6.05, 6.07, 9.01, and 9.03, which shall
survive in accordance with their terms) shall be terminated without further
liability of any party to the other, provided that nothing herein shall relieve
any party from liability for such party's willful breach of this Agreement prior
to termination.
SECTION 7.05 SPECIFIC PERFORMANCE. The provisions of Section 7.04 shall not
be construed as a waiver by Buyer or Seller of the remedy of specific
performance if the closing conditions set forth in Section 3.02 are satisfied
and Seller shall fail or refuse to consummate the
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Stock Purchase, or if the closing conditions set forth in Section 3.01 are
satisfied and Buyer shall fail or refuse to consummate the Stock Purchase, as
applicable, it being agreed that Buyer and Seller shall have the right to
specific performance with respect to the Stock Purchase.
ARTICLE VIII
INDEMNIFICATION
SECTION 8.01 INDEMNIFICATION BY SELLER. Subject to the terms and
provisions of this Article VIII, Seller shall indemnify and hold harmless Buyer,
its Affiliates, Cardkey and their respective directors, officers, employees,
agents and representatives (collectively, the "Buyer Parties") from and against
any and all Losses and Expenses in connection with, resulting from, or arising
out of:
(a) any breach by Seller of any of Seller's covenants, agreements
or obligations made in, pursuant to, or under this Agreement;
(b) any breach of any warranty or inaccuracy of any representation of
Seller contained or referred to in this Agreement;
(c) the Incentive Agreements and all obligations under Item Nos. 5, 6
and 7 of Schedule 4.17(a);
(d) the Metric Purchase Agreement or the conduct of the Cardkey UK
Cotag division business sold by Cardkey UK pursuant to the Metric Purchase
Agreement; or
(e) the matters specifically identified on Schedule 8.01 that arose
from the conduct of the business of Cardkey prior to the Closing Date to
the extent the amount of which is not reserved for or shown as a liability
on the Closing Balance Sheet and that are not otherwise covered by clause
(a), (b), (c) or (d) above.
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SECTION 8.02 INDEMNIFICATION BY BUYER. Subject to the terms and
provisions of this Article VIII, Buyer shall indemnify and hold harmless Seller,
its Affiliates and their respective directors, officers, employees, agents and
representatives (collectively, the "Seller Parties") from and against any and
all Losses and Expenses in connection with, resulting from or arising out of:
(a) any breach by Buyer of any of Buyer's covenants, agreements or
obligations made in, pursuant to, or under this Agreement;
(b) any breach of any warranty or inaccuracy of any representation of
Buyer contained or referred to in this Agreement;
(c) any Guarantee, or any indemnity obligation related thereto under
Section 3.02(g)(iii);
(d) all Taxes, other than U.S. federal income taxes, any Seller Party
incurs as a result of the Section 338(h)(10) Election which it would not
have incurred if the Section 338(h)(10) Election had not been made; or
(e) the conduct of Cardkey subsequent to the Closing Date; provided
that for purposes of this subsection (e) only, Buyer shall not be
responsible for Seller's Expenses incurred in investigating or responding
to claims, actions, suits or proceedings relating to such conduct; and
provided, however, no Seller Party will be entitled to indemnification for
any Losses for which a Buyer Party is entitled to indemnification under
Section 8.01.
SECTION 8.03 LIMITATIONS ON INDEMNIFICATION.
(a) Claims for indemnification must be made within the following time
periods: (i) if such claim arises under Section 8.01(a), 8.01(b), 8.02(a)
or 8.02(b), it must be made within 18 months from the Closing Date, except
for claims based on a breach of any of Section 4.09, 4.17, 4.23, 6.03,
6.08, 6.11, 6.13 or 6.14, which may be made until the later
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of (x) 18 months from the Closing Date or (y) 30 days following the
expiration of the applicable statute of limitations period, and (ii) if
such claim arises under Section 8.01(c), 8.01(d), 8.01(e), 8.02(c),
8.02(d), 8.02(e) or 9.09, it must be made prior to 30 days following the
expiration of the applicable statute of limitations period. The parties
acknowledge that this contractual term of limitations is reasonable and
necessary to provide conclusion to the parties' obligations under this
Agreement.
(b) Notwithstanding anything to the contrary contained in Section
8.01, Seller shall not be obligated to pay claims for indemnification
pursuant to Section 8.01 until the aggregate amount of all Losses and
Expenses exceeds $400,000 (the "Threshold"), except for claims arising
under any of Section 8.01(c), 8.01(d), 8.01(e) or 9.09, which are not
subject to the Threshold. After the aggregate amount of Losses and
Expenses (except as aforesaid) exceeds the Threshold, Seller will only be
obligated for the amount in excess of the Threshold on a dollar for dollar
basis.
(c) Notwithstanding anything to the contrary contained in Section
8.01, (i) the aggregate maximum amount of indemnification claims that
Seller may be obligated to pay based on a breach of any of Section 4.09,
4.17 or 4.23 shall be $10,250,000 (the "Specific Cap"), and (ii) the
aggregate amount of indemnification claims that Seller may be obligated to
pay pursuant to Section 8.01 shall be $4,000,000 (the "General Cap"),
except for claims based on a breach of any of Section 4.09, 4.17 or 4.23,
which are subject to the Specific Cap as aforesaid, and claims arising
under any of Section 8.01(c), 8.01(d), 8.01(e) or 9.09, which are not
subject to the Specific Cap or the General Cap.
SECTION 8.04 CONSEQUENTIAL DAMAGES; MITIGATION. Neither party shall
have any obligation to indemnify any party for (a) any consequential Losses
arising out of any interruption of business, loss of profits, loss of use of
facilities, claims of customers, loss of goodwill or other indirect damages or
(b) any other Losses or Expenses to the extent they are (i) caused, contributed
to or exacerbated by the actions of any Indemnified Party, (ii) recovered or
recoverable by such Indemnified Party from any third party (including insurers)
or (iii) offset by
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tax savings realized on account of such Losses or Expenses by the Indemnified
Party or any of its Affiliates.
SECTION 8.05 EXCLUSIVE REMEDY. The parties hereto agree that except for
claims arising as a result of fraud or other intentional misconduct, the
indemnification provisions of this Article VIII sets forth the exclusive remedy
for claims that may arise from the matters described in Sections 8.01 and 8.02
and each party hereby waives, to the extent it may do so, any other rights,
remedies or causes of action for damages, with respect to the matters described
in Sections 8.01 and 8.02, whether under common law or under any environmental,
securities or trade law; provided, however, the foregoing shall not limit the
remedy of specific performance which may be sought pursuant to Section 7.05 or
in connection with a breach of Section 9.10.
SECTION 8.06 INDEMNITY PAYMENTS. All payments made pursuant to this
Article VIII shall be treated by the parties on all tax returns as an adjustment
to the Purchase Price.
SECTION 8.07 NOTICE AND RESOLUTION OF CLAIMS.
(a) Each Person entitled to indemnification pursuant to Section 8.01
or Section 8.02 (an "Indemnified Party") will promptly give written notice
to the party who has the duty of indemnification under this Article VIII
(the "Indemnifying Party") after obtaining knowledge of any claim that it
may have pursuant to this Article VIII. Such notice will set forth in
reasonable detail the claim and the basis for indemnification.
(b) If such claim for indemnity arises from a claim or action
involving a third party (a "Third-Party Claim"), the Indemnified Party will
permit the Indemnifying Party to assume its defense. If the Indemnifying
Party assumes the defense of such Third-Party Claim, it will take all steps
necessary to investigate, defend or settle such action and will, subject to
Section 8.03, hold the Indemnified Party harmless from and against any and
all Losses and Expenses caused by or arising out of any settlement approved
by the Indemnifying Party or any judgment in connection with such Third-
Party Claim. Without
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the written consent of the Indemnified Party, the Indemnifying Party will
not consent to entry of any judgment or enter into any settlement that does
not include an unconditional and complete release of the Indemnified Party
by the claimant or plaintiff making the Third-Party Claim. The Indemnified
Party may participate in such defense or settlement through its own
counsel, but at its own expense. Failure by the Indemnifying Party to
notify the Indemnified Party of its election to assume the defense of any
Third-Party Claim within 30 days after its receipt of notice thereof
pursuant to Section 8.07(a) will be deemed a waiver by the Indemnifying
Party of its right to assume the defense of such Third-Party Claim. In such
event, the Indemnified Party may defend against such Third-Party Claim in
any manner it deems appropriate and may settle such Third-Party Claim or
consent to the entry of any judgment with respect thereto, provided that it
acts reasonably and in good faith.
SECTION 8.08 OTHER INDEMNITIES. Buyer will cause the Buyer Parties, and
Seller will cause the Seller Parties, to comply with the provisions and to abide
by the limitations set forth in this Article VIII.
ARTICLE IX
MISCELLANEOUS
SECTION 9.01 EXPENSES. Whether or not the Stock Purchase is consummated,
each of the parties shall bear its own expenses and fees in connection with the
transactions contemplated hereby, including, but not limited to any governmental
investigation, proceeding, or litigation, and all of such fees and expenses
incurred by Cardkey prior to the Closing in connection herewith shall be borne
by Seller.
SECTION 9.02 GOVERNING LAW. The validity, interpretation and performance
of this Agreement and any dispute connected herewith shall be governed and
construed in accordance with the laws of Wisconsin.
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SECTION 9.03 BINDING ARBITRATION.
(a) To the extent that the parties are unable to resolve their
disputes and controversies arising out of or relating to this Agreement or
any of the other documents to be delivered hereunder, or the performance,
breach, validity, interpretation or enforcement thereof, all such disputes
or controversies will be resolved by binding arbitration in accordance with
Title 9 of the U.S. Code (United States Arbitration Act) and the Commercial
Arbitration Rules of the AAA (the "Rules"), and judgment upon the award
rendered by the arbitrator may be entered in any court having jurisdiction
thereof.
(b) A party may initiate arbitration by sending written notice of its
intention to arbitrate to the other party and to the AAA office located in
Minneapolis, Minnesota (the "Arbitration Notice"). The Arbitration Notice
will contain a description of the dispute and the remedy sought. The
arbitration will be conducted at the offices of the AAA in Minneapolis,
Minnesota before an independent and impartial arbitrator experienced in
legal matters related to the nature of the dispute. The parties will
jointly select the arbitrator, or if the parties are unable to agree upon
an arbitrator, the arbitrator will be selected by the AAA. In no event may
the demand for arbitration be made after the date when the institution of a
legal or equitable proceeding based on such claim, dispute or other matter
in question would be barred by Article VIII. If a dispute relates to
Section 6.06, the parties agree to initiate the arbitration immediately and
to request that the arbitrator reach a conclusion within three business
days of commencement of the arbitration, unless the parties otherwise
agree.
(c) Except as otherwise specifically provided herein, the arbitration
and any discovery conducted in connection therewith will be conducted in
accordance with the Rules. The arbitrator's authority to make any award
will be based on and limited by the laws of the State of Wisconsin and the
terms and conditions of this Agreement. The arbitrator will deliver his
decision in writing, together with a summary of the reasons for his
decision, including citations to legal authority to the extent appropriate.
The decision
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of the arbitrator will be final and binding on all parties and their
successors and permitted assignees. A judgment upon the award rendered by
the arbitrator may be entered by any court having jurisdiction thereof. The
parties intend that this agreement to arbitrate be irrevocable.
(d) The arbitrator will be selected no later than 45 days after the
date of the Arbitration Notice. The arbitration hearing will commence no
later than three (3) months after the arbitrator is selected. The
arbitrator will render his decision no later than 30 days after the close
of the hearing, in accordance with AAA Rules.
(e) The arbitrator's and the AAA's fees and costs will conform to the
then current AAA fee schedule and initially will be borne equally by the
parties. At the conclusion of the arbitration, the arbitrator will
determine the allocation of the fees and costs of arbitration based upon
the percentage that the portion of the contested amount not awarded to each
party bears to the amount actually contested by such party. For example, if
Buyer submits a claim for $1,000, and if the Seller contests only $500 of
the amount claimed by Buyer, and if the arbitrator ultimately resolves the
dispute by awarding Buyer $300 of the $500 contested, then the costs and
expenses of arbitration will be allocated 60% (i.e. 300 divided 500) to
Seller and 40% (i.e. 200 divided by 500) to Buyer.
(f) The parties agree that, notwithstanding anything to the contrary
in this Section 9.03, any award made by the arbitrator will be consistent
with the terms and conditions of this Agreement (including the terms and
limitations set forth in Article VIII) and that any award will be
restricted to a remedy that would be available to a party under this
Agreement.
SECTION 9.04 NOTICES. Any notice required or permitted hereunder
shall be in writing and delivered in person, transmitted by telegram or
facsimile or other communication device capable of creating a written record and
acknowledges receipt, delivered by overnight express or
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sent by registered or certified mail, postage prepaid, addressed to the
addresses given below, or when sent by facsimile to the numbers set forth below:
Seller: CustomTracks Corporation
One Galleria Tower
13355 Noel Road, Suite 1555
Dallas, TX 75240-6604
FAX (972) 702-7054
Attention: Ronald A. Woessner
copy to: Hughes & Luce, L.L.P.
1717 Main Street, Suite 2800
Dallas, TX 75201
FAX (214) 939-6100
Attention: Kenneth G. Hawari
Buyer: Johnson Controls, Inc.
507 East Michigan Street
P.O. Box 423
Milwaukee, WI 53201
Attention: President - Controls
FAX (414) 274-5088
copy to: Jerome D. Okarma
Vice President and General Counsel
Johnson Controls, Inc. - Controls Group
507 East Michigan Street
P.O. Box 423
Milwaukee, WI 53201
FAX (414) 274-5088
All notices and other communications required or permitted under this Agreement
that are addressed as provided in this Section 9.04 will, (i) if delivered
personally or by overnight express, be deemed given upon delivery; (ii) if
delivered by telefacsimile or similar facsimile transmission, be deemed given
when electronically confirmed; provided that a written record of confirmation is
sent via another mode provided for in this Section 9.04; and (iii) if sent by
registered or certified mail, be deemed given when received. Any party from
time-to-time may change its address for the purpose of notices to that party by
giving a similar notice specifying a new address, but no
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such notice will be deemed to have been given until it is actually received by
the party sought to be charged with the contents thereof.
SECTION 9.05 SUCCESSORS AND ASSIGNS; BENEFIT. Neither party shall assign
its rights or obligations hereunder without the prior consent of the other
party, except that the rights of Buyer hereunder may be assigned without the
consent of Seller, to any of Buyer's Affiliates. No such assignment shall
release Buyer from any of its obligations hereunder. Any assignment made or
attempted in violation of this Section shall be void and of no effect. This
Agreement shall be binding on Seller and Buyer and their respective successors
and assigns.
SECTION 9.06 ENTIRE AGREEMENT; AMENDMENTS; WAIVER. This Agreement contains
the entire understanding of the parties hereto with regard to the subject matter
contained herein, and supersedes all prior agreements, whether written or oral,
that may exist between the parties relating to the subject matter hereof. No
amendment, modification or waiver of this Agreement shall be binding or
effective for any purpose unless it is made in a writing signed by the party
against whom enforcement of such amendment, modification or waiver is sought. No
course of dealing between the parties to this Agreement shall be deemed to
modify, amend or discharge any provision or term of this Agreement. No delay by
any party in the exercise of any of its rights or remedies shall operate as a
waiver thereof, and no single or partial exercise by any party of any such right
or remedy shall preclude the other or further exercise thereof. A waiver of any
right or remedy on any one occasion shall not be construed as a bar to, or
waiver of, any such right or remedy on any other such occasion.
SECTION 9.07 CONSENTS; WAIVERS. Whenever this Agreement calls for a consent
or approval, such consent or approval shall not be unreasonably withheld,
delayed or conditioned. All consents, approval and waivers shall be in writing
and shall be executed by an officer or other authorized agent.
SECTION 9.08 PARTIAL INVALIDITY. Wherever possible, each provision shall be
interpreted in such manner as to be effective and valid under applicable law,
but in case any one or more of
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the provisions contained herein shall, for any reason, be held to be invalid,
illegal or unenforceable in any respect, such invalidity, illegality or
unenforceability shall not affect any other provisions of this Agreement, and
this Agreement shall be construed as if such invalid, illegal or unenforceable
provision or provisions had never been contained herein unless the deletion of
such provision or provisions would result in such a material change as to cause
completion of the transactions contemplated hereby to be unreasonable.
SECTION 9.09 FINDER'S FEE. Buyer represents to Seller that it has neither
paid nor become obligated to pay any fee or commission to any broker, finder,
consultant or other intermediary for or on account of the transactions
contemplated by this Agreement. Seller represents to Buyer that except for the
Incentive Agreements, it has neither paid nor become obligated to pay any fee or
commission to any broker, finder, consultant or other intermediary for or on
account of the transactions contemplated by this Agreement.
SECTION 9.10 COMPETITIVE ACTIVITIES.
(a) Subject to clause (b) below, Seller agrees that, for a period
of three (3) years from the Closing Date, neither Seller nor its Affiliates
will, directly or indirectly, engage in any Competitive Activities.
Competitive Activities means:
(i) engaging in or carrying on the Business, including
owning or controlling any financial interests in any entity engaged in
the Business;
(ii) consulting with, advising, or assisting in any way,
whether or not for consideration, any corporation, partnership, firm,
or other business organization (a "Company") with respect to the
Business, including, advertising or otherwise endorsing the products
or services of any such competitor, soliciting customers or otherwise
serving as an intermediary for any such competitor, or loaning money
or rendering any other form of financial assistance to or engaging in
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any form of business transaction on other than an arm's-length basis
with any such competitor;
(iii) soliciting to hire or engage, as employee, independent
contractor or otherwise, any employee of Cardkey that was an employee
of Cardkey on the Closing Date, except with the prior written consent
of Buyer or by means of general advertising; or
(iv) engaging in any practice, the purpose of which is to evade
the provisions of this covenant not to compete.
(b) Notwithstanding the foregoing, Seller shall not be precluded from
(i) entering into a Competitive Activity with respect to a Company
partially engaged in the Business, provided that such activities do not
generate more than fifteen percent (15%) of the revenues of such Company or
provided that such Competitive Activity is not with respect to the Business
activities of the Company, (ii) the ownership of not more than ten percent
(10%) of any class of debt or equity securities of any Company engaged in
the Business, or (iii) entering into any Competitive Activity with the
express written consent of Buyer.
(c) The parties agree that the geographic scope of this covenant not
to compete shall extend worldwide. If a court of competent jurisdiction
determines that the provisions of this covenant not to compete are
excessively broad as to duration, geographical scope, or activity, it is
expressly agreed that this covenant not to compete shall be construed so
that the remaining provisions shall not be affected, but shall remain in
full force and effect. Any such overbroad provisions shall be deemed,
without further action on the part of any person, to be modified, amended,
or limited to the extent necessary to render them valid and enforceable.
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SECTION 9.11 KNOWLEDGE. Whenever a statement regarding the existence
or absence of facts in this Agreement is qualified by a phrase such as "to
Seller's knowledge," it is intended by the parties that the information to be
attributed to Seller is information actually or constructively known to the
officers of Seller or Cardkey set forth on Schedule 9.11. The person has
constructive knowledge of those matters which the individual involved could
reasonably be expected to have as a result of undertaking an investigation of
such a scope and extent as a prudent person using reasonable business judgment
in the same job or position would undertake concerning the particular subject
matter.
SECTION 9.12 NO THIRD-PARTY BENEFICIARY. Each of the provisions of this
Agreement is for the sole and exclusive benefit of the parties and, to the
extent provided in Article VIII, the Buyer Parties and the Seller Parties, and
shall not be deemed for the benefit of any other person.
SECTION 9.13 EXECUTION IN COUNTERPARTS. This Agreement may be executed in
one or more counterparts, each of which shall be considered an original
instrument, but all of which shall be considered one and the same agreement, and
shall become binding when one or more counterparts have been signed by each of
the parties hereto and delivered to each of the other parties hereto.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
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IN WITNESS WHEREOF, the parties have duly executed this Agreement as of the
date first above written.
SELLER:
CUSTOMTRACKS CORPORATION
By: /s/ David P. Cook
------------------------------
Name: David P. Cook
----------------------------
Title: Chief Executive Officer
---------------------------
BUYER:
JOHNSON CONTROLS, INC.
By: /s/ Stephen A. Roell
------------------------------
Name: Stephen A. Roell
----------------------------
Title: Senior Vice President
---------------------------
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EXHIBIT 99.1
NEWS RELEASE
FOR IMMEDIATE RELEASE
CUSTOMTRACKS/(TM)/
- --------------------------------------------------------------------------------
The Source for Personalized Music
Contact: Beverly V. Fuortes (972) 702-7057 fax: (972) 702-7056
[email protected] www.stockprofiles.com/cust
CUSTOMTRACKS CLOSES SALE OF CARDKEY SYSTEMS TO JOHNSON CONTROLS, INC.
DALLAS -- November 25, 1998 -- CustomTracks Corporation (NASDAQ: CUST) announced
today that it has closed the sale of Cardkey Systems, currently the company's
only revenue-generating business, to Johnson Controls, Inc. (NYSE: JCI). The
all-cash transaction, first announced on November 9, 1998, is valued at
approximately $41 million, with the final amount depending on the book value of
Cardkey Systems' net assets on November 30, 1998, the effective date for
accounting purposes.
The company estimates that the sale will result in a fourth-quarter net gain of
approximately $21 to $23 million, after accounting for the net book value of the
assets to be sold, the tax effects of the transaction, and the associated
transaction costs.
Johnson Controls, Inc. is a global market leader in automotive systems and
facility management and control. In the automotive market, it is a major
supplier of seating and interior systems, and batteries. For nonresidential
facilities, Johnson Controls provides building control systems and services,
energy management and integrated facility management. Johnson Controls (NYSE:
JCI), founded in 1885, has headquarters in Milwaukee, Wisconsin. Its sales for
1998 totaled $12.6 billion revenues. Cardkey Systems is a leading provider of
electronic security systems.
CustomTracks Corporation (NASDAQ: CUST) plans to develop music-related Internet
businesses. Prior to September 1, 1998, CustomTracks Corporation was known as
Amtech Corporation (NASDAQ: AMTC). CustomTracks' headquarters is in Dallas. For
further information about CustomTracks, visit the company's investor Web site at
www.stockprofiles.com/cust or contact investor relations at (972) 702-7057.
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