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U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 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) March 31, 1997
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RINGER CORPORATION
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(Exact name of small business issuer as specified in its charter)
Minnesota 0-18921 41-0848688
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(State or other jurisdiction (Commission (IRS Employer
of incorporation) File Number) Identification Number)
9555 James Avenue South, Suite 200, Bloomington, Minnesota 55431-2543
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (612) 703-3300
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9959 Valley View Road, Eden Prairie, Minnesota 55344
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(Former name or former address, if changed since last report.)
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ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS
On March 31, 1997, Ringer Corporation (the "Company") acquired
substantially all of the assets of Dexol Industries, Inc.
("Dexol"), a California-based privately-held corporation which
manufactures and markets pesticide products for the homeowner
market through nationally recognized retailers and major
distributors. The effective date of this transaction for
valuation and accounting purposes is March 1, 1997.
Consideration for the purchase of the Dexol assets included
(a) the issuance of an installment promissory note for
$1,500,000 bearing simple interest at prime plus 3/4% per
annum with monthly payments of $1,600 principal plus accrued
interest and a balloon payment to retire the promissory note
on December 15, 2000, (b) the issuance of 1,059,340 shares of
the Company's restricted common stock valued at $1,397,000,
(c) the assumption of certain current liabilities of Dexol and
(d) an earnout payable in additional shares of the Company's
restricted common stock valued at up to $455,000 if certain
contingencies are met.
The Company plans to fund cash requirements related to this
transaction through borrowings from its seasonal bank line of
credit and from cash provided by operations.
ITEM 7. FINANCIAL STATEMENTS, PROFORMA FINANCIAL INFORMATION AND
EXHIBITS
(a) FINANCIAL STATEMENTS OF BUSINESS ACQUIRED
It is impractical to include Dexol financial statements at
this time. The Company intends to file, in an amendment
hereto, such financial statements as soon as practicable but
no later than 60 days from the date of this filing.
(b) PROFORMA FINANCIAL INFORMATION
It is impractical to include proforma financial information at
this time. The Company intends to file, in an amendment
hereto, proforma financial information as soon as practicable
but no later than 60 days from the date of this filing.
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(c) EXHIBITS
The following exhibits are filed with this report:
Exhibit Number and Description
2.1 Agreement for Purchase and Sale of Assets by and between
Ringer Corporation and Dexol Industries, Inc.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
RINGER CORPORATION
Dated: April 15, 1997 By /S/ Mark G. Eisenschenk
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Mark G. Eisenschenk
Vice President of Finance and Chief
Financial Officer
(principal financial officer)
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EXHIBIT 2.1
AGREEMENT FOR
PURCHASE AND SALE OF ASSETS
This agreement is made and entered into as of March 28, 1997, by and
between Dexol Industries, Inc., a California corporation with its principal
offices in Torrance, California ("Seller"), and Ringer Corporation, a Minnesota
corporation with its principal offices in Bloomington, Minnesota ("Purchaser").
WHEREAS, Seller is engaged in the business of developing, manufacturing
and selling pesticide products (the "Business"); and
WHEREAS, Seller desires to sell to Purchaser, and Purchaser desires to
purchase from Seller, on the terms and subject to the conditions set forth in
this agreement, substantially all of the assets that are currently being used
by Seller in the conduct of the Business.
NOW, THEREFORE, in consideration of the premises, the respective covenants
and commitments of Seller and Purchaser set forth herein, and other good and
valuable consideration, the receipt and adequacy of which are hereby
acknowledged, Seller and Purchaser agree as follows:
I.
Purchase and Sale of Assets
1.1. Included Assets. Seller hereby agrees to sell, assign and transfer
to Purchaser, and Purchaser agrees to purchase and acquire from Seller, on the
Closing Date (as defined in section 9.2(a)) and on the terms and subject to the
conditions set forth in this agreement, all of Seller's right, title and
interest in and to the following assets used or usable by Seller in the conduct
of the Business (hereinafter collectively referred to as the "Assets"):
(a) Cash and Cash Equivalents. All cash on hand,
cash balances in bank or investment accounts maintained by
Seller and short-term investments in existence on the Closing
Date.
(b) Inventories; Purchase Contracts. All inventories
of supplies, raw materials, parts, finished goods,
work-in-process, product labels and packaging materials that
are usable or salable by Seller in the ordinary course of
Business and are owned by Seller on the Effective Date (as
defined in section 9.2(b)), and all orders or contracts for
the purchase of inventories, raw materials, parts, or supplies
ordered by Seller in the ordinary course of business prior to
the Closing Date;
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(c) Chemical Formulations, Specifications, etc. All
chemical formulations, raw material specifications,
manufacturing specifications and quality assurance
specifications owned by Seller and used in the operations of
the Business, whether such properties are located on Seller's
business premises or on the business premises of Seller's
suppliers;
(d) Personal Property Leases; Executory Contracts.
Seller's interest in all executory personal property leases,
licenses, contracts or agreements relating to the Business and
identified as an "assumed contract" on schedule 2 to this
agreement (the "Assumed Contracts");
(e) Customer Orders, etc. All unfilled customer
contracts, commitments or purchase or sales orders relating to
the Business and received and accepted by Seller in the
ordinary course of business prior to the Effective Date;
(f) Other Intangible Property Rights. All patents,
patent applications, copyrights, copyright applications, trade
names, trademarks or service marks, registered or unregistered
and applications therefor, logos, processes, computer
programs, software, inventions, trade secrets and other
intellectual property rights, including, without limitation,
those intangible assets described on schedule 3 to this
agreement;
(g) Equipment. All equipment, machinery, fixtures,
office furniture, vehicles and leasehold improvements owned by
Seller and used in the operations of the Business, including,
without limitation, those items listed on schedule 1 to this
agreement;
(h) Prepaid Expenses and Deposits. All prepaid
expenses and deposits on Seller's books and records as of the
Closing Date.
(i) Books and Records. All documents and information
relating to the Assets and the Business, including, without
limitation, all customer, prospect, dealer and distributor
lists, sales literature, inventory records, purchase orders
and invoices, sales orders and sales order log books, customer
information, commission records, product data, material safety
data sheets, price lists, employee payroll and personnel
records, product
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demonstrations, quotes and bids, catalogues
and brochures of every kind and nature;
(j) Accounts Receivable. All accounts receivable
arising from the conduct of the Business and owing to Seller
on the Effective Date (the "Receivables");
(k) Telephone Listings. Seller's current telephone
listings and the right to use, at Purchaser's cost, the
telephone numbers currently being used at the principal
offices and warehouse/distribution facilities of the Business;
(l) Permits. All permits, licenses and other
approvals listed on schedule4 to this agreement; and
(m) Goodwill. All goodwill relating to the Business
and all rights to continue to use the Assets in the conduct of
a going business which is a continuation of the Business.
1.2. Excluded Assets. Seller is not selling to Purchaser any of the
assets of the Business listed below and such assets are hereby specifically
excluded from the Assets:
(a) Any rights to recovery by Seller arising out of
litigation relating to the Assets or the Business that are
pending prior to the Closing Date; and
(b) All losses, carryovers and rights to receive
refunds in the respect to any and all taxes of the Seller of
every nature and description, including interest payable with
respect thereto.
II.
Purchase Price
2.1. Amount. The total purchase price for the Assets shall be the
sum of the following amounts:
(a) The outstanding principal balance on the Closing
Date of the long-term indebtedness of Seller to Gunlock
Corporation pursuant to a promissory note, dated December 15,
1995 (the "Long Term Note"); plus
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(b) The amount of all accounts payable and accrued
expenses (including accrued interest on the Long Term Note) of
Seller on the Effective Date which are set forth on the Latest
Financial Statement (as defined in section 4.4) or which arise
in the ordinary course of the Business subsequent to the
Effective Date; plus
(c) An amount (the "Stock Amount") equal to the
outstanding amount on the Closing Date of Seller's revolving
credit indebtedness to Gunlock Corporation on the Effective
Date; plus
(d) The Contingent Payment Amount determined pursuant
to section 2.3
2.2. Manner of Payment. Purchaser shall make payment of the total
purchase price for the Assets in the following manner:
(a) Purchaser shall make payment of that portion of
the purchase price determined pursuant to section 2.1(a) by
executing and delivering to Seller its installment promissory
note in such amount, which promissory note shall bear simple
interest at an annual rate of prime plus 3/4%, shall be
payable in monthly installments of $1,600 plus accrued
interest with a balloon payment being due and payable on
December 15, 2000, shall be subordinated to Purchaser's
indebtedness to its principal lender, and shall otherwise be
in the form attached to this agreement as exhibit A (the
"Promissory Note");
(b) Purchaser shall make payment of that portion of
the purchase price determined pursuant to section 2.1(b) by
assuming responsibility for the payment of the Assumed
Payables in the manner contemplated by section 3.1;
(c) Purchaser shall make payment of that the Stock
Amount as follows:
(i) Within ten (10) days after the Closing Date,
Purchaser shall deliver a certificate evidencing
250,000 shares of Purchaser's common stock (the
"Shares") to a mutually-acceptable bank or trust
company to hold as escrow agent for a period of twelve
(12) months pursuant to the terms of an escrow
agreement to be entered into by Seller and Purchaser on
the Closing Date pursuant to section 6.9(c).
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(ii) Within ten (10) days after the Closing Date,
Purchaser shall deliver to Seller certificates
evidencing such additional number of Shares as is equal
to (1) the Stock Amount, divided by the Market Value,
as defined in section 2.4, minus (2) 250,000.
(d) Purchaser shall make payment of the Contingent
Payment Amount from time to time by delivering to Seller a
certificate evidencing any additional Shares which are
issuable to Seller pursuant to the provisions of section 2.3,
which certificate shall be delivered to Seller within thirty
(30) days after the date that any issuance condition set forth
in section 2.3 has been satisfied.
2.3. Contingent Payment Amount. The Contingent Payment Amount
shall be paid to Seller in installments which are determined in accordance with
the following provisions:
(a) In the event that net revenues (i.e. gross
revenues less returns, allowances, rebates, discounts,
cooperative advertising, etc.) realized from the operation of
the Business during the fiscal year ending September 30, 1997
equal or exceed $9,500,000, Purchaser shall issue to Seller
that number of additional Shares to Seller as shall be equal
to (i) $227,500, divided by (ii) the Market Value, as defined
in section 2.4.
(b) In the event that Purchaser, with the assistance
of Jane Donalson, executes a private label agreement with
Franks Nursery & Crafts for the sale of products manufactured
by the Business, Purchaser shall issue to Seller, within
thirty (30) days after the date of such agreement, that number
of additional Shares as shall be equal to (i) $91,000, divided
by (ii) the Market Value, as defined in section 2.4.
(c) In the event that Purchaser, with the assistance
of Jane Donalson, executes a private label agreement with
Orchard Supply for the sale of products manufactured by the
Business, Purchaser shall issue to Seller, within thirty (30)
days after the date of such agreement, that number of
additional Shares as shall be equal to (i) $91,000, divided by
(ii) the Market Value, as defined in section 2.4.
(d) In the event that Purchaser, with the assistance
of Jane Donalson, executes a private label agreement with Fred
Meyer for the sale of products manufactured by the Business,
Purchaser
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shall issue to Seller, within thirty (30) days after
the date of such agreement, that number of additional Shares
as shall be equal to (i) $45,500, divided by (ii) the Market
Value, as defined in section 2.4.
2.4. Definition of Market Value. For purposes of section 2.2(b),
the term "Market Value" shall mean the average "last reported sale" price of a
share of Purchaser's common stock, as reported on the NASDAQ national over-the-
counter market, for the five (5) trading days immediately preceding the Closing
Date. For purposes of section 2.3, the term "Market Value" shall mean the
average "last reported sale" price of a share of Purchaser's common stock, as
reported on the NASDAQ national over-the-counter market, for the five (5)
trading days immediately preceding the date that an issuance condition set
forth in section 2.3 has been satisfied.
2.5. Restrictions on the Shares. The Shares issued pursuant to
section 2.2 or section 2.3 shall not be registered for resale under applicable
federal and state securities laws at the time of issuance to Seller, but Seller
shall register 220,000 of the Shares, in accordance with the provisions of
section 7.2 and exhibit G to this agreement, for sale by Seller subsequent to
October 1, 1997. In addition, such Shares shall be subject to additional
restrictions on transferability which shall prohibit Seller from selling or
transferring more than ten percent (10%) of such Shares during any calendar
quarter ending prior to April 1, 2000. The certificates evidencing the Shares
shall be legended to reflect these restrictions on transferability.
2.6. Allocation of Purchase Price. As soon as practicable
subsequent to the Closing Date, Purchaser shall conduct an evaluation of the
Assets for purposes of properly allocating the purchase price among the Assets
in the manner contemplated by sections 1060 and 338(b)(5) of the Internal
Revenue Code of 1986, as amended (the "Code"). After such evaluation,
Purchaser shall give Seller written notice of its preliminary purchase price
allocation, and Purchaser and Seller shall attempt in good faith to agree in a
reasonable allocation. After such allocation is agreed to, Purchaser and
Seller shall sign such allocation and attach it to this agreement as exhibit A.
Each of Purchaser and Seller shall file, in accordance with the Code, an asset
allocation statement on Form 8594 with its federal income tax return for the
tax year in which the Closing Date occurs and shall contemporaneously provide
the other party with a copy of the Form 8594 being filed.
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III.
Assumption of Liabilities
3.1. Assumption of Indebtedness. On the Closing Date, Purchaser
shall assume and shall thereafter be responsible for satisfying the Assumed
Payables.
3.2. Executory Obligations to be Assumed by Purchaser. In
addition to the purchase price for the Assets described in section 2.1,
Purchaser agrees to assume and to pay and/or perform, in accordance with their
respective terms and from and after the Closing Date, each of the following
executory obligations or commitments of Seller:
(a) Seller's executory obligations under the Assumed
Contracts;
(b) Seller's executory obligations under the customer
orders and purchase commitments described in section 1.1(b) or
1.1 (e).
3.3. No Other Liabilities to be Assumed. Other than as set forth
above in section 3.1 or section 3.2, Purchaser shall not assume, and nothing
contained in this agreement shall be construed as an assumption by Purchaser
of, any liabilities, obligations or undertakings of Seller of any nature
whatsoever, whether fixed or contingent, known or unknown including, without
limitation, liabilities of Seller to Wells Fargo Bank or liabilities of Seller
to Gunlock Corporation under the Long Term Note or its revolving credit
facility with Gunlock Corporation.
IV.
Representations and Warranties of Seller
As a material inducement to Purchaser to enter into this agreement and
with the understanding that Purchaser will be relying thereon in consummating
the transactions contemplated hereunder, Seller represents and warrants to
Purchaser that, except as otherwise disclosed to Purchaser on a disclosure
schedule which is delivered to Purchaser prior to the execution of this
agreement (the "Disclosure Schedule"):
4.1. Organization and Standing. Seller is a corporation duly
organized, validly existing and in good standing under the laws of the State
of California and has all requisite corporate power and authority to own the
Assets, to carry on the Business, to sell and transfer the Assets to Purchaser
pursuant to this agreement and to enter into and perform its commitments under
each of the agreements to be executed by Seller pursuant to this agreement.
In connection with the operation of the Business, Seller is qualified and in
good standing in each
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jurisdiction in which its failure to so qualify could have a material
adverse effect on the Assets or the financial condition of the Business.
4.2. Corporate Authorization. The execution, delivery and
performance of this agreement by Seller, and all other agreements or
instruments to be executed by Seller pursuant to this agreement, have been
authorized by proper corporate action and are within its corporate powers.
This agreement constitutes and such other agreements or instruments will
constitute, the legal, valid and binding obligations of Seller, which are, or
will be, enforceable against Seller in accordance with their respective terms.
4.3. No Liens or Encumbrances. Seller has, and on the Closing Date
will transfer and convey to Purchaser, good and marketable title to the Assets
owned by Seller, and on the Closing Date such Assets shall be free and clear
of all liens, claims, charges, encumbrances, leases, security interests,
pledges, and title retention agreements of any kind or nature.
4.4. Financial Statements. Attached to this agreement as exhibit
B are the following financial statements relating to the Business:
(a) Balance sheet for Seller as at February 28, 1997,
and statements of income and expenditures for the fiscal
period then ended, which financial statements have been
prepared by the Company; and
(b) Balance sheets for Seller as at September 30,
1996, and September 30, 1995, and the statements of income and
expenditures for the fiscal periods then ended, which
financial statements have been reviewed by Stanley C. Henslee,
CPA.
Such financial statements, together with the notes thereto, (i) were prepared
from the books and records of Seller, (ii) present fairly and accurately in all
material respects the financial condition of Seller and the Business as of the
dates of the balance sheets, (iii) present fairly and accurately in all
material respects the results of operations of the Business for the periods
covered by such statements, subject in the case of the February 28, 1997,
financial statements to normal year-end adjustments, which in the aggregate
will not be material, (iv) have been prepared in all material respects on a
basis consistent with the preparations of Seller's prior years' financial
statements, and (v) include all adjustments (consisting only of normal
recurring accruals) which are necessary for a fair presentation of the
financial condition of Seller and of the results of operations of the Business
for the periods covered by such statements. As used herein, the term "Latest
Financial Statement" shall mean the balance sheet of the Business as of
February 28, 1997.
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4.5. Schedules. Each of the following schedules, which have been
furnished to Purchaser by Seller and which are incorporated herein by
reference, is complete and the information contained therein is correct in all
material respects as of the date of each schedule:
Schedule 1: This schedule sets forth a description of all equipment,
machinery, furniture, motor vehicle, fixtures, furnishings and
leasehold improvements that are owned by Seller and are being
used, or are useable, in connection with the operation of the
Business and includes assets that have been fully
depreciated or expensed on Seller's accounting records.
Schedule 2: This schedule lists the following agreements, whether oral or
written, to which Seller is a party and which relate to the
operation of the Business, to the extent such agreements are
not set forth in other schedules:
(i) Each contract
between Seller and any dealer, distributor,
broker, agent or sales representative.
(ii) Each executory or
partially executory contract, agreement, or
commitment by Seller for delivery of its
products or services.
(iii) Each contract,
agreement or arrangement made in the course of
ordinary business by Seller involving an
expenditure of more than $5,000 for the purchase
of any services, materials, supplies or
equipment.
(iv) Each contract
continuing over a period of more than twelve
(12) months from its commencement date, which is
not terminable by Seller upon not more than
thirty (30) days' notice.
(v) Each confidentiality
or non-compete agreement for the benefit of
Seller or pursuant to which Seller has made
confidentiality or noncompetition commitments to
other parties.
(vi) Each employment contract or agreement relating
thereto between Seller and any officer,
consultant, director or employee, including any
bonus,
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incentive or deferred compensation plans, and any
arrangements which encourage or compensate
Seller's employees to accept employment or stay
with Purchaser following the Closing Date.
(vii) Each plan or contract
or arrangement of Seller providing for pensions,
life insurance, medical insurance, disability
insurance, vacations, and other employees'
benefits or compensation plans, whether formal or
informal.
(viii) Each agreement, if any, with any union covering
employees in the bargaining unit represented by
such union.
(ix) Each lease for, or
license for the use of, personal property,
whether written or oral, which relates to the
operations of the Business.
Schedule 3: This schedule lists all intangible personal property used by
Seller in the conduct of the Business, including without
limitation, all trademarks, trade names, service names, service
marks, copyrights, patents, patent licenses, applications for any
and all of the foregoing and registrations thereof owned by Seller
or used in the operation of the Business, and any contracts or
agreements relating to any of such intangible personal properties.
Schedule 4: This schedule (i) lists all permits, licenses, exemptions,
variances, state and federal pesticide registrations and other
approvals and authorizations which are necessary to conduct the
Business, (ii) sets forth the title, issuing agency and expiration
date thereof and (iii) indicates which of such permits, licenses
and other approvals and authorizations are not possessed or held
by Seller or are not in full force and effect.
Schedule 5: This schedule lists the total amount of sales made by Seller in
connection with the Business, on a quarterly basis, for each of
the years 1994, 1995 and 1996, and the amount of sales made during
such years to Seller's fifteen (15) largest accounts.
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Schedule 6: This schedule lists each account receivable of Seller that
arose from the operations of the Business as of the date of
the Latest Financial Statement, including the aging of each
such account.
Schedule 7: This schedule lists all personal property owned by any third
parties (whether a customer, supplier or other person) and
related to the operation of the Business for which Seller is
responsible, other than leased property set forth on schedule
2(ix).
Schedule 8: This schedule lists each employee of the Business and the
position, title, remuneration (including any schedule salary
or remuneration increases), date of employment, and accrued
vacation pay of each such employee.
Section 9: This schedule lists each policy of liability, property damage,
comprehensive, vehicle, workers' compensation, key man,
disability, fidelity, errors and omissions, directors' and
officers and other forms of insurance owned or maintained by
the Company in connection with the operations of the Business
during the past three (3) years (and not listed on schedule 4)
and contains a brief description of any claims made thereunder
during such period of time.
4.6. No Defaults. Each of the contracts and agreements listed on
schedule 2 is in full force and effect on the date hereof. Seller is not in
default or breach under any of such contracts and/or agreements and, to the
best knowledge of Seller, no other party to such instruments is in material
default or breach thereunder. True and correct copies of all documents listed
in any schedule delivered pursuant to section 4.5 have heretofore been
delivered or made available to Purchaser or will be made available upon request
and will be signed by an officer of Seller for identification upon request by
Purchaser.
4.7. No Breaches, etc. Seller is not in violation of, and the
execution, delivery and performance of this agreement or the other agreements
contemplated by this agreement and the consummation of the transactions
contemplated hereby do not and will not result in any breach or acceleration
of, any of the terms or conditions of its articles of incorporation or bylaws,
or of any mortgage, bond, indenture, contract, agreement, license or other
instrument or obligation to which Seller is a party or by which the Assets are
bound. The execution, delivery and
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performance of this agreement or the other agreements contemplated by this
agreement will not result in the violation of any statute, regulation,
judgment, writ, injunction or decree of any court, threatened or entered in a
proceeding or action in which Seller is, was or may be bound or to which the
Assets are subject.
4.8. Lawsuits, Proceedings, etc. Seller is not engaged in any legal
action or other proceedings before any court or administrative agency which
would or might prohibit the transactions contemplated hereby or which would or
might adversely affect the Assets or the Business. Seller is not a party to
any action or proceeding, nor has it been threatened with any such action or
proceeding, nor, to the best of Seller's knowledge, does there exist any basis
therefor, which will or could have an adverse effect on the condition,
financial or otherwise, of the Assets or the Business. No order, writ,
injunction or decree has been issued by, or requested of, any court or
governmental agency which does or may result in any adverse change in the
Assets or in the financial condition of the Business. To the best of Seller's
knowledge, Seller is not liable for damages to any employee or former employee
of the Business as a result of violation of any foreign, state or federal laws
directly or indirectly relating to such employee or former employee.
4.9. Inventory. All inventories, net of reserves, reflected in the
Latest Financial Statement are stated at the lower of Seller's cost or market
and, as so stated, meet Seller's specifications, are regularly offered from
current price lists and are not custom made, and are useable or salable in the
category in which they are inventoried in the ordinary course of the Business,
without discount from the prices generally charged for like inventory other
than normal trade discounts regularly offered by the Business for prompt
payment or quantity purchase. The finished goods inventory is of merchantable
quality. The raw materials and work-in-process inventories are capable of being
manufactured into finished goods answering that description. None of the
inventories reflected on the Latest Financial Statement are in a quantity in
excess of amounts that can be sold by Seller in the ordinary course of business
of the Business over a period of twelve (12) months (based on Seller's
historical sales figures). The packaging inventories included in the Assets
are adequate in quantity to enable Purchaser to continue to package and ship
finished goods and inventories in accordance with Seller's past practices.
4.10. Compliance with Law. (a) Seller is not currently being charged
with, nor is it not operating the Business in violation of, any applicable
foreign, federal, state or municipal laws, regulations or ordinances including,
without limitation, the federal Foreign Corrupt Practices Act, the federal
Occupational Safety and Health Act of 1970, or the regulations promulgated
thereunder, or any other applicable foreign, federal, state or municipal
statute, law, regulation or ordinance relating to occupational health and
safety, nor is Seller relying on any exemption
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from or deferral of any such applicable statute, law, regulation or ordinance
that would not be available to Purchaser after it acquires the Business from
Seller.
(b) All chemical substances contained in Seller's commercially-sold
product lines were included on the initial inventory list promulgated under the
United States Toxic Substances Control Act or were the subject of a
premanufacturing notice filed with the EPA under such act. Seller's material
safety data sheets for the Assets accurately and properly reflect any hazardous
ingredients in any products manufactured or sold by Seller in the conduct of
the Business.
(c) Seller has obtained all state and federal registrations and
regulatory approvals as are necessary or appropriate to enable each to market
its products. All such registrations and approvals are listed on schedule 4 to
this agreement. Each registration described on schedule 4 is in good standing,
and Seller has no knowledge of any information which, if known by the
applicable governmental entity, would jeopardize the good standing of such
registration. No registration held by Seller has lapsed, been withdrawn or
abandoned or has been revoked by the applicable governmental entity during the
three years immediately preceding the date of this agreement, and Seller has
not received any notice of intent to cancel or suspend any registrations. All
of Seller's products with appropriate registrations are formulated, distributed
and sold in compliance with all applicable environmental laws. All required or
requested information and data, including but not limited to, toxicological
studies, epidemiological studies, efficacy studies, incident reports, and toxic
or adverse effects reports, have been submitted by Seller to the appropriate
regulatory agency to support its product registrations in accordance with all
laws and regulations. Seller is not aware of any factual information regarding
adverse effects of their products which has not been reported to the
appropriate regulatory agency. There have been no recalls of any product
manufactured or produced by or for seller. No changes are required by
applicable regulatory agencies for precautionary statements, use
classifications or packaging for any such product for seller to be in
compliance with applicable environmental laws. Seller has complied with all
requirements of law regarding the registrations, labeling, packaging,
advertising, sale and distribution of such products. Seller has provided
Purchaser with a list of all claims, citations, penalties, assessments and
other material agencies (including the EPA or the FDA) in respect of seller
during the past three years which relate to any provision of federal, state,
local or foreign laws or regulations relating to health and environmental
protection, zoning or safety of premises occupied by Seller. Seller has not
received any notice of any suspension, cancellation, or reregistration
proceeding with respect to any of its products and has no reason to believe any
such proceeding is likely to occur.
4.11. Post Balance Sheet Changes. From the date of the Latest Financial
Statement through the date of this agreement, Seller has not, in connection
with the operation of the Business, (a) waived any rights of substantial
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value, whether or not in the ordinary course of business; (b) suffered any
damage, destruction or loss, whether or not covered by insurance, adversely
affecting the Assets or the Business; (c) made or suffered any amendment or
termination of any material contract or any agreement which adversely affects
the Business; (d) sold, assigned, transferred or otherwise disposed of any of
its assets that were used in the conduct of the Business or canceled any debts
or claims, other than in the ordinary course of business; (e) entered into any
transactions relating to the Business not in the ordinary course of business;
(f) revalued any of the Assets, (g) accelerated the collection of any accounts
receivable through use of discounts or any other means, (h) made any
distributions to its shareholders by way of dividend payments, redemption of
shares or otherwise, (i) increased the compensation payable to any employee,
director or consultant (other than pursuant to preexisting commitments to do so
which are disclosed to Purchaser on the Disclosure Schedule) or paid any
bonuses to any such employee, director or consultant, or (j) made any
principal payments on any indebtedness to any employee, director, consultant,
shareholder o any affiliate of any such person.
4.12. Intangible Property Rights. (a) Seller owns or exclusively holds
all rights to use, free and clear of all liens, claims and restrictions, all
patents, trademarks, service marks, trade names, and copyrights used in the
conduct of the Business. In operating the Business in the matter in which it
is currently being operated, Seller does not infringe upon the right or claimed
right of any person under or with respect to any of the above. Except as
reflected on schedule 3, in connection with the operation of the Business,
Seller is not obligated or under any liability whatsoever to make any payments
by way of royalties, fees or otherwise to any owner of, licensor of, or other
claimant to any patent used in the conduct of the Business, nor is Seller
presently under any license or contract obligation to pay royalties or fees
with respect to third-party trademarks, copyrights or other intellectual
property in connection with the conduct of the Business.
(b) Seller has no knowledge of, nor has Seller received any notice of,
any facts which indicate that, in connection with the operation of the Business,
Seller does not either (i) own or (ii) have the unrestricted right to the use
in the world-wide agricultural and horticultural markets of all know-how,
customer information and lists, inventions, designs, processes, chemical
formulations, raw material specifications, manufacturing specifications and
quality assurance specifications, computer programs and technical data
necessary to the development, manufacture, operation and sale of all products
and services sold by it in connection with the conduct of the Business,
including trade secrets, free and clear of any rights, liens and claims of
others.
(c) Seller has taken reasonable security measures to protect the
secrecy, confidentiality and value of the trade secrets referred to in
paragraph (b) of this section 4.12.
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4.13. Changes in Customers or Suppliers. Seller has not received notice
that any major customer or supplier of the Business intends to terminate, limit
or reduce its business relations with Seller.
4.14. Investment Representations and Acknowledgements. The Shares are
being acquired by Seller for Seller's own account and not with a view to, or
for resale in connection with, any distribution or public offering thereof
within the meaning of the federal Securities Act of 1933 (the "Securities
Act"). Seller acknowledges that the Shares have not been registered under the
Securities Act or under state securities laws, pursuant to exemptions under the
provisions of the Securities Act and state securities laws which depend upon
the accuracy of the representations of Seller set forth in this section 4.14,
and that the Shares must be held indefinitely unless a transfer is effected
pursuant to a registration under the Securities Act or an exemption from
registration. Seller acknowledges that the certificates evidencing the Shares
will be imprinted with a restrictive legend setting forth the restrictions on
the transferability of the Shares which are imposed by the Securities Act and
applicable states securities laws. Seller's principal office is located in the
State of California. Seller is a sophisticated investor within the meaning of
that term as defined in the Securities Act and the rules and regulations
promulgated pursuant to the Securities Act, and either (i) has such knowledge
and experience in financial and business matters or (ii) has received such
advice and counsel from persons who do have knowledge and experience in
financial and business matters so that it is capable by itself, or in
conjunction with such other persons, of evaluating the merits and risks of the
investment in Purchaser which shall result from the issuance to Seller of the
Shares in partial payment of the purchase price of the Assets. Seller
acknowledges receipt of the Company Reports listed and described in section
5.6.
4.15 No Brokers or Finders. No person, firm or corporation has or will
have, as a result of any act or omission of Seller, any right, interest or
valid claim against Purchaser for any commission, fee or other compensation as
a finder or broker in connection with the transactions contemplated by this
agreement.
4.16. Accounts Receivable. The accounts receivable of Seller set forth
in the Latest Financial Statement or schedule 6 and all accounts receivable of
Seller that relate to the Business that have arisen since the date of schedule
6, are valid and enforceable obligations due to Seller and, to the extent they
exceed, in the aggregate, the reserve for bad debts set forth in the Latest
Financial Statement shall be collectible by Purchaser in the ordinary course of
business. The goods and services sold and delivered by Seller that gave rise
to such accounts receivable were sold and delivered in conformity with the
applicable purchase orders, agreements and specifications. Such accounts
receivable are subject to no valid defense or offset except routine customer
complaints of an immaterial nature.
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4.17. Net Asset Value. On the Effective Date, the net asset value of the
Business (i.e. the amount by which the book value of the Assets on such date
exceeds the Assumed Payables) shall be as represented on the Latest Financial
Statement.
4.18. Disclosure. There has been and will be no material change in the
information set forth in the schedules or exhibits to this agreement between
the date of such schedule or exhibit and the date of this agreement or the
Closing Date. No representation or warranty in this agreement or in any
letter, certificate, schedule, statement or other document furnished or to be
furnished pursuant hereto or in connection with the transactions contemplated
hereby contains or will contain any untrue statement of a material fact or
omits
or will omit to state any material fact required to be stated herein or therein
or necessary to make the statements herein or therein not misleading.
4.19. Representations and Warranties. The representations and warranties
contained in sections 4.1 through 4.18 hereof shall be true on and as of the
Closing Date with the same force and effect as though such representations and
warranties had been made on and as of the Closing Date. Such representations
and warranties have been made by Seller with the knowledge and expectation that
Purchaser is relying thereon, and such representations and warranties shall
survive the Closing and, subject to the limitations set forth in section 10.2,
shall remain operative in full force and effect following the Closing Date
regardless of any investigation at any time made by or on behalf of Purchaser
and shall not be deemed merged in any document or instruction executed or
delivered by Seller on the Closing Date.
V.
Representations and Warranties of Purchaser
As a material inducement to Seller to enter into this agreement and to
consummate the purchase and sale contemplated hereunder, Purchaser hereby
represents and warrants to Seller as follows:
5.1. Organization and Standing. Purchaser is a corporation duly
organized, validly existing and in good standing under the laws of the state of
Minnesota, and has all requisite corporate power and authority to enter into
this agreement and to consummate the transactions contemplated by this
agreement.
5.2. Corporate Authorization. The execution, delivery and performance
of this agreement by Purchaser and any other agreements or instruments to be
executed by Purchaser pursuant to this agreement and the
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<PAGE> 17
issuance of the Shares have been duly authorized by proper corporate action of
Purchaser and are within its corporate powers. This agreement constitutes, and
such other agreements and instruments will constitute, the legal, valid and
binding obligations of Purchaser which are, or will be, enforceable against
Purchaser in accordance with their respective terms.
5.3. No Brokers or Finders. No person, firm or corporation has or will
have, as a result of any act or omission of Purchaser, any right, interest or
valid claim against Seller for any commission, fee or other compensation as a
finder or broker in connection with the transactions contemplated by this
agreement.
5.4 Authorized Capital. The authorized capital stock of Purchaser
consists of 5,000,000 shares of preferred stock, of which no shares are issued
or outstanding, and 25,000,000 shares of common stock, of which 10,921,930
shares were issued and outstanding on March 12, 1997. All of the Purchaser's
outstanding shares of common stock have been duly authorized and are validly
issued, fully paid and nonassessable.
5.5 Governmental Filings; No Violations. Other than the filing of a
notification with NASDAQ in connection with the issuance of the Shares, no
notices, reports or other filings are required to be made by Purchaser with,
nor are any consents, registrations, approvals, permits or authorizations
required to be obtained by the Purchaser from, any governmental or regulatory
authorities of the United States, the several States or any foreign
jurisdiction or any other third party, in connection with the execution and
delivery of this agreement, the issuance of the Shares and the consummation by
Purchaser of the transactions contemplated hereby. The execution and delivery
of this agreement do not, and the issuance of the Shares and the consummation
by Purchaser of the transactions contemplated by this agreement will not,
constitute or result in a breach or violation of, or a default under, the
articles of incorporation or by-laws of purchaser or any statute, regulation,
judgment, writ, injunction, decree of any court to which Purchaser is bound.
5.6 Company Reports; GAAP Financial Statements. The Purchaser has
delivered to Seller (i) each proxy statement or information statement
distributed by it since January 1, 1996, including the Notice of Annual Meeting
of Shareholders and proxy statement for the February 18, 1997 annual meeting of
shareholders of Purchaser, (ii) Purchaser's Annual Report on Form 10KSB for the
year ended September 30, 1996, and (iii) Purchaser's Quarterly Report on Form
10QSB for the period ended December 31, 1996, (iv) each report on Form 8K filed
by it since January 31, 1996, each in the form (including exhibits and any
amendments thereto) filed with the Securities and Exchange Commission (the
"Commission") and (v) each press release issued by it since December 31, 1996
(collectively, the "Company Reports"). As of their respective dates, the
Company Reports did not contain any
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<PAGE> 18
untrue statement of a material fact or omit to state a material fact required
to be stated therein or necessary to make the statements therein, in the light
of the circumstances under which they were made, not misleading. Each of the
consolidated balance sheets included in or incorporated by reference into the
Company Reports (including the related notes and schedules) fairly presents the
consolidated financial position of Purchaser and its subsidiaries as of its
date and each of the consolidated statements of income and of cash flows
included in or incorporated by reference into the Company Reports (including
any related notes and schedules) fairly presents the results of operations,
retained earnings and cash flows, as the case may be, of Purchaser and its
subsidiaries for the periods set forth therein (subject, in the case of
unaudited statements, to normal year-end audit adjustments), in each case in
accordance with generally accepted accounting principles ("GAAP") consistently
applied during the periods involved, except as may be noted therein. Other
than the Company Reports, Purchaser has not filed prior to the date hereof any
reports or statements with the SEC since January 1, 1996.
5.7 Absence of Certain Changes. Except as disclosed in the Company
Reports, from September 30, 1996, to the date of this agreement, Purchaser has
conducted its business only in, and has not engaged in any material transaction
other than according to, the ordinary and usual course of such businesses and
there has not been: (i) any material adverse change in the financial condition,
properties, prospects, businesses or results of operations of Purchaser and its
subsidiaries taken as a whole or any development or combination of developments
which is reasonably likely to result in any such change, other than
developments affecting industry, economic and market conditions generally; (ii)
any declaration, setting aside or payment of any dividend or other distribution
with respect to the capital stock of Purchaser, (iii) any change by Purchaser
in accounting principles, practices or methods other than required by GAAP;
(iv) any incurrence of additional indebtedness other than in the ordinary
course of business; or (v) any material revaluation by Purchaser of any of its
assets.
5.8 Status of Shares. The Shares, when issued and transferred by
Purchaser to Seller pursuant to the terms of this agreement, will (i) be duly
authorized, validly issued, fully paid and nonassessable, (ii) assuming the
accuracy of the representation of Seller set forth in section 4.14, have been
issued in compliance with all federal and state securities laws and (iii) be
free and clear of all liens and adverse claims (other than liens or claims
created by Seller).
VI.
Covenants of Seller
6.1. Conduct of Business. From the date hereof through the Closing
Date, Seller will conduct the Business diligently in substantially the same
manner as
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heretofore conducted, and will use its best efforts to preserve the business
organization and management structure of the Business intact, to keep available
to Purchaser all of the present management personnel of the Business and to
preserve, for the benefit of Purchaser, Seller's relationships with
distributors, suppliers, customers and others having business relations with
Seller in connection with the operation of the Business.
6.2. Negative Covenants. From the date hereof through the Closing Date,
Seller will not, in connection with the operation of the Business, (a) change
or alter the physical contents or character of the inventories of the Business,
so as to materially affect the nature of the Business or materially and
adversely change the total dollar valuation of such inventories other than in
the ordinary course of business; (b) enter into any contract or commitment with
respect to the operation of the Business extending beyond the Closing Date,
other than for sales or purchases made in the ordinary course of its business;
(c) waive any rights of any substantial value or sell, assign or transfer any
of the Assets of the Business other than in the ordinary course of business;
(d) mortgage, pledge or voluntarily subject to lien, charge or other
encumbrance any of the Assets; (e) sell, assign or transfer any of the Assets
other than in the ordinary course of business; (f) make any distributions to
its shareholders by way of dividend payments, redemption of shares or
otherwise, (g) increase the compensation payable to any employee, director or
consultant (other than pursuant to pre-existing commitments to do so which are
disclosed to Purchaser on the Disclosure Schedule) or pay any bonuses to any
such employee, director or consultant, or (h) make any principal payments on
any indebtedness to any employee, director, consultant, shareholder o any
affiliate of any such person, or (i) enter into any
other transactions or series of transactions relating to the Business other
than in the ordinary course of business.
6.3. Access to Information. From the date of this agreement through the
Closing Date, Seller shall grant to Purchaser and Purchaser's authorized
representatives full access to the properties, books and records, premises,
employees, distributors, customers and accountants of the Business during
reasonable business hours for the purposes of enabling Purchaser to fully
investigate the Assets, the business and the financial and other records of the
Business. Any information obtained by Purchaser shall be maintained by
Purchaser on a confidential basis and shall not be disclosed to any other
person in the event that the transactions contemplated by this agreement are
not consummated.
6.4. Noncompetition Covenant. During the period commencing on the
Closing Date and extending through March 31, 2002, Seller will not directly or
indirectly engage in any business activities, in the United States, Canada or
any other country in which Purchaser or any affiliate of Purchaser currently
does business, that relate to the development, manufacture, distribution or
marketing of any products or services that are similar to or competitive with
the products or
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services currently being marketed by Seller in connection with
the conduct of the Business. Seller understands that Purchaser would not have
agreed to purchase the Assets, nor would it have made the commitments contained
in this agreement, without having received this noncompetition covenant from
Seller, and Seller acknowledges that it has entered into this noncompetition
covenant as a material inducement to Purchaser to consummate such transactions.
6.5. Consents. Seller shall use reasonable efforts to obtain, prior to
the Closing Date, all consents or waivers to the transactions contemplated by
this agreement that may be required under any of the material agreements or
commitments of Seller being sold or assigned to, or assumed by Purchaser
hereunder and subsequent to the Closing Date shall continue to use reasonable
efforts to obtain any such consents or waivers that are not received by the
Closing Date. Seller will cooperate with Purchaser with respect to transfers
of all State Pesticide Registrations, but all costs and fees related to the
transfer of such registrations shall be borne by Purchaser.
6.6. Updating of Schedules. Between the date of this agreement and the
Closing Date, Seller shall deliver to Purchaser updated schedules to reflect
any material changes in the schedules delivered to Purchaser pursuant to
section 4.5 of this agreement. On the Closing Date, Seller shall deliver to
Purchaser an officer's certificate confirming the accuracy, as of the Closing
Date, of each of the schedules delivered to Purchaser pursuant to this
agreement; provided, however, that Purchaser shall not be obligated to proceed
with the closing of the transactions contemplated by this agreement if there
are material adverse changes in the schedules initially delivered to Purchaser.
6.7. Collection of Receivables. All cash, checks or other proceeds
received by Seller or its banks after the Effective Date that relate to the
Receivables outstanding on the Effective Date shall be paid to Purchaser within
five (5) days after receipt by Seller, which payments shall be accompanied by a
statement identifying the payee, the amount of the payment and the invoice
number related thereto. Seller shall instruct its banks to forthwith remit to
Purchaser all amounts received by such banks with respect to the Receivables.
Purchaser shall have the right to endorse the name of Seller on any such checks
or proceeds (whether received directly by Purchaser or received from Seller or
its banks) and shall deposit such checks and other proceeds in bank accounts
maintained in Purchaser's name. From and after the Closing Date, Seller shall
cooperate with, and provide reasonable assistance to, Purchaser with respect to
the Receivables and the collection thereof.
6.8. Lease of Office Space and Support Facilities. Seller shall use its
best efforts to cause Gunlock Corporation to enter into a lease agreement (the
"Lease") with Purchaser on the Closing Date which shall provide for the lease
to Purchaser of Seller's current office/warehouse facility at 1450 W. 228th
Street,
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Torrance, California on a month-to-month basis, subject to the right of
either party to terminate with six (6) months' prior notice, for a rental of
$13,735 per month. The other terms and conditions of the Lease shall be
established by the mutual agreement of Purchaser and Gunlock Corporation prior
to the Closing Date.
6.9. Ancillary Agreements. (a) On the Closing Date Seller shall enter
into a consulting agreement with Purchaser on the Closing Date, which
consulting agreement shall be in the form attached to this agreement as exhibit
D (the "Consulting Agreement").
(b) Seller shall use its best efforts to cause each of Jane Donalson
and Ruth Gunlock to execute and deliver to Purchaser on the Closing Date a
noncompetition agreement in the form attached to this agreement as exhibit E
(the "Shareholder Noncompetition Agreement").
(c) On the Closing Date, Seller shall enter into an escrow agreement
with Purchaser and a mutually acceptable commercial escrow agent in the form
attached to this agreement as exhibit F (the "Escrow Agreement").
VII.
Covenants of Purchaser
7.1. Confidentiality. Purchaser shall maintain all written information
obtained by it during its investigation of the Assets and the Business as
confidential information and shall not use such information for its own
purposes (other than to evaluate such business and/or to secure financing to
enable it to carry out its obligations under this agreement) to any extent
whatsoever; provided, however, the foregoing obligations of confidentiality and
restrictions on use shall not apply to information (a) known to Purchaser prior
to its disclosure by Seller, (b) independently developed by Purchaser, (c)
acquired by Purchaser from others, provided that such other persons by
disclosing such information have not violated any confidentiality obligations
owed to Seller, (d) known to the public or others in the industry, or (e)
required to be disclosed by governmental officials. Purchaser shall have no
obligation after the consummation of the transactions contemplated hereby to
maintain as confidential or restrict the use of such information. In the event
that the sale of the Assets is not consummated, such information shall be
returned to Seller and the foregoing confidentiality covenant shall remain in
effect for a period of three (3) years from the date of the termination of this
agreement.
7.2. Stock Registration Commitment. Purchaser shall, effective as of
October 1, 1997, (a) cause 220,000 of the Shares to be registered for sale
under the Securities Act and applicable state securities laws, and (b) cause
the Shares to be listed for trading on the NASDAQ market system, in accordance
with and on the terms set forth in, exhibit G to this agreement.
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7.3 Rule 144 Reporting. With a view to making available the benefits
of certain rules and regulations of the Commission which may permit the sale of
the Shares to the public without registration, the Purchaser agrees to (a) at
all time make and keep public information available, as those terms are
understood and defined in Rule 144 under the Securities Act; (b) use its best
efforts to file with the Commission in a timely manner all reports and other
documents required of the Purchaser under the Securities Act and the Securities
Exchange Act of 1934 (the "Exchange Act"); and (c) so long as Seller owns any
Shares, furnish to Seller forthwith upon request a written statement by
Purchaser as to its compliance with the reporting requirements of the
Securities Act and the Exchange Act, a copy of the most recent annual or
quarterly report of Purchaser, and such other reports and documents so filed as
Seller may reasonably request in availing itself of any rule or regulation of
the Commission allowing Seller to sell the Shares without registration.
VIII.
Employee Matters
8.1. Employees of the Business.
(a) Purchaser shall be under no duty whatsoever to hire any employee or
group of employees of Seller.
(b) Seller shall remain solely responsible for all salaries, wages,
benefits, severance arrangements and all other terms of employment for (a) each
person who may become an employee of Purchaser accruing prior to the date such
person becomes an employee of Purchaser and (b) each employee of the Business
who does not become an employee of Purchaser accruing at any time.
8.2. Employee Benefits.
(a) Benefit Plans. Seller shall remain liable and Purchaser shall not
assume or otherwise have any liability or obligation under pension or other
benefit plans of Seller.
(b) Final Payroll. Seller shall pay the amount of salaries, wages and
benefits earned through the Closing Date by each employee of the Business who
becomes an employee of Purchaser on the Closing Date on the Seller's next
regularly scheduled pay date for that employee.
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IX.
Closing
9.1. General Procedure. At the closing, each party shall deliver to the
other party such documents, instruments and materials as may be reasonably
required in order to effectuate the intent and provisions of this agreement,
and all such documents, instruments and materials shall be satisfactory in form
and substance to counsel for the other party.
9.2. Time and Place. (a) The closing shall take place as soon as the
closing conditions set forth in section 9.3 are satisfied, at a time and place
that are mutually acceptable to Purchaser and Seller (the "Closing Date").
Seller and Purchaser shall each use their best efforts to cause the closing to
take place on or prior to March 31, 1997.
(b) It is the intention of Purchaser and Seller that the transactions
contemplated by this agreement shall be deemed to have taken place on March 1,
1997 (the "Effective Date"), even though the Closing Date occurs after the
Effective Date, and it is the further intention of Purchaser and Seller that
all income, expenses and cash proceeds received, incurred or collected between
the Effective Date and the Closing Date shall be for the account of Purchaser.
9.3. Conditions to Obligations of Purchaser. The obligation of Purchaser
to complete the purchase of the Assets on the Closing Date is, at its option,
subject to the satisfaction of each of the following conditions:
(a) Accuracy of Representations and Warranties. The
representations and warranties made by Seller in this
agreement shall be correct in all material respects on and as
of the Closing Date with the same force and effect as though
such representations and warranties had been made as of the
Closing Date;
(b) Compliance with Covenants. All covenants which
Seller is required to perform or comply with on or before the
Closing Date shall have been fully complied with or performed
in all material respects;
(c) Approval of Actions, Etc. All actions,
proceedings, instruments and documents required to carry out
this agreement by Seller, or incidental thereto, and all other
related legal matters shall have been approved by counsel for
Purchaser;
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(d) No Action or Proceeding. No action, suit,
proceeding or investigation before any court or governmental
body or authority, which presents a substantial risk of
restraining or prohibiting the transactions contemplated by
this agreement or of having a material adverse impact on the
Assets or the Business, shall have been instituted or
threatened against Seller or Purchaser on or before the
Closing Date;
(e) Consents. Seller shall have obtained all
consents or waivers contemplated by section 6.5;
(f) Loss or Damage. No loss, casualty or other
occurrence shall have taken place, whether or not covered by
insurance, which has or could have a material adverse impact
on the Assets or the Business;
(g) Legal Opinion. Seller shall have delivered to
Purchaser the legal opinion of Greco, Mollis & O'Hara, a P.C.,
Seller's legal counsel, in substantially the form attached to
this agreement as exhibit H.
(h) Board Approval. Purchaser's Board of Directors
shall have approved the purchase of the Assets, the assumption
of the Assumed Payables, the issuance of the Shares and the
other transactions contemplated by this agreement.
(i) Delivery of Closing Documents. Seller shall have
delivered to Purchaser each of the items listed in section
9.5(b) and such items shall be satisfactory in form to
Purchaser.
9.4. Conditions to Obligation of Seller. The obligation of Seller to
complete the sale of the Assets on the Closing Date is, at its option, subject
to the satisfaction of each of the following conditions:
(a) Accuracy of Representations and Warranties. The
representations and warranties made by Purchaser in this
agreement shall be correct in all material respects on and as
of the Closing Date with the same force and effect as though
such representations and warranties had been made on the
Closing Date;
(b) Compliance with Covenants. All covenants which
Purchaser is required to perform or comply with on or before
the Closing Date shall have been fully complied with or
performed in all material respects;
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(c) Approval of Actions, Etc. All actions,
proceedings, instruments and documents required to carry out
this agreement by Purchaser, or incidental thereto, and all
other related legal matters shall have been approved by
counsel for Seller;
(d) No Action or Proceeding. No action, suit,
proceeding or investigation before any court or governmental
body or authority, which presents a substantial risk of
restraining or prohibiting the transactions contemplated by
this agreement or of having a material adverse impact on the
Assets or the Business, shall have been instituted or
threatened against Seller or Purchaser on or before the
Closing Date; and
(e) Corporate Approvals. Seller's Board of Directors
and shareholders shall have each approved the sale of the
Assets for the consideration and on the terms contemplated by
this agreement.
(f) Delivery of Closing Documents. Purchaser shall
have delivered to Seller each of the items listed in section
9.5(a) and such items shall be satisfactory in form to Seller.
9.5. Specific Items to be Delivered at the Closing. Without limiting the
scope of section 9.1, Seller and Purchaser shall deliver the following items to
each other at the closing of the transactions contemplated by this agreement:
(a) To be delivered by Purchaser.
(i) Certificate evidencing the Shares to be
issued on the Closing Date pursuant to section 2.2(b).
(ii) The Promissory Note.
(iii) Certified copy of corporate resolutions
authorizing execution of this agreement, the issuance of the
Shares, and the consummation by Purchaser of the transactions
contemplated hereby.
(iv) Consulting Agreement, executed by Purchaser.
(v) Lease, executed by Purchaser.
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(vi) The Escrow Agreement, executed by Purchaser and the escrow agent.
(b) To be delivered by Seller.
(i) Assignments, in recordable form, of all
registered trademarks or service marks included in the
Assets.
(ii) Bills of sale and assignments transferring
all of the other Assets to Purchaser.
(iii) The legal opinion described in section 9.3(g).
(iv) Certificate of an executive officer of Seller
confirming the accuracy, as of the Closing Date, of the
representations and warranties set forth in article IV
(including the accuracy of the schedules delivered to
Purchaser pursuant to section 4.5) and compliance with the
covenants set forth in article VI.
(v) Certified copy of corporate resolutions
authorizing execution of this agreement and the consummation
by Seller of the transactions contemplated hereby.
(vi) All consents or waivers contemplated by
section 6.6.
(vii) Consulting Agreement, executed by Seller.
(viii) Shareholder Noncompetition Agreements, executed by Jane
Donalson and Ruth Gunlock.
(ix) Lease, executed by Gunlock Corporation.
(x) UCC termination statements releasing all
outstanding liens and encumbrances on the Assets, including
(a) California UCC financing statement #9511660528 in favor
of Gunlock Corporation and (b) California UCC financing
statement #9511660520 in favor of Gunlock Corporation.
(xi) Escrow Agreement, executed by Seller.
(xii) Sales tax clearance certificate from the
California tax authorities.
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9.6 Prorations. All personal property taxes on the Assets, all payments
in lieu of taxes on the Assets and other taxes applicable thereto, if any, and
rental payments under leases included in the Assets shall be pro rated between
Seller and Purchaser as of the Effective Date for purposes of calculating the
net asset value of the Business.
9.7. Additional Documentation. Each of Seller and Purchaser shall from
time to time, subsequent to the Closing Date, at the other party's request and
without further consideration, execute and deliver such other instruments of
conveyance, assignment or transfer and take such other action as the other
party reasonably may require in order to carry out the terms and conditions of
this agreement.
X.
Indemnification
10.1. General. The covenants, representations and warranties contained in
this agreement shall survive the closing. Seller agrees to indemnify Purchaser
with respect to, and hold Purchaser harmless from, any loss, liability or
expense (including, but not limited to, reasonable legal fees) which Purchaser
may directly or indirectly incur or suffer by reason of, or which results,
arises out of or is based upon (a) the inaccuracy of any representation or
warranty made by Seller in this agreement, (b) the failure of Seller to comply
with any covenants or other commitments made by Seller in this agreement, (c)
any liability relating to or arising out of the conduct of the Business on or
prior to the Closing Date which is not specifically assumed by Purchaser
pursuant to this agreement, or (d) the failure or election of Seller not to
comply with the bulk sales provisions of the Uniform Commercial Code, as in
effect in any state having jurisdiction over the transactions contemplated by
this agreement.
Purchaser agrees to indemnify Seller with respect to, and hold Seller
harmless from, any loss, liability or expense (including, but not limited to,
reasonable legal fees) which Seller may directly or indirectly incur or suffer
by reason of, or which results, arises out of or is based upon the (aa) conduct
of the Business by Purchaser subsequent to the Closing Date, (bb) the
inaccuracy of any representation or warranty made by Purchaser in this
agreement, (cc) the failure of Purchaser to make full and timely payment of any
indebtedness or obligations assumed by Purchaser pursuant to article III, or
(dd) the failure of Purchaser to comply with any other covenants made by
Purchaser in this agreement.
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10.2 Limitations on Indemnification Commitments. The indemnification
commitments of Seller and Purchaser under section 10.1 shall be subject to the
following limitations:
(a) Neither party shall have any obligation to the
other party under section 10.1 unless, and to the extent that,
the aggregate amount of all such indemnification claims
exceeds $5,000; and
(b) Seller's indemnification obligations under
section 10.1 shall terminate two (2) years after the Closing
Date with respect to all claims, except with respect to claims
for which written notice of such claims is delivered to Seller
prior to the termination date.
10.3. Legal Proceedings. In the event Purchaser or Seller become involved
in any legal, governmental or administrative proceeding which may result in
indemnification claims hereunder, such party shall promptly notify the other
party in writing and in full detail of the filing, and of the nature of such
proceeding. The other party may, at its option and expense, defend any such
proceeding if the proceeding could give rise to an indemnification obligation
hereunder. If the other party elects to defend any proceeding, it shall have
full control over the conduct of such proceeding, although the party being
indemnified shall have the right to retain legal counsel at its own expense and
shall have the right to approve any settlement of any dispute giving rise to
such proceeding, provided that such approval may not be withheld unreasonably
by the party being indemnified. The party being indemnified shall reasonably
cooperate with the indemnifying party in such proceeding.
10.4. Indemnification Claims - Interest. Interest on any claim for
indemnification pursuant to this article X shall accrue at a rate equal to the
reference rate as publicly announced from time to time by the Wells Fargo Bank,
National Association, San Francisco, California, from the date the claim arose
until the claim is satisfied by payment.
10.5. Indemnification Claims-Escrow Account. In the event that Purchaser
has a claim for indemnification against Seller pursuant to this article X,
Purchaser may seek recovery of such claims, in the manner contemplated by the
Escrow Agreement, from the escrow account established pursuant to section
2.2(c)(i). In the event that the Net Asset Value of the Business on the
Effective Date was less than the amount represented to Purchaser pursuant to
section 4.17, Purchaser may recover the amount of such deficiency from such
escrow account in the manner contemplated by the Escrow Agreement. Upon the
exhaustion of the escrow account, but subject to the limitations contained in
section 10.2, Purchaser may directly seek recovery against Seller.
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XI.
Termination
11.1. Mutual Termination. This agreement may be terminated by mutual
agreement of Purchaser and Seller at any time. If the closing of the
transactions contemplated by this agreement has not taken place on or before
March 31, 1997, and neither party is at fault for such failure to close, either
party may terminate this agreement by written notice to the other in which case
neither party shall have any continuing rights or obligations under this
agreement (other than Purchaser's continuing obligations under section 7.1).
11.2. Termination Because of Failure to Satisfy Closing Conditions. If
either party is not obligated to proceed with the closing of the transactions
contemplated by this agreement because of the failure of that party's closing
conditions to be satisfied on or before April 15, 1997, such party may
terminate this agreement by delivery of written notice of termination to the
other party and, in addition to such right to terminate, may seek any other
remedy against the other party that it may have at law or in equity.
XII.
Miscellaneous
12.1. Binding Effect. This agreement shall be binding upon and inure to
the benefit of and be enforceable against the parties hereto and their
respective successors. This agreement shall not be assignable by either Seller
or Purchaser; provided, however, that Purchaser may assign its interest in this
agreement to a corporation that is affiliated with Purchaser so long as
Purchaser remains responsible for the performance by such affiliated
corporation of all of Purchaser's obligations and commitments hereunder.
12.2. Governing Law; Venue. This agreement shall in all respects be
governed by, and enforced and interpreted in accordance with, the laws of the
state of Minnesota, except with respect to its rules relating to conflicts of
laws. Any action or proceeding to enforce or arising out of or relating to
this agreement or matters ancillary to this agreement shall be venued in the
state courts of Orange County, California. Purchaser and Seller each consent
to such jurisdiction and agree that venue will be proper in such courts. The
choice of form set forth in this section 12.2 shall not be deemed to preclude
the enforcement of any judgment obtained in such forum in any other appropriate
jurisdiction.
12.3. Notices. All notices, consents, requests, demands, instructions or
other communications provided for herein shall be in writing and shall be
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deemed validly given, made and served when (a)delivered personally, (b)sent by
certified or registered mail, postage prepaid, (c)sent by reputable overnight
delivery service, or (d)sent by telephonic facsimile transmission, and, pending
the designation of another address, addressed as follows:
If to Seller: Dexol Industries, Inc.
Attn: Jane Donalson
1450 W. 228th Street
Torrance, CA 90501
FAX NO: 310-325-0120
with a copy to: Ronald A. Mollis, Esq.
Greco, Mollis & O'Hara, a P.C.
18400 Von Karman
Suite 500
Irvine, CA 92715-1514
FAX NO: 714-263-1513
If to Purchaser: Ringer Corporation
Attn: Mark Eisenschenk
9555 James Avenue South
Suite 200
Bloomington, MN 55431-2543
FAX NO: (612) 887-1300
with a copy to: Michael Trucano, Esq.
Dorsey & Whitney LLP
Pillsbury Center South
220 South Sixth Street
Minneapolis, MN 55402
FAX NO: (612) 340-8827
12.4. Entire Agreement and Counterparts. This agreement, the exhibits
attached hereto and the schedules delivered pursuant to section 4.5 hereof
evidence the entire agreement between Seller and Purchaser relating to the
purchase and sale of the Assets and supersede in all respects any and all prior
oral or written agreements or understandings (including, without limitation,
that certain letter of intent, dated March 4, 1997 between them pertaining to
such transaction). This agreement shall be amended or modified only by written
instrument signed by both Seller and Purchaser. This agreement may be executed
in counterparts, each of which shall be deemed an original and all of which,
taken together, shall constitute one agreement.
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12.5. Headings. Section and article headings used in this agreement have
no legal significance and are used solely for convenience of reference.
12.6. Bulk Sales Compliance. Subject to the provisions of section
10.1(c), Seller shall not comply with the notice and other requirements of the
bulk sales provision of the Uniform Commercial Code, as in effect in any state
having jurisdiction over the transactions contemplated by this agreement.
12.7. Expenses. Except to the extent otherwise provided in this
agreement, each party shall pay for its own legal, accounting and other similar
expenses incurred in connection with the transactions contemplated by this
agreement, whether or not such transactions are consummated.
12.8. Taxes. Any sales, transfer, use or excise taxes payable in
connection with the transactions contemplated by this agreement shall be paid
by Purchaser up to a maximum of $7,500, and Seller shall be responsible for the
payment of any such taxes in excess of $7,500.
12.9. Publicity. The timing and content of all public announcements
relating to the execution of this agreement shall be approved by both Purchaser
and Seller prior to the release of such public announcement, and each party
agrees to cooperate with the other party as appropriate to comply with all
applicable laws or SEC rules.
12.10. Risk of Loss. The risk of loss shall remain with Seller until the
Closing Date, and Seller until such time will continue in force any and all
fire, casualty, theft or other insurance policies relating to the business and
assets of Seller. In the event of any destruction, damage to or theft of the
Assets or property related thereto prior to the Closing Date, Purchaser shall
have the right to either (a) deduct from the purchase price the amount of such
loss that is not covered by insurance proceeds payable to Purchaser, or (b)
elect not to proceed with the transactions contemplated by this agreement.
12.11. Severability. Each and every provision of this agreement shall be
deemed valid, legal and enforceable in all jurisdictions to the fullest extent
possible. Any provision of this agreement that is determined to be invalid,
illegal or unenforceable in any jurisdiction shall, as to that jurisdiction, be
adjusted and reformed rather than voided, if possible, in order to achieve the
intent of the parties. Any provision of this agreement that is determined to
be invalid, illegal or unenforceable in any jurisdiction which cannot be
adjusted and reformed shall for the purposes of that jurisdiction, be voided.
Any adjustment, reformation or voidance of any provision of this agreement
shall only be effective in the jurisdiction requiring such adjustment or
voidance, without affecting in any way the remaining provisions of this
agreement in such jurisdiction or adjusting,
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reforming, voiding or rendering that provision or any other provision of this
agreement invalid, illegal or unenforceable in any other jurisdiction.
12.12. Access to Records. Within a period of one (1) year after the
Closing Date, Seller shall, at the request of Purchaser, deliver to Purchaser
the originals or copies of all books and records relating to the business
operations of the Business that are not located on the business premises of the
Business on the Closing Date or delivered to Purchaser on the Closing Date and
which are specifically requested by Purchaser. During such one (1) year
period, Seller shall not destroy or discard such records. For a period of four
(4) years after the Closing Date, Seller shall have the right, at its expense,
and during normal business hours upon at least fifteen (15) days prior written
notification, to inspect and copy any of such books and records for the
purposes of (a) preparing and/or defending tax returns for the period prior to
the Closing Date, or (b) obtaining information relating to claims arising from
the conduct of the business of the Business prior to the Closing Date. During
such four (4)-year period Purchaser shall not destroy or discard such financial
records without giving Seller ninety (90) days' prior written notice of its
intentions and giving Seller the right, at its expense, to remove from
Purchaser's premises any such financial records.
IN WITNESS WHEREOF, Seller and Purchaser have executed this agreement by
their respective duly authorized representatives as of the date set forth in
the first paragraph.
DEXOL INDUSTRIES, INC.
By /s/ Jane Donaldson
------------------------------
Jane Donalson, President & CEO
["Seller"]
RINGER CORPORATION
By /s/ Mark Eisenschenk
-----------------------------------
Mark G. Eisenschenk, Vice President
["Purchaser" ]
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List Of Exhibits
----------------
A - Promissory Note (Section 2.2(a))
B - Allocation of Purchase Price (Section 2.3)
C - Financial Statements of the Business (Section 4.4)
D - Consulting Agreement (Section 6.9(a))
E - Shareholder Noncompetition Agreement (Section 6.9(b))
F - Escrow Agreement (Section 6.9(c))
G - Stock Registration Provisions (Section 7.2)
H - Legal Opinion of Greco, Mollis & O'Hara, a P.C. (Section 9.3(g))
