<PAGE>
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934
Filed by the Registrant / /
Filed by a party other than the Registrant / /
Check the appropriate box:
/ / Preliminary Proxy Statement
/ / Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
/X/ Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Section 240.14a-11(c) or Section
240.14a-12
TANISYS TECHNOLOGY, INC.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
TANISYS TECHNOLOGY, INC.
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement)
Payment of Filing Fee (Check the appropriate box):
/X/ No fee required
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(4)
and 0-11
(1) Title of each class of securities to which transaction applies: N/A
------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies: N/A
------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined): N/A
------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction: N/A
------------------------------------------------------------------------
(5) Fee paid previously with preliminary materials: N/A
------------------------------------------------------------------------
/ / Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid: N/A
------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.: N/A
------------------------------------------------------------------------
(3) Filing Party: N/A
------------------------------------------------------------------------
(4) Date Filed: N/A
------------------------------------------------------------------------
(5) Total fee paid: N/A
------------------------------------------------------------------------
<PAGE>
Dear Stockholder:
You are cordially invited to attend the Year 2000 annual meeting of
stockholders of Tanisys Technology, Inc. (the "Company"), which will be held at
the Austin Marriott at the Capitol, 701 E. 11th Street, Austin, Texas, on
May 23, 2000 at 10:00 a.m Central Daylight Time. A notice of the annual
meeting and the Company's proxy statement, together with a proxy card,
accompany this letter. Also enclosed is a copy of the Company's Annual Report
on Form 10-K for the year ending September 30, 1999 and Quarterly Report on
Form 10-Q for the quarter ending December 31, 1999.
This year in addition to ratification of the Board of Directors'
appointment of Brown, Graham and Company, P.C. as independent accountants, you
are being asked to (i) authorize an amendment to the Articles of Continuation of
the Company to effect a one-for-two reverse stock split ("Reverse Split"), and
(ii) ratify the sale by the Company of its memory module manufacturing business
("Sale Transaction") to Tanisys Operations, LP, a Texas limited partnership
("Buyer"). The Buyer is an affiliate of All Components, Inc., a supplier of
semiconductor devices headquartered in the Dallas, Texas area. After the Sale
Transaction, the Company retains, and has concentrated its efforts on, its
DarkHorse-Registered Trademark- memory module test systems business.
The Reverse Split is necessary for the Company to satisfy its
obligation to have sufficient reserved shares of its common stock for conversion
of its outstanding Series A Preferred Stock, as well as options and warrants. In
addition, the Board of Directors hopes the Reverse Split will assist the Company
in re-qualifying for listing on Nasdaq National Market System and result in
enhanced liquidity for the Company's common stock.
The Sale Transaction was consummated pursuant to an Asset Purchase
Agreement between the Company and the Buyer, dated December 9, 1999 (as
amended, "the Asset Purchase Agreement"). The Asset Purchase Agreement also
disposed of the stock in the Company's wholly-owned subsidiary, Tanisys
(Europe) Ltd. The Asset Purchase Agreement, requires the Company's
stockholders to ratify the Sale Transaction. In the event the Company's
stockholders fail to ratify the Sale Transaction, the Buyer has the right to
rescind. If the Sale Transaction is rescinded, the Company will likely be
forced to file a petition under the United States Bankruptcy Code. If a
bankruptcy proceeding resulted in the Company's liquidation, the Company
believes it unlikely that any value would be available to the Company's
stockholders.
A variety of negative industry factors, including sudden and dramatic
price increases along with shortages of DRAM chips, the principal component of
the Company's memory modules, contributed to ongoing losses in the Company's
memory module manufacturing business during fiscal 1999. By the end of September
1999, these losses had led to a working capital deficiency, in excess of
$1,900,000, prior to giving effect to the Sale Transaction, that threatened the
Company's ability to continue as a going concern. For these reasons, and as
further described in the Proxy Statement, the Board of Directors approved the
disposition of the Company's memory module manufacturing business pursuant to
the Asset Purchase Agreement. The consummation of this transaction in December
1999 reduced the Company's liabilities and enabled the Company to continue
operations of its memory module test systems business while meeting its ongoing
obligations. Although there can be no assurance that the Sale Transaction will
have the intended effect on the Company's financial condition and continuing
operations, management believes that the Company's retained memory module test
systems business will be able to survive
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independently of the operations sold to the Buyer, generate a positive cash
flow, and yield net profits for the Company.
In addition to approving the Reverse Split, the Board of Directors
is asking that you support the effort to restructure the Company by ratifying
the sale of the Company's memory module manufacturing business to the Buyer
as discussed in the enclosed Proxy Statement. We encourage you to read the
entire Proxy Statement and consider the same before casting your vote. YOUR
VOTE IS IMPORTANT. PLEASE SIGN AND RETURN THE ENCLOSED PROXY CARD PROMPTLY.
-------------------------------------
Charles T. Comiso
President and Chief Executive Officer
<PAGE>
TANISYS TECHNOLOGY, INC.
12201 TECHNOLOGY BOULEVARD, SUITE 125
AUSTIN, TEXAS 78727-6101
TELEPHONE NUMBER 512/335-4440
---------------------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON MAY 23, 2000
NOTICE IS HEREBY GIVEN that the 2000 Annual Meeting of Stockholders
(the "Annual Meeting") of Tanisys Technology, Inc., a Wyoming corporation
("Tanisys" or the "Company"), will be held on May 23, 2000, at 10:00 a.m.,
Central Daylight Time, at the Austin Marriott at the Capitol, 701 E. 11th
Street, in Austin, Texas, for the purpose of considering and voting upon the
following:
(1) To ratify the sale of certain assets and the assumption of certain
liabilities related to the Company's memory module manufacturing business and
the sale of stock of the Company's wholly owned subsidiary, Tanisys (Europe)
Ltd., to Tanisys Operations, LP, pursuant to an Asset Purchase Agreement dated
December 9, 1999, as further described in the Proxy Statement;
(2) To amend the Articles of Continuance of the Company to effect a
one-for-two reverse stock split as further described in the Proxy Statement;
(3) To ratify the appointment of Brown, Graham and Company, P.C. as
independent public accountants of the Company for the fiscal year ending
September 30, 2000; and
(5) To consider and act upon any other matter which may properly come
before the Annual Meeting or any adjournment thereof. The Board of Directors is
presently unaware of any other business to be presented to a vote of the
stockholders at the Annual Meeting.
The Board of Directors has fixed the close of business on March 28,
2000, as the record date (the "Record Date") for the determination of
stockholders entitled to notice of and to vote at the Annual Meeting. A list of
stockholders entitled to vote at the Annual Meeting will be available for
inspection at the Company's principal executive offices during ordinary business
hours prior to the meeting, and will be available at the Annual Meeting.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU VOTE TO APPROVE
THE THREE PROPOSALS, EACH OF WHICH IS MORE FULLY DESCRIBED IN THE PROXY
STATEMENT ACCOMPANYING THIS NOTICE.
By Order of the Board of Directors,
<PAGE>
---------------------------
CORPORATE SECRETARY
Austin, Texas
April 4, 2000
IMPORTANT
YOU ARE CORDIALLY INVITED TO ATTEND THE ANNUAL MEETING IN PERSON. EVEN IF YOU
PLAN TO BE PRESENT, PLEASE MARK, SIGN, DATE AND RETURN THE ENCLOSED PROXY AT
YOUR EARLIEST CONVENIENCE IN THE ENVELOPE PROVIDED, WHICH REQUIRES NO POSTAGE IF
MAILED IN THE UNITED STATES. IF YOU ATTEND THE MEETING, YOU MAY VOTE EITHER IN
PERSON OR BY YOUR PROXY.
<PAGE>
SUMMARY TERM SHEET OF THE SALE TRANSACTION
- - TIME AND PLACE OF ANNUAL MEETING (SEE PAGE 1): May 23, 2000 at 10:00 a.m.,
Central Daylight Time, at the Austin Marriott at Capitol, 701 E. 11th
Street in Austin, Texas.
- - RECORD DATE (SEE PAGE 1): You can vote at the Annual Meeting if you owned
Tanisys Technology, Inc. Common Stock at the close of business on March
28, 2000.
- - PROPOSAL TO BE VOTED ON (SEE PAGE 4): You are requested to ratify the sale
of our memory module manufacturing business and our wholly owned subsidiary,
Tanisys (Europe) Ltd. We refer to this as the Sale Transaction.
- - RECOMMENDATION OF THE BOARD OF DIRECTORS (SEE PAGE 20): The Board of
Directors recommends that you vote "For" ratification of the Sale
Transaction.
- - OUR REASONS FOR THE SALE TRANSACTION (SEE PAGES 11-12): The primary reasons
for the Sale Transaction are: (1) unfavorable industry conditions in our
memory module manufacturing business, (2) our lack of current and
prospective profitability in our memory module manufacturing business, and
(3) our weak financial condition.
- - OUR REASONS FOR SEEKING STOCKHOLDER RATIFICATION OF THE SALE TRANSACTION
(SEE PAGE 11): The Buyer of the Company's memory module manufacturing
business in the Sale Transaction required ratification by the Company's
stockholders on or before May 23, 2000.
- - VOTE REQUIRED (SEE PAGE 12): Assuming the existence of a quorum, a majority
of the shares of our Common Stock voting in person or by proxy at the Annual
Meeting is required to ratify the Sale Transaction.
- - HOW TO VOTE YOUR SHARES (SEE PAGE 2): Mail your signed proxy card in the
enclosed return envelope as soon as possible, so that your shares may be
represented at the annual meeting. In order to assure that your vote is
obtained, please give us your proxy even if you currently plan to attend the
annual meeting in person.
- - HOW TO REVOKE YOUR PROXY (SEE PAGE 2): To revoke your proxy, you may send a
written notice to the Secretary of Tanisys Technology, Inc. stating that you
would like to revoke your proxy, execute a later dated proxy, or attend the
meeting and vote in person.
- - DISSENTERS' RIGHTS (SEE PAGE 14): Regardless of your vote, you do not have
any dissenter's rights with respect to the Sale Transaction.
- - EFFECT OF NOT RATIFYING THE SALE TRANSACTION (SEE PAGE 12): If the
stockholders do not approve the Sale Transaction, the Buyer will have the
right to rescind the Sale Transaction. Such rescission could force us into
bankruptcy.
- - EFFECT OF RATIFYING THE SALE TRANSACTION (SEE PAGE 12): Completing the Sale
Transaction decreased our liabilities and allowed us to continue operations
of our memory module test systems business.
- - TAX EFFECTS OF THE SALE TRANSACTION (SEE PAGE 19): The Sale Transaction will
not have any federal income tax consequences to our stockholders.
- - WHAT WE RECEIVED IN THE SALE TRANSACTION (SEE PAGES 14-16): In connection
with the Sale Transaction, the Company received from the Buyer (i) $360,000,
and (ii) the assumption by the Buyer of certain of our liabilities. We also
agreed not to engage in a business in which more than 10% of the revenues
are derived from development, sale or manufacture of memory modules and
board design for a period of ten (10) years after the closing of the Sale
Transaction.
- - QUESTIONS ABOUT THE SALE TRANSACTION. If you have any questions about the
Sale Transaction, you may contact Mr. Terry Reynolds, Vice President of
Finance, at (512) 257-5014.
<PAGE>
TANISYS TECHNOLOGY, INC.
12201 TECHNOLOGY BOULEVARD, SUITE 125
AUSTIN, TEXAS 78727-6101
---------------------------
PROXY STATEMENT
FOR
ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD MAY 23, 2000
GENERAL INFORMATION
This Proxy Statement and the accompanying proxy are furnished to the
stockholders of Tanisys Technology, Inc., a Wyoming corporation ("Tanisys" or
the "Company"), in connection with the solicitation by the Board of Directors of
proxies for use at the Annual Meeting of Stockholders (the "Annual Meeting") to
be held on May 23, 2000 at 10:00 a.m., Central Daylight Time, at the Austin
Marriott at the Capitol, 701 E. 11th Street, in Austin, Texas, and at any
adjournment or postponement thereof, for the purposes set forth in the
foregoing Notice of Annual Meeting of Stockholders. Properly executed proxies
received in time for the Annual Meeting will be voted.
The securities of the Company entitled to vote at the Annual Meeting
consist of shares of common stock, no par value (the "Common Stock"). At the
close of business on March 28, 2000 (the "Record Date"), there were outstanding
and entitled to vote 48,044,716 shares of Common Stock. The holders of record
of Common Stock on the Record Date will be entitled to one vote per share.
The Company's Annual Report on Form 10-K for the fiscal year ended
September 30, 1999, as filed with the Securities and Exchange Commission (the
"Commission") on February 24, 2000, and Quarterly Report on Form 10-Q for the
fiscal quarter ended December 31, 1999, as filed with the Commission on February
22, 2000, have been or are being furnished with this Proxy Statement, which is
being mailed on or about April 4, 2000, to the holders of record of Common
Stock on the Record Date. See "Annual Report and Incorporation by Reference."
<PAGE>
VOTING AND PROXY PROCEDURES
Properly executed proxies received in time for the Annual Meeting will
be voted. Stockholders are urged to specify their choices on the proxy, but if
no choice is specified, eligible shares will be voted FOR the ratification of
the Sale Transaction, FOR the proposal to amend the Articles of Continuance of
the Company to effect a one-for-two reverse stock split, and FOR ratification of
the appointment of Brown, Graham and Company, P.C. as the Company's independent
public accountants for the fiscal year ending September 30, 2000. At the date of
this Proxy Statement, management of the Company knows of no other matters which
are likely to be brought before the Annual Meeting. However, if any other
matters should properly come before the Annual Meeting, the persons named in the
enclosed proxy will have discretionary authority to vote such proxy in
accordance with their best judgment on such matters.
If the enclosed form of proxy is executed and returned, it may
nevertheless be revoked by a later-dated proxy or by written notice filed with
the Secretary at the Company's executive offices at any time before the shares
represented by the proxy are voted at the Annual Meeting. Stockholders attending
the Annual Meeting may revoke their proxies and vote in person. The Company's
executive offices are located at 12201 Technology Boulevard, Suite 125, Austin,
Texas 78727-6101.
The holders of a majority of the total shares of Common Stock issued
and outstanding at the close of business on the Record Date, whether present in
person or represented by proxy, will constitute a quorum for the transaction of
business at the Annual Meeting. Assuming the existence of a quorum, the
affirmative vote of a majority of the shares of Common Stock present, either in
person or represented by proxy, and entitled to vote at the Annual Meeting is
required for the ratification of the Sale Transaction, to approve the Reverse
Split and to ratify the appointment of Brown, Graham and Company, P.C. as the
Company's independent public accountants and any other matters as may properly
come before the Annual Meeting or any adjournment thereof. Once a share is
represented for any purpose at the meeting, it is deemed present for quorum
purposes for the remainder of the meeting. If a quorum is not present in person
or represented by proxy, the Annual Meeting may be adjourned until a quorum is
obtained.
Abstentions are counted toward the calculation of a quorum and will
have the same effect as a vote against a proposal. Broker non-votes will be
counted toward the calculation of a quorum, but will have no effect on the
voting outcome of a proposal.
The cost of solicitation of proxies will be paid by the Company. The
Company has retained D.F. King & Co., Inc. to act in the solicitation of proxies
at a fee of approximately $4,500, plus expenses. The Company may require
solicitations by telephone, telegram or otherwise, the extent of which depends
on how promptly proxy votes are returned. Stockholders are urged to send proxies
without delay. Arrangements also will be made with brokerage firms and other
custodians, nominees and fiduciaries who hold the voting securities of record
for the forwarding of solicitation materials to the beneficial owners thereof.
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The Company will reimburse such brokers, custodians, nominees and fiduciaries
for reasonable out-of-pocket expenses incurred by them in connection
therewith.
AVAILABLE INFORMATION
The following is attached to this Proxy Statement and incorporated by
reference into this Proxy Statement:
- A copy of the Asset Purchase Agreement, excluding exhibits and
schedules thereto, dated December 9, 1999, as amended, between
the Company and Tanisys Operations, LP (Appendix A)
The Company's Annual Report on Form 10-K for fiscal year ended
September 30, 1999 and Quarterly Report on Form 10-Q for the quarter ended
December 31, 1999, accompany this Proxy Statement.
FORWARD-LOOKING STATEMENTS
Statements that may be deemed "forward-looking statements" within the
meaning of Section 21E of the Securities Exchange Act of 1934, as amended, are
made throughout this Proxy Statement and in the Company's 1999 Annual Report on
Form 10-K, which accompanies this Proxy Statement. The Company has based these
statements on its current expectations about future events and the anticipated
effect of the Sale Transaction described in this Proxy Statement. Although the
Company believes the expectations reflected in its forward-looking statements
are reasonable, the Company cannot assure you that these expectations will be
achieved. The Company's actual results may differ materially from what it
currently expects.
Factors that could cause actual results to differ materially include,
but are not limited to, business conditions and growth in the electronics
industry and general economies, both domestic and international; lower than
expected customer orders; customer relationships and financial condition; the
availability of parts and supplies at reasonable prices; relationships with
vendors; the interest rate environment; governmental regulation and supervision;
seasonality; distribution networks; delays in receipt of orders or cancellation
of orders; competitive factors, including increased competition and new product
offerings by competitors and price pressures; changing technologies; acceptance
and inclusion of the Company's technologies by original equipment manufacturers
("OEMs"); changes in product mix; new product development; the negotiation of
new contracts; significant quarterly performance fluctuation due to the receipt
of a significant portion of customer orders and product shipments in the last
month of each quarter; product shipment interruptions due to manufacturing
problems; one-time events; and other factors described herein. Based upon
changing conditions, should any one or more of these risks or uncertainties
materialize, or should any underlying assumptions prove incorrect, actual
results may vary materially from those described herein as anticipated,
believed, estimated, expected or intended. The Company does not intend to update
these forward-looking statements.
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MATTERS TO COME BEFORE THE ANNUAL MEETING
PROPOSAL 1: RATIFICATION OF THE SALE TRANSACTION
Proposal 1 asks you to ratify the sale of certain assets and the
assumption of certain liabilities related to the Company's memory module
manufacturing business and the sale of stock of its wholly-owned subsidiary
corporation, Tanisys (Europe) Ltd. (collectively, the "Memory Module
Manufacturing Business") to Tanisys Operations, LP ("Buyer") pursuant to an
Asset Purchase Agreement dated December 9, 1999 (attached hereto as Appendix
A) (the "Sale Transaction"). The closing of the Sale Transaction occurred on
December 9, 1999, subject to the Company's obligation under the Asset
Purchase Agreement, as amended, to obtain stockholder ratification. Failure
to obtain stockholder ratification would permit the Buyer to rescind the Sale
Transaction under the Asset Purchase Agreement.
BACKGROUND: DESCRIPTION OF THE COMPANY'S BUSINESS
Prior to its disposition in the Sale Transaction, the Company's Memory
Module Manufacturing Business consisted of manufacturing off-the-shelf and
build-to-order semiconductor memory modules. The Company also has a line of
business designing and marketing its DarkHorse-Registered Trademark- memory
module test systems ("Memory Module Test Systems Business"). The Sale
Transaction involved the sale of the Memory Module Manufacturing Business, with
the Company retaining its Memory Module Test Systems Business.
MEMORY MODULE MANUFACTURING BUSINESS. The Sale Transaction involved
the sale of the certain assets and specified liabilities connected with the
Company's Memory Module Manufacturing Business. The Memory Module
Manufacturing Business commenced with the Company's acquisition of 1st Tech
Corporation in May 1996. This Memory Module Manufacturing Business was
comprised of two product lines: manufacturing of build-to-order,
custom-branded memory modules for sale primarily to OEMs (the "FOCUS program")
and contract manufacturing of memory modules for semiconductor manufacturers
for the PC marketplace. In connection with contract manufacturing, the Company
had developed a Comprehensive Logistics and Supply Solutions ("CLASS") program
to assist customers in achieving faster time-to-market for new products as
well as rapid manufacturing cycle times. Due to the better margins associated
with the build-to-order line of business, however, the Company had
strategically emphasized its FOCUS program. The Company sold products
manufactured under its FOCUS program, either directly or through a network of
independent sales representative organizations, to semiconductor
manufacturers, OEMs and memory module manufacturers.
The Company's Memory Module Manufacturing Business was never able to
achieve profitability due to many factors, as described in "Background: The
Company's Distressed Financial Condition." During fiscal 1997, 1998 and 1999,
revenues derived from the sale of memory modules accounted for 89%, 84% and 80%
of net sales, respectively. However, the
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Memory Module Manufacturing Business contributed all of the Company's fiscal
year 1999 operating losses of approximately $6,700,000. At September 30, 1999,
the Memory Module Manufacturing Business represented approximately 79% of the
Company's consolidated net deficit.
TANISYS (EUROPE) LTD. The Sale Transaction also involved the sale to
the Buyer of the Company's stock in its wholly-owned subsidiary, Tanisys
(Europe) Ltd. This subsidiary was formed as a Scottish private limited company
in 1998 to facilitate efforts to develop memory module sales to European-based
customers. However, in April, 1999, the major CLASS customer of Tanisys
(Europe) Ltd. was acquired by another semiconductor manufacturer and ceased to
remain a customer of Tanisys (Europe) Ltd. From September 1999, Tanisys
(Europe) Ltd. experienced no revenues and by November, 1999 had reduced its
workforce by 70%, to approximately 17 employees. In the first calendar quarter
of fiscal 1998, Tanisys (Europe) Ltd. had received an advance of approximately
$824,000 for leasehold improvements from an affiliate of the government of
Scotland which required the Company to guarantee the rent obligations of
approximately $200,000 per year of Tanisys (Europe) Ltd., which guarantee
remains in effect. At the present time, Tanisys (Europe) Ltd. is in compliance
with the lease agreement. If Tanisys (Europe) Ltd. had to be shut down because
the Sale Transaction is not ratified and is rescinded, approximately
$2,500,000 in contingent liabilities for equipment contracts, leases, vendor
payables and severance and other costs would become payable.
MEMORY MODULE TEST SYSTEMS BUSINESS. The Company retains its Memory
Module Test Systems Business after the Sale Transaction and continues to
market these products under the DarkHorse brand name. The Company acquired
DarkHorse Systems, Inc. in May 1996 and has continued development of standard
and custom semiconductor memory module test systems. Memory module test
systems are used by memory module manufacturers to evaluate whether
semiconductor memory modules meet the necessary specifications of performance.
The memory module test systems market typically is segmented into
semiconductor memory manufacturers and independent manufacturers of memory
modules for the personal computer OEM and aftermarket. OEMs typically require
the manufacturer of the memory module to test completed modules under similar
demands as actual use. Most module manufacturers perform "at speed" testing of
modules. The Company believes that memory module test system buyers typically
evaluate reliability, productivity, accuracy, advanced automation, software
flexibility, service, customer support and price as purchase criteria. Demand
for and purchases of new memory module test systems are prompted by the
development, introduction and market support for new memory technologies by
semiconductor manufacturers, memory module manufacturers and OEMs.
The Company's current test system product line includes the SIGMA-3,
SIGMA-2 and SIGMA-LC/SYNC-LC series. The Company's SIGMA-3 test system is sold
to memory module manufacturers for personal computers which require high
quality, maximum through-put and cost effectiveness in their test systems in a
production environment. Another major feature of the SIGMA-3 is its backward
capability to test older memory technologies such as EDO and Fast Page mode
memory. Recently the Company has partnered with Rambus, Inc. and in the
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first quarter of fiscal 2000, the Company completed its first customer
shipments of its Rambus-Registered Trademark- version of the SIGMA-3. This
system is targeted at emerging memory technology and tests memory module data
rates at frequencies of over 800 megahertz. As Rambus technology matures in
the market place, the Company looks to supply this system for its customers'
expanding test capabilities.
The SIGMA-2 tester is designed for module manufacturers who need to
perform "at-speed" tests of older synchronous and asynchronous DRAM, SRAM,
Flash memory and VRAM modules. These systems are aggressively priced relative
to the Company's major competitors. The market for these testers declines as
the technology becomes outmoded.
The Company also markets portable SIGMA-LC and SYNC-LC testers for
the aftermarket segment, comprised of module manufacturers, module retailers,
OEMs, large retail chains using them for personal computer service purposes,
and distributors. Module testing requirements for the system aftermarket
typically are rigorous. Memory additions to systems in use typically are
already tested in accordance with the needs of system manufacturers and often
may need only module identification to assure the correct module is being
installed. Servicing of failed systems often requires limited testing of
modules but typically does not require "at-speed" testing. As a result,
aftermarket module testing often needs less rigorous test capabilities but
higher portability and lower cost than does module testing at the time of
system manufacture. The Company's aftermarket test system sales comprised less
than 5% of its Memory Module Test System Business revenues in fiscal 1999.
In North America and Europe, a majority of the Company's computer
memory module test systems are sold directly to semiconductor manufacturers
and independent manufacturers of memory modules. In Asia, the Company also
sells test systems through distribution partners and independent sales
representatives. Sales generally are made against standard customer purchase
orders. In fiscal 1999 and 1998, the Company's ten largest customers accounted
for 90.6% and 52.2% of its net test system sales, respectively. During fiscal
1999, the Company had three customers which accounted for approximately 70% of
the Company's net test system sales, of which one customer accounted for
approximately 44% of such sales.
The Company's management believes that the timely development and
introduction of new test systems products and technologies is essential to
maintain the Company's competitive position. The Company's research and
development activities are focused primarily on improving memory module
testing technology to meet the demands of changing architecture. The Company
is currently developing a version of the SIGMA-3 memory module test system
with capabilities to test Double Data Rate SDRAM (DDR). The Company's product
development activities also include Flash memory test systems. The growth rate
for Flash memory devices is expected to reach over 50% per year in bit growth
over the next few years. If this growth can be achieved, there will be a
market for high quality, production level, cost effective test systems. In
fiscal year 1999, the Company expended $1,600,000 in research and development
activities, which represented 15.8% of its Memory Module Test Systems
Business.
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The Company plans to continue to devote substantial research and development
efforts to the design of new memory module test systems.
Proprietary technology incorporated into the Company's product
designs enables the Memory Module Test Systems Business to generate high
profit margins (approximately 55% in fiscal 1999). The Company believes that
its proprietary intellectual property has provided a significant barrier to
entry for potential competitors. The Company has 15 applications on file with
the U.S. Patent and Trademark Office for patents to protect its intellectual
property rights in products and technology related to its Memory Module Test
Systems Business. The Company has had nine patents granted related to its
Memory Module Test Systems Business. There can be no assurance that the
pending patent applications will be approved or approved in the form
requested. The Company expects to continue to file patent applications where
appropriate to protect its proprietary technologies; however, the Company
believes that its continued success depends primarily on factors such as the
technological skills and innovation of its personnel rather than on patent
protection. In addition, the Company attempts to protect its intellectual
property rights through trade secrets, copyrights, trademarks and a variety of
other measures, including non-disclosure agreements. There can be no
assurance, however, that such measures will provide adequate protection for
the Company's trade secrets or other proprietary information, that disputes
with respect to the ownership of its intellectual property rights will not
arise, that the Company's trade secrets or proprietary technology will not
otherwise become known or be independently developed by competitors or that
its intellectual property rights can otherwise be protected meaningfully.
There can be no assurance that patents will issue from pending or future
applications or that if patents are issued, they will not be challenged,
invalidated or circumvented, or that rights granted thereunder will provide
meaningful protection or other commercial advantage. Furthermore, there can be
no assurance that third parties will not develop similar products, duplicate
the Company's products or design around the patents owned by the Company or
that third parties will not assert intellectual property infringement claims
against the Company. In addition, there can be no assurance that foreign
intellectual property laws will adequately protect the Company's intellectual
property rights abroad.
During the fiscal year ended September 30, 1999, the Memory Module Test
Systems Business generated $10,145,000 in net sales, resulting in a gross profit
of $5,633,000 and $1,043,000 in net income, and at September 30, 1999
represented approximately 21% of the Company's consolidated net deficit.
BACKGROUND: THE COMPANY'S DISTRESSED FINANCIAL CONDITION
Although the Company was able to develop increasing revenues from its
Memory Module Manufacturing Business, it was not able to capture sufficient
gross margins at the requisite sales volumes in order to make this business
profitable. A number of factors contributed to the Company's inability to
establish sufficient gross margins on its Memory Module Manufacturing Business.
The Company failed to achieve the projected revenues that were required to
produce sufficient margins to meet the Company's ongoing fixed costs. The
Company also lost or failed to obtain the business of several large customers
and potential
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customers due to the Company's poor financial condition, which caused concern
about the Company's ability to deliver. Additionally, the Company faced an
unpredictable cost structure due to uncertainties regarding inventory costs.
The market for DRAM chips, the principal component in memory modules, has been
highly volatile in terms of pricing and inventory availability. Many of the
Company's competitors had greater financial resources and were able to obtain
more advantageous prices, as well as secure allocations of DRAM during high
demand periods. The Company would at times be forced to pay top market prices
to procure DRAM indirectly through distribution sources, rather than directly
from manufacturers. This, in turn, caused margin problems. Further, the
Company's customers were generally on a single-order basis with no long term
commitments, leaving the Company with a limited ability to adjust pricing as
to outstanding orders.
A shortage of computer memory chips in the fourth quarter of fiscal
1999 and a sudden and dramatic increase in memory chip prices during the same
period severely disrupted the Company's business, resulting in major
shortfalls of revenues. After dropping by approximately 95% from 1996 to
mid-1999, memory chip prices escalated rapidly in August and September 1999,
quadrupling between July and September 1999, before leveling off in October
1999. The Company had great difficulty in obtaining DRAM inventory during this
period and lost several key orders. Additionally, one of the Company's largest
CLASS customers (comprising approximately 26% of Company Memory Module
Manufacturing Business sales in fiscal 1999) was acquired by another
semiconductor manufacturer and ceased doing business with the Company.
In July 1999, the Company's stock was delisted from the Nasdaq
SmallCap Market for failure to meet the $2,000,000 net tangible assets
requirement. SEE "Market Information Concerning The Company's Common Stock - -
Delisting from Nasdaq." Delisting of the Company's stock placed the Company in
default under the Stock Purchase Agreement entered into with KA Investments
LDC ("KA") dated June 30, 1998, pursuant to which KA purchased 400 shares of
5% Series A Convertible Preferred Stock ("Series A Preferred Stock") of the
Company for an aggregate purchase price of $10,000 per share or $4,000,000. KA
also acquired warrants expiring in 2002 to purchase up to 133,333 shares of
the Company's Common Stock at a $3.00/share exercise price, which warrants are
currently exercisable. Under the terms of the Stock Purchase Agreement, the
Series A Preferred Stock was convertible into shares of the Company's Common
Stock at a price which is the lesser of (i) the initial conversion price of
$2.31 per share (subject to adjustment for, among other things, a stock split)
or (ii) a variable price based on 80% of the average of the three lowest
closing bid prices during the 30-day trading period preceding the date of
conversion. Quarterly dividends on the Series A Preferred Stock are payable in
Common Stock or cash. The shares of Common Stock issuable under the Stock
Purchase Agreement were registered under a Registration Statement on Form S-3
which became effective on August 13, 1998.
Upon delisting of the Company's Common Stock from the Nasdaq SmallCap
Market on July 27, 1999, the Company's Registration Statement on Form S-3 was
no longer effective. As a result, under the Stock Purchase Agreement, KA
could, at its option, elect to receive dividends in cash rather than Common
Stock. In addition, several events, including delisting from Nasdaq, the
failure to have
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an effective Registration Statement, or the failure to have sufficient shares
of Common Stock to issue upon conversion, constitute a triggering event
requiring redemption of the Series A Preferred Stock at the Mandatory
Redemption Amount, subject to accrual of interest at 15% per annum from the
date of demand for redemption. The Mandatory Redemption Amount is a formula
calculated at the greater of $13,000 per share or a market-based per-share
calculation. The Stock Purchase Agreement also restricts transfers of
intellectual property rights unless transferred in connection with the sale of
all or substantially all assets. Although the Company believes that the Sale
Transaction was not a sale of all or substantially all of the Company's
property under Wyoming corporate law, the Sale Transaction did involve the
transfer to Buyer of intellectual property rights relative to the Memory
Module Manufacturing Business.
As of the date hereof, the holder of the Series A Preferred Stock has
not informed the Company if or when it may exercise any redemption right. As of
February 29, 2000, the aggregate redemption price for the Series A Preferred
Stock was $1,815,000, including a stipulated redemption premium. As of February
29, 2000, all dividends have been paid on the Series A Preferred Stock in Common
Stock, not cash. The Company does not currently have sufficient funds to pay the
redemption price or cash dividends. In addition, the Wyoming Business
Corporation Act prohibits payment of cash dividends or the repurchase of shares
if the Company would be unable to pay its debts or if its total assets would be
less than its total liabilities plus amounts needed to satisfy preferential
rights on dissolution. As of February 29, 2000, KA had been issued 4,421,174
shares of the Company's Common Stock upon conversion of 235 of its 400 shares of
Series A Preferred Stock. KA still held 165 shares of Series A Preferred Stock.
In August of 1999, the Company's Chief Financial Officer resigned to
pursue another opportunity, followed shortly thereafter by the Controller and
Assistant Controller. The Company has since hired a Vice President of Finance.
SEE Item 10 of the Company's Annual Report on Form 10-K for the fiscal year
ended September 30, 1999.
In the fourth quarter of fiscal 1999, excluding the effect of the
Sale Transaction, the Company lost more than $2,000,000, completing fiscal
1999 with a $5,600,000 net loss. As of the end of September 1999, the Company
had a working capital deficit of $3,300,000, prior to the effect of the Sale
Transaction, that threatened its ability to continue as a going concern.
BACKGROUND OF THE SALE TRANSACTION
On October 15, 1999, the Company hired the investment banking firm of
Harris, Webb & Garrison, Inc. ("HWG") to assist it in addressing alternatives to
improve the overall posture of the Company and bolster stockholder value. The
September 1999 financial results for the Company and excessive losses in its
Memory Module Manufacturing Business made the Company's ability to attract
financing unlikely. In consultation with HWG, the Company evaluated selling the
Memory Module Manufacturing Business and retaining its other operations.
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In October, 1999, the Company also engaged a law firm that specialized
in bankruptcy to evaluate alternatives, including a liquidation analysis for the
Company as a whole. Management estimated that the cost to shut down its Memory
Module Manufacturing Business would exceed $5,000,000. The liquidation analysis
projected a 6 to14% return to unsecured creditors upon liquidation. Factors
diminishing the potential return included the following: the senior lender had a
lien on all inventory and receivables, capital leases encumbered a large portion
of fixed assets, and a substantial portion of the assets were located in
Scotland and subject to a differing priority scheme. The firm indicated that in
its opinion in order to file a successful reorganization proceeding under
Chapter 11 of the U.S. Bankruptcy Code, the Company needed more cash than was
currently available. Absent a steady cash funding source, a successful
reorganization proceeding was considered unlikely.
HWG and the Company contacted over 15 potential buyers for the Memory
Module Manufacturing Business. Of the 15 contacted, 6 signed confidentiality
agreements and only 3 gave an indication of interest in a possible
transaction. Two of the inquiries related to the acquisition of tangible
assets only, at a distressed price and without assuming any liabilities. The
third, All Components, Inc. ("ACI"), indicated it would be willing to consider
an acquisition of the Memory Module Manufacturing Business if structured as an
asset sale in which an entity controlled by it would assume only certain
liabilities of the Company.
Although a number of alternatives, including Chapter 7 liquidation,
were considered by the Board of Directors, the best alternative was considered
to be ACI's expression of interest in acquiring the Memory Module Manufacturing
Business. On November 12, 1999, the Company and ACI executed a non-binding
letter of intent. The Company agreed not to solicit or negotiate another
acquisition offer (other than for the Memory Module Test Systems Business) until
December 31, 1999. From November 12, 1999 until December 9, 1999, the Buyer
conducted continuing due diligence and simultaneously the parties and their
counsel negotiated a definitive asset purchase agreement.
On December 9, 1999, the Board of Directors, by unanimous written
consent, determined that the Sale Transaction contemplated under the Asset
Purchase Agreement attached hereto as Appendix A would be fair and in the best
interests of stockholders. As part of its deliberations between October and
December 1999, the Board of Directors discussed and considered numerous factors,
including, without limitation, the following:
- Information concerning the financial condition, results of
operations and prospects of the Company's Memory Module
Manufacturing Business, including the belief of the Board of
Directors that the Company would be unable to meet its ongoing
obligations.
- Inability to obtain capital.
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- The overall effect of the Sale Transaction on the Company's
financial condition; specifically, the amount of debt the
Company would have after completion of the transaction and its
future ability to service its debt.
- The belief that certain unsecured creditors of the Company
would accept discounted settlements of outstanding trade
payables as required by Buyer in order to proceed with the
Sale Transaction.
- The costs associated with liquidation under the Bankruptcy
Code, including associated legal and other fees.
- The possible effects a bankruptcy filing would have on the
Company's stockholders, including the Company's belief that if
it were forced into liquidation there would be little or no
value available for distribution to its stockholders and that
the Company could not assure a reorganization whereby its
stockholders would have a continuing interest in the Company.
- The ability to complete a transaction in a timely manner to
prevent the possible institution of an involuntary bankruptcy
proceeding by the Company's creditors.
- The ultimate effect of the proposed transaction on the
Company's stockholders.
The factors discussed above are not an exhaustive list of the factors
considered by the Board of Directors but include the material factors
considered. The Board of Directors did not quantify or attach any particular
weight to the various factors considered in reaching its determination that the
proposal would be fair and in the best interests of stockholders. As a result of
its consideration of these factors and other relevant considerations, the Board
of Directors determined that the Sale Transaction was advisable and in the best
interests of the stockholders.
REASONS FOR THE VOTE
Under the Asset Purchase Agreement, the Buyer has required that the
Sale Transaction be submitted to the Company's stockholders for ratification.
The Company believes, and has obtained an opinion of Wyoming counsel to the
effect that, stockholder approval of the Sale Transaction is not required
under the Wyoming Business Corporation Act.
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VOTE REQUIRED
Assuming the presence of a quorum, ratification of Proposal 1 requires
the affirmative vote of a majority of votes cast, in person and by proxy, at the
Annual Meeting by the holders of shares of Common Stock entitled to vote. Under
the Company's bylaws, a quorum consists of a majority of the stock issued and
outstanding and entitled to vote at the meeting. (If, under the Wyoming Business
Corporation Act, the Company were required to obtain stockholder approval of the
Sale Transaction, then the affirmative vote of a majority of all issued and
outstanding shares of the Common Stock would have been required for such
approval.) Proxies will be voted for or against such approval in accordance
with specifications marked thereon, and if no specification is made, the
proxies will be voted for Proposal 1.
POSSIBLE CONSEQUENCES IF THE SALE TRANSACTION IS NOT RATIFIED
Failure of the Company's stockholders to ratify the Sale Transaction
gives rise to rights on the part of the Buyer to rescind the Sale Transaction
under the Asset Purchase Agreement by giving written notice to the Company. The
Company currently has insufficient funds to return the purchase price to the
Buyer. Further, the Board of Directors believes that rescission of the Sale
Transaction could result in:
- the Company's creditors filing an involuntary bankruptcy
petition against the Company;
- the Company's filing of a voluntary bankruptcy petition;
- the Company's inability to take advantage of business
opportunities pertaining to the retained Memory Module Test
Systems Business, due to doubt about its ability to satisfy
its financial obligations; and/or
- the Company's inability to attract funds to adequately
capitalize its retained Memory Module Test Systems Business.
If the Sale Transaction is rescinded, the Board of Directors believes
it is likely that the Company will be forced to file a petition under the United
States Bankruptcy Code. If a bankruptcy proceeding resulted in the Company's
liquidation, the Board of Directors believes it unlikely that any value would be
available for distribution to the Company's preferred or common stockholders or
to its unsecured creditors.
CERTAIN EFFECTS OF THE SALE TRANSACTION
After closing of the Sale Transaction, as of December 31, 1999:
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- The Company's total assets of $2,678,000 were substantially
smaller, consisting primarily of accounts receivable of
$1,586,000.
- The Company's consolidated net revenues were substantially
reduced from $12,920,000 in the quarter ended December 31,
1998 to $2,017,000 in the quarter ended December 31, 1999.
- The Company's working capital was in a negative position of
$2,210,000 as of December 31, 1999.
- The Company's secured indebtedness was reduced from $5,302,000
as of December 31, 1998 to $746,000 as of December 31, 1999.
- The Company's liabilities to trade creditors were reduced from
$5,408,000 as of December 31, 1998 to $1,494,000 as of
December 31, 1999.
- Stockholders retained their equity interest in the Company,
restructured to retain its Memory Module Test Systems
Business.
- Revenues from the Company's Memory Module Test Systems
Business increased to $2,017,000 for the quarter ended
December 31, 1999 from $1,651,000 for the quarter ended
December 1998.
LOSS ON SALE TRANSACTION
In connection with the Sale Transaction, the Company incurred a loss
of $3,319,000. The components of the loss include the following: total
consideration from the Buyer totaled $2,265,000, which included $360,000 in
cash proceeds and approximately $1,905,000 in assumed liabilities. The Company
sold assets with a book value of $2,786,000, which included fixed assets of
$666,000, accounts receivable of $1,077,000 and inventory of $1,043,000. The
stock of the Company's wholly owned subsidiary, Tanisys (Europe) Ltd., which
carried a book value of $1,200,000 also was sold to the Buyer in the Sale
Transaction. Additionally, in connection with, and as a condition to closing,
the Sale Transaction, the Company was able to negotiate a reduction in the
aggregate amount payable to certain of the Company's creditors by
approximately $1,700,000. The loss on the Sale Transaction was effectively
reduced by this debt forgiveness.
The Company incurred additional expenses totaling approximately
$1,985,000 in connection with the Sale Transaction, which have been paid,
including the following: writing off fixed assets of the Memory Module
Manufacturing Business totaling $1,137,000, issuing stock and warrants valued at
$98,000 on the dates of issuance to certain creditors in satisfaction of amounts
owed, incurring expenses to terminate various lease obligations in the amount of
$109,000, writing off $327,000 in inventory and $65,000 in deferred financing
costs, paying
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$129,000 to the Company's principal lender to terminate its line of credit,
paying professional fees of $86,000 and a variety of additional miscellaneous
costs totaling $71,000.
The Company also expects to incur future costs, in addition to those
detailed above, in connection with the Sale Transaction, estimated as follows:
lease termination costs for capital equipment of $836,000, professional fees of
approximately $158,000, stockholder meeting and proxy costs of approximately
$100,000, potential warranty expenses related to the Memory Module Manufacturing
Business of approximately $52,000, and additional expenses related to retained
liabilities of the Memory Module Manufacturing Business estimated at $142,000.
These costs have been accrued by the Company and are included on the
Consolidated Balance Sheet for the Company and reported as liabilities of
discontinued operations on the Form 10-K for the fiscal year ended September 30,
1999 and the Form 10-Q for the quarter ended December 31, 1999.
BUYER
Tanisys Operations, LP is a Texas limited partnership formed for the
purpose of purchasing the Memory Module Manufacturing Business from the Company
pursuant to the Asset Purchase Agreement. Tanisys GP, Inc. is the general
partner of the Buyer, which is owned by Tanisys LP, Inc., a Nevada corporation,
which in turn is wholly owned by All Components, Inc., a supplier of
semiconductor devices headquartered in the Dallas, Texas area. The address of
the Buyer is 13717 Beta Road, Farmers Branch, Texas 75244. Neither the Company,
nor any of its officers or directors, are partners, officers or directors of the
Buyer or its affiliates or have any financial interest in the Buyer or its
affiliates.
NO DISSENTERS' RIGHTS
The Company does not believe that Proposal 1 is required to be
submitted to a vote of the stockholders under the Wyoming Business Corporation
Act. Thus, the stockholders do not have dissenters' rights under the Wyoming
Business Corporation Act.
THE ASSET PURCHASE AGREEMENT
The Asset Purchase Agreement related to the sale of certain assets and
the assumption of certain liabilities by the Buyer in connection with the
Company's Memory Module Manufacturing Business, as well as the sale of all stock
in the Company's wholly owned subsidiary, Tanisys (Europe) Ltd. In addition, the
Company entered a covenant not to compete for ten years after the closing of the
Sale Transaction, as further described below. The following description of the
Sale Transaction is qualified in its entirety by reference to the Asset Purchase
Agreement, which is included herewith as Appendix A.
PURCHASE PRICE AND ASSUMPTION OF LIABILITIES. In exchange for the
sale of assets and the covenant not to compete, the Buyer agreed to pay the
Company $360,000, of which $260,000 was for the assets and $100,000 was for
the non-compete covenant described below. Of the
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monetary portion of the consideration, at the closing on December 9, 1999:
$60,000 was paid to the Company in cash; $85,000 was retained by the Buyer as
security for a loan from the Buyer to the Company for pre-payment of fees due
to the Company's lender, Bank of America Commercial Finance Corporation
("Bank of America"); $35,000 was held in escrow for Bank of America's legal
costs and potential future costs related to the Company's accounts; $24,000
was paid to Boston Financial & Equity Corporation ("Boston Financial") on
behalf of the Company; $9,000 was paid to Bank of America on behalf of the
Company for miscellaneous additional fees owed by the Company; and $147,000
was held by the Buyer pending confirmation of accounts receivable relating to
the Company's Memory Module Test Systems Business. Subsequent to closing the
Sale Transaction:
- The $147,000 held by the Buyer to confirm the Company's Memory
Module Test Systems Business accounts receivable, was released
to the Company on December 15, 1999.
- The Bank of America indebtedness described below was paid in
full on January 6, 2000, and the $85,000 retained as security
for such has been released to the Buyer for payment in full of
the $85,000 loan for Bank of America pre-payment fees.
- Of the $35,000 held in escrow, $13,000 was released to Bank of
America to reimburse its legal fees, $9,000 was released to
the Buyer as an offset against an account payable to a Memory
Module Manufacturing Business vendor who was also a customer,
and $13,000 was released to the Company as of February 28,
2000.
In addition to the monetary consideration, the Buyer agreed as part of
the Sale Transaction to assume, perform and discharge certain specified
liabilities of the Company, including a portion of the indebtedness under a line
of credit to the Company from Bank of America. SEE "Purchase of Bank of America
Indebtedness" below. In addition to the Bank of America indebtedness of
$700,000, the Buyer assumed specified vendor liabilities aggregating $1,205,000
as of December 9, 1999, and paid $950,000 directly to Boston Financial toward
the acquisition of certain leased equipment and in settlement of the Company's
obligations under its Master Equipment Lease dated March 11, 1999. Except for
the assumed liabilities, the Company retained its other liabilities, including
liabilities related to the Memory Module Test Systems Business, environmental
liabilities, and other liabilities of the Company for indebtedness prior to the
closing of the Sale Transaction.
NON-COMPETE. For a period of ten years after the closing of the Sale
Transaction, the Company has agreed not to directly or indirectly engage in any
business in North America, South America, Europe or Asia where more than 10% of
the consolidated revenues are derived from the development, manufacture, sale or
provision of memory modules and board design. The Company agreed for a ten year
period not to solicit key employees of Buyer or its affiliates with respect to
the Memory Module Manufacturing Business or interfere with relationships with
employees, customers, distributors and suppliers. Although $100,000 of the
purchase price was
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allocated to the non-compete for tax purposes, the parties agreed that this
would be inadequate in the event of a breach of the non-compete covenant by
the Company and further agreed that, in addition to any additional proven
damages, $1,500,000 of the purchase price would be refunded by the Company in
cash to the Buyer if it is determined by a court or an arbitrator that the
Company violated the non-compete.
PURCHASE OF BANK OF AMERICA INDEBTEDNESS. As part of the Sale
Transaction, the Buyer purchased that certain Loan and Security Agreement
dated July 24, 1997, between the Company and Bank of America with an
outstanding balance of $1,611,000. Of that amount, the Buyer assumed $700,000
as an assumed liability and as of closing of the Sale Transaction the
remaining $911,000 remained due and owing by the Company to the Buyer, secured
by all of the Company's assets. On January 6, 2000, all outstanding amounts
due by the Company to the Buyer under this obligation were paid in full
pursuant to a new $2,000,000 financing that the Company established with the
Austin, Texas office of Silicon Valley Bank headquartered in Santa Clara,
California.
CREDITORS' SETTLEMENT. As a condition for the Buyer to execute the
Asset Purchase Agreement, the Company settled an aggregate amount of
$2,950,000 in Company trade payables to certain unsecured creditors by Buyer's
payment of $1,205,000 in vendor liabilities and a payment by the Company in
Common Stock and inventory valued at $201,000. These vendors (approximately 37
in number) executed releases of the Company and the Buyer with respect to the
settled indebtedness.
REPRESENTATIONS AND WARRANTIES. The Company made various
representations and warranties with respect to its assets and operations in
the Asset Purchase Agreement. These representations and warranties terminate
two years after the closing except those relating to its authority to execute
and perform the Asset Purchase Agreement, real property matters and title to
tangible assets, which survive indefinitely. In addition, representations and
warranties relating to taxes expire 60 days after expiration of the applicable
statute of limitations and representations and warranties relating to
environmental conditions expire on the tenth anniversary of the closing.
INDEMNITY. Both parties mutually agreed to indemnify the other (and
certain defined affiliates) from losses based on breach of warranty or
covenants and losses related to the assumed liabilities (as to the Buyer) and
the retained liabilities (as to the Company). In addition, the Company has
agreed to indemnify the Buyer from (i) any failure to submit the Asset
Purchase Agreement to the Company's stockholders for approval, (ii) the
operation of the transferred assets and related business prior to closing,
(iii) environmental liabilities relating to the transferred assets, (iv)
product liability and employee claims prior to closing, and (v) amounts due
Bank of America after the date of the Asset Purchase Agreement. The Buyer may
offset any indemnification against the consulting payment payable to the
Company under the Asset Purchase Agreement. See "Additional Arrangements"
below.
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EMPLOYEES. Buyer agreed not to solicit or hire employees of the
Company without the consent of the Company. At closing, Buyer offered
employment to 42 of the Company's employees who worked in the Memory Module
Manufacturing Business and the Company assigned to the Buyer all its rights
under confidentiality and non-complete agreements with any employees (other
than the employees which were retained by the Company).
ADDITIONAL ARRANGEMENTS. For a period of six months from closing, the
Buyer has the right to require that the Company provide transitional
consulting services for a monthly fee of $15,000 (based on 160 hours of
service). The Buyer has paid the Company for such consulting services for
December 1999 (on a pro rated basis) and January and February 2000. The
Company does not know whether the Buyer will engage it to provide services
during the remainder of the six-month consulting services period. The Buyer is
also subleasing certain space from the Company, as described below in "Company
Business Following the Sale Transaction- Properties." Additionally, the Buyer
made a one-time payment of $30,000 to the Company for use of certain equipment
for the month of January 2000.
COMPANY BUSINESS FOLLOWING THE SALE TRANSACTION
Since consummating the Sale Transaction in December 1999, the Company
has refocused its efforts on its Memory Module Test Systems Business. SEE
"Background: Description of the Company's Business: Memory Module Test Systems
Business." Following the Sale Transaction, the Company also retained its
proprietary Tanisys Touch technology, available for licensing to third
parties. Although not currently under license, this technology provides an
imbedded switching mechanism alternative to mechanical and other switch
technologies. In fiscal year 1999, the Company derived $118,000 in revenues
from this technology.
After closing of the Sale Transaction, the Company has the same
directors and retains its officers associated with the Memory Module Test
Systems Business, including Charles T. Comiso as the Company's President and
Chief Executive Officer. While the Company's working capital position was
($2,210,000) as of December 31, 1999, management believes that current
operations should be able to generate a positive cash flow sufficient to meet
the Company's current obligations.
EMPLOYEES. At September 30, 1999, the Company had 206 employees.
There were 184 employees in Austin, including 23 engineering and product
development employees, 23 finance and administration employees, 33 employees
in the sales, marketing technical and customer support areas, and 105
manufacturing employees and 22 employees in Scotland.
Between September 30, 1999 and the completion of the sale of the
Memory Module Manufacturing Business in December 1999, 5 employees in Austin
were terminated for performance problems and 27 Austin employees and 1
Scotland employee left voluntarily to seek other employment. In addition, the
positions of 20 Austin employees and 4 Scotland employees were eliminated on
October 21, 1999, to reduce the Company's operating expenses. The sale of the
Memory Module Manufacturing Business resulted in 42 Austin employees and
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17 Scotland employees being offered positions with the Buyer of that business.
The positions of 47 Austin employees were eliminated as a result of the sale.
After the Sale Transaction, the Company has 43 full-time employees.
These employees include 24 engineering, product development manufacturing and
technical support employees, 11 finance and administration employees, and 8
employees in sales and marketing. The Company believes that its future success
will depend in part on its ability to attract and retain highly skilled
management, engineers, sales, marketing, finance and technical personnel.
Recruitment of personnel in the computer industry, particularly engineers, is
highly competitive. There can be no assurance of the Company's ability to
recruit and retain the employees that it may require.
PROPERTIES. At February 1, 2000, the Company has leased 39,176 square
feet of space for its corporate offices at 12201 Technology Boulevard, Suite
125, Austin, Texas, pursuant to a lease which, under agreement with the
landlord, will be terminated on March 17, 2000. The Company currently is
paying annual rent of approximately $308,000 plus a pro rata charge for
property taxes, common area maintenance and insurance.
The Buyer of the Memory Module Manufacturing Business has subleased
24,330 square feet of this space from the Company until March 17, 2000. Under
the sublease arrangement, Buyer pays an annualized rental rate of
approximately $197,000, plus 75% of the operating expenses which the Company
is obligated to pay under its lease.
Effective March 18, 2000, the Company will lease, from its current
landlord at the same address, 14,846 square feet at $67,550 for the last 6.5
months of fiscal year 2000 and $151,430 annually until March 31, 2003, plus a
pro rata charge for property taxes, common area maintenance and insurance.
COMPETITION. The memory module test system industry is intensely
competitive, including several competitors which have achieved a substantial
market share. It is difficult to measure the size of the memory module test
system market because some test products perform more than a single function
and because some manufacturers do not use a test product for their test
applications. The Company estimates the potential market at 300 to 500 test
systems per year. Certain of the Company's competitors have substantially
greater financial, marketing, technical, distribution and other resources,
greater name recognition, and larger customer bases than the Company. The
Company also faces competition from new and emerging companies that have
recently entered or may in the future enter the market.
The Company expects its competitors to continue to improve the
performance of their current products, to reduce their current product sales
prices and to introduce new products that may offer greater performance and
improved pricing, any of which could cause a decline in sale or loss of market
acceptance of the Company's products. There can be no assurance that
enhancements to or future generations of competitive products will not be
developed that offer better prices or technical performance features than the
Company's products. To remain
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competitive, the Company must continue to provide technologically advanced
products on a reliable basis, reduce manufacturing costs and compete favorably
on the basis of price. In addition, increased competitive pressure has led in
the past, and may continue to lead to, intensified price competition,
resulting in lower prices and gross margins, which could materially adversely
affect the Company's business, financial condition and results of operations.
There can be no assurance that the Company will be able to compete
successfully in the future.
LEGAL PROCEEDINGS. As of the date hereof, the Company is a defendant
in one lawsuit which was filed on January 25, 2000 in the 201st Judicial Court
of Travis County by Diamond Computer Resources, Inc., one of the Company's
former Memory Module Manufacturing Business customers, for alleged breach of
contract. The damages asserted in the pleadings are approximately $78,000. The
Company intends to vigorously defend this lawsuit.
NO FAIRNESS OPINION
The Board of Directors chose not to obtain a "fairness" opinion from
an investment banking firm concerning the Sale Transaction described in this
Proxy Statement. The Asset Purchase Agreement was negotiated at arm's length
between the Company and Buyer. Given the Company's limited resources and the
fact that the Company was retaining with its Memory Module Test Systems
Business, the Board of Directors did not believe it was in the best interests
of the stockholders to incur the cost of a fairness opinion.
FEDERAL INCOME TAX CONSEQUENCES OF SALE TRANSACTION
The following is a summary of the material anticipated federal income
tax consequences to the Company and its stockholders of Proposal 1 described
in this Proxy Statement. This summary is based on the federal income tax laws
as now in effect and as currently interpreted. This summary does not take into
account possible changes in tax laws or interpretations after the date of this
Proxy Statement, including amendments to applicable statutes, regulations and
proposed regulations or changes in judicial or administrative rulings, some of
which may have retroactive effect. This summary does not purport to address
all aspects of the possible federal income tax consequences and is not
intended as tax advice to any person. The summary does not address any
consequences of the Sale Transaction under any state, local or foreign income
or other tax laws.
The Company's existing stockholders will not recognize any gain or
loss resulting from the Sale Transaction described in the Proxy Statement. The
Company should not recognize any taxable gain as a result of the Sale
Transaction. Although a discharge of indebtedness, in whole or in part, may
result in the realization of income, an exception exists where an entity is
insolvent both prior to and following such discharge. In such case, the
insolvent entity may elect to first reduce tax attributes, such as net
operating loss carry-forwards and capital loss carry-forwards, certain tax
credit carry-forwards, followed by reduction in basis of assets. The Company
was insolvent both prior to and following the Sale Transaction. The estimated
19
<PAGE>
discharge of indebtedness of $1,544,000 related to certain trade accounts
payable will be applied in whole to the Company's net operating loss
carry-forward.
INTEREST OF CERTAIN PERSONS IN THE SALE TRANSACTION
On January 12, 2000 the Company issued 600,000 shares of Common
Stock to Charles T. Comiso, President and Chief Executive Officer of the
Company, and 250,000 to Parris H. Holmes, Jr., Chairman of the Board of
Directors of the Company, in connection with services rendered in the Sale
Transaction. This Common Stock was valued at $165,047 based on the market
value on the date of issuance and was included in the estimated loss and
disposal of the Memory Module Manufacturing Business in the Company's
financial statements for fiscal 1999.
REGULATORY APPROVALS
The Company is not aware of any approval required by a state or
federal regulatory agency in order to consummate the Sale Transaction.
THE BOARD OF DIRECTORS' RECOMMENDATION
The Board of Directors believes the Sale Transaction described in
this Proxy Statement will improve the Company's financial condition and its
ability to develop its remaining product line, comprised of the DarkHorse
Memory Module Test Systems. THE BOARD OF DIRECTORS HAS APPROVED THE ASSET
PURCHASE AGREEMENT AND RECOMMENDS THAT YOU VOTE "FOR" PROPOSAL 1 TO RATIFY THE
SALE TRANSACTION.
SELECTED FINANCIAL DATA
The following table presents selected historical financial data of the
Company. This information is contained in the financial statements to the
Company's Annual Report on Form 10-K, which accompanies this Proxy Statement
and should be read in conjunction herewith.
<TABLE>
<CAPTION>
TANISYS TECHNOLOGY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED SEPTEMBER 30,
- --------------------------------------------------------------------------------------------------------------------------
1999 1998 1997
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net sales $ 10,145,108 $ 5,349,285 $ 5,294,000
Cost of goods sold 4,512,602 2,959,655 3,465,892
- --------------------------------------------------------------------------------------------------------------------------
Gross profit 5,632,506 2,389,630 1,828,108
- --------------------------------------------------------------------------------------------------------------------------
Operating expenses:
Research and development 1,602,131 1,692,059 1,589,103
Sales and marketing 1,537,717 1,287,903 1,188,754
General and administrative 703,900 665,420 602,783
20
<PAGE>
Depreciation and amortization 155,466 902,064 1,393,880
Bad debt expense 233,196 136,139 780,785
- --------------------------------------------------------------------------------------------------------------------------
Total operating expenses 4,232,410 4,683,585 5,555,305
- --------------------------------------------------------------------------------------------------------------------------
Operating income (loss) 1,400,096 (2,293,955) (3,727,197)
Other income (expense):
Interest income 13,675 23,808 15,981
Interest expense (371,514) (213,617) (231,480)
Other income 1,065 - -
- --------------------------------------------------------------------------------------------------------------------------
Income (loss) from continuing operations 1,043,322 (2,483,764) (3,942,696)
- --------------------------------------------------------------------------------------------------------------------------
Discontinued operations, net of income taxes:
Loss from discontinued operations, net of income taxes (6,690,903) (6,064,032) (6,171,132)
of $-0-
Estimated loss on disposal of memory module
manufacturing business (3,319,147) - -
- --------------------------------------------------------------------------------------------------------------------------
Loss from discontinued operations (10,010,050) (6,064,032) (6,171,132)
- --------------------------------------------------------------------------------------------------------------------------
Net loss $ (8,966,728) $(8,547,796) $(10,113,828)
==========================================================================================================================
Income (loss) from continuing operations $ 1,043,322 $(2,483,764) $ (3,942,696)
Preferred stock dividend and amortization of the
value of the beneficial conversion feature on
the preferred stock (1,007,949) (588,016) -
- --------------------------------------------------------------------------------------------------------------------------
Net income (loss) from continuing operations
applicable to common stockholders 35,373 (3,071,780) (3,942,696)
Loss from discontinued operations (10,010,050) (6,064,032) (6,171,132)
- --------------------------------------------------------------------------------------------------------------------------
Net loss applicable to common stockholders $ (9,974,677) $(9,135,812) $(10,113,828)
==========================================================================================================================
Basic income (loss) per common share:
Income (loss) from continuing operations
applicable to common stockholders $ - $ (0.15) $ (0.22)
Loss from discontinued operations (0.43) (0.29) (0.35)
- --------------------------------------------------------------------------------------------------------------------------
Net loss applicable to common stock $ (0.43) $ (0.44) $ (0.58)
==========================================================================================================================
Diluted income (loss) per common share:
Income (loss) from continuing operations
applicable to common stockholders $ .01 $ (0.15) $ (0.22)
Loss from discontinued operations (0.33) (0.29) (0.35)
- --------------------------------------------------------------------------------------------------------------------------
Net loss applicable to common stockholders $ (0.32) $ (0.44) $ (0.58)
==========================================================================================================================
</TABLE>
21
<PAGE>
PROPOSAL 2: APPROVAL OF AMENDMENT TO ARTICLES OF CONTINUANCE TO EFFECT A
ONE:TWO REVERSE STOCK SPLIT
INTRODUCTION
The Company's Board of Directors has adopted a resolution to
effectuate a one-for-two reverse stock split (the "Reverse Split") of the
currently issued and outstanding shares of the Company's Common Stock on the
basis of one share for every two shares. The effect of the Reverse Split upon
holders of Common Stock will be that the total number of shares of the
Company's Common Stock held by each stockholder will be automatically
converted, without any action on the part of the stockholders, into the number
of whole shares of Common Stock equal to the number of shares of Common Stock
owned immediately prior to the Reverse Split, divided by two, adjusted, as
described below, for any fractional shares.
Assuming the Reverse Split is approved by the Company's stockholders
at the Annual Meeting, each stockholder's percentage ownership interest in the
Company and proportional voting power will remain unchanged except for minor
differences resulting from adjustments for fractional shares. The voting and
other rights of the holders of shares of Common Stock will not be altered by
the Reverse Split. It is not anticipated that the number of stockholders of
record of Common Stock of will be reduced by this transaction. The Reverse
Split will not affect the number of authorized shares of Common Stock or
preferred stock or the number of outstanding shares of Series A Preferred
Stock.
No certificates or scrip representing fractional shares of the
Company's Common Stock will be issued to stockholders because of the Reverse
Split. Any stockholder otherwise entitled to any fractional share interest due
to the Reverse Split will receive in lieu thereof, one additional share of
Common Stock for the fractional share such stockholder would otherwise be
entitled to as a result of the Reverse Split.
REASONS FOR THE REVERSE SPLIT
As discussed above, the Series A Preferred Stock issued to KA
pursuant to the Stock Purchase Agreement (SEE "Proposal 1: Background: The
Company's Distressed Financial Condition") requires the Company to reserve
sufficient authorized but unissued Common Stock for conversion of the Series A
Preferred Stock, payment of dividends and the exercise of the related
warrants. In addition, in November, 1998 the Company issued $2,000,000 in debt
with stock warrants to certain stockholders of the Company ("Noteholders").
The promissory note(s) evidencing this debt had a two-year term and accrued
interest at 10% per annum, payable quarterly in unregistered shares of Common
Stock or cash, at the option of the Company. The warrants are exercisable for
the purchase of an aggregate of 2,000,000 shares of Common Stock,
22
<PAGE>
commencing December 1, 1998, at an excise price of $0.25 per share increasing
to $0.50 per share on August 1, 1999 and $1.00 per share from October 2, 2000
until the expiration date of November 1, 2001. As of February 29, 2000,
1,600,000 shares of Common Stock have been issued upon exercise of the
warrants by the Noteholders and 434,395 shares have been issued to the
Noteholders to pay accrued interest through December 31, 1999. In February
2000, the Noteholders agreed to convert into shares of Common Stock, the
outstanding principal plus accrued interest from January 1, 2000 through the
conversion date on the basis of one share of Common Stock for each $0.25 of
debt and interest owed the Company ("Debt Conversion"). As of February 29,
2000, 7,200,000 shares of Common Stock have been issued to the Noteholders for
the Debt Conversion.
On February 29, 2000, there were 36,492,780 shares of the Company's
Common Stock issued and outstanding (including the shares issued for Debt
Conversion) and there were stock options and warrants outstanding for
7,191,366 shares of Common Stock. If the remaining 165 shares of KA's Series A
Preferred Stock were to be converted on February 29, 2000, based on an average
trading price of $0.30 per share, approximately 5,500,000 shares of Common
Stock would be issuable to KA for conversion and 45,206 shares for accrued
dividends. This would result in 49,229,352 fully diluted shares, leaving only
approximately 800,000 shares of authorized but unissued shares of Common Stock
for future issuances.
Re-listing on the Nasdaq SmallCap Market requires, among other
things, that the minimum bid price of the Company's Common Stock exceed $4.00
per share. Over the past several months, the bid price of the Company's Common
Stock has ranged from $0.24 to $2.50. Management believes that if the Reverse
Split is approved by the stockholders and effectuated, then the Company's
shares of Common Stock may achieve an improved price level and thus be in a
better position to be re-listed.
The Board of Directors recommends approval of the Reverse Split for
the following reasons:
- The Reverse Split is necessary for enough shares of Common
Stock to be available to effect the conversion of Series A
Preferred Stock into Common Stock, to pay dividends on Series
A Preferred Stock and to satisfy the existing warrants and
other options.
- The Reverse Split may encourage interest in trading in the
Company's Common Stock and promote greater liquidity for the
stockholders, although such liquidity could be adversely
affected by the reduced number of shares outstanding after the
Reverse Split.
- The Board of Directors also believes that the Reverse Split
could result in a broader market for the Common Stock than
that which currently exists. A variety of brokerage house
policies and practices tend to discourage individual brokers
23
<PAGE>
from dealing with lower priced stocks. In addition, the
structure of trading commissions tends to adversely impact
lower priced stocks.
- Although the Board of Directors cannot predict what effect the
Reverse Split will have on the market price of the Company's
Common Stock, it may result in an improved price level.
IMPLEMENTATION OF THE REVERSE SPLIT
If approved by the stockholders, the Reverse Split will be
implemented by amending the present Article 9 of the Company's Articles to add
the following new paragraph:
"Effective as of the effective date of this Amendment, all
outstanding shares of Common Stock shall be reverse split on a
one-for-two basis so that each share of Common Stock issued and
outstanding immediately prior to the effective date shall
automatically be converted into and reconstituted as one half of a
share of Common Stock ("Reverse Split"). No fractional shares will be
issued by the Corporation as a result of the Reverse Split. In lieu
thereof, each shareholder whose shares of Common Stock are not evenly
divisible by two will receive one additional share of Common Stock
for the fractional share such shareholder would otherwise be entitled
to as a result of the Reverse Split."
Pursuant to Section 17-16-1003(c) of the Wyoming Business Corporation
Act, the Board of Directors has conditioned its submission of the amendment to
the Articles by reserving the right to abandon the proposed Reverse Split
before or after the Annual Meeting and prior to its effective date if for any
reason it deems it advisable. The Board of Directors may consider abandoning
the Reserve Split if it determines, in its discretion, that the Reverse Split
would adversely affect the Company's ability to raise capital or the liquidity
of the Common Stock, among other things. In addition, the Board of Directors
may make changes to the amendment to the Articles as may be required by the
Wyoming Secretary of State in order to file the amendment and give effect to
the Reverse Split.
PRINCIPAL EFFECTS OF THE REVERSE SPLIT
- Stockholders have no right under Wyoming law to dissent from
the Reverse Split.
- The Company has an authorized capital of 10,000,000 shares of
preferred stock, par value $1.00 per share, and 50,000,000
shares of Common Stock, no par value, as of the date hereof.
The authorized Common Stock of the Company will not be
affected by the Reverse Split. The authorized preferred stock
will not be affected by the Reverse Split. The number of
issued and outstanding shares of Common Stock of the Company
on March 28, 2000 was 48,044,716. Based upon the Company's
best estimate, the aggregate number of shares of Common Stock
that will be issued and outstanding on the filing date of
the reverse split after giving effect to the Reverse Split
is 24,022,358.
24
<PAGE>
- No cash will be paid in lieu of fractional shares as a result
of the Reverse Split. Instead of a fractional share,
stockholders will receive one additional share of Common
Stock.
- The Reverse Split may result in some stockholders owning
"odd-lots" of less than 100 shares of Common Stock. Brokerage
commissions and other costs of transactions in odd lots are
generally somewhat higher than the costs of transactions in
"round-lots" of even multiples of 100 shares.
DILUTION
The Company has previously issued, and has outstanding, various
options, warrants and rights to purchase 7,191,366 shares of its Common Stock.
If the Reverse Split is approved by the stockholders, in general, both the per
share exercise price and the number of shares subject to such options,
warrants and rights will be affected by the Reverse Split.
As a result, if the Reverse Split is implemented, it is possible that
the holders of all or a substantial number of the outstanding options,
warrants and rights to purchase shares of the Company's Common Stock will
determine that it is not in their best interests to exercise such options,
warrants or rights. If and to the extent that such is the case, each
stockholder's percentage ownership interest in the Company and proportional
voting power will not be proportionately reduced as the result of the exercise
of such outstanding options, warrants and rights.
EXCHANGE OF STOCK CERTIFICATES
Assuming the Reverse Split is approved by the stockholders,
stockholders will be required to exchange their stock certificates for new
certificates representing the shares of new Common Stock. Stockholders will be
furnished with the necessary materials and instructions for the surrender and
exchange of stock certificates at the appropriate time by the Company's
transfer agent. Stockholders will not be required to pay a transfer or other
fee in connection with the exchange of certificates. Stockholders should not
submit any certificates until requested to do so.
FEDERAL INCOME TAX CONSEQUENCES
The following description of federal income tax consequences is based
upon the Internal Revenue Code of 1986, as amended, the applicable Treasury
Regulations promulgated thereunder, judicial authority and current
administrative rulings and practices as in effect on the date of this Proxy
Statement. This discussion is for general information only and does not
discuss consequences which may apply to special classes of taxpayers (e.g.,
non-resident aliens, broker-dealers or insurance companies). Stockholders are
urged to consult their own tax advisors to determine the particular
consequences to them.
25
<PAGE>
The exchange of shares of Common Stock for shares of new Common Stock
will not result in recognition of gain or loss. The holding period of the
shares of new Common Stock will include the stockholder's holding period for
the shares of Common Stock exchanged therefor, provided that the shares of
Common Stock were held as a capital asset. The adjusted basis of the shares of
new Common Stock will be the same as the adjusted basis of the shares of
Common Stock exchanged therefor.
VOTE AND BOARD OF DIRECTORS' RECOMMENDATION
Assuming the presence of a quorum, the proposal to approve the
Reverse Split requires the affirmative vote of the holders of shares of the
outstanding shares of Common Stock constituting a majority of the voting power
represented at the Annual Meeting in person or by proxy. Proxies will be voted
for or against approval in accordance with specifications marked thereon and
if no specification is made, will be voted FOR approval of the Reverse Split.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE "FOR"
THE PROPOSAL TO APPROVE THE REVERSE SPLIT.
PROPOSAL 3: RATIFICATION OF APPOINTMENT OF INDEPENDENT PUBLIC ACCOUNTANTS
The Board of Directors, has appointed the firm of Brown, Graham and
Company, P.C. to serve as independent public accountants of the Company for
the fiscal year ending September 30, 2000. Although stockholder ratification
is not required, the Board of Directors has directed that such appointment be
submitted to the stockholders of the Company for ratification at the Annual
Meeting.
Arthur Andersen LLP ("Andersen") served as independent public
accountants of the Company with respect to the Company's consolidated
financial statements for the fiscal years ended September 30, 1994 through
1998. On January 12, 2000, the Company advised Andersen that the Company
intended to retain a different independent accounting firm for the audit of
its financial statements for the fiscal year ended September 30, 1999.
Andersen's reports on the Company's consolidated financial statements for the
last three years contained no adverse opinion or disclaimer of opinion and
were not qualified or modified as to uncertainty, audit scope or accounting
principles. The Company's Board of Directors recommended and approved the
action taken with respect to Andersen.
There have been no disagreements with Andersen on any matter of
accounting principles or practices, financial statement disclosure or auditing
scope or procedure, which disagreements, if not resolved to Andersen's
satisfaction, would have caused Andersen to make reference to the subject
matter of the disagreement(s) in connection with its report.
26
<PAGE>
Brown, Graham and Company, P.C. has been engaged by the Company as
its new independent principal accountant to audit the Company's consolidated
financial statements. This engagement was effective as of January 12, 2000
commencing with the fiscal year ended September 30, 1999.
Representatives of Brown, Graham and Company, P.C. will be present at
the Annual Meeting. They will have an opportunity to make a statement if they
desire to do so and will be available to respond to appropriate questions from
stockholders.
Assuming the presence of a quorum, ratification of the appointment of
Brown, Graham and Company, P.C. requires the affirmative vote of a majority of
the votes cast by the holders of shares of Common Stock entitled to vote in
person or by proxy at the Annual Meeting. Proxies will be voted for or
against such approval in accordance with specifications marked thereon, and
if no specification is made, the proxies will be voted for such approval.
BOARD OF DIRECTORS' RECOMMENDATION
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE PROPOSAL
TO RATIFY THE APPOINTMENT OF BROWN, GRAHAM AND COMPANY, P.C. AS
INDEPENDENT PUBLIC ACCOUNTANTS OF THE COMPANY
FOR THE FISCAL YEAR ENDING SEPTEMBER 30, 2000.
FURTHER INFORMATION
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The following table sets forth certain information known by the
Company regarding the beneficial ownership of Common Stock by persons owning
beneficially more than 5% of the outstanding Common Stock at February 29,
2000. A total of 36,492,780 shares of the Company's Common Stock were issued
at February 29, 2000.
<TABLE>
<CAPTION>
NO. OF SHARES
BENEFICIALLY PERCENT
NAME AND ADDRESS OF BENEFICIAL OWNER OWNED (1) OF CLASS (2)
------------------------------------ ------------ ------------
<S> <C> <C>
Parris H. Holmes, Jr. 1,821,360 (3) 5.0%
7411 John Smith Drive, Suite 200
San Antonio, Texas 78229
- ---------------------
</TABLE>
27
<PAGE>
(1) Unless otherwise noted, each of the persons named has sole voting and
investment power with respect to the shares reported.
(2) The percentages indicated are based on outstanding stock options,
exercisable within 60 days for each individual and36,492,780 shares of
Common Stock issued and outstanding at February29, 2000.
(3) Includes 195,000 shares that Mr. Holmes has the right to acquire upon
exercise of stock options, exercisable within 60 days.
The following table sets forth certain information known to the
Company with respect to beneficial ownership of the Company's Common Stock at
February 29, 2000 by (i) each person known by the Company to own beneficially
more than 5% of the outstanding shares of Common Stock, (ii) each of the
Company's directors, (iii) each named executive officer and (iv) all executive
officers and directors as a group. A total of 36,492,780 shares of the
Company's Common Stock were issued and outstanding at February 29, 2000.
<TABLE>
COMMON STOCK
------------------------
5% BENEFICIAL OWNERS, DIRECTORS NUMBER
AND NAMED EXECUTIVE OFFICERS OF SHARES(1) PERCENT(2)
---------------------------- ------------ ----------
<S> <C> <C>
John R. Bennett 81,150(3) *
Charles T. Comiso 1,460,966(4) 4.0%
Richard R. Giandana 24,500(6) *
Parris H. Holmes Jr 1,821,360(5) 5.0%
Joseph C. Klein 63,500(7) *
W. Audie Long 937,023(8) 2.6%
Gordon H. Matthews 157,500(9) *
Terry W. Reynolds 0 *
Theodore W. Van Duyn 290,000(10) *
All executive officers and directors as a group
(9 persons, including the executive officers
and directors listed above) 4,830,999(11) 13.2%
</TABLE>
- -------------------
*Represents less than one percent (1%) of the issued and outstanding shares of
Common Stock.
(1) Unless otherwise noted, each of the persons named has sole voting and
investment power with respect to the shares reported.
(2) The percentages indicated are based on outstanding stock options
exercisable within 60 days for each individual and 36,492,780 shares
of Common Stock issued and outstanding at February 29, 2000.
(3) Includes 60,000 shares that Mr. Bennett has the right to acquire upon
exercise of stock options, exercisable within 60 days.
<PAGE>
(4) Includes 500,000 shares that Mr. Comiso has the right to acquire upon
exercise of stock options, exercisable within 60 days.
(5) Includes 195,000 shares that Mr. Holmes has the right to acquire upon
exercise of stock options, exercisable within 60 days.
(6) Includes 22,500 shares that Mr. Giandana has the right to acquire upon
exercise of stock options, exercisable within 60 days.
(7) Includes 25,000 shares that Mr. Klein has the right to acquire upon
exercise of stock options, exercisable within 60 days.
(8) Includes 12,500 shares that Mr. Long has the right to acquire upon
exercise of stock options, exercisable within 60 days.
(9) Includes 95,000 shares that Mr. Matthews has the right to acquire upon
exercise of stock options, exercisable within 60 days, and 1,900
shares owned by his daughter.
(10) Includes 25,000 shares that Mr. Van Duyn has the right to acquire upon
exercise of stock options, exercisable within 60 days.
(11) Includes 970,000 shares that 9 directors and executive officers have
the right to acquire upon exercise of stock options, exercisable
within 60 days.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
For the fiscal year ended September 30, 1999, Parris H. Holmes, Jr.,
Chairman of the Board of Directors, billed the Company $51,821 for expenses
incurred in connection with issues involving corporate finance, business
operations and business opportunities which the Company currently intends to
pay by issuing shares of Common Stock in lieu of cash.
During the fiscal year ended September 30, 1999, the Company paid W.
Audie Long, the outside legal counsel to the Company, 30,000 shares of Common
Stock in lieu of cash for professional services relating to legal issues.
On November 2, 1998, the Company completed a private placement of
$2,000,000 of debt with warrants to purchase 2,000,000 shares of Common Stock.
Investors who participated in the private placement included Parris H. Holmes,
Jr., Chairman of the Board, and Charles T. Comiso, the President and Chief
Executive Officer of the Company. The Company also issued warrants to purchase
125,000 shares of Common Stock for $.01 per share to Parris H. Holmes, Jr.,
Chairman of the Board of Directors, in payment of expenses and professional
fees incurred in connection with the private placement and 25,000 to legal
counsel.
MARKET INFORMATION CONCERNING OUR COMMON STOCK
<PAGE>
DELISTING FROM THE NASDAQ SMALLCAP MARKET. On May 11, 1999, the Company
received notification from the Nasdaq Stock Market, Inc. that it did not
comply with either of the net tangible asset/market capitalization/net income
requirements for continued listing on the Nasdaq SmallCap Market. The Nasdaq
requested the Company provide a plan for compliance. The Company appealed and
the appeal was heard on June 24, 1999. The basis of the appeal was the
Company's reliance on Nasdaq Market Place Rule 4310(c)(2) stating a $2,000,000
net tangible asset requirement. The Company believed the calculation of "net
tangible assets" to equal total assets, less intangibles, less total
liabilities. However, in accordance with the Nasdaq's unwritten policy, the
value of the Company's Series A Preferred Stock was excluded from the
calculation of the Company's net tangible assets, putting the Company in a
position of non-compliance.
On July 27, 1999, the Company received notice of the Nasdaq appeal
panel's decision to delist the Company's securities from the Nasdaq SmallCap
Market effective close of business July 27, 1999. The Company appealed this
decision and is considering circumstances to comply with re-listing
requirements.
The delisting was a triggering event for the Company's Series A
Preferred Stock; however, as of the date hereof the holder of the Series A
Preferred Stock has not informed the Company if or when it will exercise its
redemption rights.
Since July 28, 1999, the Company's Common Stock has been trading on
the Nasdaq OTC Bulletin Board under the trading symbol "TNSU."
HIGH AND LOW SALES PRICES OF COMMON STOCK. The following table sets forth the
closing high and low sales prices of the Company's Common Stock for the
periods indicated, as reported by Nasdaq.* These prices are believed to be
representative of inter-dealer quotations, without retail make-up, mark-down
or commissions, and may not represent prices at which actual transactions
occurred.
<TABLE>
COMMON STOCK
------------
QUARTER ENDED HIGH LOW
------------- ---- ---
<S> <C> <C>
Fiscal 1998:
------------
December 31, 1997 $4.13 $2.00
March 31, 1998 4.50 2.38
June 30, 1998 3.16 2.25
September 30, 1998 2.56 1.50
Fiscal 1999:
------------
December 31, 1998 $2.19 $1.41
March 31, 1999 2.50 1.25
June 30, 1999 1.88 1.00
September 30, 1999 1.31 0.47
Fiscal 2000:
------------
December 31, 1999 0.79 0.24
Through February 18, 2000 $1.62 $0.26
</TABLE>
<PAGE>
At March 23, 2000 there were 478 recordholders of the Company's Common
Stock.
*These prices reflect high and low bid prices of the Common Stock
from July 28, 1999 as reported on the Nasdaq OTC Bulletin Board.
DIVIDENDS. The Company has not in the past nor does it intend to pay cash
dividends on the Company's Common Stock in the foreseeable future. Delisting
of the Company's shares is an event triggering payment of dividends on the
Series A Preferred Stock in cash rather than Common Stock. To date, dividends
on such preferred stock have continued to be paid in stock.
ANNUAL REPORT AND
INCORPORATION BY REFERENCE
This Proxy Statement incorporates by reference certain sections of
the Company's Annual Report to stockholders which accompanies this Proxy
Statement. It consists of the Company's Form 10-K for the fiscal year ended
September 30, 1999. Items 1, 2, 6, 7, 7A and 8 of the Company's Annual Report
on Form 10-K are incorporated by reference into this Proxy Statement.
Otherwise the Company's Annual Report does not form part of the materials for
solicitation of proxies. In addition, Items 1 and 2 of Part 1 of the Company's
Report on Form 10-Q for the quarter ended December 31, 1999 are incorporated
by reference into this Proxy Statement.
Any statement contained in an incorporated document shall be deemed
modified or superseded to the extent a statement herein modifies or supersedes
such statement. You should rely only on information contained or incorporated
by reference in this Proxy Statement to vote on the matters described in this
Proxy Statement. The Company has not authorized anyone to provide information
that differs from what is contained in this Proxy Statement. This Proxy
Statement is dated April 4, 2000. You should not assume the information
contained in this Proxy Statement is accurate of a date other than such date,
and the mailing of this Proxy Statement to stockholders will not create any
implication to the contrary.
PROPOSALS FOR NEXT ANNUAL MEETING
Any proposals of holders of Common Stock intended to be presented
pursuant to Rule 14a-8 under the Exchange Act ("Rule 14a-8") at the Annual
Meeting of Stockholders to be held in 2001 must be received by the Company,
addressed to the Secretary of the Company at 12201 Technology Boulevard, Suite
125, Austin, Texas 78727-6101, by October 15, 2000 to be considered for
inclusion in the Company's proxy statement and form of proxy related to such
meeting. After October 15, 2000, notice to the Company of a stockholder
proposal submitted otherwise than pursuant to Rule 14a-8 will be considered
untimely, and the person named in
<PAGE>
proxies solicited by the Board of Directors of the Company for its 2001 Annual
Meeting of Stockholders may exercise discretionary authority voting power with
respect to any such proposal as to which the Company does not receive timely
notice.
OTHER MATTERS
As of the date of this Proxy Statement, management does not intend to
present any other items of business and is not aware of any matters to be
presented for action at the Annual Meeting other than those described above.
However, if any other matters should come before the Annual Meeting, it is the
intention of the persons named as proxies in the accompanying proxy card to
vote in accordance with their best judgment on such matters.
By Order of the Board of Directors
----------------------------------
CORPORATE SECRETARY
Austin, Texas
April 4, 2000
<PAGE>
FINANCIAL INFORMATION
In the Company's Form 10-K for fiscal year 1999, and Form 10-Q for
the first quarter ended December 31, 1999, which accompany this proxy
statement, the results of operations of the Memory Module Manufacturing
Business have been classified as discontinued operations and prior periods
have been restated to reflect the Sale Transaction and costs associated with
the Sale Transaction have been recorded on the Company's consolidated
financial statements as of September 30, 1999.
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APPENDIX A
ASSET PURCHASE AGREEMENT
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APPENDIX A
This ASSET PURCHASE AGREEMENT dated as of December 9, 1999, is by
and between Tanisys Operations, LP, a Texas limited partnership ("BUYER"), and
Tanisys Technology, Inc. a Wyoming corporation ("SELLER").
RECITALS:
WHEREAS, Seller wishes to sell, and Buyer wishes to purchase,
certain of the tangible and intangible properties and assets that constitute
Seller's worldwide memory module distribution and manufacturing business
(collectively, the "BUSINESS") currently conducted by Seller at or through the
manufacturing, converting, distribution, research and development,
administrative and other facilities set forth on SCHEDULE A (the "FACILITIES"),
all upon the terms and subject to the conditions hereinafter set forth; and
WHEREAS, capitalized terms used but not defined herein have the
meanings specified in APPENDIX A.
NOW, THEREFORE, in consideration of the mutual premises and the
covenants and other agreements set forth herein, the receipt and sufficiency of
which are hereby acknowledged, the parties hereto, each intending to be
contractually bound, hereby agree as follows:
1. SALE OF ASSETS
1.1 ASSETS TO BE SOLD. Except as otherwise provided in SECTION 1.2,
upon the terms and subject to the conditions herein set forth, at the Closing,
Seller will sell, assign, transfer, convey and deliver to Buyer all right, title
and interest of Seller related to the Business in and to:
(i) certain fixed assets and Equipment with respect to the
Business, as set forth on SCHEDULE 1.1(i) attached hereto, specifically
excepting the fixed assets and Equipment encumbered by lease obligations
included on SCHEDULE 1.2;
(ii) all Inventory;
(iii) all Records;
(iv) all site plans, surveys, soil and substratus studies,
architectural plans, as-built drawings, appraisals and electrical
and mechanical plans and studies relating to the Facilities
located on the Real Property;
(v) all Intellectual Property except as set forth on SCHEDULE
5.23(d);
(vi) all sales, promotion, marketing and advertising rights and
materials, customer lists, supplier lists, mailing lists and other data
with respect to the Business;
(vii) all Permits, to the extent such Permits are transferable,
and all non-governmental licenses, franchises, authorizations and
approvals, in each case relating to the Business;
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(viii) all products sold or leased by Seller in connection with
the Business (including products hereafter returned or repossessed and
unpaid sellers' rights of rescission, replevin, reclamation and rights to
stoppage in transit);
(ix) all guaranties, representations, warranties, indemnities
and similar rights in favor of Seller in connection with the Business;
(x) any and all goodwill and going concern value of the
Business;
(xi) the product lines set forth on SCHEDULE 1.1(xiv);
(xii) all Accounts Receivable;
(xiii) insurance policies;
(xiv) prepaid expenses;
(xv) employee advances;
(xvi) all deposits and retentions held by third parties, if any,
under all contracts assumed or entered into by Buyer; AND
(xvii) to the extent not otherwise included in the assets
described in this SECTION 1.1, all other assets of every kind and
description owned or held by Seller with respect to the Business as the
same shall exist on the Closing Date, other than the Retained Assets.
All the foregoing rights, properties and assets to be sold, assigned,
transferred, conveyed and delivered to Buyer hereunder are hereinafter
collectively referred to as the "ASSETS." At the Closing, Buyer will purchase
the Assets for the consideration set forth in SECTION 3.1 upon the terms and
subject to the conditions set forth in this Agreement.
1.2 RETAINED ASSETS. Anything in SECTION 1.1 to the contrary
notwithstanding, the following rights, properties and assets, as the same shall
exist on the Closing Date, will be excluded from the Assets to be sold,
assigned, transferred, conveyed and delivered to Buyer hereunder and will not be
included within the meaning of the term "Assets" (all of such excluded assets
being hereinafter collectively referred to as the "RETAINED ASSETS"):
(i) all of the tangible and intangible properties and assets
that constitute Seller's worldwide Dark Horse test systems and Tanisys
Touch businesses;
(ii) the consideration delivered to Seller pursuant to this
Agreement for the Assets;
(iii) all accounts owing between and among Seller and its
Affiliates;
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(iv) all assets and rights of Seller under any benefit plans or
benefit arrangements, including the Benefit Plans and the Benefit
Arrangements; and
(v) all cash, negotiable securities, certificates of deposit
and other cash equivalents;
(vi) all contracts, licenses, leases (including Real Property
Leases), sales orders, purchase orders and other agreements with respect
to the Business; and
(vii) Equipment encumbered by leases listed on SCHEDULE 1.2.
1.3 TRANSFER OF ASSETS IN SCOTLAND. Notwithstanding anything herein
to the contrary, if Buyer cannot reach an agreement in principal by December 31,
1999 with the Scottish Government regarding the transfer of the Assets located
in Scotland to Buyer that is acceptable to Buyer in its sole discretion, the
transfer of Seller's Assets relating to its Business in Scotland shall be deemed
null and void and such assets shall be deemed to be Retained Assets for purposes
of this Agreement.
1.4 NONASSIGNABLE PERMITS. To the extent any Permit is not assignable,
either by its terms or as a matter of Law, Buyer will prepare and submit, and
Seller will cooperate with and assist Buyer in preparing and submitting, any
information, applications or filings required in connection with the reissuance
to Buyer of such Permit.
2. ASSUMPTION OF LIABILITIES
2.1 LIABILITIES ASSUMED BY BUYER Except as otherwise limited in this
Agreement, Buyer will assume, upon the terms and subject to the conditions set
forth herein, at the Closing, and will perform or satisfy (or cause to be
performed or satisfied) thereafter, but only to the extent related to the
Business, only the following liabilities and obligations:
(i) all Current Liabilities;
(ii) except as otherwise provided in this Agreement, all
obligations, claims, demands and causes of action arising from and
accruing with respect to the functioning, use and operation of the Assets
by Buyer on and after the Closing Date; and
(iii) all liabilities or obligations with respect to Taxes for
which Buyer is liable pursuant to SECTION 7.19.
All of the foregoing liabilities and obligations of Seller to be assumed by
Buyer hereunder are hereinafter collectively referred to as the "ASSUMED
LIABILITIES."
2.2 RETAINED LIABILITIES. Anything in SECTION 2.1 to the contrary
notwithstanding, Buyer will not assume or in any way be liable or responsible
for: (x) any liabilities or obligations of Seller relating to the Assets or the
Business or any claims in respect thereof, other
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than Assumed Liabilities, or (y) any liabilities, obligations or claims,
other than Assumed Liabilities, which may be asserted against or imposed upon
Buyer by reason of its being a successor to or transferee of Seller or an
acquiror of the Assets or the Business, or otherwise, including, but not
limited to, the following:
(i) all liabilities associated with Seller's worldwide Dark
Horse test systems and Tanisys Touch businesses;
(ii) any liabilities not included in the Creditor's Plan;
(iii) any liability or obligation with respect to Taxes for which
Seller is liable pursuant to SECTION 7.19;
(iv) any liability or obligation of Seller based upon or arising
under this Agreement;
(v) any liability or obligation with respect to any present,
former or prospective employees of the Business arising out of or in
connection with their employment or possible employment with Seller at
any time, or any liability or obligation with respect to any present,
former or prospective contract employee, independent sales representative
or other independent contractor of the Business arising out of or in
connection with their relationship or possible relationship with Seller
at any time, including any liability arising out of:
(A) any benefit plans or benefit arrangements, including
but not limited to the Benefit Plans and Benefit Arrangements;
(B) any collective bargaining agreements;
(C) any shut-down agreements;
(D) any charges, complaints and/or grievances concerning
Seller's termination of its employees, contract employees,
independent sales representatives or other independent
contractors;
(E) any violations or alleged violations of any federal,
state, provincial, local or foreign labor and employment laws by
Seller;
(F) any tort or contract claims, or claims relating to
affirmative action compliance, compensation, health and welfare
benefits, vacation pay, unemployment insurance benefits, deferred
compensation, pension and retirement benefits, severance benefits,
disability benefits, other fringe benefits, rights arising under a
collective bargaining agreement, or rights or benefits under the
Consolidated Omnibus Budget Reconciliation Act, as amended, Title
VII of the Civil Rights Act of 1964, as amended, the Age
Discrimination in Employment
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Act, as amended, the Americans with Disabilities Act, the
Occupational Safety Hazard Act, the Worker Adjustment Retraining
and Notification Act, ERISA, or any other federal, state,
provincial, local or foreign employment Law;
(G) any claims asserted by Seller's present or former
employees or independent contractors for workers' compensation,
unemployment compensation or comparable benefits; or
(H) the termination or refusal to employ by Seller of
any of its present, former or prospective employees, or the
termination or refusal to utilize by Seller of any of its present,
former or prospective contract employees, independent sales
representatives or other independent contractors;
(vi) any environmental conditions or liabilities, actual,
contingent or otherwise, including but not limited to On-Site
Environmental Liabilities and Off-Site Environmental Liabilities;
(vii) any liability arising out of the violation by Seller of any
Law;
(viii) any liability or obligation of Seller relating to the
Retained Assets;
(ix) any liability or obligation of Seller arising out of any
indebtedness with respect to any period ending on or prior to the Closing
Date;
(x) any liability or obligation of Seller with respect to any
claim, action, suit, proceeding or arbitration by any Person, or arising
out of any inspection, investigation or audit or any other action by any
Governmental Entity;
(xi) any product liability with respect to any and all products
(including Inventory) sold or manufactured by Seller;
(iiii) any audit, legal, financial adviser, broker or finder fees
and commissions payable by Seller; and
(xii) all liabilities and obligations of Seller under its
contracts, licenses, leases (including Real Property Leases), sales
orders, purchase orders and other agreements with respect to the
Business.
All of the foregoing liabilities, obligations or claims will be the
responsibility of Seller are not being assumed by Buyer hereunder or otherwise,
and are hereinafter collectively referred to as the "RETAINED LIABILITIES."
2.3 BANK OF AMERICA DEBT. Seller is currently party to that certain
_____________________ dated ______________ with Bank of America (the "BA Note").
There is currently an outstanding balance of $________ under the BA Note. Of
that amount,
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$______ constitutes an Assumed Liability. The remaining $_________ of debt
(the "Remainder" shall be purchased by Purchaser from Bank of America on the
date hereof, resulting in Purchaser becoming a secured creditor of Seller for
the Remainder.
3. PURCHASE PRICE AND ALLOCATION
3.1 PURCHASE PRICE. Buyer will pay to Seller, as consideration for
the Assets, the sum of $350,000 (the "PURCHASE PRICE"), payable as set forth in
SECTION 3.2. The Purchase Price will be increased or decreased, as the case may
be, after the Closing pursuant to SECTION 3.3.
3.2 PAYMENT OF PURCHASE PRICE. (a) At the Closing, Buyer will deliver
to Seller the amount of $350,000, which shall consist of $250,000 for the Assets
and $100,000 for Seller agreeing to be bound by the provisions of SECTION 7.15.
Contemporaneously with the execution of this Agreement, Purchaser is loaning
Seller the sum of $85,000 to be used by Seller to pay Bank of America's
pre-payment fees in connection with the transactions described in SECTION
2.3. Seller agrees that Purchaser shall retain $85,000 of the Purchase Price
as collateral for the loan described in the preceding sentence..
(b) Buyer shall pay Seller six monthly "EARN OUT PAYMENTS" following
the Closing Date. The Earn Out Payment shall be an amount equal to 50% of the
gross profit generated (net sales less cost of goods sold on a fully-burdened
basis in accordance with GAAP) from sales to customers listed on the customer
list constituting part of the Assets, such customer list being set forth on
SCHEDULE 3.1(b). One-half of each Earn Out Payment shall be payable on or
before the twentieth day following the month as to which the Earn Out Payment is
being calculated. The remaining 50% of the Earn Out Payments for the six-month
period shall be paid on or before the twentieth day following the sixth month
following the Closing Date.
(c) As of the date hereof, Buyer and Seller have agreed upon the amount
which Buyer is willing to pay to retire Seller's unsecured indebtedness relating
to the Business (the "SETTLEMENT AMOUNT"). If the amount of the Creditor's Plan
is less than the Settlement Amount, at the Closing, Buyer will pay to Seller an
amount equal to the Settlement Amount less the Creditor's Plan. If the
Creditor's Plan exceeds the Settlement Amount, Buyer shall reduce the Earn Out
Payments by such amount.
(d) For a period of up to six months following the Closing Date, Buyer
shall have the right to require that Seller assist in the transition of the
Business. As consideration for such services, Seller shall be paid a monthly
fee of $15,000 (based upon 160 hours of service, such amount to be prorated for
the amount of the service actually provided by Seller) (the "Consulting
Payments"). Any Consulting Payments due hereunder shall be payable on the last
Business Day of each month in which the services are provided hereunder. Buyer
shall have no obligation to request that Seller provide services hereunder.
3.3 ADJUSTMENT OF PURCHASE PRICE. (a) INTENTIONALLY LEFT BLANK
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(b) If any claims or liabilities are asserted against Buyer or its
Affiliates after the Closing Date, and if such claims or liabilities are
determined in good faith by Buyer to be valid and if Buyer pays such claims or
liabilities after consultation with the Seller, Buyer shall have the right to
offset the amount of such payments against the Earn Out Payment and/or the
Consulting Payment (at the sole option of Buyer).
(c) If it is determined that any of Seller's Accounts Receivable or
Inventory acquired by Buyer are not collectible or useable within 90 days of the
Closing Date, Buyer shall have the right to assign back to Seller the
uncollectible Accounts Receivable and unusable Inventory and offset (at Seller's
book value) the amount assigned back against the Earn Out Payment and/or the
Consulting Payment (in Buyer's sole discretion). For purposes of this SECTION
3.3(c), the term "book value" shall mean the normal and customary method of
valuing Inventory and Accounts Receivable used by Seller so long as such method
is in accordance with GAAP. Should such methods deviate from GAAP, Buyer will
be entitled to use GAAP accounting principles to determine the book value of the
uncollectible Accounts Receivable or unusable Inventory, as applicable.
(d) With respect to SECTIONS 3.3(b) AND (c), no offset shall be taken
unless the aggregate offset amount exceeds a minimum threshold of $25,000. If
such minimum threshold is exceeded, the offset shall be determined on a dollar
for dollar basis from the first dollar of offset.
(e) The Purchase Price, as adjusted after the Closing pursuant to this
SECTION 3.3, is hereinafter referred to as the "ADJUSTED PURCHASE PRICE."
4. CLOSING. The closing of the sale and purchase of the Assets and the
transactions contemplated hereby (the "CLOSING") will take place immediately
following the execution of this Agreement at the offices of Locke Liddell & Sapp
LLP, 2200 Ross Avenue, Suite 2200, Dallas, Texas 75201. The "CLOSING DATE" will
be deemed to be 12:01 a.m. on the date upon which the Closing occurs.
5. REPRESENTATIONS AND WARRANTIES OF SELLER. Seller represents and warrants
to Buyer as follows:
5.1 DUE ORGANIZATION AND AUTHORITY. Seller is a corporation duly
organized, validly existing and in good standing under the Laws of the State of
Wyoming and has full power and authority to own, lease and operate its assets,
properties and business and to carry on its business as currently conducted.
5.2 QUALIFICATION. Seller is duly qualified, licensed or otherwise
authorized as a foreign corporation to transact business and is in good standing
in each jurisdiction where the character of the properties owned or leased or
the nature of the business conducted by it makes such qualification, licensing
or authorization necessary.
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5.3 AUTHORITY TO EXECUTE AND PERFORM AGREEMENT. Seller has all
requisite power and authority to enter into, execute and deliver this Agreement
and each of the Seller Documents, and to perform fully its obligations hereunder
and thereunder, and no other act or proceeding on the part of Seller is
necessary to authorize the same. This Agreement has been, and each of the
Seller Documents will be, duly authorized, executed and delivered by Seller,
and, assuming the due authorization, execution and delivery of this Agreement
and each of the Buyer Documents by Buyer and the validity and binding effect
hereof and thereof on Buyer, each is, or upon execution will be, a valid and
binding obligation of Seller enforceable against Seller in accordance with its
terms, except as enforceability may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium, fraudulent conveyance or other similar
laws affecting the enforcement of creditors' rights and remedies generally or
general principles of equity (regardless of whether considered and applied in a
proceeding at law or in equity).
5.4 NO MATERIAL ADVERSE CHANGE. Except as set forth on SCHEDULE 5.4,
since the close of business on October 31, 1999, there has been no material
adverse change in the Condition of the Business, and Seller has no Knowledge
after due inquiry of any such change which is threatened or reasonably likely;
and there has not been any material damage, destruction or loss to any of the
properties or assets of the Business since such date.
5.5 COMPLIANCE WITH LAWS; PERMITS. (a) Except as set forth on
SCHEDULE 5.5, the Business is currently being conducted, and has at all times
since May 21, 1996 been conducted, in compliance with all applicable Laws, and
there is no pending or, to Seller's Knowledge after due inquiry, any threatened
investigation by any Governmental Entity with respect to actual or alleged
violations of any applicable Laws, including Environmental Laws and Laws
relating to the safe conduct of business, employment and employment practices,
handicapped accessibility, antitrust, Taxes, consumer protection, product
safety, currency exchange, customs, tariffs, equal opportunity, health,
sanitation, fire, zoning, building, pension, securities and Intellectual
Property.
(b) Seller has all licenses, permits, registrations, orders and
approvals required by all applicable Laws or Governmental Entities (including
those relating to Environmental Laws) in order for Seller to carry on the
Business as currently conducted, and to own and operate the properties and
assets of the Business, and such licenses, permits, registrations, orders and
approvals (collectively, "PERMITS") are listed on SCHEDULE 5.5. Except as set
forth on SCHEDULE 5.5, (i) all such Permits are in full force and effect, and
are assignable without the consent of any Person; (ii) Seller is in compliance
with all, and has not violated in any respect, such Permits; and (iii) there are
no proceedings pending or, to Seller's Knowledge after due inquiry, threatened
that could reasonably be expected to result in the revocation, cancellation or
suspension thereof.
5.6 NO BREACH. The execution, delivery and performance of this
Agreement and each of the Seller Documents, and the consummation of the
transactions contemplated hereby and thereby, will not (i) violate or result in
the breach of any provision of the articles of incorporation, by-laws, or other
constituent documents of Seller; (ii) assuming the receipt of the
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Required Consents, violate, result in the breach of, or constitute a default
(or an event which, with notice or lapse of time or both, would constitute a
default) under, any material contract to which Seller is a party or by which
Seller or any of the Assets may be bound; (iii) result in the creation or
imposition of any Lien upon the Business or the Assets; (iv) violate any
order, writ, judgment, injunction, consent, award or decree of any
Governmental Entity against Seller or affecting the Business or the Assets;
or (v) violate any Law applicable to any of Seller, the Business or the
Assets.
5.7 ACTIONS AND PROCEEDINGS. Except as set forth on SCHEDULE 5.7,
there are no outstanding orders, writs, judgments, injunctions, consents, awards
or decrees of any Governmental Entity against Seller relating to or affecting
the Business or the Assets, and there is no action, litigation, claim, suit or
other legal, administrative, investigative or arbitral proceeding of any type
whatsoever pending or, to Seller's Knowledge after due inquiry, threatened
against Seller or its officers, directors, employees or agents relating to or
affecting the Business or the Assets.
5.8 CONSENTS, APPROVALS AND FILINGS. Except for the "REQUIRED
CONSENTS," the execution and delivery by Seller of this Agreement and the Seller
Documents, and the performance by Seller of its obligations hereunder and
thereunder, do not require Seller to obtain any consent, approval or other
action of, or make any filing with or give any notice to, any Governmental
Entity or any other Person. All Required Consents are described on SCHEDULE
5.8.
5.9 REAL PROPERTY (a) SCHEDULE 5.9(a) sets forth a true and complete
list of all leases, subleases, licenses, easements, rights of way and other
similar agreements under which Seller with respect to the Business, uses or
occupies or has the right to use or occupy, now or in the future, any real
property, and all amendments and modifications thereto (collectively, the "REAL
PROPERTY LEASES;" and the land, buildings, structures and other improvements
covered by the Real Property Leases are hereinafter collectively referred to as
the "LEASED REAL PROPERTY"). Except as set forth on SCHEDULE 5.9(a), (i) Seller
has good and valid title to the leasehold estate created under each Real
Property Lease free and clear of all Liens, and Seller has the right to quiet
enjoyment of all Leased Real Property for the full term of each such Real
Property Lease, (ii) Seller is not in default under any Real Property Lease and
no written claim of any default thereunder has been received by Seller which has
not been cured; and (iii) all rent and other sums and charges currently due or
payable by Seller under each of the Real Property Leases have been paid in full
when due and were not, and will not be, subject to any withholding or similar
Taxes; and (iv) each Real Property Lease is assignable without the consent of
any Person (including the lessor thereunder). Except as set forth in SCHEDULE
5.9(a), each of the Real Property Leases has not been amended and is in full
force and effect. Complete and correct copies of all documents relating to
Leased Real Property have been delivered to Buyer.
(b) Except as set forth on SCHEDULE 5.9(b), (i) all the land,
buildings, structures and other improvements used by Seller in connection with
the Business is included in the Owned Real Property or the Leased Real Property
(such Owned Real Property and Leased Real Property
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are hereinafter collectively referred to as the "REAL PROPERTY"); and
(ii) Seller does not own or hold, and is not obligated under or a party to,
any option, right of first refusal or other contractual right to purchase,
acquire, sell or dispose of any real property with respect to the Business.
(c) Except as set forth on SCHEDULE 5.9(c), there are no Liens or
other agreements granting to any Person any right to the possession, use,
occupancy or enjoyment of the Real Property, or any part thereof, and there are
currently no tenants or other Persons (other than Seller) in possession of the
Real Property.
(d) There is neither any condemnation proceeding nor any sale or other
disposition in lieu of condemnation pending and, to Seller's Knowledge after due
inquiry, threatened or contemplated, with respect to the Real Property, or any
part thereof.
(e) All public utilities, including, water, sewer, gas, electric,
telephone and drainage facilities, provide adequate service to the Real Property
to support current and proposed uses and operations, and the Real Property has
direct access to and from publicly-dedicated streets or the right to use private
roadways to obtain access to such publicly-dedicated streets.
5.10 TITLE TO TANGIBLE ASSETS. (a) Except as set forth on SCHEDULE
5.10, Seller has good, valid and marketable title to all tangible assets and
property of the Business reflected in the Interim Balance Sheet or thereafter
acquired by Seller except for (i) inventory sold; and (ii) accounts receivable
collected, in each case in the ordinary course of business consistent with past
practice. Such Assets are free and clear of any Lien, except for Permitted
Liens.
(b) At the Closing, Seller will deliver to Buyer good, valid and
marketable title to all the tangible Assets, free and clear of all Liens, other
than Permitted Liens.
5.11 EMPLOYEE BENEFIT PLANS. (a) SCHEDULE 5.11 sets forth a true and
complete list of all Benefit Plans and Benefit Arrangements relating to the
Business and maintained by Seller for the benefit of the Employees.
(b) No Benefit Plan is a "multi-employer plan," as defined in Section
4001(a)(3) of ERISA, or a plan subject to Title IV of ERISA, and neither Seller
nor the Controlled Group has made any contributions to or participated in any
"multi-employer plan" or plan subject to Title IV of ERISA.
(c) Each Benefit Plan which is intended to qualify under Section
401(a) of the Code has received a favorable determination letter from the IRS,
and no event has occurred which would cause any such plan to cease being so
qualified. Except as set forth on SCHEDULE 5.11, each Benefit Plan complies in
all material respects with the requirements of ERISA and the Code. Seller has
complied in all material respects with the health care continuation requirements
of Section 601, ET SEQ., of ERISA with respect to all employees of the Business
and their spouses, former spouses and dependents.
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(d) Seller has made available to Buyer, with respect to each
Benefit Plan and Benefit Arrangement, correct and complete copies of (i) all
plan documents and amendments, trust agreements, letter agreements and
insurance contracts; (ii) the most recent IRS determination letter; (iii) the
most recent Annual Report (Form 5500 Series) and accompanying schedules as
filed; (iv) the current and, to the extent available, prior summary plan
descriptions, summaries of material modifications, plan booklets or
brochures, employee manuals and personnel policy manuals; (v) the most recent
financial statements; and (vi) the most recent actuarial report.
(e) None of the Benefit Plans subject to Title IV of ERISA has
terminated, no proceeding has been initiated to terminate any such plan, and
there has been no "reportable event" (within the meaning of Section 4043(c)
of ERISA) with respect to any such plan. None of the Benefit Plans which is
a defined benefit plan subject to section 412 of the Code has incurred any
"accumulated funding deficiency" (within the meaning of Section 412 of the
Code), whether or not waived. Assuming that each Benefit Plan subject to
Title IV of ERISA was terminated as of the Closing Date, Seller would have no
liability under Title IV of ERISA as a result of such termination. Except as
set forth on SCHEDULE 5.11, Seller has no obligations under any Benefit Plan
or otherwise to provide health benefits to former employees of the Business,
except as specifically required by Law.
(f) Neither Seller nor to Seller's Knowledge after due inquiry, any
other "disqualified person" (within the meaning of Section 4975 of the Code)
or any "party in interest" (within the meaning of Section 3(14) of ERISA) has
engaged in any "prohibited transaction" (within the meaning of Section 4975
of the Code or Section 406 of ERISA) with respect to any Benefit Plan which
could subject any such plan (or its related trust), Seller, the Controlled
Group, or any officer, director or employee of Seller or the Controlled Group
to the penalty or tax under Section 502(i) or Section 502(l) of ERISA or
Section 4975 of the Code.
(g) There is no pending or, to Seller's Knowledge after due
inquiry, threatened claim which alleges any violation of ERISA or any other
Law (i) by or on behalf of any Benefit Plan or Benefit Arrangement, or (ii)
by any employee of Seller or any Business Affiliate or any plan participant,
beneficiary, administrator, contract employee, independent sales
representative or other independent contractor with respect to any such
Benefit Plan or Benefit Arrangement.
5.12 LABOR MATTERS. Except as set forth on SCHEDULE 5.12, (i) there
is no organizing effort, strike, picketing, charge of unfair labor practices,
petition, demand for recognition, boycott activity, grievance, collective
bargaining negotiation, OSHA citation, slowdown or work stoppage pending or,
to Seller's Knowledge after due inquiry, threatened against it with respect
to the Business; (ii) since January 1, 1994 Seller has not experienced any
work stoppages or been a party to any arbitration proceeding arising out of
or under any collective bargaining agreements; (iii) none of the employees of
Seller with respect to the Business are, or have since January 1, 1994, been
represented by any labor union, and there are no collective bargaining
agreements otherwise in effect with respect to such employees; (iv) there are
no discrimination or unfair employment charges or complaints pending with any
Governmental Entity against Seller in
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connection with the Business; and (v) there are no actual or pending consent
decrees, conciliation agreements, settlement agreements, agreements with
Governmental Entities or court orders which may impose employment or labor
related obligations on Seller in connection with the Business.
5.13 INSURANCE. SCHEDULE 5.13 sets forth a complete and accurate
list of all insurance policies currently maintained with respect to (or, in
the case of any comprehensive general liability insurance policies, would
have applicability to) the Business and the Assets including policies
relating to fire, theft, business interruption, employee fidelity, general
liability, fiduciary liability, workers' compensation, products liability and
vehicular insurance. All such policies are in full force and effect and no
notice of cancellation, termination or non-renewal has been received with
respect to any such policy. All premiums that have become due with respect
to such policies for any period ending on or prior to the Closing Date have
been or will be paid when due by Seller prior to the Closing. Such policies
provide Seller with adequate insurance coverage against the risks covered by
such policies in accordance with the highest applicable industry standards
and, in the reasonable opinion of Seller, such coverage is customary and
reasonable with respect to the Business and the Assets.
5.14 TAXES. (a) Except as set forth in SCHEDULE 5.14, (i) Seller
has timely and properly filed, or will file when due, all federal, state,
provincial, local, foreign and other Tax Returns (including relating to their
respective properties, franchises, payroll, excise, stamp, occupation,
customs, duties, AD VALOREM, transfer, sales and use) required to be filed in
respect of the Business, the Assets and the Assumed Liabilities, and all
Taxes, interest, penalties, additions to Tax, and other charges due and
payable as shown on such Tax Returns, or claimed to be due with respect to
taxable periods covered by such Tax Returns, have been paid; (ii) such Tax
Returns were when filed (or when filed will be) true, correct and complete,
and disclosed (or will disclose) all Taxes required to be paid in respect of
the Business, the Assets and the Assumed Liabilities for the periods covered
thereby; (iii) all Taxes (whether or not shown on any Tax Return) owed by
Seller in respect of the Business, the Assets and the Assumed Liabilities
have been timely paid; (iv) all such Tax Returns have been examined by the
relevant taxing authorities or the period for assessment of the Taxes in
respect of which such Tax Returns were required to be filed has expired; (v)
there is no examination, action, suit, investigation, audit, claim or
assessment or proceeding pending, proposed or threatened by any Governmental
Entity relating to the determination, assessment or collection of, or any
delinquencies in filing relating to, any Taxes owing by Seller with respect
to the Assets, the Business or the Assumed Liabilities, and to Seller's
Knowledge after due inquiry, no basis exists therefor; (vi) Seller has not
waived or been requested to waive any statute of limitations in respect of
Taxes associated with the Business, the Assets or the Assumed Liabilities
which waiver is currently in effect; (vii) all monies required to be withheld
by Seller (including from employees of the Business for income Taxes, social
security Taxes and other payroll Taxes) have been collected or withheld, and
paid to the respective taxing authorities; (viii) none of the Assets is
properly treated as owned by any Person
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other than Seller for income Tax purposes; and (ix) none of the Assets is
"tax-exempt use property" within the meaning of Section 168(h) of the Code.
(b) No payment or other benefit, and no acceleration of the vesting
of any options, payments or other benefits, will be, as a direct or indirect
result of the transactions contemplated by this Agreement, an "excess
parachute payment" to a "disqualified individual" as those terms are defined
in Section 280G of the Code and Treasury Regulations. Except as set forth on
SCHEDULE 5.14, no payment or other benefit, and no acceleration of the
vesting of any options, payments or other benefits, will be, as a direct or
indirect result of the transactions contemplated by this Agreement (or under
Section 280G of the Code and the Treasury Regulations thereunder) be presumed
to be a "parachute payment" to a "disqualified individual" as those terms are
defined in Section 280G of the Code and the Treasury Regulations thereunder,
without regard to whether such payment or acceleration is reasonable
compensation for personal services performed or to be performed in the future.
(c) No transaction contemplated by this Agreement is subject to
withholding under Section 1445 of the Code and, except as set forth on
SCHEDULE 5.14, no sales, use, real estate transfer, registration, inventory,
stamp or other similar federal, state, provincial, local or foreign Taxes
will be imposed on the sale and transfer of the Assets or the assumption of
the Assumed Liabilities pursuant to this Agreement.
5.15 CERTAIN ENVIRONMENTAL CONDITIONS (a) Except as set forth on
SCHEDULE 5.15(a), there is no pending, or, to Seller's Knowledge after due
inquiry, threatened litigation, suit, complaint, investigation or
administrative action or claim of any type whatsoever alleging that (i) the
Real Property, or Seller in connection with its operations of the Business,
is in violation of any Environmental Laws; or (ii) the Real Property, or
Seller in connection with the operation of the Business, is responsible for
remediation of a Contaminant with respect to the Real Property or with
respect to any off-site facility or location, including, any waste disposal
site whether or not located on the Real Property.
(b) All reports, studies, audits, notices and correspondence,
whether generated by Seller, any Governmental Entity or any other Person, and
all tests, analyses and other documents, in the possession or control of
Seller and which relate to compliance by the Business or the Real Property
with Environmental Laws have been made available to Buyer.
(c) Except as set forth on SCHEDULE 5.15(c), Seller has complied,
and is currently complying, with all Environmental Laws applicable to Seller
with respect to the Business and the Real Property, and all Permits required
thereunder.
(d) Except as set forth on SCHEDULE 5.15(d), no Contaminant is or
has been present or released on, in, under, about or above the Real Property
in an amount or condition that could give rise to an Environmental Claim.
All releases of Contaminants that have occurred on the Real
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Property, if any, have been reported to the appropriate Governmental Entity
pursuant to applicable Environmental Laws.
(e) Except as set forth on SCHEDULE 5.15(e), no Notice with respect
to the Business' compliance with Environmental Laws or the environmental
condition of any of the Real Property is outstanding, nor has any such Notice
been issued by any Governmental Entity or other Person which has not been
responded to fully and in a timely fashion.
(f) Except as set forth on SCHEDULE 5.15(f), no underground storage
tank used by Seller or any other Person in connection with the Business is,
and, to Seller's Knowledge after due inquiry, no underground storage tank has
at any time been, located on any of the Real Property that has not been
removed in compliance with applicable Environmental Laws. The locations on
the Real Property of all current or previous underground storage tanks that
are or were used Seller or, to Seller's knowledge after due inquiry, any
other Person, are described on SCHEDULE 5.15(f).
(g) Except as set forth on SCHEDULE 5.15(g), neither Seller nor any
other Person has leased, operated or owned any facilities or property in
connection with the Business or the Real Property with respect to which
Seller is subject to any pending or, to Seller's Knowledge after due inquiry,
potential proceeding under any Environmental Law.
(h) Except as set forth on SCHEDULE 5.15(h), neither Seller nor any
other Person (i) has, in connection with the Business or the Real Property,
sent, or arranged for the shipment of, Contaminants to any facility or site
for reuse, recycling, reclamation, treatment, storage or disposal; or (ii) is
subject to any pending or, to Seller's Knowledge after due inquiry, potential
proceeding under any Environmental Law with respect to any such facilities or
sites.
(i) There are no Contaminants in any inactive, closed or abandoned
storage or disposal areas or facilities on property which has been leased,
operated or owned by Seller in connection with the Business or the Real
Property. Except as set forth on SCHEDULE 5.15(i), such areas and facilities
are not subject to actual or, to Seller's Knowledge after due inquiry,
potential proceedings, investigations or Notices by officials of any
Governmental Entity or by any private litigant as a result of any previous
on-site management, treatment, storage or disposal of Contaminants.
5.16 FINANCIAL STATEMENTS; UNDISCLOSED LIABILITIES (a) Attached as
SCHEDULE 5.16(a) are the audited (unaudited to fiscal 1999) balance sheets of
Seller as of September 30, 1996, September 30, 1997, September 30, 1998 and
September 30, 1999, and the related audited (unaudited as to fiscal 1999)
statements of income, shareholder's equity and cash flow of Seller for the
fiscal years then ended, together with the notes to such financial statements
(collectively, the "ANNUAL FINANCIAL STATEMENTS"). The Annual Financial
Statements (i) were prepared in accordance with the books and records of
Seller and with GAAP; (ii) fairly present the combined financial position of
Seller as of the dates set forth therein and the results of operations and
cash
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flows for the periods set forth therein; and (iii) reflect accurately in
all material respects the costs and expenses of Seller for the periods set
forth therein.
(b) Attached as SCHEDULE 5.16(b) are the unaudited balance sheet of
the Seller as of October 31, 1999 (the "INTERIM BALANCE SHEET"), and the
related unaudited statement of income of the Seller for the one-month period
then ended (the "INTERIM FINANCIAL STATEMENTS"). The Interim Financial
Statements (i) were prepared in accordance with the books and records of
Seller and with GAAP (and on a basis consistent with the principles used in
preparation of the Annual Financial Statements), except as otherwise noted
therein; (ii) fairly present (subject to normal year-end adjustments) the
financial position of the Seller as of October 31, 1999 and the results of
operations of the Seller for the one-month period then ended; and (iii)
reflect accurately in all material respects the costs and expenses of the
Seller for the one-month period then ended.
(c) There are no liabilities, debts, claims or obligations with
respect to the Seller (whether accrued, absolute, contingent, unasserted or
otherwise and whether or not of a nature required by GAAP to be reflected,
disclosed or otherwise provided for in a balance sheet of the Seller or in
the notes thereto) which, individually or in the aggregate, could have a
material adverse effect on the Condition of the Business, except (i) those
reflected or otherwise provided for in the Interim Balance Sheet (or
described in the notes thereto); (ii) for liabilities and obligations
occurred in the ordinary course of business consistent with past practice
since the date of the Interim Balance Sheet; (iii) those specifically
described on SCHEDULE 5.16(b); and (iv) Retained Liabilities.
5.17 CONDITION OF ASSETS. The Equipment constituting Assets is to
be conveyed in its present condition, with no express or implied warranty by
the Seller.
5.18 OPERATIONS. Except as disclosed on SCHEDULE 5.18, since
October 31, 1999, Seller has operated the Business only in the ordinary
course of business consistent with past practice, and, without limiting the
generality of the foregoing, Seller or any Business Affiliate has not:
(i) changed in any material respect the character, operation or
Condition of the Business;
(ii) (A) sold, abandoned or made any other disposition of any
properties or assets of the Business except in the ordinary course of
business consistent with past practice; (B) granted or suffered any Lien
on any of the properties or assets of the Business; or (C) amended any
contract or entered into or amended any other contract material to the
operations of the Business which is in force and effect as of the date
hereof;
(iii) except in the ordinary course of business consistent with
past practice, incurred or assumed any debt, obligation or liability
(whether absolute, contingent or otherwise, and whether or not currently
due and payable);
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(iv) suffered any material destruction, damage or loss (other
than ordinary wear and tear), whether or not covered by insurance,
relating to any of the properties or assets of the Business, including
the Assets;
(v) waived, canceled, sold or otherwise disposed of for less
than the fair value thereof any claim or right which Seller had against
any other Person, except for routine settlements or resolutions of
disputed customer or supplier accounts in the ordinary course of business
consistent with past practice;
(vi) entered into, adopted, amended, paid, agreed to pay or
incurred any obligation for any payment or contribution to, or with
respect to, any benefit plan, or any collective bargaining or severance
agreement, or paid or promised to pay any bonus to, or granted an
increase in compensation or benefits to, any Employee, except for normal
accruals under benefit plans and normal compensation adjustments in
accordance with past practice;
(vii) received any notice that any supplier, distributor,
independent sales or manufacturer representative, customer or contractor
of the Business has terminated or is terminating its relationship with,
or is threatening any legal or similar action against, Seller;
(viii) made any forward purchase commitments, except for purchase
commitments in the ordinary course of business consistent with past
practice;
(ix) entered into any material transaction, whether or not in
the ordinary course of business consistent with past practice; or
(x) prepared or filed any Tax Return inconsistent with past
practice or, on any such Tax Return, taken any position, made any
election, or adopted any method that is inconsistent with positions
taken, elections made or methods used in preparing or filing similar Tax
Returns in prior periods (including positions, elections or methods which
would have the effect of deferring income to periods for which Buyer is
liable pursuant to SECTION 7.19 or accelerating deductions to periods for
which Seller is liable pursuant to SECTION 7.19).
5.19 CONTRACTS. Except as set forth on SCHEDULE 5.19, there is no
arrangement, understanding, agreement or contract to which Seller is a party
with respect to the Business: (i) with any current or former Employee,
independent contractor or temporary employment agency; (ii) with any labor union
or collective bargaining association representing any Employee; (iii) for the
sale, transfer or lease of any asset or group of related assets of the Business
having a fair market value in excess of $25,000; (iv) for the purchase of any
asset or group of related assets for a purchase price in excess of $25,000; (v)
that involves an obligation to pay or render, or an entitlement to receive,
monies or services with a fair market value in excess of $5,000; or (vi) that is
otherwise material to the Business. Except as set forth on SCHEDULE 5.19, (x)
each Real
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Property Lease and contract relating to the Business is in full force and
effect and is enforceable by Seller against the other party or parties
thereto in accordance with its terms, and there have been no terminations or
cancellations thereunder; (y) Seller has delivered to Buyer a true, correct
and complete copy of the Real Property Leases and the contracts relating to
the Business, together with all amendments, modifications and supplements
thereto and (z) none of the Real Property Leases and any contracts relating
to the Business will be in breach or default, terminate or be terminable by
virtue of the transactions contemplated hereby. Neither Seller nor, to
Seller's Knowledge after due inquiry, any other person has breached its
obligations or defaulted under any Real Property Lease or any contract
relating to the Business, and there has occurred no event or condition which,
with the giving of notice or passage of time or both, would constitute such a
breach or default on the part of Seller or, to Seller's Knowledge after due
inquiry, any other person.
5.20 INVENTORY; ACCOUNTS RECEIVABLE. Except as set forth on SCHEDULE
5.20, (a) the Inventory of the Business as the same shall exist on the Closing
Date shall consist of substantially the same types of Inventory as that
reflected on the Interim Balance Sheet and the amount of such Inventory shall be
sufficient to carry on the Business and shall vary from that reflected on the
Interim Balance Sheet only by variances typical in the ordinary course of
business. The Inventory of the Business as reflected on the Interim Balance
Sheet, and the Inventory as the same shall exist on the Closing Date, consisted,
and will consist, of items substantially all of which were and will be of the
usual quality and quantity necessary for the normal conduct of the Business and
expected to be usable or saleable within a reasonable period of time in the
ordinary course of business. With respect to Inventory to be purchased by Buyer
and in the hands of suppliers for which Seller is committed as of the date
hereof or the Closing Date, such Inventory is expected to be usable or saleable
in the ordinary course of business as presently being conducted.
(b) Except as set forth on SCHEDULE 5.20, the Accounts Receivable of the
Business, whether reflected on the Interim Balance Sheet or accrued since the
date thereof, represent sales actually made in the ordinary course of business,
are not subject to any defense or offset, and are current and collectible net of
any reserves shown on the Interim Balance Sheet (which reserves are adequate and
were calculated in accordance with GAAP and consistent with past practice).
5.21 ASSETS SUFFICIENT FOR BUSINESS. Immediately prior to the Closing,
Seller will own or have legal rights to use as currently used in the Business,
and Seller will convey to Buyer, pursuant to this Agreement, those assets, both
tangible and intangible, which are necessary and sufficient to conduct the
Business as currently conducted or, to Seller's Knowledge, proposed to be
conducted by the Buyer, except for the fixed assets included on SCHEDULE 1.2.
5.22 PRODUCT RECALLS; WARRANTIES. (a) Except as set forth on SCHEDULE
5.22(a), Seller has no Knowledge of any facts, events or conditions (i) which
could furnish a basis for the recall, withdrawal or suspension by any
Governmental Entity of, or an injunction from or an award of damages with
respect to, any product manufactured, distributed or sold by the Business; or
(ii)
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which would otherwise reasonably be expected to cause the Business to
withdraw, recall or suspend or have enjoined any product from any market or
to terminate or suspend testing of any such product. SCHEDULE 5.22(a)
contains an accurate and complete list of (x) all products manufactured or
distributed by the Business that have been recalled at any time since January
1, 1994, and (y) all proceedings (whether completed or pending) at any time
since May 21, 1996 seeking the recall, withdrawal, suspension or seizure of
any such product.
(b) Except as set forth in SCHEDULE 5.22(b), there is no claim
against or liability of Seller with respect to any products manufactured,
distributed or sold by the Business which are alleged to be defective or
unsafe, and, to Seller's Knowledge after due inquiry, there is no basis for
any such claim.
5.23 INTELLECTUAL PROPERTY. (a) Seller owns all right, title and
interest in, or possess adequate licenses or other valid rights to use
(without the making of any payment to others or the obligation to grant
rights to others in exchange), free and clear of all Liens, all Intellectual
Property used in connection with the operation of the Business as currently
conducted or, to the knowledge of Seller, proposed to be conducted. Each
item of Intellectual Property owned or used by Seller immediately prior to
the Closing will be owned or available for use by the Buyer on identical
terms and conditions immediately subsequent to the Closing hereunder. Seller
has taken all necessary and desirable action to maintain and protect each
item of Intellectual Property that Seller owns or uses.
(b) Seller has not interfered with, infringed upon, misappropriated
or otherwise come into conflict with any Intellectual Property rights of any
other Person, and none of the directors and officers (and employees with
responsibility for Intellectual Property matters) of Seller has ever received
any charge, complaint, claim, demand or notice from any Governmental Entity
or other Person alleging any such interference, infringement,
misappropriation or conflict (including any claim that Seller must license or
refrain from using any Intellectual Property rights of any other Person). To
Seller's Knowledge after due inquiry, no Person has interfered with,
infringed upon, misappropriated or otherwise come into conflict with any
Intellectual Property rights of Seller.
(c) SCHEDULE 5.23(c) identifies (i) each patent or patent
registration which has been issued to Seller in the United States and all
jurisdictions worldwide with respect to any item of Intellectual Property
used in connection with the Business; and (ii) each pending patent
application or application for patent registration which Seller has filed
with respect to any item of Intellectual Property anywhere in the world
(together with any exceptions) which relates to the Business. Seller has
delivered to Buyer correct and complete copies of all such patents,
registrations and applications (as amended to date) and has made available to
Buyer correct and complete copies of all other written documentation
evidencing ownership and prosecution (if applicable) of each such item of
Intellectual Property.
(d) SCHEDULE 5.23(d) identifies (i) each trademark or trademark
registration which has been issued to Seller in the United States and all
jurisdictions worldwide with respect to any item
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of Intellectual Property used in connection with the Business; and (ii) each
pending trademark application or application for trademark registration which
Seller has filed with respect to any item of Intellectual Property anywhere
in the world (together with any exceptions). Seller has delivered to Buyer
correct and complete copies of all such trademarks, registrations and
applications (as amended to date), and has made available to Buyer correct
and complete copies of all other written documentation evidencing ownership
and prosecution (if applicable) of each such item of Intellectual Property.
SCHEDULE 5.23(d) also identifies each trade name or unregistered trademark
used by Seller in connection with the Business.
(e) SCHEDULE 5.23(e) identifies (i) each copyright or copyright
registration which has been issued to Seller in the United States and all
jurisdictions worldwide with respect to any item of Intellectual Property
used in connection with the Business; and (ii) each pending copyright
application or application for copyright registration which Seller has filed
with respect to any item of Intellectual Property (together with any
exceptions) used in connection with the Business. Seller has delivered to
Buyer correct and complete copies of all such copyrights, registrations and
applications (as amended to date), and has made available to Buyer correct
and complete copies of all other written documentation evidencing ownership
and prosecution (if applicable) of each such item of Intellectual Property.
(f) SCHEDULE 5.23(f) identifies each license, agreement or other
permission which Seller has granted to any other Person with respect to any
item of Intellectual Property used in connection with the Business in the
United States and any jurisdictions worldwide. Seller has delivered to Buyer
correct and complete copies of all such licenses, agreements and other
permissions (as amended to date) and has made available to Buyer correct and
complete copies of all written documentation evidencing the legality,
validity and enforceability of each such license, agreement and other
permission (if applicable). With respect to each item of Intellectual
Property required to be identified on SCHEDULE 5.23(f):
(i) Seller owns all right, title and interest in and to such
item, free and clear of any Lien;
(ii) such item is not subject to any outstanding injunction,
judgment, order, decree, ruling or charge;
(iii) no action, suit, proceeding, hearing, investigation,
charge, complaint, claim, or demand is pending or, to Seller's Knowledge
after due inquiry, threatened which challenges the legality, validity,
enforceability, use or ownership of such item;
(iv) Seller has not agreed to indemnify any Person for or against
any interference, infringement, misappropriation or other conflict with
respect to such item;
(v) all licenses, agreements and other permissions pertaining to
such item and all other rights to which Seller is entitled with respect
thereto are in compliance in all
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respects with all applicable Laws in all jurisdictions worldwide,
including those pertaining to remittance of foreign exchange and
Taxes; and
(vi) Seller has not made a previous assignment, sale, transfer or
agreement constituting a present or future assignment, sale or transfer
of, or granted any Lien on, such item other than licenses granted in the
ordinary course of business consistent with past practice (and each such
license has been identified on SCHEDULE 5.23(f)); nor has Seller granted
any release, covenant not to sue or other non-assertion assurance to any
Person with respect to such item which could reasonably be expected to
have an adverse effect on the aggregate value of the Intellectual
Property.
(g) SCHEDULE 5.23(g) identifies each item of Intellectual Property
used in connection with the Business that any Person (other than Seller) owns
and that Seller uses pursuant to any license, sublicense, agreement or
permission. Seller has delivered to Buyer correct and complete copies of all
such licenses, sublicenses, agreements and other permissions (as amended to
date). With respect to each item of Intellectual Property required to be
identified on SCHEDULE 5.23(g):
(i) the license, sublicense, agreement or other permission
covering such item is legal, valid, binding, enforceable and in full
force and effect;
(ii) such license, sublicense, agreement or other permission will
continue to be legal, valid, binding, enforceable and in full force and
effect on identical terms following the consummation of the transactions
contemplated hereby;
(iii) no party to such license, sublicense, agreement or other
permission is in breach or default thereof, and no event has occurred
which with the giving of notice or the lapse of time or both would
constitute such a breach or default thereof or permit termination,
modification or acceleration thereunder;
(iv) no party to such license, sublicense, agreement or other
permission has repudiated any provision thereof;
(v) with respect to each such sublicense, the representations and
warranties set forth in clauses (i) through (iv) above are true and
correct with respect to the underlying license;
(vi) the underlying item of Intellectual Property is not subject
to any outstanding injunction, judgment, order, decree, ruling or charge;
(vii) no action, suit, proceeding, hearing, investigation,
charge, complaint, claim or demand is pending or, to Seller's Knowledge
after due inquiry, threatened which challenges the legality, validity or
enforceability of the underlying item of Intellectual Property; and
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(viii) Seller has not granted any sublicense or similar right
with respect to the underlying license, sublicense, agreement or other
permission.
(h) To Seller's Knowledge after due inquiry, the continued
operation of the Business as currently conducted, and as proposed to be
conducted, does not and will not interfere with, infringe upon,
misappropriate or otherwise come into conflict with, any Intellectual
Property rights of any Person.
(i) Seller has no Knowledge after due inquiry of any new products,
inventions, procedures, or methods of manufacturing or processing that any
competitors or other Persons have developed which reasonably could be
expected to supersede or make obsolete any product or process of Seller with
respect to the Business.
5.24 NO BUSINESS AFFILIATES. No Affiliate of Seller is engaged,
either directly or indirectly, in the manufacturing, distribution or sale of
products or owns, leases or operates any assets in connection with the
Business.
5.25 FACILITIES. No manufacturing, converting, distribution,
research and development, administrative or other facility of Seller or any
of its Affiliates (other than the Facilities) is owned, leased or operated by
Seller or any such Affiliate in connection with the Business.
5.26 BOOKS AND RECORDS. Seller maintains its books, records and
accounts (including, but not limited to, those kept for financial reporting
and Tax purposes) in accordance with good business practice and in sufficient
detail to reflect accurately and fairly the transactions and the Condition of
the Business.
5.27 SUPPLIERS AND CUSTOMERS. Set forth on SCHEDULE 5.27 is a list
of the names, addresses and current relationship status of the 10 largest
customers and the 10 largest suppliers (measured, in each case, by dollar
volume) of the Business and the percentage of the Business which each such
customer or supplier represented since November 1, 1998 (since January 1,
1999 as to suppliers).
5.28 YEAR 2000 COMPLIANCE. Seller is, as of the date hereof, and
will, on the Closing Date, continue to be, Year 2000 Compliant with respect
to its Information Technology. To the best of Seller's knowledge, after due
inquiry, all customers of and suppliers to the Business, and all other third
parties who exchange computerized information with Seller's Information
Technology, are, as of the date hereof, and will, on the Closing Date,
continue to be, Year 2000 Compliant with respect to their respective
Information Technology.
5.29 REPRESENTATIONS NOT WAIVED. The representations and warranties
of Seller contained herein will not be affected or deemed waived by reason of
any investigation made by or on behalf of Buyer and/or its representatives or
agents or by reason of the fact that Buyer
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and/or its representatives or agents knew or should have known that any such
representation or warranty is or might be inaccurate in any respect.
5.30 DISCLOSURE. None of (i) the representations or warranties of
Seller contained herein; (ii) the information contained in the Schedules
referred to in this ARTICLE V; and (iii) the other information or documents
furnished to Buyer or any of its representatives or agents by Seller or its
representatives or agents pursuant to the terms of this Agreement is or will
be false or misleading in any material respect or omits or will omit to state
a fact herein or therein required to be stated or necessary to make the
statements herein or therein not misleading in any material respect. There
is no fact which adversely affects or in the future is likely to adversely
affect the Assets or the Business in any material respect which has not been
disclosed in this Agreement or the Schedules hereto.
5.31 CREDITOR PLAN. Seller has negotiated a pay-out plan with
substantially all of its unsecured creditors of the Business (which creditors
are listed on SCHEDULE 2.1) (the "Creditor's Plan"), except for certain
unsecured creditors whose claims aggregate $40,000 or less and those
creditors listed on SCHEDULE 5.31. Each of the unsecured creditors that has
agreed to the Creditor's Plan has executed a settlement agreement and release
in the form supplied to the Seller by Buyer. Seller has delivered copies of
each such agreement to Buyer.
6. REPRESENTATIONS AND WARRANTIES OF BUYER. Buyer represents and
warrants to Seller as follows:
6.1 DUE ORGANIZATION AND AUTHORITY. Buyer is a limited partnership
duly organized, validly existing and in good standing under the Laws the
State of Texas, and has, or will have on the Closing Date, all requisite
power and authority to own, lease and operate its assets, properties and
business and to carry on its business as currently conducted.
6.2 AUTHORITY TO EXECUTE AND PERFORM AGREEMENT. Buyer has all
requisite power and authority to enter into, execute and deliver this
Agreement and each of the Buyer Documents, and to perform fully its
obligations hereunder and thereunder, and no other act or proceeding on the
part of the Buyer is, or will be on the Closing Date, necessary to authorize
same. This Agreement has been, and each of the Buyer Documents to be
delivered by Buyer at the Closing will be, duly authorized, executed and
delivered by Buyer and, assuming the due authorization, execution and
delivery of this Agreement and each of the Seller Documents by Seller, and
the validity and binding effect hereof and thereof on Seller, each is, or
upon execution will be, a valid and binding obligation of Buyer, enforceable
against Buyer in accordance with its terms, except as enforceability may be
limited by applicable bankruptcy, insolvency, reorganization, moratorium,
fraudulent conveyance or other similar laws affecting the enforcement of
creditors' rights and remedies generally or general principles of equity
(regardless of whether considered and applied in a proceeding at law or in
equity).
6.3 NO BREACH. The execution, delivery and performance by Buyer of
this Agreement and each of the Buyer Documents to which it is party, and the
consummation of the transactions
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contemplated hereby and thereby, will not (i) violate or result in the breach
of any provision of the restated certificate of incorporation, by-laws or
other constituent documents of Buyer; (ii) violate, result in the breach of,
or constitute a default (or an event which, with the giving of notice or the
lapse of time or both, would constitute a default) under, any material
contract to which Buyer is party or by which Buyer or any of its assets may
be bound; (iii) violate any order, writ, judgment, injunction, award or
decree of any arbitrator or Governmental Entity against Buyer or affecting
any of its assets or properties; or (iv) violate any applicable Law, which
violation, individually or in the aggregate, would reasonably be expected to
have a material adverse effect on the ability of Buyer to consummate the
transactions contemplated hereby.
6.4 ACTIONS AND PROCEEDINGS. There are no outstanding orders,
writs, judgments, injunctions, awards or decrees of any Governmental Entity
against Buyer, and there are no actions, litigations or suits or other legal,
administrative, investigative or arbitral proceedings of any type whatsoever
pending, or to Buyer's Knowledge, threatened, against or involving Buyer
which, individually or in the aggregate, would reasonably be expected to have
a material adverse effect on the ability of the Buyer to consummate the
transactions contemplated hereby.
6.5 CONSENTS AND APPROVALS. Except for any required approvals from
appropriate Governmental Entities for the issuance or transfer of the
Permits, the execution and delivery by Buyer of this Agreement and the Buyer
Documents, and the performance by Buyer of its obligations hereunder and
thereunder, do not require Buyer to obtain any consent, approval, or other
action of, or make any filing with or give any notice to, any Governmental
Entity or other Person.
7. COVENANTS AND AGREEMENTS. The parties hereto covenant and agree as
follows:
7.1 DUE DILIGENCE. Prior to the Meeting Date, Seller will provide
Buyer, and Buyer's counsel, accountants and other representatives, during
normal business hours, full access to all of the properties, personnel,
books, contracts, records, Tax Returns and files of or relating to the
Business and the Assets. Seller will also furnish to Buyer and such
representatives all such additional documents and financial, operational,
environmental, legal and other information concerning the Business and the
Assets as Buyer may from time to time reasonably request. Seller will
instruct its employees, agents and representatives to cooperate in all
reasonable respects with Buyer in its investigation of the Business and the
Assets.
7.2 INTENTIONALLY LEFT BLANK
7.3 CONSENTS, APPROVALS AND FILINGS. As soon as practicable after
the execution of this Agreement, Seller and Buyer will cooperate with each
other with respect to, and will make or cause to be made, all requests,
filings and submissions to any Governmental Entity or other Person that are
required to be made in connection with the transactions contemplated hereby,
including: (i) the obtaining of all necessary actions or non-actions,
waivers, consents and approvals from all Governmental Entities, including the
making of all necessary registrations and
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filings with, and the taking of all other reasonable steps as may be
necessary to obtain an approval or waiver from, or to avoid any action or
proceeding by, any such Governmental Entities (including any in connection
with the transfer or reissuance of the Permits); (ii) the obtaining of all
necessary consents, approvals or waivers from Persons other than Governmental
Entities; and (iii) the defending of any lawsuits or other legal proceedings,
whether judicial or administrative, challenging this Agreement or the
consummation of the transactions contemplated hereby, including any attempt
to have any stay or temporary restraining order entered by any arbitrator or
Governmental Entity vacated or reversed. Notwithstanding the foregoing,
neither Buyer nor any of its Affiliates will be required to divest or hold
separate or otherwise take or commit to take any action that limits its
freedom of action with respect to, or its ability to retain, the Business,
the Assets or any other property or assets, or any material portions thereof.
Seller will furnish to Buyer, and Buyer will, furnish to Seller such
information and assistance as may reasonably be requested in connection with
the preparation of any requests, filings, submissions or other
communications. Each party hereto agrees to provide to the other party
copies of any notifications that it or its representatives or Affiliates
receive from any Governmental Entity in connection with the foregoing
matters.
7.4 EXPENSES. Each party to this Agreement will bear its own
expenses incurred in connection with the preparation, execution and
performance of this Agreement, including all fees and expenses of agents,
representatives, counsel and accountants. Seller also will bear (i) the costs
associated with any sales, use, registration, inventory, stamp, transfer, or
similar Taxes (including, real property transfer or documentary stamp taxes);
(ii) any recording or registration costs payable by either party as a result
of the transactions contemplated hereby; and (iii) all costs in connection
with any filings made with any Governmental Entity.
7.5 INDEMNIFICATION FOR BROKERAGE COMMISSIONS. Except for the fee
due and owing to Harris Webb & Garrison, Inc., Seller represents and warrants
to Buyer that (i) no broker, finder, agent or similar intermediary has acted
on behalf of Seller in connection with this Agreement; and (ii) there are no
brokerage commissions, finders' fees or similar fees or commissions payable
in connection herewith on account of Seller's actions. Seller agrees to
indemnify and keep Buyer harmless from any claim or demand for commission or
other compensation by any broker, finder, agent or similar intermediary
claiming to have been employed or retained by or on behalf of Seller, and to
bear the cost of any legal expenses incurred by Buyer in defending against
any such claim. Buyer represents and warrants to Seller that (x) no broker,
finder, agent or similar intermediary has acted on behalf of Buyer in
connection with this Agreement, and (y) there are no brokerage commissions,
finders' fees or similar fees or commissions payable in connection herewith
on account of Buyer's actions. Buyer agrees to indemnify and keep Seller
harmless from any claim or demand for commission or other compensation by any
broker, finder, agent or similar intermediary claiming to have been employed
or retained by or on behalf of Buyer, and to bear the cost of any legal
expenses incurred by Seller in defending against any such claim.
7.6 INSURANCE. After the Closing, Seller will maintain or cause to
be maintained in force (including necessary renewals thereof) products
liability insurance policies against risks
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and liabilities to the extent and in the manner heretofore maintained by
Seller with respect to the Business and the Assets.
7.7 LITIGATION. After the Closing, Seller will promptly notify
Buyer of any lawsuits, investigations or other proceedings that are
threatened or commenced against Seller (or any current or former director,
officer or employee thereof) which may relate to, or affect, the Business,
the Assets, the Assumed Liabilities, this Agreement or the transactions
contemplated hereby.
7.8 ACCESS; RECORDS; OPERATIONS MANUALS. (a) After the Closing,
Buyer and Seller will afford to each other and their respective
representatives the opportunity, upon reasonable request, to examine and make
copies of their respective books and records relating to the Business and the
Assets, and to consult with their respective officers, employees, accountants
and other representatives in connection with any reasonable business purpose,
including the preparation of Tax Returns and financial reports and the
conducting of any audits with respect thereto, the administration of Buyer's
benefit plans and benefit arrangements, the review of any materials, books,
records or circumstances relating to either party's ongoing obligations under
this Agreement or any Operative Document or for any other reasonable business
purpose.
(b) On the Closing Date, Seller will make available for delivery to
Buyer the following:
(i) all Records, subject to the following:
(A) Buyer recognizes that certain Records may not relate
to the Business or may relate primarily to Retained Assets or
Retained Liabilities, in which case Seller may retain such Records
but will provide copies of the portions thereof relating to the
Business to Buyer;
(B) Seller may retain any Tax Returns and any files and
records relating thereto (including payroll records and paid
invoices); PROVIDED, that Buyer will be provided with copies of
such Tax Returns, files and records to the extent that they relate
to the Business, the Assets or Buyer's obligations under this
Agreement; PROVIDED, FURTHER, that Seller will not dispose of or
destroy such records without first offering to turn over
possession thereof (to the extent relating to the Business, the
Assets or Buyer's obligations under this Agreement) to Buyer (at
Buyer's expense) by written notice to Buyer at least 30 days prior
to the proposed date of such disposition or destruction;
(C) Seller may retain its corporate record books and
stock records containing its articles of incorporation, bylaws,
minutes of meetings of the boards of directors, stockholders,
managers and management committees, and similar governance
documents; and
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(D) Seller may retain all records exclusively relating
to, or that constitute Retained Assets; PROVIDED, that Seller will
not, dispose of or destroy such records without first offering to
turn over possession thereof (to the extent relating to Buyer's
obligations under this Agreement) to Buyer (at Buyer's expense) by
written notice to Buyer at least 30 days prior to the proposed
date of such disposition or destruction;
(ii) operations and maintenance manuals setting forth in
reasonable detail all procedures necessary to operate the Assets in a
safe and reliable manner, which procedures will (A) incorporate
manufacturers' recommended guidelines and sound industry practices; (B)
include specific preventative maintenance procedures, including an annual
maintenance schedule; (C) include adequate safety measures and procedures
for the safe operation and maintenance of the Equipment, including
measures and procedures for fire prevention; (D) include adequate
security measures and procedures; and (E) integrate vendor and
manufacturer recommendations to the extent Seller, in consultation with
Buyer, deems such recommendations necessary or desirable in connection
with the efficient operation and maintenance of the Assets or the
protection of warranties.
7.9 FIRPTA AFFIDAVIT. Upon request of Buyer, Seller will furnish to
Buyer an affidavit, in form and substance reasonably satisfactory to Buyer,
stating under penalty of perjury Seller's United States taxpayer
identification number and that Seller is not a foreign Person pursuant to
Section 1445(b)(2) of the Code.
7.10 BULK SALES. Seller agrees to indemnify and save Buyer harmless
from any losses actually suffered by Buyer as a result of any noncompliance
by Seller with the provisions of any bulk sales law or any similar statute of
any jurisdiction as they may be applicable to the transactions contemplated
by this Agreement.
7.11 FURTHER ASSURANCES. Each party hereto will, and will cause its
respective Affiliates to, execute such agreements, documents, instruments and
other papers and take such further actions, at any time and from time to
time, after the Closing Date, as may be reasonably requested by the other
party to carry out the provisions hereof and the transactions contemplated
hereby.
7.12 MAIL OR OTHER COMMUNICATIONS RECEIVED AFTER CLOSING. On and
after the Closing Date, Buyer may receive and open all mail or other
communications addressed to Seller and deal with the contents thereof in its
discretion to the extent that such mail or other communications and the
contents thereof relate to the Business, the Assets or any of the Assumed
Liabilities. Buyer agrees to keep and cause to be kept confidential the
contents of, and to deliver or cause to be delivered promptly to Seller, all
other mail or communications (including any mail or communications that
relate to the Retained Assets or the Retained Liabilities) received by Buyer
which are addressed to Seller. In the event that Seller receives mail or
other communications which relate to the Business, the Assets or any of the
Assumed Liabilities on or after the Closing Date, Seller will deliver or
cause to be delivered immediately to Buyer such mail or other
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communications. Seller agrees to keep and cause to be kept confidential the
contents of such mail or other communications.
7.13 ANCILLARY AGREEMENTS. INTENTIONALLY LEFT BLANK.
7.14 CONDUCT OF BUSINESS. Except as set forth on SCHEDULE 7.14 or
as otherwise expressly permitted by the terms of this Agreement, from the
date hereof to the Meeting Date, Seller will use its best efforts to: (a)
conduct its business in the ordinary course in substantially the same manner
as currently conducted; (b) use its best efforts to preserve and maintain the
condition of the business, including relationships with customers, suppliers,
distributors and others with whom Seller deals in connection with the
business, and all associated goodwill; (c) comply with all applicable Laws
with respect to its business; and (d) pay, perform and discharge, when due,
in the ordinary course of business consistent with past practice, all
obligations of Seller. In addition, except as set forth on SCHEDULE 7.14 or
as otherwise expressly permitted by the terms of this Agreement, Seller will
not do any of the following without the prior written consent of Buyer:
(i) institute any changes in the business other than in the
ordinary course of business consistent with past practice;
(ii) engage in any trade or distributor loading of finished goods
of the business;
(iii) sell, lease, dispose of or encumber, or agree to sell,
lease, dispose of or encumber, any properties or assets of the business,
except sales of inventory in the ordinary course of business consistent
with past practice;
(iv) enter into any contract, lease, commitment, arrangement or
transaction relating to its business or any properties or assets of the
Business other than in the ordinary course of business consistent with
past practice;
(v) enter into any new employment agreement or increase or
modify, in any material respect, the terms of any Benefit Plan or Benefit
Arrangement (including but not limited to any commitment to pay
retirement or other benefits or any modification of benefits or personnel
policies and practices);
(vi) increase or modify the salary, commissions or other wages
payable to, or which will become payable to, any Employee, except in the
ordinary course of business consistent with past practice;
(vii) perform any act or omit to perform any act which, if taken
or omitted prior to the date hereof, would constitute, result in or cause
a breach of or default under any contracts relating to its business;
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(viii) enter into any purchase orders for amounts in excess of
$5,000, except for purchase orders for (A) raw materials ordered in the
ordinary course of business consistent with past practice and
(B) services under existing contracts;
(ix) prepare or file any Tax Return inconsistent with past
practice or, on any such Tax Return, take any position, make any election
or adopt any method that is inconsistent with positions taken, elections
made or methods used in preparing or filing similar Tax Returns in prior
periods (including positions, elections or methods which would have the
effect of deferring income to periods for which Buyer is liable pursuant
to SECTION 7.19 or accelerating deductions to periods for which Seller is
liable pursuant to SECTION 7.19);
(x) institute any suit or other proceeding which involves the
Business or the Assets; or
(xi) agree, whether in writing or otherwise, to do any of the
foregoing.
Seller will not take any action or agree to take any action that results in
any of the representations and warranties of Seller set forth in this
Agreement becoming untrue or misleading.
7.15 COVENANT NOT TO COMPETE. (a) As a material inducement to
Buyer to enter into this Agreement and to consummate the transactions
contemplated hereby, Seller agrees to the covenants and agreements set forth
in this SECTION 7.15 for the benefit of Buyer and its Affiliates.
(b) Neither Seller nor any of its Affiliates will, at any time from
and after the Closing Date and through the tenth anniversary thereof, without
the prior written consent of Buyer, (i) directly or indirectly engage in, or
(ii) acquire control of or more than a two percent (2%) interest in, or
assist or render services (whether or not for compensation, or as an agent,
advisor, consultant or lender) to or for, any business more than ten percent
(10%) of the consolidated revenues of which are derived from the development,
manufacture, sale or provision of memory modules and board design in North
America, South America, Europe and Asia.
(c) The covenant set forth in SECTION 7.15(b) will be construed as
a separate and independent covenant for each of the separate countries listed
in SECTION 7.15(b). To the extent that such covenant is declared to be
invalid or unenforceable in any country, state, province, territory or
possession, or in any other jurisdiction, or with respect to any Person, such
covenant will be deemed to be deleted herefrom with respect to, and only with
respect to, the operation of such covenant in the particular jurisdiction or
with respect to such Person in which or against whom such declaration was
made, and such declaration will not affect the enforceability of such
covenant with respect to any other country, state, province, territory or
possession, or any other jurisdiction or Person; PROVIDED, that to the extent
such covenant may be valid and enforceable in such jurisdiction or against
such Person by limitations on the scope of the activities, geographical area,
time period covered or otherwise, Seller and Buyer agree that such covenant
instead will be deemed to be limited to the extent, and only to the extent,
necessary to make such covenant
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enforceable to the fullest extent permissible under the laws and public
policies applied in such jurisdiction.
(d) Seller agrees that it will not (and will not permit any of its
Affiliates to), at any time from and after the Closing Date and through the
tenth anniversary thereof, directly or indirectly through the actions of any
other Person, whether for its own benefit or for that of another Person: (i)
solicit, divert or take away, or attempt to solicit, divert or take away, any
individual who is, as of the Closing Date or at any time thereafter, an
officer, director or managerial, marketing, research and development or other
key employee of Buyer or any of its Affiliates with respect to the Business,
or induce or attempt to induce any such individual to terminate his or her
employment with Buyer or any of its Affiliates; or (ii) take any action, or
advise or assist any Person in taking any action, that would impair the
goodwill of the Business, including but not limited to, actions that could
interfere with or damage the relationships between the Business and its
employees, customers, distributors, manufacturer representatives and
suppliers.
7.16 NOTICE OF CERTAIN EVENTS. Each party hereto will promptly
notify the other party of any event, occurrence, condition or circumstance of
which it becomes aware from the date hereof that would constitute a violation
or breach of any representation, warranty, covenant or agreement made by it
in this Agreement.
7.17 REASONABLE BEST EFFORTS. INTENTIONALLY LEFT BLANK
7.18 NEGOTIATIONS. From and after the date hereof, Seller agrees
that Seller and its Affiliates will deal exclusively and in good faith with
Buyer and its Affiliates with respect to any transaction involving the sale,
transfer or other disposition of the Assets or the Business, and none of
Seller, its Affiliates nor their respective officers, directors, employees,
lenders, investment banking firms, advisors or other agents, nor any Person
acting on their behalf, will solicit any inquiries or proposals by, or engage
in any discussions or negotiations with, or furnish any non-public
information to, or enter into any agreement with, any Person other than Buyer
and its Affiliates concerning the sale or other disposition of the Assets or
the Business or a merger, consolidation, sale of securities or other
transaction involving Seller or its Affiliates, if such merger,
consolidation, sale or other transaction would be inconsistent, in any
respect, with the transactions contemplated by this Agreement, and will
promptly notify Buyer of the substance of any inquiry or proposal concerning
any such transaction that may be received by Seller or its Affiliates.
7.19 TAXES. (a) Seller will be liable for and will pay, and will
indemnify, defend and hold harmless Buyer and its Affiliates (and directors,
officers, employees, stockholders, successors, assigns, representatives and
agents) from and against, all Taxes (whether assessed or unassessed), and
will be responsible for the preparation and filing of all Tax Returns,
applicable to the Business, the Assets and the Assumed Liabilities, in each
case attributable to taxable years or periods ending on or prior to the close
of the day on which the Closing occurs and, with
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respect to any Straddle Period, the portion of such Straddle Period ending on
and including the close of the day on which the Closing occurs.
(b) Buyer will be liable for and will pay, and will indemnify,
defend and hold harmless Seller and its Affiliates (and their respective
directors, officers, employees, stockholders, successors, assigns,
representatives and agents) from and against, all Taxes (whether assessed or
unassessed), and will be responsible for the preparation and filing of all
Tax Returns, applicable to the Business, the Assets and the Assumed
Liabilities that are attributable to taxable years or periods beginning on
the day immediately following the day on which the Closing occurs and, with
respect to any Straddle Period, the portion of such Straddle Period beginning
on the day immediately following the day on which the Closing occurs;
PROVIDED, that Buyer will not be liable for or pay, and will not indemnify,
defend or hold harmless, Seller and its Affiliates (and their respective
directors, officers, employees, stockholders, successors, assigns,
representatives and agents) from and against, any Taxes for which Seller is
liable under this Agreement, including, pursuant to the preceding sentence or
SECTION 5.14 (which Taxes will be the liability of Seller).
(c) Seller, on the one hand, or Buyer, on the other hand, as the
case may be, will provide reimbursement for any Tax paid by one party or its
Affiliates, all or a portion of which is the responsibility of the other
party in accordance with the terms of this SECTION 7.19. Not later than 14
days prior to the payment of any such Tax, the party paying such Tax will
give notice to the other party of the Tax payable and the portion which is
the liability of the other party, although failure to do so will not relieve
the other party from its liability hereunder.
(d) After the Closing Date, Seller and Buyer will, and will cause
their respective Affiliates to: (i) assist in all reasonable respects the
other party in preparing any Tax Returns which such other party is
responsible for preparing and filing; (ii) cooperate in all reasonable
respects in preparing for any audits of, or disputes with taxing authorities
regarding, any Tax Returns concerning the Business, the Assets or the Assumed
Liabilities; (iii) make available to the other party and to any taxing
authority as reasonably requested by the other party all information,
records, and documents relating to Taxes concerning the Business, the Assets
or the Assumed Liabilities; (iv) provide timely notice to the other party in
writing of any pending or threatened Tax audits or assessments relating to
Taxes concerning the Business, the Assets or the Assumed Liabilities for
taxable periods for which the other party may have a liability under this
SECTION 7.19; and (v) furnish the other party with copies of all
correspondence received from any taxing authority in connection with any Tax
audit or information request with respect to any such taxable period.
(e) Notwithstanding anything to the contrary in this Agreement, the
obligations of the parties set forth in this SECTION 7.19 will be
unconditional and absolute and will remain in effect without limitation as to
time or amount.
7.20 SHAREHOLDER CONSENT. Immediately following the Closing, Seller
shall promptly have prepared and distributed to its shareholders, a proxy
statement and proxy requesting that the
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shareholders ratify the sale of the Assets to Buyer. The meeting of
shareholders to vote on the ratification shall be held on or before February
16, 2000.
7.21 NEGOTIATIONS. In negotiating with the Scottish Government,
Buyer will request that Seller be released from its obligations to the
Scottish Government.
77.22 SALE OF TESTERS. If Buyer sells any of the sigma three test
systems that constitute Assets within six months from the Closing Date,
Seller shall extend the Seller's warranty on such products for six months
from the sale of such products by Buyer.
8. EMPLOYMENT AND EMPLOYEE BENEFITS ARRANGEMENTS
8.1 EMPLOYEES. As of the Closing Date, Seller will terminate the
employment of all Employees employed by Seller in connection with the
Business (other than those Employees to whom Buyer decides, in its sole
discretion, not to offer employment and whom Seller desires to retain).
Seller will retain and assume all liabilities, and carry out all obligations
accrued on or before the Closing Date, with respect to each such terminated
Employee's compensation, benefits and other entitlements resulting from such
termination. Buyer will, immediately following the Closing Date, offer to
employ Seller's employees who work in the Business, on terms and conditions
to be established by Buyer. Seller will make available to Buyer the personnel
records for each Employee. Seller will not make any representations or
assurances to the Employees that all or any of them will be hired by Buyer or
what their wages, hours, or terms and conditions of employment would be were
they employed by Buyer. Buyer will not solicit or hire Employees without the
consent of Seller.
8.2 BENEFIT PLANS. Without limiting the generality of SECTION 2.2
hereof, and except as otherwise provided in this ARTICLE 8, Seller will
retain and be solely responsible for (i) all liabilities and obligations
under all Benefit Plans and Benefit Arrangements, including all liabilities
and obligations arising under the continuation coverage requirements of
Section 4980B of the Code and Part 6 of Title I of ERISA; (ii) any long-term
disability benefits provided under any Benefit Plan, including any claims
resulting from disabilities incurred but not reported as of the Closing Date;
(iii) any benefits provided to Persons who do not become Continuing
Employees; (iv) any expenses incurred under Seller's Benefit Plans and
Benefit Arrangements; and (v) any award of stock appreciation rights, stock
options, restricted stock, performance shares or units, or other incentive
compensation by Seller.
8.3 NO RIGHT TO BENEFITS. No provision contained in this Agreement
will create any third party beneficiary or other rights in any employee or
former employee of Seller (or any beneficiary or dependent thereof) in
respect of continued employment or resumed employment with any Buyer or the
Business, and no provision of this Agreement will create any such rights in
any such Person in respect of any benefits that may be provided under any
employee benefit plan or arrangement that may be established by any Buyer.
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8.4 EMPLOYEE AGREEMENTS. Seller hereby (i) assigns to Buyer all of
Seller's rights under all confidentiality and non-competition agreements that
exist with any Employees (other than those Employees, if any, retained by
Seller), and (ii) pursuant to SECTION 7.8(b), provides copies of all such
agreements to Buyer.
8.5 RIGHT TO CHANGE BENEFITS. Buyer will have the right, in the
good faith exercise of its managerial discretion, to make changes or cause
changes in the compensation, benefits (including retiree medical, pension,
thrift plan or other benefits), and other terms of employment for, and to
terminate the employment of, any Continuing Employee.
9. INTENTIONALLY LEFT BLANK
10. INTENTIONALLY LEFT BLANK
11. SURVIVAL
All covenants and agreements contained herein survive, without
limitation as to time (except as may be otherwise provided in such covenants
and agreements), the execution and delivery of this Agreement and the Closing
hereunder. All representations and warranties contained herein will
terminate and expire on the second anniversary of the Closing Date, except
with respect to (i) SECTIONS 5.3, 5.9 AND 5.10, for which the representations
and warranties contained therein will continue to survive indefinitely; (ii)
SECTION 5.15, for which the representations and warranties contained therein
will terminate and expire on the tenth anniversary of the Closing Date; and
(iii) SECTION 5.14, for which the representations and warranties contained
therein will terminate and expire 60 days after the expiration of the
applicable statute of limitations or any extensions thereof.
12. INDEMNIFICATION
12.1 OBLIGATION OF SELLER TO INDEMNIFY. Seller agrees to indemnify,
defend and hold harmless Buyer and its Affiliates (and their respective
directors, officers, employees, stockholders, successors, assigns,
representatives, counsel and agents) (collectively, the "BUYER INDEMNITIES")
from and against all claims, losses, liabilities, damages, deficiencies,
costs or expenses, including interest, penalties and attorneys' fees and
disbursements (collectively, "LOSSES"), actually incurred, suffered or paid,
directly or indirectly, by the Buyer Indemnities based upon, arising out of
or otherwise in respect of: (i) any breach or alleged breach of any
representation or warranty of Seller contained in this Agreement, the
Schedules hereto, or the Seller Documents; (ii) any breach or alleged breach
of any covenant or agreement of Seller contained in this Agreement or any
Seller Document; (iii) any Retained Liability; (iv) the failure by Buyer to
submit this Agreement and the transactions contemplated hereby to the
shareholders of the Buyer for their consideration and approval; (v) the
operation of the Assets or the Business prior to the Closing Date; (vi) the
sale and transfer of the Assets to Buyer; (vii) (A) any Environmental Claim
asserted against Buyer or for which Buyer otherwise becomes liable or must
investigate, or any actual or threatened violation of or non-compliance with,
or remediation
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obligation arising under, any Environmental Laws arising from any event,
condition, circumstance, activity, practice, incident, action or plan
relating in any way to the Assets; (B) the presence of any Materials of
Environmental Concern arising out of actions or events relating to or
involving Seller, the Business or the Assets prior to the Closing Date on,
in, under or affecting all or any portion of the Assets and/or any property
on which Seller has conducted business, and any release or threatened release
with respect to Materials of Environmental Concern; and (C) the storage,
disposal or treatment, or the transportation for storage, disposal or
treatment, of Materials of Environmental Concern (regardless of location)
arising out of actions or events involving or relating to Seller, the
Business or the Assets prior to the Closing Date; (viii) relating to product
liability claims which have arisen or may arise against Seller or Buyer or
the Assets for actions or events involving or relating to the Seller, the
Business or the Assets prior to the Closing Date; (ix) any employee related
claims arising out of events that occurred prior to the Closing Date; or (x)
the operation of Tanisys Europe Ltd. (including, but not limited to, relating
to the Section 7 Industrial Development Act of 1982 Grant from the Scottish
Government).
12.2 OBLIGATION OF BUYER TO INDEMNIFY. Buyer agrees to indemnify,
defend and hold harmless Seller and its Affiliates (and their respective
directors, officers, employees, stockholders, successors, assigns,
representative and agents) (collectively the "SELLER INDEMNITIES") from and
against any Losses actually incurred, suffered or paid, directly or
indirectly, by the Seller Indemnities based upon, arising out of or otherwise
in respect of: (i) any breach or alleged breach of any representation or
warranty of Buyer contained in this Agreement, or the Buyer Documents; (ii)
any breach or alleged breach of any covenant or agreement of Buyer contained
in this Agreement or any Buyer Document; or (iii) any Assumed Liability.
12.3 NOTICE AND OPPORTUNITY TO DEFEND. (a) NOTICE OF ASSERTED
LIABILITY. Promptly after receipt by any Person entitled to indemnification
under this ARTICLE 12 (the "INDEMNITEE") of notice of any demand, assertion
or other circumstance which could give rise to a claim or the commencement
(or threatened commencement) of any action, proceeding or investigation
(each, an "ASSERTED LIABILITY") that may result in a Loss, the Indemnitee
will give notice thereof (the "CLAIMS NOTICE") to the party obligated to
provide indemnification or payment pursuant to SECTION 12.1 or 12.2 (the
"INDEMNIFYING PARTY"), as the case may be, subject to the procedures
contained in this SECTION 12.3. The Claims Notice will describe the Asserted
Liability in reasonable detail and will, if possible, indicate the amount of
the Loss that has been or may be suffered by the Indemnitee. In no event
will the Indemnitee's failure to give a Claims Notice to the Indemnifying
Party relieve the Indemnifying Party of any liability under this ARTICLE 12,
except to the extent that such failure materially prejudices the Indemnifying
Party's ability to adequately defend such claim.
(b) OPPORTUNITY TO DEFEND. If the Indemnifying Party confirms in
writing that it is obligated hereunder to indemnify the Indemnitee with
respect to any Asserted Liability, the Indemnifying Party may elect to
compromise or defend, at its own expense and with counsel reasonably
satisfactory to the Indemnitee, such Asserted Liability; and if the
Indemnifying Party so elects to compromise or defend, the Indemnifying Party
will have the right to control the defense of such Asserted Liability. If
the Indemnifying Party elects to compromise or defend
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such Asserted Liability, it will within 15 days (or sooner, if the nature of
the Asserted Liability so requires) notify the Indemnitee of its intent to do
so, and the Indemnitee will cooperate with the Indemnifying Party in the
compromise of, or defense against, such Asserted Liability. If the
Indemnifying Party elects not to compromise or defend such Asserted
Liability, fails to notify the Indemnitee of its election as herein provided
or contests its obligation to indemnify under this Agreement, the Indemnitee
may pay, compromise or defend such Asserted Liability, and the Indemnitee
will have the right to control the compromise or defense of such Asserted
Liability; and in such case, the Indemnitee will retain the right to pursue
its rights to indemnification hereunder against the Indemnifying Party.
Notwithstanding the foregoing provisions of this SECTION 12.3(b), the
Indemnifying Party may settle or compromise any Asserted Liability; PROVIDED,
that (i) such settlement or compromise does not result in any liability to,
restriction on or admission by the Indemnitee; and (ii) such settlement or
compromise constitutes or includes a full release of the Indemnitee. In any
event, the Indemnitee may participate, at its own expense, in the defense of
any Asserted Liability. If the Indemnifying Party chooses to defend any
Asserted Liability, the Indemnitee will make available to the Indemnifying
Party any books, records or other documents within its control that are
necessary or appropriate for such defense.
12.4 INDEMNIFICATION PAYMENTS ON AFTER-TAX BASIS. Any
indemnification payment hereunder with respect to any Loss will be in an
amount which is sufficient to compensate the Indemnitee for the amount of
such Loss, after taking into account all increases in federal, state,
provincial, local, foreign or other Taxes payable by the Indemnitee because
of the receipt of such payment (by reason of such payment being included in
income, resulting in a reduction of tax basis or otherwise increasing such
Taxes payable by the Indemnitee at any time).
12.5 PAYMENT OF DAMAGES. Any Loss for which Indemnitee is entitled
to indemnification under this ARTICLE 12 shall be paid by the Indemnifying
Party to the Indemnitee as such Losses are incurred.
12.6 RIGHT OF OFFSET. Upon the determination by Buyer that it is
entitled to indemnification for Losses hereunder from Seller, Buyer may
offset any indemnification amounts or expense advances to which Buyer
believes it is entitled against the Earn Out Payment and/or any Consulting
Payment.
13. RESCISSION. If Seller does not obtain on or before February 16, 2000,
the requisite shareholder vote to ratify the transactions consummated under
this Agreement, Buyer shall have the right to rescind the transactions that
occurred hereunder by giving written notice to Seller.
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14. MISCELLANEOUS
14.1 PUBLICITY. Neither Seller nor Buyer will make any publicity
release or announcement concerning this Agreement or the transactions
contemplated hereby without the prior written approval thereof by Buyer or
Seller, as the case may be, except as required by applicable Law, in which
case the party issuing the release will so advise the other party in writing
and submit a copy of such release in advance of such issuance.
14.2 NOTICES. Any notice or other communication required or
permitted hereunder will be in writing and will be delivered personally, sent
by facsimile transmission or sent by certified, registered or express mail,
postage prepaid. Any such notice will be deemed given when delivered
personally, or sent by facsimile transmission (after receiving confirmation
of receipt) or, if mailed, five days after the date of deposit in the United
States mail or, if express mailed, one Business Day after delivery to a
reputable overnight express mail courier, as follows:
(i) If to Buyer, to:
TanisysOperations, LP
13717 Beta Road
Farmers Branch, Texas 75244
Attention: President of General Partner
Telecopy: (972) 851-1997
(ii) If to Seller, to:
Tanisys Technology, Inc.
12201 Technology Boulevard
Austin, TX 78727-6101
Attention: Charles T. Comiso
Telecopy: (512) 257-5350
with a copy to:
W. Audie Long
7411 John Smith Drive, Suite 200
San Antonio, TX 78229-4898
Telecopy: (210) 949-7024
Either party may by notice given in accordance with this SECTION 14.2
designate another address or Person for receipt of notices hereunder.
14.3 ENTIRE AGREEMENT. This Agreement (including the Schedules
hereto), the Buyer Documents and the Seller Documents contain the entire
understanding among the parties with respect to the purchase and sale of the
Assets and the Business and supersede all prior
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agreements, written or oral, with respect thereto, including, but not limited
to, the Letter Agreement.
14.4 AMENDMENTS AND WAIVERS; PRESERVATION OF REMEDIES. This
Agreement may be amended, superseded, canceled, renewed or extended, and the
terms hereof may be waived, in each case only by a written instrument signed
by Buyer and Seller or, in the case of a waiver, by the party waiving
compliance. No delay on the part of either party in exercising any right,
power or privilege hereunder will operate as a waiver thereof; nor will any
waiver on the part of either party of any such right, power or privilege, nor
any single or partial exercise of any such right, power or privilege,
preclude any further exercise thereof or the exercise of any other such
right, power or privilege.
14.5 GOVERNING LAW, JURISDICTION, FORUM SELECTION AND WAIVER OF JURY
TRIAL. This Agreement, and the rights and obligations of Buyer and Seller
hereunder, will be governed by, and construed and enforced in accordance
with, the laws of the State of Texas applicable to agreements made and to be
performed entirely within such State, without regard to principles of
conflict of laws. Buyer and Seller each agrees that any action or proceeding
based upon or relating to this Agreement will, to the fullest extent
permitted by applicable law, be brought and maintained exclusively in the
courts of the State of Texas or in the United States District Court for the
Northern District of Texas. Buyer and Seller each hereby irrevocably submits
to the jurisdiction of the courts of the State of Texas and of the United
States District Court for the Northern District of Texas for purposes of any
such action or proceeding, and irrevocably agrees to be bound by any judgment
rendered by any such court in connection with such action or proceeding.
Buyer and Seller each hereby irrevocably waives, to the fullest extent
permitted by law, any objection that it may have to the laying of venue of
any such action or proceeding brought in any such court and any claim that
any such action or proceeding has been brought in an inconvenient forum.
Buyer and Seller each hereby irrevocably waives any right it may have to a
trial by jury in respect of any claim based upon or arising out of this
Agreement or the transactions contemplated hereby.
14.6 BINDING EFFECT; NO ASSIGNMENT. This Agreement will be binding
upon and inure to the benefit of the parties hereto and their respective
successors and permitted assigns. This Agreement may not be assigned by
either party hereto without the prior written consent of the other party;
PROVIDED, that Buyer may assign any or all of its rights hereunder to one or
more Affiliates of Buyer, but no such assignment will release Buyer from any
of its obligations hereunder.
14.7 VARIATIONS IN PRONOUNS. All pronouns and any variations
thereof refer to the masculine, feminine or neuter, singular or plural, as
the context may require.
14.8 COUNTERPARTS. This Agreement may be executed by the parties
hereto in separate counterparts, each of which when so executed and delivered
will be an original, and all such counterparts will together constitute one
and the same instrument.
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14.9 SCHEDULES. The Schedules are an integral part of this
Agreement as if fully set forth herein. All references herein to Articles,
Sections and Schedules will be deemed references to such parts of this
Agreement, unless the context otherwise requires.
14.10 HEADINGS. The headings in this Agreement, in any Appendix,
Exhibit or Schedule hereto and in the table of contents are for reference
only and will not affect the meaning or interpretation of this Agreement.
14.11 SEVERABILITY OF PROVISIONS. Subject to the reformation
provision in SECTION 7.15, if any provision of this Agreement is held to be
illegal, invalid or unenforceable under any current or future law, and if the
rights or obligations of the parties under this Agreement would not be
materially and adversely affected thereby, such provision shall be fully
separable, and this Agreement shall be construed and enforced as if such
illegal, invalid or unenforceable provision had never comprised a part
thereof, the remaining provisions of this Agreement shall remain in full
force and effect and shall not be affected by the illegal, invalid or
unenforceable provision or by its severance therefrom. In lieu of such
illegal, invalid or unenforceable provision, there shall be added
automatically as a part of this Agreement, a legal, valid and enforceable
provision as similar in terms to such illegal, invalid or unenforceable
provision as may be possible, and the parties hereto request the court or any
arbitrator to whom disputes relating to this Agreement are submitted to
reform the otherwise illegal, invalid or unenforceable provision in
accordance with this SECTION 14.11.
14.12 NO THIRD-PARTY BENEFICIARIES. Nothing herein expressed or
implied is intended or shall be construed to confer upon or give to any
Person, other than the parties hereto and their respective successors and
permitted assigns, any rights or remedies under or by reason of this
Agreement; provided, however, All Components, Inc. be, and it hereby is,
deemed to be a third party beneficiary of this Agreement.
14.13 EQUITABLE RELIEF. Seller acknowledges and agrees that in view
of the uniqueness of the Business, damages at law would be an insufficient
remedy for a breach of any of its covenants in this Agreement. Accordingly,
Seller agrees that in the event of a breach or threatened breach by Seller of
any such provisions, Buyer will be entitled to, and Seller acknowledges and
covenants that it will not, and will cause its Affiliates not to, contest the
appropriateness and availability of, equitable relief in the form of an
injunction to prevent irreparable injury. Nothing herein will be construed
as prohibiting Buyer from pursuing any other remedies, including damages, for
a breach or threatened breach of this Agreement;
14.14 DENOMINATIONS. All dollar references in this Agreement will be
understood to refer to United States dollars.
14.15 OBLIGATIONS OF SELLER WITH RESPECT TO AFFILIATES. Each
obligation, covenant and undertaking of Seller set forth in each of this
Agreement and the Seller Documents will be deemed, as and to the extent
required by the context, to also include a corresponding obligation,
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covenant or undertaking of Seller to cause its Affiliates to perform or
satisfy such obligation, covenant or undertaking.
IN WITNESS WHEREOF, the parties have executed this Agreement on the
date first above written.
TANISYSOPERATIONS, LP TANISYS TECHNOLOGY, INC
By: Tanisys Acquisition GP, Inc.
Its General Partner
/s/ Robert Cooper By: /s/ Charles T. Comiso
- ----------------------------------- ---------------------------------
Robert Cooper, President Name: Charles T. Comioso
-------------------------------
Title: Pres. & CEO
------------------------------
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DEFINITIONS AND RULES OF USAGE
RULES OF USAGE
The terms defined below shall have the respective meanings set forth
below for all purposes, and such meanings shall be equally applicable to both
the singular and plural forms of the terms defined. "Include," "includes" and
"including" shall be deemed to be followed by "without limitation." "Writing,"
"written" and comparable terms refer to printing, typing, lithography and other
means of reproducing words in a visible form. Any instrument or Law defined or
referred to below or in any instrument that recites it is to be construed in
accordance with this Appendix means such instrument or Law as from time to time
amended, modified or supplemented, including (in the case of instruments) by
waiver or consent and (in the case of Laws) by succession of comparable
successor Laws and includes (in the case of instruments) references to all
attachments thereto and instruments incorporated therein. References to any
Person are, unless the context otherwise requires, also to its successors and
assigns. "Hereof," "herein," "hereunder" and comparable terms refer to the
entire instrument in which such terms are used and not to any particular
article, section or other subdivision thereof or attachment thereto. References
to the singular include, unless the context otherwise requires, references to
the plural and vice versa. References in an instrument to "Article", "Section"
or another subdivision or to an attachment are, unless the context otherwise
requires, to an article, section or subdivision of or an attachment to such
instrument.
DEFINITIONS
"ACCOUNTS RECEIVABLE" means all trade accounts and notes
receivable of the Business (net of reserves and applicable allowances).
"ADJUSTED PURCHASE PRICE" has the meaning specified in SECTION
3.3.
"AEA" means the Atomic Energy Act of 1954 (42 U.S.C. Section 2011
ET SEQ.).
"AFFILIATE" means, with respect to any Person, any other Person
controlling, controlled by or under common control with, such Person.
"AGREEMENT" means the Asset Purchase Agreement dated as of
December 7, 1999, by and between Buyer and Seller, as may be amended, modified
or supplemented from time to time.
"ASSERTED LIABILITY" has the meaning specified in SECTION 12.3.
"ASSETS" has the meaning specified in SECTION 1.1.
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"ASSUMED LIABILITIES" has the meaning specified in SECTION 2.1.
"BENEFIT ARRANGEMENTS" means each and all retirement, savings,
bonus, commission, deferred compensation, incentive compensation, holiday,
vacation, severance pay, stock option, stock purchase, performance, sick pay,
sick leave, disability, tuition refund, service award, company car, scholarship,
relocation, patent award, fringe benefit or other employee benefit plans, and
contracts, policies, practices or arrangements of Seller providing employee or
executive compensation benefits to employees of the Business, other than the
Benefit Plans.
"BENEFIT PLANS" means each and all "employee benefit plans" as
defined in Section 3(3) of ERISA, currently or at any time during the past six
years maintained or contributed to by the Controlled Group, including (i) any
such plans that are "employee welfare benefit plans" as defined in Section 3(1)
of ERISA, and (ii) any such plans that are "employee pension benefit plans" as
defined in Section 3(2) of ERISA, regardless of whether such Benefit Plans are
excluded from ERISA coverage by Section 4 of ERISA.
"BUSINESS" has the meaning specified in the second introductory
paragraph of the Agreement.
"BUSINESS DAY" means, any day other than Saturday, Sunday or a
United States federal holiday on which federally chartered banking and financial
institutions are not open for the transaction of business.
"BUYER" has the meaning specified in the first introductory
paragraph of the Agreement.
"BUYER DOCUMENTS" means the documents to be delivered on or prior
to the Closing Date by Buyer pursuant to the Agreement or any mutually
satisfactory list of closing documents.
"BUYER INDEMNITIES" has the meaning specified in SECTION 12.1.
"CAA" means the Clean Air Act (42 U.S.C. Section 7401 ET SEQ.).
"CERCLA" means the Comprehensive Environmental Response,
Compensation, and Liability Act of 1980 (42 U.S.C. Section 9601 ET SEQ.).
"CLAIMS NOTICE" has the meaning specified in SECTION 12.3.
"CLOSING" has the meaning specified in SECTION 4.
"CLOSING DATE" has the meaning specified in SECTION 4.
"CODE" means the Internal Revenue Code of 1986, as amended.
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"CONDITION OF THE BUSINESS" means the business, operations,
assets, liabilities, properties, condition (financial or otherwise) or prospects
of the Business.
"CONSULTING PAYMENTS" has the meaning specified in SECTION 3.2(d).
"CONTAMINANT" means (i) those substances defined as "hazardous
substances," "pollutants" or "contaminants" in Section 101 of CERCLA, (ii) those
substances defined as "hazardous waste," "hazardous materials" or "regulated
substances" by RCRA, (iii) those substances designated as a "hazardous
substance" pursuant to Section 311 of CWA, (iv) those substances defined as
"hazardous materials" in Section 103 of HMTA, (v) those substances regulated as
a hazardous chemical substance or mixture or as an imminently hazardous chemical
substance or mixture pursuant to Section 6 or 7 of TCSA, (vi) those substances
regulated by OPA, (vii) those substances defined as a source, special nuclear or
by-product material by Section 11 of AEA, (viii) those substances defined as
"residual radioactive material" by Section 101 of UMTRCA, (ix) those substances
defined as "toxic materials" or "harmful physical agents" pursuant to Section 6
of OSHA, (x) those substances defined as hazardous wastes in 40 C.F.R. Part
261.3, (xi) those substances defined as hazardous waste constituents in 40
C.F.R. Part 260.10, specifically including Appendix VII and VIII of Subpart D of
40 C.F.R. Part 261, (xii) those substances designated as hazardous substances in
40 C.F.R. Parts 116.4 and 302.4, (xiii) those substances defined as hazardous
substances or hazardous materials in 49 C.F.R. Part 171.8, (xiv) those
substances regulated in the regulations adopted pursuant to such Laws (or any
amendments to such Laws), whether or not such regulations are specifically
referenced herein, and (xv) any other material, substance or waste that poses or
causes, or is alleged to pose or cause, any damage to property or personal
injury or threat to the environment.
"CONTINUING EMPLOYEE" means each Person employed by Seller in
connection with the Business, immediately prior to the Closing Date, who becomes
an employee of Buyer as of the Closing Date or within 60 days thereafter.
"CONTROLLED GROUP" means Seller, any Affiliate of Seller or any
other organization that together with Seller is treated as a single employer
under Section 414 of the Code.
"CREDITOR'S PLAN" has the meaning specified in SECTION 5.31.
"CURRENT LIABILITIES" means all liabilities listed on SCHEDULE
2.1.
"CWA" means the Federal Water Pollution Control Act (33 U.S.C.
Section 1251 ET SEQ.).
"EMPLOYEES" means all regular, full-time employees (excluding
those on lay-off or leave of absence, whether paid or unpaid, seasonal,
temporary and/or part-time employees) of the Business immediately prior to the
Closing Date.
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"ENVIRONMENTAL CLAIM" means any written accusation, allegation,
notice of violation, claim, demand, order, consent decree, directive, cost
recovery action or other cause of action by or on behalf of any Governmental
Entity or any other Person for damages, injunctive or equitable relief, personal
injury, remedial action costs, tangible or intangible property damage, natural
resource damage, nuisance, pollution or any adverse effect on the environment
caused by any Contaminant, or for fines, penalties or restrictions, resulting
from or based upon (i) the existence or continuation of a release of any
Contaminant, (ii) exposure to any Contaminant, (iii) the presence, use,
handling, transportation, storage, treatment or disposal of any Contaminant, or
(iv) the violation or alleged violation of any Environmental Law.
"ENVIRONMENTAL LAWS" means (i) CERCLA, (ii) CWA, (iii) RCRA, (iv)
AEA, (v) CAA, (vi) EPCRA, (vii) FIFRA, (viii) OPA, (ix) SDWA, (x) SMCRA, (xi)
TSCA, (xii) UMTRCA, (xiii) the Pollution Prevention Act of 1990 (42 U.S.C.
Section 13101 ET SEQ), (xiv) HMTA, (xv) NWPA, (xvi) the regulations adopted
pursuant to all such foregoing Laws, and (xvii) all other Laws concerning
Contaminants, pollution or the protection of air, water or land, but excluding
any such Laws concerning occupational health and safety (including OSHA and all
regulations thereunder).
"EPCRA" means the Emergency Planning and Community Right to Know
Act (42 U.S.C. Section 11001 ET SEQ.).
"EQUIPMENT" means the machinery, equipment, tools, furniture,
furnishings, automobiles, trucks, tractors, trailers, forklifts and other
vehicles and mobile equipment, computers, software, copiers, fax machines,
telephones and all related equipment, spare parts and all other tangible
personal property owned or held by Seller, wherever located, used or useful in
connection with the conduct of the Business.
"ERISA" means the Employee Retirement Income Security Act of 1974,
as amended.
"FACILITIES" has the meaning specified in the second introductory
paragraph of the Agreement.
"FIFRA" means the Federal Insecticide, Fungicide, and Rodenticide
Act (7 U.S.C. Section 136 ET SEQ.).
"GAAP" means United States generally accepted accounting
principles applied on a consistent basis throughout the periods involved.
"GOVERNMENTAL ENTITY" means any government or political
subdivision, whether federal, state, provincial, local or foreign, or any
administrative, regulatory or other agency, commission or instrumentality of
such government or political subdivision, or any arbitrator or arbitral
tribunal, including any court of law.
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"HMTA" means the Hazardous Materials Transportation Act (49 U.S.C.
App. Section 1801 ET SEQ.).
"HSR ACT" means the Hart-Scott-Rodino Antitrust Improvements Act
of 1976, as amended.
"INDEMNIFYING PARTY" has the meaning specified in SECTION 12.3.
"INDEMNITEE" has the meaning specified in SECTION 12.3.
"INFORMATION TECHNOLOGY" means any computer software or hardware
(whether general or specific purpose) and any similar or related items of
automated, computerized or management information systems.
"INTELLECTUAL PROPERTY" means (i) all inventions (whether
patentable or unpatentable and whether or not reduced to practice), all
improvements thereto, and all patents, patent applications and patent
disclosures, together with all reissues, continuations, continuations-in-part,
divisionals, revisions, utility models, extensions and reexaminations thereof;
(ii) all trademarks, service marks, trade dress, logos, trade names and
corporate names, together with all translations, adaptations, derivations and
combinations thereof and including all goodwill associated therewith, and all
applications, registrations and renewals in connection therewith; (iii) all
copyrightable works, all copyrights and all applications, registrations,
renewals and derivatives in connection therewith; (iv) all trade secrets and
confidential business information (including ideas, research and development,
know-how, formulas, compositions, manufacturing and production processes and
techniques, technical data, product certifications, designs (including board
designs), drawings, specifications, customer, prospect and supplier lists,
distribution and manufacturer's representative lists, pricing and cost
information, and business and marketing plans and proposals); (v) all computer
software (including data and related documentation); (vi) all other proprietary
rights; (vii) all copies and tangible embodiments thereof (in whatever form or
medium); and (viii) all licenses or agreements in connection with the foregoing,
in each case on a worldwide basis and used or useful in the Business.
"INTERIM BALANCE SHEET" has the meaning specified in SECTION 5.16.
"INTERIM FINANCIAL STATEMENTS" has the meaning specified in
SECTION 5.16.
""INVENTORY" means all inventory (net reserves and allowances)
used or useful in the Business owned or held by Seller, wherever located,
including all raw materials, chemicals, packaging materials, supplies, work in
process and finished goods.
"IRS" means the Internal Revenue Service.
"KNOWLEDGE" means (a) with respect to Seller, (i) any knowledge
attributable to Seller or any Affiliate of Seller based on its files, books and
records, Tax Returns or any other
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written documentation; and (ii) the actual personal knowledge of any of the
employees, officers and directors of Seller or any Affiliate of Seller; and
(b) with respect to Buyer, (i) any knowledge attributable to Buyer or any
Affiliate of Buyer based on its files, books and records, Tax Returns or any
other written documentation; and (ii) the actual personal knowledge of any of
the employees, officers and directors of Buyer or any Affiliate of Buyer.
"LAWS" means all federal, state, provincial, local and foreign
laws, statutes, ordinances, rules, regulations, orders, judgments, decrees,
writs, arbitral orders, settlement agreements, conciliation agreements,
injunctions or other requirements of all applicable governmental, judicial,
legislative, executive, administrative and regulatory authorities.
"LEASED REAL PROPERTY" has the meaning specified in SECTION 5.9.
"LIENS" means all liens, pledges, mortgages, security interests,
claims, covenants, leases, subleases, charges, conditions, options, rights of
first refusal, licenses, easements, servitudes, rights of way, encumbrances or
any other restriction or limitation whatsoever.
"LOSSES" has the meaning specified in SECTION 12.1.
"MEETING DATE" means the date Seller's shareholders meet to vote
on a proposal to ratify the transactions consummated under this Agreement.
"NOTICES" means all notices of violation, Liens, complaints,
suits, orders, citations, fines, penalties or other notices.
"NWPA" means the Nuclear Waste Policy Act (42 U.S.C. Section 10101
ET SEQ.).
"OBSOLETE INVENTORY" means any Inventory that is obsolete or
otherwise unusable or unsalable in the ordinary course of business.
"OFF-SITE ENVIRONMENTAL LIABILITIES" means all liabilities,
obligations, claims, damages, costs and expenses, including capital expenditures
and natural resource damage claims (whether arising before, on or after the
Closing Date) incurred (i) as a result of any requirement or violation of any
Environmental Laws; or (ii) as a result of or in connection with any
investigation, inquiry, order, demand, claim, action, citation, fine or other
proceeding by any Governmental Entity or by any other Person, and that in either
case arises as a result of the off-site treatment, storage or disposal (or any
arrangement with respect thereto by Seller) of any Contaminant or other
materials generated or handled in connection with Seller's ownership or
operation of the Real Property, the Assets or the Business.
"ON-SITE ENVIRONMENTAL LIABILITIES" means all liabilities,
obligations, claims, damages, costs and expenses, including capital expenditures
and natural resource damage claims (whether arising before, on or after the
Closing Date) incurred (i) as a result of any requirement of or violation of any
Environmental Laws; or (ii) as a result of or in connection with any
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investigation, inquiry, order, demand, claim, action, citation, fine or other
proceeding by any Governmental Entity or by any other Person and that in either
case arises as a result of Seller's ownership, occupancy or use of the Real
Property, or operation of the Assets or the Business thereon, including the
migration of Contaminants originating from the Real Property in or by means of
soil, groundwater or surface water; PROVIDED, that On-Site Environmental
Liabilities will not include (x) any Off-Site Environmental Liabilities or (y)
any liabilities, obligations, claims, damages, costs and expenses resulting from
any failure by Seller (A) to obtain or comply with permits; (B) to file
required, complete or accurate reports, documents or other paperwork with
Governmental Entities or any other Person; (C) to retain reports, documents,
records or other paperwork for required periods of time; (D) to comply with any
consent orders, consent agreements or other settlement agreements with any
Governmental Entity or any other Person; (E) to perform or to document any
required employee training; (F) to report any release of any material required
to be reported to any Governmental Entity or any other Person; (G) to prepare or
implement plans, including any stormwater pollution prevention plan or spill
prevention and control plan, that meet the requirements of any Environmental
Law; (H) to comply with any emergency preparedness or waste minimization
requirement; (I) to comply with any above ground storage tank regulatory
requirement; or (J) to store material in compliance with Environmental Laws,
except to the extent that any such failure has resulted in the presence of a
Contaminant in or on the soil, groundwater or surface water at the Owned Real
Property.
"OPA" means the Oil Pollution Act of 1990 (33 U.S.C. Section 2701
ET SEQ.).
"OPERATIVE DOCUMENTS" means, collectively, the Agreement, the
Buyer Documents and the Seller Documents.
"OSHA" means the Occupational Safety and Health Act, 29 U.S.C.
Section 651 ET SEQ.) and the regulations thereunder.
"PERMITS" has the meaning specified in SECTION 5.5.
"PERMITTED LIENS" means (i) any Liens securing Taxes; or (ii) any
claims of materialmen, carriers, landlords and like Persons, in each case, which
are not yet due and payable or are being contested in good faith and which,
either individually or in the aggregate, would not interfere with Buyer's
ownership, use or operation of such Assets or conduct of the Business and would
not create the risk of imposition of criminal penalties on Buyer.
"PERSON" means any individual, corporation, partnership, limited
liability company, firm, joint venture, association, joint-stock company, trust,
unincorporated organization, Governmental Entity or other entity.
"PURCHASE PRICE" has the meaning specified in SECTION 3.1.
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"RCRA" means the Resource Conservation and Recovery Act of 1976
(42 U.S.C. Section 6901 ET SEQ.).
"REAL PROPERTY" has the meaning specified in SECTION 5.9.
"REAL PROPERTY LEASES" has the meaning specified in SECTION 5.9.
"RECORDS" means all books and records of Seller relating to the
Business, including all original agreements, files, documents, records, computer
files and programs, operating data, drawings, specifications, environmental
studies, maintenance records, operational manuals and personnel records with
regard to the Continuing Employees.
"REQUIRED CONSENTS" has the meaning specified in SECTION 5.8.
"RETAINED ASSETS" has the meaning specified in SECTION 1.2.
"RETAINED LIABILITIES" has the meaning specified in SECTION 2.2.
"SDWA" means the Safe Drinking Water Act (42 U.S.C. Sections 300f
ET SEQ.).
"SELLER" has the meaning specified in the first introductory
paragraph of the Agreement.
"SELLER DOCUMENTS" means the documents to be delivered on or prior
to the Closing by Seller pursuant to this Agreement or any list of closing
documents satisfactory to Seller and Buyer.
"SELLER INDEMNITIES" has the meaning specified in SECTION 12.2.
"SETTLEMENT AMOUNT" has the meaning specified in SECTION 3,2(c).
The Settlement Agreement has been calculated by the parties with respect to the
Business as: Accounts Receivable plus Inventory less the amount of the secured
liability to Bank of America relating to the Business.
"SMCRA" means the Surface Mining Control and Reclamation Act of
1974 (30 U.S.C. Sections 1201 ET SEQ.).
"STRADDLE PERIOD" means a taxable year or period beginning before
and ending after the close of the day the Closing occurs, which will be treated
on a "closing of the books" basis as two partial periods, one ending on the
close of the day the Closing occurs and the other beginning on the day
immediately following the day on which the Closing occurs, except that Taxes
(such as property Taxes) imposed on a periodic basis will be allocated on a
daily basis.
"TAX" means (i) any federal, state, provincial, local or foreign
net income, gross income, gross receipts, windfall profits, severance,
production, property, sales, use, license,
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excise, franchise, employment, payroll, withholding, alternative or add-on
minimum, AD VALOREM, excise, value added, transfer, stamp, environmental,
registration or inventory tax, or any other tax, custom, duty, governmental
fee or other like assessment or charge of any kind whatsoever, together with
any interest or penalty, imposed by any Governmental Entity; and (ii) any
liability for the payment of amounts with respect to any tax, duty, fee,
assessment and charge described in clause (i) as a result of being a member
of an affiliated, consolidated, combined or unitary group, or as a result of
any obligation under any tax sharing arrangement or tax indemnity agreement.
"TAX RETURN" means any return, report or similar statement
required to be filed with respect to any federal, state, local, provincial or
foreign Taxes (including any attached schedules), including, any information
return, claim for refund, amended return or declaration of estimated Tax.
"TREASURY REGULATIONS" means the regulations of the United States
Department of Treasury promulgated thereunder.
"TSCA" means the Toxic Substances Control Act (15 U.S.C. Section
2601 ET SEQ.).
"UMTRCA" means the Uranium Mill Tailings Radiations Control Act of
1978 (42 U.S.C. Section 7901 ET SEQ.).
" ANNUAL FINANCIAL STATEMENTS" has the meaning specified in
Section 5.16.
"YEAR 2000 COMPLIANT" means that Information Technology is capable
of being used prior to, during and after the calendar year 2000 A.D., that such
Information Technology used during each such time period will accurately
receive, provide and process date/time data (including but not limited to
calculating, comparing and sequencing from, into and between the 20th and 21st
centuries, including the calendar years 1999 and 2000, and leap year
calculations), and that such Information Technology will not malfunction, cease
to function or provide invalid or incorrect results as a result of such
date/time data.
47
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TANISYS TECHNOLOGY, INC.
PROXY--ANNUAL MEETING OF STOCKHOLDERS-MAY 23, 2000
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS.
PLEASE MARK, SIGN, DATE AND RETURN IN THE ENCLOSED ENVELOPE.
The undersigned stockholder(s) of Tanisys Technology, Inc. (the
"Company") hereby appoint(s) Charles T. Comiso and Parrish H. Holmes, Jr., or
each of them, proxies of the undersigned with full power of substitution to
vote at the Annual Meeting of Stockholders of the Company to be held on
May 23, 2000, at 10:00 a.m., Central Daylight Time, in Austin, Texas, and at
any adjournment thereof, the number of votes which the undersigned would be
entitled to cast if personally present:
-----------------------,
1. PROPOSAL TO RATIFY THE SALE OF THE COMPANY'S MEMORY MODULE
MANUFACTURING BUSINESS AND THE STOCK OF TANISYS (EUROPE) LTD. TO
TANISYS OPERATIONS, LP
/ / FOR / / AGAINST / / ABSTAIN
2. PROPOSAL TO AMEND THE COMPANY'S ARTICLES OF CONTINUANCE TO EFFECT A
ONE FOR TWO REVERSE STOCK SPLIT
/ / FOR / / AGAINST / / ABSTAIN
3. PROPOSAL TO RATIFY THE APPOINTMENT OF BROWN, GRAHAM AND COMPANY, P.C.
AS THE COMPANY'S INDEPENDENT PUBLIC ACCOUNTANTS FOR THE FISCAL YEAR
ENDING SEPTEMBER 30, 2000
/ / FOR / / AGAINST / / ABSTAIN
4. To consider and act upon any other matter which may properly come
before the meeting or any adjournment thereof
/ / FOR / / AGAINST / / ABSTAIN
(CONTINUED, AND TO BE SIGNED AND DATED, ON REVERSE SIDE)
<PAGE>
(CONTINUED FROM OTHER SIDE)
The above items of business are more particularly described in the Proxy
Statement dated April 4, 2000, relating to such meeting, receipt of which is
hereby acknowledged.
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER
DIRECTED HEREIN BY THE UNDERSIGNED STOCKHOLDER(S). IF NO DIRECTION IS MADE,
THIS PROXY WILL BE VOTED FOR THE RATIFICATION OF THE SALE TRANSACTION UNDER
PROPOSAL 1; FOR APPROVAL OF THE AMENDMENT TO THE COMPANY'S ARTICLES OF
CONTINUANCE TO EFFECT A ONE FOR TWO REVERSE STOCK SPLIT UNDER PROPOSAL 2; FOR
RATIFICATION OF THE APPOINTMENT OF BROWN, GRAHAM AND COMPANY, P.C. AS THE
COMPANY'S INDEPENDENT PUBLIC ACCOUNTANTS UNDER PROPOSAL 3, AND IN THE
DISCRETION OF THE PROXIES WITH RESPECT TO ANY OTHER MATTER THAT IS PROPERLY
PRESENTED AT THE MEETING.
----------------------------------
----------------------------------
Signature(s) of Stockholder(s)
Please sign your name exactly as it
appears hereon. Joint owners must
each sign. When signing as attorney,
executor, administrator, trustee or
guardian, please give your full title
as it appears hereon.
Dated ______________________, 2000
