SCHEDULE 14A
(RULE 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE
SECURITIES EXCHANGE ACT OF 1934 (AMENDMENT NO. )
Filed by the registrant [X]
Filed by a party other than the registrant [ ]
Check the appropriate box:
[X] Preliminary proxy statement
[ ] Definitive proxy statement
[ ] Definitive additional materials
[ ] Soliciting material pursuant to Rule 14a-11(c) or Rule 14a-12
[ ] Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
VIDEOLABS, INC.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified in Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
(2) Aggregate number of securities to which transactions applies:
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11. (Set forth the amount on which the
filing fee is calculated and state how it was determined.)
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount previously paid:
(2) Form, Schedule or Registration Statement No.:
(3) Filing party:
(4) Date filed:
<PAGE>
VIDEOLABS, INC.
---------------------
NOTICE OF SPECIAL MEETING IN LIEU OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD JULY 13, 1999
TO THE SHAREHOLDERS OF VIDEOLABS, INC.:
NOTICE IS HEREBY GIVEN that a Special Meeting in lieu of Annual Meeting of
Shareholders of VideoLabs, Inc., a Delaware corporation (the "Company"), will be
held on Tuesday, July 13, 1999, at 3:30 p.m., local time, at The Metropolitan,
5418 Wayzata Boulevard, Minneapolis, 55416 for the following purposes:
1. To consider and approve the issuance of shares of common
stock, par value $0.01 per share, of the Company (the
"Shares"), pursuant to an Agreement and Plan of Merger, dated
May 17, 1999, among the Company, VL Acquisition Co., a
wholly-owned subsidiary of the Company ("Acquisition Co."),
and Acoustic Communication Systems, Inc., a Minnesota
corporation ("ACS") and Robin Sheeley, a Minnesota resident,
who owns 100% of the outstanding shares of ACS, providing for
the merger ("Merger") of ACS into Acquisition Co., for a total
merger consideration, payable by the Company, of $500,000
cash and a number of Shares which equals $1,500,000 in value
based on a price per share equal to the average of the closing
bid and asked prices of the Company's common stock, as
reported by Nasdaq during the ten trading days immediately
preceding the Closing of the Merger.
2. To elect three Directors to serve for the ensuing year and
until their successors are duly elected and qualified.
3. To transact such other business as may properly come before
the meeting and any adjournment thereof.
The foregoing items of business are more fully described in the Proxy
Statement accompanying this Notice.
Only shareholders of record at the close of business on May 21, 1999,
are entitled to notice of and to vote at the Meeting and any adjournment
thereof.
All shareholders are cordially invited to attend the Meeting in person.
Any shareholder attending the Meeting may vote in person even if such
shareholder previously signed and returned a Proxy.
BY ORDER OF THE BOARD OF DIRECTORS
/s/ Jill R. Larson
---------------------------
Jill R. Larson
Secretary
Minneapolis, Minnesota
June __, 1999
WHETHER OR NOT YOU EXPECT TO ATTEND THE MEETING, PLEASE COMPLETE, DATE AND SIGN
THE ENCLOSED PROXY AND MAIL IT PROMPTLY IN THE ENCLOSED ENVELOPE IN ORDER TO
ASSURE REPRESENTATION OF YOUR SHARES. NO POSTAGE NEED BE AFFIXED IF MAILED IN
THE UNITED STATES.
<PAGE>
VIDEOLABS, INC.
---------------------
PROXY STATEMENT FOR SPECIAL MEETING IN LIEU OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD JULY 13, 1999
The enclosed Proxy is solicited on behalf of the Board of Directors of
VideoLabs, Inc., a Delaware corporation (the "Company"), for use at the
Company's Special Meeting in lieu of Annual Meeting of Shareholders ("Meeting")
to be held Tuesday, July 13, 1999, at 3:30 P.M., local time, or at any
adjournment or postponement thereof, for the purposes set forth herein and in
the accompanying Notice of Meeting of Shareholders. The Meeting will be held at
The Metropolitan, 5418 Wayzata Boulevard, Minneapolis, 55416.
The Company's principal executive offices are located at 5960 Golden
Hills Drive, Minneapolis, Minnesota 55416. The telephone number at that address
is (612) 542-0061.
These Proxy solicitation materials were mailed on or about June __,
1999, to all shareholders entitled to vote at the Meeting.
INFORMATION CONCERNING SOLICITATION AND VOTING
RECORD DATE AND SHARES OUTSTANDING
Shareholders of record at the close of business on May 21, 1999, are
entitled to notice of, and to vote at, the Meeting. At the record date 4,505,562
shares of the Company's Common Stock were issued, outstanding and entitled to
vote at the Annual Meeting.
REVOCABILITY OF PROXIES
Any Proxy given pursuant to this solicitation may be revoked by the
person giving it at any time before its use by delivering to the Secretary of
the Company a written notice of revocation or a duly executed Proxy bearing a
later date or by attending the Meeting and voting in person.
VOTING AND SOLICITATION
The enclosed Proxy is solicited on behalf of the Board of Directors of
the Company.
Every shareholder voting for the election of Directors shall be
entitled to one vote for each share of Common Stock standing in such
shareholder's name on the books of the Company for each Director separately on a
non-cumulative basis. On all other matters each share is entitled to one vote on
each proposal or item that comes before the Annual Meeting.
Proxy statements delivered to brokers who are prohibited from
exercising discretionary authority over beneficial owners who have not provided
voting instructions (commonly referred to as "broker non-votes") will not be
included in these vote totals. The Company will include abstentions and broker
non-votes as present or represented for purposes of establishing a quorum for
transaction of business, but will exclude abstentions and broker non-votes from
the calculation of shares entitled to vote with respect to any proposal for
which authorization to vote was withheld.
The cost of this solicitation will be borne by the Company. The Company
may reimburse brokerage firms and other persons representing beneficial owners
of shares for their expenses in forwarding solicitation material to such
beneficial owners. Proxies may also be solicited by certain of the Company's
Directors, officers and regular employees, without compensation, personally or
by telephone or telegram.
1
<PAGE>
DEADLINE FOR RECEIPT OF SHAREHOLDER PROPOSALS
Proposals of shareholders of the Company which are intended to be
presented by such shareholders at the Company's 2000 Annual Meeting must be
received by the Secretary of the Company no later than __________, 2000, in
order to be included in the Proxy soliciting material relating to that Annual
Meeting.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth as of May 1, 1999, certain information
concerning those persons known by the Company to be the beneficial owners of
more than five percent (5%) of the outstanding shares of Common Stock of the
Company; the number of shares of Common Stock owned by all directors of the
Company, individually; and all Directors and all executive officers of the
Company as a group.
SHARES BENEFICIALLY OWNED(1)
----------------------------
NAME NUMBER PERCENT(2)
- ---- ------ ----------
James W. Hansen 616,794(3) 12.6%
26 Hwy 96E
Dellwood, MN 55110
Richard Craven 647,448(4) 13.2%
5200 Willson Road Suite 200
Edina, Minnesota 55424-1343
Ward C. Johnson (8) 332,860(5) 6.8%
6408 Indian Hills Road
Edina, Minnesota 55439
John A. Collins 116,327(6) 2.4%
5555 West 78th Street
Bloomington, Minnesota 55435
Jill R. Larson 97,314(7) 2%
14228 Shore Lane
Prior Lake, Minnesota 55372
All Directors and officers as a group (5 persons) 1,810,743 37%
(1) Unless otherwise noted, all shares are beneficially owned and the sole
voting and investment power is held by persons indicated based upon
there being 4,505,562 Common Shares outstanding.
(2) Includes shares of Common Stock issuable upon the exercise of warrants
or options. (See below for an analysis of officer's and director's
warrants and options.)
(3) Includes employee stock options to purchase 95,000 shares of the
Company's Common Stock and non-qualified stock options to purchase
150,000 shares of the Company's Common Stock.
(4) Includes non-qualified options to purchase 22,000 shares of the
Company's Common Stock.
(5) Includes non-qualified options to purchase 2,000 shares of the
Company's Common Stock.
(6) Includes non-qualified options to purchase 22,000 shares of the
Company's Common Stock.
(7) Includes employee stock options to purchase 95,000 shares of the
Company's Common Stock.
(8) Mr. Johnson is currently a director of the Company, but is not seeking
re-election for the upcoming term.
2
<PAGE>
PROPOSAL ONE
ISSUANCE OF SHARES IN THE MERGER
GENERAL
The Merger Agreement provides that, subject to the approval of this
Proposal by the shareholders of the Company, ACS will merge into Acquisition
Co., with Acquisition Co. as the surviving corporation in the Merger. As a
result, the pre-Merger business and assets of ACS will become a wholly-owned
subsidiary of the Company.
As a result of the Merger, each share of ACS common stock outstanding
on the effective date of the Merger will be converted into the right to receive
the Merger Consideration from the Company. The Merger Consideration will be
equal to the sum of (a) $500,000 in cash plus (b) a number of shares of the
Company's common stock which equals $1,500,000 based on a price per share equal
to the average of the closing bid and asked prices of the Company's common
stock, as reported by Nasdaq, during the ten trading days ending on the trading
day immediately preceding the Merger closing date. Consequently, the exact
number of shares of Company common stock to be issued in the Merger will be
determined on the closing date of the Merger. As an example of the computation,
had the Merger closed on May 17, 1999, the date of the Merger Agreement,
1,293,104 shares of Company common stock would have been issued in the Merger,
based on the average closing bid and asked prices of $1.16 for the ten trading
days preceding May 17, 1999. Based on this illustration, the share issuance
would constitute 29% of the outstanding shares of Company common stock
immediately preceding such issuance. The shares to be issued in the Merger will
not be registered under federal or state securities laws. See "The Merger
Agreement -- Registration Agreement."
VOTE REQUIRED
Although the Delaware General Corporation Law does not require that the
shareholders of the Company approve the Merger, the shares of common stock to be
issued in the Merger are quoted on the Nasdaq Small Cap Market and, under the
rules of Nasdaq, Nasdaq issuers must obtain shareholder approval prior to the
issuance of securities in connection with an acquisition if the number of shares
of common stock to be issued exceeds 20% of the number of shares of common stock
outstanding before the issuance of such stock. Although the exact number of
shares of common stock to be issued in the Merger will not be fixed until the
closing date, based on historical stock prices, it is likely that the Merger
will result in the issuance of more than 20% of the number of shares of common
stock outstanding before such issuance. Therefore, the Company's shareholders
are required to approve the issuance of the Shares by a majority of the votes
cast at the Meeting.
BACKGROUND OF ACQUISITION
In early 1999, the Company's Chief Executive Officer, James Hansen,
commenced discussions with Robin Sheeley, the President and owner of 100% of the
outstanding shares of stock of ACS. Discussions involving a possible acquisition
of ACS by the Company continued until April 26, 1999, when a non-binding letter
of intent was executed. During the next two weeks, the parties and their
respective legal advisors negotiated a definitive acquisition agreement. On May
17, 1999, the Merger Agreement was executed, following approval of the Merger
Agreement by the Company's Board of Directors on May 16, 1999.
RECOMMENDATION OF THE BOARD OF DIRECTORS
THE BOARD OF DIRECTORS OF THE COMPANY HAS UNANIMOUSLY APPROVED THE
MERGER AGREEMENT AND BELIEVES THAT IT IS IN THE BEST INTERESTS OF THE COMPANY
AND THE SHAREHOLDERS. THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT
SHAREHOLDERS APPROVE THE ISSUANCE OF COMMON STOCK OF THE COMPANY IN CONNECTION
WITH THE MERGER.
Prior to reaching this conclusion, the Board of Directors received
presentations from, and reviewed the Merger with, management of the Company. In
evaluating the Merger, the Board of Directors considered a variety of factors,
including the following:
(a) The business, operations, properties, assets, financial conditions
and operating results of the Company and of conditions in the market for the
Company's products, as well as judgments as to the future prospects of the
Company and its industry;
(b) The historical trading prices of the Company's common stock;
(c) The compatibility of the business of the Company and ACS and the
opportunities for increased efficiencies and other benefits resulting from the
acquisition of ACS, including wider distribution of the Company's products and
greater utilization of the Company's manufacturing capabilities; and
3
<PAGE>
(d) The terms of the Merger Agreement, which was the result of
extensive arms' length negotiations.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The acquisition of ACS by the Company in the Merger will have no
federal income tax effect on the current holders of the Company's common stock.
The issuance of the Shares to the sole shareholder of ACS will not result in the
imposition of limitations on the Company's ability to offset future taxable
income with the Company's net operating loss carry forwards.
THE FEDERAL INCOME TAX DISCUSSION SET FORTH ABOVE IS INCLUDED FOR
GENERAL INFORMATION WITH RESPECT TO THE COMPANY AND ITS SHAREHOLDERS ONLY AND
DOES NOT DESCRIBE THE EFFECT OF THE MERGER ON ACS OR ITS SOLE SHAREHOLDER. DUE
TO THE INDIVIDUAL NATURE OF TAX CONSEQUENCES, SHAREHOLDERS ARE URGED TO CONSULT
WITH THEIR TAX ADVISORS AS TO THE SPECIFIC TAX CONSEQUENCES TO THEM OF THE
MERGER, INCLUDING THE EFFECTS OF APPLICABLE STATE, LOCAL OR OTHER TAX LAWS.
ACCOUNTING TREATMENT
The Merger will be accounted for as a purchase, and the surviving
corporation will become a controlled entity in accordance with Generally
Accepted Accounting Principles.
DILUTION
On a pro forma basis, assuming the merger had occurred on December 31,
1998, the Company's net tangible book value per share of common stock would have
been $.59, compared to the historical net tangible book value per share of $1.01
on December 31, 1998, or a decrease of 42% in net tangible book value per share
of common stock. Also, on a pro forma basis, assuming a Merger date of January
1, 1998, the Company would have had net income before cumulative effect of
changes in accounting principles of $.03 per share for the year ended December
31, 1998, compared to the historical loss before cumulative effect of changes in
accounting principles of $.05 per share, or a increase of 160% in income per
share.
NO DISSENTERS' RIGHTS OF APPRAISAL
Under Delaware law, the Company's shareholders will not be entitled to
dissenters' rights of appraisal in connection with the Merger.
4
<PAGE>
REGULATORY APPROVALS
No approvals of governmental or regulatory authorities are required in
order to consummate the Merger.
UNAUDITED PRO FORMA COMBINED FINANCIAL DATA OF VIDEOLABS, INC. WITH
ACOUSTIC COMMUNICATIONS SYSTEMS, INC.
The following unaudited pro forma combined financial data give effect
to the Merger and are based on estimates and assumptions set forth below in the
notes to such data which include pro forma adjustments. These unaudited pro
forma combined financial data have been prepared utilizing the historical
financial statements of the Company and ACS. These unaudited pro forma combined
financial data do not purport to be indicative of the results which actually
would have been obtained if the Merger had been effected on the date or dates
indicated or of those results which may be obtained in the future.
The pro forma combined financial data are based on the purchase method
of accounting for the Merger. The pro forma condensed combined balance sheet
assumes a December 31, 1998 acquisition date. The pro forma combined statement
of operations assumes that the Merger had occurred on January 1, 1998.
Although neither the Company nor ACS has complete current information
as to the fair market values of ACS' individual assets and liabilities, a
preliminary estimate of the allocation of the purchase price was made on the
basis of available information. The actual allocation may be different from that
reflected in the pro forma financial data.
5
<PAGE>
PRO FORMA FINANCIAL INFORMATION
VIDEOLABS, INC.
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET AT DECEMBER 31, 1998
(UNAUDITED)
<TABLE>
<CAPTION>
ACOUSTIC
COMMUNICATION
VIDEOLABS SYSTEMS ADJUSTMENTS PRO FORMA
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 1,514,561 $ -- $ (211,200)(a)(e) $ 1,303,361
Certificates of deposit - restricted 158,000 -- 158,000
Accounts receivable, net of allowance of $30,000 664,172 2,283,674 2,947,846
Other receivables 6,688 53,497 60,185
Inventories 1,616,990 1,048,934 2,665,924
Deferred income taxes 125,000 -- 125,000
Costs and estimated profits in excess of billings -- 359,636 359,636
Prepaid Expenses 50,457 33,003 83,460
------------- ------------- ------------- -------------
TOTAL CURRENT ASSETS 4,135,868 3,778,744 (500,000) 7,703,412
Property and Equipment 1,107,464 486,506 1,593,970
Accumulated depreciation (638,161) (226,324) (864,485)
------------- ------------- ------------- -------------
Net Property and Equipment 469,303 260,182 -- 729,485
Non-compete agreement -- -- 750,000(d) 750,000
Goodwill -- -- 1,638,085(a,b,c) 1,638,085
Other assets 179,340 -- 179,340
------------- ------------- ------------- -------------
TOTAL ASSETS $ 4,784,511 $ 4,038,926 $ 2,176,885 $ 11,003,322
============= ============= ============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Bank Overdraft $ -- $ 74,027 $ 74,027
Accounts Payable - trade 658,089 1,316,536 1,974,625
Non-compete agreement payable -- -- 750,000(d) 750,000
Note Payable - bank -- 512,410 512,410
Note payable - shareholder -- -- 500,000(c) 500,000
Current maturities of long-term debt 22,071 146,613 168,684
Billings in excess of costs and estimated profits -- 163,311 163,311
Advanced billings -- 49,775 49,775
Unearned service contract revenue -- 596,024 596,024
Customer deposits 6,114 -- 6,114
Accrued Compensation and Expenses 28,358 100,615 128,973
Purchase commitments, reserves and other 81,303 -- 81,303
------------- ------------- ------------- -------------
TOTAL CURRENT LIABILITIES 795,935 2,959,311 1,250,000 5,005,246
Long-term debt 24,300 217,700 242,000
------------- ------------- ------------- -------------
TOTAL LIABILITIES 820,235 3,177,011 1,250,000 5,247,246
TOTAL STOCKHOLDERS' EQUITY 3,964,276 861,915 926,885(a,b,c,e) 5,753,076
------------- ------------- ------------- -------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 4,784,511 $ 4,038,926 $ 2,176,885 $ 11,000,322
============= ============= ============= =============
</TABLE>
(a) To reflect the $500,000 consideration paid upon execution of the merger.
(b) To reflect the 1,500,000 shares issued as consideration, and related
goodwill upon execution of the merger.
(c) To reflect a $500,000 note payable to shareholder to be executed
immediately before the merger.
(d) To reflect a $750,000 non-compete agreement entered into upon execution of
the merger.
(e) Adjust $288,800 for estimated reduction in officer compensation.
The merger agreement provides that Acoustic Communication Systems, Inc. may
distribute $500,000 as a dividend to its shareholder immediately prior to the
merger.
6
<PAGE>
PRO FORMA FINANCIAL INFORMATION
VIDEOLABS, INC.
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET AT MARCH 31, 1999
(UNAUDITED)
<TABLE>
<CAPTION>
ACOUSTIC
COMMUNICATION
VIDEOLABS SYSTEMS ADJUSTMENTS PRO FORMA
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 1,536,532 $ -- $ (500,000)(a) $ 1,036,532
Certificates of deposit - restricted 158,000 -- 158,000
Accounts receivable, net of allowance of $36,233 731,771 1,935,539 2,667,310
Other receivables 8,959 -- 8,959
Inventories 1,252,275 940,817 2,193,092
Deferred income taxes 125,000 -- 125,000
Costs and estimated profits in excess of billings -- 381,526 381,526
Prepaid Expenses 36,120 31,968 68,088
------------- ------------- ------------- -------------
TOTAL CURRENT ASSETS 3,848,657 3,289,850 (500,000) 6,638,507
Property and Equipment 1,137,781 486,505 1,624,286
Accumulated depreciation (693,593) (268,324) (961,917)
------------- ------------- ------------- -------------
Net Property and Equipment 444,188 218,181 -- 662,369
Non-compete agreement -- -- 750,000(d) 750,000
Goodwill -- -- 1,776,245(a,b,c) 1,776,245
Other assets 172,198 -- 172,198
------------- ------------- ------------- -------------
TOTAL ASSETS $ 4,465,043 $ 3,508,031 $ 2,026,245 $ 9,999,319
============= ============= ============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Bank overdrafts $ -- $ 89,660 $ 89,660
Accounts payable - trade 216,174 441,399 657,573
Non-compete agreement payable -- -- 750,000(d) 750,000
Note payable - bank -- 800,000 800,000
Note payable - shareholder -- -- 500,000(c) 500,000
Current maturities of long-term debt 22,071 -- 22,071
Billings in excess of costs and estimated profits -- 588,927 588,927
Unearned service contract revenue -- 479,748 479,748
Customer deposits 12,263 -- 12,263
Accrued compensation and expenses 24,816 55,096 79,912
Purchase commitments, reserves and other 127,501 -- 127,501
------------- ------------- ------------- -------------
TOTAL CURRENT LIABILITIES 402,825 2,454,830 1,250,000 4,107,655
Long-term debt 20,112 329,446 349,558
------------- ------------- ------------- -------------
TOTAL LIABILITIES 422,937 2,784,276 1,250,000 4,457,213
TOTAL STOCKHOLDERS' EQUITY 4,042,106 723,755 776,245(a,b,c) 5,542,106
------------- ------------- ------------- -------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 4,465,043 $ 3,508,031 $ 2,026,245 $ 9,999,319
============= ============= ============= =============
</TABLE>
(a) To reflect the $500,000 consideration paid upon execution of the merger.
(b) To reflect the 1,500,000 shares issued as consideration, and
related goodwill upon execution of the merger.
(c) To reflect $500,000 note payable to shareholder to be executed immediately
before the merger.
(d) To reflect a $750,000 non-compete agreement entered into upon execution of
the merger.
The merger agreement provides that Acoustic Communication Systems, Inc. may
distribute $500,000 as a dividend to its shareholder immediately prior to the
merger.
7
<PAGE>
PRO FORMA FINANCIAL INFORMATION
VIDEOLABS, INC.
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1998
(UNAUDITED)
<TABLE>
<CAPTION>
ACOUSTIC
COMMUNICATION
VIDEOLABS SYSTEMS ADJUSTMENTS PRO FORMA
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
SALES $ 6,162,986 $ 8,917,430 $ 15,080,416
------------- ------------- ------------- -------------
OPERATING COSTS AND EXPENSES
Cost of goods sold 3,624,603 6,413,293 10,037,896
General and administrative and selling 2,205,425 2,380,163 (288,800)(b) 4,296,788
Research and development 643,643 -- 643,643
------------- ------------- ------------- -------------
TOTAL OPERATING COSTS AND EXPENSES 6,473,671 8,793,456 (288,800) 14,978,327
OPERATING EARNINGS (LOSS) (310,685) 123,974 288,800 102,089
OTHER INCOME (EXPENSE)
Interest Income 94,004 1,758 95,762
Interest Expense (4,417) (55,704) (60,121)
Gain of (loss) on sale of assets -- -- --
------------- ------------- ------------- -------------
TOTAL OTHER INCOME (EXPENSE) 89,587 (53,946) -- 35,641
EARNINGS (LOSS) BEFORE TAXES (221,098) 70,028 288,800 137,730
Income Tax (Benefit) (25,000) -- (c) (25,000)
------------- ------------- ------------- -------------
NET EARNINGS (LOSS) $ (196,098) $ 70,028 $ 288,800 $ 162,730
============= ============= ============= =============
Average shares outstanding 4,008,682 1,655,629(a) 5,664,311
EARNINGS (LOSS) PER SHARE - FULLY DILUTED $ (0.05) $ (0.03)
</TABLE>
(a) To reflect the 1,655,629 shares issued as consideration upon execution of
the merger at a market price of $.906 at 12/31/98.
(b) Adjust for estimated reduction in officer compensation of $288,800.
(c) Company has net tax loss carry forwards.
8
<PAGE>
VIDEOLABS, INC.
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE PERIOD ENDED MARCH 31, 1999
(UNAUDITED)
<TABLE>
<CAPTION>
ACOUSTIC
COMMUNICATION
VIDEOLABS SYSTEMS ADJUSTMENTS PRO FORMA
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
SALES $ 1,855,865 $ 1,560,517 $ 3,416,382
------------- ------------- ------------- -------------
OPERATING COSTS AND EXPENSES
Cost of goods sold 1,152,322 923,123 2,075,445
General and administrative and selling 647,612 752,154 1,399,766
Research and development -- -- --
------------- ------------- ------------- -------------
TOTAL OPERATING COSTS AND EXPENSES 1,799,934 1,675,277 -- 3,475,211
OPERATING EARNINGS (LOSS) 55,931 (114,760) -- (58,829)
OTHER INCOME (EXPENSE)
Interest Income 17,039 -- 17,039
Interest Expense (781) (21,399) (22,180)
Gain of (loss) on sale of assets 94 -- 94
------------- ------------- ------------- -------------
TOTAL OTHER INCOME (EXPENSE) 16,352 (21,399) -- (5,047)
EARNINGS (LOSS) BEFORE TAXES 72,283 (136,159) -- (63,876)
Income Tax (Benefit) -- -- --
------------- ------------- ------------- -------------
NET EARNINGS (LOSS) $ 72,283 $ (136,159) $ -- $ (63,876)
============= ============= ============= =============
Average shares outstanding 4,505,562 1,500,000(a) 6,005,562
EARNINGS (LOSS) PER SHARE - FULLY DILUTED $ 0.02 $ (0.01)
</TABLE>
(a) To reflect the 1,500,000 in shares issued as consideration upon execution
of the merger at a market price of $1.00 at 03/31/99.
9
<PAGE>
BUSINESS OF ACS
Acoustic Communication Systems, Inc. ("ACS") is a Minnesota
corporation, which was incorporated in 1986. ACS is a private company that is
owned by Robin Sheeley, a Minnesota resident. ACS is located at 13705 26th
Avenue North, Suite 110, Plymouth, Minnesota 55441 with offices in Omaha,
Nebraska and Des Moines, Iowa and a manufacturing facility in Maple Grove,
Minnesota.
ACS specializes in the custom design, installation and ongoing support
of multimedia systems including video, audio and data communications. ACS is a
single source provider for the equipment, custom furniture and services required
to meet the communication requirements of their customers.
Since 1990, a steadily growing portion of ACS multimedia technology has
been focused on videoconferencing. ACS is an authorized reseller of
PictureTel(R), Intel(R) and Polycom(R) videoconferencing systems. Utilizing
advanced technology, these systems, whether across town or across the world,
enable users to engage in face-to-face communication and to exchange information
with the relative affordability and convenience of using a telephone. ACS's
total solutions meet customers' videoconferencing needs from the desktop to the
boardroom. The company provides complete videoconferencing solutions to
customers in a wide variety of industries including distance learning, health
care, manufacturing and financial services. In addition to the videoconferencing
system, ACS also provides a wide variety of routing, bridging, network
management tools, inverse multiplexers for high bandwidth calls, and peripheral
equipment to ensure a smooth video meeting. ACS offers design and engineering
services along with project management and training to provide a complete video
solution to customers. ACS has installed video communication systems with a wide
variety of customers including Ceridian, Caterpillar, The St. Paul Companies,
Norwest Venture Capital and Toro Company.
ACS designs and manufactures custom furniture for specific
applications, including credenzas, pedestals, multimedia carts, document carts
and meeting room tables. All furniture is designed in a variety of shapes and
sizes to help create an optimum environment for meetings. The multimedia and
document carts are portable providing mobility and flexibility to move the
system from room to room.
ACS also offers its equipment and furniture on the Internet with its
on-line catalog store, www.meetingroomtools.com. The on-line catalog store
provides easy access to the finest quality supplies, furniture and equipment
needed to complete a meeting room, boardroom or training center.
10
<PAGE>
THE MERGER AGREEMENT
The following is a summary of the material provisions of the Merger
Agreement, a copy of which is attached hereto as Appendix B and is incorporated
herein by this reference. The Merger Agreement was amended on May 25, 1999. All
references to the Merger Agreement are to the Agreement as amended. The
following summary is qualified by reference to the complete text of the Merger
Agreement, including the Amendment.
THE MERGER
Pursuant to the Merger Agreement and on the terms and subject to the
conditions set forth in the Merger Agreement, ACS will be merged with and into
Acquisition Co., with Acquisition Co. as the surviving corporation in the
Merger. As a result of the Merger, ACS will become a subsidiary of the Company.
Subject to the conditions set forth in the Merger Agreement, the
closing of the Merger (the "Closing") will take place on the date (the "Closing
Date") to be specified by the parties, which shall be no later than the first
business day after satisfaction or waiver of the conditions to the Closing
described under "Conditions to Consummation of the Merger" below. The Effective
Time will be the date and the time specified in the certificate of merger filed
with the Secretary of State of the State of Delaware.
CONVERSION OF COMMON STOCK
At the effective Time of the Merger, pursuant to the Merger Agreement,
each issued and outstanding share of common stock will be converted into the
right to receive the Merger Consideration. All such shares of common stock, when
so converted, will no longer be outstanding and will automatically be canceled
and retired and will cease to exist, and each holder of a certificate that,
immediately prior to the Effective Time, represented outstanding shares of ACS
common stock will cease to have any rights with respect thereto, except the
right to receive, upon the surrender of such certificate which represented
shares of ACS common stock, the Merger Consideration to which such holder is
entitled pursuant to the Merger Agreement.
The Merger Consideration will equal the sum of (a) $500,000 cash, (b)
$500,000 note to shareholder, and (c) a number of shares of the Company's common
stock which equals $1,500,000 in value based on the price per share equal to the
average of the closing bid and asked prices of the Company's common stock as
reported by Nasdaq during the ten trading days immediately preceding the Closing
Date.
REPRESENTATIONS AND WARRANTIES
The Merger Agreement contains customary representations by both ACS and
the Company as to, among other things, (a) due organization, good standing and
absence of
11
<PAGE>
violations of constituent documents, (b) ownership of subsidiaries and other
investments, (c) capital structure, (d) requisite corporate power and authority
to enter into the Merger Agreement and to consummate the transactions
contemplated by the Merger Agreement, (e) the absence of conflicts caused by the
Merger Agreement or the transactions contemplated by the Merger Agreement, (f)
required filings and approvals, (g) the absence of certain material events, (h)
litigation matters, (i) brokers' fees.
The Merger Agreement also contains representations and warranties by
ACS as to (a) real property (both owned and leased), (b) intellectual property,
(c) material contracts, (d) insurance, (e) compliance with laws, (f) employee
benefits and other employee matters, (g) tax matters and (h) environmental
matters.
CERTAIN COVENANTS
CONDUCT OF THE BUSINESS OF ACS. ACS covenanted and agreed that, except
as expressly permitted or contemplated by the Merger Agreement, unless the
Company shall otherwise agree in writing prior to the taking of any action
otherwise prohibited as set forth below, ACS will conduct its operations and
business in the ordinary and usual course of business and consistent with past
practice and use reasonable efforts to preserve intact its business organization
and preserve business relationships. Except as otherwise expressly permitted by
the Merger Agreement, prior to the Effective Time, without the prior written
consent of the Company, ACS will not: (a) do or omit to do any act or thing
which would cause any of the representations and warranties of ACS to be untrue
at the Closing Date; (b) make or authorize any material capital expenditures;
(c) enter into any material contract outside the ordinary course of business or
amend or terminate any material contract to which it is a party or exercise any
renewal, expansion or other options relating thereto, other than in the ordinary
course of business; (d) dispose, or agree or commit to dispose, of any material
assets out of the ordinary course of business; (e) make any material change in
federal, state or local tax elections, or accounting methods, principles or
practices, unless required by law or by changes in GAAP; (f) merge or
consolidate with any person, acquire any stock or other ownership interest in
any person or the assets of any business as an entirety, or liquidate, dissolve
or otherwise reorganize or seek protection from creditors; (g) adopt, amend,
modify, spin-off, transfer or assume any of the assets or liabilities of,
terminate or partially terminate, any benefit plan; or (h) amend, or permit the
amendment of the articles of incorporation, by-laws or other organizational
documents, make any changes in capital structure, or issue or sell, or purchase,
or agree to issue, sell or purchase, any capital stock or securities of ACS, or
declare or pay any dividend or other distribution.
12
<PAGE>
ACCESS TO INFORMATION: CONFIDENTIALITY. Subject to applicable law, from
the date of the Merger Agreement to the Effective Time, ACS agreed to afford the
officers, employees, auditors and agents full and complete access to the books,
records and business premises and properties of ACS and furnish to the Company
all such information concerning ACS and its business and affairs as the Company
may reasonably request.
13
<PAGE>
ACQUISITION PROPOSALS. ACS agreed not to initiate or solicit, directly
or indirectly, any inquiries or the making of any proposal with respect to a
merger, consolidation or similar transaction involving, or any purchase of all
or any significant portion of the assets of, any equity interest in, ACS or any
of its subsidiaries (an "Acquisition Proposal") or, engage in any negotiations
concerning, or provide any confidential information or data to, or have any
discussions with, any person relating to, an Acquisition Proposal, or otherwise
facilitate any effort or attempt to make or implement an Acquisition Proposal.
FURTHER ACTION, REASONABLE EFFORTS. Each of the parties to the Merger
Agreement agreed to use commercially reasonable efforts (a) to take, or cause to
be taken, all appropriate action, and to do, or cause to be done, all things
necessary or advisable to consummate and make effective the transactions
contemplated by the Merger Agreement, and (b) do all such acts and take all such
measures as may be commercially reasonable to comply with the representations,
warranties, covenants and agreements contained in the Merger Agreement.
PUBLIC ANNOUNCEMENTS. Each party to the Merger Agreement agreed to
consult with each other before issuing any press release or otherwise making any
public statements with respect to the Merger Agreement or any of the
transactions contemplated thereby, and to not issue any such press release or
make any such public announcement without the prior consent of the other parties
to the Merger Agreement.
NOTIFICATION OF CERTAIN MATTERS. the Company agreed to give prompt
notice to ACS, and ACS agreed to give prompt notice to the Company, of the
occurrence or nonoccurrence of any event the occurrence or nonoccurrence of
which could result in any representation or warranty contained in the Merger
Agreement to be untrue or any covenant, condition or agreement contained in the
Merger Agreement not to be complied with or satisfied.
STOCKHOLDER MEETING. The Company agreed to call a meeting of its
stockholders to be held as promptly as practicable for the purpose of
considering and voting upon the issuance of shares of Company common stock in
connection with the Merger. The Company Board
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<PAGE>
agreed that it would, unless otherwise required in accordance with their
fiduciary duties to the stockholders of the Company, recommend that the
stockholders of the Company approve the Proposal.
CONDITIONS TO CONSUMMATION OF THE MERGER
The obligation of ACS to consummate the Merger is subject to certain
conditions, unless waived by ACS, including the following: (a) the
representations and warranties of the Company shall be true, correct and
complete in all material respects at and as of the Closing Date (and any
representation or warranty that is qualified as to materiality shall be deemed
to be without such qualification for purposes of the foregoing); (b) the Company
shall have performed and complied with all of its covenants in all material
respects through the Closing; (c) no action, suit, or proceeding shall be
pending before any court or quasi-judicial or administrative agency of any
federal, state, local, or foreign jurisdiction or before any arbitrator wherein
an unfavorable injunction, judgment, order, decree, ruling, or charge would (i)
prevent consummation of any of the transactions contemplated by the Merger
Agreement; (ii) cause any of the transactions contemplated by the Merger
Agreement to be rescinded following consummation; or (iii) affect adversely the
right of the Seller to own the Company's shares, (and no such injunction,
judgment, order, decree, ruling, or charge shall be in effect); (d) the Company
shall have delivered a Certificate to the effect that each of the conditions
specified above in (a)-(c) is satisfied; (e) there shall have been delivered to
ACS an opinion of counsel to the Company; (f) Acquisition Co. shall have
executed and delivered to ACS the Certificate of Merger and the Articles of
Merger; (g) the Company shall have executed and delivered the Employment
Agreement and the Noncompetition Agreement; and (h) the Company shall have
executed and delivered the Registration Agreement.
15
<PAGE>
The obligations of the Company and Acquisition Co. to consummate the
Merger are subject to certain conditions, unless waived by the Company and
Acquisition Co., including the following: (a) the representations and warranties
of ACS in the Merger Agreement shall be true, correct and complete in all
material respects at and as of the Closing Date (and any representation or
warranty that is qualified as to materiality shall be deemed to be without such
qualification for purposes of the foregoing); (b) ACS shall have performed and
complied with all of its covenants in all material respects through the Closing;
(c) ACS shall have procured all of the third party authorizations, approvals and
consents referred to in the Merger Agreement; (d) no action, suit, or proceeding
shall be pending or threatened before any court or quasi-judicial or
administrative agency of any federal, state, local, or foreign jurisdiction or
before any arbitrator wherein an unfavorable injunction, judgment, order,
decree, ruling, or charge would (i) prevent consummation of any of the
transactions contemplated by the Merger Agreement; (ii) cause any of the
transactions contemplated by the Merger Agreement to be rescinded following
consummation; (iii) affect adversely the right of the Company to own stock in
Acquisition Co. and to control ACS; or (iv) materially and adversely affect the
right of ACS to own its assets and to operate its businesses (and no such
injunction, judgment, order, decree, ruling, or charge shall be in effect); (e)
ACS shall have delivered to the Company a Seller's Certificate to the effect
that each of the conditions specified in (a)-(d) above is satisfied; (f)
shareholders of the Company shall have approved by the requisite majority vote
the issuance of the Buyer's common stock; (g) ACS shall have delivered to the
Company the resignations of all directors and officers of ACS, all to be
effective as of the Closing; (h) there shall have been delivered to the Company
an opinion of counsel to ACS, dated the Closing Date; (i) ACS shall deliver to
the Buyer all stock record books, minute books and corporate seals, if any, of
ACS; (j) ACS shall have executed and delivered to the Company the Articles of
Merger; (k) the sole shareholder of ACS shall have executed and delivered to the
Company the Employment Agreement and Noncompetition Agreement; and (l) there
shall have been no material damage, dilution, diminution, or destruction to any
of the ACS's assets, properties or businesses, or any material adverse change
affecting the assets, properties, business or condition, financial or otherwise,
of the ACS.
Although the conditions to the consummation of the Merger set forth
above may, subject to certain statutory requirements, be waived, the parties to
the Merger Agreement are not aware, as of the date of this Proxy Statement, of
any conditions that will not be satisfied as of the Closing.
TERMINATION OF THE MERGER AGREEMENT
The Merger Agreement may be terminated and abandoned at any time prior
to the Effective Time, whether before or after approval of the Merger Proposal,
by the mutual written consent of the Company and ACS. The Merger Agreement may
also be terminated and abandoned at any time prior to the Effective Time,
whether before or after approval of the Merger Proposal, by the Company or ACS,
if the Effective Time shall not have occurred on or before September 1, 1999. In
the event of a termination of the Merger Agreement by either party for any
reason, and if prior to December 31, 1999 either party agrees to consummate a
transaction similar to the Merger with a third party, then the party terminating
the Merger Agreement shall pay to the other party a breakup fee of $100,000.
16
<PAGE>
INDEMNIFICATION
In the event that any of the representations or warranties of ACS or
Seller shall be untrue or incorrect at the Closing (without regard to any
"materiality" or "Material Adverse Effect" exception contained therein), or in
the event of a breach of any covenants of ACS or Seller, or in the event the
"Equity Deficiency" determined from the pre-closing balance sheet is determined
to have been understated, then the Seller agrees to indemnify, defend and hold
harmless the Company, together with the Surviving Corporation, and their
respective officers, directors, employees, successors and assigns (collectively,
the "Buyer Indemnified Parties") from and against the entirety of any judgments,
actions, suits, proceedings, investigations, claims, demands, costs, losses,
liabilities, fines, penalties, damages and expenses (including interest which
may be imposed in connection therewith and court costs and reasonable fees and
disbursements of counsel) (collectively, "Adverse Consequences") any of the
Buyer Indemnified Parties may suffer through and after the date of the claim for
indemnification resulting from, arising out of, relating to, in the nature of,
or caused by such failure of such representation and warranty to be true and
correct or by such breach or understatement.
In the event that any of the representations or warranties of the
Company shall be untrue or incorrect at the Closing (without regard to any
"materiality" or "Material Adverse Effect" exception contained therein), or in
the event of a breach of any of the covenants of the Company, then the Company
agrees to indemnify and hold harmless the Seller, and his heirs, legal
representatives, successors or permitted assigns (collectively, the "Seller
Indemnified Parties") from and against the entirety of any Adverse Consequences
any of the Seller Indemnified Parties may suffer through and after the date of
the claim for indemnification resulting from, arising out of, relating to, in
the nature of, or caused by such failure of such representation and warranty to
be true and correct or by such breach.
17
<PAGE>
REGISTRATION AGREEMENT
As a condition to closing the Merger, the Company and the sole
shareholder of ACS, Robin Sheeley ("Seller") will enter into a Registration
Agreement. The shares of Company common stock to be issued to Seller in the
Merger will not be registered under the Securities Act of 1933 (the "Act") and
will therefore constitute restricted securities. Under the Registration
Agreement, the Seller has the right to include the shares of the Company common
stock received by him in the Merger in a registration statement filed by the
Company under the "Act" in the future. These "piggyback" registration rights
apply only if the Company is independently preparing to file a registration
statement. The Seller cannot demand that the Company file a registration
statement. In connection with a "piggyback" registration, the Seller must pay
his proportionate share of registration expenses based on the total number of
shares registered, and is also responsible for the fees and expenses of his own
legal counsel.
EMPLOYMENT AGREEMENT; NONCOMPETITION AGREEMENT
As a condition to closing the Merger, the Company and the Seller will
enter into the Employment Agreement, providing for service by Seller as the
Chief Technical Officer of the Company for a three year term at a base salary of
$10,833 per month. Seller will be granted options to purchase 30,000 shares of
the Company's common stock vesting ratably over a three year period.
Seller also will enter into a Noncompetition Agreement with the Company
at the Merger Closing which precludes Seller from competing with the Company for
a twelve year period commencing on the date of the Merger anywhere within Iowa,
Minnesota, Nebraska, North Dakota, South Dakota or Wisconsin. As consideration
for the Noncompetition Agreement, the Company has agreed to pay the Seller
$750,000 in cash on April 7, 2000. Seller may defer such payment, at his
discretion, for up to 12 successive one-year periods, in which event the
outstanding balance shall accrue interest at the Company's short term cost of
borrowing.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents of the Company which have been filed with the
Securities and Exchange Commission are hereby incorporated by reference in this
Proxy Statement:
(a) the Annual Report on Form 10-KSB for the year ended December 31,
1998 which was previously mailed to shareholders in connection
with the Meeting; and
(b) the Quarterly Report on Form 10-QSB for the quarter ended
March 31, 1999;
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<PAGE>
PROPOSAL TWO
ELECTION OF DIRECTORS
NOMINEES
The Company's Board of Directors currently has four (4) members. Three
directors are to be elected at the Annual Meeting. Mr. Ward Johnson has chosen
not to seek re-election as Director of the Company. Unless otherwise instructed,
the Proxy Holders will vote the Proxies received by them for the three nominees
named below. In the event that any nominee is unable or declines to serve as a
Director at the time of the Annual Meeting, the Proxies shall be voted for any
nominee who shall be designated by the current Board of Directors to fill the
vacancy. In the event that additional persons are nominated for election as
Directors, the Proxy holders intend to vote all Proxies received by them in such
a manner as will ensure the election of the nominees listed below. The term of
office of each person elected as a Director will continue until the next Annual
Meeting of the Shareholders and until his successor has been duly elected and
qualified. It is not expected that any nominee will be unable or will decline to
serve as a Director.
The following named persons have been nominated for election to the
Company's Board of Directors:
Name of Nominee Age Positions Held With The Company
--------------- --- -------------------------------
Richard F. Craven 55 Director of the Company.
John A. Collins 58 Director of the Company.
James W. Hansen 44 President, Treasurer and CEO
Chairman of the Board
The Board of Directors recommends a vote FOR each nominee.
Richard F. Craven has been a Director of the Company since 1992. He
holds a bachelor of science degree in business from the University of Minnesota.
Mr. Craven has been in the real estate and insurance business since 1965,
managing, owning and developing several business ventures. Mr. Craven is also a
Director of RSI, Inc.
John A. Collins has been a Director of the Company since 1992. He holds
a bachelors degree in liberal arts from Regis College in Denver, Colorado. From
1962 to 1981 Mr. Collins held various sales and sales management positions. In
1983, Mr. Collins founded Amcom Software, Inc. and is its President and Chief
Executive Officer.
James W. Hansen has been President, CEO, and Treasurer of the Company
since November 1996 and Chairman of the Board of Directors since May 29, 1997.
Mr. Hansen holds bachelor degrees in Physiology and Physics Education from the
University of Minnesota and an MBA in Finance from the University of St. Thomas.
From 1979 - 1983 Mr. Hansen was a teacher and management consultant. From 1983 -
1986 he was a Vice President of the Apache Corporation, a NYSE traded oil and
gas exploration company. From 1986 - 1992 he was a Senior Vice President and
General Manager of the pension division of Washington Square Capital, a
Reliastar Company, a NYSE traded financial services company. Since 1992 Mr.
Hansen has served as an investor, Director, President or Vice President of
several private companies in medical services and technology. He serves as a
Director of Medtox Scientific (AMEX) and UBIQ, Inc. and has taught in the MBA
program at the University of St. Thomas since 1984.
OTHER OFFICERS AND SIGNIFICANT EMPLOYEES
Jill R. Larson, age 32, has been Secretary of the Company since
February 1994, and has been the Business Manager of the Company since its
inception in July 1992 and was promoted to Vice President of Administration in
November 1996. Ms. Larson holds an associate of applied science degree in
business from Northland Community College and is currently enrolled in the
Business Management undergraduate program at Bethel College. From 1988 through
1992 she was Business Manager for Foundation Publishing which developed a
desktop publishing application and distributed other Macintosh software
applications.
There is no family relationship between any directors or officers of
the Company.
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<PAGE>
BOARD MEETINGS AND COMMITTEES
James W. Hansen serves as Chairman of the Board of Directors of the
Company. The Board of Directors held a total of five (5) meetings during the
fiscal year ended December 31, 1998. Mr. Johnson attended fewer than
seventy-five (75%) percent of all such meetings of the Board of Directors and of
the committees, if any, upon which such Director served.
The Audit Committee consists of Messrs. Collins and Craven. The
principal functions of the Audit Committee are to recommend engagement of the
Company's independent public accountants, to consult with the accountants
concerning the scope of the audit, to review with them the results of their
examination, to review and approve any major accounting policy changes affecting
the Company and to review the Company's financial control procedures and
personnel. The Audit Committee held two (2) meetings during fiscal year 1998.
The Compensation Committee currently consists of Messrs. Collins and
Craven. The Compensation Committee held two (2) meetings during fiscal year
1998. The function of the Compensation Committee is to make salary, bonus and
compensation recommendations to the Board of Directors of the Company. The Board
of Directors of the Company has developed a compensation philosophy for all
employees. It is the Company's policy to have most employees serve as employees
at will with no employment contracts and to set base salaries at the midpoint of
a range determined by independent surveys for that position if the incumbent
fully meets the experience and skills necessary for success in that position.
Additional financial compensation is based on performance related to success
factors set by the Company's Board of Directors annually. In 1997 a profit
sharing plan was adopted by the Company's Board of Directors whereas an award
could be made to employees if the Company meets certain pretax return goals. No
payments are made under the plan until shareholders attain a 6% pretax operating
ROE. The plan then begins awarding increasing amounts based on pretax operating
ROE to a pool shared with all employees as shareholder returns increase. In 1998
an Employee Stock Purchase Plan was adopted by the Company's Board of Directors
whereas full-time employees are eligible to purchase shares of common stock on a
quarterly basis at the lesser of 85% of the fair market value on the beginning
or ending dates of the period.
Executives also participate in an additional plan based on annual
objectives of the Company similar to the profit sharing plan with amounts
ranging up to 50% of base compensation. Participants can be awarded qualified
employee stock options to recognize long term contributions to the Company. The
total pool of qualified options is limited to 10% of the Company's outstanding
securities.
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EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following table sets forth the compensation awarded to, earned by,
or paid for all services rendered to the Company by the Company's Chief
Executive Officer and the other most highly compensated executive officers whose
total compensation exceeded $100,000 at the fiscal year end, for services to the
Company in all capacities during the three fiscal years ended December 31, 1998.
Summary Compensation Table
<TABLE>
<CAPTION>
Annual Compensation Long Term Compensation Awards
------------------- -----------------------------
Other Restricted Options/SARs
Name and Principal Fiscal Annual Stock No. of
Position Year Salary Bonus Compensation Awards Shares
- ------------------ ------ ------ ----- ------------ ---------- ------------
<S> <C> <C> <C> <C> <C> <C>
James Hansen 1998 $84,000(1) $0 $0 0 30,000(4)
President, Chairman, 1997 $85,462(1) $40,019(3) $0 0 50,000(5)
Chief Executive Officer 1996 $20,000(2) 0 $0 0 150,000(6)
& Treasurer
</TABLE>
(1) Includes compensation received as part of a consulting agreement see
"Employment Contracts and Compensatory Arrangements" and compensation
received as part of an employment agreement dated June 1, 1997 see also
"Employment Contracts and Compensatory Arrangements".
(2) Includes compensation received as part of a consulting agreement see
"Employment Contracts and Compensatory Arrangements" for the interim
period of November 1, 1996 to December 31, 1996.
(3) Includes a management bonus of $35,000 paid to The Hansen Company
(company wholly owned by Mr. Hansen) and an employee profit sharing
bonus of $5,019. Both earned for 1997, but not paid until January 1998.
(4) Includes qualified employee stock options granted that are vested and
exercisable over three years.
(5) Includes qualified stock options granted that were 100% vested and
exercisable on the date of the grant.
(6) Includes non-qualified stock options granted that were 100% vested and
exercisable on the date of the grant.
INDIVIDUAL OPTIONS
The following table sets forth certain information with respect to
individual options granted during 1998 by the Company's Chief Executive Officer
and the other most highly compensated executive officers whose total
compensation exceeded $100,000 at the fiscal year end.
Individual Option Grants
<TABLE>
<CAPTION>
Number % of Total
Options Options Granted
Name Granted to Employees(1) Exercise Price Expiration Date
---- ------- --------------- -------------- ---------------
<S> <C> <C> <C> <C>
James Hansen 30,000(2) 30% $1.50 January 28, 2008
</TABLE>
(1) During fiscal year 1998, options to acquire an aggregate of 99,500
shares of Common Stock were granted to employees.
(2) Includes qualified employee stock options granted that are vested over
three years from the date of grant.
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<PAGE>
AGGREGATE OPTIONS EXERCISED AND HOLDINGS
The following table sets forth certain information with respect to
aggregate options exercised during 1998 and options held at the end of such year
by the Company's Chief Executive Officer and the other most highly compensated
executive officers whose total compensation exceeded $100,000 at the fiscal year
end.
Aggregated Option Exercises in Last Fiscal Year and Fiscal
Year End Option Values
<TABLE>
<CAPTION>
Value of Unexercised
Number of Unexercised In-The-Money Options
Shares Options at Fiscal Year End at December 31, 1998 (1)
Acquired on Value -------------------------- --------------------------
Name Exercise Realized Exercisable Unexercisable Exercisable Unexercisable
---- ----------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
James Hansen 0 0 200,000 30,000 $14,400 $0
</TABLE>
(1) Based on the December 31, 1998, closing bid price of the Company's
Common Stock of $0.906 per share.
COMPENSATION OF DIRECTORS
On June 3, 1994, the Company's Board of Directors authorized payment to
non-employee Directors of $50.00 per meeting. On May 29, 1997 the Company's
Board of Directors authorized an increase in payments to non-employee Directors
to $250.00 per meeting effective June 1, 1997 and an annual grant of 2,000
non-qualified options pursuant the Company's Nonqualified Stock Option Plan.
EMPLOYMENT CONTRACTS AND COMPENSATORY ARRANGEMENTS
In November of 1996 the Company entered into an agreement with The
Hansen Company and James W. Hansen its principal, to provide executive
leadership to the Company and to develop a strategic plan to optimize
shareholder value. The agreement called for a minimum three month commitment
ending February 15, 1997 and extended monthly thereafter at the mutual agreement
of both parties. James Hansen received 150,000 non-qualified options at an
exercise price of $0.8125 as an inducement to provide services to the Company
and The Hansen Company received a retainer of $8,000 per month for services of a
minimum of 24 hours per week as well as reimbursement of normal business
expenses. Mr. Hansen continued under this consulting agreement after the minimum
three month commitment until June 1, 1997. On June 1, 1997 the company entered
into a three year employment agreement with Mr. Hansen. The agreement calls for
a minimum monthly base salary of $5,000 as well as reimbursement of normal
business expenses. Mr. Hansen received 50,000 qualified employee stock options
at an exercise price of $1.00 per the employment agreement. The consulting
agreement between the Company and The Hansen Company has been terminated and a
consulting provision has been included in Mr. Hansen's employment agreement to
allow for consulting services and assistance as required by the Company for a
monthly retainer of $2,000 payable to The Hansen Company. Mr. Hansen was elected
Chairman of the Board of Directors at the annual meeting dated May 29, 1997.
In November of 1996 the Company entered into an agreement with Mr. Ward
Johnson, its founder and President, to retire from active management and as an
employee of the Company but to continue to provide advice and to serve as the
Chairman until the annual meeting. The agreement calls for a decreasing monthly
retainer over 17 months totaling $101,000. These payments may be offset by net
revenues earned by Mr. Johnson in his development activities of certain projects
abandoned by the Company, but continuing to be pursued by Mr. Johnson and new
investors.
At the sole discretion of the Company Mr. Johnson may receive an
additional payment from the Company if certain projects under his direction
become viable products for the Company and the Company retains a right of first
refusal on any related technologies developed by Mr. Johnson during the term of
his retainer.
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<PAGE>
CERTAIN TRANSACTIONS
SALE OF REAL ESTATE IN ROTTERDAM
In 1994 the Company purchased a condominium in Rotterdam, The
Netherlands for $137,579, for use by Company sales representatives. From
September, 1994 through November 15, 1996, this condominium was occupied by Greg
Craven, a former sales representative of the Company who is also the adult son
of Richard F. Craven, a Director of the Company. Greg Craven is no longer
employed by the Company and the condominium was sold in April 1997.
NON QUALIFIED OPTIONS GRANTED
In May 1997 the Company granted on a one-time basis non qualified
options to purchase 20,000 shares of Common Stock to non-employee members of the
Board of Directors, Mr. Craven and Mr. Collins at an exercise price of $1.00
expiring on May 29, 2007. In May 1998 the Company granted on a one-time basis
non qualified options to purchase 2,000 shares of Common Stock to non-employee
members of the Board of Directors, Mr. Johnson, Mr. Craven and Mr. Collins at an
exercise price of $1.19 expiring on May 20, 2008.
WARRANT ADJUSTMENT
The Company had outstanding warrants to purchase an aggregate of
481,764 shares of Company common stock that were originally issued at exercise
prices of $1.50, $2.50, $2.65 and $2.80 per share. Such warrants contained
provisions for the adjustment of the purchase price and the number of shares
purchasable under the warrant in the event the Company subsequently issued
certain securities. As part of a settlement with a former employee, the Company
issued options to purchase common stock at an exercise price of $.6875 per
share. On April 28, 1997, the Company notified the holders of the adjustable
warrants that as a result of the issuance of the options, the purchase price for
shares of Company common stock under their warrants had adjusted down to $.6875
per share, and the number of shares of Company common stock purchasable under
their warrants proportionately increased, pursuant to the terms of their
respective warrants. Other outstanding warrants, issued at exercise prices of
$3.50 and $4.20 per share did not adjust. As a result of the adjustments, as of
April 28, 1997 the aggregate number of shares of Company common stock
purchasable under the adjusted warrants increased from 481,764 to 1,842,894, and
the aggregate number of shares of Company common stock purchasable under all
warrants outstanding increased from 819,264 to 2,180,394. Of the total adjusted
warrants, 404,137 were beneficially owned by Mr. Craven, Mr. Collins and Mr.
Johnson, members of the Board of Directors of the Company. Mr. Johnson, Mr.
Collins and Mr. Craven have exercised all 404,137 warrants that were
beneficially owned by the directors.
RELATED PARTIES
Mr. Collins and Mr. Johnson, Directors of the Company, have adult sons
employed at the Company. Mr. Collin's adult son, Sean Collins is the Company's
Director of Sales and Mr. Johnson's adult son, Christian Johnson is the
Company's Internet and PC Division's Business Development Coordinator.
Mr. Johnson, a Director of the Company, is the Director of a current
supplier of the Company, Production Technologies. The Company has used
Production Technologies services to stuff circuit boards with components. Net
purchases by the Company from Production Technologies totaled approximately
$234,000 and $130,000 during fiscal year 1998 and 1997 respectively.
During 1998, the Company purchased 86,231 shares of the Company's
common stock in a private transaction from Mr. Johnson, a director of the
Company. The shares were purchased as part of the Company's Board of Directors
authorization to buy back up to 1,200,000 shares of the Company's common stock.
The shares were retired after purchase.
COMPLIANCE OF OFFICERS AND DIRECTORS WITH SECTION 16(a) OF THE EXCHANGE ACT
Section 16(a) of the Securities Exchange Act of 1934 requires the
Company's Directors and executive officers, and persons who own more than ten
percent (10%) of a registered class of the Company's equity securities, to file
reports of ownership on Form 3 and changes in ownership on Form 4 or 5 with the
Securities and Exchange Commission (the "SEC") and the National Association of
Security Dealers, Inc. Such officers, directors and ten percent (10%)
shareholders are also required by SEC rules to furnish the Company with copies
of all section 16(a) forms that they file.
23
<PAGE>
Based solely on its review of copies of such reports received or
written representations from certain reporting persons, the Company believes
that, during the fiscal year ended December 31, 1998, all Section 16(a) filing
requirements applicable to its officers, directors and ten percent (10%)
shareholders were complied with.
OTHER MATTERS
The Company knows of no other matters to be submitted at the Meeting.
If any other matters properly come before the Meeting, it is the intention of
the persons named in the enclosed Proxy to vote the shares they represent
according to their best judgment.
It is important that your shares be represented at the Meeting,
regardless of the number of shares which you hold. You are, therefore, urged to
execute and return the accompanying Proxy in the envelope which has been
enclosed, at your earliest convenience.
THE BOARD OF DIRECTORS
Dated: June __, 1999
24
<PAGE>
APPENDIX A
ACOUSTIC COMMUNICATION SYSTEMS, INC.
FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997
<PAGE>
TABLE OF CONTENTS
INDEPENDENT AUDITORS' REPORT 1
FINANCIAL STATEMENTS
Balance sheets 2
Statements of income and retained earnings 4
Statements of cash flows 5
Notes to financial statements 6
<PAGE>
[LOGO]
Baune CERTIFIED PUBLIC ACCOUNTANTS
Dosen BUSINESS AND PERSONAL CONSULTANTS
& Co
601 CARLSON PARKWAY, SUITE 150
MINNETONKA, MN 55305
(612) 473-2002 FAX (612) 473-2766
A PROFESSIONAL LIMITED
LIABILITY PARTNERSHIP
INDEPENDENT AUDITORS' REPORT
Board of Directors and Stockholder
Acoustic Communication Systems, Inc.
Plymouth, Minnesota
We have audited the accompanying balance sheets of Acoustic Communication
Systems, Inc. as of December 31, 1998 and 1997, and the related statements of
income and retained earnings, and cash flows for the years then ended. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Acoustic Communication Systems,
Inc. as of December 31, 1998 and 1997, and the results of its operations and its
cash flows for the years then ended in conformity with generally accepted
accounting principles.
/s/ Baune, Dosen & Co., P.L.L.P.
March 2, 1999
Minneapolis, Minnesota
[LOGO] ACPA
INTERNATIONAL
MEMBER OF ACPA INTERNATIONAL
WITH AFFILIATED OFFICES WORLDWIDE
<PAGE>
FINANCIAL STATEMENTS
ACOUSTIC COMMUNICATION SYSTEMS, INC.
BALANCE SHEETS
DECEMBER 31, 1998 AND 1997
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash $ 213,638
Accounts receivable - trade (net of allowance for
uncollectible accounts of $7,138 and $9,000) $ 2,283,674 1,064,919
Unbilled receivables 53,497 39,666
Inventory 1,048,934 1,194,999
Costs and estimated profits in excess of billings 359,636 48,160
Prepaid expenses and other assets 33,003 47,205
------------ ------------
Total current assets 3,778,744 2,608,587
PROPERTY AND EQUIPMENT
Furniture and equipment 467,264 404,428
Automobiles 19,242 19,242
Less accumulated depreciation (226,324) (149,408)
------------ ------------
Net property and equipment 260,182 274,262
------------ ------------
TOTAL ASSETS $ 4,038,926 $ 2,882,849
============ ============
</TABLE>
See accompanying notes.
-2-
<PAGE>
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
LIABILITIES AND STOCKHOLDER'S EQUITY
CURRENT LIABILITIES
Checks written in excess of cash in bank $ 74,027
Accounts payable 1,316,536 $ 714,599
Note payable - bank 512,410
Current maturities of notes payable 139,000 105,000
Current maturities of capital lease obligations 7,613 41,000
Billings in excess of costs and estimated profits 163,311 244,514
Advanced billings 49,775
Unearned service contract revenue 596,024 432,906
Accrued expenses 100,615 92,714
------------ ------------
Total current liabilities 2,959,311 1,630,733
LONG-TERM LIABILITIES
Notes payable 217,700 137,215
Capital lease obligations 3,214
------------ ------------
Total long-term liabilities 217,700 140,429
------------ ------------
Total liabilities 3,177,011 1,771,162
STOCKHOLDER'S EQUITY
Common stock - $1 par value, 2,000,000
shares authorized, 2,000 shares issued and outstanding 2,000 2,000
Retained earnings 859,915 1,109,687
------------ ------------
Total stockholder's equity 861,915 1,111,687
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY $ 4,038,926 $ 2,882,849
============ ============
</TABLE>
-3-
<PAGE>
ACOUSTIC COMMUNICATION SYSTEMS, INC.
STATEMENTS OF INCOME AND RETAINED EARNINGS
YEARS ENDED DECEMBER 31, 1998 AND 1997
<TABLE>
<CAPTION>
1998 % 1997 %
---- --- ---- ---
<S> <C> <C> <C> <C>
SALES $ 8,917,430 100.0 $ 10,913,117 100.0
COST OF SALES 6,413,293 71.9 8,035,364 73.6
------------ -------- ------------ --------
Gross profit 2,504,137 28.1 2,877,753 26.4
GENERAL, ADMINISTRATIVE, AND SELLING EXPENSES 2,380,163 26.7 2,144,984 19.7
------------ -------- ------------ --------
Operating income 123,974 1.4 732,769 6.7
OTHER (INCOME) EXPENSE
Interest expense 55,704 .6 55,613 .5
Interest income (1,758) (8,746) (.1)
------------ -------- ------------ --------
Total other expense 53,946 .6 46,867 .4
------------ -------- ------------ --------
Net income $ 70,028 .8 $ 685,902 6.3
============ ======== ============ ========
RETAINED EARNINGS
Beginning balance $ 1,109,687 $ 423,785
Stockholder's distribution (319,800)
Net income 70,028 685,902
------------ ------------
Ending balance 859,915 $ 1,109,687
============ ============
</TABLE>
See accompanying notes.
-4-
<PAGE>
ACOUSTIC COMMUNICATION SYSTEMS, INC.
STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1998 AND 1997
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 70,028 $ 685,902
Adjustments to reconcile net income to net cash flows
from operating activities:
Depreciation 76,495 56,139
(Increase) decrease in assets:
Accounts receivable (1,218,755) (58,242)
Inventory 146,065 1,110,329
Prepaid expenses 14,202 (17,356)
Unbilled receivables (13,831) (39,666)
Costs and estimated profits in excess of billings (311,476) 162,861
Increase (decrease) in liabilities:
Checks written in excess of cash in bank 74,027 (78,787)
Accounts payable 601,937 (1,829,611)
Billings in excess of costs and estimated profits (81,203) 80,241
Advanced billings 49,775
Unearned service contract revenue 163,118 263,384
Accrued expenses 7,901 72,054
------------ ------------
Net cash flows from operating activities (421,717) 407,248
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property and equipment (62,415) (130,899)
------------ ------------
Net cash flows from investing activities (62,415) (130,899)
CASH FLOWS FROM FINANCING ACTIVITIES
Net short-term borrowings 512,410 (50,000)
Proceeds from long-term debt 700,000 100,000
Payments on long-term debt (585,515) (105,888)
Payments on capital lease obligations (36,601) (6,823)
Stockholder's distribution (319,800)
------------ ------------
Net cash flows from financing activities 270,494 (62,711)
Net increase (decrease) in cash (213,638) 213,638
CASH AT BEGINNING OF YEAR 213,638 0
------------ ------------
CASH AT END OF YEAR $ 0 $ 213,638
============ ============
</TABLE>
See accompanying notes.
-5-
<PAGE>
ACOUSTIC COMMUNICATION SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 1 BUSINESS OPERATIONS
Acoustic Communication Systems, Inc., is a Minneapolis-based provider of
electronic multimedia systems to a wide variety of business and nonprofit
organizations. The Company supplies videoconferencing, voice, video and data
integration systems and multi-purpose electronic meeting rooms to its clients
nationwide.
NOTE 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
INVENTORY
Inventory is valued at the lower of cost (first-in, first-out) or market. The
components of inventory consist of:
1998 1997
---- ----
Materials and equipment $ 819,805 $ 935,244
Demo-room equipment 229,129 259,755
----------- -----------
Total $ 1,048,934 $ 1,194,999
=========== ===========
DEPRECIATION
Furniture and equipment are recorded at cost and are being depreciated over the
useful lives of the assets using accelerated and straight-line methods of
depreciation.
INCOME TAXES
The Company has elected to be treated as an S corporation under the Internal
Revenue Code and, therefore, no provision for income taxes has been provided for
in the financial statements. The Company's shareholder will report the taxable
income or loss in his individual income tax return.
REVENUE RECOGNITION
Short term contracts and contracts with no labor are recognized under the
accrual basis of accounting.
Revenue from long-term fixed price and modified fixed price contracts is
recognized on the percentage-of-completion method, measured by the percentage of
contract costs incurred to date to estimated total cost for each contract. This
method is used because management considers expended contract cost to be the
best available measure of progress on these contracts. Revenue from
cost-plus-fee contracts is recognized on the basis of costs incurred during the
period plus the fee earned, measured by the cost-to-cost method.
-6-
<PAGE>
ACOUSTIC COMMUNICATION SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS
Contract costs include all direct material and labor costs and those indirect
costs related to contract performance, such as indirect labor, supplies, tools,
and repairs. Selling, general and administrative costs are charged to expense as
incurred. Provisions for estimated losses on uncompleted contracts are made in
the period in which such losses are determined. Changes in job performance, job
conditions, and estimated profitability, including those arising from contract
penalty provisions, and final contract settlements may result in revisions to
costs and income and are recognized in the period in which the revisions are
determined. Profit incentives are included in revenue when their realization is
reasonably assured. An amount equal to contract costs attributable to claims is
included in revenue when realization is probable and the amount can be reliably
estimated.
The asset, "Costs and estimated profits in excess of billings," represents
revenues recognized in excess of amounts billed. The liability, "Billings in
excess of costs and estimated profits," represents billings in excess of
revenues recognized.
Amounts billed for service contracts are recognized as sales over the term of
the contract.
USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosures of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
NOTE 3 SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
1998 1997
---- ----
Cash paid for interest $ 55,704 $ 55,613
NOTE 4 CONTRACTS IN PROCESS
A summary of contracts follows: 1998 1997
---- ----
Expenditures on contracts $ 1,128,175 $ 556,769
Estimated contract profit thereon 480,424 217,041
----------- -----------
1,608,599 773,810
Less billings applicable thereto 1,412,274 970,164
----------- -----------
$ 196,325 $ (196,354)
=========== ===========
-7-
<PAGE>
ACOUSTIC COMMUNICATION SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS
These amounts are included in the accompanying balance sheet as follows:
Costs and estimated profits in excess of billings $ 359,636 $ 48,160
Billings in excess of costs and estimated profits 163,311 244,514
---------- ----------
$ 196,325 $ (196,354)
========== ==========
NOTE 5 NOTE PAYABLE - BANK
The Company has a financing agreement which expires September 1, 1999 with its
primary lender that grants the Company a line of credit up to $800,000 based
upon a collateral formula. The loan is collateralized by trade accounts
receivable, raw material inventory, furniture and equipment, general
intangibles, and the assignment of life insurance on the Company's stockholder.
The loan is payable upon demand with interest at .50% over the prime lending
rate (prime rate was 7.75% at December 31, 1998). Loans under the agreement are
guaranteed by the Company's stockholder.
The amount outstanding on the line of credit was $512,410 and $0 at December 31,
1998 and 1997.
NOTE 6 LONG-TERM DEBT
1998 1997
---- ----
Note payable - bank, term loan. Interest is computed at
9%. This note matures May, 2001, with payments of
$13,753 due monthly. $356,700
Note payable - bank, SBA term loan. Interest is computed
at 2.25% over the bank's prime rate. Payments of $2,714
were due monthly until it was paid in full during 1998. $ 64,033
Note payable - bank, term loan. Interest is computed at
10.5%. Payments of $1,208 were due monthly until it
matured during 1998. 1,200
Note payable - bank, term loan. Interest is computed at
10.25%. Payments of $4,543 were due monthly until it was
paid in full during 1998. 71,542
Note payable - bank, term loan. Interest is computed at
8.25%. Payments of $369 were due monthly until it was paid
in full during 1998. 10,249
Note payable - bank, term loan. Interest is computed at
9.75%. Payments of $3,221 were due monthly until it
was paid in full during 1998. 95,191
-------- --------
Total 356,700 242,215
Less current maturity 139,000 105,000
-------- --------
Long-term debt $217,700 $137,215
======== ========
-8-
<PAGE>
ACOUSTIC COMMUNICATION SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS
All notes are cross collateralized and secured by (a) inventory, accounts
receivable, equipment, and general intangibles of the Company; (b) the
assignment of life insurance on the Company's stockholder; and (c) a personal
guarantee from the Company's stockholder.
Maturities of the principal portion of long-term debt consist of the following
at December 31, 1998:
1999 $ 139,000
2000 151,579
2001 66,121
----------
Total due $ 356,700
==========
NOTE 7 CAPITAL LEASE OBLIGATIONS
Certain long-term lease transactions for financing equipment are accounted for
as installment purchases of property and inventory. Obligations under capital
leases are capitalized using the present value of future lease payments
discounted at the marginal interest rate of the Company. Amortization of these
assets using the Company's normal depreciation policy is included in
depreciation expense.
The capitalized cost of $19,466 at December 31, 1998 and 1997, less accumulated
depreciation of $16,871 and $12,978 at December 31, 1998 and 1997, respectively,
has been recorded in the accompanying financial statements as furniture and
equipment. In addition, $50,121 is capitalized as inventory and will be expensed
when sold.
Future minimum lease payments consist of the following at December 31, 1998:
1999 $ 8,518
-----------
Total minimum lease payments 8,518
Less amount representing interest 905
-----------
Present value of future minimum lease payments 7,613
Less current maturities 7,613
-----------
Long-term portion of capital lease obligations $ 0
===========
NOTE 8 OPERATING LEASE
The Company leases its facilities under four separate lease agreements, the
terms of which are summarized below:
Lease Monthly
Location Expiration date Payment
-------- --------------- -------
Plymouth, MN January 31, 2002 $ 7,189
Maple Grove, MN September 30, 2002 925
Des Moines, IA July 31, 2001 728
Omaha, NE month to month 480
-9-
<PAGE>
ACOUSTIC COMMUNICATION SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS
Each lease also requires reimbursement for certain operating and common area
expenses and real estate taxes. Rent expense including reimbursements, totaled
$175,769 and $116,964 during 1998 and 1997.
Minimum lease payments committed to under the above leases are as follows:
Year ending December 31:
1999 $106,104
2000 106,104
2001 102,464
2002 15,514
NOTE 9 401(k) PROFIT SHARING PLAN
The Company has a salary reduction profit sharing plan under the provisions of
Section 401(k) of the Internal Revenue Code. The plan covers employees who work
at least 1,000 hours per year and have completed one full year of service with
the Company. Contributions to the plan by the Company equal 25% of the salary
reduction elected by each employee up to a maximum reduction of 6% of annual
salary. The Company, at its option, may contribute additional amounts to the
plan. Company contributions totaled $16,374 and $9,539 for 1998 and 1997,
respectively.
NOTE 10 CONCENTRATIONS OF CREDIT RISK
The Company supplies and installs electronic multimedia systems to customers,
mainly in the Midwest. The Company grants credit for products provided and is
generally secured by lien rights on the property. The Company's ability to
collect amounts due from customers may be affected by economic fluctuations in
the industry or geographic area.
The Company maintains its cash balances in bank deposit accounts which, at
times, may exceed federally insured limits. The Company has not experienced any
losses in such accounts. The Company believes it is not exposed to any
significant credit risks. At December 31, 1998 the Company had deposits, based
on bank balances, of $183,761 in excess of federally insured limits.
The Company currently buys the majority of its CODEC and IMUX systems inventory
from four suppliers. Although there are a limited number of manufacturers of
these systems, management believes a change in suppliers would not adversely
affect the operating results of the Company.
-10-
<PAGE>
ACOUSTIC COMMUNICATION SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 11 COMMITMENTS AND CONTINGENCIES
Certain equipment and materials are purchased from suppliers who may have
security interests in the purchased goods.
In the normal course of business, the Company may, from time to time, be
involved in various legal proceedings which are generally incidental to their
business. Management believes, based on discussions with counsel, that
liabilities, if any, resulting from such proceedings would not have a material
effect on these financial statements.
The Company provides a one to three year service contract on its systems.
Revenue from service contracts is deferred and recognized in income on a
straight-line basis over the contract period. Costs associated with these
contracts are expensed as incurred.
-11-
<PAGE>
ACOUSTIC COMMUNICATION SYSTEMS
BALANCE SHEET
MARCH 31, 1999
(unaudited)
ASSETS
CURRENT ASSETS
- --------------
CASH $ (89,645)
CASH - PAYROLL (15)
CASH - SAVINGS 0
PETTY CASH 0
ACCOUNTS RECEIVABLE 1,945,077
ALLOWANCE FOR DOUBTFUL ACCTS (9,538)
CO-OP RECEIVABLES 0
INVENTORY 695,509
CABLE INVENTORY 0
SLOW MOVING INVENTORY 0
DEMO ROOM EQUIPMENT 245,308
COSTS INXS OF BILLINGS 381,526
PREPAID INSURANCE 11,882
PREPAID EXPENSES 10,880
EMPLOYEE ADVANCE 2,708
DEPOSITS 6,498
DUE (TO) FROM SHAREHOLDER 0
-----------
TOTAL CURRENT ASSETS $ 3,200,190
-----------
FIXED ASSETS
- ------------
FURNITURE & EQUIPMENT $ 386,308
LEASED EQUIPMENT 30,710
SHOP & TEST EQUIPMENT 42,643
LEASEHOLD IMPROVEMENTS 7,602
AUTOMOBILES 19,242
A/D - FIXED ASSETS (268,324)
-----------
TOTAL FIXED ASSETS (NET) $ 218,181
-----------
TOTAL ASSETS $ 3,418,371
===========
-12-
<PAGE>
ACOUSTIC COMMUNICATION SYSTEMS
BALANCE SHEET
MARCH 31, 1999
(unaudited)
LIABILITIES & EQUITY
LIABILITIES
- -----------
ACCOUNTS PAYABLE $ 441,399
ACCRUED LTD/LIFE (1,200)
BILLINGS INXS OF C & P 588,927
ADVANCED BILLINGS 0
LINE OF CREDIT 800,000
TAG - LINE OF CREDIT 0
CURRENT PORTION - LTD 0
UNEARNED MAINTENANCE AGREEMENT 479,748
EST. LIABIL1TY FOR MAINTENANCE 0
ACCRUED WAGES 0
ACCRUED GARNISHMENTS 673
FLEX BENEFITS ACCOUNT 0
ACCRUED LTD/LIFE 0
ACCRUED VACATION/SICK 0
ACCRUED FICA/FED W/H 0
ACCRUED STATE W/H 0
ACCRUED UNEMPLOYMENT 0
ACCRUED 401(k) CONTRIBUTION 0
SALES TAX - MINNESOTA 5,852
SALES TAX - IOWA 6,551
SALES TAX - NEBRASKA (976)
SALES TAX - WISCONSIN 190
SALES TAX - SOUTH DAKOTA 13,876
SALES TAX - NORTH DAKOTA (914)
ACCRUED EXPENSES 31,044
-----------
TOTAL CURRENT LIABILITIES $ 2,365,170
-----------
LONG TERM LIABILITIES
- ---------------------
BANK NOTE PAYABLE $ 323,237
SBA NOTE PAYABLE 0
BANK NOTE PAYABLE 0
BANK NOTE PAYABLE 0
E250 VAN NOTE PAYABLE 0
EL CAMINO LEASE PAYABLE 4,243
CAPITAL LEASE OBLIGATIONS 1,966
CURRENT PORTION - LTD 0
-----------
TOTAL LONG TERM LIAB. $ 329,446
-----------
TOTAL LIABILITIES $ 2,694,616
-----------
EQUITY
EQUITY
- ------
COMMON STOCK $ 2,000
RETAINED EARNINGS 859,914
DISTRIBUTIONS (2,000)
Current Net Income (136,159)
-----------
TOTAL EQUITY $ 723,755
-----------
TOTAL LIAB. & EQUITY $ 3,418,371
===========
-13-
<PAGE>
ACOUSTIC COMMUNICATION SYSTEMS
CONSOLIDATED INCOME STATEMENT
FOR THE PERIOD ENDED MARCH 31, 1999
(unaudited)
<TABLE>
<CAPTION>
<S> <C>
Sales $ 1,560,517
Cost Of Sales $ 923,123
------------
Total Costs 923,123
------------
Gross Margin $ 637,394
------------
Operating Expenses
Indirect Operating Expenses 85,805
Sales Expenses 352,321
G&A Expenses 314,028
------------
Total Operating Expenses 752,154
------------
Net Income Before Other Income $ (114,760)
------------
Other Income (Expenses)
INTEREST EXPENSE $ (21,399)
SUSPENSE 0
------------
Total Other Income (Expenses) (21,399)
------------
Net Income (Loss) $ (136,159)
============
</TABLE>
-14-
<PAGE>
ACOUSTIC COMMUNICATION SYSTEMS
BALANCE SHEET
MARCH 31, 1998
(unaudited)
ASSETS
CURRENT ASSETS
- --------------
CASH $ 13,556
CASH - PAYROLL (16)
CASH - SAVINGS 47,406
PETTY CASH (1)
ACCOUNTS RECEIVABLE 1,038,392
ALLOWANCE FOR DOUBTFUL ACCTS (10,500)
CO-OP RECEIVABLES 2,532
INVENTORY 795,899
CABLE INVENTORY 11,807
SLOW MOVING INVENTORY 0
DEMO ROOM EQUIPMENT 263,112
COSTS INXS OF BILLINGS 150,754
PREPAID INSURANCE 11,379
PREPAID EXPENSES 52,768
EMPLOYEE ADVANCE 4,449
DEPOSITS 7,197
DUE (TO) FROM SHAREHOLDER 0
-----------
TOTAL CURRENT ASSETS $ 2,388,734
-----------
FIXED ASSETS
- ------------
FURNITURE & EQUIPMENT $ 359,548
LEASED EQUIPMENT 30,710
SHOP & TEST EQUIPMENT 25,495
LEASEHOLD IMPROVEMENTS 7,603
AUTOMOBILES 19,241
A/D - FIXED ASSETS (172,658)
-----------
TOTAL FIXED ASSETS (NET) $ 269,939
-----------
TOTAL ASSETS $ 2,658,673
===========
-15-
<PAGE>
ACOUSTIC COMMUNICATION SYSTEMS
BALANCE SHEET
MARCH 31, 1998
(unaudited)
LIABILITIES & EQUITY
LIABILITIES
- -----------
ACCOUNTS PAYABLE $ 641,309
ACCRUED LTD/LIFE 23
BILLINGS INXS OF C & P 256,137
LINE OF CREDIT 130,950
TAG - LINE OF CREDIT 0
CURRENT PORTION - LTD 0
UNEARNED MAINTENANCE AGREEMENT 338,634
EST. LIABILITY FOR MAINTENANCE 36,478
ACCRUED WAGES 0
ACCRUED GARNISHMENTS 187
FLEX BENEFITS ACCOUNT 2,640
ACCRUED LTD/LIFE 0
ACCRUED VACATION/SICK 0
ACCRUED FICA/FED W/H 0
ACCRUED STATE W/H 0
ACCRUED UNEMPLOYMENT (651)
ACCRUED 401(k) CONTRIBUTION 187
ACCRUED SALES TAX 1,364
ACCRUED EXPENSES 0
-----------
CURRENT LIABILITIES $ 1,407,258
-----------
LONG TERM LIABILITIES
- ---------------------
BANK NOTE PAYABLE 0
SBA NOTE PAYABLE 59,282
BANK NOTE PAYABLE 87,791
BANK NOTE PAYABLE 59,651
E250 VAN NOTE PAYABLE 9,348
EL CAMINO LEASE PAYABLE 35,307
CAPITAL LEASE OBLIGATIONS 6,750
CURRENT PORTION - LTD 0
-----------
TOTAL LONG TERM LIAB. $ 258,129
-----------
TOTAL LIABILITIES $ 1,665,387
-----------
EQUITY
EQUITY
- ---------
COMMON STOCK 2,000
RETAINED EARNINGS 1,109,684
DISTRIBUTIONS 0
Current Net Income (118,398)
-----------
TOTAL EQUITY $ 993,286
-----------
TOTAL LIAB. & EQUITY
$ 2,658,673
===========
-16-
<PAGE>
ACOUSTIC COMMUNICATION SYSTEMS
CONSOLIDATED INCOME STATEMENT
FOR THE PERIOD ENDED MARCH 31, 1998
(unaudited)
<TABLE>
<CAPTION>
<S> <C>
SALES $ 1,374,272
COST OF SALES $ 875,685
------------
Total Costs 875,685
------------
GROSS MARGIN $ 498,587
------------
OPERATING EXPENSES
Selling Expenses $ 289,125
G & A Expenses 316,858
------------
TOTAL OPERATING EXPENSES $ 605,983
------------
NET INCOME BEFORE OTHER INCOME $ (107,396)
------------
OTHER INCOME (EXPENSES)
INTEREST EXPENSE $ (12,680)
INTEREST INCOME 1,679
------------
TOTAL OTHER INCOME (EXPENSES) (11,001)
------------
NET INCOME (LOSS) $ (118,397)
============
</TABLE>
-17-
<PAGE>
APPENDIX B
AGREEMENT AND
PLAN OF MERGER
OF
ACOUSTIC COMMUNICATION SYSTEMS, INC.
A CORPORATION OWNED BY ROBERT SHEELEY
INTO
VL ACQUISITION CO.
A CORPORATION OWNED BY VIDEOLABS, INC.
DATED: MAY 17, 1999
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
ARTICLE 1 THE MERGER.................................................................................. 1
1.1 The Merger.................................................................................. 1
1.2 Effective Time; Effect of the Merger........................................................ 1
1.3 Articles of Incorporation; Bylaws........................................................... 2
1.4 Directors and Officers...................................................................... 2
1.5 Conversion of Securities.................................................................... 2
1.6 Stock Transfer Records...................................................................... 3
1.7 Merger Consideration........................................................................ 3
1.8 Required Net Equity......................................................................... 3
1.9 Surrender of Certificates................................................................... 4
ARTICLE 2 THE CLOSING................................................................................. 4
2.1 Time and Place of the Closing............................................................... 4
2.2 Deliveries by the Seller.................................................................... 5
2.3 Deliveries by the Buyer..................................................................... 5
ARTICLE 3 REPRESENTATIONS AND WARRANTIES CONCERNING THE
SELLER...................................................................................... 6
3.1 Capacity of the Seller...................................................................... 6
3.2 Enforceability.............................................................................. 6
3.3 Noncontravention............................................................................ 6
3.4 Brokers' Fees............................................................................... 7
3.5 Shares...................................................................................... 7
3.6 Investment Intent........................................................................... 7
ARTICLE 4 REPRESENTATIONS AND WARRANTIES CONCERNING THE
COMPANY..................................................................................... 7
4.1 Organization, Qualification, and Authorization.............................................. 8
4.2 Capitalization; Investments................................................................. 8
4.3 Noncontravention............................................................................ 9
4.4 Brokers' Fees............................................................................... 9
4.5 Title to Assets............................................................................. 9
4.6 Financial Statements........................................................................ 9
4.7 Subsequent Events........................................................................... 10
4.8. Legal Compliance............................................................................ 12
4.9 Tax Matters................................................................................. 12
4.10 Real Property............................................................................... 12
4.11 Intellectual Property....................................................................... 13
4.12 Tangible Assets............................................................................. 14
4.13 Contracts................................................................................... 14
4.14 Notes and Accounts Receivable............................................................... 15
</TABLE>
i
<PAGE>
<TABLE>
<S> <C> <C>
4.15 Powers of Attorney.......................................................................... 15
4.16 Litigation.................................................................................. 15
4.17 Employees................................................................................... 15
4.18 Employee Benefit Plans...................................................................... 15
4.19 Guaranties and Warranties................................................................... 18
4.20 Permits..................................................................................... 18
4.21 Environmental Compliance.................................................................... 18
4.22 Customers................................................................................... 19
4.23 Insurance................................................................................... 19
4.24 Transactions with Affiliates................................................................ 19
4.25 No Undisclosed Liabilities.................................................................. 19
4.26 Interest in Similar Businesses.............................................................. 19
4.27 Year 2000 Compliance........................................................................ 19
4.28 Disclosure.................................................................................. 20
ARTICLE 5 REPRESENTATIONS AND WARRANTIES CONCERNING THE
BUYER....................................................................................... 20
5.1 Organization, Qualification, and Authorization.............................................. 20
5.2 Capitalization.............................................................................. 20
5.3 Authorization and Enforceability............................................................ 21
5.4 Noncontravention............................................................................ 21
5.5 Brokers' Fees............................................................................... 21
5.6 Reports and Financial Statements............................................................ 21
ARTICLE 6 COVENANTS................................................................................... 22
6.1 General..................................................................................... 22
6.2 Transition.................................................................................. 23
6.3 Confidentiality............................................................................. 23
6.4 Conduct of Business......................................................................... 23
6.5 Reasonable Efforts.......................................................................... 24
6.6 Exclusive Dealing........................................................................... 24
6.7 Access to Records........................................................................... 24
6.8 Notice of Events............................................................................ 25
6.9 Shareholder Approval........................................................................ 25
6.10 Dissolution of Components................................................................... 25
6.11 Tax Matters................................................................................. 25
ARTICLE 7 CONDITIONS TO OBLIGATION TO CLOSE........................................................... 26
7.1 Conditions to Obligation of the Buyer....................................................... 26
7.2 Conditions to Obligation of the Seller...................................................... 27
ARTICLE 8 TERMINATION................................................................................. 28
8.1 Termination Rights.......................................................................... 28
8.2 Effect of Termination....................................................................... 28
</TABLE>
ii
<PAGE>
<TABLE>
<S> <C> <C>
ARTICLE 9 REMEDIES.................................................................................... 29
9.1 Survival of Representations, Warranties and Covenants....................................... 29
9.2 Indemnification Provisions for benefit of the Buyer......................................... 29
9.3 Indemnification Provisions for Benefit of the Seller........................................ 29
9.4 Matters Involving Third Parties............................................................. 29
9.5 Other Indemnification Limitations........................................................... 30
9.6 Indemnification Holdback Escrow............................................................. 31
9.7 Dispute Resolution.......................................................................... 31
ARTICLE 10 GENERAL PROVISIONS.......................................................................... 32
10.1 Press Releases and Public Announcements..................................................... 32
10.2 No Third-Party Beneficiaries................................................................ 32
10.3 Entire Agreement............................................................................ 32
10.4 Succession and Assignment................................................................... 32
10.5 Counterparts and Facsimile Delivery......................................................... 32
10.6 Headings.................................................................................... 32
10.7 Notices..................................................................................... 32
10.8 Governing Law............................................................................... 34
10.9 Amendments and Waivers...................................................................... 34
10.10 Severability................................................................................ 34
10.11 Expenses.................................................................................... 34
10.12 Construction................................................................................ 34
</TABLE>
iii
<PAGE>
AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER ("Agreement") is made and
entered into effective as of this 17th day of May, 1999, by and among
VideoLabs, Inc., a Delaware corporation (the "Buyer"), VL Acquisition Co., a
Delaware corporation formed by Buyer ("Merger Subsidiary"), Robin Sheeley, a
resident of Minnesota (the "Seller"), and Acoustic Communication Systems, Inc.,
a Minnesota corporation (the "Company"). All of the parties to this Agreement
are sometimes individually referred to as a "Party" and collectively as the
"Parties".
WHEREAS, the Company is in the business of providing equipment,
software or services that meet the data, voice or video communications
requirements of customers in Minnesota, Iowa, Nebraska, North Dakota, South
Dakota and Wisconsin (the "Business"); and
WHEREAS, the Seller owns one hundred percent (100%) of the issued and
outstanding shares of stock of the Company; and
WHEREAS, the Parties desire to enter into this Agreement pursuant to
which the Company will merge with and into the Merger Subsidiary and the Company
shall become a wholly owned subsidiary of the Buyer all upon the terms and
conditions set forth in this Agreement.
NOW, THEREFORE, in consideration of the premises and the mutual
covenants, conditions, representations and warranties set forth in this
Agreement, and for other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties hereto agree as
follows:
ARTICLE 1
THE MERGER
1.1 THE MERGER. Upon and subject to the terms and conditions of this
Agreement, and in accordance with the corporate laws of the States of Delaware
and Minnesota ("Corporate Law"), at the Effective Time (as hereinafter defined),
the Company shall be merged with and into the Merger Subsidiary (the "Merger").
As a result of the Merger, the separate corporate existence of the Company shall
cease and the Merger Subsidiary shall continue after the Merger as the surviving
corporation (the "Surviving Corporation").
1.2 EFFECTIVE TIME; EFFECT OF THE MERGER. The Merger shall become
effective immediately upon the filing of the Certificate of Merger (as defined
in Section 2.3(d) hereof) with the Secretary of State of the State of Delaware
in accordance with Corporate Law or such later effective time as the Parties may
agree to specify in the Certificate of Merger (the "Effective Time"). At the
Effective Time, the effect of the Merger shall be as provided in the applicable
provisions of Corporate Law. Without limiting the generality of the foregoing,
and subject thereto, at the Effective Time all the property, rights, privileges,
powers and
<PAGE>
franchises of the Company and Merger Subsidiary shall vest in the Surviving
Corporation, and all debts, liabilities, obligations, restrictions, disabilities
and duties of each of the Company and Merger Subsidiary shall become the debts,
liabilities, obligations, restrictions, disabilities and duties of the Surviving
Corporation.
1.3 ARTICLES OF INCORPORATION; BYLAWS.
(a) At the Effective Time, the Articles of Incorporation of
Merger Subsidiary, as in effect immediately prior to the Effective
Time, shall be the Articles of Incorporation of the Surviving
Corporation until thereafter amended as provided by law and such
Articles of Incorporation; provided, however, that, at the Effective
Time, Article 1 of the Articles of Incorporation of the Surviving
Corporation shall be amended to read as follows: "The name of the
corporation is Acoustic Communication Systems, Inc."
(b) At the Effective Time, the Bylaws of Merger Subsidiary,
as in effect immediately prior to the Effective Time, shall be the
Bylaws of the Surviving Corporation until thereafter amended as
provided by law, the Articles of Incorporation of the Surviving
Corporation or such Bylaws.
1.4 DIRECTORS AND OFFICERS. The directors of Merger Subsidiary
immediately prior to the Effective Time shall be the initial directors of the
Surviving Corporation, each to hold office in accordance with the Articles of
Incorporation and Bylaws of the Surviving Corporation, and the officers of the
Company immediately prior to the Effective Time shall be the initial officers of
the Surviving Corporation, in each case until their respective successors are
duly elected or appointed and qualified.
1.5 CONVERSION OF SECURITIES. At the Effective Time, by virtue of the
Merger and without any action on the part of Buyer, Merger Subsidiary, the
Company, the Seller or the holders of any of the following securities:
(a) Each share of Common Stock of Merger Subsidiary issued
and outstanding immediately prior to the Effective Time shall not be
affected and shall remain as a validly issued, fully paid and
nonassessable share of Common Stock of the Surviving Corporation.
(b) Each share of Company stock issued and outstanding
immediately prior to the Effective Time (all such issued and
outstanding stock of the Company being hereinafter referred to
collectively as the "Converted Shares" and individually as a "Converted
Share") shall be canceled and shall be converted automatically into the
right to receive a portion of the Merger Consideration, which shall be
payable to the holder of such Converted Share upon surrender of the
certificate that formerly evidenced such Converted Share in the manner
provided in Section 1.9.
2
<PAGE>
(c) Each share of Company stock held in the treasury of the
Company immediately prior to the Effective Time shall be cancelled and
extinguished without any conversion thereof and no payment shall be
made with respect thereto.
(d) Each share of common stock held in the treasury of
Merger Subsidiary immediately prior to the Effective Time shall be
cancelled and extinguished without any conversion thereof and no
payment shall be made with respect thereto.
(e) From and after the Effective Time, the holders of
certificates representing shares of Company stock outstanding
immediately prior to the Effective Time shall cease to have any rights
with respect to such shares except as otherwise provided herein or by
Corporate Law.
1.6 STOCK TRANSFER RECORDS. The Parties acknowledge and agree that the
Company shall establish the date of this Agreement as the record date (the
"Record Date") and shall close the stock transfer books of the Company as of
such date. Between the Record Date and the Effective Time, there shall be no
further registration of transfers of Company Stock on the records of the
Company. The holders of Converted Shares registered on the stock records as of
the Record Date (which is the Seller) shall be the holders entitled to receive
the Merger Consideration under this Agreement.
1.7 MERGER CONSIDERATION. Subject to reduction as hereinafter provided,
the aggregate consideration payable for all Converted Shares (collectively, the
"Merger Consideration") shall be equal to the sum of the following:
(a) an amount of cash equal to One Million Dollars
($1,000,000); PLUS
(b) delivery of that number of shares of fully paid,
nonassessable, common stock, par value $.01 per share, of the Buyer
("the "Buyer's Stock"), which equals, in the aggregate, $1,500,000,
based on a price per share equal to the average of the closing bid and
asked prices of the Buyer's common stock as reported on the National
Association of Securities Dealers Automated Quotation ("NASDAQ") System
Small Cap Market, during the ten trading days ending on the trading day
immediately preceding the Closing Date.
1.8 REQUIRED NET EQUITY.
(a) The Seller acknowledges that the Merger Consideration
has been determined assuming a net equity level of the Company as of
the Closing Date at least equal to the Company's net equity level as of
December 31, 1998 (the "Minimum Equity Level") as reflected on the
audited Financial Statements (as hereafter defined). Not less than two
(2) business days prior to the Closing Date, Seller shall deliver to
Buyer a balance sheet of the Company, dated as of the Closing Date (the
"Pre-Closing Balance Sheet"), prepared in accordance with GAAP (as
hereafter defined), consistently applied, projecting the net equity of
the Company as of the Closing Date.
3
<PAGE>
The Pre-Closing Balance Sheet shall be certified by the Seller to be
true, correct and complete in all respects to the best of Seller's
knowledge and belief, and shall be accompanied by sufficient detail to
enable the Buyer to verify the account balances. During such two (2)
day period, the Buyer shall have the opportunity (but shall not be
required) to audit or otherwise verify the information on the
Pre-Closing Balance Sheet, and the same shall be adjusted for any
errors therein determined by the Buyer.
(b) In the event the net equity reflected on the Pre-Closing
Balance Sheet is less than the Minimum Equity Level as of the Closing
Date (an "Equity Deficiency"), the cash portion of the Merger
Consideration shall be reduced, dollar-for-dollar, by the amount of the
Equity Deficiency. In the event the net equity reflected on the Pre-
Closing Balance Sheet is more than the Minimum Equity Level as of the
Closing Date (an "Equity Surplus"), the Merger Consideration will not
be increased.
(c) During the nine (9) months following the Closing Date,
the Buyer may audit and otherwise verify the accuracy of the
Pre-Closing Balance Sheet. Any errors (failure to be in accordance with
GAAP) in the Pre-Closing Balance Sheet determined by Buyer shall be
reconciled between the Parties pursuant to the provisions of Article 9.
After such nine (9) month period, neither party may seek
indemnification for additional errors under Article 9.
(d) As security for the repayment of any additional Equity
Deficiency, Buyer shall be able to offset the deficiency against any
payments required under the Noncompetition Agreement.
1.9 SURRENDER OF CERTIFICATES. Promptly after the Effective Time, the
Seller shall surrender to the Surviving Corporation one or more stock
certificates representing all of the Converted Shares (the "Certificate"),
together with any reasonably requested letter of transmittal (consistent with
this Agreement), duly completed and validly executed in accordance with the
instructions thereto, and such other documents as may be reasonably required
pursuant to such instructions, which Certificate shall then be canceled by the
Surviving Corporation and the Seller shall be entitled to receive the Merger
Consideration.
ARTICLE 2
THE CLOSING
2.1 TIME AND PLACE OF THE CLOSING. Upon the terms and subject to the
conditions contained in this Agreement, the closing of the Merger contemplated
by this Agreement shall occur at a closing (the "Closing") to take place at the
offices of Hinshaw & Culbertson, Suite 3100, 222 South Ninth Street,
Minneapolis, MN 55402, commencing at 9:00 a.m. local time, on the first business
day following the satisfaction or waiver of all conditions to the obligations of
the Parties to consummate the transactions contemplated herein (other than
conditions with respect to actions the respective Parties will take at the
Closing itself) or such other time and date as the Buyer and the Seller may
mutually determine (the "Closing Date").
4
<PAGE>
2.2 DELIVERIES BY THE SELLER. Upon the terms and subject to the
conditions contained in this Agreement, the Seller shall make, or cause to be
made, the following deliveries to the Buyer at the Closing:
(a) Certificate(s) representing the Converted Shares owned
by Seller, tendered for cancellation as of the Effective Time as
provided herein;
(b) Releases, in favor of Company, from Seller and in form
and substance acceptable to the Buyer;
(c) All stock record books, minute books and corporate
seals, if any, of Company;
(d) All files, books, records and correspondence of Company
in the possession of Seller;
(e) The Seller's Certificate pursuant to Section 7.1(e) of
this Agreement, duly executed by the Seller;
(f) An opinion of counsel to the Seller, dated the Closing
Date, and substantially in the form attached hereto as Exhibit 2.2(f);
(g) The Articles of Merger, in substantially the form
attached hereto as Exhibit 2.2(g), duly executed by the Company;
(h) The Seller's Employment Agreement and the Seller's
Noncompetition Agreement, in substantially the forms attached hereto as
Exhibit 2.2(h), in each case duly executed by the Seller; and
(i) Such other documents, opinions and certificates as may
be required under this Agreement or reasonably requested by the Buyer.
2.3 DELIVERIES BY THE BUYER. Upon the terms and subject to the
conditions contained in this Agreement, the Buyer shall make, or cause to be
made, the following deliveries to the Seller at the Closing:
(a) The Merger Consideration due from Buyer to the Seller
pursuant to Section 1.7 hereunder shall be delivered to the Seller at
the Closing;
(b) The Buyer's Certificate pursuant to Section 7.2(d) of
this Agreement, duly executed by the appropriate officer of Buyer;
(c) An opinion of counsel to the Buyer, dated the Closing
Date, and substantially in the form attached hereto as Exhibit 2.3(c);
5
<PAGE>
(d) The Articles of Merger, in substantially the form
attached hereto as Exhibit 2.2(g), and the Certificate of Merger, in
substantially the form attached hereto as Exhibit 2.3(d), each duly
executed by the Merger Subsidiary;
(e) The Seller's Employment Agreement and the Seller's
Noncompetition Agreement, in substantially the forms attached hereto as
Exhibit 2.2(h), in each case duly executed by the Buyer;
(f) The Registration Agreement, in substantially the form
attached hereto as Exhibit 2.3(f), duly executed by the Buyer; and
(g) Such other documents, opinions and certificates as may
be required under this Agreement or reasonably requested by the Seller.
ARTICLE 3
REPRESENTATIONS AND WARRANTIES
CONCERNING THE SELLER
As a material inducement to the Buyer entering into this Agreement, the
Seller hereby represents and warrants to the Buyer and the Merger Subsidiary the
following, in each case as of the date of this Agreement and the Closing Date,
unless otherwise specifically provided:
3.1 CAPACITY OF THE SELLER. The Seller is a Minnesota resident, and has
the full legal right, power, capacity and authority to execute and deliver this
Agreement and to perform the Seller's respective obligations hereunder.
3.2 ENFORCEABILITY. This Agreement constitutes the valid and legally
binding obligation of the Seller, enforceable against the Seller in accordance
with its terms, except as enforcement may be limited by bankruptcy, insolvency,
moratorium and other similar laws affecting the rights of creditors generally
and except for limitations imposed by general principles of equity. The Seller
need not give any notice to, make any filing with, or obtain any authorization,
consent, or approval of any government or governmental agency in order to
consummate the transactions contemplated by this Agreement.
3.3 NONCONTRAVENTION. Neither the execution and the delivery of this
Agreement, nor the consummation of the transactions contemplated hereby, will
(i) violate any constitution, statute, regulation, rule, injunction, judgment,
order, decree, directive or ruling of any government, government agency, or
court to which the Seller is subject; or (ii) conflict with, result in a breach
of, constitute a default under, result in the acceleration of, create in any
party the right to accelerate, terminate, modify, or cancel, or require any
notice under any agreement, contract, lease, license, permit, instrument, or
other arrangement to which the Seller is a party or by which he is bound or to
which any of his assets is subject.
6
<PAGE>
3.4 BROKERS' FEES. The Seller has no liability or obligation to pay any
fees or commissions to any broker, finder, or agent with respect to the
transactions contemplated by this Agreement for which the Buyer or the Company
could become liable or obligated.
3.5 SHARES. The Seller holds of record and owns beneficially the number
of shares set forth on Schedule 3.5 of the Disclosure Schedule heretofore
delivered to the Buyer (the "Disclosure Schedule") hereto constituting one
hundred percent (100%) of the issued and outstanding equity securities of the
Company and the voting and investment power of the Company, free and clear of
any restrictions on transfer, liens, pledges, security interests, options,
warrants, purchase rights, contracts, commitments, equities, claims, and demands
of any kind, nature or description, whatsoever. The Seller is not a party to any
option, warrant, purchase right, or other contract or commitment that could
require the Seller to sell, transfer, or otherwise dispose of any capital stock
of the Company (other than this Agreement). The Seller is not a party to any
voting trust, proxy, or other agreement or understanding with respect to the
voting of any capital stock of the Company.
3.6 INVESTMENT INTENT. The Seller acknowledges that the Buyer's Stock
has not been registered under the Securities Act of 1933, as amended (the
"Securities Act") or any state securities laws, and is being offered and sold in
reliance upon federal and state exemptions for transactions from such
registration. The Seller has such knowledge and experience in financial and
business matters that the Seller is capable of evaluating the merits and risks
of the Buyer's Stock in connection with this Agreement. The Seller has received
information concerning the Buyer and has had the opportunity to obtain
additional information as desired by Seller in order to evaluate the merits and
the risks inherent in holding the Buyer's Stock. The Seller is able to bear the
economic risk and lack of liquidity inherent in holding the Buyer's Stock for an
indefinite period. The Seller is acquiring the Buyer's Stock for investment and
not with a view toward or for sale or distribution thereof within the meaning of
the Securities Act, or with any intention of distributing or selling the Buyer's
Stock within the meaning of the Securities Act. The Seller acknowledges and
agrees that after the Closing, the Buyer's Stock may be not sold, transferred,
offered for sale, pledged, hypothecated or otherwise disposed of without
registration under the Securities Act and any applicable state securities laws,
except pursuant to an exemption from such registration available under the
Securities Act or such state securities laws. Seller acknowledges that legends
will be place on the certificates evidencing the Buyer's Stock referring to the
applicable restrictions on transferability of the Buyer's Stock. Seller
represents that he is a bona fide resident of the State of Minnesota.
ARTICLE 4
REPRESENTATIONS AND WARRANTIES
CONCERNING THE COMPANY
As a material inducement to the Buyer entering into this Agreement,
each of the Seller and the Company, jointly and severally, hereby represents and
warrants to the Buyer and the Merger Subsidiary the following (except as may be
otherwise disclosed on the Disclosure
7
<PAGE>
Schedule), in each case as of the date of this Agreement and the Closing Date,
unless otherwise specifically provided:
4.1 ORGANIZATION, QUALIFICATION, AND AUTHORIZATION. The Company is a
corporation duly organized, validly existing, and in good standing under the
laws of the State of Minnesota. The Company is duly authorized to conduct
business and is in good standing under the laws of each jurisdiction where such
qualification is required except where any failure to be so qualified would not
have a material adverse effect on the business or the assets or the financial
condition or the results of operations of the Company, in each case taken as a
whole (a "Material Adverse Effect"). The Company has full corporate power and
authority and all licenses, permits, and authorizations necessary to carry on
its business as currently conducted by it and to own and use the properties
owned and used by it. The Company has taken all corporate action which is
necessary to authorize the execution and delivery of this Agreement and the
consummation by the Company of the transactions contemplated herein. The Seller
has delivered to the Buyer correct and complete copies of the articles of
incorporation and bylaws of the Company (as amended to date). The minute books
(containing the records of meetings of the stockholders, the board of directors,
and any committees of the board of directors), the stock certificate books, and
the stock record books of the Company are correct and complete in all material
respects. Schedule 4.1 of the Disclosure Schedule lists all of the officers and
directors of the Company. The Company is not in violation of any provision of
its articles of incorporation or bylaws.
4.2 CAPITALIZATION; INVESTMENTS.
(a) The authorized capital stock of the Company, the total
number of shares of each class issued and outstanding, the record owner
of all such shares and the number of shares held in the treasury of the
Company, are each set forth on Schedule 4.2 of the Disclosure Schedule.
All of the issued and outstanding shares of capital stock of the
Company have been duly authorized, are validly issued, fully paid, and
nonassessable, and were not issued in violation of any preemptive
rights. There are no outstanding or authorized options or option plans,
warrants, purchase rights, subscription rights, conversion rights,
exchange rights, or other contracts or commitments that could require
the Company to issue, sell, or otherwise cause to become outstanding
any additional shares of its capital stock. There are no outstanding or
authorized stock appreciation, phantom stock, profit participation, or
similar rights with respect to the capital stock of the Company. There
are no voting trusts, proxies, or other agreement or understandings
with respect to the voting of the capital stock of the Company owned by
Seller.
(b) The Company does not, directly or indirectly, own any
shares or have any other equity interest or option or other contractual
right to acquire the same in any other person or entity or is a member,
partner or joint venturer with any other such person or entity.
8
<PAGE>
(c) Acoustic Components, Inc. ("Components") is a Minnesota
corporation formed by Seller. Components currently has no assets or
property of any kind, and has never had any assets or property or
conducted any business or operations.
4.3 NONCONTRAVENTION. Neither the execution and the delivery of this
Agreement, nor the consummation of the transactions contemplated hereby, will
(i) violate any constitution, statute, regulation, rule, injunction, judgment,
order, decree, directive or ruling of any government, governmental agency, or
court to which the Company is subject, or any provision of the articles of
incorporation or bylaws of the Company; or (ii) conflict with, result in a
breach of, constitute a default under, result in the acceleration of, create in
any party the right to accelerate, terminate, modify, or cancel, or require any
notice under any agreement, contract, lease, license, permit, instrument, or
other arrangement to which the Company is a party or by which it is bound or to
which any of its assets is subject (or result in the imposition of any security
interest or similar lien upon any of its assets). Except as set forth on
Schedule 4.3 of the Disclosure Schedule the Company is not required to give any
notice to, make any filing with, or obtain any authorization, consent, or
approval of any government, governmental agency or party to any material
contract to which the Company is a party or by which its assets are bound, in
order to consummate the transactions contemplated by this Agreement.
4.4 BROKERS' FEES. The Company has no liability or obligation to pay
any fees or commissions to any broker, finder, or agent with respect to the
transactions contemplated by this Agreement and has entered into no agreement to
become so liable or obligated.
4.5 TITLE TO ASSETS. Except as disclosed in Schedule 4.5 of the
Disclosure Schedule, the Company has good title to, or a valid leasehold or
license interest in, the properties and assets used by it in the conduct of its
business as currently conducted, and/or shown on the Balance Sheet of the
Company dated as of March 31, 1999 (the "Most Recent Balance Sheet") or acquired
after the date thereof, free and clear of all security interests, mortgages,
liens, or similar encumbrances ("Security Interests") of any kind, except for
properties and assets disposed of in the ordinary course of business since the
date of the Most Recent Balance Sheet.
4.6 FINANCIAL STATEMENTS. Included in Schedule 4.6 of the Disclosure
Schedule are the following financial statements for the Company (collectively
the "Financial Statements"): (a) an audited Balance Sheet and Statement of
Income and Cash Flow as of and for the fiscal years ended December 31, 1998,
1997 and 1996; and (b) an unaudited Balance Sheet and Statement of Income for
the interim three months ended March 31, 1999. Except as set forth in Schedule
4.6 of the Disclosure Schedule, the Financial Statements have been prepared in
accordance with generally accepted accounting principles ("GAAP") consistently
applied, present fairly in all material respects the financial condition of the
Company as of
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such dates and the results of its operations and cash flows for such periods,
and are consistent with the books and records of the Company; provided, however,
that the interim financial statements are subject to normal year-end adjustments
(which will not be material individually or in the aggregate) and the lack of
footnotes and other presentation items. No event has occurred since the date of
the Most Recent Financial Statement that would adversely affect the previous
sentence.
4.7 SUBSEQUENT EVENTS. Except as disclosed in Schedule 4.7 of the
Disclosure Schedule, since the date of the Most Recent Balance Sheet, there has
not been any change affecting the business, operations, financial condition,
results of operations or assets of the Company that has had a Material Adverse
Effect on the Company. Without limiting the generality of the foregoing, since
that date, except as disclosed in Schedule 4.7 of the Disclosure Schedule or
otherwise permitted in this Agreement:
(a) the Company has not sold, leased, transferred, disposed,
or assigned any of its material assets, tangible or intangible, other
than for a fair consideration in the ordinary course of business;
(b) the Company has not entered into any agreement,
contract, lease, or license which is currently in effect (or series of
related agreements, contracts, leases, and licenses which are currently
in effect) outside the ordinary course of business;
(c) no party (including the Company) has accelerated,
terminated, modified, or canceled any material agreement, material
contract, material lease, or material license (or series of related
material agreements, material contracts, material leases, and material
licenses) to which the Company is a party or by which it is bound;
(d) the Company has not imposed any Security Interest upon
any of its assets, tangible or intangible;
(e) the Company has not made any capital expenditure (or
series of related capital expenditures) in excess of $50,000 outside
the ordinary course of business;
(f) the Company has not made any capital investment in, any
loan to, or any acquisition of the securities or assets of, any other
person (or series of related capital investments, loans, and
acquisitions) outside the ordinary course of business;
(g) the Company has not issued any note, bond, or other debt
security or created, incurred, assumed, or guaranteed any indebtedness
for borrowed money or capitalized lease obligation, and the Company has
not incurred any material obligation or liability, absolute, accrued,
contingent or otherwise, whether or not due or to become due, except in
the ordinary course of business, or incurred any liability or
obligation to the Seller other than for normal compensation in
accordance with past practices;
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(h) the Company has not delayed or postponed the payment of
accounts payable or other liabilities outside the ordinary course of
business or written off as uncollectible, compromised, canceled or
waived or released any claim of the Company to, any debt, note or
account receivable, except write-offs in the ordinary course of
business and consistent with the Company's past practices;
(i) there has been no change made or authorized to the
articles of incorporation or bylaws of the Company;
(j) the Company has not issued, sold, or otherwise disposed
of any of its capital stock, or granted any options, warrants, or other
rights to purchase or obtain (including upon conversion, exchange, or
exercise) any of its capital stock, purchased or redeemed any shares of
its capital stock or made any distributions to the Seller with respect
to its capital stock;
(k) the Company has not experienced any material damage,
destruction, or loss (whether or not covered by insurance) to its
property except for ordinary wear and tear;
(l) the Company has not made any loan to, or entered into
any other transaction with, any of its directors, officers, and
employees outside the ordinary course of business;
(m) the Company has not entered into any employment contract
or collective bargaining agreement, written or oral, or modified the
terms of any existing such contract or agreement, other than at-will
retention or termination of non-executive employees in the ordinary
course of business;
(n) the Company has not granted any increase in the base
compensation of any of, nor made any other changes in the terms of
employment of, its officers or employees outside the ordinary course of
business;
(o) the Company has not adopted, amended, modified, or
terminated any bonus, profit-sharing incentive, severance, or other
plan, contract, or commitment for the benefit of any of its directors,
officers, and employees (or taken any such action with respect to any
other benefit plan);
(p) the Company has not received any written or oral
communication terminating or threatening the termination of or
otherwise materially modifying any material business relationships or
material written agreements between the Company and any of its
customers or suppliers; and
(q) the Company has not agreed or promised to do any of the
foregoing.
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4.8. LEGAL COMPLIANCE. The Company is in material compliance with, has
not violated and is not in violation of, any and all laws, rules and regulations
of federal, state, local and foreign governments (and all agencies thereof)
applicable to the Company or its businesses, and with all judgments, orders,
injunctions and decrees applicable to the Company or its properties.
4.9 TAX MATTERS.
(a) The Company has filed or caused to be filed all tax
returns that are required to be filed by or that include the Company,
and has made all such filings on a timely basis. All such tax returns
were prepared in accordance with applicable laws and regulations. All
taxes owed (whether by Seller or the Company) with respect to the
Company (whether or not shown on any tax return) and which are or were
due and payable have been paid.
(b) The Company has withheld and paid all taxes required to
have been withheld and paid in connection with amounts paid or owing to
any employee, independent contractor, creditor, stockholder, or other
third party.
(c) The Company is not, and has not been, a member of an
affiliated group filing a consolidated, combined or unitary tax return,
or is a party to any tax sharing, allocation, indemnification or
similar agreement under which the Buyer or the Company could be liable
for any taxes or other claims of any person after the Closing Date.
(d) There is no action, suit, proceeding, investigation,
audit, or claim now pending or, to the knowledge of the Seller,
threatened by any governmental authority regarding any taxes relating
to the Company.
(e) Neither the Seller nor the Company has, as of the
Closing Date, (A) entered into an agreement or waiver or been requested
to enter into any agreement or waiver extending any statute of
limitations relating to the payment or collection of any taxes with
respect to the Company, or (B) applied for and not yet received a
ruling or determination from a taxing authority regarding a past or
prospective transaction of the Company.
(f) Neither the Seller nor the Company has received notice
that any jurisdiction has asserted that any tax return currently is
required to be filed by or with respect to the Company in any
jurisdiction where any such tax return is not currently being filed.
4.10 REAL PROPERTY. Schedule 4.10 of the Disclosure Schedule contains a
complete list of all real property in which the Company may claim an ownership
or leasehold interest as of the date of this Agreement (collectively, the "Real
Property"). Except as disclosed in Schedule 4.10 of the Disclosure Schedule, the
Company has not encumbered or
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disposed of its ownership or leasehold interests in the Real Property since the
date of the Most Recent Balance Sheet. Schedule 4.10 of the Disclosure Schedule
lists all real estate leased as of the date of this Agreement by the Company as
lessee (the "Leased Premises"). Each lease (collectively, the "Leases") with
respect to a Leased Premise (i) is legal, valid, binding, enforceable, and in
full force and effect; (ii) will continue to be legal, valid, binding,
enforceable, and in full force and effect on identical terms upon consummation
of the transactions contemplated hereby; (iii) all rents and additional rents
due to date on each Lease have been paid; (iv) in each case the Company is in
peaceable possession and no waiver, indulgence or postponement of the Company's
material obligations thereunder has been granted by the lessor; (v) neither the
Company nor, to the Seller's knowledge, any other party thereto, is in breach or
default under any of the material terms thereof and no event has occurred which
with notice or lapse of time or both, would constitute a breach or default, or
permit termination, modification, or acceleration thereunder; and the Seller has
delivered to the Buyer true, correct and complete copies of each Lease
(including all amendments thereto).
4.11 INTELLECTUAL PROPERTY. For purposes of this Section 4.11,
"Intellectual Property" shall mean (i) all inventions, whether patentable or
unpatentable and whether or not reduced to practice, all improvements thereto,
and all patents, patent applications, and patent disclosures, together with all
reissuances, continuations, continuations-in-part, revisions, extensions, and
reexaminations thereof; (ii) all trademarks, service marks, trade dress, logos,
trade names, and corporate names, together with all translations, adaptations,
derivations, and combinations thereof and including all goodwill associated
therewith, and all applications, registrations, and renewals in connection
therewith; (iii) all copyrightable works, all copyrights, and all applications,
registrations, and renewals in connection therewith; (iv) all trade secrets and
confidential business information (including ideas, research and development,
know-how, formulas, compositions, manufacturing and production processes and
techniques, technical data, designs, drawings, specifications, customer and
supplier lists, pricing and cost information, and business and marketing plans
and proposals); (v) all computer software (including data and related
documentation); (vi) all other proprietary rights; and (vii) all copies and
tangible embodiments thereof (in whatever form or medium). With respect to
Intellectual Property:
(a) The Company owns or has the right to use pursuant to
license, sublicense, agreement, or permission all Intellectual Property
used in the conduct of the businesses of the Company as presently
conducted. Each item of Intellectual Property owned or used by the
Company immediately prior to the Closing hereunder will be owned or
available for use by it on identical terms and conditions upon the
Closing hereunder. The Company has taken all necessary action to
maintain and protect each material item of Intellectual Property that
it owns or uses.
(b) The Company has not been sued or charged in writing with
(or to the knowledge of the Seller, threatened with) or been a
defendant in any claim suit, action or proceeding relating to its
business which has not been finally terminated prior to the date of
this Agreement and which involves a claim of interference,
infringement, misappropriation, or violation of Intellectual Property
rights of third parties (including
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any claim that the Company must license or refrain from using any
Intellectual Property rights of any third party). To the knowledge of
the Seller, no third party has interfered with, infringed upon or
misappropriated any Intellectual Property rights of the Company.
(c) Schedule 4.11 of the Disclosure Schedule identifies each
material item of Intellectual Property owned by the Company or which
the Company has the right to use pursuant to license, sublicense,
agreement or permission. The Seller has delivered to the Buyer correct
and complete copies of or has made available for inspection by the
Buyer all patents, registrations, applications, licenses, agreements,
and permission (as amended to date) and all other written documentation
evidencing ownership and prosecution (if applicable) of each item of
Intellectual Property identified in Schedule 4.11 of the Disclosure
Schedule.
(d) To the best of Seller's knowledge, the operation of the
businesses of the Company as presently conducted does not interfere
with, infringe upon, misappropriate, or otherwise come into conflict
with, any Intellectual Property rights of third parties, and neither
Seller nor the Company has received any notice of any claim to the
contrary.
4.12 TANGIBLE ASSETS. The Company owns or leases all buildings,
machinery, equipment, and other tangible assets used or held for use in the
conduct of its businesses as presently conducted. Each such tangible asset has
been maintained in accordance with normal industry practice, is free from
material defects, is in good condition and repair (normal wear and tear
excepted), and is suitable for the purposes for which it presently is used. All
inventory of the Company is in good and merchantable condition and is not
obsolete, is in normal quantities for the business of the Company, and was
purchased by the Company for resale to customers in the ordinary course of
business.
4.13 CONTRACTS. Listed on Schedule 4.13 of the Disclosure Schedule are
all written (and a summary of any oral) agreements to which the Company is a
party and which is material to the conduct of the business of the Company,
including all distribution agreements and customer contracts. With respect to
each such agreement, except as set forth in Schedule 4.13 of the Disclosure
Schedule, (i) the agreement is legal, valid, binding, enforceable, and in full
force and effect; (ii) the agreement will continue to be legal, valid, binding,
enforceable, and in full force and effect on identical terms upon consummation
of the transactions contemplated hereby; (iii) neither the Company nor, to the
Seller's knowledge, any other party thereto, is in breach or default under any
of the material terms thereof and no event has occurred which with notice or
lapse of time would constitute a breach or default, or permit termination,
modification, or acceleration, under any such agreement, except where any such
default or breach would not have a Material Adverse Effect; and (iv) the Seller
has delivered to the Buyer true, correct and complete copies of each such
agreement.
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4.14 NOTES AND ACCOUNTS RECEIVABLE. All notes and accounts receivable
of the Company are reflected properly on the Company's books and records,
subject to normal allowances for doubtful accounts and customer claims, arose
from bona fide transactions in the ordinary course of business, are legal, valid
and binding obligations of the debtor thereof and, to the Seller's knowledge,
are subject to no additional setoffs or counterclaims in excess of the allowance
for doubtful accounts reflected in the Most Recent Balance Sheet.
4.15 POWERS OF ATTORNEY. There are no outstanding powers of attorney
executed on behalf of the Company.
4.16 LITIGATION. Schedule 4.16 of the Disclosure Schedule sets forth
each instance in which the Company (i) is subject to any outstanding injunction,
judgment, order, decree or ruling; or (ii) is a party or, to the knowledge of
the Seller, is threatened to be made a party to, any action, suit, proceeding,
hearing, or investigation of, in, or before any court or quasi- judicial or
administrative agency of any federal, provincial, state, local, or foreign
jurisdiction or before any arbitrator.
4.17 EMPLOYEES.
(a) The Company is not a party to or bound by any collective
bargaining agreement, nor has the Company experienced any strikes,
grievances, claims of unfair labor practices, or other collective
bargaining disputes. To the Seller's knowledge, the Company has not
committed any unfair labor practice, and there is no organizational
effort presently being made or threatened by or on behalf of any labor
union with respect to employees of the Company. No employee, past or
present, of the Company has pending or, to the Seller's knowledge,
threatened to bring any claim against the Company of unjust dismissal
or a violation of the employee's civil or employment rights except as
set forth in Schedule 4.16. To the Seller's knowledge, no executive
officer, key employee or significant group of employees plans to
terminate employment with the Company during the next twelve months.
(b) The agreements as set forth in Schedule 4.17 of the
Disclosure Schedule constitute the only written employment,
compensation, deferred compensation, bonus, termination, and severance
agreements which exist with respect to the Company (collectively, the
"Employment Agreements").
4.18 EMPLOYEE BENEFIT PLANS.
(a) Identification of Plans. Schedule 4.18 of the Disclosure
Schedule (the "Employee Benefit Plan List") lists each and every
compensation, consulting, employment, employment termination or
collective bargaining agreement, and each stock option, stock purchase,
stock appreciation right, life, health, accident or other benefit
insurance, bonus, deferred or incentive compensation, severance or
separation (or any agreement providing any compensatory payment or
benefit resulting from a change in control), vacation, disability,
profit sharing, retirement, or other employment
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or employee benefit plan, policy or arrangement of any kind, oral or
written, covering directors, officers, employees, former directors or
former employees of the Company or any ERISA Affiliate (as defined
below) or its respective beneficiaries, including, but not limited to,
any employee benefit plans within the meaning of Section 3(3) of the
Employee Retirement Income Security Act of 1974, as amended ("ERISA"),
which the Company or any ERISA Affiliate maintains, to which the
Company or any ERISA Affiliate contributes, or under which any present
or former director, officer or employee of the Company or any ERISA
Affiliate is covered or has benefit rights and with respect to which
any liability of the Company or any ERISA Affiliate exists or is
reasonably likely to occur (collectively, "Benefit Plans"). The
Employee Benefit Plan List also sets forth a list which identifies each
and every provision in the Benefit Plans which specifically reference a
change of control as causing an increase or acceleration of benefits to
present or former directors, officers or employees of the Company or
any ERISA Affiliate or their respective beneficiaries, and any other
similar provisions which would cause an increase in liability to any
such person (in their capacity as a present or former director, officer
or employee of the Company or any ERISA Affiliate or their respective
beneficiaries) as a result of the transaction contemplated by this
Agreement ("Change of Control Benefit"), together with the name of each
person entitled or potentially entitled to receive a Change in Control
Benefit and the amount thereof. The term "Benefit Plans" does not
constitute an acknowledgment that a particular arrangement is an
employee benefit plan within the meaning of Section 3(3) of ERISA.
Without limitation of the foregoing, except as separately set forth on
the Employee Benefit Plan List, (i) no Benefit Plan is a multiemployer
plan within the meaning of Section 3(37) of ERISA, (ii) no Benefit Plan
is an employee pension benefit plan (as defined in Section 3(2) of
ERISA) subject to Title IV of ERISA, and (iii) neither the Company nor
any ERISA Affiliate maintains, sponsors or has an obligation to
contribute to (or has ever maintained, sponsored or had an obligation
to contribute to within the preceding six years) any such
multi-employer plan or employee pension benefit plan subject to Title
IV of ERISA or has any liability with respect to any such
multi-employer plan or employee pension benefit plan subject to Title
IV of ERISA. For the purposes of this Section 4.18, the terms "Company"
and "ERISA Affiliate" shall be deemed to include predecessors thereof.
(b) Status of Benefit Plans. Except as provided in Schedule
4.18 of the Disclosure Schedule, each of the Benefit Plans that is
intended to be a pension, profit sharing, stock bonus, thrift, savings
or employee stock ownership plan that is intended to be qualified under
Section 401(a) of the Internal Revenue Code of 1986, as amended (the
"Code") has been determined by the Internal Revenue Service ("IRS") to
qualify under Section 401(a) of the Code, and, to the best of the
Seller's and the Company's knowledge, there exist no circumstances
likely to materially adversely affect the qualified status of any such
Benefit Plan. No Benefit Plan is currently under audit by the United
States Department of Labor, the Pension Benefit Guaranty Corporation or
the IRS, and neither the Company nor any ERISA Affiliate has received
either written or oral notification by one or more of such federal
regulatory agencies of their intention to audit a Benefit Plan.
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(c) Payment of Contributions. All accrued contributions and
other payments to be made by the Company or any ERISA Affiliate to any
Benefit Plan through the date of the Most Recent Balance Sheet have
been made or reserves adequate for such purposes have been reflected
therein. Neither the Company nor any ERISA Affiliate is in material
default in performing any of its respective contractual obligations
under any of the Benefit Plans or any related trust agreement or
insurance contract. There are no outstanding material liabilities of
any Benefit Plan other than liabilities for benefits to be paid to
participants in such plan and their beneficiaries in accordance with
the terms of such plan.
(d) Pending Litigation. There is no pending litigation or to
the best knowledge of Seller, the Company and any ERISA Affiliate, any
overtly threatened litigation or pending claim (other than benefit
claims made in the ordinary course) by or on behalf of or against any
of the Benefit Plans (or with respect to the administration of any of
the Benefit Plans) now or heretofore maintained by the Company or any
ERISA Affiliate which allege violations of applicable state or federal
law and which has a reasonable probability of being determined
adversely to the Company or any ERISA Affiliate.
(e) Fiduciary Compliance. The Company and each ERISA
Affiliate and all other persons having fiduciary or other
responsibilities or duties with respect to any Benefit Plan, are and
have since the inception of each such Benefit Plan been in compliance
in all material respects with, and each such Plan is and has been
operated in all material respects substantially in accordance with, its
provisions and in compliance in all respects with the applicable laws,
rules and regulations governing such Plan, including the rules and
regulations promulgated by the Department of Labor, the Pension Benefit
Guaranty Corporation ("PBGC") and the IRS under ERISA, the Code or any
other applicable law. No Benefit Plan has engaged in or been a party to
a non-exempt "prohibited transaction" (as defined in Section 406 of the
ERISA or 4975(c) of the Code). All Benefit Plans which are group health
plans have been operated in compliance with the group health plan
continuation coverage requirements of Section 4980B of the Code and
Section 601 of ERISA.
(f) ERISA Compliance. No Benefit Plan is subject to the
provisions of Part 3 of Title I of ERISA, Section 412 of the Code or
the provisions of Title IV of ERISA. Neither the Company nor any ERISA
Affiliate has incurred, nor is there a basis for believing that either
the Company or any ERISA Affiliate may incur, any material liability
under Title IV of ERISA in connection with any plan subject to the
provisions of Title IV of ERISA now or heretofore maintained or
contributed to by it or by any ERISA Affiliate (as that term is defined
in the next sentence) of the Company. The term "ERISA Affiliate" shall
mean any person which is or was a member of the same controlled group
of corporations (within the meaning of Section 414(b) of the Code) as
the Company or is or was under common control (within the meaning of
Section 414(c) of the Code) with the Company.
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(g) Change in Control Benefits. Schedule 4.18 of the
Disclosure Schedule lists: (A) each executive officer and director of
the Company or any ERISA Affiliates who is eligible to receive a Change
of Control Benefit, (B) the amount of each such Change of Control
Benefit calculated as if a change of control occurred, and such benefit
payment became due, on the date hereof, (C) each such individual's base
rate of compensation in effect as of the date of this Agreement, (D)
such individual's compensation from the Company and any ERISA Affiliate
for each of the calendar years 1994 through 1998, as reported by the
Company and any ERISA Affiliate on Form W-2 or Form 1099, and (E) any
other amounts, identified by type, necessary to calculate such
benefits. Neither the Company nor any ERISA Affiliate has made any
payments or provided any compensation or benefits nor is a party to any
agreement or any Benefit Plan that could obligate it or any successor
thereto to make any payments or provide any compensation or benefits,
the deductibility of which is limited by Section 280G of the Code.
4.19 GUARANTIES AND WARRANTIES. Other than endorsements of negotiable
instruments in the ordinary course of business, the Company is not a guarantor
or otherwise is liable for any material liability or material obligation
(including indebtedness) of any other person. Except as otherwise required under
applicable state and federal law, the Company has not made or given any
warranties with respect to any of the products distributed by the Company.
4.20 PERMITS. The Company holds all environmental permits and other
material permits, licenses or franchises of governmental authorities required
under any environmental law or other law, regulation, order or decree, in
connection with the ownership and/or operation of the business and assets of the
Company, all such permits, licenses and franchises are listed in Schedule 4.20
of the Disclosure Schedule, and the Company is in compliance with such permits,
licenses and franchises in all material respects. All such permits, licenses and
franchises are in full force and effect and the Company has not received any
notification pursuant to any law relating to the business of the Company that
any currently held material permit, license or franchise relating to the
operation of the business and/or assets of the Company has been or is about to
be made subject to materially different limitations or conditions, or has been
or is about to be revoked, withdrawn or terminated.
4.21 ENVIRONMENTAL COMPLIANCE. The Company and its operations and
properties are in compliance with all environmental laws in all material
respects. No government agency or third party has submitted to the Company any
notification, demand, request for information, citation, summons, or compliant,
and no order has been issued, no compliant has been filed, no penalty has been
assessed and no investigation or review is pending or threatened, relating to
any environmental law. Except in substantial compliance with applicable
environmental laws, hazardous materials have not been generated, used, treated
or stored on, transported to or from, disposed of or released on any property
owned or operated at any time by the Company. Except as set forth in Schedule
4.21 of the Disclosure Schedule, to the Seller's knowledge, there are not now
and never have been any underground storage tanks located on any property owned
or operated by the Company.
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4.22 CUSTOMERS. The Seller has heretofore delivered to the Buyer a true
and correct list of the 20 largest customers of the Company as of the date
hereof based on revenues generated during the twelve (12) months ended December
31, 1998. The relationships of the Company with each of such customers are
satisfactory commercial working relationships, and no such customer has
cancelled or otherwise terminated, or threatened in writing, or to the Seller's
knowledge, threatened orally, to cancel or otherwise terminate, its relationship
with the Company.
4.23 INSURANCE. The Seller has heretofore delivered to the Buyer a true
and correct list of all policies of insurance maintained by or on behalf of the
Company with respect to its business or operations and which are in effect as of
the date of this Agreement. As of the date of this Agreement, all such policies
are in full force and effect, all premiums due thereon have been paid and the
Company has complied in all material respects with the provisions thereof. To
Seller's and Company's knowledge, no event has occurred which is reasonably
likely to give rise to a material claim relating to the Company under such
insurance policies.
4.24 TRANSACTIONS WITH AFFILIATES. Schedule 4.24 of the Disclosure
Schedule lists all agreements and other arrangements and transactions in effect
and entered into between the Seller or an affiliate of the Seller, on the one
hand, and the Company, on the other hand. For purposes of this Agreement,
"affiliate" shall mean any person or entity (i) which directly or indirectly
through one or more intermediaries, controls, is controlled by or is under
common control with such person or entity, (ii) any officer, director, partner,
employer, or direct or indirect beneficial owner of any 10% or greater equity or
voting interest of such person or entity, or (iii) any other person or entity
for which a person described in clause (ii) acts in such capacity.
4.25 NO UNDISCLOSED LIABILITIES. Except for (a) liabilities for future
performance pursuant to any agreement listed in Schedules 4.10, 4.11 or 4.13 of
the Disclosure Schedule; (b) liabilities disclosed, reserved for or otherwise
reflected in the Most Recent Balance Sheet and the notes thereto; and (c)
liabilities incurred in the ordinary course of business by the Company after the
date of the Most Recent Balance Sheet which will not, individually or in the
aggregate, have a Material Adverse Effect, the Company has not incurred any
liability (contingent or otherwise) that would be required to be disclosed in
financial statements under GAAP, consistently applied. The Company is not
indebted to the Seller for any amounts other than normal compensation as
disclosed to the Buyer for not more than one partial payroll period.
4.26 INTEREST IN SIMILAR BUSINESSES. The Seller does not have any
financial interest in any person, firm, corporation or other entity which is, or
during the past five years was, directly or indirectly, engaged in a business
substantially similar to the Business.
4.27 YEAR 2000 COMPLIANCE. The Company has (i) initiated a review and
assessment of all areas within its business and operations (including those
affected by suppliers, vendors and customers) that could be adversely affected
by the "Year 2000
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Problem" (being the risk that computer applications used by the Company (or its
suppliers, vendors and customers) may be unable to recognize and perform
properly date-sensitive functions involving certain dates prior to and any date
after December 31, 1999), (ii) developed a plan and timeline (a true, correct
and complete copy of which have been provided to Buyer) for addressing the Year
2000 Problem on a timely basis, and (iii) to date, implemented that plan in
accordance with the timetable. Based on the foregoing, the Seller and the
Company believe that all computer applications (including those of its
suppliers, vendors and customers to the extent that they may affect the Company)
that are material to its business and operations (including computer
applications that are imbedded in machinery and other equipment of the Company)
are reasonably expected on a timely basis to be able to perform properly all
date-sensitive functions for all dates before and after January 1, 2000 (that
is, to be "Year 2000 Compliant"), except to the extent that a failure to do so
could not reasonably be expected to have a Material Adverse Effect.
4.28 DISCLOSURE. No representation or warranty by the Seller contained
in this Agreement or Exhibit hereto or in the Disclosure Schedules, and no
information heretofore provided by the Seller or the Company to the Buyer, or
contained in the Financial Statements, contains any untrue statement of a
material fact or omits to state a material fact necessary in order to make the
statements made therein not misleading.
ARTICLE 5
REPRESENTATIONS AND WARRANTIES
CONCERNING THE BUYER
As a material inducement to the Seller entering into this Agreement,
the Buyer hereby represents and warrants to the Seller the following, in each
case as of the date of this Agreement and the Closing Date, unless otherwise
specifically provided:
5.1 ORGANIZATION, QUALIFICATION, AND AUTHORIZATION. Each of the Buyer
and the Merger Subsidiary is a corporation duly organized, validly existing, and
in good standing under the laws of the State of Delaware. The Buyer and the
Merger Subsidiary each has full corporate power and authority to carry on its
business as currently conducted by it and to own and use the properties owned
and used by it. The Buyer has delivered to the Seller correct and complete
copies of the articles of incorporation and bylaws of the Buyer (as amended to
date).
5.2 CAPITALIZATION. The authorized capital stock of the Buyer, the
total number of shares of each class issued and outstanding, and the number of
shares held in the treasury of the Buyer, are each set forth on Schedule 5.2 of
the Buyer's Disclosure Schedule provided to Seller. As of the Closing and the
issuance thereof, the Buyer's Stock to be issued to the Seller under this
Agreement will be duly authorized, validly issued, fully paid, and
nonassessable.
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5.3 AUTHORIZATION AND ENFORCEABILITY. The Buyer and the Merger
Subsidiary each has full corporate power and authority to execute and deliver
this Agreement and to perform their respective obligations hereunder. Except as
provided in Section 6.9 hereof, the Buyer and the Merger Subsidiary each has
taken all corporate action which is necessary to authorize the execution and
delivery of this Agreement and the consummation by them of the transactions
contemplated herein, including the approval of their respective board of
directors and the approval of Merger Subsidiary's sole shareholder. This
Agreement constitutes the valid and legally binding obligation of each of the
Buyer and the Merger Subsidiary, enforceable in accordance with its terms,
except as enforcement may be limited by bankruptcy, insolvency, moratorium or
other similar laws affecting the rights of creditors generally and except for
limitations imposed by general principles of equity. Except with respect to
shareholder consent of the Buyer pursuant to Section 6.10 hereof, the Buyer and
the Merger Subsidiary need not give any notice to, make any filing with, or
obtain any authorization, consent, or approval of any government, governmental
agency or party to any material agreement to which they are a party or by which
its assets is bound, in order to consummate the transactions contemplated by
this Agreement.
5.4 NONCONTRAVENTION. Neither the execution and the delivery of this
Agreement, nor the consummation of the transactions contemplated hereby, will
(i) violate any constitution, statute, regulation, rule, injunction, judgment,
order, decree, directive or ruling of any government, governmental agency, or
court to which the Buyer or Merger Subsidiary is subject, or any provision of
the Buyer's or Merger Subsidiary's articles of incorporation or bylaws; or (ii)
conflict with, result in a breach of, constitute a default under, result in the
acceleration of, create in any party the right to accelerate, terminate, modify,
or cancel, or require any notice under any agreement, contract, lease, license,
permit, instrument, or other arrangement to which the Buyer or Merger Subsidiary
is a party or by which the Buyer or Merger Subsidiary is bound or to which any
of their assets is subject.
5.5 BROKERS' FEES. The Buyer and Merger Subsidiary has no liability or
obligation to pay any fees or commission to any broker, finder, or agent with
respect to the transactions contemplated by this Agreement for which the Seller
could become liable or obligated.
5.6 REPORTS AND FINANCIAL STATEMENTS.
(a) The Buyer has previously furnished or made available to
the Seller and the Company true and complete copies of (i) its Annual
Reports on Form 10-K for each of the three fiscal years ended December
31, 1998, as filed with the Securities and Exchange Commission, (ii)
its Quarterly Reports on Form 10-Q for the quarter ended March 31,
1999, and (iii) all other reports or registration statements filed by
the Buyer with the Securities and Exchange Commission since December
31, 1998. As of their respective dates, such reports, proxy statements
and registration statements did not contain, and the proxy statement to
be distributed to shareholders of Buyer in connection with the
shareholder meeting required for approval of this merger will not
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contain, any untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were
made, not misleading.
(b) The audited consolidated financial statements and
unaudited interim financial statements included in the reports or other
filings referred to in Section 5.5(a) have been prepared in accordance
with generally accepted accounting principles consistently applied
throughout the periods (except (i) as may be indicated therein or in
the notes or schedules thereto and (ii) with respect to unaudited
interim financial statements, the absence of notes which, if presented,
would not differ materially from those included in the consolidated
balance sheet of the Buyer as of December 31, 1998). These statements
fairly present the consolidated financial position of the Buyer as of
the respective dates thereof and the consolidated results of operations
and changes in financial position (or statements of cash flow) of the
Buyer for each of the periods then ended, subject, in the case of
unaudited interim financial statements, to normal year-end adjustments
and any other adjustments described therein and the absence of notes
(which, if presented, would not differ materially from those included
in the consolidated balance sheet of the Buyer as of December 31,
1998).
(c) Except as disclosed in any reports or registration
statements filed by the Buyer with the Securities and Exchange
Commission since December 31, 1998, the information and disclosures
contained in the Buyer's Annual Report on Form 10-K for the fiscal year
ended December 31, 1998 remain complete and correct in all material
respects as of its date as if such disclosures were made on and as of
the date hereof and do not omit to state a material fact required to be
stated therein or necessary to make the statements therein not
misleading.
ARTICLE 6
COVENANTS
The parties agree as follows with respect to the periods indicated:
6.1 GENERAL. In case at any time after the Closing any further action
is necessary or desirable to carry out the purposes of this Agreement, each of
the Parties will take such further action (including the execution and delivery
of such further instruments and documents) as any other Party reasonably may
request, all at the sole cost and expense of the requesting Party (unless the
requesting Party is entitled to indemnification therefor under Article 9 below).
The Seller acknowledges and agrees that from and after the Closing, the
Surviving Corporation shall be entitled to sole possession of all documents,
books, records, agreements, and financial data of any sort relating to the
Company, provided the Seller shall have access to such documents, books,
records, agreements and financial data after the Closing for any proper purpose
(eg. tax reporting and audits).
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6.2 TRANSITION. From and after the date of this Agreement, the Seller
will not take any action that is designed or intended to have the effect of
discouraging any lessor, licensor, customer, supplier, or other business
associate of the Company from maintaining the same business relationships with
it after the Closing as it maintained with it prior to the Closing.
6.3 CONFIDENTIALITY. From and after the date of this Agreement, the
Seller will treat and hold as such all of the information concerning the
Company, and its business and affairs, that is not already generally available
to the public ("Confidential Information") and refrain from using any of the
Confidential Information except in connection with this Agreement.
6.4 CONDUCT OF BUSINESS. From the date hereof until the Closing, except
with the Buyer's prior written consent, the Seller shall cause the Company to
carry on its business in the ordinary course of business consistent with past
practice and to use its reasonable commercial efforts to preserve intact its
business organization and relationships with third parties and, without limiting
the generality of the foregoing, the Seller shall not:
(a) do or omit to do any act or thing which would cause any
of the representations and warranties set out in Section 3 or Section 4
to be untrue at the Closing Date;
(b) permit the Company to:
(i) do or omit to do any act or thing which
would cause any of the representations and
warranties set out in Section 4 to be untrue
if made at the Closing Date;
(ii) make or authorize any material capital
expenditures;
(iii) enter into any material contract outside the
ordinary course of business or amend or
terminate any material contract to which it
is a party or exercise any renewal,
expansion or other options relating thereto,
other than in the ordinary course of
business;
(iv) dispose, or agree or commit to dispose, of
any material assets out of the ordinary
course of business;
(v) make any material change in federal, state
or local tax elections, or accounting
methods, principles or practices, unless
required by law or by changes in GAAP; or
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(vi) merge or consolidate with any person,
acquire any stock or other ownership
interest in any person or the assets of any
business as an entirety, or liquidate,
dissolve or otherwise reorganize or seek
protection from creditors; or
(c) cause or permit the Company, directly or indirectly, to
adopt, amend, modify, spin-off, transfer or assume any of the assets or
liabilities of, terminate or partially terminate, any Benefit Plan; or
(d) amend, or permit the amendment of the articles of
incorporation, by-laws or other organizational documents of the
Company, make any changes in the capital structure of the Company, or
issue or sell, or purchase, or agree to issue, sell or purchase, any
capital stock or securities of the Company, or declare or pay any
dividend or other distribution out of the Company. During the period
from the date of this Agreement to the Closing Date, the Seller shall
cause the Company to confer on a regular basis with the Buyer as to the
business of the Company, and to report periodically on the general
status of ongoing operations of the Company.
6.5 REASONABLE EFFORTS. Each Party agrees to use with all due dispatch
its commercially reasonable best efforts to take, or cause to be taken, all
actions and to do, or cause to be done, all things necessary or advisable to
consummate and make effective as promptly as practicable the transactions
contemplated by this Agreement and to cooperate with the other Parties in
connection with the foregoing. Each Party further agrees not to undertake any
course of action inconsistent with the satisfaction of the conditions to Closing
set forth herein, and to do all such acts and take all such measures as may be
commercially reasonable to comply, and be in compliance, with the
representations, warranties, covenants and agreements contained in this
Agreement.
6.6 EXCLUSIVE DEALING. During the period from the date of this
Agreement to the earlier of the Closing Date or the termination of this
Agreement, the Seller shall not initiate or engage in discussions or
negotiations with, or provide any information to, any person other than the
Buyer, Seller's attorneys, accountants or advisors, concerning any sale of the
Company or any material part thereof or any similar transaction. In the event
this Agreement is terminated by either party for any reason, each of the Buyer
and the Seller agree that in the further event that Buyer, on the one hand, or
Seller or Company on the other hand, agree or commit to agree to consummate a
transaction similar to the transaction contemplated in this Agreement (whether
by stock purchase, asset purchase or merger) before December 31, 1999, then in
such event the party terminating this Agreement shall pay to the other a break
up fee of $100,000 in cash on demand. The foregoing breakup fee is intended to
compensate as liquidated damages the receiving party for expenses incurred in
furtherance of this transaction, and not as a penalty.
6.7 ACCESS TO RECORDS. Between the date of this Agreement and the
Closing Date, the Company shall allow the Buyer, its representatives and
potential lenders, full and complete access to the books, records and business
premises and properties of the Company,
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and furnish to the Buyer all such information concerning the Company and its
businesses and affairs as the Buyer may reasonably request, for purposes of
conducting a due diligence investigation; provided, however, that any such
investigation shall be conducted during normal business hours and shall not
unreasonably interfere with the operations of the Company. No such investigation
shall affect any of the representations and warranties of the Seller hereunder.
6.8 NOTICE OF EVENTS. From the date of this Agreement to the Closing
Date, the Company shall promptly notify in writing the Buyer of any fact which,
if known at the date of this Agreement, would have been required to be set forth
or disclosed in or pursuant to this Agreement, or which would or could result in
the breach by the Seller of any representation or warranty or a breach of any
covenant or agreement in this Agreement.
6.9 SHAREHOLDER APPROVAL. As soon as practicable after the execution of
this Agreement (but not earlier than June 29, 1999), the Buyer shall duly call
and notice a special or annual meeting of the Shareholders of the Company, and
include in the purposes of which the review and approval of the Merger and the
issuance of the Buyer's Stock as provided herein (the "Shareholder Meeting").
The proxy materials disseminated by the Buyer shall include a recommendation of
the board of directors that the shareholders approve the Merger and the issuance
of the Buyer's Stock; provided, however, that the foregoing covenant shall be
subject, in all respects, to the fiduciary obligations of the board of directors
to the Buyer and its shareholders under applicable law as advised by legal
counsel to the Buyer. The Shareholder Meeting shall be noticed and held
according to the Bylaws of the Buyer, Delaware corporate law and the rules of
any applicable securities exchange. The Seller hereby irrevocably confirms that
the Seller has already approved, as the sole shareholder of the Company, the
Merger.
6.10 DISSOLUTION OF COMPONENTS. Within ten (10) of the Closing, the
Seller agrees to take all action necessary to dissolve Components.
6.11 TAX MATTERS. The Parties acknowledge that the Company currently
has in effect an election to be taxed as a Subchapter S Corporation under the
Code (the "Election"). Without the consent of the other, neither the Company nor
the Buyer shall make any election under Section 338(h)(10) of the Code. Neither
the Seller nor the Company shall revoke or otherwise terminate the Election
prior to the Closing. From and after the Closing, the Election shall terminate,
effective as of the Closing. The Seller acknowledges and agrees that the Seller
shall prepare, at Seller's cost, the Company's final S-corporation tax return,
which return shall be subject to the review and approval of Buyer prior to
filing. Seller shall include any income, gain, loss, deduction or other tax
items for the periods up to and including the Closing on Seller's tax return in
a manner consistent with such final tax return for such periods.
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ARTICLE 7
CONDITIONS TO OBLIGATION TO CLOSE
7.1 CONDITIONS TO OBLIGATION OF THE BUYER. The obligation of the Buyer
to consummate the transactions to be performed by it in connection with the
Closing is subject to satisfaction of the following conditions:
(a) The representations and warranties set forth in Section
3 and Section 4 above shall be true, correct and complete in all
material respects at and as of the Closing Date (and any representation
or warranty that is qualified as to materiality in Sections 3 or 4
shall be deemed to be without such qualification for purposes of the
foregoing);
(b) The Seller shall have performed and complied with all of
the Seller's covenants hereunder in all material respects through the
Closing;
(c) The Company shall have procured all of the third party
authorizations, approvals and consents referred to in Section 4.3
above;
(d) No action, suit, or proceeding shall be pending or
threatened before any court or quasi-judicial or administrative agency
of any federal, state, local, or foreign jurisdiction or before any
arbitrator wherein an unfavorable injunction, judgment, order, decree,
ruling, or charge would (i) prevent consummation of any of the
transactions contemplated by this Agreement; (ii) cause any of the
transactions contemplated by this Agreement to be rescinded following
consummation; (iii) affect adversely following consummation of the
right of the Buyer to own stock in the Merger Subsidiary and to control
the Company; or (iv) materially and adversely affect the right of the
Company to own its assets and to operate its businesses (and no such
injunction, judgment, order, decree, ruling, or charge shall be in
effect);
(e) The Seller shall have delivered to the Buyer a Seller's
Certificate to the effect that each of the conditions specified above
in Section 7.1(a)-(d) is satisfied;
(f) Shareholders of the Buyer shall have approved by the
requisite majority vote (as required by the Bylaws of the Buyer,
Delaware corporate law and the rules of any applicable securities
exchanges) the Merger and the issuance of the Buyer's Stock at the
Shareholder Meeting as provided herein;
(g) The Seller shall have delivered to the Buyer the
resignations of all directors and officers of the Company, all to be
effective as of the Closing;
(h) All certificates, opinions, instruments, and other
documents required to effect the transactions contemplated hereby will
be reasonably satisfactory in form and substance to counsel to the
Buyer;
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(i) There shall have been delivered to the Buyer an opinion
of counsel to the Seller, dated the Closing Date, in substantially the
form of Exhibit 2.2(f) hereof;
(j) The Seller shall deliver to the Buyer all stock record
books, minute books and corporate seals, if any, of the Company;
(k) The Company shall have executed and delivered to the
Buyer the Articles of Merger in substantially the form of Exhibit
2.2(g) hereof;
(l) The Seller shall have executed and delivered to the
Buyer the Employment Agreement and the Noncompetition Agreement in
substantially the forms of Exhibit 2.2(h) hereof;
(m) There shall have been no material damage, dilution,
diminution, or destruction to any of the Company's assets, properties
or businesses, or any material adverse change affecting the assets,
properties, business or condition, financial or otherwise, of the
Company; and
(n) The Seller shall have executed and delivered such other
instruments and agreements as have been reasonably requested by the
Buyer.
The Buyer may waive any condition specified in this Section 7.1, if it executes
a writing so stating at or prior to the Closing.
7.2 CONDITIONS TO OBLIGATION OF THE SELLER. The obligation of the
Seller to consummate the transactions to be performed by him in connection with
the Closing is subject to satisfaction of the following conditions:
(a) The representations and warranties set forth in Section
5 above shall be true, correct and complete in all material respects at
and as of the Closing date (and any representation or warranty that is
qualified as to materiality in Section 5 shall be deemed to be without
such qualification for purposes of the foregoing);
(b) The Buyer shall have performed and complied with all of
its covenants hereunder in all material respects through the Closing;
(c) No action, suit, or proceeding shall be pending before
any court or quasi-judicial or administrative agency of any federal,
state, local, or foreign jurisdiction or before any arbitrator wherein
an unfavorable injunction, judgment, order, decree, ruling, or charge
would (i) prevent consummation of any of the transactions contemplated
by this Agreement; (ii) cause any of the transactions contemplated by
this Agreement to be rescinded following consummation; or (iii) affect
adversely following consummation of the right of the Seller to own the
Buyer's Shares , and no such injunction, judgment, order, decree,
ruling, or charge shall be in effect);
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(d) The Buyer shall have delivered to the Seller a Buyer's
Certificate to the effect that each of the conditions specified above
in Section 7.2(a)-(c) is satisfied;
(e) All certificates, opinions, instruments, and other
documents required to effect the transactions contemplated hereby will
be reasonably satisfactory in form and substance to counsel to the
Seller;
(f) There shall have been delivered to the Seller an opinion
of counsel to the Buyer, dated the Closing Date, in substantially the
form of Exhibit 2.3(c) hereof;
(g) The Merger Subsidiary shall have executed and delivered
to the Company the Certificate of Merger in substantially the form of
Exhibit 2.3(d) hereof and the Articles of Merger, in substantially the
form of Exhibit 2.2(g) hereof;
(h) The Buyer shall have executed and delivered to Seller
the Employment Agreement and the Noncompetition Agreement in
substantially the forms of Exhibit 2.2(h) hereof;
(i) The Buyer shall have executed and delivered to Seller
the Registration Agreement in substantially the form of Exhibit 2.3(f)
hereof; and
(j) The Buyer shall have executed and delivered such other
instruments and agreements as the Seller shall have reasonably
requested.
The Seller may waive any condition specified in this Section 7.2 if it executes
a writing so stating at or prior to the Closing.
ARTICLE 8
TERMINATION
8.1 TERMINATION RIGHTS. This Agreement may be terminated at any time
prior to the Closing:
(a) By the mutual consent of the Seller and the Buyer; or
(b) By either the Seller or the Buyer by a written notice to
the other if the Closing Date has not occurred on or prior to September
1, 1999 and the failure to complete the purchase and sale of the Shares
herein provided for on or before such date did not result from any
breach of this Agreement by the party seeking to terminate this
Agreement.
8.2 EFFECT OF TERMINATION. In the event of termination of this
Agreement pursuant to Section 8.1, this Agreement shall terminate, and have no
further force or effect (except for this Section 8.2 and Section 6.6 hereof) and
the transactions contemplated hereby
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shall be abandoned without further action by the parties. Except as otherwise
provided herein, any such termination shall not, however, relieve any party of
any liability for breach of any covenant or obligation under this Agreement.
ARTICLE 9
REMEDIES
9.1 SURVIVAL OF REPRESENTATIONS, WARRANTIES AND COVENANTS. The
representations, warranties, covenants and indemnities contained in this
Agreement shall survive the Closing until the expiration of the applicable
statute of limitation.
9.2 INDEMNIFICATION PROVISIONS FOR BENEFIT OF THE BUYER. In the event
that any of the representations or warranties of the Seller contained herein
shall be untrue or incorrect at the Closing (without regard to any "materiality"
or "Material Adverse Effect" exception contained therein), or in the event of a
breach of any covenants of the Seller contained herein, or in the event the
Equity Deficiency determined from the Pre-Closing Balance Sheet is determined to
have been understated, then the Seller agrees to indemnify, defend and hold
harmless the Buyer, together with the Surviving Corporation, and their
respective officers, directors, employees, successors and assigns (collectively,
the" Buyer Indemnified Parties") from and against the entirety of any judgments,
actions, suits, proceedings, investigations, claims, demands, costs, losses,
liabilities, fines, penalties, damages and expenses (including interest which
may be imposed in connection therewith and court costs and reasonable fees and
disbursements of counsel) (collectively, "Adverse Consequences") any of the
Buyer Indemnified Parties may suffer through and after the date of the claim for
indemnification resulting from, arising out of, relating to, in the nature of,
or caused by such failure of such representation and warranty to be true and
correct or by such breach or understatement.
9.3 INDEMNIFICATION PROVISIONS FOR BENEFIT OF THE SELLER. In the event
that any of the representations or warranties of Buyer contained herein shall be
untrue or incorrect at the Closing (without regard to any "materiality" or
"Material Adverse Effect" exception contained therein), or in the event of a
breach of any of the covenants of the Buyer contained herein, then the Buyer
agrees to indemnify and hold harmless the Seller, and his heirs, legal
representatives, successors or permitted assigns (collectively, the" Seller
Indemnified Parties") from and against the entirety of any Adverse Consequences
any of the Seller Indemnified Parties may suffer through and after the date of
the claim for indemnification resulting from, arising out of, relating to, in
the nature of, or caused by such failure of such representation and warranty to
be true and correct or by such breach.
9.4 MATTERS INVOLVING THIRD PARTIES.
(a) If any third party shall notify any Party (the
"Indemnified Party") with respect to any matter (a "Third-Party Claim")
which may give rise to a claim for indemnification against any other
Party (the "Indemnifying Party") under this Article 9, then the
Indemnified Party shall promptly notify the Indemnifying Party thereof
in writing; provided, however, that no delay on the part of the
Indemnified
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Party in notifying the Indemnifying Party shall relieve the
Indemnifying Party from any obligation hereunder unless (and then
solely to the extent) the Indemnifying Party is materially prejudiced
by such delay.
(b) An Indemnifying Party will have the right to defend the
Indemnified Party against the Third-Party Claim with counsel of its
choice reasonably satisfactory to the Indemnified Party so long as (i)
the Indemnifying Party notifies the Indemnified Party in writing within
thirty (30) days after the Indemnified Party has given notice of the
Third-Party Claim that the Indemnifying Party will indemnify the
Indemnified Party from and against the entirety of any Adverse
Consequences the Indemnified Party may suffer resulting from, arising
out of, relating to, in the nature of, or caused by the Third-Party
Claim; (ii) the Indemnifying Party provides the Indemnified Party with
evidence reasonably acceptable to the Indemnified Party that the
Indemnifying Party will have the financial resources to defend against
the Third-Party Claim and fulfill its indemnification obligations
hereunder; and (iii) the Indemnifying Party conducts the defense of the
Third-Party Claim actively and diligently. Unless and until the
Indemnifying Party makes an election in accordance with this Section
9.4(b), all of the Indemnified Party's reasonable costs and expenses
arising out of the defense, settlement or compromise of any such action
or claim shall be Adverse Consequences subject to indemnification
hereunder to the extent provided herein.
(c) So long as the Indemnifying Party is conducting the
defense of the Third-Party Claim in accordance with Section 9.4(b)
above, (i) the Indemnified Party may retain separate co-counsel at its
sole cost and expense and participate in the defense of the Third-Party
Claim, (provided that the costs and expense of such co-counsel shall be
for the account of the Indemnifying Party if the named parties to any
such action (including any impleaded parties) include both such
Indemnified Party and the Indemnifying Party and such Indemnified Party
shall have been advised in writing by such co-counsel that there may be
one or more legal defenses available to the Indemnifying Party which
are not available to, or the assertion of which would be adverse to the
interests of, the Indemnified Party); (ii) the Indemnified Party will
not consent to the entry of any judgment or enter into any settlement
with respect to the Third-Party Claim without the prior written consent
of the Indemnifying Party (not to be withheld unreasonably); and (iii)
the Indemnifying Party will not consent to the entry of any judgment or
enter into any settlement with respect to the Third-Party Claim without
the prior written consent of the Indemnified Party (not to be withheld
unreasonably).
9.5 OTHER INDEMNIFICATION LIMITATIONS. Notwithstanding anything
contained in this Article 9 to the contrary, the Seller shall have no liability
under Section 9.2 unless and until all such Adverse Consequences exceed in the
aggregate the Equity Surplus, if any; provided, however, that in the event the
Buyer's Adverse Consequences exceed such deductible amount, then Buyer shall be
entitled to recover only the excess of such Adverse Consequences, and not the
deductible amount.
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9.6 INDEMNIFICATION HOLDBACK ESCROW. In order to facilitate the payment
of any of Seller's indemnification obligations hereunder, the Buyer shall
holdback $100,000 of the cash portion of the Merger Consideration payable to the
Seller at the Closing (the "Holdback"), which amount shall be held by Buyer in
escrow pursuant to this Section 9.6. The Holdback shall be increased by the
amount, if any, of the overstatement in the event the Equity Deficiency as
determined from the Pre-Closing Balance Sheet is thereafter determined to have
been overstated, but in no event shall the Holdback be increased by more than
the amount of the reduction to the cash portion of the Merger Consideration made
at Closing pursuant to Section 1.8(b) hereof. If requested by the Seller, the
Holdback shall be deposited with a mutually acceptable financial institution,
provided that the Seller pays all costs associated with such third party escrow
agent. Upon notice of an indemnification claim by the Buyer Indemnified Parties
hereunder, the Buyer may deduct and retain from the Holdback the amount of the
Adverse Consequences therefor. In the event of a dispute over whether the Buyer
is entitled to Indemnification hereunder, the Buyer shall not deduct and retain
amounts from the Holdback unless and until the dispute is resolved. The then
remaining portion of the Holdback, if any, on the first annual anniversary of
the Closing shall be paid to the Seller in cash (net of any pending claims which
shall be resolved before any payment therefor is remitted to the Seller). The
Parties acknowledge and agree that notwithstanding the foregoing, the Buyer is
not limited to the Holdback with respect to its indemnification claims and
rights hereunder, and that the Buyer shall be entitled to offset any further
indemnification amounts hereunder against any other funds due from the Buyer to
the Seller, including any amounts under the Noncompetition Agreement.
9.7 DISPUTE RESOLUTION. In the event any dispute arises out of or in
relation to this Agreement, or a breach hereof, including any dispute regarding
the existence, validity, interpretation, scope or termination of this Agreement,
and if such dispute cannot be settled within a reasonable time through direct
negotiations between the parties, which the parties agree to pursue in good
faith, such dispute shall be submitted to binding arbitration conducted in
Hennepin, Minnesota, in accordance with the then-current Commercial Rules of the
American Arbitration Association ("AAA"). Any arbitration hereunder shall be
conducted by a panel of arbitrators consisting of three members constituted with
the assistance of the AAA, one of whom shall be a senior or retired judge of the
Minnesota State or Federal court system, one of whom shall be a mutually
acceptable member of the video conferencing solutions industry, and one of whom
shall be a mutually acceptable member of the accounting industry. The costs and
expenses of the arbitration shall be paid by the party against whom the
arbitrators render a decision, if a decision is rendered against a party,
otherwise the costs and expenses shall be shared equally between the Buyer, on
the one hand, and the Seller, on the other hand. The arbitrators shall have full
power and authority to rule on any question of law in the same manner as any
judge of any court of competent jurisdiction, and the decision of the
arbitrators shall be final and conclusive upon the Parties, and shall not be
subject to any appeal or review, except as provided under the Uniform
Arbitration Act, Minn. Stat. ss.572.08 et. seq. The arbitrators shall have full
power to make any award (including the award of equitable remedies) that shall
under the circumstances presented to them be deemed to be proper; provided that
the arbitrators shall not have the power to award punitive damages
31
<PAGE>
or to limit, expand or otherwise modify the terms of this Agreement. Judgment
may be entered upon any award rendered by the arbitrators in accordance with
applicable law in any court of competent jurisdiction.
ARTICLE 10
GENERAL PROVISIONS
10.1 PRESS RELEASES AND PUBLIC ANNOUNCEMENTS. No Party shall issue any
press release or make any public announcement relating to the subject matter of
this Agreement prior to the Closing without the prior written approval of the
Buyer and the Seller, except to the extent required by law or the rules of any
applicable securities exchange, and except as may be necessary in connection
with the solicitation of Buyer's shareholder approval at the Shareholder's
Meeting.
10.2 NO THIRD-PARTY BENEFICIARIES. This Agreement shall not confer any
rights or remedies upon any person or entity other than the Parties and their
respective heirs, legal representatives, successors and permitted assigns.
10.3 ENTIRE AGREEMENT. This Agreement (including the Disclosure
Schedules and Exhibits referred to herein) constitutes the entire agreement
among the Parties with respect to matters coming within the scope of the
provisions of this Agreement and supersedes any prior understandings,
agreements, or representations by or among the Parties, written or oral, to the
extent they related in any way to the subject matter hereof.
10.4 SUCCESSION AND ASSIGNMENT. This Agreement shall be binding upon
and inure to the benefit of the Parties named herein and their respective heirs,
legal representatives, successors and permitted assigns. No Party may assign
either this Agreement or any of its rights, interests, or obligations hereunder
without the prior written approval of the Buyer and the Seller.
10.5 COUNTERPARTS AND FACSIMILE DELIVERY. This Agreement may be
executed in one or more counterparts, and by different Parties on different
counterparts, each of which shall be deemed an original but all of which
together will constitute one and the same instrument. This Agreement shall be
effective once one or more counterparts hereof has been executed by each Party
hereto, whether or not all such signatures are on the same counterpart. Either
Party may deliver an executed counterpart of this Agreement by facsimile
transmission, provided the original executed counterpart is thereafter promptly
delivered to the other Party.
10.6 HEADINGS. The section headings contained in this Agreement are
inserted for convenience only and shall not affect in any way the meaning or
interpretation of this Agreement.
10.7 NOTICES. All notices, requests, demands, claims and other
communications hereunder shall be in writing. Any notice, request, demand,
claim, or other communication hereunder shall be deemed duly given if (and then
two business days after) it is sent by
32
<PAGE>
registered or certified mail, return receipt requested, postage prepaid, and
addressed to the intended recipient as set forth below:
If to the Seller
or the Company: Acoustic Communication Systems, Inc.
13705 26th Avenue North
Suite 110
Plymouth, MN 55441
Attn: Robin Sheeley
Telephone: (612) 550-2300
Facsimile: (612) 550-2301
Copy to: Best & Flanagan LLP
4000 US Bank Place
601 Second Avenue South
Minneapolis, MN 55402
Attn: James Michels
Telephone: (612) 341-9706
Facsimile: (612) 339-5897
If to the Buyer: VideoLabs, Inc.
5960 Golden Hill Drive
Golden Valley, MN 55416
Attn: James Hansen
Telephone: (612) 542-0061
Facsimile: (612) 542-0069
Copy to: Hinshaw & Culbertson
Suite 3100
222 South Ninth Street
Minneapolis, MN 55402
Attn: Shane R. Kelley, Esq.
Telephone: (612) 333-3434
Facsimile: (612) 334-8888
Any Party may send any notice, request, demand, claim, or other communication
hereunder to the intended recipient at the address set forth above using any
other means, (including personal delivery, expedited courier, messenger service,
telecopy, telex, ordinary mail, or electronic mail), but no such notice,
request, demand, claim, or other communication shall be deemed to have been duly
given unless and until it actually is received by the intended recipient. Any
Party may change the address to which notices, requests, demands, claims, and
other communications hereunder are to be delivered by giving the other parties
notice in the manner herein set forth.
33
<PAGE>
10.8 GOVERNING LAW. Except to the extent of the Merger, which shall be
governed by the laws of the States of Delaware and Minnesota, as applicable,
this Agreement shall be governed by and construed in accordance with the
domestic laws of the State of Minnesota without giving effect to any choice or
conflict of law provision or rule (whether of the State of Minnesota or any
other jurisdiction) that would cause the application of the laws of any
jurisdiction other than the State of Minnesota.
10.9 AMENDMENTS AND WAIVERS. No amendment of any provision of this
Agreement shall be valid unless the same shall be in writing and signed by the
Buyer and the Seller. No waiver by any Party of any default, misrepresentation,
or breach of warranty or covenant hereunder, whether intentional or not, shall
be deemed to extend to any prior or subsequent default, misrepresentation, or
breach of warranty or covenant hereunder or affect in any way any rights arising
by virtue of any prior or subsequent such occurrence.
10.10 SEVERABILITY. Any term or provision of this Agreement that is
invalid or unenforceable in any situation in any jurisdiction shall not affect
the validity or enforceability of the remaining terms and provisions hereof or
the validity or enforceability for the offending term or provision in any other
situation or in any other jurisdiction.
10.11 EXPENSES. Each Buyer, on the one hand, and the Seller, on the
other hand, will bear its own costs and expenses (including legal fees and
expenses and filing or processing fees imposes by governmental authorities)
incurred in connection with this Agreement and the transactions contemplated
hereby. The Company shall not pay or be liable for any of the Seller costs and
expenses (including the fees and expenses of their legal counsel or other
advisors) in connection with this Agreement.
10.12 CONSTRUCTION. The Parties have participated jointly in the
negotiation and drafting of this Agreement. In the event an ambiguity or
question of intent or interpretation arises, this Agreement shall be construed
as if drafted jointly by the Parties and no presumption or burden of proof shall
arise favoring or disfavoring any Party by virtue of the authorship of any of
the provisions of this Agreement. Any reference to any federal, state, local, or
foreign statute or law shall be deemed also to refer to all rules and
regulations promulgated thereunder, unless the context requires otherwise. The
word "including" shall mean including without limitation. The Parties intend
that each representation, warranty, and covenant contained herein, shall have
independent significance, and that all statements contained herein and in the
Disclosure Schedules and Exhibits hereto shall be deemed to be representations
and warranties hereunder. If any Party has breached any representation,
warranty, or covenant contained herein in any respect, the fact that there
exists another representation, warranty, or covenant relating to the same
subject matter (regardless of the relative levels of specificity) which the
Party has not breached shall not detract from or mitigate the fact that the
party is in breach of the first representation, warranty, or covenant.
34
<PAGE>
IN WITNESS WHEREOF, the Parties hereto have executed this Agreement on
the date first above written.
ACOUSTIC COMMUNICATION SYSTEMS, INC.
By /s/ Robin Sheeley
------------------------------------------
Robin Sheeley
Its President
/s/ Robin Sheeley
------------------------------------------
Robin Sheeley
VIDEOLABS, INC.
By /s/ James Hansen
------------------------------------------
James Hansen
Its President
VL ACQUISITION CO.
By /s/ James Hansen
------------------------------------------
James Hansen
Its President
35
<PAGE>
FIRST AMENDMENT TO AGREEMENT
AND
PLAN OF MERGER
THIS FIRST AMENDMENT TO AGREEMENT AND PLAN OF MERGER
("Amendment") is made and entered into effective as of this 25th day of May,
1999 by and among Videolabs, Inc., a Delaware corporation ("Buyer"), VL
Acquisition Co., a Delaware corporation formed by Buyer ("Merger Subsidiary"),
Robin Sheeley, a Minnesota resident ("Seller") and Acoustic Communication
Systems, Inc., a Minnesota corporation (the "Company"). Capitalized terms used
herein not otherwise defined shall have the definitions set forth in the
Agreement and Plan of Merger of Acoustic Communication Systems, Inc. into VL
Acquisition Co. dated May 17, 1999 (the "Merger Agreement").
The Parties agree that the Merger Agreement is hereby amended as
follows:
1. At the end of the third "WHEREAS" clause on the first page, the
following sentence is hereby added:
The Parties intend that the merger contemplated hereby will
qualify as a "statutory merger" under Section 368(a)(1)(A) of the
Internal Revenue Code of 1986, as amended.
2. Section 1.7(a) of the Merger Agreement is hereby amended to read as
follows:
(a) An amount of cash equal to Five Hundred Thousand Dollars
($500,000); PLUS
3. The following sentence shall be added at the end of Section 1.8(a)
of the Merger Agreement:
(a) For the purposes of this Section 1.8, the debt incurred by
the Company in connection with the distribution to Seller by the
Company pursuant to Section 1.10 below shall be considered equity for
the purpose of determining the Minimum Equity Level under this Section.
4. The following section 1.10 shall be added to the Merger Agreement
immediately following Section 1.9:
1.10 Loan and Distribution. No later than June 15, 1999,
Seller shall loan to the Company cash in an amount equal to Five
Hundred Thousand Dollars ($500,000) pursuant to a promissory note in
form and substance reasonably acceptable to Buyer (the "Note"). The
Note shall be unsecured and shall provide for interest at the
"Applicable Federal Rate" established by Internal Revenue Service
Regulations during the period which the loan is outstanding. The Note
shall be due and payable in full upon the consummation of the Merger at
the Closing, or on September 30, 1999 whichever occurs earlier. If the
Note becomes due and payable upon consummation
<PAGE>
of the Merger, the obligation to pay the Note shall be assumed by
Merger Subsidiary, and payment shall be made to Seller at the Closing.
Any contrary statement, covenant or representation contained herein
notwithstanding, immediately upon receipt of the funds loaned by
Seller, the Company shall make a distribution of retained earnings, in
the form of a dividend, in the amount of $500,000.00 to Seller.
5. At the Closing of the Merger, the Buyer shall contribute to the
capital of the Merger Subsidiary (or extend a loan which will be deemed to be
capital) the amount of $500,000.00 in cash, to finance the payment of the Note
to the Seller.
6. Notwithstanding anything in the Merger Agreement to the contrary,
the computation and calculation of net equity of the Company under Section 1.8
of the Merger Agreement (for purposes of determining compliance with the Minimum
Equity Level) shall be made after giving full and complete effect to all
transactions contemplated in this Amendment (being the loan, dividend, capital
contribution and loan repayment).
7. The balance of the Merger Agreement is unchanged, is hereby ratified
and confirmed in all respects and remains in full force and effect.
VIDEOLABS, INC.
By: /s/ James Hansen
--------------------------------
James Hansen
Its President
VL ACQUISITION CO.
By: /s/ James Hansen
--------------------------------
James Hansen
Its President
ACOUSTIC COMMUNICATION SYSTEMS, INC.
By: /s/ Robin Sheeley
--------------------------------
Robin Sheeley
Its President
ROBIN SHEELEY
By: /s/ Robin Sheeley
--------------------------------
<PAGE>
VIDEOLABS, INC.
SPECIAL MEETING IN LIEU OF ANNUAL MEETING OF SHAREHOLDERS
TUESDAY, JULY 13, 1999
3:30 P.M.
THE METROPOLITAN
5418 WAYZATA BLVD.
MINNEAPOLIS, MN 55416
- --------------------------------------------------------------------------------
VIDEOLABS, INC.
5960 GOLDEN HILLS DR., GOLDEN VALLEY, MN 55416 PROXY
- --------------------------------------------------------------------------------
The undersigned, having duly received the Notice of Special Meeting in lieu of
Annual Meeting and Proxy Statement dated June __, 1999, hereby appoints James W.
Hansen and Jill R. Larson proxies (each with the power to act alone and with the
power of substitution and revocation), to represent the undersigned and to vote,
as designated below, all common shares of VideoLabs, Inc. which the undersigned
is entitled to vote at a Special Meeting in lieu of Annual Meeting of
shareholders of VideoLabs, Inc., to be held at 3:30 pm on Tuesday, July 13,
1999, at The Metropolitan, 5418 Wayzata Blvd., Minneapolis, Minnesota, and any
adjournment thereof.
SEE REVERSE FOR VOTING INSTRUCTIONS.
<PAGE>
VOTE BY MAIL
Mark, sign and date your proxy card and return it in the postage-paid envelope
we've provided or return it to VideoLabs, Inc. c/o Shareowner Services-, P.O.
Box 64873, St. Paul, MN 55164-0873.
PLEASE DETACH HERE
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR ITEM 1.
<TABLE>
<S> <C>
1. Issuance of shares of common stock of the Company to effect the acquisition
by merger of Acoustic Communications Systems, Inc.
[ ] Vote FOR [ ] Vote AGAINST
2. Election of directors: 01 Richard F. Craven [ ] Vote FOR [ ] Vote WITHHELD
02 John Collins all nominees from all nominees
03 James W. Hansen
(INSTRUCTIONS: TO WITHHOLD AUTHORITY TO VOTE FOR ANY ________________________________________________
INDICATED NOMINEE, WRITE THE NUMBER(S) OF THE | |
NOMINEE(S) IN THE BOX PROVIDED TO THE RIGHT.) |________________________________________________|
3. In their discretion, the Proxies are authorized to vote upon such other
business as may properly come before the meeting.
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER DIRECTED HEREIN BY
THE UNDERSIGNED SHAREHOLDER. IF NO DIRECTION IS MADE, THIS PROXY WILL BE VOTED
FOR ALL DIRECTORS NAMED IN ITEM 2 AND FOR PROPOSAL 1.
Address Change? Mark Box [ ] Dated: _________________________, 1999.
Indicate changes below:
________________________________________________
| |
|________________________________________________|
Signature(s) in Box
Sign exactly as your name appears below, in the case
of joint tenancy, both joint tenants must sign;
fiduciaries please indicate title and authority.
</TABLE>
EXHIBIT 2.2(h)
EMPLOYMENT AGREEMENT
THIS AGREEMENT, dated effective as of June __, 1999, by and between
VideoLabs, Inc., a Delaware corporation (the "Company") and Robin Sheeley, a
Minnesota resident ("Employee").
WHEREAS, Employee is the sole shareholder of Acoustic Communication
Systems, Inc., which is being acquired by the Company pursuant to a Plan and
Agreement of Merger dated May __, 1999 (the "Merger Agreement"), which is
Closing on the date of this Agreement; and
WHEREAS, as a condition to Closing under the Merger Agreement, Employee
and the Company are entering into this Agreement to provide for the employment
of Employee by the Company upon and subject to the terms and conditions set
forth in this agreement.
NOW, THEREFORE, in consideration of the premises and the respective
undertakings of the Company and Employee set forth below, the Company and
Employee agree as follows:
1. EMPLOYMENT. The Company hereby employs Employee, and appoints
Employee to the position of Chief Technical Officer, and such other positions as
may be assigned by the Board of Directors or any executive officer of the
Company, and Employee accepts such employment and appointment and agrees to
perform services for the Company, for the period and upon the other terms and
conditions set forth in this agreement.
2. TERM OF EMPLOYMENT. The term of Employee's employment hereunder
shall commence on the effective date hereof and shall continue for an initial
term of three (3) years thereafter ("Term of Employment"). The Term of
Employment shall automatically renew for additional one year terms thereafter
unless prior written notice of nonrenewal is given by either Employee or the
Company at least sixty (60) days prior to the end of the Term of Employment.
Notwithstanding the foregoing, the Employee may terminate the Term of Employment
at any time upon ninety (90) days prior written notice to the Company.
3. POSITION AND DUTIES.
3.01 Service with Company. During the Term of Employment, Employee
agrees to perform such reasonable employment duties, consistent with the terms
of this agreement and the position held by Employee as provided in section 1
above, as the Board of Directors or any executive officer of the Company shall
assign to Employee from time to time. Such duties and employment
responsibilities shall be performed in accordance with the Company's rules,
regulations and instructions now in force or which may be adopted by the Company
in the future. In addition, during the Term of Employment the Company shall
<PAGE>
nominate, and recommend to its shareholders, the election of Employee to the
Board of Directors of the Company at each annual meeting of the shareholders.
3.02 Performance of Duties. During the Term of Employment, the
Employee agrees to serve the Company to the best of Employee's ability. The
Employee shall have active involvement and be fully committed to the business
and affairs of the Company, and shall devote Employee's full attention and time
to the affairs of the Company. Employee hereby confirms that Employee is under
no contractual commitments inconsistent with Employee's obligations set forth in
this agreement. During his Term of Employment, however, Employee shall not
render or perform services for any other corporation, firm, entity or person,
nor will Employee become involved in the operations or management of any other
commercial corporation, firm, entity or person, which is in competition with the
business of the Company.
3.03 Noncompetition. In addition to (and not in lieu of) any
noncompetition covenants given by Employee in connection with the Merger
Agreement, the Employee hereby covenants and agrees that during the Term of
Employment, and for a period of twelve (12) months following the termination of
Employee's employment for any reason (the "Restricted Term"), the Employee shall
not, for any person or entity other than the Company or its affiliates, directly
or indirectly, own, manage, operate, control, act as an advisor or consultant
to, or participate in, the ownership, management, operation, or control of any
business involving the manufacture or sale, whether at wholesale or retail, of
image capture, transmission or manipulation devices or the provision of
equipment, software or design, installation or maintenance services with regard
to the data, voice or video conferencing or presentation systems for customers
in any geographic market served by the Company or any of its subsidiaries during
the Restricted Term; provided, however, that the foregoing shall not prevent the
Employee from owning not more than a one percent (1%) interest in any entity
engaged in such a competing business whose securities are traded on any
securities exchange or in the over-the-counter markets.
4. COMPENSATION.
4.01 Base Salary. As base compensation for all services to be
rendered by the Employee under this agreement during the Term of Employment ,
the Company shall pay to Employee a minimum monthly base salary of $10,833 per
month beginning with the effective date of this agreement, which salary shall be
paid in accordance with the Company's normal payroll procedures and policies.
The board of directors may hereafter increase, but not decrease, such monthly
base salary.
4.02 Stock Options. Employee shall be granted as of the date hereof
an option to purchase shares of the Company's common stock, par value $.01 per
share, pursuant to the Company's NonQualified Stock Option Plan, as follows:
30,000 shares on the date of agreement vesting 10,000 shares per year on the
annual anniversary of this agreement.
2
<PAGE>
All options shall be granted at an exercise price equal to the closing
bid price for such common stock on the date of this agreement. All such stock
options shall be granted under, and pursuant to all terms and conditions of, the
Company's NonQualified Stock Option Plan.
4.03 Benefits. Employee shall be entitled to such company-sponsored
benefits as are provided to employees of the Company, subject to the terms and
conditions of the applicable policies and/or plans.
4.04 Expenses. The Company will pay or reimburse Employee for all
reasonable and necessary out-of-pocket expenses incurred by Employee in the
performance of Employee's duties under this agreement, subject to the
presentment of appropriate vouchers in accordance with the Company's normal
polices for expense verification.
4.05 Bonuses. Employee shall be entitled to participation in the
Company's management bonus pool. During the Term of Employment, Employee shall
be entitled receive, annually, a bonus of up to 100% of base salary based upon
agreed upon objectives and the Company's results for the year. The Employee
shall also be eligible for Company wide profit sharing pursuant to the Company's
employment policies from time to time in effect.
4.06 Vacation. Employee shall be entitled to paid vacation
consistent with the Company's normal vacation policy.
5. CONFIDENTIAL INFORMATION. Except as permitted or directed by the
Company's Board of Directors, during the Term of Employment or at any time
thereafter Employee shall not divulge, furnish or make accessible to anyone or
use in any way (other than in the ordinary course of the business of the
Company) any confidential or secret knowledge or information of the Company
which Employee has acquired or become acquainted with or will acquire or become
acquainted with prior to the termination of the Term of Employment, whether
developed by Employee or by others, concerning any trade secrets, confidential
or secret designs, processes, formulae, plans, devices or material (whether or
not patented or patentable) directly or indirectly useful in any aspect of the
business of the Company, any customer or supplier lists of the Company, any
confidential or secret development or research work of the Company, or any other
confidential information or secret aspects of the business of the Company.
Employee acknowledges that the above-described knowledge or information
constitutes a unique and valuable asset of the Company and represents a
substantial investment of time and expense by the Company and its predecessors,
and that any disclosure or other use of such knowledge or information other than
for the sole benefit of the Company would be wrongful and would cause
irreparable harm to the Company. The foregoing obligations of confidentiality,
however, shall not apply to any knowledge or information which is now published
or which subsequently becomes generally publicly known in the form in which it
was obtained from the Company, other than as a direct or indirect result of the
breach of this agreement by Employee. It is hereby acknowledged that it is not
the intention of the forgoing provisions to preclude the Employee from securing
gainful employment with
3
<PAGE>
subsequent employers who are not competitors of the Company or who would
otherwise have no reasonable commercial use of the above described knowledge or
information, but only to protect the Company's legitimate proprietary
information or knowledge.
6. VENTURES. If, during the Term of Employment, Employee is engaged in
or associated with the planning or implementing of any project, program or
venture involving the Company and a third party or parties, all rights in such
project, program or venture shall belong to the Company. Except as formally
approved by the Company's Board of Directors, Employee shall not be entitled to
any interest in such project, program or venture or to any commission, finder's
fee or other compensation in connection therewith other than the salary or other
compensation to be paid to Employee as provided in this agreement.
7. PATENT, COPYRIGHTS AND RELATED MATTERS.
7.01 Disclosure and Assignment. Employee will promptly disclose in
writing to the Company complete information concerning each and every invention,
discovery, improvement, device, design, apparatus, practice, process, method or
product, whether patentable or not, made, developed, perfected, devised,
conceived or first reduced to practice by Employee, either solely or in
collaboration with others, during the Term of Employment, or within six months
thereafter, whether or not during regular working hours, relating to any phase
of the business of the Company conducted at such time (hereinafter referred to
as "Developments"). Employee, to the extent that Employee has the legal right to
do so, hereby acknowledges that any and all of said Developments are the
property of the Company and hereby assigns and agrees to assign to the Company
and all of the Employee's right, title and interest in and to any and all of
such Developments.
7.02 Future Developments. As to any future Developments made by
Employee and which are first conceived or reduced to practice during the Term of
Employment, or within six months thereafter, but which are claimed for any
reason to belong to an entity or person other than the Company, Employee will
promptly disclose the same in writing to the Company and shall not disclose the
same to others if the Company, within sixty (60) days thereafter, shall claim
ownership of such Developments under the terms of this agreement. If the Company
makes such claim, Employee agrees that, insofar as the rights (if any) of
Employee are involved, it will be settled by arbitration in accordance with the
rules of the American Arbitration Association. The locale of the arbitration
shall be Minneapolis, Minnesota (or other locale convenient to the Company's
principal executive offices). If the Company makes no such claim, Employee
hereby acknowledges that the Company has made no promise to receive and hold in
confidence any such information disclosed by Employee.
7.03 Limitation on Sections 7.01 and 7.02. The provisions of
sections 7.01 and 7.02 shall not apply to any Development meeting the following
conditions:
(a) such Development was developed entirely on Employee's own
time; and
4
<PAGE>
(b) such Development was made without the use of any Company
equipment, supplies, facility or trade secret information; and
(c) either:
(i) such Development does not relate (i) directly to the
business of the Company, or (ii) to the Company's actual
or demonstrably anticipated research or development; or
(ii) such Development does not result from any work performed
by the Employee for the Company.
7.04 Employee Assistance. Employee agrees to assist Company in
obtaining patents or copyrights on any Developments assigned to the Company that
Company, in its sole discretion, seeks to patent or copyright. Employee also
agrees to sign all documents and do all things deemed necessary by Company to
obtain and/or maintain such patents or copyrights, to assign them to Company,
and to protect them against infringement. The obligations of this Section 7 are
continuing and shall survive the termination of Employee's employment with
Company.
7.05 Appointment of Agent. Employee irrevocably appoints the Company
to act as Employee's agent and attorney in fact to perform all acts necessary to
obtain/or maintain patents or copyrights to any Developments assigned by
Employee to Company under this agreement if (i) Employee refuses to perform
those acts or (ii) is unavailable, within the meaning of the United States
patent and copyright laws. Employee acknowledges that the grant of the foregoing
power of attorney is coupled with an interest and shall survive the death or
disability of Employee and the termination of Employee's employment with
Company.
8. TERMINATION.
8.01 Grounds for Termination. This agreement shall be terminated
prior to the end of the Term of Employment under the following circumstances:
(a) By mutual agreement of Employee and the Company;
(b) Immediately upon the death of Employee;
(c) Upon delivery by Employee of a notice of termination to the
Company, in which event this agreement shall be terminated
ninety (90) days after receipt of such notice; and
(d) Immediately for Cause, in the event of (i) Employee's personal
dishonesty, willful misconduct, breach of fiduciary duty,
intentional failure to perform stated duties, willful
violation of any laws (other than
5
<PAGE>
minor traffic violations or similar offenses), or material
breach of the policies or procedures of the Company. The
Company agrees to give Employee thirty (30) days notice to
cure those limited items that can actually be cured prior to
effecting termination pursuant to this subsection, such
termination to be deemed to be termination for cause; or (ii)
the bankruptcy or insolvency of the Company.
Notwithstanding any termination of this agreement, Employee, in consideration of
his employment hereunder to the date of such termination, shall remain bound by
the provisions of this agreement which specifically relate to periods,
activities or obligations upon or subsequent to the termination of Employee's
employment, and the Company shall remain bound by the provisions of section 5
(to the extent that they relate to time periods prior to the date of such
termination).
8.02 Severance Payment for Termination Following a Change in
Control. If a Change in Control of the Company occurs during the Term of
Employment and, following such Change in Control, either (i) the Company
terminates the employment of Employee other than for Cause, or (ii) Employee
voluntarily terminates their employment, in either case during the six (6) month
period following the Change in Control, Employee shall be entitled to the
severance compensation provided in this Section 8.02, in full and complete
satisfaction of any and all obligations of the Company under this Agreement and
as the sole and exclusive remedy or severance available to Employee as a result
of the termination. The amount of the severance compensation shall be equal to
the sum of Employee's then current minimum base salary for twelve (12) months.
Any severance compensation shall be paid in equal installments over the twelve
(12) month period following the effective date of termination, and shall be
subject to applicable withholdings and in accordance with the regular payroll
practices of the Company. Any employee benefits provided to Employee shall
terminate upon the effective date of termination, subject to such continuation
rights as may be available to Employee by law. Nothing in this agreement,
including the severance payments described in this section, shall in any way be
construed to extend the period of Employee's employment with the Company.
For purposes of this section, a Change in Control shall mean either of
the following:
(a) a change in control of a nature that would be required to be
reported in response to Item 6(e) of Schedule 14A of
Regulation 14A promulgated under the Securities Exchange Act
of 1934, as amended (the "Exchange Act"), whether or not the
Company is then subject to such reporting requirement; or
(b) a merger or consolidation to which the Company is a party if,
following the effective date of such merger or consolidation,
the individuals and entities who were shareholders of the
Company prior to the effective date of such merger or
consolidation have beneficial ownership (as
6
<PAGE>
defined in Rule 13d-3 under the Exchange Act) of less than
fifty percent (50%) of the combined voting power of the
surviving corporation following the effective date of such
merger or consolidation.
8.03 Surrender of Records and Property. Upon termination of
his employment with the Company, Employee shall deliver promptly to the Company
all records, manuals, books, blank forms, documents, letters, memoranda, notes,
notebooks, reports, data, tables, calculations or copies thereof, which are the
property of the Company or which relate in any way to the business, products,
practices or techniques of the Company, and all other property, trade secrets
and confidential information of the Company, including, but not limited to, all
documents which in whole or in part contain any trade secrets or confidential
information of the Company, which in any of these cases are in Employee's
possession or under Employee's control. Provided, however, that Employee shall
be entitled to retain items of sentimental value, copies of which shall be
provided to the Company at the request of the Company and at the Company's
expense.
9. MISCELLANEOUS.
9.01 Governing Law. This agreement is made under and shall be
governed by and construed in accordance with the laws of the State of Minnesota.
9.02 Prior Agreements. This agreement contains the entire agreement
of the parties relating to the subject matter hereof and supersedes all prior
agreements and understandings with respect to such subject matter, and the
parties hereto have made no agreements, representations or warranties relating
to the subject matter of this agreement which are not set forth herein.
9.03 Withholding Taxes. The Company may withhold from all salary,
bonus, severance or other benefits payable under this agreement all federal,
state, city or other taxes as shall be required pursuant to any law or
governmental regulation or ruling.
9.04 Amendments. No amendment or modification of this agreement
shall be deemed effective unless made in writing and signed by the parties
hereto.
9.05 No Waiver. No term or condition of this agreement shall be
deemed to have been waived, nor shall there be any estoppel to enforce any
provisions of this agreement, except by a statement in writing signed by the
party whom enforcement of the waiver or estoppel is sought. Any written waiver
shall not be deemed a continuing waiver unless specifically stated, shall
operate only as to the specific term or condition waived and shall not
constitute a waiver of such term or condition for the future or as to any act
other than specifically waived.
9.06 Severability. To the extent any provision of this agreement
shall be invalid or unenforceable, it shall be considered deleted herefrom and
the remainder of such provision and of this agreement shall be unaffected and
shall continue in full force and effect.
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In furtherance and not in limitation of the foregoing, should the duration or
geographical extent of, or business activities covered by, any provision of this
agreement be in excess of that which is valid and enforceable under applicable
law, then such provision shall be construed to cover only that duration, extent
or activities which may validly and enforceably be covered. Employee
acknowledges the uncertainty of the law in this respect and expressly stipulates
that this agreement be given the construction which renders its provisions valid
and enforceable to the maximum extent (not exceeding its express terms) possible
under applicable law.
9.07 Assignment. This agreement shall not be assignable, in whole or
in part, by either party without the written consent of the other party.
9.08 Injunctive Relief. Employee agrees that it would be difficult
to compensate the Company fully for damages for any violation of the provisions
of this agreement, including without limitation the provisions of sections 5, 6,
and 7. Accordingly, Employee specifically agrees that the Company shall be
entitled to temporary and permanent injunctive relief to enforce the provisions
of this agreement and that such relief may be granted without the necessity of
proving actual damages. This provision with respect to injunctive relief shall
not, however, diminish the right of the Company to claim and recover damages in
addition to injunctive relief.
9.09 Mandatory Arbitration, In the event any dispute arises under
this agreement, or as to the breach hereof, and if the dispute cannot be settled
within a reasonable time through direct negotiations between the parties, which
the parties agree to pursue in good faith, such dispute shall be submitted to
binding arbitration conducted in Minneapolis, Minnesota, in accordance with the
then-current Commercial Rules of the American Arbitration Association ("AAA").
The costs and expenses of the arbitration shall be paid by the party against
whom the arbitrators render a decision, if a decision is rendered against a
party, otherwise the costs and expenses shall be shared equally by Employee and
the Company. The arbitrators shall have full power and authority to rule on any
question of law in the same manner as any judge of any court of competent
jurisdiction, and the decision of the arbitrators shall be final and conclusive
upon the parties, and shall not be subject to any appeal or review if the
arbitrators have followed the Commercial Rules of the AAA. The arbitrators shall
have full power to make any award (including the award of equitable remedies)
that shall under the circumstances presented to them be deemed to be proper;
provided that the arbitrators shall not have the power to award punitive damages
or to limit, expand or otherwise modify the terms of this agreement. Judgment
may be entered upon any award rendered by the arbitrators in accordance with
applicable law in any court of competent jurisdiction.
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IN WITNESS WHEREOF, the parties have executed this agreement effective
as of the date and year first written above.
VIDEOLABS, INC.
By
-------------------------------------
Its
----------------------------------
---------------------------------------
Robin Sheeley
9
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EXHIBIT 2.2(h) CONTINUED
NONCOMPETITION AGREEMENT
THIS NONCOMPETITION AGREEMENT (the "AGREEMENT"), is made and entered
into effective as of June ___, 1999, by and between Robin Sheeley, a Minnesota
resident (the "PRINCIPAL"), and VideoLabs, Inc., a Delaware corporation (the
"COMPANY").
RECITALS:
WHEREAS, pursuant to the terms of a Plan and Agreement of Merger dated
May ___, 1999, by and between, among others, Acoustic Communication Systems,
Inc., a Minnesota corporation ("ACS") and Company (the "MERGER AGREEMENT"), ACS
has agreed to be merged with and into a subsidiary of Company; and
WHEREAS, as a condition to Company's agreement to the merger, Company
has required that the Principal refrain from competing with the Company pursuant
to the terms of this Agreement; and
WHEREAS, the Principal is willing to enter into this Agreement subject
to the consideration set forth in this Agreement.
AGREEMENTS:
NOW, THEREFORE, in consideration of the foregoing and the mutual
covenants and agreements set forth herein, the receipt and sufficiency of which
are acknowledged, the parties agree as follows:
1. Restrictive Covenants. In consideration of the amount payable
pursuant to Section 3, the consummation of the transactions pursuant to the
Merger Agreement and other agreements, and in addition to (and not in lieu of)
any other covenants given by Principal in connection with the Merger Agreement
and that certain Employment Agreement by and between Principal and the Company
of even date herewith (the "Employment Agreement"), Principal covenants and
agrees that for a period of twelve (12) years commencing on the date of this
Agreement (the "Term of Restriction"):
(a) Principal shall not, for any person or entity other than
VideoLabs or its affiliates, directly or indirectly, own, manage,
operate, join, control or participate in, be compensated by or be
connected with as an officer, employee, agent, consultant, partner,
stockholder, or otherwise, any Competitive Business (as defined below)
anywhere within Iowa, Minnesota, Nebraska, North Dakota, South Dakota,
or
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Wisconsin. As used in this Agreement, the term "COMPETITIVE BUSINESS"
means any business involving the provision of equipment, software or
design, installation or maintenance services with regard to the data,
voice or video conferencing or presentation systems for customers;
provided, however, that the foregoing shall not prevent the Principal
from owning not more than a one percent (1%) interest in any entity
engaged in such a competing business whose securities are traded on any
securities exchange or in the over-the-counter markets.
(b) Except as permitted or directed by the Company's Board of
Directors, during the Term of Restriction or at any time thereafter
Principal shall not divulge, furnish or make accessible to anyone or use
in any way (other than in the ordinary course of the business of the
Company) any confidential or secret knowledge or information of ACS
which Principal has acquired or become acquainted with prior to or as of
the Closing of the Merger Agreement, whether developed by Principal or
by others, concerning any trade secrets, confidential or secret designs,
processes, formulae, plans, devices or material (whether or not patented
or patentable) directly or indirectly useful in any aspect of the
business of the ACS, any customer or supplier lists of the ACS, any
confidential or secret development or research work of ACS, or any other
confidential information or secret aspects of the business of ACS.
Principal acknowledges that the above-described knowledge or information
constitutes a unique and valuable asset of ACS and represents a
substantial investment of time and expense by ACS and its predecessors,
and that any disclosure or other use of such knowledge or information
other than for the sole benefit of ACS or the Company would be wrongful
and would cause irreparable harm to ACS. Both during and after the Term
of Restriction, Principal will refrain from any acts or omissions that
would reduce the value of such knowledge or information to ACS. The
foregoing obligations of confidentiality, however, shall not apply to
any knowledge or information which is now published or which
subsequently becomes generally publicly known in the form in which it
was obtained from the ACS, other than as a direct or indirect result of
the breach of this Agreement by Principal. It is hereby acknowledged
that it is not the intention of the forgoing provisions to preclude the
Principal from securing gainful employment with subsequent employers who
are not competitors of ACS or the Company or who would otherwise have no
reasonable commercial use of the above described knowledge or
information, but only to protect ACS's legitimate proprietary
information or knowledge.
The covenants of the Principal set forth in this Section 1 are collectively
referred to as the "RESTRICTIVE COVENANTS."
2. Reasonable Scope of Restrictive Covenants; Severability. The
necessity of protection against the competition of Principal and the nature and
scope of such protection has been carefully considered and negotiated by the
parties to this Agreement. Principal agrees and acknowledges that (a) the
duration, scope and geographic areas applicable to the covenant not to compete
described in this Section are fair, reasonable and necessary and (b)
11
<PAGE>
adequate consideration has been received by Principal for such obligations. If,
however, for any reason any term or provision of this Agreement, or any part or
aspect thereof, shall be deemed by a court of competent jurisdiction to be
overly broad in scope or duration or both, the court considering the same shall
have the power and hereby is authorized and the parties agree that it may modify
such term or provision to limit such scope and duration so that such term or
provision is no longer overly broad and to enforce the same as so limited.
Subject to the foregoing sentence, in the event that any provisions of this
Agreement shall be held to be invalid or unenforceable for any reason, such
invalidity or unenforceability shall attach only to such provisions and shall
not affect or render invalid or unenforceable any other provision of this
Agreement. Subject further to the foregoing, if a court of any one or more
jurisdictions holds any term or provision of this Agreement, or any part or
aspect thereof, unenforceable by reason of the breadth of such scope or
otherwise, then such determination will not affect or render invalid or
unenforceable such term or provision in any other jurisdiction; such terms and
provisions as they relate to each such jurisdiction being, for this purpose,
severable into separate and independent covenants.
3. Consideration. In consideration of the provisions of this Agreement,
the Company agrees to pay Principal the sum of $750,000, in cash or other
immediately available funds, on April 7, 2000. The Principal may at his
discretion defer such payment for up to twelve (12) successive one-year periods,
in which event the deferred balance shall accrue interest at the Company's short
term, cost of borrowing.
4. Remedies for Breach. In the event that the Principal shall breach the
Restrictive Covenants, then the Principal shall pay to the Company, as
liquidated damages and as full and complete settlement of any damages incurred
by Company, an amount equal to the then unamortized balance of the consideration
(which will amortize evenly over the one hundred forty-four (144) months at
$5,208.33 per month) set forth in Section 3 of this Agreement, plus attorneys'
fees and collection costs. The balance of the consideration to be repaid by
Principal to the Company shall be calculated by rounding the date of Principal's
breach to the first day of the nearest month and subtracting that period of
Principal's compliance with the Restrictive Covenants from one hundred
forty-four (144). However, in the event of Principal's actual or threatened
breach of this Agreement and Principal's failure to repay the consideration as
set forth above, the Company shall be entitled to such full and complete relief
as any court of equity can then afford, including, but not limited to, the
remedies of specific performance and injunctive relief, until the repayment
obligation set forth above is paid in full. To secure the foregoing repayment
obligation, from the time of payment by the Company under Section 3 above, and
until the end of the Term of Restriction, Principal shall deliver, and Company
shall hold in pledge, an equivalent number of shares of the Buyer's Stock (as
defined in the Merger Agreement) equal to the unamortized balance of such
amount. The number of shares so held in pledge shall be reasonably adjusted from
time to time to reflect changes in the unamortized balances and the fair value
of such shares. Principal shall be entitled to substitute collateral of
equivalent value upon notice to Company. Upon termination of the Term of
Restriction, payment of the foregoing amount, or such substitution, the Company
shall return to Principal any shares then held in pledge.
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<PAGE>
5. Termination. This Agreement shall immediately terminate upon the
occurrence of any of the following:
(a) At the option of Principal, provided that to exercise this
option the Principal provides Company with: (i) thirty (30) days
written notification thereof; and (ii) a cash payment with the
notice in an amount equal to the unamortized balance of the
consideration as set forth in Sections 3 and 4 of this Agreement
from and after the date of the notice (or the date of
termination, if later); provided, however, that in calculating
the cash payment for the unamortized portion, Principal shall
not be required to pay for any period as to which Principal is
restricted from competing under any other agreement with
Company, so long as Principal is not in breach thereof.
(b) Immediately upon a "Change in Control" as defined herein. For
purposes of this section, a Change in Control shall mean either
of the following:
(i) a change in control of a nature that would be required
to be reported in response to Item 6(e) of Schedule 14A
of Regulation 14A promulgated under the Securities
Exchange Act of 1934, as amended (the "Exchange Act"),
whether or not the Company is then subject to such
reporting requirement; or
(ii) a merger or consolidation to which the Company is a
party if, following the effective date of such merger or
consolidation, the individuals and entities who were
shareholders of the Company prior to the effective date
of such merger or consolidation have beneficial
ownership (as defined in Rule 13d-3 under the Exchange
Act) of less than fifty percent (50%) of the combined
voting power of the surviving corporation following the
effective date of such merger or consolidation.
6. Miscellaneous.
6.01 Governing Law. This Agreement is made under and shall be governed
by and construed in accordance with the laws of the State of Minnesota.
6.02 Prior Agreements. This Agreement, the Merger Agreement, and the
Employment Agreement contain the entire agreement of the parties relating to the
subject matter hereof and thereof and supersedes all prior agreements and
understandings with respect to such subject matter, and the parties hereto and
thereto have made no agreements,
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representations or warranties relating to the subject matter of this Agreement,
the Merger Agreement, and the Employment Agreement which are not set forth
herein and therein.
6.03 Withholding Taxes. The Company may withhold from the consideration
all federal, state, city or other taxes as shall be required pursuant to any law
or governmental regulation or ruling.
6.04 Amendments. No amendment or modification of this Agreement shall be
deemed effective unless made in writing and signed by the parties hereto.
6.05 No Waiver. No term or condition of this Agreement shall be deemed
to have been waived, nor shall there be any estoppel to enforce any provisions
of this agreement, except by a statement in writing signed by the party whom
enforcement of the waiver or estoppel is sought. Any written waiver shall not be
deemed a continuing waiver unless specifically stated, shall operate only as to
the specific term or condition waived and shall not constitute a waiver of such
term or condition for the future or as to any act other than specifically
waived.
6.06 Assignment. This Agreement shall not be assignable, in whole or in
part, by either party without the written consent of the other party. However,
the Company may assign the Agreement to an affiliate under the control of the
Company or under common control with the Company without the consent of the
Principal.
IN WITNESS WHEREOF, the parties have executed this Agreement effective
as of the date and year first written above.
VIDEOLABS, INC.
By
----------------------------------------
Its
------------------------------------
-------------------------------------------
Robin Sheeley
14
EXHIBIT 2.3(f)
REGISTRATION AGREEMENT
THIS AGREEMENT is made as of June ___, 1999, among VideoLabs, Inc., a
Delaware corporation (the "Company") and Robin Sheeley, a resident of Minnesota
(the "Investor").
The Investor is a party to an Agreement and Plan of Merger dated as of
May __, 1999 ("Merger Agreement") pursuant to which Accoustic Communications
Systems, Inc., a corporation wholly-owned by Investor, was merged into a
wholly-owned subsidiary of the Company (the "Merger"). In connection with the
Merger, the Investor received ________ shares of Common Stock from the Company
and the Company has agreed to provide the registration rights set forth in this
Agreement. Unless otherwise provided in this Agreement, capitalized terms used
herein shall have the meanings set forth in paragraph 8 hereof or in the Merger
Agreement.
The parties hereto agree as follows:
1. PIGGYBACK REGISTRATIONS.
a. Right to Piggyback. Whenever the Company proposes to
register any of its securities under the Securities Act and the
registration form to be used may be used for the registration of
Investor Registrable Securities (as hereinafter defined) (a "Piggyback
Registration"), the Company shall give prompt written notice to the
Investor of its intention to effect such a registration and shall
include in such registration all Investor Registrable Securities with
respect to which the Company has received a written request for
inclusion therein within 20 days after the receipt of the Company's
notice (subject to paragraphs 2(c) and (d) below).
b. Piggyback Expenses. The Registration Expenses shall be paid
in all Piggyback Registrations as provided in Paragraph 4 below.
c. Priority on Primary Registrations. If a Piggyback
Registration is an underwritten primary registration on behalf of the
Company, and the managing underwriter(s) advise the Company in writing
that in their opinion the number of securities requested to be included
in such registration exceeds the number which can be sold in such
offering without adversely affecting the marketability of the offering,
the Company shall include in such registration (i) first, the
securities the Company proposes to sell, (ii) second, the Investor
Registrable Securities requested to be included in such registration
and (iii) third, other securities requested to be included in such
registration.
<PAGE>
d. Priority on Secondary Registrations. If a Piggyback
Registration is an underwritten secondary registration on behalf of
holders of the Company's securities, and the managing underwriters
advise the Company in writing that in their opinion the number of
securities requested to be included in such registration exceeds the
number which can be sold in such offering without adversely affecting
the marketability of the offering, the Company shall include in such
registration (i) first, the securities requested to be included therein
by the holders requesting such registration, (ii) second, the Investor
Registrable Securities requested to be included in such registration,
and (iii) third, other securities requested to be included in such
registration.
e. Selection of Underwriters. If any Piggyback Registration is
an underwritten offering, the selection of investment banker(s) and
manager(s) for the offering shall be made solely by the Company.
f. Other Registrations. If the Company has previously filed a
registration statement with respect to Investor Registrable Securities
pursuant to the paragraph 1 and if such previous registration has not
been withdrawn or abandoned, the Company shall not file or cause to be
effected any other registration of any of its equity securities or
securities convertible or exchangeable into or exercisable for its
equity securities under the Securities Act (except on Form S-8 or any
successor form), whether on its own behalf or at the request of any
holder or holders of such securities, until a period of at least 180
days has elapsed from the effective date of such previous registration.
2. HOLDBACK AGREEMENTS.
a. The Investor shall not effect any public sale or
distribution (including sales pursuant to Rule 144) of equity
securities of the Company, or any securities convertible into or
exchangeable or exercisable for such securities, during the seven days
prior to and the 180-day period beginning on the effective date of any
underwritten Piggyback Registration in which Investor Registrable
Securities are included (except as part of such underwritten
registration), unless the underwriters managing the registered public
offering otherwise agree.
b. The Company (i) shall not effect any public sale or
distribution of its equity securities, or any securities convertible
into or exchangeable or exercisable for such securities, during the
holdback period mandated by the managing underwriters of the registered
public offering, which period shall not exceed the 180-day period
beginning on the effective date of any underwritten Piggyback
Registration (except as part of such underwritten registration or
pursuant to registrations on Form S-8 or any successor form), and (ii)
shall cause each holder of more than 8% of its Common Stock, or any
securities convertible into or exchangeable or exercisable for Common
Stock, purchased from the Company at any time after the date of this
Agreement (other than in a registered public offering) to agree not to
effect any public sale or
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distribution (including sales pursuant to Rule 144) of any such
securities during such period (except as part of such underwritten
registration, if otherwise permitted).
3. REGISTRATION PROCEDURES. Whenever the Investor has requested
that any Investor Registrable Securities be registered pursuant to this
Agreement, the Company shall use its best efforts to effect the registration and
the sale of such Investor Registrable Securities in accordance with the intended
method of disposition thereof, and pursuant thereto the Company shall as
expeditiously as possible:
a. prepare and file with the Securities and Exchange
Commission a registration statement with respect to such Investor
Registrable Securities and use its best efforts to cause such
registration statement to become effective (provided that before filing
a registration statement or prospectus or any amendments or supplements
thereto, the Company shall furnish to the counsel selected by the
Investor copies of all such documents proposed to be filed, which
documents shall be subject to the review and reasonable comment of such
counsel);
b. notify the Investor of the effectiveness of each
registration statement filed hereunder and prepare and file with the
Securities and Exchange Commission such amendments and supplements to
such registration statement and the prospectus used in connection
therewith as may be necessary to keep such registration statement
effective for a period of not less than 180 days and comply with the
provisions of the Securities Act with respect to the disposition of all
securities covered by such registration statement during such period in
accordance with the intended methods of disposition by the sellers
thereof set forth in such registration statement;
c. furnish to the Investor such number of copies of such
registration statement, each amendment and supplement thereto, the
prospectus included in such registration statement (including each
preliminary prospectus) and such other documents as the Investor may
reasonably request in order to facilitate the disposition of the
Investor Registrable Securities owned by the Investor;
d. use its best efforts to register or qualify such Investor
Registrable Securities under such other securities or blue sky laws of
such jurisdictions as the Investor reasonably requests and do any and
all other acts and things which may be reasonably necessary or
advisable to enable the Investor to consummate the disposition in such
jurisdictions of the Investor Registrable Securities owned by the
Investor (provided that the Company shall not be required to (i)
qualify generally to do business in any jurisdiction where it would not
otherwise be required to qualify but for this subparagraph, (ii)
subject itself to taxation in any such jurisdiction or (iii) consent to
general service of process in any such jurisdiction);
e. notify the Investor, at any time when a prospectus relating
thereto is required to be delivered under the Securities Act, of the
happening of any event as a result of which the prospectus included in
such registration statement contains an
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untrue statement of a material fact or omits any fact necessary to make
the statements therein not misleading, and, at the request of the
Investor, the Company shall prepare a supplement or amendment to such
prospectus so that, as thereafter delivered to the purchasers of such
Investor Registrable Securities, such prospectus shall not contain an
untrue statement of a material fact or omit to state any fact necessary
to make the statements therein not misleading;
f. cause all such Investor Registrable Securities to be listed
on each securities exchange on which similar securities issued by the
Company are then listed and, if not so listed, to be listed on the NASD
automated quotation system;
g. provide a transfer agent and registrar for all such
Investor Registrable Securities not later than the effective date of
such registration statement;
h. enter into such customary agreements (including
underwriting agreements in customary form) and take all such other
actions as the Investor or the underwriters, if any, reasonably request
in order to expedite or facilitate the disposition of such Investor
Registrable Securities (including effecting a stock split or a
combination of shares);
i. otherwise use its best efforts to comply with all
applicable rules and regulations of the Securities and Exchange
Commission, and make available to its security holders, as soon as
reasonably practicable, an earnings statement covering the period of at
least twelve months beginning with the first day of the Company's first
full calendar quarter after the effective date of the registration
statement, which earnings statement shall satisfy the provisions of
Section 11(a) of the Securities Act and Rule 158 thereunder;
j. in the event of the issuance of any stop order suspending
the effectiveness of a registration statement, or of any order
suspending or preventing the use of any related prospectus or
suspending the qualification of any common stock included in such
registration statement for sale in any jurisdiction, the Company shall
use its best efforts promptly to obtain the withdrawal of such order;
k. use its best efforts to cause such Investor Registrable
Securities covered by such registration statement to be registered with
or approved by such other governmental agencies or authorities as may
be necessary to enable the Investor to consummate the disposition of
such Investor Registrable Securities; and
l. in the case of a primary offering, obtain a cold comfort
letter from the Company's independent public accountants in customary
form and covering such matters of the type customarily covered by cold
comfort letters as the Investor reasonably requests.
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<PAGE>
4. REGISTRATION EXPENSES.
a. All expenses incident to the Company's performance of or
compliance with this Agreement, including without limitation all
registration and filing fees, fees and expenses of compliance with
securities or blue sky laws, printing expenses, messenger and delivery
expenses, fees and disbursements of custodians, and fees and
disbursements of counsel for the Company and all independent certified
public accountants, underwriters (excluding discounts and commissions)
and other Persons retained by the Company (all such expenses being
herein called "Registration Expenses") shall be borne as provided in
this Agreement, except that the Company shall, in any event, pay its
internal expenses (including, without limitation, all salaries and
expenses of its officers and employees performing legal or accounting
duties), the expense of any annual audit or quarterly review, the
expense of any liability insurance and the expenses and fees for
listing the securities to be registered on each securities exchange on
which similar securities issued by the Company are then listed or on
the NASD automated quotation system.
b. In connection with each Piggyback Registration, the
Investor shall be responsible for the fees and disbursements of legal
counsel chosen by the Investor.
c. To the extent Registration Expenses are required to be paid
by the Company pursuant to paragraph 5(a), each holder of securities
included in any registration hereunder shall pay those Registration
Expenses allocable to the registration of such holder's securities so
included, and any Registration Expenses not so allocable shall be borne
by all sellers of securities included in such registration in
proportion to the aggregate selling price of the securities to be so
registered.
5. INDEMNIFICATION.
a. The Company agrees to indemnify, to the extent permitted by
law, the Investor, its officers and directors and each Person who
controls the Investor ( within the meaning of the Securities Act)
against all losses, claims, damages, liabilities and expenses caused by
any untrue or alleged untrue statement of material fact contained in
any registrable statement, prospectus or preliminary prospectus or any
amendment thereof or supplement thereto or any omission or alleged
omission of a material fact required to be stated therein or necessary
to make the statements therein not misleading, except insofar as the
same are caused by or contained in any information furnished in writing
to the Company by the Investor expressly for use therein or by the
Investor's failure to deliver a copy of the registration statement or
prospectus or any amendments or supplements thereto after the Company
has furnished the Investor with a sufficient number of copies of the
same. In connection with an underwritten offering, the Company shall
indemnity such underwriters, their officers and directors and each
Person who controls such underwriters (within the meaning of the
Securities Act) to the same extent as provided above with respect to
the indemnification of the Investor.
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<PAGE>
b. In connection with any registration statement in which the
Investor is participating, the Investor shall furnish to the Company in
writing such information and affidavits as the Company reasonably
requests for use in connection with any such registration statement or
prospectus and, to the extent permitted by law, shall indemnify the
Company, its directors and officers and each Person who controls the
Company (within the meaning of the Securities Act) against any losses,
claims, damages, liabilities and expenses resulting from any untrue or
alleged untrue statement of material fact contained in the registration
statement, prospectus or preliminary prospectus or any amendment
thereof or supplement thereto or any omission or alleged omission of a
material fact, required to be stated therein or necessary to make the
statements therein not misleading, but only to the extent that such
untrue statement or omission is contained in any information or
affidavit so furnished in writing by the Investor; provided that the
obligation to indemnify shall be limited to the net amount of proceeds
received by the Investor from the sale of Investor Registrable
Securities pursuant of such registration statement.
c. Any Person entitled to indemnification hereunder shall (i)
give prompt written notice to the indemnifying party of any claim with
respect to which it seeks indemnification (provided that the failure to
give prompt notice shall not impair any Person's right to
indemnification hereunder to the extent such failure has not prejudiced
the indemnifying party) and (ii) unless in such indemnified party's
reasonable judgment a conflict of interest between such indemnified and
indemnifying parties may exist with respect to such claim, permit such
indemnifying party to assume the defense of such claim with counsel
reasonably satisfactory to the indemnified party. If such defense is
assumed, the indemnifying party shall not be subject to any liability
for any settlement made by the indemnified party without its consent
(but such consent shall not be unreasonably withheld). An indemnifying
party who is not entitled to, or elects not to, assume the defense of a
claim shall not be obligated to pay the fees and expenses of more than
one counsel for all parties indemnified by such indemnifying party with
respect to such claim, unless in the reasonable judgment of any
indemnified party a conflict of interest may exist between such
indemnified party and any other of such indemnified parties with
respect to such claim.
d. The indemnification provided for under this Agreement shall
remain in full force and effect regardless of any investigation made by
or on behalf of the indemnified party or any officer, director or
controlling Person of such indemnified party and shall survive the
transfer of securities. The Company also agrees to make such
provisions, as are reasonably requested by any indemnified party, for
contribution to such party in the event the Company's indemnification
is unavailable for any reason.
6. DEFINITIONS.
"Common Stock" means the Company's common stock, $.01 par
value.
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"Investor Registrable Securities" means (i) the ______ shares
of Common Stock issued to the Investor pursuant to the Merger
Agreement, or (ii) any equity securities issued or issuable with
respect to the securities referred to in clause (i) by way of a stock
dividend or stock split or in connection with a combination of shares,
recapitalization, merger, consolidation or other reorganization. As to
any particular Investor Registrable Securities, such securities shall
cease to be Investor Registrable Securities when they have been
distributed to the public pursuant to an offering registered under the
Securities Act or sold to the public through a broker, dealer or market
maker in compliance with Rule 144 under the Securities Act (or any
similar rule then in force) or otherwise sold, transferred or disposed
of by the Investor.
"Person" means an individual, a partnership, a corporation, a
limited liability company, an association, a joint stock company, a
trust, a joint venture, an unincorporated organization and a government
entity or any department, agency or political subdivision thereof.
"Securities Act" means the Securities Act of 1933, as amended
from time to time.
"Securities Exchange Act" means the Securities Exchange Act of
1934, as amended from time to time.
7. MISCELLANEOUS.
a. No Inconsistent Agreements. The Company shall not hereafter
enter into any agreement with respect to its securities which is
inconsistent with or violates the rights granted to the Investor in
this Agreement.
b. Remedies. Any Person having rights under any provision of
this Agreement shall be entitled to enforce such rights specifically to
recover damages caused by reason of any breach of any provision of this
Agreement and to exercise all other rights granted by law. The parties
hereto agree and acknowledge that money damages may not be an adequate
remedy for any breach of the provisions of this Agreement and that any
party may in its sole discretion apply to any court of law or equity of
competent jurisdiction (without posting any bond or other security) for
specific performance and for other injunctive relief in order to
enforce or prevent violation of the provisions of this Agreement.
c. Amendments and Waivers. Except as otherwise provided
herein, the provisions of this Agreement may be amended or waived only
upon the prior written consent of the Company and the Investor.
d. Successors and Assigns. All covenants and agreements in
this Agreement by or on behalf of any of the parties hereto shall bind
and inure to the benefit of the respective permitted successors and
assigns of the parties hereto. The
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<PAGE>
provisions of this Agreement which are for the benefit of the Investor
are not transferable and may not be assigned or otherwise transferred
to any person or purchaser of Investor Registrable Securities or
Warrant.
e. Severability. Whenever possible, each provision of this
Agreement shall be interpreted in such manner as to be effective and
valid under applicable law, but if any provision of this Agreement is
held to be prohibited by or invalid under applicable law, such
provision shall be ineffective only to the extent of such prohibition
or invalidity, without invalidating the remainder of this Agreement.
f. Counterparts. This Agreement may be executed simultaneously
in two or more counterparts, any one of which need not contain the
signatures of more than one party, but all such counterparts taken
together shall constitute one and the same Agreement.
g. Descriptive Headings. The descriptive headings of this
Agreement are inserted for convenience only and do not constitute a
part of this Agreement.
h. Governing Law. This Agreement shall be governed by, and
construed in accordance with, the laws of the State of Minnesota.
i. Notices. All notices, demands or other communications to be
given or delivered under or by reason of the provisions of this
Agreement shall be in writing and shall be deemed to have been given
when delivered personally to the recipient, sent to the recipient by
reputable overnight courier service (charges prepaid) or mailed to the
recipient by certified or registered mail, return receipt requested and
postage prepaid. Such notices, demands and other communications shall
be sent to the addressed indicated below:
To the Investor: Robin Sheeley
--------------------
--------------------
To the Company: VideoLabs, Inc.
3960 Golden Hill Drive
Golden Valley, MN 55466
Attn: Chairman
with copies to: Hinshaw & Culbertson
3100 Piper Jaffray Tower
222 South Ninth Street
Minneapolis, Minnesota 55402
Attn: Shane R. Kelley
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<PAGE>
or to such other address or to the attention of such other person as the
recipient party has specified by prior written notice to the sending party.
IN WITNESS WHEREOF, the parties have executed this Registration
Agreement as of the date first written above.
VIDEOLABS, INC.
By
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Its
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ROBIN SHEELEY
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