<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (date of earliest event reported):
May 16, 1996
AMX CORPORATION
(Exact name of registrant as specified in its charter)
TEXAS 0-26924 75-1815822
(State or other (Commission (I.R.S. Employer
jurisdiction of File Number) Identification No.)
incorporation)
11995 FORESTGATE DRIVE
DALLAS, TEXAS 75243
(Address of principal executive offices, including zip code)
Registrant's telephone number, including area code (214) 644-3048
<PAGE>
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS
On May 16, 1996, AMX Corporation (the "Company") acquired 100 percent of
the stock of SPS International, Inc., a Colorado corporation based in Englewood,
Colorado that is now known as AudioEase, Inc. ("AudioEase"), in exchange for
181,818 shares of the common stock, par value $.01 per share, of the Company
(the "AMX Common Stock"). The transaction was structured as a reverse
triangular merger (the "Merger") pursuant to which: (i) AudioEase was merged
with a wholly owned subsidiary of the Company that was formed by the Company
solely for the purpose of such Merger, with AudioEase as the survivor of such
merger, (ii) the shares of common stock of AudioEase held by John P. Sundquist
and Sandra P. Sundquist, Donald J. Heiskell and Janice T. Heiskell, Bruce R.
Munroe, David A. Daniels, and Thomas J. Gleason, who constituted all of the
shareholders of AudioEase (the "AudioEase Shareholders"), were cancelled and, as
consideration therefor, 181,818 shares of AMX Common Stock were issued to the
AudioEase Shareholders, and (iii) the 1,000 shares of common stock of such
wholly owned subsidiary held by the Company were converted into 1,000 shares of
common stock of AudioEase, with the result that AudioEase became a wholly owned
subsidiary of the Company. The number of shares of AMX Common Stock issued to
the AudioEase Shareholders in the Merger was established through arms-length
negotiations.
AudioEase designs, manufactures, and markets hardware and software products
for upscale home theater systems, whole-home audio/video control and
distribution systems, as well as other electronic home systems. AudioEase will
continue to operate as a wholly owned subsidiary of the Company. The assets of
AudioEase generally consist of inventory, accounts receivable and equipment.
The Company has no present plans to devote the assets of AudioEase to any use
other than the continuation of AudioEase's business.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
(a) Financial statements of business acquired.
See Appendix A attached hereto.
(b) Pro forma financial information.
See Appendix B attached hereto.
(c) Exhibits.
2.1 Agreement of Merger and Plan of Reorganization,
dated as of May 16, 1996, among AMX Corporation,
AMX Acquisition Corporation, SPS International,
Inc. (now known as AudioEase, Inc.), John P.
Sundquist and Sandra P. Sundquist, Donald J.
Heiskell and Janice T. Heiskell, Bruce R. Munroe,
David A. Daniels, and Thomas J. Gleason.*
23.1 Consent of Ernst & Young LLP.
__________________________
* The schedules and exhibits to the Agreement of Merger and Plan of
Reorganization are omitted in reliance on Item 601(b)(2) of Regulation S-K. The
registrant hereby agrees to furnish supplementally a copy of any omitted
schedule or exhibit to the Securities and Exchange Commission upon request.
2
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
AMX CORPORATION
May 30, 1996 By: /s/ Joe Hardt
----------------------------------
Joe Hardt, President
3
<PAGE>
APPENDIX A
<PAGE>
SPS International, Inc. dba AudioEase, Inc.
Financial Statements
Year ended August 31, 1995
CONTENTS
Report of Independent Auditors....................................... A-1
Audited Financial Statements
Balance Sheet........................................................ A-2
Statement of Income and Retained Earnings............................ A-3
Statement of Cash Flows.............................................. A-4
Notes to Financial Statements........................................ A-5
<PAGE>
Report of Independent Auditors
Board of Directors
SPS International, Inc. dba AudioEase, Inc.
We have audited the accompanying balance sheet of SPS International, Inc. dba
AudioEase, Inc. as of August 31, 1995, and the related statements of income
and retained earnings and cash flows for the year then ended. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based
on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of SPS International, Inc. dba
AudioEase, Inc. at August 31, 1995 and the results of its operations and its
cash flows for the year then ended in conformity with generally accepted
accounting principles.
ERNST & YOUNG LLP
Dallas, Texas
April 19, 1996
A-1
<PAGE>
SPS International, Inc. dba AudioEase, Inc.
Balance Sheet
August 31, 1995
ASSETS (NOTE 5)
Current assets:
Accounts receivable (NOTE 8) $322,907
Inventories (NOTE 3) 407,842
Prepaid expenses 6,344
Deferred income tax (NOTE 6) 11,028
--------
Total current assets 748,121
Property and equipment, net (NOTE 4) 95,705
Other assets 1,735
--------
Total assets $845,561
--------
--------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Bank overdraft $ 45,693
Accounts payable (NOTE 8) 145,503
Accrued liabilities 80,093
Income taxes payable 11,208
Line of credit (NOTE 5) 64,158
Notes payable to stockholders (NOTE 5) 163,746
Note payable, current portion (NOTE 5) 4,725
Obligations under capital leases, current portion
(NOTE 5) 14,754
--------
Total current liabilities 529,880
Long-term obligations, net of current portion:
Note payable (NOTE 5) 10,193
Obligations under capital leases (NOTE 5) 37,882
--------
48,075
Deferred income tax (NOTE 6) 3,064
Commitments (NOTE 9)
Stockholders' equity (NOTE 7):
Common stock, $.10 par value:
Authorized shares - 10,000
Issued and outstanding shares - 1,346 135
Additional paid-in capital 200,055
Retained earnings 64,352
--------
Total stockholders' equity 264,542
--------
Total liabilities and stockholders' equity $845,561
--------
--------
SEE ACCOMPANYING NOTES.
A-2
<PAGE>
SPS International, Inc. dba AudioEase, Inc.
Statement of Income and Retained Earnings
Year ended August 31, 1995
Net sales $3,068,819
Cost of goods sold 1,808,703
----------
Gross profit 1,260,116
Selling, general and administrative 932,450
----------
Operating income 327,666
Other income (expense):
Interest income 198
Interest expense (45,430)
----------
Income before income taxes 282,434
Provision for income taxes (NOTE 6) 48,308
----------
Net income 234,126
Retained earnings (deficit), beginning of year (169,774)
----------
Retained earnings, end of year $ 64,352
----------
----------
SEE ACCOMPANYING NOTES.
A-3
<PAGE>
SPS International, Inc. dba AudioEase, Inc.
Statement of Cash Flows
Year ended August 31, 1995
OPERATING ACTIVITIES
Net income $ 234,126
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 15,290
Deferred income taxes (2,900)
Changes in operating assets and liabilities:
Accounts receivable (102,080)
Inventories (75,949)
Prepaid expenses (5,654)
Bank overdraft 37,018
Accounts payable (69,932)
Accrued liabilities 9,064
Income taxes payable 11,208
---------
Net cash provided by operating activities 50,191
INVESTING ACTIVITIES
Acquisition of property and equipment, net (9,581)
Other (243)
---------
Net cash used in investing activities (9,824)
FINANCING ACTIVITIES
Net payments on line of credit (35,000)
Payments on notes payable to stockholder (2,396)
Payments on capital lease obligation (1,022)
Payments on notes payable (1,949)
---------
Net cash used in financing activities (40,367)
---------
Net decrease in cash -
Cash balance at beginning of year -
---------
Cash balance at end of year $ -
---------
---------
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND
FINANCING ACTIVITY
Capital lease obligations of $53,658 were incurred
when the Company entered into leases for certain
furniture and equipment.
Accrued interest payable of $16,724 was rolled into
the note payable to stockholder.
SEE ACCOMPANYING NOTES.
A-4
<PAGE>
SPS International, Inc. dba AudioEase, Inc.
Notes to Financial Statements
August 31, 1995
1. ORGANIZATION
SPS International, Inc. (the Company) was incorporated under the laws of the
State of Colorado on August 4, 1992. The Company operates under the name
AudioEase, Inc. The Company designs and manufactures integrated audio/video
remote control systems for use primarily in luxury residences. The Company
distributes primarily to dealers inside the United States.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the amounts reported in the financial statements and accompanying
notes. Actual results could differ from those estimates.
INVENTORIES
Inventories are stated at the lower of cost (first in, first out method) or
market.
PROPERTY AND EQUIPMENT
Property and equipment, which includes assets under capital leases, is stated
at cost and depreciated and amortized over the lesser of the estimated useful
lives of the assets or the remaining term of the leases. Depreciation and
amortization expense are calculated using the straight-line method over five
to seven years.
REVENUE RECOGNITION
Revenue is recognized upon shipment of the product.
INCOME TAXES
The Company accounts for income taxes using the liability method.
RESEARCH AND DEVELOPMENT COSTS
The Company incurred approximately $110,000 of research and development costs
during the year ended August 31, 1995, which have been included in selling,
general and administrative expenses.
A-5
<PAGE>
SPS International, Inc. dba AudioEase, Inc.
Notes to Financial Statements (Continued)
3. INVENTORIES
Inventories at August 31, 1995 are as follows:
Raw materials $262,853
Work in progress 104,060
Finished goods 40,929
--------
$407,842
--------
--------
4. PROPERTY AND EQUIPMENT
Property and equipment at August 31, 1995 consists of the following:
Automobile $ 17,357
Furniture and equipment 52,681
Equipment under capital lease 44,320
Test equipment 6,570
--------
120,928
Less accumulated depreciation and amortization 25,223
--------
$ 95,705
--------
--------
5. NOTES PAYABLE AND CAPITAL LEASE OBLIGATIONS
Notes payable and capital lease obligations at August 31, 1995 are as follows:
Line of credit:
$100,000 Revolving line of credit agreement with a financial
institution; due April 10, 1996 with interest payable
monthly at the bank's index rate plus 1.5%; collateralized
by all assets and guaranteed by the President of the Company $ 64,158
Note payable:
Note payable to financial institution due in monthly installments
of $481 of principal and interest at 8.5% with final payment due
June 1998; collateralized by an automobile 14,918
Notes payable to stockholders:
Note payable to stockholder due in monthly installments of
$1,700 of principal plus interest at prime plus 2%; secured
by all assets 137,004
Note payable to stockholder due in monthly installments of
$4,700 of principal and interest at 18%; unsecured 26,742
---------
163,746
A-6
<PAGE>
SPS International, Inc. dba AudioEase, Inc.
Notes to Financial Statements (Continued)
5. NOTES PAYABLE AND CAPITAL LEASE OBLIGATIONS (CONTINUED)
Capital leases:
Lease payable due in monthly installments of $252 with final
payment due March 1999 8,316
Lease payable due in monthly installments of $1,575 with
final payment due August 1998 44,320
--------
52,636
--------
295,458
Less current portions 247,383
--------
$ 48,075
--------
--------
In April 1995, the Company entered into a one year revolving line of credit
agreement with a bank. The maximum borrowings under the credit facility are
$100,000. The amount of the unused commitment at August 31, 1995 was $35,842.
In February 1996, the revolving line of credit agreement was increased to
$250,000 and the maturity was extended to November, 1997.
The Company is in default on both of the notes payable to stockholders by
failure of the Company to pay as scheduled on the notes. Thus, the full
amounts of the notes have been classified as current liabilities. The notes
have not been called by the stockholder; however, such notes are scheduled to
be paid in full upon the sale of the Company. (See Note 10).
The aggregate annual maturities of notes payable and capital lease
obligations for each of the five fiscal years after August 31, 1995 are as
follows:
CAPITAL
NOTES LEASE
PAYABLE OBLIGATIONS
-------- -----------
1996 $232,629 $21,817
1997 10,193 21,817
1998 21,817
1999 - 1,460
2000 - -
-------- -------
$242,822 $66,911
Less amount representing interest -------- 14,275
-------- -------
$52,636
-------
-------
A-7
<PAGE>
SPS International, Inc. dba AudioEase, Inc.
Notes to Financial Statements (Continued)
5. NOTES PAYABLE AND CAPITAL LEASE OBLIGATIONS (CONTINUED)
Interest paid amounted to approximately $24,000 for the year ended August 31,
1995.
6. INCOME TAXES
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amount of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components
of the Company's deferred tax liabilities and assets as of August 31, 1995
were depreciation, uniform capitalization, and various accrued expenses.
The components of the income tax provision for the year ended August 31, 1995
were as follows:
Federal income taxes:
Current $43,675
Deferred (2,465)
State income taxes:
Current 7,533
Deferred (435)
-------
$48,308
-------
-------
7. STOCKHOLDER'S EQUITY
There is presently an outstanding option to a minority shareholder of the
Company to purchase up to 10% of the Company's then outstanding common stock
at an exercise price of $454.54 per share. This option will terminate upon
the acquisition by AMX discussed in Note 10.
8. RELATED PARTY TRANSACTIONS
A minority stockholder and director of the Company is the president of an
authorized AudioEase dealership that routinely purchases inventory from the
Company. Sales to the dealership for the year ended August 31, 1995 totaled
$250,414. The Company has an account receivable balance due from the
dealership of $19,221 at August 31, 1995.
A-8
<PAGE>
SPS International, Inc. dba AudioEase, Inc.
Notes to Financial Statements (Continued)
8. RELATED PARTY TRANSACTIONS (CONTINUED)
A minority stockholder of the Company is the President of Del Mar Software,
Inc., a computer software company. The Company has entered into a software
agreement whereby the Company pays Del Mar Software, Inc. royalties for the
development of interface software. The Company paid approximately $91,100 in
royalties related to this agreement during the year ended August 31, 1995 and
owes Del Mar Software, Inc. approximately $10,050 as of August 31, 1995.
9. COMMITMENTS
The Company leases its office and production facilities under an operating
lease which expires in July 1998. Rent expense was approximately $33,600.
Future minimum lease payments under the noncancellable operating lease as of
August 31, 1995 are as follows:
1996 $ 37,570
1997 39,130
1998 37,180
--------
Total minimum lease payments $113,880
--------
--------
10. SUBSEQUENT EVENT
During March, 1996, the Company executed a letter of intent with AMX
Corporation (AMX), under which AMX intends to purchase the Company for $1.5
million in shares of AMX common stock.
During April, 1996, the Company received a demand letter claiming commissions
will be due related to the pending acquisition by AMX. The Company denies any
liability, believes it has meritorious defenses to this claim, and intends to
vigorously defend itself against such claim. The ultimate outcome of this
claim cannot be determined at this time.
A-9
<PAGE>
APPENDIX B
<PAGE>
AMX Corporation and SPS International, Inc. dba AudioEase, Inc.
Pro Forma Condensed Consolidated Financial Information
CONTENTS
Pro Forma Condensed Consolidated Balance Sheet as of March 31, 1996
(Unaudited)........................................................... B-2
Pro Forma Condensed Consolidated Statement of Income for the year
ended March 31, 1996 (Unaudited)...................................... B-3
Notes to Pro Forma Condensed Consolidated Financial Information
(Unaudited)........................................................... B-4
<PAGE>
PRO FORMA CONDENSED CONSOLIDATED FINANCIAL
INFORMATION (UNAUDITED)
On May 16, 1996, AMX Corporation ("the Company") acquired 100 percent of
the stock of SPS International, Inc., a Colorado corporation based in
Englewood, Colorado that is now known as AudioEase, Inc. ("AudioEase"), in
exchange for 181,818 shares of the common stock, par value $.01 per share, of
the Company. AudioEase designs, manufactures, and markets hardware and
software products for upscale home theater systems, whole-home audio/video
control and distribution systems, as well as other electronic home systems.
AudioEase will continue to operate as a wholly-owned subsidiary of the
Company. The acquisition will be accounted for using the purchase method.
The unaudited pro forma condensed consolidated balance sheet of the Company
and AudioEase as of March 31, 1996, reflects adjustments as if the
acquisition had occurred on March 31, 1996.
The unaudited pro forma condensed consolidated statement of income for the
year ended March 31, 1996, reflects adjustments as if the acquisition had
occurred on April 1, 1995.
The unaudited pro forma condensed consolidated balance sheet and statement of
income should be read in conjunction with the separate historical audited
financial statements of the Company and AudioEase and the related notes
appearing elsewhere in this report. The pro forma financial information is
not necessarily indicative of the results that would have been reported had
such events actually occurred on the dates specified, nor is it necessarily
indicative of the future results of the combined company.
B-1
<PAGE>
AMX CORPORATION AND SPS INTERNATIONAL, INC. DBA AUDIOEASE, INC.
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
(UNAUDITED)
<TABLE>
AMX SPS INTERNATIONAL,
CORPORATION INC. DBA PRO FORMA
AS OF AUDIOEASE, INC. AS PRO FORMA AS OF
MARCH 31, OF MARCH 31, ADJUSTMENTS MARCH 31,
1996 1996 (NOTE 2) 1996
----------- ------------------ ----------- ---------
(IN THOUSANDS OF DOLLARS)
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents...... $ 4,859 $ 3 $ - $ 4,862
Receivables.................... 4,260 334 - 4,594
Inventories.................... 2,866 513 - 3,379
Prepaid expenses............... 175 89 - 264
Deferred income tax............ 218 - - 218
------- ------ ------- -------
Total current assets......... 12,378 939 - 13,317
Property and equipment, net...... 1,613 87 - 1,700
Other assets..................... 661 10 310(a) 981
------- ------ ------- -------
Total assets................. $14,652 $1,036 $ 310 $15,998
------- ------ ------- -------
------- ------ ------- -------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable............... $ 1,473 $ 328 $ 101 (a) $ 1,902
Accrued compensation and
sales commissions............. 1,221 19 - 1,240
Other accrued expenses......... 770 298 - 1,068
Income taxes payable........... 350 25 - 375
------- ------ ------- -------
Total current liabilities.... 3,814 670 101 4,585
Long-term debt, less current
portion......................... 55 58 - 113
Deferred income tax.............. 69 - - 69
Shareholders' equity:
Common stock................... 76 - 2 (a) 78
Additional paid-in capital..... 131 200 1,298 (a) 1,629
Retained earnings.............. 10,507 108 (1,091)(a) 9,524
------- ------ ------- -------
Total shareholders' equity... 10,714 308 209 11,231
------- ------ ------- -------
$14,652 $1,036 $310 $15,998
------- ------ ------- -------
------- ------ ------- -------
</TABLE>
See accompanying notes to unaudited pro forma
condensed consolidated financial information.
B-2
<PAGE>
AMX CORPORATION AND SPS INTERNATIONAL, INC. DBA AUDIOEASE, INC.
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF INCOME
(UNAUDITED)
<TABLE>
SPS INTERNATIONAL,
AMX INC. DBA
CORPORATION AUDIOEASE, INC. PRO FORMA
FOR THE YEAR FOR THE TWELVE FOR THE YEAR
ENDED MONTHS ENDED PRO FORMA ENDED
MARCH 31, MARCH 31, ADJUSTMENTS MARCH 31,
1996 1996 (NOTE 3) 1996
------------- ------------------ ------------ -------------
(IN THOUSANDS OF DOLLARS EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
Net sales................... $32,730 $3,027 $ - $35,757
Cost of sales............... 12,369 1,671 (150)(a) 13,890
------- ------ ------ -------
20,361 1,356 150 21,867
Selling, general and
administrative expenses.... 15,137 1,129 44 (b) 16,310
------- ------ ------ -------
Operating income............ 5,224 227 106 5,557
Other income (expense):
Interest expense.......... (535) (52) - (587)
Other income (expense),
net...................... 117 - - 117
------- ------ ------ -------
Income before income taxes.. 4,806 175 106 5,087
Income tax provision........ 1,792 73 54 (c) 1,919
------- ------ ------ -------
Net income.................. 3,014 $ 102 $ 52 3,168
------ ------
------ ------
Preferred stock dividends... (627) (627)
Accretion of preferred
stock...................... (170) (170)
Redemption of preferred
stock...................... (2,356) (2,356)
-------- -------
Net loss applicable to
common shareholders........ $ (139) $ 15
-------- -------
-------- -------
Earnings (loss) per share:
Primary................... $ (.02) $ -
-------- -------
-------- -------
Common and common
equivalent shares
outstanding................ 6,654 6,836
-------- -------
-------- -------
</TABLE>
See accompanying notes to unaudited pro forma
condensed consolidated financial information.
B-3
<PAGE>
AMX CORPORATION AND SPS INTERNATIONAL, INC. DBA AUDIOEASE, INC.
NOTES TO PRO FORMA CONDENSED CONSOLIDATED FINANCIAL INFORMATION
(UNAUDITED)
NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES AND BASIS OF PRESENTATION
The accompanying historical financial statements of the Company and AudioEase
have been derived from financial statements prepared in accordance with
generally accepted accounting principles . The Company's historical financial
statements as of and for the year ended March 31, 1996 used in the pro forma
financial statements are derived from the Company's audited financial
statements for the fiscal years then ended. The AudioEase historical financial
statements as of and for the twelve months ended March 31, 1996 used in the pro
forma financial statements are based on the unaudited balance sheet of AudioEase
at March 31, 1996 and on the audited financial statements for the year ended
August 31, 1995, adjusted using interim financial statements to reflect the
twelve months ended March 31, 1996. AudioEase's interim financial statements
are prepared on the basis of generally accepted accounting principles and
include all adjustments, consisting of only normal recurring adjustments,
necessary for a fair presentation of such financial information.
The pro forma adjustments are based on the Company's preliminary allocation
of the purchase price of AudioEase to the net assets acquired. While
preliminary, management of AMX believes any final revisions to the purchase
price are unlikely to be materially different from amounts presented herein.
NOTE 2 - PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET ADJUSTMENT
This column reflects the following adjustment:
(a) To record the consideration paid and the net assets acquired at their
fair market values.
The consideration paid by the Company to acquire AudioEase was 181,818 shares
of the Company's common stock valued at $1,500,000 based on a 10-day average
of the closing price of the Company's common stock as reported on the NASDAQ,
plus expenses associated with the acquisition of $101,000 for a total
consideration of $1,601,000. Of this consideration, $308,000 was allocated to
the net assets of AudioEase based on their book value, $983,000 was allocated
to in-process research and development and charged off to earnings and
retained earnings (see Note 4), and $310,000 was allocated to intangibles.
The allocations are based on the preliminary results of an independent
appraisal that is in process.
NOTE 3 - PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF INCOME ADJUSTMENTS
This column reflects the following adjustments:
(a) To record cost savings of $150,000 anticipated when AMX discounts with
like vendors are applied to AudioEase's material purchases. AMX has in
place and is executing its plan to achieve such anticipated reductions
in costs of purchased materials.
(b) To record amortization ($44,000) of amounts allocated to intangibles
using estimated lives of 5-7 years.
(c) To record the income tax effect ($54,000) of the pro forma adjustments
after consideration of non-deductible intangible asset amortization.
NOTE 4 - ONE-TIME ADJUSTMENTS
Approximately $1,000,000 of the purchase price of AudioEase is expected to be
allocated to in-process research and development based on the preliminary
results of an independent appraisal that is in process. In accordance with
generally accepted accounting principles, this amount will be expensed in a
one-time charge to the Company's consolidated earnings as of the date of the
consummation of the combination. This amount has not been reflected in the
Pro Forma Condensed Consolidated Statement of Income because it is a one-time
adjustment that will not be recurring.
B-4
<PAGE>
EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION PAGE NO.
- - ----------- ----------- --------
2.1 Agreement of Merger and Plan of Reorganization,
dated as of May 16, 1996, among AMX Corporation,
AMX Acquisition Corporation, SPS International,
Inc. (now known as AudioEase, Inc.), John P.
Sundquist and Sandra P. Sundquist, Donald J.
Heiskell and Janice T. Heiskell, Bruce R.
Munroe, David A. Daniels, and Thomas J. Gleason.
23.1 Consent of Ernst & Young LLP.
<PAGE>
EXHIBIT 2.1
TO
FORM 8-K
FOR
AMX CORPORATION
<PAGE>
- - ------------------------------------------------------------------------------
- - ------------------------------------------------------------------------------
AGREEMENT OF MERGER AND PLAN OF REORGANIZATION
among
AMX CORPORATION,
AMX ACQUISITION CORPORATION,
SPS INTERNATIONAL, INC.,
JOHN P. SUNDQUIST,
SANDRA P. SUNDQUIST,
DONALD J. HEISKELL,
JANICE T. HEISKELL,
BRUCE R. MUNROE,
DAVID A. DANIELS,
and
THOMAS J. GLEASON
May 16, 1996
- - ------------------------------------------------------------------------------
- - ------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
Page
----
ARTICLE 1
THE MERGER. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.1 The Merger. . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.2 Effective Time. . . . . . . . . . . . . . . . . . . . . . . . . 1
1.3 Effect of the Merger. . . . . . . . . . . . . . . . . . . . . . 2
1.4 Articles of Incorporation: Bylaws . . . . . . . . . . . . . . . 2
1.5 Directors and Officers. . . . . . . . . . . . . . . . . . . . . 2
1.6 Shares to be issued; Effect on Capital Stock. . . . . . . . . . 2
1.7 Dissenters' Shares. . . . . . . . . . . . . . . . . . . . . . . 4
1.8 Surrender of Certificates . . . . . . . . . . . . . . . . . . . 4
1.9 No Further Ownership Rights in Company Common Stock . . . . . . 5
1.10 Tax Consequences Treatment. . . . . . . . . . . . . . . . . . . 5
1.11 Taking of Necessary Action: Further Action. . . . . . . . . . . 5
ARTICLE 2
REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND THE SHAREHOLDERS. . . . 6
2.1 Organization of the Company . . . . . . . . . . . . . . . . . . 6
2.2 Company Capital Structure . . . . . . . . . . . . . . . . . . . 6
2.3 Subsidiaries. . . . . . . . . . . . . . . . . . . . . . . . . . 7
2.4 Authority . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
2.5 Company Financial Statements. . . . . . . . . . . . . . . . . . 7
2.6 No Undisclosed Liabilities. . . . . . . . . . . . . . . . . . . 8
2.7 No Changes. . . . . . . . . . . . . . . . . . . . . . . . . . . 8
2.8 Tax and Other Returns and Reports . . . . . . . . . . . . . . . 9
2.9 Restrictions on Business Activities . . . . . . . . . . . . . .10
2.10 Title of Properties: Absence of Liens and
Encumbrances Condition of Equipment . . . . . . . . . . . . . .10
2.11 Intellectual Property . . . . . . . . . . . . . . . . . . . . .11
2.12 Agreements, Contracts and Commitments . . . . . . . . . . . . .13
2.13 Interested Party Transactions . . . . . . . . . . . . . . . . .15
2.14 Governmental Authorization. . . . . . . . . . . . . . . . . . .15
2.15 Litigation. . . . . . . . . . . . . . . . . . . . . . . . . . .15
2.16 Accounts Receivable . . . . . . . . . . . . . . . . . . . . . .15
2.17 Minute Book . . . . . . . . . . . . . . . . . . . . . . . . . .16
2.18 Environmental and OSHA. . . . . . . . . . . . . . . . . . . . .16
2.19 Brokers' and Finders' Fees. . . . . . . . . . . . . . . . . . .17
2.20 Labor Matters . . . . . . . . . . . . . . . . . . . . . . . . .17
2.21 Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . .17
2.22 Inventory . . . . . . . . . . . . . . . . . . . . . . . . . . .18
2.23 Compliance with Laws. . . . . . . . . . . . . . . . . . . . . .18
2.24 Product Warranty. . . . . . . . . . . . . . . . . . . . . . . .19
2.25 FIRPTA. . . . . . . . . . . . . . . . . . . . . . . . . . . . .19
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2.26 Employee Benefit Plans. . . . . . . . . . . . . . . . . . . . .19
2.27 Product Liability . . . . . . . . . . . . . . . . . . . . . . .21
2.28 Representations Complete. . . . . . . . . . . . . . . . . . . .21
2.29 Investment Representations. . . . . . . . . . . . . . . . . . .21
ARTICLE 3
REPRESENTATIONS AND WARRANTIES
OF PARENT AND MERGER SUB. . . . . . . . . . . . . . . . . . . . . . . . .23
3.1 Organization, Standing and Power. . . . . . . . . . . . . . . .24
3.2 Capital Structure . . . . . . . . . . . . . . . . . . . . . . .24
3.3 Authority . . . . . . . . . . . . . . . . . . . . . . . . . . .24
3.4 SEC Documents; Parent Financial Statements. . . . . . . . . . .25
3.5 Brokers and Finders' Fees . . . . . . . . . . . . . . . . . . .25
3.6 Ownership of Company Common Stock . . . . . . . . . . . . . . .25
3.7 Litigation. . . . . . . . . . . . . . . . . . . . . . . . . . .25
3.8 Compliance with Laws. . . . . . . . . . . . . . . . . . . . . .26
3.9 Representations Complete. . . . . . . . . . . . . . . . . . . .26
ARTICLE 4
CONDUCT PRIOR TO THE EFFECTIVE TIME . . . . . . . . . . . . . . . . . . .26
4.1 Conduct of Business of the Company. . . . . . . . . . . . . . .26
4.2 No Solicitation . . . . . . . . . . . . . . . . . . . . . . . .28
ARTICLE 5
ADDITIONAL AGREEMENTS . . . . . . . . . . . . . . . . . . . . . . . . . .29
5.1 Registration Statement. . . . . . . . . . . . . . . . . . . . .29
5.2 Shareholder Consent . . . . . . . . . . . . . . . . . . . . . .29
5.3 Access to Information . . . . . . . . . . . . . . . . . . . . .29
5.4 Confidentiality . . . . . . . . . . . . . . . . . . . . . . . .30
5.5 Expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . .30
5.6 Public Disclosure . . . . . . . . . . . . . . . . . . . . . . .30
5.7 Consents. . . . . . . . . . . . . . . . . . . . . . . . . . . .30
5.8 Compliance With Rule 144 and the Securities Act . . . . . . . .31
5.9 Legal Requirements. . . . . . . . . . . . . . . . . . . . . . .31
5.10 Blue Sky Laws . . . . . . . . . . . . . . . . . . . . . . . . .31
5.11 Best Efforts, Additional Documents and Further Assurances . . .32
5.12 Covenants Not to Compete. . . . . . . . . . . . . . . . . . . .32
5.13 Sundquist Severance Agreement . . . . . . . . . . . . . . . . .33
5.14 Nasdaq Listing. . . . . . . . . . . . . . . . . . . . . . . . .33
5.15 Shareholder Personal Guarantees; Shareholder Notes. . . . . . .33
ARTICLE 6
CONDITIONS TO THE MERGER. . . . . . . . . . . . . . . . . . . . . . . . .34
6.1 Conditions to Obligations of the Company and the Shareholders .34
6.2 Conditions to the Obligations of Parent and Merger Sub. . . . .35
ii
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ARTICLE 7
SURVIVAL OF REPRESENTATIONS AND WARRANTIES; HOLDBACK. . . . . . . . . . .38
7.1 Survival of Representations and Warranties: Indemnification . .38
7.2 Holdback for Claims . . . . . . . . . . . . . . . . . . . . . .39
7.3 Additional Provisions Relating to Indemnification . . . . . . .43
7.4 No Claims by Shareholder Against the Company. . . . . . . . . .43
ARTICLE 8
TERMINATION, AMENDMENT AND WAIVER . . . . . . . . . . . . . . . . . . . .43
8.1 Termination . . . . . . . . . . . . . . . . . . . . . . . . . .43
8.2 Effect of Termination . . . . . . . . . . . . . . . . . . . . .44
8.3 Amendment . . . . . . . . . . . . . . . . . . . . . . . . . . .44
8.4 Extension; Waiver . . . . . . . . . . . . . . . . . . . . . . .45
ARTICLE 9
GENERAL PROVISIONS. . . . . . . . . . . . . . . . . . . . . . . . . . . .45
9.1 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . .45
9.2 Interpretation. . . . . . . . . . . . . . . . . . . . . . . . .46
9.3 Counterparts. . . . . . . . . . . . . . . . . . . . . . . . . .46
9.4 Miscellaneous . . . . . . . . . . . . . . . . . . . . . . . . .46
9.5 Governing Law . . . . . . . . . . . . . . . . . . . . . . . . .46
9.6 Attorneys' Fees . . . . . . . . . . . . . . . . . . . . . . . .47
9.7 Arbitration . . . . . . . . . . . . . . . . . . . . . . . . . .47
9.8 Rules of Construction . . . . . . . . . . . . . . . . . . . . .47
9.9 Definitions . . . . . . . . . . . . . . . . . . . . . . . . . .47
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LIST OF EXHIBITS
Exhibit 1.4(a) Form of Articles of Merger
Exhibit 1.7(e) Certain Provisions of Colorado Business Corporation Act
Exhibit 5.1 Form of Registration Rights Agreement
Exhibit 5.13 Form of Sundquist Severance Agreement
Exhibit 6.1(f) Form of Opinion of Counsel for Parent
Exhibit 6.2(g) Form of Modification to Del Mar License Agreement
Exhibit 6.2(i) Form of Opinion of Counsel for Company and Shareholders
Exhibit 6.2(l) Form of Confidentiality and Assignment of Inventions Agreement
Exhibit 6.2(o) Form of Consent and Cancellation
Exhibit 6.2(p) Form of Employee Release
LIST OF SCHEDULES
Schedule 2.5(a) Financial Statements
Schedule 2.7 Changes Since Date of Company Balance Sheet
Schedule 2.8 Taxes
Schedule 2.10(a) Leased Real Property
Schedule 2.10(b) Liens
Schedule 2.10(c) Equipment
Schedule 2.11(a) Intellectual Property
Schedule 2.12 Agreements
Schedule 2.14 Governmental Authorizations
Schedule 2.15 Litigation
Schedule 2.20 Employees
Schedule 2.21 Insurance
Schedule 2.24 Product Warranties
Schedule 2.26 Employee Benefit Plans
Schedule 4.1 Interim Conduct of Business
iv
<PAGE>
AGREEMENT OF MERGER AND PLAN OF REORGANIZATION
This AGREEMENT OF MERGER AND PLAN OF REORGANIZATION (this "Agreement")
is made and entered into as of May 16, 1996, among AMX Corporation, a Texas
corporation ("Parent"), AMX Acquisition Corporation, a Colorado corporation
and a wholly owned subsidiary of Parent ("Merger Sub"), SPS International,
Inc., a Colorado corporation doing business as AudioEase (the "Company"), and
John P. Sundquist and Sandra P. Sundquist (collectively, "Sundquist"), Donald
J. Heiskell and Janice T. Heiskell (collectively, "Heiskell"), Bruce R. Munroe
("Munroe"), David A. Daniels ("Daniels"), and Thomas J. Gleason ("Gleason"),
who constitute all of the shareholders of the Company (collectively, the
"Shareholders").
RECITALS
A. The Boards of Directors of each of the Company, Parent and Merger
Sub believe it is in the best interests of each company and their respective
shareholders that the Company and Merger Sub combine into a single company
through the statutory merger of Merger Sub with and into the Company (the
"Merger"), with the Company surviving such Merger, and, in furtherance
thereof, have approved the Merger.
B. Pursuant to the Merger, among other things, the outstanding shares
of Company Common Stock (as hereinafter defined) shall be converted into
shares of Parent Common Stock (as hereinafter defined) at the conversion rate
determined herein.
C. The Company, Parent, Merger Sub and certain Shareholders desire to
make certain representations and warranties and other agreements in connection
with the Merger.
D. The parties intend, by executing this Agreement, to adopt a plan of
reorganization within the meaning of Section 368 of the Internal Revenue Code
of 1986, as amended (the "Code").
NOW, THEREFORE, in consideration of the covenants, promises and
representations set forth herein, and for other good and valuable consideration,
the parties agree as follows:
ARTICLE 1
THE MERGER
1.1 THE MERGER. At the Effective Time (as defined in Section 1.2) and
subject to and upon the terms and conditions of this Agreement and the
applicable laws of the State of Colorado, the Merger Sub shall be merged with
and into the Company, the separate corporate existence of the Merger Sub shall
cease and the Company shall continue as the surviving corporation. The Company,
as the surviving corporation after the Merger, is hereinafter sometimes referred
to as the "Surviving Corporation."
1.2 EFFECTIVE TIME. As promptly as practicable after the satisfaction
or waiver of the conditions set forth in Article 6, the parties hereto shall
cause the Merger to be consummated by
<PAGE>
filing Articles of Merger (the "Articles of Merger") with the Secretary of
State of Colorado in such form as required by, and executed in accordance
with the relevant provisions of, the laws of the State of Colorado (the time
at which such filing has been made in Colorado shall be referred to herein as
the "Effective Time"). The closing of the transactions contemplated hereby
(the "Closing") shall take place at 10:00 a.m. at such time and place as the
Parent and the Company shall determine, on the date of the Effective Time
(the "Closing Date").
1.3 EFFECT OF THE MERGER. At the Effective Time, the effect of the
Merger shall be as provided in the applicable provisions of the laws of the
State of Colorado. Without limiting the generality of the foregoing, and
subject thereto, at the Effective Time all the estate, property, rights,
privileges, powers and franchises of the Merger Sub and the Company shall
vest in the Surviving Corporation, and all debts, liabilities and obligations
of the Merger Sub and the Company shall become the debts, liabilities and
obligations of the Surviving Corporation.
1.4 ARTICLES OF INCORPORATION: BYLAWS.
(a) The Articles of Merger shall be in substantially the form
attached hereto as Exhibit 1.4(a), and shall provide that at the Effective
Time the Articles of Incorporation of the Surviving Corporation shall be
amended as therein provided (including without limitation to change the name
of the Surviving Corporation to AudioEase, Inc.), and may thereafter be amended
as provided by law and such Articles of Incorporation.
(b) The Bylaws of the Company, as in effect immediately prior to
the Effective Time, shall be the Bylaws of the Surviving Corporation until
thereafter amended.
1.5 DIRECTORS AND OFFICERS. The directors of the Surviving Corporation
shall be Dave Hill, Joe Hardt, Scott Miller, Donald J. Heiskell, and David A.
Daniels, each to hold such position in accordance with the Articles of
Incorporation and Bylaws of the Surviving Corporation, and the officers of
the Surviving Corporation shall be Dave Hill, President and Secretary, and
Derak Bobo, Treasurer, in each case until their respective successors are
duly elected or appointed and qualified.
1.6 SHARES TO BE ISSUED; EFFECT ON CAPITAL STOCK. Pursuant to the
Articles of Merger, all issued and outstanding shares of the common stock,
par value $0.10 per share, of the Company (the "Company Common Stock") shall
be converted into that aggregate number of shares of the common stock, par
value $0.01 per share, of Parent (the "Parent Common Stock") (such number of
shares being referred to herein as the "Merger Consideration") that is equal
to (a) $1,500,000, divided by (b) the Ten-Day Average Price. For purposes of
this Agreement, the "Ten-Day Average Price" shall mean the average closing
price of a share of Parent Common Stock for the ten trading day period ending
on (and including) May 10, 1996, as reported on the Nasdaq National Market.
Subject to the terms and conditions of this Agreement, as of the Effective
Time, by virtue of the Merger and without any action on the part of Merger
Sub, the Company or the holder of any of the following securities:
2
<PAGE>
(a) CONVERSION OF COMPANY COMMON STOCK. Except as provided in
Section 1.6(e), each share of Company Common Stock issued and outstanding
immediately prior to the Effective Time (other than any shares of Company
Common Stock to be canceled pursuant to Section 1.6(b) and any Dissenters'
Shares (as defined and to the extent provided in Section 1.7(a)) will be
converted automatically into the right to receive that number of shares of
Parent Common Stock equal to the Conversion Ratio (as defined below). Upon
surrender of the certificate representing such share of Company Common Stock
in the manner provided in Section 1.8, Parent will instruct its transfer
agent to issue to the surrendering Shareholder certificates evidencing Parent
Common Stock.
(b) CANCELLATION OF PARENT-OWNED AND COMPANY-OWNED STOCK. Each
share of Company Common Stock held in treasury by the Company or owned by
Merger Sub, Parent, or any direct or indirect wholly owned subsidiary of
Parent or of the Company immediately prior to the Effective Time shall be
canceled and extinguished without any conversion thereof.
(c) CAPITAL STOCK OF MERGER SUB. Each share of the common stock,
par value $0.01 per share, of Merger Sub issued and outstanding immediately
prior to the Effective Time shall be converted into one validly issued, fully
paid and nonassessable share of the common stock, par value $0.01 per share,
of the Surviving Corporation. Each stock certificate of Merger Sub
evidencing ownership of any such shares shall continue to evidence ownership
of such shares of capital stock of the Surviving Corporation.
(d) ADJUSTMENTS TO CONVERSION RATIO. The Conversion Ratio shall
be adjusted to reflect fully the effect of any stock split, reverse split,
stock dividend (including any dividend or distribution of securities
convertible into Parent Common Stock or Company Common Stock),
reorganization, recapitalization or other like change with respect to Parent
Common Stock or Company Common Stock occurring after the date hereof and
prior to the Effective Time.
(e) FRACTIONAL SHARES. No fraction of a share of Parent Common
Stock will be issued, but in lieu thereof each holder of shares of Company
Common Stock who would otherwise be entitled to a fraction of a share of
Parent Common Stock (after aggregating all fractional shares of Parent Common
Stock to be received by such holder) shall be entitled to receive from Parent
promptly after the Effective Time an amount of cash equal to the per share
market value of Parent Common Stock (based on the Ten-Day Average Price)
multiplied by the fraction of a share of Parent Common Stock to which such
holder would otherwise be entitled.
(f) CONVERSION RATIO. The "Conversion Ratio" shall mean the
quotient (which shall be rounded off at the nearest one hundred thousandth)
obtained by dividing (i) the Merger Consideration by (ii) the number of
shares of Company Common Stock issued and outstanding at the Closing.
3
<PAGE>
1.7 DISSENTERS' SHARES.
(a) Notwithstanding any provision of this Agreement to the
contrary, any shares ("Dissenters' Shares") of capital stock of the Company
with respect to which the holder thereof ("Dissenter") ultimately receives
payment pursuant to Articles 7-113-201 through 209 of the Colorado Business
Corporation Act ("CBCA"), shall not be converted into or represent a right to
receive Parent Common Stock pursuant to Section 1.6, but the holder thereof
shall only be entitled to such rights as are granted by the CBCA.
(b) Notwithstanding the provisions of Section 1.7(a), if after the
Effective Time a Dissenter loses the right to receive payment pursuant to the
CBCA, then upon the occurrence of such event, such Dissenters' Shares shall
automatically be converted into and represent only the right to receive
Parent Common Stock upon surrender of the certificate representing such
shares without prejudice to any corporate proceedings which may have been
taken during the interim period between the Effective Time and the occurrence
of such event, and such shareholder shall be entitled to receive any
dividends or other distributions made to shareholders during such interim
period.
(c) With respect to any Dissenters' Shares, the Company shall give
Parent (i) prompt notice of any written demands for appraisal of any shares
of capital stock of the Company, withdrawals of such demands, and any other
instruments served on the Company pursuant to the CBCA and received by the
Company and (ii) the opportunity to participate in all negotiations and
proceedings which take place prior to the Effective Time with respect to
demands for appraisal under the CBCA. The Company shall not, except with the
prior written consent of Parent, voluntarily make any payment before the
Effective Time with respect to any demands for appraisal of capital stock of
the Company or offer to settle or settle any such demands.
(d) All Dissenters' Shares acquired by the Company shall be
canceled after payment therefor has been made in accordance with the CBCA.
(e) Notice is hereby given to each Shareholder that consummation
of the Merger and the transactions contemplated thereby will create
dissenter's rights under Section 7-113-102 of the CBCA, and each Shareholder
hereby (i) acknowledges that such notice is sufficient for purposes of
Sections 7-113-201 and 7-113-203 of the CBCA (and to the extent such notice
does not technically comply with the express requirements of those sections
of the CBCA, such discrepancies are hereby waived in all respects by each of
the Shareholders), and (ii) consents and agrees that he will not exercise any
of his dissenter's rights under the CBCA that arise by virtue of the Merger
and the transactions contemplated thereby. Attached hereto as Exhibit 1.7(e)
is a copy of Article 7-113 of the CBCA, and each Shareholder acknowledges
that he has received a copy of the same.
1.8 SURRENDER OF CERTIFICATES. At the Closing, each Shareholder will
deliver to Parent stock certificates representing all outstanding shares of
Company Common Stock and Parent will immediately instruct its transfer agent
to issue and deliver to each such Shareholder, within two business days
following the Closing, certificates representing the number of shares of
Parent
4
<PAGE>
Common Stock as is determined by (i) multiplying the shares of Company Common
Stock delivered by each such Shareholder by the Conversion Ratio and (ii) in
the case of shares to be issued to Sundquist, subtracting the number of
shares of Parent Common Stock to be retained by Parent in accordance with
Section 7.2.
1.9 NO FURTHER OWNERSHIP RIGHTS IN COMPANY COMMON STOCK. All shares of
Parent Common Stock issued upon the conversion of shares of Company Common
Stock in accordance with the terms hereof shall be deemed to have been issued
in full satisfaction of all rights pertaining to such shares of Company
Common Stock, and except as may be required by law, there shall be no further
registration of transfers on the records of the Surviving Corporation of
shares of Company Common Stock which were outstanding immediately prior to
the Effective Time. Except as otherwise provided in Section 1.7, if after
the Effective Time, certificates are presented to the Surviving Corporation
for any reason, they shall be canceled and exchanged as provided in this
Article 1.
1.10 TAX CONSEQUENCES TREATMENT. It is intended by the parties hereto
that the Merger shall constitute a reorganization within the meaning of
Section 368 of the Code. The Company, Parent, Merger Sub and the
Shareholders each agree that they will not take or omit to take any action at
any time within five years after the date hereof which act or omission would
cause the Merger not to qualify as a reorganization within the meaning of
Section 368 of the Code, including without limitation:
(a) any sale, exchange, distribution, transfer or other
disposition of the assets of the Company that would cause the Merger to fail
to satisfy the "continuity of business enterprise" requirement of Section
1.368(d) of the Income Tax Regulations or the "substantially all the
properties" requirement of Section 368(a)(2)(E) of the Code;
(b) any reacquisition of shares of Company Common Stock; and
(c) any issuance of additional shares of Company Common Stock that
would result in Parent failing to obtain or losing control of the Company
within the meaning of Section 368(c) of the Code.
1.11 TAKING OF NECESSARY ACTION: FURTHER ACTION. If, at any time after
the Effective Time, any such further action is necessary or desirable to
carry out the purposes of this Agreement and to vest the Surviving
Corporation with full right, title and possession to all assets, property,
rights, privileges, powers and franchises of the Company and Merger Sub, the
officers and directors of the Company and Merger Sub are fully authorized in
the name of their respective corporations or otherwise to take, and will
take, all such lawful and necessary action.
5
<PAGE>
ARTICLE 2
REPRESENTATIONS AND WARRANTIES OF
THE COMPANY AND THE SHAREHOLDERS
Except as set forth below in Section 2.29, the Company and Sundquist,
each jointly and severally (and Heiskell, but solely with respect to the
representations and warranties made in Section 2.11), represents and warrants
to Parent and Merger Sub as of the date hereof and as of the Closing Date as
set forth below, subject only to the exceptions specifically disclosed in the
schedules supplied and certified by the Company to Parent (the "Company
Schedules").
2.1 ORGANIZATION OF THE COMPANY. The Company is a corporation duly
organized, validly existing and in good standing under the laws of the State
of Colorado. The Company has the corporate power to own its property and to
carry on its business as now being conducted and as proposed by the Company
to be conducted. The Company is duly qualified to do business and in good
standing as a foreign corporation in each jurisdiction in which the failure
to be so qualified would have a material adverse effect on the business,
assets (including intangible assets), financial condition, or results of
operations (a "Material Adverse Effect") of the Company. The Company has
delivered a true, complete and correct copy of its Articles of Incorporation
and Bylaws (or similar governing instruments), each as amended to date, to
counsel for Parent.
2.2 COMPANY CAPITAL STRUCTURE.
The authorized capital stock of the Company consists of 10,000 shares of
Common Stock, par value $0.10 per share. There are 1,384 shares of Company
Common Stock issued and outstanding, which are held beneficially and of
record by the Shareholders as follows: (i) Sundquist, 900 shares; (ii)
Heiskell, 138 shares; (iii) Munroe, 138 shares; (iv) Daniels, 104 shares; and
(v) Gleason, 104 shares. All outstanding shares of the Company Common Stock
are duly authorized, validly issued, fully paid and nonassessable and not
subject to preemptive rights created by statute, the Articles of
Incorporation or Bylaws of the Company or any agreement to which the Company
is a party or is bound. As of the date hereof there are, and as of the
Closing Date there will be, no options, warrants, calls, rights, commitments
or agreements of any character to which the Company is a party or by which it
is bound obligating the Company to issue, deliver, sell, repurchase or
redeem, or cause to be issued, delivered, sold, repurchased or redeemed, any
shares of the capital stock of the Company or obligating the Company to
grant, extend or enter into any such option, warrant, call, right, commitment
or agreement, except for an option held by Heiskell on the date hereof to
acquire 110 shares of Company Common Stock, which option shall be cancelled
on or prior to the Closing Date. The Shareholders are the record and
beneficial owners of all of the shares of Company Common Stock, free and
clear of any liens, encumbrances, pledges, security interests, voting
agreements or claims of any nature whatsoever.
6
<PAGE>
2.3 SUBSIDIARIES. The Company has no subsidiaries or affiliated
companies and does not otherwise own any shares of stock, or any interest in,
or control, directly or indirectly, any other corporation, partnership,
association, joint venture or business entity.
2.4 AUTHORITY. The Company has all requisite corporate power and
authority to enter into this Agreement and to consummate the Merger and the
other transactions contemplated hereby. The execution and delivery of this
Agreement and the consummation of the Merger and the other transactions
contemplated hereby have been duly authorized by all necessary corporate
action on the part of the Company, including but not limited to the approval
by all of the Shareholders without any dissenting votes. This Agreement has
been duly executed and delivered by the Company and the Shareholders and
constitutes the valid and binding obligation of the Company and the
Shareholders. The execution and delivery of this Agreement by the Company
and the Shareholders do not, and the consummation of the Merger and the other
transactions contemplated hereby will not, conflict with or result in any
violation of, or default under (with or without notice or lapse of time, or
both), or give rise to a right of termination, cancellation or acceleration
of any obligation or loss of a material benefit under (i) any provision of
the Articles of Incorporation or Bylaws of the Company or (ii) any material
mortgage, indenture, lease, contract or other agreement or instrument,
permit, concession, franchise, license, judgment, order, decree, statute,
law, ordinance, rule or regulation applicable to the Company, the
Shareholders or their properties or assets. No consent, approval, order or
authorization of, or registration, declaration or filing with, any court,
administrative agency or commission or other governmental authority or
instrumentality ("Governmental Entity"), or other person or entity is
required by or with respect to the Company in connection with the execution
and delivery of this Agreement or the consummation of the transactions
contemplated hereby, except for the filing of the Articles of Merger with the
Secretary of State of Colorado.
2.5 COMPANY FINANCIAL STATEMENTS.
(a) Schedule 2.5(a) sets forth (i) the Company's audited financial
statements (balance sheets, income statements and statements of cash flows)
as of and for the fiscal year ended August 31, 1995, (ii) the Company's
compiled financial statements as of and for the fiscal years ended August 31,
1994 and 1993 (which have not been audited), and (iii) the Company's
unaudited financial statements for the seven months ended March 31, 1996
(collectively, the "Financial Statements"). The Financial Statements are
complete and correct in all material respects and, except as set forth in
Schedule 2.5(a), have been prepared in accordance with generally accepted
accounting principles ("GAAP") applied on a basis consistent throughout the
periods indicated and consistent with each other (except that the unaudited
Financial Statements do not contain the notes necessary to be in accordance
with generally accepted accounting principles). The Financial Statements
present fairly the financial condition and operating results of the Company
as of the dates and during the periods indicated therein. The unaudited
balance sheet of the Company as of March 31, 1996 is hereinafter referred to
as the "Company Balance Sheet."
(b) The financial projections regarding the business of the
Company for the fiscal years ended August 31, 1996, 1997 and 1998 attached as
Appendix C to the Company's Winter 1996
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Business Plan (the "Projections"), a true, correct and complete copy of which
has been provided to Parent, have been prepared by the Company and were
prepared in good faith, based on reasonable assumptions, although no
assurances are given that the Company will achieve the results projected
therein.
2.6 NO UNDISCLOSED LIABILITIES. The Company does not have any
liabilities or obligations, either accrued or contingent (whether or not
required to be reflected in financial statements in accordance with generally
accepted accounting principles), and whether due or to become due, except:
(i) liabilities reflected in the Company Balance Sheet, (ii) liabilities
specifically described in the Company Schedules or (iii) liabilities not
exceeding $10,000 in the aggregate incurred in the ordinary course of
business since the date of the Company Balance Sheet.
2.7 NO CHANGES. Except as set forth in Schedule 2.7, since the date of
the Company Balance Sheet there has not been, occurred or arisen any:
(a) transaction by the Company except in the ordinary course of
business as conducted on that date;
(b) capital expenditure by the Company, either individually or in
the aggregate, exceeding $5,000;
(c) destruction, damage to, or loss of any assets (including
without limitation intangible assets) of the Company (whether or not covered
by insurance), either individually or in the aggregate, exceeding $5,000;
(d) labor trouble or claim of wrongful discharge or other unlawful
labor practice or action;
(e) change in accounting methods or practices (including any
change in depreciation or amortization policies or rates, any change in
policies in making or reversing accruals, or any change in capitalization of
software development costs) by the Company;
(f) declaration, setting aside, or payment of a dividend or other
distribution in respect to the shares of the Company, or any direct or
indirect redemption, purchase or other acquisition by the Company of any of
its shares;
(g) increase in the salary or other compensation payable or to
become payable by the Company to any of its officers, directors or employees,
or the declaration, payment, or commitment or obligation of any kind for the
payment, by the Company, of a bonus or other additional salary or
compensation to any such person;
(h) acquisition, sale or transfer of any asset of the Company
except in the ordinary course of business;
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(i) formation, amendment or termination of any distribution
agreement or any material contract, agreement or license to which the Company
is a party;
(j) loan by the Company to any person or entity, or guaranty by
the Company of any loan;
(k) waiver or release of any material right or claim of the
Company, including any write-off or other compromise of any account
receivable of the Company;
(l) the commencement or notice of, to the knowledge of the Company
and the Shareholders, threat of commencement of any governmental proceeding
against or investigation of the Company or its affairs;
(m) other event or condition of any character relating to the
Company or the Company's business that has or that could be reasonably
expected to have a Material Adverse Effect on the Company;
(n) issuance, sale or redemption by the Company of any of its
shares or of any other of its securities;
(o) change in pricing or royalties set or charged by the Company;
or
(p) negotiation or agreement by the Company to do any of the
things described in the preceding clauses (a) through (o) (other than
negotiations with Parent and its representatives or any other person
regarding the transactions contemplated by this Agreement).
2.8 TAX AND OTHER RETURNS AND REPORTS.
(a) TAX RETURNS AND AUDITS. Except as set forth in Schedule 2.8,
the Company has accurately prepared and filed all required federal, state,
local and foreign returns, estimates, information statements and reports
("Returns") relating to any and all Taxes relating or attributable to the
Company, its assets, or its operations and such Returns are true and correct
and have been completed in accordance with applicable law. For the purposes
of this Agreement, a "Tax" or, collectively, "Taxes" means any and all
federal, state, local and foreign taxes, assessments and other governmental
charges, duties, impositions and liabilities, including taxes based upon or
measured by gross receipts, income, profits, sales, use and occupation, and
value added, ad valorem, transfer, franchise, withholding, payroll,
recapture, employment, excise and property taxes, together with all interest,
penalties and additions imposed with respect to such amounts and any
obligations under any agreements or arrangements with any other person with
respect to such amounts. Except as set forth in Schedule 2.8, the Company
has paid all Taxes required to be paid with respect to such Returns and has
withheld with respect to its employees all federal and state income taxes,
FICA, FUTA and other Taxes it is required to withhold. The accruals for Taxes
on the books and records of the
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Company are sufficient to discharge the Taxes for all periods (or the portion
of any period) ending on or prior to the Closing Date. The Company is not
delinquent in the payment of any Tax nor, except as set forth in Schedule
2.8, is there any Tax deficiency outstanding, proposed or assessed against
the Company nor has the Company executed any waiver of any statute of
limitations on or extending the period for the assessment or collection of
any Tax. Except as set forth in Schedule 2.8, the audits of each Return that
has been audited by the relevant authorities or for which the statute of
limitations has been waived or extended with respect to each Return has been
closed and the Company has not received any written or oral notification that
an audit or other examination of any Return of the Company is presently in
progress. All such returns that have been audited or for which the statute
of limitations has been waived are listed on Schedule 2.8. Except as set
forth in Schedule 2.8, the Company does not have any liabilities for unpaid
federal, state, local and foreign Taxes, whether asserted or unasserted,
known or unknown, contingent or otherwise and the Company does not have any
knowledge of any basis for the assertion of any such liability attributable
to the Company or its assets or operations. The Company is not (nor has it
ever been) required to join with any other entity in the filing of a
consolidated tax return for federal tax purposes or a consolidated or
combined return or report for state tax purposes. The Company is not a party
to or bound by any tax indemnity, tax sharing or tax allocation agreement.
There are (and as of immediately following the Closing there will be) no
liens on the assets of the Company relating to or attributable to Taxes,
except for liens for Taxes not yet due and payable. Neither the Company nor
any of the Shareholders has knowledge of any basis for the assertion of any
claim which, if adversely determined, would result in liens on the assets of
the Company. The Company has not filed any consents under Section 341(f) of
the Code. None of the assets of the Company are treated as "tax-exempt use
property" within the meaning of Section 168(h) of the Code. There is no
contract, agreement, plan or arrangement, including but not limited to the
provisions of this Agreement, covering any employee or former employee of the
Company that, individually or collectively, could give rise to the payment of
any amount that would not be deductible pursuant to Sections 280G, 162 or 404
of the Code.
(b) NO PENALTY. The Company is not subject to any penalty by
reason of a violation of any order, rule or regulation of, or a default with
respect to any Return, report or declaration required to be filed with, any
Governmental Entity to which it is subject.
2.9 RESTRICTIONS ON BUSINESS ACTIVITIES. There is no agreement binding
upon, or, judgment, injunction, order or decree entered against, the Company
under which the Company is prohibited from conducting or engaging in any line
of business.
2.10 TITLE OF PROPERTIES: ABSENCE OF LIENS AND ENCUMBRANCES CONDITION OF
EQUIPMENT.
(a) The Company owns no real property. Schedule 2.10(a) sets
forth a true and complete list of all real property leased by the Company and
the aggregate annual rental or other fee payable under any such lease. All
such leases are in good standing, valid and effective in accordance with
their respective terms, and there is not with respect to the Company and, to
the knowledge of
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the Company, any other parties to such leases, under any of such leases, any
existing default or event of default (or event which with notice or lapse of
time, or both, would constitute a default).
(b) Except as set forth in Schedule 2.10(b), the Company holds
good and valid title to, or, in the case of leased properties and assets,
valid leasehold interests in, all of its tangible properties and assets,
real, personal and mixed, used in its business, free and clear of any liens,
charges, pledges, security interests or other encumbrances.
(c) The equipment (the "Equipment") owned or leased by the Company
is listed in Schedule 2.10(c), except individual pieces of equipment owned by
the Company with an individual value of less than $5,000. The Equipment is,
taken as a whole, (i) adequate for the conduct of the business of the Company
consistent with its past practice, (ii) suitable for the uses to which it is
currently employed, (iii) in good operating condition, (iv) regularly and
properly maintained, reasonable wear and tear excepted and (v) not obsolete,
dangerous or in need of renewal or replacement.
2.11 INTELLECTUAL PROPERTY.
(a) The Company owns, or is licensed to use, all patents,
trademarks, trade names, service marks, copyrights, and any applications
therefor, maskworks, schematics, technology, know-how, computer software
programs or applications and tangible or intangible proprietary information
or material (excluding Commercial Software Rights (as defined in Section
2.11(b) below)) that are used or currently proposed by the Company to be used
in the business of the Company as currently conducted or as currently
proposed to be conducted by the Company (the "Company Intellectual Property
Rights"). Schedule 2.11(a), sets forth a complete list of all patents,
patent applications, registered trademarks, material unregistered copyrights,
trade names and service marks, and any applications therefor, included in the
Company Intellectual Property Rights; (b) specifies the jurisdictions in
which each such Company Intellectual Property Right has been issued or
registered or in which an application for such issuance and registration has
been filed, including the respective registration or application numbers and
the names of all registered owners, together with a list of all of the
Company's currently marketed software products and a listing of which, if
any, of such software products that have been registered for copyright
protection with the United States Copyright Office and any foreign offices
and by whom such items have been registered; and (c) as to each such Company
Intellectual Property Right, specifies whether it is owned by the Company or
licensed to the Company by another person and in the cases of any license
sets forth the licensor, and the term of such license. Schedule 2.11(a) also
sets forth a complete list of all licenses, sublicenses and other agreements
pursuant to which the Company has licensed any other person to use any
Company Intellectual Property Right or other trade secret material to the
Company, and includes the identity of such licensees, provided, however, that
standard end user licenses (i.e., those licenses granted pursuant to the form
clearly marked as the Company's "standard" form and delivered to the Parent
by the Company) to object code versions of the Company's software ("End-User
Licenses") need not be listed. The Company is not, nor will it be as a
result of the execution and delivery of this Agreement or the performance of
its obligations hereunder, in violation of any license, sublicense
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or agreement described on Schedule 2.11(a). The Company is the sole and
exclusive owner of, with all right, title and interest in and to (free and
clear of any liens or encumbrances other than End User Licenses), those
Company Intellectual Property Rights which the Company purports to own, and
has sole and exclusive rights (and is not contractually obligated to pay any
compensation to any third party in respect thereof) to the use thereof or the
material covered thereby in connection with the services or products in
respect of which such Company Intellectual Property Rights are being used.
With respect to Company Intellectual Property Rights licensed to the Company,
the Company has sufficient rights under the license agreements relating
thereto to enable the Company to use such Company Intellectual Property
Rights in its business as currently conducted and as proposed to be conducted
without payment of royalties or other compensation to the licensor thereof,
except as set forth on Schedule 2.11(a). No claims with respect to the
Company Intellectual Property Rights have been asserted or, to the knowledge
of the Company and the Shareholders, are threatened by any person, nor are
there any valid grounds for any bona fide claims (i) to the effect that the
manufacture, sale, licensing or use of any product as, now used, sold or
licensed or proposed for use, sale or license by the Company infringes on any
copyright, patent, trade mark, service mark or trade secret, (ii) against the
use by the Company of any trademarks, trade names, trade secrets, copyrights,
patents, technology, know-how or computer software programs and applications
used in the Company's business as currently conducted or as proposed by the
Company to be conducted, or (iii) challenging the ownership, validity or
effectiveness of any of the Company Intellectual Property Rights. Except as
set forth on Schedule 2.11(a), all registered and material unregistered
trademarks, service marks and copyrights held by the Company are valid and
subsisting. To the knowledge of the Company and the Shareholders, there is
no material unauthorized use, infringement or misappropriation of any of the
Company Intellectual Property Rights by any third party, including any
employee or former employee of the Company. The Company has not been sued or
charged as a defendant in any claim, suit, action or proceeding which
involves a claim of infringement of any patents, trademarks, service marks,
copyrights or violation of any trade secret or other proprietary right of any
third party and which has not been finally terminated prior to the date
hereof nor does it have any knowledge of any such charge or claim and there
is not any infringement liability with respect to, or infringement or
violation by, the Company of any patent, trademark, service mark, copyright,
trade secret or other proprietary right of another. No Company Intellectual
Property Right or product of the Company is subject to any outstanding order,
judgment, decree, stipulation or agreement restricting in any manner the
licensing thereof by the Company. There is no outstanding order, judgment,
decree or stipulation on the Company, and the Company is not party to any
agreement, restricting in any manner the licensing of the Company's products
by the Company. Except as otherwise set forth in Schedule 2.11(a), the
Company has not entered into any agreement to indemnify any person against
any charge of infringement of any Company Intellectual Property Right.
(b) "Commercial Software Rights" means packaged commercially
available software programs generally available to the public through retail
dealers in computer software which have been licensed to the Company pursuant
to end-user licenses and which are used in the Company's business but are in
no way a component of or incorporated in any of the Company's products and
related trademarks, technology and know-how. To the best knowledge of the
Company
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and the Shareholders, the Company has not breached or violated the terms of
its license, sublicense or other agreement relating to any Commercial
Software Rights and has a valid right to use such Commercial Software Rights
under such license and agreements. No claims with respect to the Commercial
Software Rights have been asserted or, to the knowledge of the Company and
the Shareholders, are threatened by any person against the Company. To the
knowledge of the Company and the Shareholders, there is no material
unauthorized use, infringement or misappropriation of any of the Commercial
Software Rights by the Company or any employee or former employee of the
Company during the period of their employment.
2.12 AGREEMENTS, CONTRACTS AND COMMITMENTS. Other than those listed in
Schedule 2.12, the Company does not have, is not a party to nor is it bound
by:
(a) any collective bargaining agreements,
(b) any agreements that contain any unpaid severance liabilities
or obligations,
(c) any bonus, deferred compensation, incentive compensation,
option pension, profit-sharing or retirement plans, or any other employee
benefit plans or arrangements,
(d) any employment or consulting agreement, contract or commitment
with an employee or individual consultant or salesperson or consulting or
sales agreement, contract or commitment with a firm or other organization,
not terminable by the Company on thirty days notice without liability,
(e) agreement or plan, including, without limitation, any stock
option plan, stock appreciation right plan or stock purchase plan,
(f) any insurance policy, fidelity or surety bond or completion
bond not listed in Schedule 2.21,
(g) any lease of personal property having a value individually in
excess of $5,000,
(h) any agreement of indemnification or guaranty,
(i) any agreement, contract or commitment containing any covenant
limiting the freedom of the Company to engage in any line of business or
compete with any person,
(j) any agreement, contract or commitment relating to capital
expenditures and involving future obligations in excess of $ 5,000,
(k) any agreement, contract or commitment relating to the
disposition or acquisition of assets not in the ordinary course of business
or any ownership interest in any corporation, partnership, joint venture or
other business enterprise,
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(l) any mortgages, indentures, loans or credit agreements,
security agreements or other agreements or instruments relating to the
borrowing of money or extension of credit, including guaranties referred to
in clause (h) hereof,
(m) any purchase order or contract for the purchase of raw
materials or acquisition of assets or services involving $5,000 or more in
any single instance or $25,000 in the aggregate,
(n) any construction contracts,
(o) any distribution, joint marketing, development or licensing
agreement,
(p) any other agreement, contract or commitment which involves
$5,000 or more and is not cancelable without penalty within thirty (30) days,
(q) any agreement or commitment obligating the Company to deliver
any product or service at a price which does not cover the cost (including
labor, materials and production overhead) plus the customary profit margin
associated with such product or service,
(r) any joint venture, partnership or other cooperative
arrangement or agreement involving a sharing of profits or losses, or
(s) any agreement which is otherwise material to the Company's
business.
The Company has not breached, or received any claim or threat that it
has breached, any of the terms or conditions of any agreement, contract or
commitment to which it is bound (including but not limited to, those set
forth in Schedule 2.12 or any of the Company Schedules) in such manner as
would permit any other party to cancel or terminate the same. Each
agreement, contract or commitment, whether required to be set forth in
Schedule 2.12 or any of the Company Schedules, or not, is in full force and
effect and, except as otherwise disclosed, is not subject to any material
default thereunder by any party thereto. The Company is not bound by any
material contract, agreement, license, lease or other, a copy of which has
not been previously provided to Parent. The Company after making an inquiry
of all of its officers, directors, shareholders and appropriate employees
does not have any reason to expect that any change may occur in the
relationships of the Company with its suppliers or customers, which change
would be materially adverse to the Company. No supplier of or customer of
the Company has indicated within the past year that it will stop, or decrease
the rate of supplying or purchasing materials, products, or services to or
from the Company, whether as a result of the Merger or otherwise. Except as
listed on Schedule 2.4, no consents, waivers or approvals under any of the
Company's agreements, contracts, licenses or leases are necessary in order to
preserve the benefits thereunder for the Surviving Corporation or otherwise
to avoid any breach, default or right of termination or other right as a
result of the Merger.
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2.13 INTERESTED PARTY TRANSACTIONS. No officer, director or shareholder
of the Company (nor any parent, sibling, descendant or spouse of any of such
persons, or any trust, partnership, corporation or other entity in which any
of such persons has or has had an interest), has or has had, directly or
indirectly, (i) an interest in any entity which furnished or sold, or
furnishes or sells, services or products which the Company furnished or
sells, or proposes to furnish or sell, or (ii) any interest in any entity
which purchases from or sells or furnishes to, the Company, any goods or
services, or (iii) a beneficial interest in any contract or agreement
required to be set forth in Schedule 2.12; provided, that ownership of no
more than one percent (1%) of the outstanding voting stock of a publicly
traded corporation shall not be deemed an "interest in any entity" for
purposes of this Section 2.13.
2.14 GOVERNMENTAL AUTHORIZATION. Schedule 2.14 accurately lists each
material federal, state county, local or foreign governmental consent,
license, permit, grant, or other authorization issued to the Company (i)
pursuant to which the Company currently operates or holds any interest in any
of its properties or (ii) which is required for the operation of its business
or the holding of any such interest (herein collectively called the "Company
Authorizations"). The Company Authorizations are in full force and effect
and constitute all the authorizations required to permit the Company to
operate or conduct its business or hold any interest in its properties.
2.15 LITIGATION. Schedule 2.15 attached hereto accurately lists all
suits, actions and legal, administrative, arbitration or other proceedings
and governmental investigations and all other claims, pending or, to the
knowledge of the Company and Shareholders, threatened or which the Company
expects will ultimately be threatened or commenced. None of such suits,
actions, proceedings, investigations or claim seek to prevent the
consummation of the Merger. There is no judgment, decree or order enjoining
the Company in respect of, or the effect of which is to prohibit, any
business practice or the acquisition of any property or the conduct of
business of the Company. Schedule 2.15 also lists all suits and legal
actions initiated by the Company which are still pending or which have been
concluded in the last two years.
2.16 ACCOUNTS RECEIVABLE. All receivables of the Company arose in the
ordinary course of business at the aggregate amounts thereof, are collectible
(except to the extent reserved against as reflected in the Company's
Financial Statements) and are carried at values determined in accordance with
generally accepted accounting principles consistently applied. To the
knowledge of the Company and the Shareholders, none of the receivables of the
Company is subject to any claim of offset, recoupment, set off or
counterclaim and there are no facts or circumstances (whether asserted or
unasserted) that would give rise to any such claim. No receivables are
contingent upon the performance by the Company of any obligation or contract
except for the Company's maintenance obligations under its maintenance
agreements (although no customer has claimed that the Company has failed to
perform its maintenance obligations). No person has any lien, charge,
pledge, security interest or other encumbrance on any of such receivables and
no agreement for deduction or discount has been made with respect to any of
such receivables.
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2.17 MINUTE BOOK AND STOCK RECORDS. The minute books of the Company
made available to counsel for Parent contain accurate minutes of all meetings
of directors and shareholders (or consents in lieu of such meetings) since
the time of incorporation of the Company, and describe all transactions
referred to in such minutes accurately in all material respects. The stock
records of the Company made available to counsel for the Parent contain an
accurate record of all stock issuances and stock transfers of the Company
Common Stock.
2.18 ENVIRONMENTAL AND OSHA.
(a) The Company has complied with all laws (including rules and
regulations thereunder) of federal, state and local Governmental Entities
concerning the environment, public health and safety, and employee health and
safety, and no charge, complaint, action, suit, proceeding, hearing,
investigation, claim, demand, or notice has been filed or commenced against
the Company alleging any failure to comply with any such law or regulation.
(b) The Company has no obligation to take remedial action with
respect to any conditions nor does the Company have any liability, and there
is no basis related to the Company's past or present operations, for any
present or future charge, complaint, action, suit, proceeding, hearing,
investigation, claim, or demand giving rise to any liability or obligation to
take any remedial action under the Comprehensive Environmental Response,
Compensation and Liability Act of 1980, the Resource Conservation and
Recovery Act of 1976, the Federal Water Pollution Control Act of 1972, the
Clean Air Act of 1970, the Safe Drinking Water Act of 1974, the Toxic
Substances Control Act of 1976, or the Emergency Planning and Community
Right-to-Know Act of 1986 (each as amended), or any other law (or rule or
regulation thereunder) of any federal, state or local Governmental Entity,
concerning the release or the threatened release of hazardous substances,
public health and safety, pollution or protection of the environment.
(c) The Company has no liability relating to, and it has not
handled or disposed of any substance, arranged for the disposal of any
substance, or owned or operated any property or facility in any manner that
could form the basis for any present or future charge, complaint, action,
suit, proceeding, hearing, investigation, claim, or demand (under the common
law or pursuant to any statute) against the Company, giving rise to any
liability for damage to any site, location, or body of water (surface or
subsurface) or for illness or personal injury.
(d) The Company has no liability for, and there is no basis for,
any present or future charge, complaint, action, suit, proceeding, hearing,
investigation, claim, or demand against the Company giving rise to any
liability under the Occupational Safety and Health Act, as amended, or any
other law (or rule or regulation thereunder) of any federal, state or local
Governmental Entity concerning employee health and safety.
(e) The Company has no liability relating to, and the Company has
not exposed any of the Company's employees to any substances or conditions
that could form the basis for, any present or future charge, complaint,
action, suit, proceeding, hearing, investigation, claim, or demand
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(under the common law or pursuant to statute) against the Company giving rise
to liability for any illness of or personal injury to any employee.
(f) The Company has been in compliance with all the terms and
conditions of all permits, licenses, and other authorizations of Governmental
Entities which are required under, and have complied with all other requirements
and prohibitions which are contained in federal, state and local laws (including
rules, regulations and codes thereunder) relating to public health and safety,
worker health and safety, and/or pollution or the protection of the environment,
including laws relating to emissions, discharges, releases, or threatened
releases of pollutants, contaminants, chemicals, or industrial, hazardous, or
toxic materials or wastes into the air, surface water, or land, or otherwise
relating to the manufacture, processing, distribution, use, treatment, storage,
disposal, transport, or handling of pollutants, contaminants, or chemical,
industrial, hazardous, or toxic materials or wastes.
(g) All properties and equipment used by the Company are free of
asbestos, PCB's and other Extremely Hazardous Substances (as defined in
Section 302 of the Emergency Planning and Community Right-to-Know Act of
1986, as amended). No pollutant, contaminant, chemical, or industrial,
hazardous, or toxic material or waste has been buried, stored, spilled,
leaked, discharged, emitted, or released on any real property that the
Company has ever owned, or that the Company now leases or has ever leased.
2.19 BROKERS' AND FINDERS' FEES. The Company has not incurred, nor will
it incur, directly or indirectly, any liability for brokerage or finders, fees
or agents' commissions or any similar charges in connection with this Agreement
or any transaction contemplated hereby.
2.20 LABOR MATTERS. The Company is in compliance with all currently
applicable laws and regulations respecting employment, discrimination in
employment, terms and conditions of employment and wages and hours and
occupational safety and health and employment practices, and is not engaged
in any unfair labor practice. The Company has not received any notice from any
Governmental Entity, and to the knowledge of the Company and the Shareholders,
there has not been asserted before any Governmental Entity, any claim, action
or proceeding to which the Company is a party or involving the Company, and
there is neither pending nor, to the knowledge of the Company and the
Shareholders, threatened any investigation or hearing concerning the Company
arising out of or based upon any such laws, regulations or practices. There
are no pending claims against the Company under any workers compensation plan
or policy or for long term disability. The Company has complied in all material
respects with all applicable health care benefit continuation provisions of the
Consolidated Omnibus Budget Reconciliation Act of 1985 ("COBRA") and has no
obligations with respect to any former employees or qualifying beneficiaries
thereunder. Schedule 2.20 lists all current employees of the Company and their
current salary and vacation accruals.
2.21 INSURANCE. Schedule 2.21 lists all insurance policies and fidelity
bonds covering the assets, business, equipment, properties, operations,
software, errors and omissions, employees,
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officers and directors of the Company as well as all claims made under any
insurance policy by the Company since December 31, 1992 (other than claims
under the Company's medical and dental insurance plans). There is no claim
by the Company pending under any of such policies or bonds as to which
coverage has been questioned, denied or disputed by the underwriters of such
policies or bonds. The Company has provided Parent with copies of all such
insurance policies and fidelity bonds and all claims made by the Company
under its insurance policies (other than claims under the Company's medical
and dental plans of less than $5,000 per claimant per year). All premiums
payable under all such policies and bonds have been paid and the Company is
otherwise in compliance in all material respects with the terms of such
policies and bonds. Such policies of insurance and bonds are of the type and
in amounts customarily carried by persons conducting businesses similar to
those of the Company. Neither the Company nor the Shareholders knows of any
threatened termination of or material premium increase with respect to any of
such policies. The Company has never been denied insurance coverage nor has
any insurance policy of the Company ever been canceled for any reason.
2.22 INVENTORY. The inventory appearing on the Financial Statements, or
thereafter acquired or produced, conforms in all respects with the Company's
applicable specifications and warranties and have been produced in compliance
with the Company's quality control procedures and consist only of items of a
quality and quantity useable or saleable by the Company in the ordinary course
of business. All such inventory is merchantable and fit for the purpose for
which it was procured or manufactured, and none of which is obsolete, damaged
or defective in any amount. Such inventory is owned by the Company and is not
subject to any liens, charges, pledges, security interests or other
encumbrances.
2.23 COMPLIANCE WITH LAWS.
(a) The Company has complied with, is not in violation of, and has
not received any notices of violation with respect to, any federal, state or
local statute, law or regulation with respect to the conduct of its business,
or the ownership or operation of its business, assets or properties. No charge,
complaint, action, suit, proceeding, hearing, investigation, claim, demand, or
notice has been filed or commenced against alleging any failure to comply with
any such law or regulation.
(b) The Company has not violated in any respect, or received a notice
or charge asserting any violation of the Sherman Act, the Clayton Act, the
Robinson-Patman Act, or the Federal Trade Commission Act, each as amended.
(c) The Company has not, and to the knowledge of Sundquist, none
of the officers, directors, shareholders or employees of the Company have, on
behalf of the Company:
(i) made or agreed to make any contribution, payment or gift of
funds or property to any governmental official, employee, or agent where
either the contribution, payment, or gift or the purpose thereof was illegal
under the laws of any federal, state or local jurisdiction; or
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(ii) established or maintained any unrecorded fund or asset for any
purpose, or intentionally made any false or inaccurate entries on any of its
books and/or records; or
(iii)made or agreed to make any contribution, or reimbursed any
political gift or contribution made by any other Person, to any candidate for
federal, state or local public office; or
(iv) been involved in the disbursement or receipt of funds outside
of the normal internal control systems of accountability or been involved in
the improper or inaccurate recording of material payments, disbursements or
receipts.
2.24 PRODUCT WARRANTY. All products, and the delivery thereof,
manufactured or sold by the Company have been in conformity with all
applicable contractual commitments and all expressed or implied warranties
and no liability (in excess of $25,000 for the 12-month period from and after
the Closing Date) exists or will arise for replacement, or as damaged, in
connection with such sales or deliveries. Schedule 2.24 provides an accurate
and complete summary of all standard written warranties, warranty policies,
service and maintenance agreements of the Company. No products sold,
delivered or leased by the Company are now subject to any guarantee,
warranty, claim for product liability, or patent or other indemnity, other
than those products sold, delivered or leased in accordance with the standard
terms and conditions for sale or lease by the Company. Schedule 2.24
provides an accurate and complete summary of all service or maintenance
agreements under which the Company is currently obligated, including the
terms of such agreement and any amounts paid or payable thereunder.
2.25 FIRPTA. The Company is not, and has not been at any time, a
"United States real property holding corporation" within the meaning of
Section 897(c)(2) of the Code.
2.26 EMPLOYEE BENEFIT PLANS.
(a) Schedule 2.26 lists all employee benefit plans (as defined in
Section 3(3)) of the Employee Retirement Income Security Act of 1974, as
amended ("ERISA")) and all bonus, stock option, stock purchase, incentive,
deferred compensation, supplemental retirement, severance and other similar
fringe or employee benefit plans, programs or arrangements, and any current
or former employment or executive compensation or severance agreements,
written or otherwise, for the benefit of, or relating to, any employee of the
Company, any trade or business (whether or not incorporated) which is a
member or which is under common control with the Company (an "ERISA
Affiliate") within the meaning of Section 414 of the Code, or any subsidiary
of the Company (together, the "Employee Plans"), and a copy of each such
Employee Plan has been provided to Parent.
(b) (i) None of the Employee Plans promises or provides retiree
medical or other retiree welfare benefits to any person except as required by
applicable law, including but not limited to COBRA; (ii) all Employee Plans
are in compliance in all material respects with the requirements
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prescribed by any and all applicable statutes (including ERISA and the Code),
orders, or governmental rules and regulations currently in effect with
respect thereto (including all applicable requirements for notification to
participants-or beneficiaries or the Department of Labor, Internal Revenue
Service (the "IRS") or Secretary of the Treasury), and the Company has
performed in all material respects all obligations required to be performed
by it under, is not in default under or violation of, and has no knowledge of
any default or violation by any other party to, any of the Employee Plans;
(iii) each Employee Plan intended to qualify under Section 401(a) of the Code
and each trust intended to qualify under Section 501(a) of the Code either
has received a favorable determination letter with respect to each such
Employee Plan from the IRS or still has a remaining period of time under
applicable Treasury Regulations or IRS pronouncements in which to apply for
such a determination letter and to make any amendments necessary to obtain a
favorable determination; and (iv) no Employee Plan is or within the prior six
(6) years has been subject to, and the Company has not incurred and does not
expect to incur any liability under, Title IV of ERISA or Section 412 of the
Code and (v) nothing in any Employee Plan precludes or interferes with
Parent's ability to cause the Company to terminate (or consolidate, at
Parent's option) any Employee Plan after the Closing, provided that (A) the
Employee Plans may be terminated prospectively only, subject to rights
accrued by the Company's employees at the time of such termination and (B)
not more than sixty days notice may be required to terminate certain Employee
Plans.
(c) None of the following now exists or has existed within the
six-year period ending on the date hereof with respect to any Employee Plan:
(i) any act or omission by the Company constituting a violation of Section
402 or 403 or, to the knowledge of the Company, Section 404 or 405 of ERISA;
(ii) to the knowledge of the Company, any act or omission by the Company which
constitutes a violation of Sections 406 and 407 of ERISA and is not exempted by
Section 408 of ERISA or which constitutes a violation of Section 4975(c) of the
Code and is not exempted by Section 4975(d) of the Code; (iii) any act or
omission by the Company constituting a violation of Section 503 or 511 or, to
the knowledge of the Company, Section 510 of ERISA; or (iv) any act or omission
by the Company which could give rise to liability under Section 502 of ERISA or
under Sections 4979 or 4975 through 4980 of the Code or any other provisions of
ERISA or the Code.
(d) Each Employee Plan has been maintained in substantial
compliance with its terms, and all contributions, premiums or other payments
due from the Company or any of its subsidiaries to (or under) any such
Employee Plan have been fully paid or adequately provided for on the Company
Financial Statements for the most recently ended fiscal year. All accruals
thereon (including, where appropriate proportional accruals for partial
periods) have been made in accordance with generally accepted accounting
principles consistently applied on a reasonable basis. There has been no
amendment, written interpretation or announcement (whether or not written) by
the Company with respect to, or change in employee participation or coverage
under, any Employee Plan that would increase materially the expense of
maintaining such plans or arrangements, individually or in the aggregate,
above the level of expense incurred with respect thereto for the most
recently ended fiscal year.
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(e) The Company has made available to Parent complete, accurate
and current copies of all Employee Plans and all amendments, documents,
correspondence and filings relating thereto, including but not limited to any
statements, filings, reports or returns filed with any governmental agency
with respect to the Employee Plans at any time within the three-year period
ending on the date hereof.
2.27 PRODUCT LIABILITY. The Company has no current liability (and there
is no basis for any present or future charge, complaint, action, suit,
proceeding, hearing, investigation, claim, or demand against the Company
giving rise to any liability) arising out of any injury to persons or
property as a result of the ownership, possession, or use of any product
manufactured, sold, leased, or delivered by the Company. Any such claims
would be fully covered to the extent of the dollar limitations of the
Company's product liability insurance. There are no recalls, threatened or
pending and no federal investigative reports have been filed or were required
to have been filed with respect to any of the Company's products.
2.28 REPRESENTATIONS COMPLETE. None of the representations or
warranties made by the Company and the Shareholders in this Agreement, nor
any statement made in any Schedule, Exhibit or certificate furnished by the
Company pursuant to this Agreement, when read in their entirety, contains or
will contain any untrue statement of a material fact at the Effective Time,
or omits or will omit to state any material fact necessary in order to make
the statements contained herein or therein, in the light of the circumstances
under which made, not misleading. No warranty or representation shall be
deemed to have been made by the Company and/or the Shareholders except for
the warranties and representations set forth in this Agreement, the exhibits,
schedules and certificates delivered pursuant thereto.
2.29 INVESTMENT REPRESENTATIONS.
Each Shareholder hereby severally (and not jointly) represents and
warrants to Parent and Merger Sub as of the date hereof and as of the Closing
Date as set forth below:
(a) INVESTMENT INTENT. The Shareholder is acquiring shares of
Parent Common Stock for his own account for investment and not with a view
to, or for sale or other disposition in connection with, any distribution of
all or any part thereof, except (i) in an offering covered by a registration
statement filed with the Securities and Exchange Commission (the "SEC") under
the Securities Act of 1933, as amended (the "Securities Act"), covering the
such shares, or (ii) pursuant to an applicable exemption under the Securities
Act. In acquiring the shares of Parent Common Stock, the Shareholder is not
offering or selling, and will not offer or sell, for Parent in connection
with a distribution of Parent Common Stock and does not have a participation
and will not participate in any such undertaking or in any underwriting of
such an undertaking except in compliance with applicable federal and state
securities laws.
(b) DISCLOSURE OF INFORMATION. The Shareholder acknowledges that
he or his representatives have been furnished with substantially the same
kind of information regarding
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Parent and its business, assets, results of operation, and financial condition
as would be contained in a registration statement prepared in connection with
a public sale of Parent Common Stock.
(c) INVESTMENT EXPERIENCE. The Shareholder acknowledges that he
is able to fend for himself, can bear the economic risk of his investment in
shares of Parent Common Stock and has such knowledge and experience in financial
and business matters that he is capable of evaluating the merits and risks of
an investment in shares of Parent Common Stock.
(d) RESTRICTED SECURITIES. The Shareholder understands that the
shares of Parent Common Stock acquired by him in the Merger are expected to
be exempt from registration under the Securities Act by virtue of Section 4(2)
thereof and, accordingly, will not have been registered pursuant to the
Securities Act or any applicable state securities laws, will be characterized
as "restricted securities" under federal securities laws, and that, under
such laws and applicable regulations, cannot be sold or otherwise disposed of
without registration under the Securities Act or an exemption therefrom. In
this connection, the Shareholder represents that he is familiar with Rules 144
and 145 promulgated under the Securities Act, as currently in effect, and
understands the resale limitations imposed thereby and by the Securities Act.
Stop transfer instructions may be issued to the transfer agent for securities
of the Company (or a notation may be made in the appropriate records of the
Company) in connection with such shares.
(e) LEGEND. It is agreed and understood by the Shareholder that
the certificates representing shares of Parent Common Stock acquired by him
in the Merger shall each conspicuously set forth on the face or back thereof,
in addition to any legends required by applicable law or other agreement, a
legend in substantially the following form:
THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED PURSUANT TO THE SECURITIES ACT OF 1933, AS AMENDED,
OR ANY STATE SECURITIES LAWS. SUCH SHARES MAY NOT BE SOLD OR
OTHERWISE TRANSFERRED UNLESS THEY ARE FIRST REGISTERED PURSUANT
TO THAT ACT AND APPLICABLE STATE SECURITIES LAWS OR UNLESS THE
CORPORATION RECEIVES A WRITTEN OPINION OF COUNSEL, WHICH OPINION
AND COUNSEL ARE SATISFACTORY TO THE CORPORATION, TO THE EFFECT
THAT SUCH REGISTRATION IS NOT REQUIRED.
(f) ACCESS TO INFORMATION. The Shareholder hereby acknowledges
that Parent has not made any representations or warranties to him with
respect to the value of the Parent Common Stock, and the actual value of the
Parent Common Stock may be more or less than the value of the shares of
Company Common Stock being converted in the Merger. The Shareholder has had
an opportunity to review all such information about Parent as he desires and
he has been given an opportunity to ask questions and receive answers about
Parent. The Shareholder has been represented by an attorney of his choice or
has waived his right to do so, and he has had an opportunity to review and
discuss this Agreement with an attorney. The Shareholder understands
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the contents and effect of this Agreement and he has signed this Agreement
and any documents executed in connection therewith to which he is a party, as
his own free act.
(g) REPRESENTATIONS AND WARRANTIES OF THE SHAREHOLDERS RELATED TO
TAX EFFECTS OF THE MERGER.
(i) The Shareholder is the beneficial owner of all of the shares
of the Company Common Stock held of record by him and did not acquire any of
the Company Common Stock in contemplation of the Merger.
(ii) The Shareholder has not engaged in a Sale (as defined below)
of any shares of Company Common Stock (or other securities of the Company) in
contemplation of the Merger.
(iii) The Shareholder has no plan or intention (a "Plan") to
engage in a sale, exchange, transfer, redemption or reduction in any way of
the Shareholder's risk of ownership by short sale or otherwise, or other
disposition, directly or indirectly (such actions being collectively referred
to herein as a "Sale") of more than 50% of the shares of Parent Common Stock
to be received by the Shareholder in the Merger.
(iv) The Shareholder is not aware of, or participating in, any
Plan on the part of the shareholders of Company to engage in a Sale or Sales
of the Parent Common Stock to be received in the Merger such that the
aggregate fair market value, as of the Effective Time, of the shares subject
to such Sales would exceed 50% of the aggregate fair market value of all
shares of outstanding Company Common Stock immediately prior to the Merger;
(h) RELIANCE. The Shareholder acknowledges and understands that
the representations and warranties of the Shareholder contained in this
Section 2.29 and the covenants by Shareholder set forth in Section 5.8 will
be relied upon by Parent and the Company and that substantial losses and
damages may be incurred by these persons if the Shareholder's
representations, warranties or covenants are breached. The Shareholder has
carefully read this Agreement and has discussed the requirements of this
Agreement with his professional advisors, who are qualified to advise him
with regard to such matters.
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUB
Parent and Merger Sub each jointly and severally represents and warrants
to the Company as of the date hereof and as of the Closing Date as set forth
below, subject only to the exceptions specifically disclosed in the schedules
supplied and certified by Parent to the Company (the "Parent Schedules").
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3.1 ORGANIZATION, STANDING AND POWER. Parent is a corporation duly
organized, validly existing and in good standing under the laws of the State
of Texas. Merger Sub is a corporation duly organized, validly existing and
in good standing under the laws of the State of Colorado. Each of Parent and
Merger Sub has the corporate power to own its properties and to carry on its
business as now being conducted and as proposed to be conducted and is duly
qualified to do business and is in good standing in each jurisdiction in
which the failure to be so qualified would have a Material Adverse Effect on
Parent and Merger Sub taken as a whole. Parent has made available a true and
correct copy of the Articles of Incorporation and Bylaws of each of Parent
and Merger Sub, as amended to date, to counsel for the Company.
3.2 CAPITAL STRUCTURE.
(a) The authorized stock of Parent consists of 40,000,000 shares
of Common Stock, par value $0.01 per share, of which 7,552,120 shares were
issued and outstanding as of April 30, 1996, and 10,000,000 shares of
Preferred Stock, par value $0.01 per share. No shares of Preferred Stock are
issued or outstanding. The authorized capital stock of Merger Sub consists
of 1,000 shares of Common Stock, par value $0.01 per share, 1,000 shares of
which as of the date hereof are issued and outstanding and are held by
Parent. All such shares have been duly authorized, and all such issued and
outstanding shares have been validly issued, are fully paid and nonassessable
and are free of any liens or encumbrances other than any liens or
encumbrances created by or imposed upon the holders thereof. Parent has also
reserved 250,000 shares of Parent Common Stock issuable pursuant to the AMX
Corporation 1996 Employee Stock Purchase Plan, 250,000 shares of Parent
Common Stock issuable pursuant to the AMX Corporation 1995 Director Stock
Option Plan, 1,000,000 shares of Parent Common Stock issuable pursuant to the
AMX Corporation 1995 Stock Option Plan, and 1,231,544 shares of Parent Common
Stock issuable pursuant to the AMX Corporation 1993 Stock Option Plan.
Except as set forth in the preceding sentence, Parent has not reserved any
shares of its capital stock for future issuance.
(b) The shares of Parent Common Stock to be issued pursuant to the
Merger will be duly authorized, validly issued, fully paid, and nonassessable.
3.3 AUTHORITY. Parent and Merger Sub have all requisite corporate
power and authority to enter into this Agreement and to consummate the Merger
and the other transactions contemplated hereby. The execution and delivery
of this Agreement and the consummation of the Merger and the other transactions
contemplated hereby have been duly authorized by all necessary corporate
action on the part of Parent and Merger Sub. This Agreement has been duly
executed and delivered by Parent and Merger Sub and constitutes the valid and
binding obligations of Parent and Merger Sub. The execution and delivery of
this Agreement do not, and the consummation of the Merger and the other
transactions contemplated hereby will not, result in any violation of, or
default (with or without notice or lapse of time, or both), or give rise to a
right of termination, cancellation or acceleration of any obligation or to loss
of a material benefit under (i) any provision of the Articles of Incorporation
or Bylaws of Parent and Merger Sub or (ii) any mortgage, indenture, lease,
contract or other agreement or instrument, permit, concession, franchise,
license, judgment, order, decree,
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statute, law, ordinance, rule or regulation applicable to Parent or its
properties or assets, other than any such violations, defaults, terminations,
cancellations or accelerations which individually or in the aggregate would not
have a material adverse effect on the ability of Parent to consummate the
transactions contemplated hereby or which have been consented to or waived
on or prior to the Closing Date (including the consents referred to in
Section 6.2(f)). No consent, approval, order or authorization of, or
registration, declaration or filing with any Governmental Entity is required
by or with respect to Parent and Merger Sub in connection with the execution
and delivery of this Agreement by Parent and Merger Sub or the consummation
by Parent and Merger Sub of the transactions contemplated hereby, except for
(i) the filing of the Articles of Merger with the Secretary of State of Colorado
(ii) such consents, approvals, orders, authorizations, registrations,
declarations and filings as may be required under applicable state and federal
securities laws and (iii) such other consents, authorizations, filings,
approvals and registrations which if not obtained or made would not have a
material adverse effect on the ability of Parent to consummate the transactions
contemplated hereby.
3.4 SEC DOCUMENTS; PARENT FINANCIAL STATEMENTS. Parent has furnished
or made available to the Company a true and complete copy of its Form 10-Q
for the quarter ended December 31, 1995 and a copy of its Prospectus dated
November 15, 1995 which was included in a Registration Statement on Form S-1
(collectively, the "SEC Documents"), which Parent filed under the federal
securities laws with the SEC. As of their respective filing dates, the SEC
Documents complied in all material respects with the requirements of the
Exchange Act, and none of the SEC Documents contained any untrue statement of
a material fact or omitted to state a material fact required to be stated
therein or necessary to make the statements made therein, in light of the
circumstances under which they were made, not misleading, except to the
extent corrected by a subsequently filed document with the SEC. The
financial statements of Parent, including the notes thereto, included in the
SEC Documents comply as to form in all material respects with applicable
accounting requirements and with the published rules and regulations of the
SEC with respect thereto, have been prepared in accordance with generally
accepted accounting principles consistently applied (except as may be
indicated in the notes thereto or, in the case of unaudited statements, as
permitted by Form 10-Q of the SEC) and fairly present the consolidated
financial position of Parent at the dates thereof and of its operations and
cash flows for the periods then ended (subject, in the case of unaudited
statements, to normal, recurring audit adjustments).
3.5 BROKERS AND FINDERS' FEES. Parent has not incurred, and will not
incur, directly or indirectly, any liability for brokerage or finders' fees
or agents' commissions or any similar charges in connection with this Agreement,
the Merger or any transaction contemplated hereby.
3.6 OWNERSHIP OF COMPANY COMMON STOCK. As of the date of execution of
this Agreement, Parent does not own any shares of Company Common Stock.
3.7 LITIGATION. Except as set forth in the Company's SEC Documents,
there are no suits, actions or legal, administrative, arbitration or other
proceedings or governmental investigations against Parent pending or, to
Parent's knowledge, threatened, which (i) if determined adversely to
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Parent, could be expected to result in a material adverse effect on the
financial condition or results of operations of Parent, or (ii) seek to prevent
the consummation of the Merger.
3.8 COMPLIANCE WITH LAWS. Parent has complied with, is not in violation
of, and has not received any notices of violation with respect to, any material
federal, state or local statute, law or regulation with respect to the conduct
of its business, or the ownership or operation of its business, assets or
properties.
3.9 AVAILABILITY OF FORM S-3. No event has occurred as of the Effective
Time that would make Parent ineligible to register shares of Parent Common
Stock on Form S-3, as provided in Section 5.1 below.
3.10 REPRESENTATIONS COMPLETE. None of the representations or
warranties made by Parent in this Agreement nor any statement made in any
Schedule, Exhibit, SEC Document or certificate furnished by Parent pursuant
to this Agreement, when read in their entirety, contains or will contain any
untrue statement of a material fact at the Effective Time, or omits or will
omit to state any material fact necessary in order to make the statements
contained herein or therein, in the light of the circumstances under which
made, not misleading. No warranty or representation shall be deemed to have
been made by Parent except for the warranties and representations set forth
in this Agreement, the exhibits, schedules and certificates delivered
pursuant thereto and the disclosures set forth in the SEC Documents.
ARTICLE 4
CONDUCT PRIOR TO THE EFFECTIVE TIME
4.1 CONDUCT OF BUSINESS OF THE COMPANY. During the period from the
date of this Agreement and continuing until the earlier of the termination of
this Agreement or the Effective Time, the Company agrees (except to the
extent that Parent shall otherwise consent in writing), to carry on its
business in the usual regular and ordinary course in substantially the same
manner as heretofore conducted and, to the extent consistent with such
business, use all commercially reasonable efforts consistent with past
practice and policies to preserve intact the Company's present business
organizations, keep available the services of its present officers and key
employees and preserve their relationships with customers, suppliers,
distributors, licensors, licensees and others having business dealings with
it. The Company shall promptly notify Parent of any event or occurrence not
in the ordinary course of business of the Company, and any event which could
have a Material Adverse Effect on the Company. Except as expressly
contemplated by this Agreement or set forth in Schedule 4.1, the Company
shall not, without the prior written consent of Parent:
(a) Enter into any commitment or transaction (i) to be performed
over a period longer than six months in duration, or (ii) to purchase fixed
assets for a purchase price in excess of $5,000;
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(b) Grant any severance or termination pay (i) to any director or
(ii) to any employee, except payments made pursuant to written agreements
outstanding on the date hereof; or
(c) Except for licenses granted to end-users pursuant to the
Company's standard license agreements as disclosed on Schedule 2.11(a),
transfer to any person or entity any rights to the Company Intellectual
Property Rights;
(d) Enter into or amend any agreements pursuant to which any other
party is granted exclusive marketing or other rights of any type or scope
with respect to any products of the Company;
(e) Violate, amend or otherwise modify the terms of any of the
contracts or agreements required to be set forth in the Company Schedules;
(f) Commence any litigation;
(g) Declare or pay any dividends on or make any other
distributions (whether in cash, stock or property) in respect of any of its
capital stock, or split, combine or reclassify any of its capital stock or
issue or authorize the issuance of any other securities in respect of, in
lieu of or in substitution for shares of capital stock of the Company, or
repurchase or otherwise acquire, directly or indirectly, any shares of its
capital stock;
(h) Issue, deliver or sell or authorize or propose the issuance,
delivery or sale of, or purchase or propose the purchase of, any shares of
its capital stock or securities convertible into, or subscriptions, rights,
warrants or options to acquire, or other agreements or commitments of any
character obligating it to issue any such shares or other convertible
securities;
(i) Except as provided in the Articles of Merger, cause or permit
any amendments to its Articles of Incorporation or Bylaws;
(j) Acquire or agree to acquire by merging or consolidating with,
or by purchasing a substantial portion of the assets of, or by any other
manner, any business or any corporation, partnership, association or other
business organization or division thereof, or otherwise acquire or agree to
acquire any assets which are material, individually or 'in the aggregate, to
the business of the Company;
(k) Sell, lease, license or otherwise dispose of any of its
properties or assets which are material individually or in the aggregate, to
the business of the Company, except in the ordinary course of business;
(l) Incur any indebtedness for borrowed money or guarantee any
such indebtedness or issue or sell any debt securities of the Company or
guarantee any debt securities of others;
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(m) Adopt or amend any employee benefit plan, or enter into any
employment contract, pay any special bonus or special remuneration to any
director or employee, or increase the salaries or wage rates of its employees;
(n) Revalue any of its assets, including without limitation
writing down the value of inventory or writing off notes or accounts
receivable other than in the ordinary course of business;
(o) Pay, discharge or satisfy in an amount in excess of $10,000 in
any one case (or $25,000 in the aggregate) any claim, liability or obligation
(absolute, accrued, asserted or unasserted, contingent or otherwise), other
than the payment, discharge or satisfaction in the ordinary course of
business of liabilities reflected or reserved against in the Company
Financial Statements:
(p) Make or change any material election in respect of Taxes,
adopt or change any accounting method in respect of Taxes, file any material
Return or any amendment to a material Return, enter into any closing
agreement, settle any claim or assessment in respect of Taxes, or consent to
any extension or waiver of the limitation period applicable to any claim or
assessment in respect of Taxes; or
(q) Take, or agree in writing or otherwise to take, any of the
actions described in Sections 4.1(a) through (p) above, or any action which
would make any of the representations or warranties or covenants of the
Company contained in this Agreement materially untrue or incorrect.
4.2 NO SOLICITATION. Prior to the Effective Time, neither the
Shareholders nor the Company will (nor will the Company permit any of the
Company's officers, directors, shareholders affiliated with any officer or
director or the Company's agents, representatives or affiliates to) directly
or indirectly, take any of the following actions with any party other than
Parent and its designees:
(a) solicit, encourage, initiate, accept or participate in any
negotiations or discussions with respect to, any offer or proposal to acquire
all or substantially all of the Company's business and properties or capital
stock whether by merger, purchase of assets, tender offer or otherwise, or
agree to any such offer or proposal,
(b) except for disclosures made to financial institutions and
others in the ordinary course of business, disclose any information not
customarily disclosed to any person other than its attorneys or financial
advisors concerning the Company's business and properties or afford to any
person or entity access to its properties, books or records, or
(c) assist or cooperate with any person to make any proposal to
purchase all or any part of the Company's capital stock or assets or agree to
any such proposal, other than selling its products and licensing of software
in the ordinary course of business.
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In the event the Company shall receive any offer or proposal, directly
or indirectly, of the type referred to in clause (a) or (c) above, or any
request for disclosure or access pursuant to clause (b) above, such party
shall immediately inform Parent as to any such offer or proposal and will
cooperate with Parent by furnishing any information it may reasonably request.
ARTICLE 5
ADDITIONAL AGREEMENTS
5.1 REGISTRATION STATEMENT. Within 30 days following the first date on
which Parent becomes eligible to register securities on Form S-3 under the
Securities Act, Parent shall use its commercially reasonable efforts to
prepare and file with the SEC a Registration Statement on Form S-3 (the
"Registration Statement") covering the resale of all of the shares of the
Parent Common Stock issued pursuant to the Merger (or such lesser number of
shares as any Shareholder may request with respect to the shares of Parent
Common Stock issued to him), other than the Holdback Shares (as defined
below) issued to Sundquist pursuant to the Merger. The Company agrees to
keep the Registration Statement effective for up to forty-five (45) days
after its effective date. In addition, subject to the rights of the holders
of Parent Common Stock as set forth in the Investor Registration Rights
Agreement and the rights of Parent with respect to the Holdback Shares, the
Shareholders shall be granted "piggy-back" registration rights allowing them
to have their shares included in other registration statements filed by the
Company, except for those filed on forms which do not include substantially
the same information as would be required to be included in a registration
statement covering the sale of their shares of the Parent Common Stock or a
registration statement relating solely to shares to be sold in a transaction
under Rule 145 of the Securities Act. The rights and obligations of the
Parent and the Shareholders in respect of the Registration Statement and the
grant of "piggy-back" registration rights shall be as set forth in an
agreement substantially in the form of Exhibit 5.1 attached hereto (the
"Registration Rights Agreement") and, in the event of a conflict between this
Agreement and the Registration Rights Agreement, the terms of the
Registration Rights Agreement shall control. Parent will use its
commercially reasonable efforts to avoid any event that would make Parent
ineligible to register securities on Form S-3, as contemplated by this
Section 5.1 and the Registration Rights Agreement.
5.2 SHAREHOLDER CONSENT. The Company and the Shareholders shall
promptly after the date hereof take all action necessary in accordance with
the laws of the State of Colorado and the Company's Articles of Incorporation
and Bylaws to obtain unanimous written consent of the shareholders of the
Company. The Shareholders agree to consent to the transactions contemplated
hereto and to sign all consents and other documents reasonably requested by
Parent or the Company to evidence such consent. Parent agrees to consent to
this Agreement and the transactions contemplated hereby in Parent's capacity
as the sole shareholder of Merger Sub.
5.3 ACCESS TO INFORMATION. The Company shall afford Parent and its
accountants, counsel and other representatives, reasonable access during
normal business hours during the period prior to the Effective Time to (a)
all of its properties, books, contracts, commitments and records, and (b)
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all other information concerning the business, properties and personnel of
the Company as Parent may reasonably request. The Company agrees to provide
to Parent and its accountants, counsel and other representatives copies of
internal financial statements promptly upon request.
5.4 CONFIDENTIALITY. From the date hereof to and including the
Effective Time, the parties hereto shall maintain, and cause their directors,
employees, agents and advisors to maintain, in confidence and not disclose or
use for any purpose, except the evaluation of the transactions contemplated
hereby and the accuracy of the respective representations and warranties of
the parties hereto contained herein, information concerning the other parties
hereto and obtained directly or indirectly from such parties, or their
directors, employees, agents or advisors, except such information as is or
becomes (a) available to the non-disclosing party from third parties not
subject to an undertaking of confidentiality or secrecy; (b) generally
available to the public other than as a result of a breach by the
non-disclosing party hereunder; or (c) required to be disclosed under
applicable law; and except such information as was in the possession of such
party prior to obtaining such information from such other party as to which
the fact of prior possession such possessing party shall have the burden of
proof. In the event that the transactions contemplated hereby shall not be
consummated, all such information which shall be in writing shall be returned
to the party furnishing the same, including to the extent reasonably
practicable, copies or reproductions thereof which may have been prepared.
5.5 EXPENSES. Whether or not the Merger is consummated, all expenses
incurred in connection with the Merger and this Agreement ("Expenses") shall
be the obligation of the party incurring such expenses; provided, however,
that if the Merger shall be consummated, the Company shall only be
responsible for Expenses incurred by it up to a maximum aggregate amount of
$20,000, and any amount of Expenses incurred by the Company in excess of such
amount shall be borne by the Shareholders.
5.6 PUBLIC DISCLOSURE. Unless otherwise required by law, prior to the
Effective Time no disclosure (whether or not in response to an inquiry) of
the subject matter of this Agreement shall be made by any party hereto unless
approved by Parent and the Company prior to release, provided that such
approval shall not be unreasonably withheld. Notwithstanding the above, the
Parent may make such public disclosures without the consent of the Company to
the extent reasonably necessary as determined by Parent. The Parent and the
Company have each approved the press release issued publicly on March 18,
1996 by the Parent and issued on March 18, 1996 by the Company to its
representatives and dealers.
5.7 CONSENTS. The Company shall promptly apply for or otherwise seek,
and use its best efforts to obtain, all consents and approvals required to be
obtained by it for the consummation of the Merger, and the Company shall use
its best efforts to obtain all consents, waivers and approvals under any of
the Company's agreements, contracts, licenses or leases in order to preserve
the benefits thereunder for the Surviving Corporation and otherwise in
connection with the Merger; all of such consents and approvals are set forth
in Schedule 2.4.
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5.8 COMPLIANCE WITH RULE 144 AND THE SECURITIES ACT. Each Shareholder
has been advised that (a) the issuance of shares of Parent Common Stock in
connection with the Merger is expected to be exempt from registration under
the Securities Act by virtue of Section 4(2) of the Securities Act and,
consequently, such shares will be deemed "restricted securities" within the
meaning of Rule 144 promulgated thereunder and resale of such shares will be
subject to the restrictions set forth in Rule 144 of the Securities Act
unless otherwise transferred pursuant to an effective registration statement
under the Securities Act or an appropriate exemption from registration, and
(b) such Shareholder may be deemed to be an affiliate of Company and/or
Parent for purposes of Rules 144 and 145 of the Securities Act. Each
Shareholder accordingly agrees not to sell transfer or otherwise dispose of
unregistered Parent Common Stock issued to such Shareholder in the Merger
unless (a) such sale, transfer or other disposition is made in conformity
with the requirements of Rule 144 promulgated under the Securities Act, or
(b) such Shareholder delivers to Parent a written opinion of counsel,
reasonably acceptable to Parent in form and substance, that such sale,
transfer or other disposition is otherwise exempt from registration under the
Securities Act. Parent will give stop transfer instructions to its transfer
agent with respect to the Parent Common Stock received by each Shareholder
pursuant to the Merger, and there will be placed on the certificates
representing such Parent Common Stock, or any substitutions therefor, the
legend described in Section 2.29(e). The legend set forth in Section 2.29(e)
shall be removed (by delivery of a substitute certificate without such
legend) and Parent shall so instruct its transfer agent if any such
Shareholder sells shares pursuant to an effective registration statement
under the Securities Act or delivers to Parent (a) satisfactory written
evidence that such shares have been sold in compliance with Rule 144 (in
which case, the substitute certificate will be issued in the name of the
transferee), or (b) an opinion of counsel in form and substance reasonably
satisfactory to Parent, to the effect that public sale of such shares by the
holder thereof is no longer subject to Rule 144.
5.9 LEGAL REQUIREMENTS. Each of Parent, Merger Sub, the Company and
the Shareholders will take all reasonable actions necessary to comply
promptly with all legal requirements which may be imposed on them with
respect to the consummation of the transactions contemplated by this
Agreement and will promptly cooperate with and furnish information to any
party hereto in connection with any such requirements imposed upon such other
party in connection with the consummation of the transactions contemplated by
this Agreement and will take all reasonable actions necessary to obtain (and
will cooperate with the other parties hereto in obtaining) any consent,
approval, order or authorization of, or any registration, declaration or
filing with any Governmental Entity or other person, required to be obtained
or made in connection with the taking of any action contemplated by this
Agreement.
5.10 BLUE SKY LAWS. Parent shall take such steps as may be necessary to
comply with the federal securities laws and with the securities and blue sky
laws of all other jurisdictions which are applicable to the issuance of
Parent Common Stock pursuant hereto (such determination shall be made based
on the shareholder and optionee addresses furnished to Parent by the
Company). The Company shall use its best efforts to assist Parent as may be
necessary to comply with the federal securities laws and with the securities
and blue sky laws of all other jurisdictions which are applicable in
connection with the issuance of Parent Common Stock pursuant hereto.
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5.11 BEST EFFORTS, ADDITIONAL DOCUMENTS AND FURTHER ASSURANCES. Each of
the parties to this Agreement shall use its best efforts to effectuate the
transactions contemplated hereby and to fulfill and cause to be fulfilled the
conditions to closing under this Agreement. Each party hereto, at the
request of another party hereto, shall execute and deliver such other
instruments and do and perform such other acts and things as may be
reasonably necessary or desirable for effecting completely the consummation
of this Agreement and the transactions contemplated hereby.
5.12 COVENANTS NOT TO COMPETE. Each Shareholder (other than Heiskell)
recognizes that his willingness to enter into the restrictive covenants
contained in this Section 5.12 is a critical condition precedent in Parent's
willingness to enter into and perform under this Agreement. In addition,
each Shareholder (other than Heiskell) acknowledges that pursuant to this
Agreement, Parent is issuing shares of Parent Common Stock to such
Shareholder with a not insubstantial fair market value, and that giving
effect to the restrictions contained in this Section 5.12 will not materially
or unreasonably interfere with such Shareholder's ability to earn a living.
Accordingly, each Shareholder (other than Heiskell) agrees that, except as
set forth below, during the Non-Competition Period (defined below) he will
not in any capacity, either separately, jointly, or in association with
others, directly or indirectly, as an officer, director, consultant, agent,
employee, owner, partner, distributor, dealer, representative, shareholder or
otherwise, engage or have a financial interest in any business located
anywhere in the Restricted Area (as herein defined) which competes with the
Business (as defined herein) of the Parent, the Company or with any affiliate
of Parent or the Company (excepting only the ownership of not more than 5.0%
of the outstanding securities of any class listed on an exchange or regularly
traded in the over-the-counter market). For purposes of this Section 5.12,
"Business" shall mean the manufacture, production, marketing, designing,
distributing, selling, or installing of hardware and/or software for control
systems for (i) audio/visual equipment or devices, (ii) home security
equipment or devices, (iii) heating and air conditioning equipment or
devices, or (iv) lighting equipment or devices, to be installed in homes,
apartments, condominiums, town houses, mobile homes, buses, hotel rooms, or
other permanent or temporary living environments. "Restricted Area" means the
United States of America. Notwithstanding the above, the parties hereto
hereby agree that this provision shall not preclude (i) Daniels from
continuing his business of installing and selling to end-users electronic
equipment and operating software as a dealer for the Parent and (ii)
Sundquist, Daniels and Munroe from continuing to serve as Beta Test sites for
products of the Company. The "Non-Competition Period" is the period
commencing on the date hereof and ending three (3) years after the Closing
Date. Each Shareholder (other than Heiskell) further agrees that during the
Non-Competition Period he will not in any capacity, either separately,
jointly or in association with others, directly or indirectly, (i) solicit or
otherwise contact or accept an order from any of Parent's or the Company's
customers, distributors, dealers or representatives as shown by Parent's
records and the Company's records, that were customers, distributors, dealers
or representatives of Parent or the Company at any time during the
Non-Competition Period or during the two years immediately preceding the
Effective Time if such solicitation, contact or orders are for the specific
purpose of selling products or services that compete with the Business as it
existed during the Non-Competition Period or the two years immediately
preceding the Effective Time or (ii) solicit for employment or employ or
otherwise
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contract with any person employed by Parent or the Company during
Non-Competition Period or during the twelve (12) month period immediately
preceding the Effective Time. If a court determines that the foregoing
restrictions are too broad or otherwise too restrictive under applicable law,
including with respect to time or space, the court is hereby requested and
authorized by the parties hereto to revise the foregoing restrictions to
include the maximum restrictions allowed under the applicable law. Each
Shareholder (other than Heiskell) expressly agrees that breach of the
foregoing would result in irreparable injuries to Parent and the Company,
that the remedy at law for any such breach will be inadequate and that upon
breach of this provision, Parent and/or the Company, in addition to all other
available remedies, shall be entitled as a matter of right to injunctive
relief in any court of competent jurisdiction without the necessity of
proving the actual damage to Parent and/or the Company. Heiskell hereby
confirms that he is still subject to, and that nothing herein will limit, the
non-competition restrictions and other applicable restrictions set forth in
the Del Mar License Agreement.
5.13 SUNDQUIST SEVERANCE AGREEMENT. Contemporaneous with the execution
of this Agreement, the Company and John Sundquist are entering into an
severance agreement, a copy of which is attached as Exhibit 5.13 hereto,
which shall become effective as of the Effective Time (the "Sundquist
Severance Agreement").
5.14 NASDAQ LISTING. Parent agrees to authorize for listing on the
Nasdaq National Market the shares of Parent Common Stock registered under the
Securities Act pursuant to the Registration Rights Agreement and to provide
any notices to, and make any other filings with, the NASD that are required
in connection with the Merger.
5.15 SHAREHOLDER PERSONAL GUARANTEES; SHAREHOLDER NOTES.
(a) Parent acknowledges that it has been advised that Sundquist
and his spouse, Sandra P. Sundquist, have personally guaranteed the Company's
obligations under (i) the Company's line of credit with First National Bank,
its bank lender located in Fort Collins, Colorado, (ii) under its lease with
Jordan Park Limited Liability Company for its principal place of business,
and (iii) under its copier lease agreement with Alco Capital Resource, Inc.
Within 30 days after the Closing Date, the Company shall (and Parent shall
cause the Company to) use its commercially reasonable efforts to remove the
Sundquists from their personal guarantee of those obligations at no cost or
expense to the Sundquists. Parent shall, if necessary, execute and deliver
any guarantees necessary to substitute itself as guarantor of those
obligations in lieu of the Sundquists. The Sundquists shall reasonably
cooperate with the Company to remove such guarantees, provided that the
Sundquists shall not be required to make any monetary payments that are
imposed or demanded as a condition to cancellation of those guarantees.
(b) Parent acknowledges that it has been advised that the Company
is currently in default in its payment of principal and interest under a
promissory note dated September 1, 1992 in the aggregate principal amount of
$50,000 payable by the Company to a corporation formerly known as Audio Ease,
Inc. ("Predecessor") and under a promissory note (both notes are collectively
referred to herein as the "Notes") dated December 31, 1992 in the aggregate
principal amount of
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$102,000 payable by the Company to Easy Acres, Inc., which Notes were
executed and delivered in connection with the sale by Predecessor of its
business to the Company. Within 30 days after the Closing Date, the Company
shall (and Parent shall cause the Company to) make all payments of principal
under the Notes that, at the time of payment, are due and payable but not yet
paid and shall also pay all accrued but unpaid interest thereon.
ARTICLE 6
CONDITIONS TO THE MERGER
6.1 CONDITIONS TO OBLIGATIONS OF THE COMPANY AND THE SHAREHOLDERS. The
obligations of the Company and the Shareholders to consummate and effect this
Agreement and the Merger shall be subject to the satisfaction at or prior to
the Effective Time of each of the following conditions, any of which may be
waived, in writing, exclusively by the Company:
(a) NO INJUNCTIONS OR RESTRAINTS; LEGALITY. No temporary
restraining order, preliminary or permanent injunction or other order issued
by any court of competent jurisdiction or other legal restraint or
prohibition preventing the consummation of the Merger shall be in effect, nor
shall any proceeding brought by an administrative agency or commission or
other governmental authority or instrumentality, domestic or foreign, seeking
any of the foregoing be pending; nor shall there be any action taken, or any
statute, rule, regulation or order enacted, entered, enforced or deemed
applicable to the Merger, which makes the consummation of the Merger illegal.
(b) REGISTRATION RIGHTS. The Registration Rights Agreement shall
have been duly executed and delivered by Parent to the Shareholders and shall
be in full force and effect.
(c) REPRESENTATIONS, WARRANTIES AND COVENANTS. The
representations and warranties of Parent and Merger Sub in this Agreement
shall be true and correct in all material respects on and as of the Effective
Time as though such representations and warranties were made on and as of
such time and Parent shall have performed and complied in all material
respects with all covenants, obligations and conditions of this Agreement
required to be performed and complied with by them as of the Effective Time.
(d) CERTIFICATE OF PARENT. The Company shall have been provided
with a certificate executed on behalf of Parent by its President or its Chief
Financial Officer to the effect that, as of the Effective Time:
(i) all representations and warranties made by Parent and
Merger Sub under this Agreement are true and complete in all material
respects; and
(ii) all covenants, obligations and conditions of this
Agreement to be performed by Parent and Merger Sub on or before such
date have been so performed in all material respects.
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(e) THIRD PARTY CONSENTS FOR PARENT. Any and all consents,
waivers and approvals required from third parties relating to the contracts
and agreements of Parent so that the Merger and other transactions
contemplated hereby do not adversely affect the rights of, and benefits to,
Parent thereunder shall have been obtained, including without limitation any
consents or waivers required under (i) the Investor Registration Rights
Agreement and (ii) that certain Underwriting Agreement, dated November 15,
1995 (the "Underwriting Agreement"), among Parent and Robertson, Stephens &
Company, L.P. and Piper Jaffray Inc., as representatives of the several
underwriters listed on Schedule A thereto, relating to Parent's initial
public offering.
(f) LEGAL OPINION. The Company shall have received a legal
opinion from Munsch Hardt Kopf Harr & Dinan, P.C., counsel to Parent,
substantially in the form of Exhibit 6.1(f) hereto.
(g) SATISFACTORY FORM OF LEGAL AND TAX MATTERS. The form, scope
and substance of all legal and tax matters contemplated hereby and all
closing documents and other papers delivered hereunder shall be reasonably
acceptable to the Company's counsel and accountants and to the Shareholders
and their legal counsel.
(h) SUNDQUIST SEVERANCE AGREEMENT. The Sundquist Severance
Agreement shall have been duly executed and delivered by the Company to John
Sundquist and shall be in full force and effect.
(i) PARENT SHARE PRICE. The Ten-Day Average Price shall be less
than or equal to $12.00.
6.2 CONDITIONS TO THE OBLIGATIONS OF PARENT AND MERGER SUB. The
obligations of Parent and Merger Sub to consummate and effect this Agreement
and the Merger shall be subject to the satisfaction at or prior to the
Effective Time of each of the following conditions, any of which may be
waived, in writing, exclusively by Parent:
(a) NO INJUNCTIONS OR RESTRAINTS; LEGALITY. No temporary
restraining order, preliminary or permanent injunction or other order issued
by any court of competent jurisdiction or other legal restraint or
prohibition preventing the consummation of the Merger shall be in effect, nor
shall any proceeding brought by an administrative agency or commission or
other governmental authority or instrumentality, domestic or foreign, seeking
any of the foregoing be pending; nor shall there be any action taken, or any
statute, rule, regulation or order enacted, entered, enforced or deemed
applicable to the Merger, which makes the consummation of the Merger illegal.
(b) SHAREHOLDER APPROVAL. The Shareholders shall have executed a
written consent approving this Agreement, the Merger and the other
transactions contemplated hereby.
(c) REPRESENTATIONS, WARRANTIES AND COVENANTS. The
representations and warranties of the Company and the Shareholders in this
Agreement shall be true and correct in all
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material respects on and as of the Effective Time as though such
representations and warranties were made on and as of such time and the
Company and the Shareholders shall have performed and complied in all
material respects with all covenants, obligations and conditions of this
Agreement required to be performed and complied with by it as of the
Effective Time.
(d) CERTIFICATE OF THE COMPANY. Parent shall have been provided
with a certificate executed on behalf of the Company by its President and
executed by Sundquist and Heiskell in their individual capacities to the
effect that, as of the Effective Time:
(i) all representations and warranties made by the Company
and Sundquist and Heiskell under this Agreement are true and complete
in all material respects; and
(ii) all covenants, obligations and conditions of this
Agreement to be performed by the Company or Sundquist and Heiskell on
or before such date have been so performed in all material respects.
(e) THIRD PARTY CONSENTS OF THE COMPANY. Any and all consents,
waivers and approvals required from third parties relating to the contracts
and agreements of the Company so that the Merger and other transactions
contemplated hereby do not adversely affect the rights of, and benefits to,
the Company thereunder shall have been obtained.
(f) THIRD PARTY CONSENTS FOR PARENT. Any and all consents,
waivers and approvals required from third parties relating to the contracts
and agreements of Parent so that the Merger and other transactions
contemplated hereby do not adversely affect the rights of, and benefits to,
Parent thereunder shall have been obtained, including without limitation any
consents or waivers required under (i) the Venture Investors Registration
Rights Agreement and (ii) the Underwriting Agreement.
(g) MODIFICATION TO THE DEL MAR LICENSE AGREEMENT. A modification
to the Software License Agreement, dated May 31, 1993 (the "Del Mar License
Agreement"), between Del Mar Software, Inc. and the Company substantially in
the form attached hereto as Exhibit 6.2(g) shall have been duly executed and
delivered by Del Mar Software, Inc. and the Company and shall be in full
force and effect, and a correct copy thereof shall have been delivered to
Parent.
(h) SATISFACTORY FORM OF LEGAL AND TAX MATTERS. The form, scope
and substance of all legal and tax matters contemplated hereby and all
closing documents and other papers delivered hereunder shall be reasonably
acceptable to Parent's counsel and accountants.
(i) LEGAL OPINION. Parent shall have received a legal opinion
from Michael J. Schneider, P.C., legal counsel to the Company and the
Shareholders, in substantially the form of Exhibit 6.2(i) hereto.
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(j) NO MATERIAL ADVERSE CHANGES. There shall not have occurred
any event, fact or condition which has had or reasonably would be expected to
have a Material Adverse Effect on the Company.
(k) SUNDQUIST SEVERANCE AGREEMENT. The Sundquist Severance
Agreement shall have been duly executed and delivered by John Sundquist to
the Company and shall be in full force and effect, and a correct copy thereof
shall have been delivered to Parent.
(l) PROPRIETARY INFORMATION AGREEMENT. Each current employee of
and each current consultant to the Company shall have executed and delivered
to the Company an agreement substantially in the form attached hereto as
Exhibit 6.2(l) containing nondisclosure and inventions assignment/ownership
provisions satisfactory to the Parent, and correct copies of all such
agreements shall have been delivered to Parent.
(m) PARENT SHARE PRICE. The Ten-Day Average Price shall be equal
to or greater than $7.00.
(n) BOOK VALUE. The book value of the Company (i.e., the
Company's total assets less total liabilities) shall be at least $300,000, as
reflected in an unaudited balance sheet of the Company as of March 31, 1996
prepared in accordance with GAAP (except for notes thereto), a copy of which
shall be provided to Parent at least seven calendar days prior to the Closing
Date.
(o) CONSENT AND CANCELLATION. Heiskell shall have executed and
delivered to Parent and the Company a consent and cancellation substantially
in the form attached hereto as Exhibit 6.2(o) pursuant to which, among other
things, any options held by Heiskell to acquire shares of Company Common
Stock shall be cancelled and of no further force or effect.
(p) EMPLOYEE RELEASES. Each current employee of the Company shall
have executed and delivered to Parent an employee release substantially in
the form attached hereto as Exhibit 6.2(p) that shall, among other things,
release all claims against the Company, including, but not limited to, those
for options, accrued vacation pay and bonuses (other than accrued vacation
pay and bonuses to which the employee is entitled at such time, as specified
in such employee release), and all such releases shall be in full force and
effect.
(q) TAXES. The Company shall have obtained such evidence as
Parent may deem necessary or desirable indicating that all Taxes and
assessments imposed by any Taxing authority on the Company or its assets have
been paid in full as of the Closing.
(r) PATENTS. Parent shall have received such evidence as Parent
may deem necessary or desirable indicating that the Company owns all right,
title and interest in and to United States Patent No. 4,862,159, which
relates to a centralized system for selecting and reproducing perceptible
programs, and documentation evidencing such ownership shall have been filed
with the United States Patent and Trademark Office.
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ARTICLE 7
SURVIVAL OF REPRESENTATIONS AND WARRANTIES; HOLDBACK
7.1 SURVIVAL OF REPRESENTATIONS AND WARRANTIES: INDEMNIFICATION.
(a) All covenants to be performed prior to the Effective Time, and
all representations and warranties in this Agreement or in any instrument
delivered pursuant to this Agreement shall survive the Merger and continue
until three (3) years following the Effective Time, provided that any
representation or warranty relating or pertaining to the Company's Taxes
shall terminate upon the expiration of all applicable statutes of limitations
relevant to the Company's Taxes or Tax matters. All covenants to be
performed after the Effective Time shall continue indefinitely.
(b) Subject to the limitations set forth in Section 7.3, Sundquist
hereby agrees to indemnify Parent (i) against any and all claims, losses,
expenses, liabilities or other damages, including reasonable attorneys' fees
("Losses"), that Parent or any of its affiliates has incurred or reasonably
anticipates incurring by reason of, arising out of or relating to (A) the
breach by the Company or the Shareholders of any representation, warranty,
covenant or agreement of the Company or the Shareholders contained herein or
(B) any claim brought by any former employee or consultant to the Company
that any such person has any interest, ownership or otherwise, in any Company
Intellectual Property Right, but only to the extent such Losses under this
clause (i) exceed $50,000 in the aggregate (the "Basket"), (ii) for the
amount, if any, by which the book value of the Company (i.e., the Company's
total assets less total liabilities) as of March 31, 1996 is less than
$300,000 as reflected in unaudited financial statements prepared in
accordance with GAAP, which shall be prepared by or on behalf of the Company
and approved in writing by Parent, and (iii) against any and all Losses that
Parent, the Company or any of their respective affiliates has incurred or
reasonably anticipates incurring by reason of, arising out of or relating to
(A) any claims or demands brought by or on behalf of Bernard Lieff or
Creative Business Services, Inc. ("CBS") under that certain Seller's
Authorization and Exclusive Fee Agreement dated July 21, 1995 (the "Fee
Agreement") between Sundquist and CBS (whether or not such potential claim or
demand is disclosed in the Company Schedules) or (B) any claims or demands
brought by any licensor of Commercial Software Rights that the Company has
breached or violated the terms of its license, sublicense or other agreement
relating to such Commercial Software Rights (whether or not such breach or
violation is disclosed in the Company Schedules). The Company and Parent
hereby acknowledge that the Company's indemnification obligations with
respect to the potential CBS dispute is a contractual obligation negotiated
between the Company and Parent and that the Company is in no way
acknowledging (and the existence of such indemnification obligation shall in
no way be construed as an admission by the Company as to) any liability to
either Bernard Lieff or CBS, whether in contract or in tort.
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(c) Heiskell hereby agrees to indemnify Parent against any and all
Losses that Parent or any of its affiliates has incurred or reasonably
anticipates incurring by reason of the breach by the Company or the
Shareholders of any representation or warranty of the Company or the
Shareholders contained in Section 2.11 hereof, but solely to the extent such
representations or warranties relate to software or other intellectual
property licensed by the Company under the Del Mar License Agreement.
(d) Heiskell's indemnification obligation under Section 7.1(c)
will be both several and joint with Sundquist. Sundquist's indemnification
obligation under Section 7.1(b) will be joint with Heiskell with respect to
the representations and warranties made under Section 2.11 and will be
several with respect to all other representations, warranties, covenants and
agreements of the Company or the Shareholders contained herein. Parent will
be entitled to seek indemnification for Losses against either Sundquist or
Heiskell hereunder (to the extent Sundquist or Heiskell, as the case may be,
is liable for such Losses) without first having to seek indemnification
against the other.
7.2 HOLDBACK FOR CLAIMS.
(a) RECOURSE TO HOLDBACK ACCOUNT. At the Effective Time, twenty
percent (20%) of the shares of Parent Common Stock to be issued to Sundquist
in the Merger (plus any additional New Shares (as defined below) as may be
issued in respect thereof after the Closing) (collectively, the "Holdback
Shares"), will be issued in the name of Sundquist and held by Parent to
partially secure the indemnification obligations of Sundquist under Section
7.1(b). None of the shares of Parent Common Stock issued to Heiskell in the
Merger will be held back to secure Heiskell's indemnification obligations
under Section 7.1(c).
(b) HOLDBACK PERIOD: DISTRIBUTION UPON TERMINATION OF HOLDBACK
PERIOD. Subject to the following requirements, the Holdback Shares shall be
retained by Parent for a period of one year after the Effective Time (the
"Holdback Period"); provided, however, that if prior to the expiration of the
Holdback Period Parent, the Company and their respective affiliates,
officers, directors, employees, agents and representatives are fully,
completely and forever released and discharged in writing by CBS and Bernard
Lieff from any and all claims and demands under the Fee Agreement, including
without limitation any claims or demands relating to or arising out of the
Merger, then upon delivery of such a fully executed release to Parent,
one-half of the original Holdback Shares (i.e., 10% of the shares of Parent
Common Stock issued to Sundquist in the Merger) will be released from
holdback and delivered to Sundquist. Upon the expiration of the Holdback
Period, the Company will deliver to Sundquist the remaining Holdback Shares;
provided, however, that the number of Holdback Shares with a value
(determined as set forth in Section 7.2(e)(ii)) equal to the amount of the
Losses or other indemnification obligations as to which the Parent has
properly made a claim under Section 7.2(e), shall be retained by Parent until
such claims have been resolved. As soon as all such claims have been
resolved, Parent shall deliver to Sundquist all Holdback Shares and other
property being retained by Parent and not required to satisfy such claims.
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(c) PROTECTION OF HOLDBACK SHARES. The Parent shall hold and
safeguard the Holdback Shares during the term of the Holdback Period, shall
treat such Holdback Shares as a trust fund in accordance with the terms of
this Agreement and not as the property of Parent and shall hold and dispose
of the Holdback Shares only in accordance with the terms hereof.
(d) DISTRIBUTIONS; VOTING.
(i) Any shares of Parent Common Stock or other equity
securities issued or distributed by Parent (including shares issued upon a
stock split) ("New Shares") in respect of Holdback Shares which have not been
released to Sundquist shall be added to the Holdback Shares and become a part
thereof. New Shares issued in respect of Holdback Shares which have been
released shall not be added to the Holdback Shares, but shall be distributed
to the holders thereof. When and if cash dividends on Holdback Shares shall
be declared and paid, they shall not be added to the Holdback Shares but
shall be paid to those on whose behalf such Parent Common Stock is held.
(ii) Sundquist shall be the record owner of the Holdback
Shares and shall have voting rights with respect to the Holdback Shares
(including any New Shares that are voting securities) so long as such
Holdback Shares are retained by Parent.
(e) CLAIM UPON HOLDBACK SHARES.
(i) Upon notification to Sundquist by Parent at any time on
or before the last day of any Holdback Period:
(A) that Parent has paid or properly accrued or
reasonably anticipates that it will have to pay or accrue Losses in an
aggregate stated amount to which Parent is entitled to indemnity pursuant to
this Agreement or that the book value of the Company has been determined, in
accordance with Section 7.1(b), to have been less than $300,000 as of March
31, 1996, and
(B) in the case of Losses, specifying in reasonable
detail the individual items of Losses included in the amount so stated, the
date each such item was paid or properly accrued, or the basis for such
anticipated liability, and the nature of the misrepresentation or breach of
warranty, if any, or claim to which such item is related; then Parent shall,
unless Sundquist objects in accordance with the provisions of Section 7.2(f)
hereof, deduct shares of Parent Common Stock having a value equal to such
Losses or book value differential from the Holdback Shares; provided, that
Parent shall not be entitled to deduct such shares with respect to Losses
arising out of a claim against the Company or Parent by a third party until
such Losses are actually paid by Parent.
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(ii) For the purposes of determining the number of shares of
Parent Common Stock to be deducted from the Holdback Shares pursuant to
Section 7.2(e)(i), the shares of Parent Common Stock shall be valued at the
Ten-Day Average Price.
(iii) Sundquist shall have, at his sole election, the option to
substitute cash for the Parent Common Stock held in the Holdback Shares in
respect of such claims.
(iv) For purposes of Section 7.2(e)(i)(A), the Parent will not
be deemed to have properly accrued or to have reasonably anticipated paying
or accruing a Loss arising from a claim against the Parent or the Company by
a third party unless, and then only to the extent that, such third party has
actually asserted a claim (which claim shall be resolved in the manner set
forth in Section 7.2(g)).
(f) OBJECTIONS TO CLAIMS. At the time of receipt of any
notification as set forth in Section 7.2(e)(i), Sundquist shall have a period
of thirty (30) days after such delivery to object in a written statement to
the claim made in the notification, and such statement shall have been
delivered to Parent prior to the expiration of such thirty (30) day period.
If Parent does not receive any such objection within such thirty (30) day
period, Parent may deduct the shares of Parent Common Stock from the Holdback
Shares. Parent shall not be entitled to deduct such shares with respect to
Losses arising out of a claim against the Company or Parent by a third party
until such Losses are actually paid by Parent. If Parent receives such
objection, Parent will not deduct any shares from the Holdback Shares until
the matter is resolved pursuant to Section 7.2(g).
(g) RESOLUTION OF CONFLICTS; ARBITRATION.
(i) In case Sundquist shall so object in writing to any claim
or claims made in any notification, Sundquist and Parent shall attempt in
good faith to agree upon the rights of the respective parties with respect to
each of such claims. If Sundquist and Parent should so agree, a memorandum
setting forth such agreement shall be prepared and signed by both parties.
(ii) If no such agreement can be reached after good faith
negotiation, either Parent or Sundquist may demand arbitration of the matter,
unless (in the case of Losses) the amount of the damage or loss is at issue
in pending litigation with a third party, in which event arbitration shall
not be commenced until such amount is ascertained or both parties agree to
arbitration; and in either such event the matter shall be settled by
arbitration conducted by three arbitrators. Parent and Sundquist shall each
select one arbitrator, and the two arbitrators so selected shall select a
third arbitrator. Each arbitrator shall have at least five years experience
arbitrating disputes in the areas of law encompassed by the transactions
contemplated by this Agreement. The arbitrators shall set a limited time
period and establish procedures designed to reduce the cost and time for
discovery while allowing the parties an opportunity, adequate in the sole
judgment of the arbitrators, to discover relevant information from the
opposing parties about the subject matter of the dispute. The arbitrators
shall rule upon motions to compel or limit discovery and shall have the
authority to impose sanctions, including attorneys fees and costs, to the
same extent as a court of competent law
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or equity, should the arbitrators determine that discovery was sought without
substantial justification or that discovery was refused or objected to
without substantial justification. Any such award of attorneys fees and
costs, but not sanctions, shall be subject to the limitations set forth in
Section 7.3. The decision of a majority of the three arbitrators as to the
validity and amount of any claim in such notification shall be binding and
conclusive upon the parties to this Agreement, and notwithstanding anything
in Section 7.2(f) hereof, Parent shall be entitled to act in accordance with
such decision and deduct shares of Parent Common Stock from the Holdback
Shares in accordance therewith. Such decision shall be written and shall be
supported by written findings of fact and conclusions which shall set forth
the award, judgment, decree or order awarded by the arbitrators. The
arbitration award shall be based upon applicable law and judicial precedent.
(iii) Judgment upon any award rendered by the arbitrators may
be entered in any court having jurisdiction. Any such arbitration shall be
held in Dallas, Texas under the rules then in effect of the American
Arbitration Association. For purposes of this Section 7.2(g), in any
arbitration hereunder in which any claim or the amount thereof stated in the
Officer's Certificate is at issue, Parent shall be deemed to be the
"Non-Prevailing Party" in the event that the arbitrators award Parent less
than 60% of the disputed amount plus any amounts not in dispute; otherwise,
Sundquist shall be deemed to be the "Non-Prevailing Party." The
Non-Prevailing Party to an arbitration shall pay its own expenses, the fees
of each arbitrator, the administrative fee of the American Arbitration
Association, and the expenses, including without limitation, reasonable
attorneys' fees and costs, incurred by the other party to the arbitration.
(h) THIRD PARTY CLAIMS. In the event a third-party claim is
asserted which Parent believes may result in a Loss, Parent shall promptly
notify Sundquist of such claim, and Sundquist shall have the right to defend
against such claim; provided, however, that if (i) such third party claim is
made by a vendor, customer or other person with which the Parent has a
business relationship that the Parent deems important to Parent's business or
(ii) the amount of the claim (when added together with all other Losses
claimed by the Parent) exceeds by more than 10% the maximum limit of
Sundquist's indemnification obligation under Section 7.3 at the time the
Parent receives the claim, Parent shall have the right to control and direct
the defense of such claim (including any settlement thereof) and Sundquist
shall be entitled, at his expense, to participate in any defense of such
claim. No settlement of any such claim with third-party claimants by the
Parent without Sundquist's consent shall alone be determinative of the
validity of any claim by the Parent for indemnification. In the event that
Sundquist has consented to any such settlement, Sundquist shall have no power
or authority to object under any provision of this Article 7 to the amount of
any claim by Parent against the Holdback Shares with respect to such
settlement.
(i) NO LIMITATION. The existence of this Section 7.2 and the
rights set forth herein are not intended to limit any other claims by Parent
for indemnification against Sundquist or Heiskell.
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7.3 ADDITIONAL PROVISIONS RELATING TO INDEMNIFICATION
(a) In the event that the Parent desires to make a claim for
indemnification against Sundquist under Section 7.1(b), Parent must first
proceed against the Holdback Shares if the Holdback Period has not terminated
pursuant to Section 7.2(b). If the amount of the Losses or the book value
differential claimed by Parent under Section 7.1(b) exceeds the value
(determined in accordance with Section 7.2(e)(ii)) of the remaining Holdback
Shares, Parent may claim indemnification directly from Sundquist, subject to
the limitations set forth in this Section 7.3.
(b) Parent's right to indemnification from Sundquist (including
both claims against the Holdback Shares and additional claims contemplated by
Section 7.3(a)) and Heiskell shall in no event, other than for fraud, exceed
an amount equal to the Ten-Day Average Price (as adjusted for any stock
splits, stock dividend, or reverse stock splits after the Effective Time)
multiplied by the total number of shares of Parent Common Stock issued in the
name of such Shareholder (as adjusted for any stock splits, stock dividend,
or reverse stock splits after the Effective Time).
(c) In the event that Parent makes a claim for indemnification
against Sundquist other than against the Holdback Shares or against Heiskell,
Parent and Sundquist or Heiskell, as the case may be, shall follow the
procedures set forth in Section 7.2, including Section 7.2(h), to resolve
such claims (and, in the case of claims against Heiskell, references to
Sundquist in Section 7.2(h) shall be deemed to be references to Heiskell).
(d) After the Closing, the sole remedy of Parent against Heiskell
with respect to any breach or threatened breach by Heiskell of a
representation, warranty, covenant or agreement contained herein, whether any
such claims are in tort or contract, shall be limited to the enforcement by
Parent of Heiskell's indemnification obligations set forth in Article 7
hereof and Parent shall have no other remedy with respect thereto.
7.4 NO CLAIMS BY SHAREHOLDER AGAINST THE COMPANY. The parties
acknowledge that inasmuch as the Company will be a wholly owned subsidiary of
Parent after the Effective Time, in the event that the Parent makes a claim
for indemnification against Sundquist or Heiskell pursuant to this Article 7,
such Shareholder shall have no right to make any claim, cross claim or
counter claim against the Company for indemnification, contribution or
otherwise.
ARTICLE 8
TERMINATION, AMENDMENT AND WAIVER
8.1 TERMINATION. This Agreement may be terminated and the Merger
abandoned at any time prior to the Effective Time:
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(a) by mutual consent of the Company, Parent and the Shareholders;
(b) by Parent if it is not in material breach of its obligations
under this Agreement and there has been a material breach of any
representation, warranty, covenant or agreement contained in this Agreement
on the part of the Company or the Shareholders and such breach has not been
cured within 15 days after notice to the Company;
(c) by the Company, if it is not in material breach of its
respective obligations under this Agreement and there has been a material
breach of any representation, warranty, covenant or agreement contained in
this Agreement on the part of Parent or Merger Sub and such breach has not
been cured within 15 days after notice to Parent;
(d) by Parent or the Company if: (i) there shall be a final
nonappealable order of a federal or state court in effect preventing
consummation of the Merger; (ii) there shall be any action taken, or any
statute, rule, regulation or order enacted, promulgated or issued or deemed
applicable to the Merger by any Governmental Entity which would make
consummation of the Merger illegal; or (iii) there shall be any action taken,
or any statute, rule, regulation or order enacted, promulgated or issued or
deemed applicable to the Merger by any Governmental Entity, which would (A)
prohibit Parent's or the Company's ownership or operation of all or a
material portion of the business of the Company, or compel Parent or the
Company to dispose of or hold separate all or a material portion of the
business or assets of the Company or Parent as a result of the Merger or (B)
render Parent, Merger Sub or the Company unable to consummate the Merger,
except for any waiting period provisions; or
(e) by Parent or the Company if the Merger has not become
effective on or prior to June 30, 1996.
Where action is taken to terminate this Agreement pursuant to this
Section 8.1, it shall be sufficient for such action to be authorized by the
Board of Directors (as applicable) of the party taking such action.
8.2 EFFECT OF TERMINATION. In the event of termination of this
Agreement as provided in Section 8.1, this Agreement shall forthwith become
void and there shall be no liability or obligation on the part of Parent,
Merger Sub or the Company or their respective officers, directors or
shareholders, including the Shareholders, except if such termination results
from the breach by a party hereto of any of its representations, warranties,
covenants or agreements set forth in this Agreement.
8.3 AMENDMENT. This Agreement may be amended by the parties, at any
time, but only by a written document signed by the Company, Parent and the
Shareholders who, immediately prior to the Effective Time, owned a majority
of the issued and outstanding shares of the Company Common Stock.
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8.4 EXTENSION; WAIVER. At any time prior to the Effective Time any
party hereto may, to the extent legally allowed, (i) extend the time for the
performance of any of the obligations or other acts of the other parties
hereto, (ii) waive any inaccuracies in the representations and warranties
made to such party contained herein or in any document delivered pursuant
hereto and (iii) waive compliance with any of the agreements or conditions
for the benefit of such party contained herein. Any agreement on the part of
a party hereto to any such extension or waiver shall be valid only if set
forth in an instrument in writing signed on behalf of such party.
ARTICLE 9
GENERAL PROVISIONS
9.1 NOTICES. All notices and other communications hereunder shall be
in writing and shall be deemed given and received if delivered personally or
by commercial delivery service, or mailed by registered or certified mail
(return receipt requested) or sent via telecopy to the parties at the
following addresses (or at such other address for a party as shall be
specified by like notice):
(a) if to Parent or Merger Sub, to:
AMX Corporation
11995 Forestgate Drive
Dallas, TX 75243
Attention: Joe Hardt, President
Telephone: (214) 644-3048
Facsimile: (214) 907-6234
with a copy to:
Munsch Hardt Kopf Harr & Dinan
4000 Fountain Place
1445 Ross Avenue
Dallas, TX 75202-2790
Attention: A. Michael Hainsfurther, Esq.
Telephone: (214) 855-7500
Facsimile: (214) 855-7584
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(b) if to the Company or to any Shareholder, to:
SPS International, Inc.,
doing business as AudioEase
15350 East Hinsdale Drive
Englewood, CO 80112
Attention: John P. Sundquist, President
Telephone: (303) 766-9300
Facsimile: (303) 766-9400
with a copy to:
Michael J. Schneider, P.C.
1888 Sherman Street
Suite 640
Denver, CO 80203
Attention: Michael J. Schneider, Esq.
Telephone: (303) 860-8441
Facsimile: (303) 860-8260
9.2 INTERPRETATION. When a reference is made in this Agreement to
Schedules or Exhibits, such reference shall be to a Schedule or Exhibit to
this Agreement unless otherwise indicated. The words "include," "includes"
and "including" when used herein shall be deemed in each case to be followed
by the words "without limitation." The table of contents and headings
contained in this Agreement are for reference purposes only and shall not
affect in any way the meaning or interpretation of this Agreement.
9.3 COUNTERPARTS. This Agreement may be executed in one or more
counterparts, all of which shall be considered one and the same agreement and
shall become effective when one or more counterparts have been signed by each
of the parties and delivered to the other party, it being understood that all
parties need not sign the same counterpart.
9.4 MISCELLANEOUS. This Agreement and the documents and instruments
and other agreements among the parties hereto (a) constitute the entire
agreement among the parties with respect to the subject matter hereof and
supersede all prior agreements and understandings, both written and oral
among the parties with respect to the subject matter hereof, including the
parties' letter of intent with respect to this transaction; (b) are not
intended to confer upon any other person any rights or remedies hereunder;
and (c) shall not be assigned by operation of law or otherwise except as
otherwise specifically provided.
9.5 GOVERNING LAW. This Agreement shall be governed in all respects,
including validity, interpretation and effect, by the laws of the State of
Texas. All parties hereto agree to submit to the
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jurisdiction of the federal and state courts of the State of Texas, and
further agree that service of documents commencing any suit therein may be
made as provided in Section 9.1.
9.6 ATTORNEYS' FEES. Subject to the provisions of Section 7.2(g)(iii)
which shall govern the awarding of attorneys' fees in any arbitration
conducted pursuant to Section 7.2(g), if any party to this Agreement brings
an action against another party to this Agreement to enforce its rights under
this Agreement, the prevailing party shall be entitled to recover its
reasonable costs and expenses, including reasonable attorneys' fees and
costs, incurred in connection with such action, including any appeal of such
action.
9.7 ARBITRATION. Except as otherwise provided in Article 7, any
controversy or claim arising out of or relating to this Agreement or the
breach thereof, including the applicability of this Section 9.7, shall be
settled by binding arbitration in accordance with the rules of the American
Arbitration Association, and judgment upon the award rendered by the
arbitrator(s) may be entered in any court having jurisdiction thereof, except
that the arbitration procedures outlined in paragraphs 7.2(g)(ii) and
7.2(g)(iii) shall govern any arbitration proceeding.
9.8 RULES OF CONSTRUCTION. The parties hereto agree that they have
been represented by counsel during the negotiation and execution of this
Agreement and, therefore, waive the application of any law, regulation,
holding or rule of construction providing that ambiguities in an agreement or
other document will be construed against the party drafting such agreement or
document.
9.9 DEFINITIONS. Terms used herein with initial capital letters shall
have the respective meanings set forth below:
"Agreement" shall have the meaning set forth in the introductory
paragraph of this Agreement.
"Articles of Merger" shall have the meaning set forth in Section 1.2.
"Basket" shall have the meaning set forth in Section 7.1(b).
"Business" shall have the meaning set forth in Section 2.12.
"CBCA" shall have the meaning set forth in Section 1.7(a).
"CBS" shall have the meaning set forth in Section 7.1(b).
"Closing" shall have the meaning set forth in Section 1.2.
"Closing Date" shall have the meaning set forth in Section 1.2.
"COBRA" shall have the meaning set forth in Section 2.20.
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"Code" shall have the meaning set forth in Recital D.
"Commercial Software Rights" shall have the meaning set forth in Section
2.11(b).
"Company" shall have the meaning set forth in the introductory paragraph
of this Agreement.
"Company Authorizations" shall have the meaning set forth in Section
2.14.
"Company Balance Sheet" shall have the meaning set forth in Section
2.5(a).
"Company Common Stock" shall have the meaning set forth in Section 1.6.
"Company Intellectual Property Rights" shall have the meaning set forth
in Section 2.11(a).
"Company Schedules" shall have the meaning set forth in the introductory
paragraph of Section 2.
"Conversion Ratio" shall have the meaning set forth in Section 1.6(f).
"Daniels" shall have the meaning set forth in the introductory paragraph
of this Agreement.
"Del Mar License Agreement" shall have the meaning set forth in Section
6.2(g).
"Dissenter" shall have the meaning set forth in Section 1.7(a).
"Dissenters' Shares" shall have the meaning set forth in Section 1.7(a).
"Effective Time" shall have the meaning set forth in Section 1.2.
"Employee Plans" shall have the meaning set forth in Section 2.26(a).
"End-User Licenses" shall have the meaning set forth in Section 2.11(a).
"Equipment" shall have the meaning set forth in Section 2.10(c).
"ERISA" shall have the meaning set forth in Section 2.26(a).
"ERISA Affiliates" shall have the meaning set forth in Section 2.26(a).
"Expenses" shall have the meaning set forth in Section 5.5.
"Fee Agreement" shall have the meaning set forth in Section 7.1(b).
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"Financial Statements" shall have the meaning set forth in Section
2.5(a).
"GAAP" shall have the meaning set forth in Section 2.5(a).
"Gleason" shall have the meaning set forth in the introductory paragraph
of this Agreement.
"Governmental Entity" shall have the meaning set forth in Section 2.4.
"Heiskell" shall have the meaning set forth in the introductory
paragraph of this Agreement.
"Holdback Period" shall have the meaning set forth in Section 7.2(b).
"Holdback Shares" shall have the meaning set forth in Section 7.1(a).
"Investor Registration Rights Agreement" means that certain Registration
Rights Agreement dated as of March 30, 1995, among the Parent, the persons
set forth in Schedule 1 attached thereto, and certain other parties thereto
who are named therein, as amended by that certain First Amendment to
Registration Rights Agreement entered into as of September 12, 1995.
"IRS" shall have the meaning set forth in Section 2.26(b).
"Losses" shall have the meaning set forth in Section 7.1(b).
"Material Adverse Effect" shall have the meaning set forth in Section
2.1.
"Merger" shall have the meaning set forth in Recital A.
"Merger Consideration" shall have the meaning set forth in Section 1.6.
"Merger Sub" shall have the meaning set forth in the introductory
paragraph of this Agreement.
"Munroe" shall have the meaning set forth in the introductory paragraph
of this Agreement.
"New Shares" shall have the meaning set forth in Section 7.2(d)(i).
"Non-Competition Period" shall have the meaning set forth in Section
5.12.
"Notes" shall have the meaning set forth in Section 5.15(b).
"Parent" shall have the meaning set forth in the introductory paragraph
of this Agreement.
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"Parent Schedules" shall have the meaning set forth in the introductory
paragraph of Section 3.
"Parent Common Stock" shall have the meaning set forth in Section 1.6.
"Plan" shall have the meaning set forth in Section 2.29(g)(iii).
"Predecessor" shall have the meaning set forth in Section 5.15(b).
"Projections" shall have the meaning set forth in Section 2.5(b).
"Registration Rights Agreement" shall have the meaning set forth in
Section 5.1.
"Registration Statement" shall have the meaning set forth in Section 5.1.
"Restricted Area" shall have the meaning set forth in Section 5.12.
"Returns" shall have the meaning set forth in Section 2.8(a).
"Sale" shall have the meaning set forth in Section 2.29(g)(iii).
"SEC" shall have the meaning set forth in Section 2.29(a).
"Securities Act" shall have the meaning set forth in Section 2.29(a).
"SEC Documents" shall have the meaning set forth in Section 3.4.
"Shareholders" shall have the meaning set forth in the introductory
paragraph of this Agreement.
"Sundquist" shall have the meaning set forth in the introductory
paragraph of this Agreement.
"Sundquist Severance Agreement" shall have the meaning set forth in
Section 5.13.
"Surviving Corporation" shall have the meaning set forth in Section 1.1.
"Tax" or "Taxes" shall have the meaning set forth in Section 2.8(a).
"Ten-Day Average Price" shall have the meaning set forth in Section 1.6.
"Underwriting Agreement" shall have the meaning set forth in Section
6.1(e).
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IN WITNESS WHEREOF, Parent, Merger Sub, the Company and the Shareholders
have caused this Agreement to be signed by themselves or their duly
authorized respective officers, all as of the date first written above.
AMX CORPORATION
By:
--------------------------------
Its:
--------------------------------
AMX ACQUISITION CORPORATION
By:
--------------------------------
Its:
--------------------------------
SPS INTERNATIONAL, INC.
By:
--------------------------------
Its:
--------------------------------
------------------------------------
JOHN P. SUNDQUIST
------------------------------------
SANDRA P. SUNDQUIST
------------------------------------
DONALD J. HEISKELL
------------------------------------
JANICE T. HEISKELL
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------------------------------------
BRUCE R. MUNROE
------------------------------------
DAVID A. DANIELS
------------------------------------
THOMAS J. GLEASON
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EXHIBIT 23.1
TO
FORM 8-K
FOR
AMX CORPORATION
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration Statement (Form
S-8 No. 333-02202) pertaining to the AMX Corporation 1996 Employee Stock
Purchase Plan, the AMX Corporation 1995 Director Stock Option Plan, the AMX
Corporation 1995 Stock Option Plan, and the AMX Corporation 1993 Stock Option
Plan of our report dated April 19, 1996 with respect to the financial statements
of SPS International, Inc. dba AudioEase, Inc. as of and for the year ended
August 31, 1995 included in this Report on Form 8-K.
ERNST & YOUNG LLP
Dallas, Texas
May 29, 1996
