SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Amendment No. 1
to
FORM 8-K/A
Current Report Pursuant to Section 13 or 15(d) of
The Securities Exchange Act of 1934
Date of Report (Date of Earliest Event Reported): May 8, 2000(February 23, 2000)
Productivity Technologies Corp.
(Exact Name of Registrant as Specified in its Charter)
Delaware
(State or Other Jurisdiction of Incorporation)
0-24242 13-3764753
(Commission File Number) (I.R.S. Employer Identification No.)
206 South Main Street, 2nd Floor, Ann Arbor, Michigan 48104
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, Including Area Code: (734) 996-1700
<PAGE>
Item 7. Financial Statements and Exhibits
As reported in the Current Report on Form 8-K of Productivity Technologies
Corp. (the "Company") filed with the Securities and Exchange Commission dated
March 9, 2000, on February 23, 2000, the Company, through its WCS Acquisition
Corp. subsidiary, purchased substantially all of the assets of Westland Control
Systems, Inc. ("Westland") pursuant to an Asset Purchase Agreement entered into
on such date by and among, the Company, WCS Acquisition Corp., Westland and
Thomas G. Lee. The Company is amending such Current Report to include the
financial statements required under Item 7(a)(4) of Form 8-K and the related pro
forma financial information required under Item 7(b) of Form 8-K.
(a) Financial Statements of Business Acquired.
The following financial information is included in Annex A hereto: Balance
sheets of Westland as of December 31, 1997, December 31, 1998, September 30,
1998 (unaudited) and September 30, 1999 (unaudited) along with related
statements of income, changes in stockholder's equity and cash flows.
(b) Pro forma financial information.
The following pro forma data is included in Annex B hereto: Pro forma
balance sheet (unaudited) as of December 31, 1999, pro forma income statements
for the year ended June 30, 1999 and six months ended December 31, 1999.
(c) Exhibits
2.1 Asset Purchase Agreement dated as of February 23, 2000 among WCS
Acquisition Corp., Productivity Technologies Corp., Westland
Control Systems, Inc. and Thomas G. Lee.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
PRODUCTIVITY TECHNOLOGIES CORP.
Date: May 8, 2000 By: /s/ Jesse Levine
----------------------
Jesse Levine, Chief Financial Officer
2
<PAGE>
ANNEX A
Independent Auditors' Report
Westland Control Systems, Inc.
Canton, Michigan
We have audited the accompanying balance sheets of Westland Control Systems,
Inc. as of December 31, 1998 and 1997, and the related statements of income,
stockholder's equity, and cash flows for the years then ended. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Westland Control 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.
BDO SEIDMAN, LLP
Troy, Michigan
December 22, 1999
<PAGE>
WESTLAND CONTROL SYSTEMS, INC.
BALANCE SHEETS - DECEMBER 31, 1998 AND 1997
December 31, 1998 1997
Assets
Current Assets
Cash and equivalents $2,739,643 $1,390,572
Accounts receivable 396,159 1,922,051
Advances to related parties (Note 1) 3,165,201 1,966,672
Inventories 35,000 56,645
Prepaid expenses and other current assets 17,306 38,004
-----------------------
Total Current Assets 6,353,309 5,373,944
-----------------------
Equipment
Office equipment 62,118 65,031
Automotive equipment 56,692 72,242
Machinery and equipment 55,445 59,080
-----------------------
174,255 196,353
Less accumulated depreciation 155,055 166,693
-----------------------
Net Equipment 19,200 29,660
-----------------------
$6,372,509 $5,403,604
=======================
Liabilities and Stockholder's Equity
Current Liabilities
Accounts payable $ 191,299 $ 280,273
Accrued expenses 21,136 79,497
-----------------------
Total Liabilities 212,435 359,770
-----------------------
Stockholder's Equity
Common stock, $1 par - shares authorized 50,000;
issued and outstanding 1,000 1,000 1,000
Retained earnings 6,159,074 5,042,834
-----------------------
Total Stockholder's Equity 6,160,074 5,043,834
-----------------------
$6,372,509 $5,403,604
=======================
See accompanying summary of accounting policies and notes to financial
statements.
4
<PAGE>
WESTLAND CONTROL SYSTEMS, INC.
STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
Year Ended December 31, 1998 1997
Net Sales (Note 4) $ 8,425,381 $ 8,628,492
Cost of Sales 5,013,780 4,897,485
---------------------------
Gross Profit 3,411,601 3,731,007
Selling, General and Administrative Expenses 1,733,487 1,961,867
---------------------------
Operating Income 1,678,114 1,769,140
===========================
Other Income (Expense)
Interest income 95,719 52,428
Interest expense (1,842) (102)
Miscellaneous (751) 79
---------------------------
Total Other Income - Net 93,126 52,405
---------------------------
Net Income $ 1,771,240 $ 1,821,545
===========================
See accompanying summary of accounting policies and notes to financial
statements.
STATEMENTS OF CHANGES IN STOCKHOLDER'S EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
<TABLE>
<CAPTION>
Total
Common Stock Retained Shareholder's
Shares Amount Earnings Equity
<S> <C> <C> <C> <C>
Balance, January 1, 1997 1,000 $ 1,000 $ 3,655,744 $ 3,656,744
Net income -- -- 1,821,545 1,821,545
Distributions -- -- (434,455) (434,455)
-------------------------------------------------------------------------
Balance, December 31, 1997 1,000 1,000 5,042,834 5,043,834
Net income -- -- 1,771,240 1,771,240
Distributions -- -- (655,000) (655,000)
-------------------------------------------------------------------------
Balance, December 31, 1998 1,000 $ 1,000 $ 6,159,074 $ 6,160,074
=========================================================================
</TABLE>
See accompanying summary of accounting policies and notes to financial
statements.
5
<PAGE>
WESTLAND CONTROL SYSTEMS, INC.
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
<TABLE>
<CAPTION>
Year Ended December 31, 1998 1997
<S> <C> <C>
Cash Flows From Operating Activities
Net income $ 1,771,240 $ 1,821,545
Adjustments to reconcile net income to net
cash provided by operating activities
Depreciation 14,280 16,668
Loss on disposal of equipment 751 --
Changes in operating assets and liabilities
Decrease (increase) in accounts receivable 1,525,892 (832,963)
Decrease (increase) in inventory 21,645 (41,645)
Decrease (increase) in prepaid expenses
and other current assets 20,698 (11,339)
Increase (decrease) in accounts payable (88,974) 55,221
Increase (decrease) in accrued expenses (58,361) 79,497
------------------------------------
Net Cash Provided By Operating Activities 3,207,171 1,086,984
====================================
Cash Flows From Investing Activities
Net (increase) decrease in advances to related parties (1,198,529) 1,259
Purchase of equipment (5,650) (11,345)
Proceeds from sale of equipment 1,079 --
------------------------------------
Net Cash Used In Investing Activities (1,203,100) (10,086)
------------------------------------
Cash Flows Used In Financing Activities
Distributions to stockholder (655,000) (434,455)
------------------------------------
Net Increase In Cash 1,349,071 642,443
Cash and Equivalents, at beginning of year 1,390,572 748,129
------------------------------------
Cash and Equivalents, at end of year $ 2,739,643 $ 1,390,572
====================================
Supplemental Cash Flow Information
Cash Paid During the Year For
Interest $ 1,842 $ 102
Income taxes -- --
</TABLE>
See accompanying summary of accounting policies and notes to financial
statements.
6
<PAGE>
WESTLAND CONTROL SYSTEMS, INC.
SUMMARY OF ACCOUNTING POLICIES
Nature of Business Westland Control Systems, Inc. (the "Company")
designs and manufactures custom electrical control
panels which are used primarily in the equipment
build industry. The Company's customers are
concentrated within the automotive supplier
industry and are located primarily in southeastern
Michigan.
Use of Estimates 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
(1) assets and liabilities and disclosure of
contingent assets and liabilities at the date of
the financial statements, and (2) the reported
amounts of revenues and expenses during the
reporting period. Actual results could differ from
those estimates.
Concentrations of Credit Financial instruments which potentially subject the
Risk Company to concentrations of credit risk consist
principally of cash and accounts receivable. At
times, the amount of cash on deposit in banks may
be in excess of the respective financial
institutions FDIC insurance limit. The Company
attempts to minimize credit risk by reviewing all
customers' credit histories before extending credit
and by monitoring customers' credit exposure on a
continuing basis. The Company establishes an
allowance for possible losses on accounts
receivable, if necessary, based upon factors
surrounding the credit risk of specific customers,
historical trends and other information. No
allowance was deemed necessary at December 31, 1998
and 1997.
Fair Values of Financial The carrying amounts of the Company's cash and
Instruments equivalents, accounts receivable, accounts payable
and accrued expenses approximate fair value because
of the short maturity of these items.
Revenue Recognition The Company recognizes sales and cost of sales upon
shipment to the customer.
Inventories Inventories are valued at the lower of cost or
market and include mainly raw materials and spare
parts. Cost is determined on a specific
identification method.
Equipment and Depreciation Equipment is stated at cost. Depreciation is
computed over the estimated useful lives (5-7
years) of the assets using accelerated methods.
The cost of additions and improvements which
substantially extend the useful life of a
particular asset are capitalized. Repair and
maintenance costs are charged to expense as
incurred.
Statements of Cash Flows For purposes of this statement, the Company
considers certificates of deposit with maturities
of less than three months to be cash equivalents.
7
<PAGE>
WESTLAND CONTROL SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS
1. Related Party The Company leases its facility in Canton, Michigan
Transactions from a related entity whose owners include the sole
stockholder of the Company and a member of the
stockholder's immediate family. Rental expense
under the lease for the years ended December 31,
1998 and 1997 was approximately $175,000 and
$153,000, respectively. Future minimum payments
under this lease are: 1999 - $175,000; 2000,
$175,000; and $72,917 in 2001.
In addition, during the years ended December 31,
1998 and 1997, the Company made advances to the
related entity for working capital purposes. These
advances are non-interest bearing and are due on
demand. Advances outstanding as of December 31,
1998 and 1997 were $2,165,201 and $1,966,673,
respectively. These advances were repaid during
1999 via stockholder distributions.
During 1998, the Company advanced $1,000,000 to its
sole stockholder. The advance is non-interest
bearing and is due on demand. This advance was
repaid during 1999 via a stockholder distribution.
2. Employee Benefit Plan The Company has a 401(k) plan covering
substantially all employees. Participants can elect
to contribute from 2% to 15% of their annual
compensation to the Plan. The Company's
contributions to the Plan are discretionary. The
Company contributed approximately $11,000 and
$9,000 for the years ended December 31, 1998 and
1997, respectively.
3. Taxes on Income The Company has elected, with the consent of its
stockholder, to be treated as a Subchapter S
corporation for federal income tax purposes. This
election provides, among other things, that the
Company's net income for federal income tax
purposes will pass through to the individual
stockholder. Accordingly, no provision for federal
income taxes is recorded in the accompanying
financial statements.
4. Major Customers For the years ended December 31, 1998 and 1997, the
Company's sales to its major customers (each
representing more than 10% of total net sales)
amounted to approximately 83% and 78% of total
annual sales, respectively. During 1998, there were
three major customers representing 36%, 32% and 15%
of total net sales; during 1997 there were two
major customers representing 51% and 27% of total
net sales.
8
<PAGE>
WESTLAND CONTROL SYSTEMS, INC.
BALANCE SHEETS (UNAUDITED) -- FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 1999 AND 1998
September 30, 1999 1998
Assets
Current Assets
Cash and equivalents $1,270,965 $3,263,105
Accounts receivable 749,779 1,263,678
Advances to related parties 6,968 2,137,235
Inventories 226,035 75,000
Prepaid expenses and other current assets -- 15,492
-----------------------
Total Current Assets 2,253,747 6,754,510
-----------------------
Equipment
Office equipment 64,295 65,031
Automotive equipment 32,763 72,242
Machinery and equipment 55,445 64,730
Leasehold improvements 1,400 --
-----------------------
153,903 202,003
Less accumulated depreciation 142,963 175,572
-----------------------
Net Equipment 10,940 26,431
-----------------------
$2,264,687 $6,780,941
=======================
Liabilities and Stockholder's Equity
Current Liabilities
Accounts payable $ 464,050 $ 566,232
Accrued expenses 28,791 7,502
-----------------------
Total Liabilities 492,841 573,734
-----------------------
Stockholder's Equity
Common stock, $1 par - shares authorized 50,000;
issued and outstanding 1,000 1,000 1,000
Retained earnings 1,770,846 6,206,207
-----------------------
Total Stockholder's Equity 1,771,846 6,207,207
-----------------------
$2,264,687 $6,780,941
=======================
See accompanying note to financial statements.
9
<PAGE>
WESTLAND CONTROL SYSTEMS, INC.
STATEMENTS OF INCOME (UNAUDITED)
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998
Nine Months Ended September 30, 1999 1998
Net Sales $4,512,545 $6,547,374
Cost of Sales 2,986,956 3,788,683
-------------------------
Gross Profit 1,525,589 2,758,691
Selling, General and Administrative Expenses 738,008 1,009,161
-------------------------
Operating Income 787,581 1,749,530
-------------------------
Other Income
Interest income 62,728 68,843
Miscellaneous 14,375 --
-------------------------
Total Other Income 77,103 68,843
-------------------------
Net Income $ 864,684 $1,818,373
=========================
See accompanying note to financial statements.
STATEMENTS OF STOCKHOLDER'S EQUITY (UNAUDITED)
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998
<TABLE>
<CAPTION>
Total
Common Stock Retained Shareholder's
Shares Amount Earnings Equity
<S> <C> <C> <C> <C>
Balance, January 1, 1998 1,000 $ 1,000 $ 5,042,834 $ 5,043,834
Net income -- -- 1,818,373 1,818,373
Distributions -- -- (655,000) (655,000)
---------------------------------------------------------------------------
Balance, September 30, 1998 1,000 $ 1,000 $ 6,206,207 $ 6,207,207
===========================================================================
Balance, January 1, 1999 1,000 $ 1,000 $ 6,159,074 $ 6,160,074
Net income -- -- 864,684 864,684
Distributions -- -- (5,252,912) (5,252,912)
---------------------------------------------------------------------------
Balance, September 30, 1999 1,000 $ 1,000 $ 1,770,846 $ 1,771,846
===========================================================================
</TABLE>
See accompanying note to financial statements.
10
<PAGE>
WESTLAND CONTROL SYSTEMS, INC.
STATEMENTS OF CASH FLOWS (UNAUDITED)
FOR THE NINE MONTHS ENDED SEPTEMBER 1999 AND 1998
<TABLE>
<CAPTION>
Nine Months Ended September 30, 1999 1998
<S> <C> <C>
Cash Flows From Operating Activities
Net income $ 864,684 $ 1,818,373
Adjustments to reconcile net income to net
cash provided by operating activities
Depreciation 5,302 8,879
Loss on disposal of equipment 1,458 --
Changes in operating assets and liabilities
Decrease (increase) in accounts receivable (353,620) 658,373
Increase in inventory (191,035) (18,355)
Decrease in prepaid expenses and other current assets 17,306 22,512
Increase in accounts payable 272,751 285,959
Increase (decrease) in accrued expenses 7,655 (71,995)
----------------------------------
Net Cash Provided By Operating Activities 624,501 2,703,746
----------------------------------
Cash Flows From Investing Activities
Proceeds from sale of equipment 1,500 --
Net increase in advances to related parties -- (170,563)
Purchase of equipment -- (5,650)
----------------------------------
Net Cash Provided By (Used In) Investing Activities 1,500 (176,213)
----------------------------------
Cash Flows Used In Financing Activities
Distributions to stockholder (2,094,679) (655,000)
----------------------------------
Net (Decrease) Increase In Cash (1,468,678) 1,872,533
Cash and Equivalents, at beginning of period 2,739,643 1,390,572
----------------------------------
Cash and Equivalents, at end of period $ 1,270,965 $ 3,263,105
==================================
Supplemantal Cash Flow Informaiton
Non-Cash Financing Transactions
Receivables distributed to stockholders $3,158,233 $ --
==================================
</TABLE>
See accompanying note to financial statements.
NOTE TO FINANCIAL STATEMENTS
1. Basis of The accompanying unaudited financial statements
Presentation have been prepared in accordance with generally
accepted accounting principles for interim
financial information and with the instructions to
Form 8-K and Article 10 of Regulation S-X.
Accordingly, they do not include all of the
information and footnotes required by generally
accepted accounting principles for complete
financial statements. The information furnished in
the accompanying balance sheets, statements of
income, stockholder's equity and cash flows,
reflect all adjustments which are, in the opinion
of management, necessary for a fair presentation of
the aforementioned financial statements for the
interim periods. Operating results for the nine
months ended September 30, 1999 and 1998, are not
necessarily indicative of the results that may be
expected for the years ended December 31, 1999 and
1998. For further information, refer to the
financial statements and footnotes thereto included
in the Company's audited financial statements for
the years ended December 31, 1998 and 1997.
11
<PAGE>
ANNEX B
Unaudited Pro Forma Consolidated Balance Sheet as of December 31, 1999 and the
Unaudited Pro Forma Statements of Income for the Year Ended June 30, 1999 and
Six Months ended December 31, 1999.
The unaudited pro forma consolidated balance sheet as of December 31, 1999 and
the unaudited pro forma consolidated statements of income for the year ended
June 30, 1999 and six months ended December 31, 1999 include the accounts of
Productivity Technologies Corp. ("PTC") and Westland Control Systems, Inc.
("WCSI") for the respective periods. The unaudited pro forma financial
statements have been prepared to illustrate the estimated effects of the asset
purchase agreement between PTC and WCSI ("Asset Purchase"). The Asset Purchase
is accounted for as an acquisition of the assets of WCSI by PTC under the
purchase method of accounting. The pro forma financial statements were derived
by adjusting the historical financial statements of PTC and WCSI for certain
transactions pursuant to the Asset Purchase described in the notes to the
unaudited pro forma consolidated financial statements. The unaudited pro forma
consolidated balance sheet was prepared as if the Asset Purchase had occurred on
December 31, 1999. The unaudited pro forma consolidated statements of income for
the year ended June 30, 1999 and six months ended December 31, 1999 were
prepared as if the Asset Purchase had occurred on July 1, 1998. The pro forma
financial data does not purport to be indicative of the results which actually
could have been obtained had such transactions been completed as of the assumed
dates or which may be obtained in the future.
12
<PAGE>
Unaudited Pro Forma Consolidated Balance Sheet
As of December 31, 1999
<TABLE>
<CAPTION>
Pro Forma Adjustments
---------------------- Proforma
PTC Debit Credit Totals
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Assets
Current Assets
Cash and equivalents $ 11,880 $ 3,600,000(1) $ 3,650,000(2) $ --
138,120(5) 100,000(3)
Short-term investments, including accrued interest 300,841 -- -- 300,841
Receivables, net of allowance for doubtful accounts:
Contracts 9,184,986 -- -- 9,184,986
Trade -- 800,000(2) -- 800,000
Costs and estimated earnings in excess of billings on
uncompleted contracts 6,708,854 -- -- 6,708,854
Inventories 1,028,626 400,000(2) -- 1,428,626
Prepaid expenses and other current assets 139,331 -- -- 139,331
Deferred income taxes 494,197 -- -- 494,197
- ---------------------------------------------------------------------------------------------------------------------------------
Total Current Assets 17,868,715 4,938,120 3,750,000 19,056,835
=================================================================================================================================
Property and Equipment
Land 591,514 -- -- 591,514
Buildings and improvements 4,862,975 -- -- 4,862,975
Machinery and equipment 3,952,558 86,000(2) -- 4,038,558
Transportation equipment 31,500 24,000(2) -- 55,500
- ---------------------------------------------------------------------------------------------------------------------------------
9,438,547 110,000 -- 9,548,547
Less accumulated depreciation 1,784,726 -- -- 1,784,726
- ---------------------------------------------------------------------------------------------------------------------------------
Net Property and Equipment 7,653,821 110,000 -- 7,763,821
- ---------------------------------------------------------------------------------------------------------------------------------
Other Assets
Goodwill, net of accumulated amortization 2,432,724 4,440,000(2) -- 7,059,724
187,000(4)
Patent -- 750,000(3) -- 750,000
Other assets 595,139 -- 187,000(4) 408,139
- ---------------------------------------------------------------------------------------------------------------------------------
Total Other Assets 3,027,863 5,377,000 187,000 8,217,863
- ---------------------------------------------------------------------------------------------------------------------------------
$ 28,550,399 $ 10,425,120 $ 3,937,000 $ 35,038,519
=================================================================================================================================
</TABLE>
13
<PAGE>
<TABLE>
<CAPTION>
Pro Forma Adjustments
---------------------- Proforma
PTC Debit Credit Totals
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Liabilities and Stockholder's Equity
Current Liabilities
Accounts payable $ 2,980,102 $ -- $ -- $ 2,980,102
Accrued expenses
Commissions payable 510,845 -- -- 510,845
Payroll and related withholdings 238,276 -- -- 238,276
Other 897,488 -- -- 897,488
Billings in excess of costs and estimated earnings
on uncompleted contracts 477,229 -- -- 477,229
Current maturities of exective deferred compensation
agreements 348,560 -- -- 348,560
Current maturities of long-term debt 441,004 -- 420,000(2) 1,129,124
-- 130,000(3)
138,120(5)
- ---------------------------------------------------------------------------------------------------------------------------------
Total Current Liabilities 5,893,504 -- 688,120 6,581,624
Executive deferred compensation agreements, less
current maturities 759,792 -- -- 759,792
Long-term debt, less current maturities 12,374,840 -- 3,600,000(1) 18,174,840
-- 1,680,000(2)
-- 520,000(3)
- ---------------------------------------------------------------------------------------------------------------------------------
Total Liabilities 19,028,136 -- 6,488,120 25,516,256
=================================================================================================================================
Stockholders' Equity
Common stock, .$001 par value, 20,000,000 shares
authorized; 2,475,000 shares outstanding 2,475 -- -- 2,475
Additional paid-in capital 9,966,408 -- -- 9,966,408
Retained earnings (deficit) (446,620) -- -- (446,620)
- ---------------------------------------------------------------------------------------------------------------------------------
Total Stockholders' Equity 9,522,263 -- -- 9,522,263
- ---------------------------------------------------------------------------------------------------------------------------------
$ 28,550,399 $ -- $ 6,488,120 $ 35,038,519
=================================================================================================================================
</TABLE>
(1) Represents receipt of cash ($3,600,000) from the bank in the form of a
loan, to finance the purchase of the assets of Westland Control Systems,
Inc. The loan bears interest at 10%, with principal payments of 25% due in
two years, 15% due the third and fourth years and the remainder of the note
due in the fifth year.
(2) Represents payment for assets ($5,750,000). The payment was made with
$3,650,000 in cash and a $2,100,000 note payable to Westland Control
Systems, Inc. which bears interest at 9.25% and is to be repaid in five
equal annual installments beginning in one year. The purchase price is
allocated to Accounts Receivable ($800,000), Inventories ($400,000), and
Property and Equipment ($110,000) based on fair value (which approximates
carrying value) with the excess ($4,440,000) being allocated to Goodwill.
(3) Represents payment for purchase of patent ($750,000) owned by Thomas Lee.
The payment was made with $100,000 in cash and a $650,000 note payable to
Thomas Lee, which bears interest at 9.25% and is to be repaid in five equal
annual installments beginning in one year.
(4) To record direct expenses associated with the purchase as additional
purchase price. The direct expenses include approximately $55,000 in legal
fees, $59,000 in due dillengence fees, $38,000 in accounting fees, and
$35,000 in bank closing fees.
(5) To reclassify negative cash to current maturities of Long-term Debt.
14
<PAGE>
Unaudited Pro Forma Statement of Income
For the Year Ended June 30, 1999
<TABLE>
<CAPTION>
Pro Forma Adjustments
--------------------- Pro Forma
PTC WCSI Debit Credit Totals
================================================================================================================================
<S> <C> <C> <C> <C> <C>
Revenues
Contracts earned $ 34,001,248 $ -- $ -- $ -- $ 34,001,248
Net sales -- 7,277,320 -- -- 7,277,320
- --------------------------------------------------------------------------------------------------------------------------------
Total Revenues 34,001,248 7,277,320 -- -- $ 41,278,568
- --------------------------------------------------------------------------------------------------------------------------------
Cost of Revenues
Cost of contracts earned 24,609,631 -- -- -- 24,609,631
Cost of sales -- 4,851,647 -- -- 4,851,647
- --------------------------------------------------------------------------------------------------------------------------------
Total Cost of Revenues 24,609,631 4,851,647 -- -- 29,461,278
- --------------------------------------------------------------------------------------------------------------------------------
Gross Profit 9,391,617 2,425,673 -- -- 11,817,290
Selling, General and Administrative Expenses 7,526,448 1,551,124 231,000(1) 291,000(3) 9,065,572
45,000(2)
3,000(4)
- --------------------------------------------------------------------------------------------------------------------------------
Operating Income 1,865,169 874,549 279,000 291,000 2,751,718
- --------------------------------------------------------------------------------------------------------------------------------
Other Income (Expense)
Interest income 82,466 109,298 -- -- 191,764
Interest expense (835,619) (1,842) (614,000)(5) -- (1,451,461)
Miscellaneous (37,726) 1,049 -- -- (36,677)
- --------------------------------------------------------------------------------------------------------------------------------
Total Other Income (Expense)- Net (790,879) 108,505 (614,000) -- (1,296,374)
- --------------------------------------------------------------------------------------------------------------------------------
Income (loss) before income taxes 1,074,290 983,054 893,000 291,000 1,455,344
Income tax expense (benefit) 100,000 -- 131,000 -- 231,000
- --------------------------------------------------------------------------------------------------------------------------------
Net income (loss) $ 974,290 $ 983,054 $ 1,024,000 291,000 1,224,344
================================================================================================================================
Basic and Diluted Earnings Per Share $ 0.40 N/A N/A N/A $ 0.50
================================================================================================================================
Weighted average number of common
shares outstanding $ 2,431,986 N/A N/A N/A $ 2,431,986
================================================================================================================================
</TABLE>
15
<PAGE>
Unaudited Pro Forma Statement of Income
For the 6 Months Ended December 31, 1999
<TABLE>
<CAPTION>
Pro Forma Adjustments
--------------------- Pro Forma
PTC WCSI Debit Credit Totals
================================================================================================================================
<S> <C> <C> <C> <C> <C>
Revenues
Contracts earned $ 15,415,759 $ -- $ -- $ -- $ 15,415,759
Net sales -- 4,216,499 -- -- 4,216,499
- --------------------------------------------------------------------------------------------------------------------------------
Total Revenues 15,415,759 4,216,499 -- -- 19,632,258
- --------------------------------------------------------------------------------------------------------------------------------
Cost of Revenues
Cost of contracts earned 12,338,333 -- -- -- 12,338,333
Cost of sales -- 2,704,260 -- -- 2,704,260
- --------------------------------------------------------------------------------------------------------------------------------
Total Cost of Revenues 12,338,333 2,704,260 -- -- 15,042,593
- --------------------------------------------------------------------------------------------------------------------------------
Gross Profit 3,077,426 1,512,239 -- -- 4,589,665
Selling, General and Administrative Expenses 2,943,715 842,584 115,500(1) 298,500(3) 3,633,299
22,500(2)
7,500(4)
- --------------------------------------------------------------------------------------------------------------------------------
Operating Income 133,711 669,655 145,500 298,500 956,366
- --------------------------------------------------------------------------------------------------------------------------------
Other Income (Expense)
Interest income 24,552 24,949 -- -- 49,501
Interest expense (517,075) (48) (282,000)(5) -- (799,123)
Miscellaneous 62,802 (1,215) -- -- 61,587
- --------------------------------------------------------------------------------------------------------------------------------
Total Other Income - Net (429,721) 23,686 (282,000) -- (688,035)
- --------------------------------------------------------------------------------------------------------------------------------
Income (loss) before income taxes (296,010) 693,341 427,500 298,500 268,331
Income tax expense (benefit) (101,000) -- 192,000(6) -- 91,000
- --------------------------------------------------------------------------------------------------------------------------------
Net income (loss) $ (195,010) $ 693,341 $ 619,500 $ 298,500 $ 177,331
================================================================================================================================
Basic and Diluted Earnings (Loss) Per Share $ (0.08) N/A N/A N/A $ 0.07
================================================================================================================================
Weighted average number of common
shares outstanding $ 2,475,000 N/A N/A N/A $ 2,475,000
================================================================================================================================
</TABLE>
(1) To record amortization of goodwill related to purchase of assets. The
purchase price ($5,937,000), which includes $187,000 for legal, due
dillegence, accounting, and bank closing fees, exceeded the fair value of
the assets purchased by $4,627,000, which represents Goodwill. Goodwill is
being amortized based on a 20-year life. $231,000 and $115,500 of
amortization has been charged to operations for the year ended June 30,
1999 and the six months ended December 31, 1999, respectively.
(2) To record amortization of patent acquired from Thomas Lee. The patent
($750,000), is being amortized over its remaining useful life of 16.67
years. Amortization expense charged to operations amounted to $45,000 and
$22,500 for the year ended June 30, 1999 and the six months ended December
31, 1999, respectively.
(3) Represents decrease in wages paid to Thomas Lee based on his new employment
agreement. The decrease of $291,000 for the year ended June 30, 1999 and
the decrease of $298,500 for the six months ended December 31, 1999 would
have occurred had assuming the transaction been consumated on July 1, 1998.
(4) To record additional depreciation expense of machinery and equipment
acquired. The estimated lives used to depreciate these assets are 5 and 7
years. Additional depreciation expense is $3,000 and $7,500 for the year
ended June 30, 1999 and the six months ended December 31, 1999,
respectively.
(5) To record interest expense related to the $3,600,000 Note Payble -Bank
(10.0%), $2,100,000 Note Payable- Westland Control Systems, Inc. (9.25%),
and $650,000 Note Payable- Thomas Lee (9.25%). Assuming the the transaction
consumated on July 1, 1998, interest expense would be $614,000 and $282,000
for the year ending June 30, 1999 and the six months ending December 31,
1999, respectively.
(6) To record income tax effect of additional income as a result of the
combination. Assuming a 34% tax rate, additional income tax expense would
be $131,000 and $192,000 for the year ended June 30, 1999 and the six
months ended December 31, 1999, respectively.
16
EXHIBIT 2.1
ASSET PURCHASE AGREEMENT
dated as of February 23, 2000
by and among
PRODUCTIVITY TECHNOLOGIES CORP.
WCS ACQUISITION CORP.
WESTLAND CONTROL SYSTEMS, INC.
and
THOMAS G. LEE
<PAGE>
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
Page
1. PURCHASE AND SALE.........................................................1
1.1 Purchase and Sale................................................1
1.2 Purchase Price...................................................3
1.3 Excess Current Assets............................................4
1.4 Earn Out.........................................................4
1.5 Assumption of Lease and Licenses.................................6
1.6 Seller Obligation................................................6
1.7 The Closing......................................................6
1.8 Allocation of Purchase Price ....................................6
1.9 Excluded Assets..................................................7
1.10 Transfer of Plan Sponsorship.....................................7
1.11 Adjustment to the Purchase Price.................................7
2. REPRESENTATIONS AND WARRANTIES OF THE
SELLER AND THE STOCKHOLDER................................................9
2.1 Due Organization.................................................9
2.2 Authorization....................................................9
2.3 Capital Stock of the Seller.....................................10
2.4 Subsidiaries....................................................10
2.5 Financial Statements............................................10
2.6 Liabilities and Obligations.....................................10
2.7 Accounts and Notes Receivable...................................11
2.8 Inventory.......................................................11
2.9 Permits and Intangibles.........................................11
2.10 Environmental Matters...........................................11
2.11 Personal Property...............................................12
2.12 Significant Customers; Material Contracts and Commitments.......12
2.13 Real Property...................................................13
2.14 Insurance.......................................................13
2.15 Compensation; Employment Agreements; Organized .................13
Labor Matters...................................................13
2.16 Employee Benefit Plans......................................... 14
2.17 Conformity with Law; Litigation................................ 15
2.18 Taxes.......................................................... 15
2.19 No Violations; All Required Consents Obtained.................. 17
2.20 Government Contracts........................................... 17
2.21 Absence of Changes............................................. 17
2.22 Powers of Attorney............................................. 19
2.23 Competing Lines of Business; Related-party Transactions........ 19
2.24 Disclosure..................................................... 19
2.25 Notices and Consents........................................... 19
2.26 Year 2000 Compliance........................................... 19
3. REPRESENTATIONS AND WARRANTIES OF
PTC AND PURCHASER........................................................20
3.1 Due Organization................................................20
3.2 Authorization...................................................20
3.3 No Violations...................................................20
3.4 Validity of Obligations.........................................20
2
<PAGE>
4. CONDITIONS TO CLOSING....................................................20
4.1 Transfer of Assets and Business By CPI and WE...................20
4.2 Instruments of Transfer.........................................21
4.3 Opinions of Counsel.............................................21
4.4 Employment Agreements..........................................21
4.5 Good Standing Certificates......................................21
4.6 Resolutions of the Board of Directors and Stockholder
of Seller.......................................................21
4.7 Resolutions of the Board of Directors of PTC
and the Purchaser...............................................21
4.8 Seller's Officers' Certificate..................................21
4.9 Seller's Secretary's Certificate................................22
4.10 Officers' Certificates of PTC and the Purchaser.................22
4.11 Secretary's Certificates of PTC and the Purchaser...............22
4.12 Consents and Approvals..........................................22
4.13 No Material Adverse Change......................................22
4.14 Escrow Agreement................................................22
5. ADDITIONAL AGREEMENTS................................................... 23
5.1 Future Cooperation............................................. 23
5.2 Expenses....................................................... 23
5.3 Payment of Liabilities; Bulk Transfer Compliance............... 24
5.4 Change of the Seller's Name.................................... 24
5.5 Conduct of Business Prior to Closing........................... 24
5.6 Certain Tax Matters............................................ 24
6. INDEMNIFICATION......................................................... 24
6.1 Survival of Representations and Warranties..................... 24
6.2 General Indemnification by the Seller and Stockholder.......... 25
6.3 Indemnification by the Purchaser............................... 25
6.4 Specific Indemnification....................................... 25
6.5 Third Person Claims............................................ 26
6.6 Method of Payment.............................................. 26
6.7 Limitations on Indemnification..................................27
7. Intentionally Deleted
7.1 Intentionally Deleted...........................................27
8. GENERAL..................................................................28
8.1 Successors and Assigns..........................................28
8.2 Entire Agreement................................................28
8.3 Counterparts....................................................28
8.4 Brokers and Agents..............................................28
8.5 Notices.........................................................28
8.6 Governing Law...................................................29
8.7 Effect of Investigation; Knowledge..............................29
8.8 Exercise of Rights and Remedies.................................29
8.9 Time............................................................29
8.10 Reformation and Severability....................................30
8.11 Captions........................................................30
8.12 Press Releases and Public Announcements.........................30
8.13 No Third-Party Beneficiaries....................................30
8.14 Interpretation..................................................30
3
<PAGE>
ANNEXES TO ASSET PURCHASE AGREEMENT
Following is a list of annexes (schedules) referenced in the Asset Purchase
Agreement. They have been omitted, but the Company agrees to provide copies of
same to the Securities and Exchange Commission upon request.
Annex I - Form of Subordinated Installment Note for $650,000
Annex II - Form of Royalty Agreement
Annex III - Form of Subordinated Installment Note for $2,100,000
Annex IV(a) - Form of Guaranty of PTC
Annex IV(b) - Form of Limited Guaranty of Atlas Technologies, Inc.
Annex V(a) - Form of Lease for Real Property located at 8680 North Haggerty
Road, Canton, MI
Annex V(b) - Sublease
Annex V(c) - Form of General Conveyance, Transfer and Assignment from
Westland
Annex V(b) - Form of Specific Conveyance, Transfer and Assignment from Lee
Annex VI(a) - Form of Opinion of Counsel to Seller and Stockholders
Annex VI(b) - Form of Opinion of Counsel to Purchaser
Annex VII - Form of Escrow Agreement
Annex VIII - Form of Employment Agreement
4
<PAGE>
ASSET PURCHASE AGREEMENT
THIS ASSET PURCHASE AGREEMENT (this "Agreement") is made and entered into
as of February __, 2000 by and among PRODUCTIVITY TECHNOLOGIES CORP. A Delaware
corporation ("PTC"), WCS ACQUISITION CORP., a Michigan corporation
("Purchaser"), WESTLAND CONTROL SYSTEMS, INC., a Michigan corporation
("Westland"), and THOMAS G. LEE, an individual residing in the state of Michigan
("Lee"). (Westland sometimes hereinafter referred to as the "Seller").
WHEREAS, Purchaser desires to acquire (a) the business of Seller as a going
concern and along therewith substantially all of the assets of the Seller (the
"Business") upon the terms and conditions set forth in this Agreement (the
"Transaction"); and (b) US Patent No. 5,898,132 (the "Lee Patent");
WHEREAS, Lee is the sole shareholder of Westland and the Lee Patent which
is used by Westland in its Business; and
WHEREAS, The Parties each desire that the tangible assets and businesses of
the companies Cable Products, Inc. ("CPI") and World Wide Engraving, Inc. ("WE")
be first transferred to Westland and then sold by Westland to Purchaser as part
of the Transaction and included in the term "Business."
WHEREAS, concurrently with the execution and delivery hereof, the parties
hereto are consummating the Transaction;
NOW, THEREFORE, in consideration of the premises and of the mutual
agreements, representations, warranties, provisions and covenants contained
herein, the parties hereto, intending to be legally bound, agree as follows:
I. PURCHASE AND SALE
1.1 Purchase and Sale. Upon the terms and subject to the conditions of this
Agreement, at the Closing (as hereinafter defined) Lee or Westland, as
applicable, shall sell, convey, transfer, assign and deliver to the Purchaser,
and Purchaser shall purchase the Lee Patent from Lee and the following from
Westland: all of the assets, properties, business, franchises, goodwill and
rights of every kind and character, tangible or intangible, owned or leased by
the Seller or any of their subsidiaries (collectively, the Assets), free and
clear of all liens, claims and encumbrances of any kind, other than applicable
leases, licenses and agreements referenced in this Agreement; provided, however,
that the Assets do not include the assets (the "Excluded Assets") identified as
such on Schedule 1.9. Without limiting the generality of the foregoing, the
Assets consist of all assets of the Seller other than cash, cash equivalents and
the Excluded Assets including, without limitation, the following:
(a) Current Assets. All current assets of the Seller, wherever located;
(b) Customer Lists. All customer lists, sales records, credit data and
other information relating to customers of Seller.
(c) Customer Contracts. All right, title and interest of Seller in, to and
under all existing contracts and agreements, written and verbal, with customers
of such Seller, including, without limitation, those contracts and agreements
identified in Schedule 1.1(c) (the "Scheduled Contracts").
(d) Accounts and Notes Receivable. All trade and other accounts and notes
receivable of Seller ("Receivables").
(e) Vehicles. The vehicles and other transportation equipment identified on
Schedule 1.1(e).
5
<PAGE>
(f) Equipment. All of the production and office equipment, machinery,
tools, appliances, telephone systems, copy machines, fax machines, implements,
spare parts, supplies and all other tangible personal property of every kind and
description owned by Seller (the "Equipment"). The Equipment includes, without
limitation, all of the items listed in Schedule 1.1(f).
(g) Licenses, Franchises and Permits. All right, title and interest of
Seller in, to and under all licenses, franchises, permits, authorizations,
certificates, approvals, registrations and other governmental authorizations
(collectively, the "Operating Authorities") owned or possessed by Seller and
relating to a Business or all or any of the Assets, including those identified
on Schedule 2.9 and Schedule 2.10.
(h) Intangible Assets. All right, title and interest of Lee as to the Lee
Patent and of Seller in, to and under all patents, trademarks, service marks,
manufacturing processes and know-how, technology, know-how, copyrights and
applications for each of the foregoing, trade names, licenses, covenants by
others not to compete with Seller, trade secrets, rights and privileges used in
the conduct of a Business and the right to recover for infringement thereon and
all goodwill associated with a Business in connection with which any
intellectual property is used.
(i) Corporate Names. The exclusive right to use the names "Westland Control
Systems, Inc.", "Cable Products, Inc." and "World Wide Engraving, Inc." and any
variation thereof as trade names under which the Purchaser or one of its
affiliates may operate any of the Businesses.
(j) Goodwill. The goodwill and going concern value of each of the
Businesses.
(k) Books and Records. Copies of Seller's books, records, papers and
instruments of whatever nature and wherever located that relate to the
Businesses or the Assets or which are required or necessary in order for
Purchaser to conduct the each of Businesses from and after the date hereof in
the manner in which it is presently being conducted (the "Records").
(l) Insurance Proceeds. All insurance proceeds and insurance claims of
Seller relating to the Businesses or all or any part of the Assets, (excluding
only rebates for periods prior to the closing and unearned premiums as of the
closing) and, to the extent transferable, the benefit of and the right to
enforce the covenants and warranties, if any, that Seller is entitled to enforce
with respect to the Assets against such Seller's predecessors in title to the
Assets, if any.
(m) Computers and Software. All right, title and interest of Seller in
computer equipment and hardware, including, without limitation, all central
processing units, terminals, disk drives, tape drives, electronic memory units,
printers, keyboards, screens, peripherals (and other input/output devices),
modems and other communication controllers, networking equipment, and any and
all parts and appurtenances thereto, together with all software and intellectual
property used by such Seller with such computer equipment and hardware.
(n) Other Intangibles. All right, title and interest of Seller in, to and
under all rights, privileges, claims, causes of action, and options relating to
or pertaining to the Businesses or the Assets.
(o) Inventory. All of the inventory of Seller ("Inventory").
(p) Other Property. All other or additional privileges, rights, interests,
properties and assets of Seller of every kind and description and wherever
located that are used or intended for use in connection with, or that are
necessary to the continued conduct of, any of the Businesses as presently being
conducted.
The Assets and Lee Patent are the "Total Assets".
6
<PAGE>
1.2 Purchase Price. The aggregate purchase price (the "Purchase Price") for
the Total Assets shall be, subject to adjustment pursuant to the terms of
Section 1.11 following, as follows: (a) for the Lee Patent, (i) One Hundred
Thousand Dollars ($100,000) in cash, (ii) a Subordinated Installment Note in the
principal amount of Six Hundred Fifty Thousand Dollars ($650,000) in the form of
Annex I attached hereto, which shall be issued to Lee ("Lee Note") , and (iii) a
Royalty Agreement in the form of Annex II attached hereto; and (b) for the
Assets, (i) Three Million Six Hundred Fifty Thousand Dollars ($3,650,000) in
cash, (ii) a Subordinated Installment Note in the principal amount of Two
Million One Hundred Thousand Dollars ($2,100,000) in the form of Annex III
attached hereto, which shall be issued to Westland ("Westland Note"), and (iii)
the Earnout (as hereinafter defined). PTC shall deliver a Guaranty of payment of
the Subordinated Installment Notes and the Earnout in the form of Annex IV(a).
Atlas Technologies, Inc., a Michigan corporation and wholly-owned subsidiary of
PTC ("Atlas") shall deliver a Limited Guaranty of Payment at the subordinated
Installment Notes and the Earnout in the form of Annex IV(b). The cash portion
of the Purchase Price shall be paid at the Closing by wire transfer of
immediately available funds by Purchaser to Seller and Lee, as applicable; and
the Subordinated Installment Notes, Royalty Agreement, Employment Agreement, and
the Guaranty shall be delivered at the Closing by Purchaser or PTC, as
applicable, to Seller and Lee, as applicable.
1.3 Excess Current Assets. The parties agree that Inventory and Receivables
of $1,200,000 ("Required Current Assets") are required to operate the Business
of the Seller as a going concern, and that in the ordinary course of business at
its current level, current assets in excess of $1,200,000 ("Excess Current
Assets") are not needed to operate the Business. The Seller shall pay to the
Purchaser at Closing the amount, if any, by which the book value of transferred
Inventory and Receivables is less than the Required Current Assets. The
Purchaser shall pay Seller within 60 days of Closing the amount, if any, by
which the book value of the transferred Inventory and Receivables at the closing
dated exceeded Required Current Assets.
1.4. Earn Out. (a) As an addition to the Purchase Price, Seller shall
receive up to $2,300,000 depending upon the Purchaser's average annual EBIT (as
hereinafter defined) during the period of January 1, 2000 through December 31,
2002 ("Earnout"). To fund payment of the Earnout, Purchaser agrees to make
deposits of cash into an escrow account ("Escrow") with Bank One Trust Company,
N.A. (the "Escrow Agent") established by the parties, on or before March 31 of
the years 2001, 2002 and 2003 based upon the financial performance for the
Business for each of the twelve month periods ending December 31, 2000, December
31, 2001 and December 31, 2002 ("Earnout Period"). The Earnout and deposits will
be dependent upon the average earnings before interest and taxes as determined
in accordance with the provisions of Schedule 1.4("EBIT") ("Earnout Period") of
the Business for each of the years in accordance with the following:
Please see Schedule 1.4(a) to the Asset Purchase Agreement
Remainder of page intentionally left blank
7
<PAGE>
(b) The above formula for the three year average EBIT amounts from $1.6 to
$2.0 million shall be adjusted at the end of the Earnout Period by comparing
amounts in Escrow to the following formula:
<TABLE>
<CAPTION>
<S> <C> <C>
(Avg of CYE 2000 through CYE 2002 EBIT(but not more than $2,000,000) - $1.6 mm/$400,000 x $1,000,000)
</TABLE>
The above formula for the three year average EBIT amounts from $2,000,001 to
$3,099,999 shall be adjusted at the end of the Earnout Period by comparing
amounts in escrow to the following formula:
<TABLE>
<CAPTION>
<S> <C> <C>
[(Avg of CYE 2000 - CYE 2002 EBIT(but not more than $3.1 mm) - $2.0 mm/$1,100,000 x $1,300,000] + $1mm
</TABLE>
If the total amount deposited by Purchaser in Escrow is larger than the total of
the amounts computed under the adjustment formulae, then the excess amount
should be taken out of Escrow until the two are equal. If the total amount in
escrow is less than the total of the amounts computed under the adjustment
formulae. Purchaser shall pay the deficiency to the Escrow Agent so they are
equal.
The total held in Escrow after adjustment by the provisions of this Section
1.4(b) shall be subject to Purchaser's right to setoff specified in Section
1.4(d) following. Any amount held in Escrow against which Purchaser asserts its
right of setoff specified in Section 1.4(d) following shall be delivered by the
Escrow Agent to Purchaser pursuant to the Escrow Agreement, pending final
resolution of the setoff.
(c) Within 45 days of each December 31 during the Escrow, the Escrow Agent
shall pay 44% of that year's interest earned on the Escrow to assist Seller in
payment of Taxes
8
<PAGE>
payable by Seller with respect to the interest earned on the Escrow. All
interest earned on amounts in Escrow shall belong to Seller, subject to an
adjustment at the end of the Earnout Period to credit Purchaser any interest
earned on excess deposits.
(d) Purchaser shall retain full rights of set off and counterclaim whether
known or unknown as of the date of this Agreement with respect to the Earnout,
including rights of set off and counterclaim which may arise from claims in
conjunction with any breaches of the covenants, representations and warranties
under this Agreement and any and all related or ancillary documents and
agreements executed by Seller or Lee in connection with this Agreement subject
to the limitations therein. Seller and Lee retain all rights of setoff and
counterclaim.
1.5 Assumption of Lease and Licenses. As additional consideration for the
purchase of the Assets, Purchaser shall assume at the Closing, the real estate
lease of Westland for the premises located at 8680 North Haggerty Road, Canton,
Michigan, a copy of which is attached hereto as Annex IV(a), the Sublease, a
copy of which is attached hereto as Annex IV(b), and any additional software
licenses and personal property leases related to the Assets disclosed on
Schedule 1.5. ("Assumed Obligations"). A portion of real estate taxes due
pursuant to the lease attached as Annex IV(a) shall be made at closing based
upon the due dates of such taxes.
1.6 Seller Obligations. Except for the Assumed Obligations, the parties
acknowledge and confirm that the Purchaser shall not assume or agree to pay,
perform or discharge, and shall not be responsible for, any other liabilities or
obligations of the Seller or Lee, whether accrued, absolute, contingent or
otherwise, including, without limitation; (i) obligations for federal, state and
local corporate income, franchise, single business or similar taxes; (ii)
obligations for payroll, social security, unemployment or similar taxes paid or
payable up to the Closing Date; (iii) obligations for contributions to any
retirement, pension, incentive compensation or similar plan accrued up to the
Closing Date; (iv) obligations under any insurance or welfare benefit plans
accrued but not paid up to the closing date; and (v) obligations for any product
liability or warranty claim with respect to products sold prior to the Closing
Date, but Purchaser shall maintain product liability insurance on a claims made
basis during the Earnout Period and list Seller as an additional incurred.
Seller will cause all outstanding trade payable to be paid within seven (7) days
after closing. [Any payables to be assumed by Purchaser and the Notes reduced?]
1.7 The Closing. Upon the terms and subject to the conditions of this
Agreement, the sale and purchase of the Assets shall take place at a closing
(the "Closing") to be held at 10:00 a.m. on February __, 2000 (the "Closing
Date") at the office of Doepken Keevican & Weiss, Bloomfield Hills, Michigan, or
at such other time and place upon which the Purchaser and the Seller shall
agree, but only upon satisfaction or waiver of all conditions or obligations of
the parties specified in Article IV.
1.8 Allocation of Purchase Price . Purchaser , Seller and Lee agree that
the Purchase Price, any assumed obligations and other relevant items (including,
for example, adjustments to the Purchase Price and the Earnout) (collectively,
"Total Purchase Price") shall be allocated among the Total Assets in accordance
with the fair market value of such respective Total Assets for all purposes as
shown on the Asset Allocation Schedule attached hereto as Schedule 1.8; Purchase
price allocable to such other assets (including, for example, amended returns
and claims for refund) and other information reports in a manner consistent with
such allocation, (y) not take any position or action inconsistent with such
allocation and (z) shall use their reasonable best efforts to sustain such
allocation in any subsequent Tax audit or Tax dispute. Without limiting the
foregoing, each of Seller and Purchaser agree to file an IRS Form 8594 in
accordance with this Section 1.8, and the parties agree to promptly provide each
other with the information and documentation necessary to complete the IRS Forms
8594.
1.9 Excluded Assets. Notwithstanding the foregoing, the parties hereto
specifically agree that each of the assets listed or described on Schedule 1.9
constitute the Excluded Assets and are excluded from the Assets to be conveyed
to the Purchaser pursuant to this Agreement, and shall not be sold, conveyed,
transferred, assigned or delivered to the Purchaser pursuant to this Agreement,
without regard to whether such Excluded Assets relate to the Businesses or the
Assets in any way and that the Seller also shall retain all of the liabilities
and/or obligations, whether accrued, absolute, contingent or otherwise with
respect to the Excluded Assets.
9
<PAGE>
1.10 Transfer of Plan Sponsorship. Effective as of the Closing Date, the
Purchaser shall assume sponsorship of all of the employee benefits plans listed
in Schedule 1.10. The Seller and the Purchaser agree to cooperate to transfer
the sponsorship of the employee benefits plans listed in Schedule 1.10 from the
Seller to the Purchaser as soon as is practicable after and effective as of the
Closing Date. In connection therewith, the Seller shall use its best efforts to
cause to be assigned to the Purchaser such policies of insurance or other
contracts as the Purchaser designates in writing as pertain to any employee
benefits plan or, in any case whether such assignment is commercially
impracticable, the Seller shall cooperate in arranging for the issuance of new
or modified policies or contracts. Notwithstanding the foregoing, the Purchaser
shall not be obligated to continue the sponsorship of Seller's 401(k) plan if
the Purchaser decides not to sponsor any 401(k) plan.
1.11 Adjustments to the Purchase Price.
(a) The "Year-End Unaudited Financial Statements" (as hereinafter defined)
reflect net income of Seller for the year ended December 31, 1999 of $1,087,380.
Purchaser will cause the Year End Unaudited Financial Statements to be audited
by Purchaser's outside auditors after the Closing at Purchasers' cost. If the
net income of Seller for the year ended December 31, 1999 as reflected on such
audited financial statements plus $355,000 is less than $1,422,380 (which is
adjusted to reflect the addition of $355,000 as agreed by the parties)(other
than for the adjustment provided for in the following sentence), the Purchase
Price shall be reduced by the amount which is four (4) times the difference
between $1,442,380 and the net income of Seller reflected on such audited
financial statements plus $355,000. If the net income is adjusted by more than
as a result of a decrease in Inventory and a related increate in cost of goods
sold, the Purchase Price shall be reduced by the amount of the entire adjustment
for such increase to net income multiplied by four. The amounts used to adjust
the Purchase Price shall not be applied to the limitations in Section 607. If
the adjustment to the Purchase Price under this Section 1.11 is greater than
$99,999 then the Earnout formula for the Escrow deposits contained in Section
1.4 in the event the average EBIT is less than $2.0 million shall be calculated
as follows instead of the formula in Section 1.4(a):
from that which is reflected on the Year-End Unaudited Financial Statements of
up to $40,000, the Purchase Price shall not be reduced. If the net income is
less than $1,442,380 for any reason other than an increase in the Inventory of
up to $40,000 (including as a result of an increase in Inventory of more than
$40,000), the Purchase Price shall be adjusted as provided for above.]
(b) The net income for 1999 as determined by Purchaser's auditor shall be
final and binding on the parties unless, within 30 days after delivery thereof
and all requested supporting documentation to Seller and Lee ("Objection
Period"), notice is given by them of their objection setting forth in reasonable
detail the basis for the objection ("Objection Notice"). If notice of objection
is given, Purchaser, Seller and Lee shall consult with each other with respect
to the objectives of reasonably attempting to resolve any objections. If
Purchaser, Seller and Lee are unable to reach agreement, all objections shall be
resolved by a "Big Five" accounting firm selected by the certified public
accountants of Seller, Lee and Purchaser ("Dispute Accountant"), as promptly as
practicable. If the accountants for the parties are unable to select the Dispute
Accountant, any party may request appointment of the Dispute Accountant by a
court or by the American Arbitration Association under its Rules of Commercial
Arbitration. The Dispute Accountant shall resolve only those objections in the
Objection Notice which are still in dispute at the time of engagement. The
Dispute Accountant shall make a determination as to each of the items in
dispute, which determination shall be (A) in writing; (B) furnished by the
Dispute Accountant to Seller, Lee and Purchaser as promptly as practicable after
the items in dispute have been referred to the Dispute Accountant; and (C)
conclusive and binding on the Parties and enforceable in a court of record. The
Dispute Accountant shall make its decision based on documentation submitted by
the parties and in oral information provided in a meeting called by and under
the direction of the Dispute Accountant. Seller, Purchaser, and Lee shall make
every reasonable effort to enable the Dispute Accountant to render its
determination as soon as reasonably practicable, including without limitation by
promptly complying with all reasonable requests by the Dispute Accountant for
information, books, records and similar items. The costs of the Dispute
Accountant shall be paid 50% by Purchaser and 50% by the Seller and Lee.
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(c) Upon a final determination that the Purchase Price shall be reduced
pursuant to the terms of this Section 1.11, the parties will reflect such
reduction by a corresponding reduction in the principal amount then due and
owing pursuant to the Westland Note. Such reduction in the principal amount of
the Westland Note shall become effective on the business day immediately
following the date of the final determination that the Purchase Price will be
reduced pursuant to this Section 1.11. The Westland Note at the reduced
principal amount shall be amortized and payments of principal and interest shall
be made at the same time at the rate as originally set forth in Westland Note.
Upon Purchaser's request following a reduction of Purchase Price pursuant to
this Section 1.11 Seller agrees that it will deliver the original Westland Note
to Purchaser in exchange for a replacement note with identical terms as the
original except for the reduced principal amount.
II. REPRESENTATIONS AND WARRANTIES OF THE SELLER AND LEE
The Seller and Lee jointly and severally represent and warrant to PTC and
the Purchaser as follows:
2.1 Due Organization. Seller is a corporation duly incorporated, validly
existing and in good standing under the laws of the State of Michigan (the
"State of Incorporation"), and has full power and authority to carry on its
business as is now being conducted. Seller is duly authorized or qualified to do
business and is in good standing in each jurisdiction in which the nature of its
business or the ownership or leasing of its properties makes such qualification
necessary, except where the failure to be so authorized or qualified would not
have a material adverse effect on the Businesses, the Assets, the prospects or
the operations or condition (financial or otherwise), of such Seller taken as a
whole (as used herein with respect to a Seller, or with respect to any other
person, a "Material Adverse Effect"). Schedule 2.1 sets forth a list of all
jurisdictions in which Seller is authorized or qualified to do business. True,
complete and correct copies of the Articles of Incorporation and By-laws, each
as amended, of Seller (the "Charter Documents") are all attached to Schedule
2.1. The stock records of Seller, copies of which are attached to Schedule 2.1,
are correct and complete in all material respects. There are no minutes in the
possession of the Seller which have not been made available to the Purchaser,
and all of such minutes are correct and complete in all material respects.
2.2 Authorization. (i) The representatives of the Seller executing this
Agreement have full power and authority to execute and deliver this Agreement
and (ii) Seller has full power and authority to enter into this Agreement and
the transactions contemplated hereby. This Agreement and the transactions
contemplated hereby have been [unanimously] approved by the shareholders and the
Board of Directors of Seller, and copies of such resolutions certified by the
Secretary or an Assistant Secretary of Seller, are attached hereto as Schedule
2.2. This Agreement has been validly executed and delivered by Seller and Lee,
Seller's sole Stockholder, and constitutes the legal, valid and binding
obligation of each of them enforceable in accordance with its terms, except as
may be limited by bankruptcy, insolvency, reorganization or similar laws now or
hereafter in effect relating to creditors' rights generally.
2.3 Capital Stock of the Seller. All of the shares of the capital stock of
the Seller that are issued and outstanding are owned of record and beneficially
as set forth on Schedule 2.1 and are owned by the holders thereof free and clear
of all liens, security interests, pledges, charges, voting trusts, restrictions,
encumbrances and claims of every kind. All of the shares of the capital stock of
the Seller that are issued and outstanding have been duly authorized and validly
issued, are fully paid and nonassessable. None of such shares were issued in
violation of any preemptive rights or similar rights of any person. Except as
set forth on Schedule 2.3, no option, warrant, call, conversion right or
commitment of any kind exists which obligates Seller to issue any shares of its
capital stock or obligates the shareholders of record to transfer any shares of
such stock to any person.
2.4 Subsidiaries. Except as set forth on Schedule 2.4, the Seller has no
subsidiaries or d/b/a names and Seller has not conducted business under any
other name except its legal name on its Charter Documents. Except as set forth
in Schedule 2.4, Seller does not own, of record or beneficially, or controls,
directly or indirectly,
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any capital stock, securities convertible into capital stock or any other equity
interest in any corporation, association, business trust, partnership, limited
liability company or other business entity, and Seller is not directly or
indirectly, a participant in any joint venture, partnership or other such
entity.
2.5 Financial Statements. Attached to Schedule 2.5 are complete and correct
copies of (i) the balance sheets of Seller as of December 31, 1998 and 1997 and
the related statements of income and cash flow for the year ended December 31,
1998, together with the related notes and schedules and the accompanying report
thereon issued by Silberberg & Rothenberg P.L.C. (the "Year-End Financial
Statements"), and (ii) the balance sheet of Seller as of December 31, 1999, and
related statement of income together with any related statements and notes (the
"Year-End Unaudited Financial Statements"). The Year-End Financial Statements
and the Year-End Unaudited Financial Statements are herein collectively called
the "Financial Statements". The Financial Statements present fairly in all
material respects the financial position and results of operations of the Seller
as of the dates of such statements and for the periods covered thereby in
accordance with generally accepted accounting principles ("GAAP"). The books of
account of the Seller has been kept accurately in all material respects in the
ordinary course of business, the transactions entered therein represent bona
fide transactions, and the revenues, expenses, assets and liabilities of the
Seller have been properly recorded therein in all material respects. As used
herein, the term "Balance Sheet Date" means December 31, 1999.
2.6 Liabilities and Obligations. Other than liabilities arising in the
ordinary course of business after the Balance Sheet Date, and except as and to
the extent disclosed and adequately provided for in the Financial Statements
(including any notes thereto) the Seller has no liabilities or obligations of
any kind, whether accrued, absolute, secured or unsecured, contingent or
otherwise, which would be required to be reflected or reserved against in a
year-end balance sheet (including the notes thereto). There are no claims,
liabilities or obligations, nor any reasonable basis for assertion against the
Seller, of any claim, liability or obligation, of any nature whatsoever except
for those appearing on the Interim Final Statements and those arising in the
ordinary course of business since the Balance Sheet Date.
2.7 Accounts and Notes Receivable. Schedule 2.7 sets forth an accurate list
of the accounts and notes receivable of Seller, as of the Balance Sheet Date and
generated subsequent to the Balance Sheet Date, including any such amounts which
are not reflected in the balance sheet as of the Balance Sheet Date. Receivables
from and advances to employees and any entities or persons related to or
affiliated with the Seller are separately identified on Schedule 2.7. Schedule
2.7 also sets forth an accurate aging analysis of all accounts, notes and other
receivables as of the Balance Sheet Date, showing amounts due in 30-day aging
categories. Except to the extent reflected on Schedule 2.7, all such accounts,
notes and other receivables were incurred in the ordinary course of business,
are stated in accordance with GAAP and are, to the best knowledge of the Seller,
collectible in the amounts shown on Schedule 2.7, net of reserves reflected in
the applicable balance sheet as of the Balance Sheet Date.
2.8 Inventory. The inventory of the Seller reflected in the Financial
Statements (the "Inventory") consists of finished goods, raw materials,
supplies, overhead and work in process, fit and sufficient in all material
respects for the purposes for which it was procured or manufactured and such
inventory is salable within periods of time consistent with the past practice of
the Seller and in the ordinary course of business. The Inventory is not
excessive in kind or amount in light of the Seller's past experience in the
ordinary course of business. Schedule 2.8 is a true and correct statement of the
Inventory stated in accordance with GAAP as of day immediately prior to the date
of this Agreement.
2.9 Permits and Intangibles. The Seller holds all licenses, franchises,
permits and other governmental authorizations required in connection with the
conduct of its business. Schedule 2.9 sets forth an accurate list of all such
licenses, franchises, permits and other governmental authorizations, including
permits, titles (including licenses, franchises, certificates, trademarks, trade
names, patents, patent applications and copyrights owned or held by the Seller
or any of their employees (including interests in software or other technology
systems, programs and intellectual property) (collectively, the "Intangible
Assets") (it being understood and agreed that a list
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of all environmental permits and other environmental approvals is set forth on
Schedule 2.10). The Intangible Assets and other governmental authorizations
listed on Schedule 2.9 and Schedule 2.10 are valid. The Seller has not received
any notice that any person intends to cancel, terminate or not renew any such
Intangible Assets or other governmental authorization. To Seller and Lee's
knowledge, the Seller has conducted and is conducting its business in compliance
with the requirements, standards, criteria and conditions set forth in the
Intangible Assets and other governmental authorizations listed on Schedule 2.9
and Schedule 2.10 and the Seller is not in violation of any of the foregoing.
The transactions contemplated by this Agreement will not result in a default
under or a breach or violation of, or adversely affect the rights and benefits
afforded to the Seller by, any such Intangible Assets or other governmental
authorizations. All of such rights and benefits are transferable to the
Purchaser on the Closing Date, except as set forth on Schedule 2.9.
2.10 Environmental Matters. Except as set forth on Schedule 2.10 and except
where any of the following has not had and will not have a Material Adverse
Effect or require any material expenditure in connection with the Businesses
after the date hereof, Seller is in compliance with all federal, state, local
and foreign statutes (civil and criminal), laws, ordinances, regulations, rules,
notices, permits, judgments, orders and decrees applicable to such Seller or any
of its properties, assets, operations and businesses relating to environmental
protection (collectively "Environmental Laws") including, without limitation,
Environmental Laws relating to air, water, land and the generation, storage,
use, handling, transportation, treatment or disposal of Hazardous Wastes,
Hazardous Materials and Hazardous Substances including petroleum and petroleum
products (as such terms are defined in any applicable Environmental Law)
(collectively referred to herein as "Hazardous Substances"). Seller has obtained
and adhered to all necessary permits and other approvals necessary to treat,
transport, store, dispose of and otherwise handle Hazardous Substances, a list
of all of which permits and approvals is set forth on Schedule 2.9, and Seller
has reported to the appropriate authorities, to the extent required by all
Environmental Laws, all past and present sites owned and operated by such Seller
where Hazardous Substances have been treated, stored, disposed of or otherwise
handled. There have been no releases or threats of releases (as defined in
Environmental Laws) at, from, in or on any property owned or operated by Seller
except as permitted by Environmental Laws. There is no on-site or off-site
location to which Seller has transported or disposed of Hazardous Substances or
arranged for the transportation of Hazardous Substances which is the subject of
any federal, state, local or foreign enforcement action or any other
investigation which could lead to any claim against the Seller or the Purchaser
for any clean-up cost, remedial work, damage to natural resources, property
damage or personal injury, including, but not limited to, any claim under (i)
the Comprehensive Environmental Response, Compensation and Liability Act of
1980, as amended, (ii) the Resource Conservation and Recovery Act, (iii) the
Hazardous Materials Transportation Act or (iv) comparable state or local
statutes and regulations. No Seller has any contingent liability in connection
with any release of any Hazardous Substance into the environment.
2.11 Personal Property. Schedule 2.11 sets forth an accurate list of (a)
all material personal property included in "property and equipment" or any
similar category on the balance sheets of the Seller, (b) all other personal
property owned by Seller with an individual value in excess of $5,000 and (c) a
list of all leases of personal property to which Seller is bound. Except as set
forth on Schedule 2.11, (i) all material personal property used by Seller in its
businesses is either owned by the Seller or leased by the Seller pursuant to a
lease included on Schedule 2.11, (ii) all of the personal property listed on
Schedule 2.11 is in good working order and condition, ordinary wear and tear
excepted and (iii) all leases and agreements included on Schedule 2.11 are in
full force and effect and constitute valid and binding agreements of the parties
thereto in accordance with their respective terms. Except as set forth on
Schedule 2.11 and to software Seller uses as licensee, Seller has good and
marketable title to the tangible and intangible personal property included in
its Assets, including the assets listed on Schedule 2.11, subject to no security
interest, pledge, lien, claim, conditional sales agreement, encumbrance, charge
or restriction on transfer.
2.12 Significant Customers; Material Contracts and Commitments. Schedule
2.12 sets forth a list of (i) all customers representing 3% or more of the
combined revenues of CPI, WE and Seller for the 11 month period ended November
30, 1999 ("Significant Customers"), and (ii) all material contracts, commitments
and similar agreements to which the Seller is a party or by which it or any of
its properties are bound (including, but not
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limited to, contracts with Significant Customers, joint venture or partnership
agreements, contracts with any labor organizations, strategic alliances and
options to purchase land). True, complete and correct copies of such agreements
are attached to Schedule 2.12. Except as described on Schedule 2.12, (i) none of
the Significant Customers have canceled or substantially reduced or, to Seller's
knowledge, are currently attempting or threatening to cancel a contract or
substantially reduce utilization of the services provided by Seller, CPI or WE,
and (ii) the Seller has complied with all material commitments and obligations
pertaining to the Seller and the Seller is not in default under any contracts or
agreements listed on Schedule 2.12 and no notice of default under any such
contract or agreement has been received. Except as specifically set forth on
Schedule 2.12, (a) the transactions contemplated by this Agreement will not
result in a default under or a breach or violation of, or adversely affect the
rights and benefits afforded to the Seller by, any such contracts or agreements,
and (b) all of the rights and benefits under all such contracts and agreements
are transferable to the Purchaser at the Closing Date. Schedule 2.12 also
includes a summary description of all plans or projects relating to the Business
or any of the Assets involving the opening of new operations, expansion of
existing operations, the acquisition of any property, business or assets
requiring, in any event, the payment of more than $1,000.
2.13 Real Property. Schedule 2.13 includes a list of all real property
owned or leased by Seller at the date hereof, and all other real property, if
any, used by Seller in the conduct of its business. There is no real property
leased by Seller that is to be assigned to Purchaser other than the Lease set
forth as Annex III. Except as set forth on Schedule 2.13, all of such leases
included on Schedule 2.13 are in full force and effect and constitute valid and
binding agreements of the parties (and their successors) thereto in accordance
with their respective terms.
2.14 Insurance. The Seller has been covered during the past ten (10) years
by insurance in scope and amount customary and reasonable for the businesses in
which the Seller has engaged during such period. Schedule 2.14 sets forth an
accurate list of all insurance policies carried by the Seller and an accurate
list of all insurance loss runs and workers compensation claims received for the
past three (3) policy years. True, complete and correct copies of all insurance
policies currently in effect are attached to Schedule 2.14. Such insurance
policies evidence all of the insurance that the Seller is required to carry
pursuant to all of its contracts and other agreements and pursuant to all
applicable laws.
2.15 Compensation; Employment Agreements; Organized Labor Matters. Schedule
2.15 sets forth an accurate list showing all officers, directors and key
employees of Seller, listing all employment agreements with such officers,
directors and key employees and the rate of compensation (and the portions
thereof attributable to salary, bonus and other compensation, respectively) of
each of such persons as of the Balance Sheet Date. Since the Balance Sheet Date
there have been no increases in the compensation payable or any special bonuses
to any officer, director, key employee or other employee, excluding special
bonuses customarily paid at year end.
Except as set forth on Schedule 2.15, (i) Seller is not bound by or subject
to (and none of its assets or properties is bound by or subject to) any
arrangement with any labor union, (ii) no employee of Seller is represented by
any labor union or covered by any collective bargaining agreement, (iii) to
Seller's knowledge, no campaign to establish such representation is in progress
and (iv) there is no pending or, to Seller's knowledge, threatened, labor
dispute involving Seller and any group of its employees. No Seller has
experienced any labor interruptions over the past five (5) years.
2.16 Employee Benefit Plans. Schedule 2.16 sets forth an accurate schedule
showing all employee benefit plans of the Seller, copies of which are attached
thereto. Except for a deferred compensation agreement with Lisa Mosses (which is
not assumed by Purchaser), there are no agreements or arrangements (oral or in
writing) containing "golden parachute" or other similar provisions, and deferred
compensation agreements. Except for the employee benefit plans described on
Schedule 2.16, no Seller sponsors, maintains or contributes to any plan program,
fund or arrangement that constitutes an "employee pension benefit plan", nor
does Seller have any obligation to contribute to or accrue or pay any benefits
under any deferred compensation or retirement funding arrangement on behalf of
any employee or employees (such as, for example, and without limitation, any
individual
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retirement account or annuity, any "excess benefit plan" (within the meaning of
Section 3(36) of the Employee Retirement Income Security Act of 1974, as amended
("ERISA") or any non-qualified deferred compensation arrangement). For the
purposes of this Agreement, the term "employee pension benefit plan" shall have
the same meaning as is given that term in Section 3(2) of ERISA. No Seller has
sponsored, maintained or contributed to any employee pension benefit plan other
than the plans set forth on Schedule 2.16, and the Seller is not required to
contribute to any retirement plan pursuant to the provisions of any collective
bargaining agreement establishing the terms and conditions of employment of its
employees except as set forth on Schedule 2.16.
No Seller is now, and will not as a result of its past activities become,
liable to the Pension Benefit Guaranty Corporation or to any multi employer
employee pension benefit plan under the provisions of Title IV of ERISA except
as set forth on Schedule 2.16. All employee benefit plans listed on Schedule
2.16 and the administration thereof are in compliance in all material respects
with their terms and all applicable provisions of ERISA and the regulations
issued thereunder, as well as with all other applicable federal, state and local
statutes, ordinances and regulations. All accrued contribution obligations of
Seller with respect to any plan listed on Schedule 2.16 have either been
fulfilled in their entirety or are fully reflected on the balance sheet of the
applicable Seller as of the Balance Sheet Date.
All plans listed on Schedule 2.16 that are intended to qualify (the
"Qualified Plans") under Section 401(a) of the Internal Revenue Code of 1986, as
amended (the "Code") and have been determined by the Internal Revenue Service to
be so qualified. Except as disclosed on Schedule 2.16, all reports and other
documents required to be filed with any governmental agency or distributed to
plan participants or beneficiaries (including, but not limited to, actuarial
reports, audits or tax returns) have been timely filed or distributed. Neither
any plan listed in Schedule 2.16 nor Seller has engaged in any transaction
prohibited under the provisions of Section 4975 of the Code or Section 406 of
ERISA. No plan listed on Schedule 2.16 has incurred an accumulated funding
deficiency, as defined in Section 412(a) of the Code and Section 302(1) of
ERISA; and the Seller has not incurred any liability for excise tax or penalty
due to the Internal Revenue Service or any liability to the Pension Benefit
Guaranty Corporation. Except as set forth on Schedule 2.16, there have been no
terminations, partial terminations or discontinuance of contributions to any
such Qualified Plan intended to qualify under Section 401(a) of the Code without
notice to and approval by the Internal Revenue Service; no plan listed on
Schedule 2.16 subject to the provisions of Title IV of ERISA has been
terminated; there have been no "reportable events" (as that phrase is defined in
Section 4043 of ERISA) with respect to any such plan listed on Schedule 2.16 the
Seller has not incurred liability under Section 4062 of ERISA; and no
circumstances exist pursuant to which Seller could have any direct or indirect
liability whatsoever (including, but not limited to, any liability to any multi
employer plan or the PBGC under Title IV of ERISA or to the Internal Revenue
Service for any excise tax or penalty, or being subject to any statutory lien to
secure payment of any such liability) with respect to any plan now or heretofore
maintained or contributed to by any entity other than the Seller that is, or at
any time was, a member of a "controlled group" (as defined in Section
412(n)(6)(B) of the Code) that includes the Seller.
2.17 Conformity with Law; Litigation. Except as set forth on Schedule 2.17,
there are no claims, actions, suits or proceedings, pending or to the Seller's
knowledge threatened against or affecting the Seller, the Businesses or any of
the Assets, at law or in equity, or before or by any federal, state, municipal
or other governmental department, commission, board, bureau, agency or
instrumentality having jurisdiction over Seller, the Businesses or any of the
Assets. Except as set forth on Schedule 2.17, no notice of any claim, action,
suit or proceeding, whether pending or threatened, has been received by Seller
during the last five (5) years and to the Seller's knowledge there is no basis
therefor. Except as set forth on Schedule 2.17, Seller has conducted for the
past five (5) years and now conducts its business in material compliance with
all laws, regulations, writs, injunctions, decrees and orders of governmental
authorities applicable to the applicable Seller or its Assets. Seller is not in
violation of any law or regulation or any order of any court or federal, state,
municipal or other governmental department, commission, board, bureau, agency or
instrumentality having jurisdiction over it. Seller has conducted and is
conducting its business in compliance with the requirements, standards, criteria
and conditions set forth in applicable federal, state and local statutes,
ordinances, permits, licenses, orders, approvals, variances, rules and
regulations, including all such permits, licenses, orders and other governmental
approvals set forth on Schedule 2.9
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and Schedule 2.10, except where any failure to comply has not had and will not
have a Material Adverse Effect or require any material expenditure in connection
with the operation of the Businesses after the date hereof.
2.18 Taxes.
(a) For purposes of this Agreement, the term "Taxes" shall mean all taxes,
charges, fees, levies or other assessments including, without limitation,
income, gross receipts, excise, property, sales, withholding, social security,
unemployment, occupation, use, service, license, payroll, franchise, transfer
and recording taxes, fees and charges, imposed by the United States or any
state, local or foreign government or subdivision or agency thereof, whether
computed on a separate, consolidated, unitary, combined or any other basis; and
such term shall include any interest, fines, penalties or additional amounts
attributable to or imposed with respect to any such taxes, charges, fees, levies
or other assessments.
(b) Except as set forth on Section 2.18 and except where the failure to do
any of the following would not have a material adverse effect:
(i) Seller has timely filed all requisite material federal, state and
other tax returns or extension requests for all fiscal periods ended on or
before the Balance Sheet Date;
(ii) to Seller's knowledge, there are no examinations in progress or
written claims against Seller for federal, state or other Taxes for any
period or periods prior to or on the Balance Sheet Date and no written
notice of any claim for Taxes, whether pending or threatened, has been
received by the Seller or Lee;
(iii) all Taxes which are due and payable, (whether or not shown on
any tax return) owed by Seller or any member of an affiliated or
consolidated group which includes or included Seller have been paid;
(iv) the amounts shown as accruals for Taxes on the Financial
Statements are sufficient for the payment of all Seller's Taxes of the
kinds indicated for all periods shown;
(v) Seller has timely filed true, correct and complete declarations of
estimated Tax in each jurisdiction in which any such declaration is
required to be filed;
(vi) no liens for Taxes exist upon the assets of Seller or Lee except
liens for Taxes which are not yet due and payable or which are being
contested in good faith by appropriate proceedings;
(vii) Seller is not, nor to its knowledge ever has been, subject to
Tax in any jurisdiction outside the United States;
(viii) no litigation with respect to any Tax for which Seller is
asserted to be liable is pending or, to its knowledge threatened, and no
basis which the Seller believes to be valid exists on which any claim for
any such Tax can be asserted against the Seller;
(ix) there are no requests for rulings or determinations in respect of
any Taxes pending between Seller and any taxing authority;
(x) no extension of any period during which any Tax may be assessed or
collected and for which Seller is or may be liable has been granted to any
taxing authority;
(xi) Seller has not been party to any Tax allocation or sharing
agreement;
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(xii) all amounts required to be withheld by Seller and paid to
governmental agencies for income, social security, unemployment insurance,
sales, excise, use and other Taxes have been collected or withheld and paid
to the proper taxing authority;
(xiii) Seller has made all deposits required by law to be made with
respect to employees' withholding and other employment Taxes; and
(xiv) Seller is not a "foreign person", as that term is referred to in
Section 1445(f)(3) of the Code.
(c) Copies of (i) any tax examinations, (ii) extensions of time for filing
and (iii) the material federal and local income tax returns and franchise tax
returns of Seller for the last three (3) fiscal years, or such shorter period of
time as it shall have existed, are attached hereto as part of Schedule 2.18.
2.19 No Violations; All Required Consents Obtained. Seller is not in
violation of its Charter Documents. Seller is not, nor, to the best knowledge of
the Seller, any other party thereto, is in material default under any lease,
instrument, license, permit or material agreement to which the Seller is a party
or by which its properties are bound (the "Material Documents"). Except as set
forth in Schedule 2.19, (a) the execution of this Agreement by the Seller and
the performance by the Seller of its obligations hereunder and the consummation
of the transactions contemplated hereby (including, without limitation, the
assignment to the Purchaser of the rights and benefits to which the Seller is
entitled under the Material Documents) will not result in any violation or
breach or constitute a default under, any of the terms or provisions of the
Material Documents to which it is a party or its Charter Documents, and (b) at
and after the Closing the Purchaser will be entitled to the rights and benefits
under the Material Documents to which the Seller is entitled immediately prior
to the Closing Date. Except as set forth on Schedule 2.19 (and except for
consents already obtained), none of the Material Documents requires notice to,
or the consent or approval of, any governmental agency or other third party with
respect to any of the transactions contemplated hereby in order to remain in
full force and effect and consummation of the transactions contemplated hereby
will not give rise to any right to termination, cancellation or acceleration or
loss of any right or benefit. Except as set forth on Schedule 2.19, none of the
Material Documents prohibits the use or publication of the name of any other
party to such Material Document, and none of the Material Documents prohibits or
restricts the Seller or will prevent or restrict the Purchaser from freely
providing services to any person.
2.20 Government Contracts. Seller is not a party to any governmental
contracts subject to price redetermination or renegotiation.
2.21 Absence of Changes.
(a) Since the Balance Sheet Date, the Seller has conducted its operations
in the ordinary course of business and, except as set forth on Schedule 2.21,
there have not been:
(i) any material adverse change in the Businesses, any of the Assets,
or financial condition of the Seller except in the ordinary course of
business;
(ii) any damage, destruction or loss (whether or not covered by
insurance) materially adversely affecting any of the Assets or the
Businesses; except in the ordinary course of business.
(iii) any change in the authorized capital of Seller or its
outstanding securities or any change in its ownership interests or any
grant of any options, warrants, calls, conversion rights or commitments;
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(iv) any declaration or payment of any dividend or distribution in
respect of the capital stock or any direct or indirect redemption, purchase
or other acquisition of any of the capital stock of Seller, except
distribution of Excess Current Assets;
(v) any increase in the compensation, bonus, sales commissions or fee
arrangement payable or to become payable by Seller to any of its officers,
directors, employees, consultants or agents, other than those that are
normal, customary and consistent with past practices or as set forth on
Schedule 2.15;
(vi) any work interruptions, labor grievances or claims filed, or any
event or condition of any character, materially adversely affecting the
Business of the Seller;
(vii) any sale or transfer, or any agreement to sell or transfer, any
material assets, property or rights of the Seller to any person, including,
without limitation, to Lee or his affiliates except in the ordinary case of
business;
(viii) any cancellation, or agreement to cancel, any indebtedness or
other obligation owing to Seller, including without limitation any
indebtedness or obligation of any stockholder of a Seller or any affiliate
thereof except in the ordinary course of business;
(ix) any plan, agreement or arrangement granting any preferential
rights to purchase or acquire any interest in any of the assets, property
or rights of Seller or requiring consent of any party to the transfer and
assignment of any such assets, property or rights;
(x) any purchase or acquisition of, or agreement, plan or arrangement
to purchase or acquire, any property, rights or assets outside of the
ordinary course of business;
(xi) any waiver of any material rights or claims of Seller;
(xii) any amendment or termination of any material contract,
agreement, license, permit or other right to which Seller is a party;
(xiii) any transaction by Seller outside the ordinary course of its
business;
(xiv) any cancellation or termination of a material contract with a
customer or client of Seller prior to the scheduled termination date; or
(xv) any distribution of property or assets by the Seller (except as
permitted by Section 1.3 above).
(b) On the date hereof and at the Closing, the Assets are and will be of
greater or the same value as such Assets reflected on the Interim Financial
Statements except as adjusted in computing and paying Excess Current Assets.
2.22 Powers of Attorney. Schedule 2.2 lists persons, corporations, firms or
other entities holding any general or special power of attorney from Seller and
a description of the terms of each such power.
2.23 Competing Lines of Business; Related-party Transactions. Except as set
forth on Schedule 2.23, no affiliate of Seller owns, directly or indirectly, any
interest in, or is an officer, director, employee or consultant of or otherwise
receives remuneration from, any business which is a competitor, lessor, lessee,
customer or supplier of Seller. Except as set forth on Schedule 2.23, no
officer, director or stockholder of Seller has, nor during the period beginning
January 1, 1990 through the date hereof had, any interest in any property, real
or
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personal, tangible or intangible, used in or pertaining to Seller's business,
except 38147 Abruzzi, Westland, Michigan, Annex III and the Lee Patent.
2.24 Disclosure. The Seller and Lee have provided the Purchaser with all
the information that the Purchaser has requested in analyzing whether to
consummate the transactions contemplated hereby to the best of their knowledge.
None of the information so provided nor any representation or warranty of the
Seller and Lee contained in this Agreement contains any untrue statement or
omits to state a material fact necessary in order to make the statements herein
or therein, in light of the circumstances under which they were made, not
materially misleading. There is no fact known to the Seller or Lee which has
specific application to the Businesses or the Assets (other than general
economic or industry conditions) which materially adversely affects or, so far
as the Seller or Lee can reasonably foresee, materially threatens, the
Businesses, the Assets, or the condition (financial or otherwise), results of
operations or prospects of the Seller, which has not been described in this
Agreement or the Schedules hereto.
2.25 Notices and Consents. The Seller has given any notices to third
parties and obtained any third party consents that may be necessary to transfer
the Assets to Purchaser pursuant to this Agreement, except for purchase orders
and as otherwise disclosed in this Agreement and Schedules.
2.26 Year 2000 Compliance. The properties and assets of the Seller,
including but not limited to computer hardware, microprocessor driven equipment,
software and data, owned or used by the Seller is Year 2000 Complaint. "Year
2000 Compliant" means that (i) the properties and assets will accurately process
and reflect date/time data, including but not limited to storing, displaying,
calculating, comparing and sequencing, from, into and between the twentieth and
twenty-first centuries, the years 1999, 2000 and 2001 specifically and leap year
calculations; and (ii) the Seller will not suffer any loss of functional ability
when processing dates and related data outside the 1900-1999 year range.
III. REPRESENTATIONS AND WARRANTIES OF PTC AND PURCHASER
PTC and the Purchaser represents and warrants to the Seller as follows:
3.1 Due Organization. PTC and the Purchaser are corporations duly
organized, validly existing and in good standing under the laws of the State of
Delaware. Each of PTC and the Purchaser has the requisite power and authority to
carry on its business as it is now being conducted. Each of PTC and the
Purchaser is duly authorized or qualified to do business and are each in good
standing in each jurisdiction in which the nature of its business makes such
qualification necessary, except where the failure to be so authorized or
qualified would not have a Material Adverse Effect.
3.2 Authorization. (i) The respective representatives of PTC and the
Purchaser executing this Agreement have the full power and authority to enter
into and bind the Purchaser to the terms of this Agreement and (ii) each of PTC
and the Purchaser has the full legal right, power and authority to enter into
this Agreement and the transactions contemplated hereby.
3.3 No Violations. The execution and delivery of this Agreement and the
performance of the obligations hereunder and the consummation of the
transactions contemplated hereby will not result in any violation or breach or
constitute a default under any of the terms or provisions of the respective
Charter Documents, as amended, of PTC or the Purchaser.
3.4 Validity of Obligations. The execution and delivery of this Agreement
by PTC and the Purchaser and the performance by PTC and the Purchaser of the
transactions contemplated herein have been duly and validly authorized by the
shareholders of PTC and the Purchaser. This Agreement has been duly and validly
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authorized by all necessary corporate action, has been validly executed and
delivered by PTC and the Purchaser and constitutes a legal, valid and binding
obligation of PTC and the Purchaser enforceable in accordance with its terms.
IV. CONDITIONS TO CLOSING
The obligations of the parties to consummate the transactions contemplated
by this Agreement shall be subject to the fulfillment (or waiver) at or prior to
the Closing of each of the following conditions:
4.1 Transfer of Assets tangible and Business by CPI and WE. Both CPI and WE
shall have transferred to Westland all of their tangible assets, corporate name,
and business in a manner that Westland can deliver such to Purchaser as part of
the Assets. Westland shall provide Purchaser and PTC with copies of instruments
of transfer and other such documentation reasonably requested by Purchaser and
PTC to establish that such transfer has occurred.
4.2 Instruments of Transfer. Each of Westland and Lee has executed and
delivered to the Purchaser (a) a completed General or Special Conveyance,
Transfer and Assignment, in the form attached as Annex VI and Annex VII hereto
("General Conveyance, Transfer and Assignment"), covering the Total Assets, (b)
certificates of title to any Asset or the Lee Patent covered by a certificate of
title, and (c) such other instruments of transfer as may be reasonably necessary
or appropriate to vest in the Purchaser good and indefeasible title to the Total
Assets to the extent required by this Agreement. At all times hereafter as may
be necessary, the Seller, and, if appropriate, Lee shall execute and deliver to
the Purchaser such additional instruments of transfer as shall be reasonably
necessary or appropriate to vest in the Purchaser good and indefeasible title to
the Total Assets to the extent required by this Agreement and to comply with the
purposes and intent of this Agreement.
4.3 Opinions of Counsel. Butzel Long, P.C., counsel to the Seller and Lee,
and Doepken Keevican & Weiss, P.C., counsel to PTC and the Purchaser have
delivered their opinion dated as of the Closing Date to one another in form and
substance reasonably satisfactory to such parties' counsel and generally in the
form attached hereto as Annex VII(a) and Annex VII(b).
4.4 Employment Agreements. Lee has entered into an Employment Agreement
with the Purchaser in the form of Annex VIII hereto.
4.5 Good Standing Certificates. Seller has delivered to the Purchaser
certificates, dated as of the Closing Date, a date no earlier than ten (10) days
prior to the Closing Date, duly issued by the appropriate governmental authority
in the State of Incorporation and in each state in which the Seller is
authorized to do business, showing that the Seller is in good standing and
authorized to do business .
4.6 Resolutions of the Board of Directors and Stockholders of the Seller.
The Seller has delivered to the Purchaser a certified copy of the resolutions of
its stockholder and its Board of Directors approving the Agreement and
authorizing the consummation of the transactions contemplated hereby.
4.7 Resolutions of the Board of Directors of PTC and the Purchaser. PTC and
the Purchaser have delivered to the Seller and the Lee a certified copy of their
respective resolutions of their Board of Directors approving the Agreement and
authorizing the consummation of the transactions contemplated hereby and
thereby.
4.8 Seller's Officer's Certificate. The Seller has delivered to the
Purchaser a certificate dated as of the Closing Date of the President or Vice
President, certifying that as of the Closing Date the representations and
warranties contained in Article II of this Agreement shall have been true and
correct when made and shall be true and correct as of the Closing Date, with the
same force and effect as if made as of the Closing Date,
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other than such representations and warranties as are made as of another date,
which shall be true and correct as of such date.
4.9 Seller's Secretary's Certificate. The Seller has delivered to the
Purchaser a certificate of its corporate Secretary or Assistant Secretary dated
as of the Closing Date and certifying its Charter Documents and incumbency of
its officers executing on its behalf this Agreement or any documents or
instruments in connection therewith.
4.10 Officers' Certificates of PTC and the Purchaser. PTC and the Purchaser
shall deliver to the Seller and Lee certificates dated as of the Closing Date of
the President of the Purchaser, certifying that as of the Closing Date the
representations and warranties contained in Article III of this Agreement shall
have been true and correct when made and shall be true and correct as of the
Closing Date, with the same force and effect as if made as of the Closing Date,
other than such representations and warranties as are made as of another date,
which shall be true and correct as of such date.
4.11 Secretary's Certificates of PTC and the Purchaser. PTC and the
Purchaser shall have delivered to the Seller and Lee a certificate of the
Secretary or Assistant Secretary of PTC and the Purchaser, dated as of the
Closing Date and certifying their respective Charter Documents and incumbency of
their respective officers executing on their behalf this Agreement or any
document or instrument in connection therewith.
4.12 Consents and Approvals. The Seller and Lee shall have delivered to
Purchaser all third party consents necessary under the terms of any contract,
commitment or other agreement relating to the Business or the Total Assets to
transfer the Total Assets to the Purchaser under this Agreement, as set forth on
Schedule 2.19. All necessary consents of and filings with any governmental
authority or agency relating to the consummation of the Transaction contemplated
hereby shall have been obtained and made; and no action or proceeding shall have
been instituted or threatened to restrain or prohibit the Transaction and no
governmental agency or body shall have taken any other action or made any
request of the Purchaser as a result of which the Purchaser deems it inadvisable
to proceed with the Transaction.
4.13 No Material Adverse Change. There shall have occurred no material
adverse change in the Businesses or Total Assets, including without limitation,
(i) no material changes in the amount, character or mix of the Total Assets
(excluding the Excess Current Assets covered by Section 1.3) or liabilities;
(ii) no changes in laws, regulations, rules or technological developments that
present a material threat, actual or potential, to the continued operation of
the Seller in the ordinary course; (iii) no loss of significant customers; (iv)
no litigation, claim, action or proceeding shall have been initiated or
threatened against Seller or which would otherwise affect the Businesses or the
Total Assets or the Purchaser's ability to purchase the Total Assets; or (v) the
Total Assets at the Closing Date (excluding the Excess Current Assets) shall, in
the sole determination of Purchaser, be of a greater or the same value as the
Total Assets reflected on the Interim Financial Statements (excluding the Excess
Current Assets).
4.14 Escrow Agreement. The parties shall have delivered an Escrow Agreement
with respectto the Earnout in the form attached hereto as Annex VII.
V. ADDITIONAL AGREEMENTS
The parties to this Agreement further covenant and agree as follows:
5.1 Future Cooperation. The Seller, Lee, PTC and the Purchaser shall each
deliver or cause to be delivered to the other such additional instruments as the
other may reasonably request for the purpose of transferring, assigning and
delivering to the Purchaser and its assigns the Businesses and fully carrying
out the intent of this Agreement. After the Closing Date the Purchaser and PTC
shall:
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(a) permit Seller and Lee and their respective representatives reasonable
access (including, without limitation, the right to make copies at the expense
of Seller and Lee), during regular business hours, and upon reasonable advance
notice, to such Seller's books and records in connection with the preparation
and review of tax returns , any audit thereof, any tax proceeding relating
thereto, the defense of any claims for indemnification and with respect to the
Earnout, and any other reasonable purpose;
(b) retain records, documents, accounting data and other information
(including computer data) necessary for the preparation and filing of all tax
returns, the completion of the audit of such returns or any tax proceeding
relating thereto for the applicable period of limitations an assessment of Taxes
covered by such returns. The parties will not destroy or otherwise dispose of
any such records without first providing the other party with a reasonable
opportunity to review and copy the same.
(c) provide Seller, Lee and their representatives with reasonable access
during regular business hours to the books, records, accounting and computer
data and related information with respect to the computation, verification and
all other matters relating to the Earnout; and
(d) with respect to all employment tax withholding responsibilities which
may be incurred after the Closing Date for employees of Seller who accepted
offers of employment with Purchaser ("Employees"), Purchaser shall treat the
Employees as if they had been employed by Purchaser as of January 1, 2000.
Purchaser and Seller hereby agree to report on a predecessor-successor basis and
shall follow the Alternative Procedure of Section 5 of Revenue Procedure 96-60,
1996-2 C.B. 399. Seller and Lee shall have no employment tax reporting
responsibilities for the Employees after the Closing Date and Purchaser and PTC
shall assume all obligations and duties of Seller and Lee for such payroll tax
reporting responsibilities including, for example, the obligation to furnish IRS
Forms W-2 to the Employees for the full 2000 calendar year and to file the IRS
Forms W-2 with the U.S. Social Security Administration for the full 2000
calendar year. Purchaser and Seller agree that Purchaser is assuming no other
obligations with respect to any Employees, except as specifically set forth in
this Agreement.
5.2 Expenses. The Purchaser will pay the fees, expenses and disbursements
of PTC and the Purchaser and their respective agents, representatives, financial
advisors, accountants and counsel incurred in connection with the execution,
delivery and performance of this Agreement (except for one half of the fees and
expenses incurred by PTC in connection with the audit of the Seller, which will
be borne by the Seller not to exceed $19,000) The Seller and Lee will pay the
fees, expenses and disbursements of the Seller and Lee and their respective
agents, representatives, financial advisors, accountants and counsel incurred in
connection with the execution, delivery and performance of this Agreement.
5.3 Payment of Liabilities; Bulk Transfer Compliance. The Seller shall pay
or otherwise satisfy all of its trade payables, other current liabilities and
all other liabilities of the Seller and shall fully pay or otherwise satisfy all
other claims or liabilities relating to the Assets, the Businesses or the Seller
other than the Assumed Obligations. The Seller and Lee indemnify and hold
Purchaser harmless from and against all claims, losses, demands, damages,
liabilities, losses, costs and expenses resulting from or relating to
non-compliance by the Seller with the bulk transfer provisions of the Uniform
Commercial Code (or any similar law) in connection with the sale and transfer of
the Assets and Businesses to the Purchaser. The Seller and Lee shall pay when
due any sales, transfer or similar Taxes which may become applicable in respect
of the Seller's and Lee's sale of the Business or any of the Assets to the
Purchaser.
5.4 Change of the Seller's Names. Immediately following the Closing, the
Seller shall cease to use the names set forth in Section 1.1(i) or any similar
name or names and as soon as practical thereafter will file with the office of
the Secretary of State of the State of Michigan (and any other relevant states)
any and all documents necessary to discontinue the authority of the Seller to
conduct business under such names.
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5.5 Conduct of Business Prior to Closing. The Seller and Lee covenant and
agree that between the date hereof and the Closing Date, the Seller will conduct
its business in the ordinary course and consistent with prior practice except as
specifically contemplated by this Agreement.
5.6 Certain Tax Matters. The parties will cooperate in all reasonable
respects with each other in a timely manner in the preparation of filing of any
Tax Returns, payment of any Taxes, and the conduct of any audit or other
proceeding, in each case in accordance with the terms of this Agreement. Each
party will execute and deliver such powers of attorney and make available such
other documents as are necessary to carry out the intent of this Agreement.
VI. INDEMNIFICATION
The Seller, Lee, and the Purchaser each make the following covenants that
are applicable to them, respectively:
6.1 Survival of Representations and Warranties.
(a) The representations and warranties of the Seller and Lee made in this
Agreement and in the documents and certificates delivered in connection herewith
shall survive for a period of two (2) years from the date hereof, except that:
(i) such representations and warranties that relate to Taxes,
including without limitation the representations and warranties set forth
in Section 2.18, shall survive until the expiration of the applicable
statutes of limitations for such Taxes (including any extensions thereof);
(ii) such representations and warranties that relate to environmental
matters, including without limitation the representations and warranties
set forth in Section 2.10 hereof, and the representations and warranties
set forth in 2.16 and 2.17 hereof, shall survive for a period of five (5)
years after the date hereof; provided, however, that representations and
warranties with respect to which a claim is made within the applicable
survival period shall survive until such claim is finally determined and
paid; and
(b) The representations and warranties of PTC and the Purchaser made in
this Agreement and in the certificates delivered in connection herewith shall
survive for a period of five (5) years following the date hereof, provided,
however, that representations and warranties with respect to which a claim is
made within such five (5) year period shall survive until such claim is finally
determined and paid.
(c) The date on which a representation or warranty expires as provided
herein is herein called the "Expiration Date". No claim for indemnification may
be made with respect to a representation or warranty after the Expiration Date,
other than claims based on intentional fraud.
6.2 General Indemnification by the Seller and Lee. The Seller and Lee
covenant and agree that they will jointly and severally indemnify, defend,
protect, and hold harmless PTC and the Purchaser and their respective
subsidiaries and officers, directors, employees, stockholders, agents,
representatives and affiliates at all times from and after the date hereof until
the Expiration Date from and against all claims, damages, actions, suits,
proceedings, demands, assessments, adjustments, costs and expenses (including
specifically, but without limitation, reasonable attorneys' fees and expenses of
investigation) (collectively "Damages") incurred by such indemnified person as a
result of or incident to (i) any breach of any representation or warranty of the
Seller or Lee set forth herein or in the certificates or other documents
delivered in connection herewith, and (ii) any breach or nonfulfillment of any
covenant or agreement by the Seller or Lee under this Agreement.
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6.3 Indemnification by PTC and the Purchaser. PTC and the Purchaser
covenant and agree that they will jointly and severally indemnify, defend,
protect and hold harmless the Seller and Lee at all times from and after the
date hereof until the Expiration Date from and against all Damages incurred by
the Seller or Lee as a result of (i) any breach of any representation or
warranty of PTC or the Purchaser set forth herein or in the certificates
delivered in connection herewith; and (ii) any breach or nonfulfillment of any
covenant or agreement by PTC or the Purchaser under this Agreement.
6.4 Specific Indemnification. In addition to the indemnification provided
for in Section 6.2, the Seller and Lee covenant and agree that they will jointly
and severally: (a) indemnify, defend, protect and hold harmless PTC and the
Purchaser and each of their respective subsidiaries, officers, directors,
employees, stockholders, agents, representatives and affiliates from and against
all Damages incurred by any of them in connection with the presence, emanation,
migration, disposal, release or threatened release of any oil or other petroleum
products or hazardous materials or substances on, within, or to or from any of
the properties presently or previously owned or leased by a Seller or any
predecessor of such Seller as a result of (i) the presence of and closure or
removal of any underground storage tank on such property, (ii) the operations of
a Seller or any predecessor of a Seller prior to the date hereof, or (iii) the
condition of such properties prior to the date hereof, including any future
manifestations of such conditions; and (b) notwithstanding disclosure elsewhere
herein, hereby agree to pay when due any and all liabilities consisting of or
related to (i) any and all claims, liabilities or obligations of the Seller or
Lee to third parties, whether accrued, absolute, contingent or otherwise, except
the Assumed Obligation assumed by Purchaser pursuant to Section 1.5 hereof; (ii)
severance or similar obligations to executive and management or other employees
of Seller; (iii) any unfunded employee benefit plan obligations of Seller other
than vacation and health plan accruals through the Closing Date, (iv) any
warranty or product liability claim subsequent to the Closing Date for any
product shipped by a Seller prior to the Closing Date; and (v) any costs, claims
or damages suffered by the Purchaser from the failure of the items listed on
Schedule 2.26 to be Year 2000 Compliant; and (vi) Damages as a result of the
existence of that certain federal tax lien #25426n408 filed against Lee in Wayne
County, Michigan.
6.5 Third Person Claims. Promptly after any party hereto (the "Indemnified
Party") has received notice of or has knowledge of any claim by a person not a
party to this Agreement ("Third Person") or the commencement of any action or
proceeding by a Third Person that may give rise to a right of indemnification
hereunder, such Indemnified Party shall give to the party obligated to provide
indemnification hereunder (an "Indemnifying Party") written notice of such claim
or the commencement of such action or proceeding; provided, however, that the
failure to give such notice will not relieve such Indemnifying Party from
liability under this Section with respect to such claim, action or proceeding,
except to the extent that the Indemnifying Party has been actually prejudiced as
a result of such failure and any costs of defense arising prior to the date of
notice. The Indemnifying Party (at its own expense) shall have the right and
shall be given the opportunity to associate with the Indemnified Party in the
defense of such claim, suit or proceedings, provided that counsel for the
Indemnified Party shall act as lead counsel in all matters pertaining to the
defense or settlement of such claims, suit or proceedings. The Indemnified Party
shall not, except at its own cost, make any settlement with respect to any such
claim, suit or proceeding without the prior consent of the Indemnifying Party,
which consent shall not be unreasonably withheld or delayed. It is understood
and agreed that in situations where failure of the Indemnified Party to settle a
claim expeditiously could have an adverse effect on the Indemnified Party, the
failure of the Indemnifying Party to act upon the Indemnified Party's request
for consent to such settlement within five business days of the Indemnifying
Party's receipt of notice thereof from the Indemnified Party shall be deemed to
constitute consent by the Indemnifying Party of such settlement for purposes of
this Section.
6.6 Method of Payment. Except as otherwise provided in this section, all
claims for indemnification shall be paid in cash. If Purchaser reasonably
believes that it or any other Indemnified Party affiliated with it has suffered,
or will suffer, Damages for which it or such other Indemnified Party would be
entitled to indemnification pursuant to this Agreement, Purchaser may, at its
sole option and by notice in writing to the Seller and Lee, elect to withhold
payment of an amount equal to the amount of such Damages from any amounts then
owing by the Purchaser to the Seller or Lee, subject to Section 6.7. Claims for
indemnification against the
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Seller or Lee shall first be satisfied by offset against amounts owing to Lee
under the Subordinated Installment Note and such amounts may be offset
notwithstanding that a claim is made against a party who is not the payee under
the Subordinated Installment Note.
6.7 Limitations on Indemnification. (a) The Purchaser and the other persons
or entities indemnified by Seller or Lee shall not assert any claim for
indemnification hereunder against the Seller or Lee unless such claim exceeds
$5,000 individually and until such time as, and solely to the extent that, the
aggregate of all claims which such persons may have against such persons shall
exceed $35,000 (the "Indemnification Threshold"). Notwithstanding anything
contained in this Agreement to the contrary, any and all amounts paid by the
Seller or Lee as a result of a claim for specific indemnity or payment pursuant
to Section 6.4 shall not be subject to the Indemnification Threshold. The Seller
and Lee shall not assert any claim for indemnification hereunder against
Purchaser unless such claim exceeds $5,000 individually and until such time as,
and solely to the extent that the aggregate of all claims which the Seller and
Lee may have against Purchaser shall exceed the Indemnification Threshold. The
aggregate liability of the Seller and Lee in connection with their
indemnification obligations under this Section 6 shall not exceed amounts
received as the Purchase Price.
(b) The remedies provided in this Article VI shall be exclusive as to any
claim by a party under this Agreement or any other document executed hereunder
or arising out of the transactions provided for herein and therein and shall
preclude assertion by any party of any other rights or the seeking of any other
remedies against another party; provided, however, that nothing in this Article
VI, shall limit rights or remedies expressly provided for in this Agreement or
any other document executed hereunder or rights or remedies which, as of matter
of applicable law or public policy, cannot be limited or waived.
(c) Notwithstanding anything to the contrary contained in this Agreement,
Purchaser's and PTC's rights to indemnification shall be made net of all
insurance reimbursement, third-party contribution and third-party
indemnification realized or to be realized by Purchaser and PTC. If any claim
for indemnification asserted hereunder is, or may be, the subject of any
insurance coverage or other right to indemnification asserted hereunder is, or
may be, the subject of any insurance coverage or other right to indemnification
or contribution from any third person, the indemnified party expressly agrees
that it shall promptly notify the applicable insurance carrier of any such claim
or loss and tender defense thereof to such carrier, and shall also promptly
notify any third party indemnitor or contributor which may be liable for any
portion of such losses or claims. Upon written request of the indemnifying
party, the indemnified party shall pursue, at the cost and expense of the
indemnifying party, each applicable insurance carrier and third party indemnitor
or contributor.
(d) The indemnified party shall use all reasonable efforts, consistent with
normal practices and policies and good commercial practice, to mitigate such
losses.
VII. INTENTIONALLY DELETED
III. GENERAL
8.1 Successors and Assigns. This Agreement and the rights of the parties
hereunder may not be assigned (except as expressly permitted hereby, by
operation of law or by the Purchaser to an affiliate or subsidiary which may be
done without Seller's consent) without the written consent of both parties and
shall be binding upon and shall inure to the benefit of the parties hereto, the
successors of the Seller, PTC and the Purchaser, and the heirs and legal
representatives of Lee.
8.2 Entire Agreement. This Agreement (including the schedules, exhibits and
annexes attached hereto) and the documents delivered pursuant hereto constitute
the entire agreement and understanding of the Seller, Lee, PTC and the Purchaser
and supersede any prior agreement and understanding relating to the subject
matter of this Agreement. This Agreement, upon execution, constitutes a valid
and binding agreement of the parties hereto enforceable in accordance with its
terms and may be modified or amended only by a written instrument
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executed by the Seller, Lee, PTC and the Purchaser, acting through their
respective officers, duly authorized by their respective Boards of Directors.
8.3 Counterparts. This Agreement may be executed simultaneously in two (2)
or more counterparts, each of which shall be deemed an original and all of which
together shall constitute but one and the same instrument.
8.4 Brokers and Agents. Each party represents and warrants that, except as
disclosed on Schedule 8.4, it employed no broker or agent in connection with
this transaction and agrees to indemnify the other parties hereto against all
loss, cost, damages or expense arising out of claims for fees or commission of
brokers employed or alleged to have been employed by such indemnifying party.
8.5 Notices. All notices and communications required or permitted hereunder
shall be in writing and may be given by depositing the same in United States
mail, addressed to the party to be notified, postage prepaid and registered or
certified with return receipt requested, or by delivering the same in person or
by facsimile to an officer or agent of such party, as follows:
If to the Purchaser, addressed to it at:
Productivity Technologies Corporation
509 Madison Avenue, 4th Floor
New York, NY 10021
With a copy to:
Michael A. Weiss, Esquire
Doepken Keevican & Weiss
58th Floor, USX Tower
600 Grant Street
Pittsburgh, PA 15219
If to a Seller, or Lee addressed to it at:
Thomas G. Lee
9131 Montana Court
Livonia, MI 48150
With a copy to:
James C. Bruno, Esq.
Butzel Long, P.C.
Suite 900, 150 W. Jefferson
Detroit, MI 48226
or to such other address as any party hereto shall specify pursuant to this
Section from time to time.
8.6 Governing Law. This Agreement shall be construed in accordance with the
laws of the State of Michigan without regard to its principles governing
conflicts of laws.
8.7 Effect of Investigation; Knowledge.
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(a) No investigation by the parties hereto in connection with this
Agreement or otherwise shall affect the representations and warranties of the
parties contained herein or in any certificate or other document delivered in
connection herewith and each such representation and warranty shall survive such
investigation. Nevertheless, Buyer may not claim breach based on a fact of which
it had actual knowledge prior to the closing.
(b) When a representation or warranty contained herein or in any
certificate or other document delivered in connection herewith is made to the
"knowledge" of a party, such party shall be deemed to know all facts and
circumstances that a reasonable investigation of the subject matter of such
representation or warranty would have revealed.
8.8 Exercise of Rights and Remedies. Except as otherwise provided herein,
no delay of or omission in the exercise of any right, power or remedy accruing
to any party as a result of any breach or default by any other party under this
Agreement shall impair any such right, power or remedy, nor shall it be
construed as a waiver of or acquiescence in any such breach or default, or of
any similar breach or default occurring later; nor shall any waiver of any
single breach or default be deemed a waiver of any other breach or default
occurring before or after that waiver.
8.9 Time. Time is of the essence with respect to this Agreement.
8.10 Reformation and Severability. In case any provision of this Agreement
shall be invalid, illegal or unenforceable, it shall, to the extent possible, be
modified in such manner as to be valid, legal and enforceable but so as to most
nearly retain the intent of the parties, and if such modification is not
possible, such provision shall be severed from this Agreement, and in either
case the validity, legality and enforceability of the remaining provisions of
this Agreement shall not in any way be affected or impaired thereby.
8.11 Captions. The headings of this Agreement are inserted for convenience
only, and shall not constitute a part of this Agreement or be used to construe
or interpret any provision hereof.
8.12 Press Releases and Public Announcements. The parties shall not issue
any press release or make any public announcement relating to the subject matter
of this Agreement without the prior written approval of the other provided, PTC
may issue a press release upon the execution of this Agreement or anytime
thereafter describing this Agreement, if upon the advice of counsel to PTC, such
press release is advisable in order for PTC to comply with federal or state
securities laws or regulations. If PTC issues such a press release it shall
promptly deliver a copy thereof to the Seller and Lee.
8.13 No Third-Party Beneficiaries. This Agreement shall not confer any
rights or remedies upon any person other than the parties and their respective
successors and permitted assigns.
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8.14 Interpretation. Unless the context of this Agreement otherwise
requires: (i) words of any gender include each other gender; (ii) words using
the singular or plural number also include the plural or singular number,
respectively; (iii) the terms "hereof", "herein", "hereby", "hereto" and similar
words refer to this entire Agreement and not any particular Article, Section,
Clause, Exhibit A, Appendix or Schedule or any other subdivision of this
Agreement (iv) reference to "Article", "Section", "Clause", "Exhibit",
"Appendix", "Annex" and "Schedules" are to the Articles, Section, Clauses,
Exhibits, Appendices, Annexes and Schedules, respectively, of this Agreement;
(v) unless the context otherwise requires, the words "include" or "including"
shall be deemed to be followed by "without limitation" or "but not limited to"
whether or not they are followed by such phrases or words of similar import; and
(vi) references to "this Agreement" or any other agreement or document shall be
construed as a reference to such agreement or document as amended, modified or
supplemental and in effect form time to time and shall include a reference to
any document which amends, modifies or supplements it, or is entered into, made
or give pursuant to or in accordance with its terms.
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year first above written.
PRODUCTIVITY TECHNOLOGIES CORPORATION
By:
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Name:
---------------------------------------------
Title:
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WCS ACQUISITION CORP.
By:
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Name:
---------------------------------------------
Title:
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WESTLAND CONTROL SYSTEMS, INC.
By:
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Name:
---------------------------------------------
Title:
--------------------------------------------
---------------------------------------
Thomas G. Lee
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