AGREEMENT AND PLAN OF MERGER
AGREEMENT, (hereinafter, together with the Exhibits
annexed hereto the "Agreement") made and entered into as of
the 6th day of October, 1995, by and among TSI
INCORPORATED, a Minnesota corporation, having its principal
place of business at 000 Xxxxxxxx Xxxx, X.X. 00000, Xx.
Xxxx, Xxxxxxxxx 00000 ("TSI"), TSI DOMESTIC INTERNATIONAL
SALES CORPORATION, a Minnesota corporation and a
wholly-owned subsidiary of TSI having its principal place of
business at 000 Xxxxxxxx Xxxx, X.X. 00000, Xx. Xxxx,
Xxxxxxxxx 00000 ("Newco), and AEROMETRICS, INC., a
California corporation, having its principal place of
business at 000 Xxxxx Xxxx Xxxxxx, Xxxxxxxxx, Xxxxxxxxxx
00000 (the "Company"), and XXXXXXX X. XXXXXXX, an individual
residing at 00000 Xxxxxxxxxxx Xxx, Xxx Xxxxx Xxxxx,
Xxxxxxxxxx 00000 (the "Principal Shareholder").
RECITALS
The Boards of Directors of TSI and Newco, TSI in its
capacity as a shareholder of Newco and the Principal
Shareholder and the Board of Directors of the Company,
deeming it advisable for the mutual benefit of TSI, Newco
and the Company and their respective shareholders that TSI
acquire the Company by the merger of the Company and Newco
under the terms and conditions hereinafter set forth (the
"Merger"), have approved this Agreement and Plan of Merger
(the "Agreement").
NOW, THEREFORE, in consideration of mutual covenants,
agreements, representations and warranties herein contained,
the parties hereby agree that the Company and Newco shall be
merged and that the terms and conditions of the Merger and
the mode of carrying the same into effect shall be as
follows:
ARTICLE I
PLAN OF MERGER
SECTION 1.1 Actions to be Taken. Upon performance of
all of the covenants and obligations of the parties
contained herein and upon fulfillment (or waiver) of all of
the conditions to the obligations of the parties contained
herein, at the Effective Time of the Merger (as hereinafter
defined) and pursuant to the Business Corporation Act of the
State of Minnesota (the "MBCA") and the California
Corporation Code (the "CCC"), the following shall occur:
1.1.1 The Company shall be merged with and into
Newco, which shall be the surviving corporation (the
"Surviving Corporation"). The separate existence and
corporate organization of the Company shall cease at the
Effective Time of the Merger, and thereupon the Company and
Newco shall be a single corporation, the name of which shall
be Aerometrics, Inc. Newco, as the Surviving Corporation,
shall succeed, insofar as permitted by law, to all of the
rights, assets, liabilities and obligations of the Company
in accordance with the MBCA and CCC.
1.1.2 The Articles of Incorporation of Newco shall
be and remain the articles of incorporation of the Surviving
Corporation until amended as provided by law.
1.1.3 The By-Laws of Newco shall be and remain the
by-laws of the Surviving Corporation until amended as
provided by law.
1.1.4 Until changed in accordance with the articles
of incorporation and by-laws of the Surviving Corporation,
Xxxxxxx X. Xxxxxxx, Xxxxx X. Xxxxxxxxx, and Xxxxxx Xxxxxxx
shall be the directors of the Surviving Corporation.
1.1.5 Until changed in accordance with the articles
of incorporation and by-laws of the Surviving Corporation,
the following persons shall be the officers of the Surviving
Corporation:
Name Office
Xxxxx X. Xxxxxxxxx Chairman
Xxxxxxx X. Xxxxxxx President
Xxxxxx Xxxxxxx Vice President, Treasurer and
Assistant Secretary
Xxxxx Xxxxxxxx Secretary
1.1.6 As soon as practicable after the terms and
conditions of this Agreement have been satisfied, and upon
consummation of the closing referred to in Article IX hereof
(the "Closing"), articles of merger consistent with this
Agreement in the form prescribed by, and properly executed
in a accordance with, the MBCA and the CCC, in form and
substance satisfactory to the parties hereto and providing
for immediate effectiveness of the Merger (the "Articles of
Merger"), shall be filed with the Secretary of State of the
State of Minnesota and the Secretary of State of the State
of California. The Merger shall become effective on the
date on which the Articles of Merger are properly filed with
the Secretary of State of Minnesota pursuant to the MBCA, so
long as the Articles of Merger are filed with Secretary of
State of California within six months thereafter pursuant to
the CCC. As used in this Agreement, the "Effective Time of
the Merger" shall mean the date of filing with the Secretary
of State of Minnesota.
SECTION 1.2 Common Stock of Surviving Corporation.
Following the Effective Time of the Merger, each of the
issued and outstanding shares of common stock of Newco
shall, by virtue of the Merger and without any action on the
part of TSI continue to be outstanding shares of common
stock of the Surviving Corporation. Each share shall be
fully paid and non-assessable.
SECTION 1.3 Definitions. For purposes of this
Agreement, the following terms shall have the following
meanings:
1.3.1 The term "Average Price" shall mean the
average (rounded to the nearest xxxxx) of each "Mid-Price"
(as defined herein) of TSI Common Stock during the Trading
Period (as defined herein). The "Trading Period" shall mean
the period of forty (40) consecutive trading days ending on
and including October 2, 1995; provided, however, that if no
trades occur on any of such trading days, the trading days
on which no trades occur shall be disregarded and a
sufficient number of trading days on which trades did occur
and which immediately preceded the 40 consecutive trading
days shall be added to the Trading Period so that there will
be a total of 40 trading days on which trades occurred. The
Mid-Price for those days shall be employed for the
calculations described herein. For purposes of this
Agreement, the term "Mid-Price" on each trading day shall
mean the median between the high and the low trade prices
for all of the stock trades of TSI's Common Stock traded on
such trading day as quoted on the National Market System of
the National Association of Securities Dealers Automated
Quotation System (as reported in the Wall Street Journal).
No party hereto shall, or shall cause or solicit its
officers, directors, employees or agents to, make any trades
in TSI Common Stock that have the effect of materially
increasing the Average Price.
1.3.2 The term "Number of Outstanding Shares" shall
be the number of issued and outstanding shares of the
Company Common Stock at the Effective Time of the Merger.
1.3.3 The term "Cash Conversion Number" shall be
the dollar amount equal to the result obtained by dividing
an amount equal to (i) $1,045,000 (as it may be adjusted
pursuant to Section 1.6 hereof) less (ii) the Option
Payment, by the Number of Outstanding Shares.
1.3.4 The term "Number of TSI Shares" shall mean
the number of TSI Shares to be issued in the Merger, which
number shall be the result obtained by dividing $1,600,000
(as it may be adjusted pursuant to Section 1.6 hereof) by
the Average Price.
1.3.5 The term "Option Payment" shall mean the
dollar amount paid by the Company to buy out the option held
by Xxxxxxx Xxxxxx as described in greater detail in Section
1A.1 hereof.
1.3.6 The term "Share Conversion Number" shall be
the number (as it may be adjusted pursuant to Section 1.6
hereof) obtained by dividing the Number of TSI Shares by the
Number of Outstanding Shares.
1.3.7 The term "Effective Date" shall mean October
1, 1995 effective as of the opening of business on said
date.
SECTION 1.4 Cancellation or Conversion of Company
Common Stock. As of the Effective Time of the Merger, by
virtue of the Merger and without any action on the part of
any Shareholders:
1.4.1 Treasury Shares. The Company has no treasury
shares.
1.4.2 Conversion. Except as provided herein with
respect to Dissenting Shares (as hereinafter defined) and
fractional shares, at the Effective Time of the Merger, each
share of Company Capital Stock, of no par value (the
"Company Common Stock") which is issued and outstanding
shall be converted into (i) a number of shares of the common
stock of TSI, $.10 par value ("TSI Common Stock"), equal to
the Share Conversion Number, (as it may be adjusted pursuant
to Section 1.6 hereof and subject to adjustment pursuant to
Section 1.5 hereof), and (ii) an amount of cash equal to the
Cash Conversion Number (as it may be adjusted pursuant to
Section 1.6 hereof).
1.4.3 Fractional Shares. In lieu of the issuance
or recognition of fractional shares of TSI Common Stock or
interests or rights therein, each holder of shares of
Company Common Stock to be converted into TSI Common Stock
pursuant to Section 1.4.2 hereof shall be paid an amount in
cash equal to such fraction multiplied by the Average Price.
1.4.4 Surrender of Shares. After the Effective
Time of the Merger, each holder of an outstanding
certificate or certificates theretofore representing shares
of Company Common Stock converted into TSI Common Stock
pursuant to Section 1.4.2 hereof ("Company Stock
Certificates"), upon surrender thereof either to TSI, its
representative or Norwest Bank, N.A., TSI's transfer agent
(the "Transfer Agent"), shall be entitled to receive
(subject to the escrow provisions hereinafter set forth) in
exchange therefor (i) the total cash conversion amounts for
such shares pursuant to Section 1.4.2 hereof, (ii) any
payment due in lieu of fractional shares pursuant to Section
1.4.3 hereof, and (iii) a certificate or certificates
representing the number of whole shares of TSI Common Stock
into which the shares of Company Common Stock theretofore
represented by such surrendered certificate or certificates
shall have been converted pursuant to Section 1.4.2 hereof.
TSI shall immediately wire the funds representing the cash
conversion amount to which the Principal Shareholder is
entitled at Closing upon receipt of the certificates of the
Principal Shareholder.
Until so surrendered, each outstanding Company Stock
Certificate shall be deemed for all purposes, other than as
provided below with respect to the payment of dividends or
other distributions, if any, in respect of TSI Common Stock,
to represent the cash conversion amounts for the shares
represented by the certificate plus the number of whole
shares of TSI Common Stock into which the shares of Company
Common Stock theretofore represented thereby shall have been
converted. Until so surrendered, TSI may, at its option,
refuse to pay any dividend or other distribution, if any,
payable to the holders of shares of TSI Common Stock to the
holders of Company Stock Certificates; provided, however,
that upon surrender and exchange of such Company Stock
Certificates there shall be paid to the record holders of
the TSI stock certificates or certificates issued in
exchange therefor the amount, without interest, of dividends
and other distributions, if any, which have become payable
and which have not previously been paid with respect to the
number of whole shares of TSI Common Stock then issued,
together with, without interest, any payment for fractional
shares required by Section 1.4.3 hereof, and, without
interest, the cash conversion amount for the shares of
Company Common Stock.
Whether or not a Company Stock Certificate is
surrendered, from and after the Effective Time of the Merger
such certificate shall under no circumstances evidence,
represent or otherwise constitute any stock or other
interest whatsoever in the Company, the Surviving
Corporation or any other person, firm or corporation other
than TSI or its successors.
1.4.5 Dissenters. The shares of Company Common
Stock held by those shareholders of the Company who have
timely and properly exercised their dissenters' rights in
accordance with the provisions of the CCC applicable to
dissenters' rights (the "Appraisal Laws") are referred to
herein as "Dissenting Shares". Each Dissenting Share, the
holder of which, as of the Effective Time of the Merger, has
not effectively withdrawn or lost his dissenters' rights
under the Appraisal Laws, shall not be converted into or
represent a right to receive TSI Common Stock and the cash
conversion amounts in the Merger, but the holder thereof
shall be entitled only to such rights as are granted by the
Appraisal Laws. Each holder of Dissenting Shares who
becomes entitled to payment for his Company Common Stock
pursuant to the provisions of the Appraisal Laws shall
receive payment therefor from the Surviving Corporation from
funds provided by TSI (but only after the amount thereof
shall have been agreed upon or finally determined pursuant
to such provisions). If any holder of Dissenting Shares
shall effectively withdraw or lose his dissenters' rights
under the Appraisal Laws, such Dissenting Shares shall be
converted into the right to receive TSI Common Stock and the
cash conversion amounts in accordance with the provisions
hereof.
1.4.6 TSI Certificates. At or before the Effective
Time of the Merger, TSI shall make available to the Transfer
Agent certificates for such number of shares of TSI Common
Stock as shall be required for exchange in accordance with
this Agreement. If, pursuant to the adjustment provided by
Section 1.6 hereof, additional shares of TSI Common Stock
must be issued, TSI shall make additional certificates
available to the Transfer Agent.
SECTION 1.5 Adjustments for TSI Stock Splits, Etc. In
the event that, subsequent to the date of this Agreement but
prior to the Effective Time of the Merger, the outstanding
shares of TSI Common Stock shall have been increased,
decreased, changed into or exchanged for a different number
or kind of shares or securities and such increase, decrease,
change or exchange shall have been effected through a stock
dividend, stock split or reverse stock split, then an
appropriate and proportionate adjustment shall be made in
the manner in which the Share Conversion Number is
calculated hereunder.
SECTION 1.6 Adjustments to Merger Consideration Based
on Company's Closing Book Value. The parties have agreed
that the total merger consideration (hereinafter the "Merger
Consideration") would have a value (the "Target Value")
equal to $2,645,000 less the Option Payment, based on the
assumption that the net book value determined in accordance
with generally accepted accounting principles, (the "Closing
Book Value") of the Company effective as of the Effective
Date would be $1,630,000 less the Option Payment. At the
Target Value, the Merger Consideration consists of cash of
$1,045,000 less the Option Payment, and TSI Common Stock
having a total value, based on the Average Price, of
$1,600,000.
If the Closing Book Value is greater than an amount
equal to (i) $1,830,000 less (ii) the Option Payment, then
the Merger Consideration shall be increased by consideration
having a value (the "Increased Value") equal to the excess
over said amount. If the Closing Book Value is less than an
amount equal to (i) $1,430,000 less (ii) the Option Payment,
then the Merger Consideration shall be reduced by
consideration having a value (the "Decreased Value") equal
to the deficit below said amount. If the Closing Book value
is from $1,430,000 less the Option Payment, to $1,830,000
less the Option Payment, inclusive (the "Range"), no
Adjustment shall be made.
1.6.1 Proportionate Among Cash and Shares. Where
consideration equal in value to the Increased Value or the
Decreased Value is added to or subtracted from the Merger
Consideration, then the increase or decrease, as the case
may be, shall be made by a combination of cash and TSI
Common Shares in the same proportion in which cash and TSI
Common Shares compose the Merger Consideration at the Target
Value. The TSI Common Shares will be valued at the Average
Price for purposes of any adjustments made.
1.6.2 Determination of Closing Book Value.
Promptly after the Closing Date (as hereinafter defined),
the Company, in cooperation with Purchaser, shall prepare
its financial statements (the "Closing Statements") for the
period ending the Effective Date, including preparation of
the balance sheet and statement of income and retained
earnings for the period beginning January 1, 1995 and ending
on the Effective Date. Said financial statements will
consist of a balance sheet and a statement of operations,
and shall be prepared in accordance with generally accepted
accounting principles, subject, however, to the specific
provisions set forth below. Representatives (the
"Representatives") of the former shareholder(s) of the
Company (such representative shall be the Principal
Shareholder unless he designates another person or persons)
and of TSI shall be entitled to witness and/or participate
in any actions material to the preparation of the Closing
Statements such as e.g., the counting and valuation of
inventory, verification of accounts receivable, and the
like.
In preparing the Closing Statements, the following
specific provisions shall govern, even if following such
provisions would not be in accordance with generally
accepted accounting principles:
(a) The 4 Units at Dow. Prior to the date hereof,
the Company has delivered 4 Units of its Eclipse
particle analyzer product to Dow Chemical ("Dow"),
three at Dow's Midland Michigan location, and one
at Dow Canada. However, the Company has not yet
invoiced the 4 Units to Dow because the Company
has not received a purchase order from Dow. If,
within the time period commencing on the date
hereof and ending on the date the Closing
Statements are first completed (i.e., before the
review period starts) the Company receives a
purchase order from Dow which permits the Company
to invoice some or all of the 4 Units, the Company
shall issue an invoice therefor and the amount
that is invoiced shall be treated as a receivable
for purposes of determining the Closing Book
Value. To the extent the Company is not able to
invoice some or all of the 4 Units within said
time period, the Units not invoiced shall be
valued in accordance with generally accepted
accounting principles, taking into account, inter
alia, a possible requirement to treat the Units as
demonstration or development Units, and, if the
Units are or can be made saleable, any
expenditures required in order to put them in such
saleable condition.
TSI and the Company will use their best efforts to have
said financial statements including the Closing Balance
Sheet completed no later than 45 days after the Closing
Date. Following completion of the financial statements, the
Representatives of TSI and the former Shareholder(s) shall
have twenty days to review said financial statements and all
documents and information relevant to the preparation of and
supporting said financial statements. Following the
completion of said twenty-day period, the Representatives
shall meet and determine whether they agree with the Closing
Book Value as shown on such annual statements.
If the Representatives agree, the Closing Book Value
shall be utilized to make adjustments, if any are required,
in accordance with this Section 1.6. If the Representatives
do not agree then they shall, for a period of ten days
commencing at the end of the twenty-day period, negotiate in
an effort to reach agreement as to the Closing Book Value.
If they are unable to reach such agreement, then the
Representatives shall appoint an independent and qualified
firm of certified public accountants to resolve any disputed
items (the "Independent Accountant"). A "big six" firm
which does not provide services, and has not within the
preceding three years provided services, to either of the
Company or TSI shall be utilized. TSI and Dr. Bachalo shall
agree upon the firm to be utilized subject to the foregoing
requirements. The firm which is selected shall thereupon
attempt to resolve all disputed items within thirty (30)
days after said firm's selection, and the recommendations
made by said firm shall be final. The expenses charged by
said firm shall be borne equally by TSI and the former
Shareholders of the Company.
1.6.3 Closing Based on Target Value; Escrow. The
closing of the transactions provided hereby shall be made on
the assumption that the Closing Book Value will be within
the Range, so the value of the Merger Consideration will be
$2,645,000 less the Option Payment. To that end, TSI will
deliver cash equal to $1,045,000 less the Option Payment at
the Closing, to be paid as described below, and will direct
the Transfer Agent to have certificates prepared for TSI
Common Shares having a value, based on the Average Price, of
$1,600,000.
As described in Section 11.2 hereof, an escrow (the
"Escrow") is being established to provide for
indemnification claims, if any, which TSI may have against
the former Shareholders of the Company. Said escrow shall
also be utilized to provide for the Purchase Price
Adjustment described herein. To that end, at the Closing,
(i) $300,000 of the cash payable at Closing will be paid
into the Escrow, and (ii) stock certificate(s) representing
fifteen percent of the Number of TSI Shares (based on the
Target Value) (the "Escrowed Shares") will also be delivered
to the Escrow Agent, to provide both for any Purchase Price
Adjustment pursuant to this section and for any
indemnification claims.
After the Purchase Price Adjustment, if any, has been
finalized, and distributions or contributions, as provided
below, have been made from or to the Escrow, there shall
remain in Escrow to provide for any indemnification claims
(i) $100,000 in cash (the "Claims Cash") and (ii) a number
of TSI Shares having a value of $100,000, determined based
on the Average Price (the "Claims Shares"). (Hereinafter
the Claims Cash and the Claims Shares are sometimes
collectively referred to as the "Claims Amounts".) The
Claims Amounts will remain in Escrow to be available for any
indemnification claims.
1.6.4 Adjustments. For the purposes of all
adjustments made pursuant to this Section 1.6.4, the TSI
Shares held in Escrow shall be deemed to have a value
determined based on the Average Price, notwithstanding the
fact that at the time such adjustments are made, shares of
TSI Common Stock may be trading at another value.
If the Closing Book Value, as finally determined
pursuant to Section 1.6.2 (the "Final Value"), is within the
range, no adjustment shall be made to the Merger
Consideration. In said event, the Escrowed Shares in excess
of the Claims Shares shall promptly be distributed to the
former Shareholder(s). The cash held in Escrow in excess of
the Claims Cash shall promptly be distributed to the former
Shareholder(s).
If the Closing Book Value, as finally determined,
results in a Decreased Value, then the total of such
Decreased Value shall be broken into a cash component and
TSI Common Shares, in the same proportion as these items
made up the Merger Consideration at the Target Value. The
number of TSI Common Shares constituting the proportionate
part of the Decreased Value shall then be returned by the
Escrow Agent to TSI. Any remaining TSI Common Shares held
by the Escrow Agent shall first be utilized to provide the
Claims Shares to be retained in Escrow, and any balance
remaining of the TSI Common Shares held by the Escrow Agent
shall be distributed to the former Shareholders of the
Company. The cash component of the Decreased Value shall
promptly be paid by the Escrow Agent from the Escrow to TSI.
If the cash then remaining in the Escrow exceeds the Claims
Cash, the excess shall promptly be distributed to the former
Shareholders. If the amount held in escrow is not
sufficient to provide in full for the Decreased Value and
the Claims Amounts, the former Shareholders of the Company
shall deliver the deficiency to TSI in the form of cash and
TSI Common Shares.
If there is an Increased Value based on the final
determination of the Closing Book Value, all of the TSI
Common Shares held in the Escrow in excess of the Claims
Shares shall be distributed to the former Shareholders. In
addition, TSI shall promptly direct the Transfer Agent to
issue to the former Shareholders that number of TSI Common
Shares which represents the proportionate amount of the
Increased Value. TSI shall promptly pay the former
Shareholders an amount of cash representing the
proportionate amount of the Increased Value. In addition,
the cash held in Escrow in excess of the Claims Cash shall
promptly be distributed to the former Shareholders.
After the foregoing adjustments are completed, the
Claims Cash and the Claims Shares shall continue to be held
in Escrow to be available for any indemnification claims.
1.6.5 Conforming Adjustments. Following final
determination of Closing Book Value as provided above, the
various definitions contained herein which determine the
final Merger Consideration shall all be finalized based on
the final determination. Thus, the definitions of the Cash
Conversion Number, the Number of TSI Shares, and the Share
Conversion Number shall all be appropriately adjusted.
SECTION 1.7 Further Assurances. From time to time, on
and after the Effective Time of the Merger, as and when
requested by TSI or its successors or assigns, the proper
officers and directors of the Company immediately before the
Effective Time of the Merger shall, at TSI's expense, and
for and on behalf and in the name of the Company, or
otherwise, execute and deliver all such deeds, bills of
sale, assignments and other instruments and shall take or
cause to be taken such further or other reasonable actions
as TSI or their respective successors or assigns may deem
necessary or desirable in order to confirm or record or
otherwise transfer to the Surviving Corporation title to and
possession of all the properties, rights, privileges,
powers, franchises and immunities of the Company and
otherwise to reasonably carry out fully the provisions and
purposes of this Agreement.
SECTION 1.8 Effective Date. Notwithstanding that the
Closing hereunder is held shortly after the Effective Date,
it is the intention of the parties that the transactions
provided for herein shall be treated as being effective for
all purposes on and as of the Effective Date. To this end,
all benefits and burdens of the business of the Company from
and after the Effective Date shall be for the account of TSI
and Newco. Consistent with the foregoing, any profits from
operations of the Company in the time period from the
Effective Date through the Closing Date (the "Stub Period")
shall be for the benefit of TSI and Newco, and any losses of
the Company during the Stub Period shall be for the account
of TSI and Newco. Consistent with the foregoing, the
parties are determining the Closing Book Value as of the
Effective Date. The parties agree to report the
transactions provided for herein consistent with such
Effective Date provisions, including for both book and tax
purposes.
ARTICLE IA
XXXXXX OPTION; TAX DISTRIBUTIONS
SECTION 1A.1 Xxxxxx Option. Xxxxxxx Xxxxxx, an
employee of the Company ("Xxxxxx"), holds an option to
acquire 10,000 shares of Company Common Stock at a price of
$3.00 per share (the "Xxxxxx Option"). It is a condition to
TSI's and Newco's obligation to close hereunder, that (i)
prior to the Closing hereunder, the Company shall buy out
the Xxxxxx Option from Xxxxxx in return for a cash payment
(the "Option Payment") agreed upon between Xxxxxx and the
Company, so that the Xxxxxx Option is terminated and of no
further force and effect; and (ii) that in connection with
such buyout of the Xxxxxx Option, the Company shall obtain a
release from Xxxxxx of any claims Xxxxxx has or may have
under or in connection with the Option or with respect to
the shares of Company Common Stock which could have been
acquired pursuant thereto, which release shall be acceptable
in form and substance to TSI and to the Company. Amounts
expended by the Company in order to buy out the Xxxxxx
Option shall be reflected in the determination of Closing
Book Value.
SECTION 1A.2 Tax Distributions. Since July 18, 1995,
the Company has not, and from and after the date hereof and
through the Effective Time of the Merger, the Company will
not, make any payments, transfers of property or
distributions of any kind, directly or indirectly, to or for
the Principal Shareholder, his spouse or relatives, except
for (i) payment of base compensation in the ordinary course
of business, (ii) reimbursement of reasonable business
expenses in the ordinary course of business, (iii)
reimbursements for payments by the Principal Shareholder for
his family medical, dental and vision insurance, which
reimbursements are approximately $1,667 per quarter (the
"Medical Reimbursements") and (iv) Tax Distributions, as
described and permitted below.
Because the Company is taxed as an S-corporation under
federal law, and under corresponding provisions of
California law, the Company from time to time makes cash
distributions to Principal Shareholder to permit him to pay
the income taxes payable by him with respect to the income
of the Company attributable to him under the S-corporation
rules. The Company has made (or will make) a distribution
to Principal Shareholder to enable him to pay estimated
taxes on or about September 15, 1995 (the "September
Distribution"), and at about the time of the final
determination of the Closing Book Value will make an
additional distribution, if required, to reflect the
Company's taxable income through the Effective Date (the
"Final Distribution"). (The September Distribution and the
Final Distribution are sometimes collectively referred to
herein as the "Tax Distributions".) The Tax Distributions
are subject to the following requirements and limitations:
(a) Tax Distributions shall be calculated
and determined based solely on the Company's
income and other tax items for its taxable year
(the "Stub Year") commencing January 1, 1995, and
ending on the Effective Date. No distributions
can be made to provide for additional taxes, if
any, attributable to prior periods.
(b) The amount of the Tax Distributions
shall be calculated to reasonably estimate the
taxes payable by Principal Shareholder with
respect to the Company's taxable income and other
taxable items for the Stub Year, including
reflecting any tax effect of the buyout of the
Xxxxxx Option. Among other things, this will be
based on a reasonable estimate of the combined
rate of tax applicable to Principal Shareholder
and his wife on their joint return, after taking
into account any deductibility of federal taxes
for state tax purposes and vice versa. If the
parties are unable to agree upon the amount of Tax
Distributions, they shall be subject to resolution
in the same manner as provided in Section 1.6.2
with respect to Closing Book Value.
(c) The amount of the Tax Distributions
shall be fully reflected in the determination of
Closing Book Value. Thus, the final Distribution,
even though made after the Closing Date to permit
more precise calculation, shall be deemed to have
been made prior to the determination of Closing
Book Value.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
AND THE PRINCIPAL SHAREHOLDER
Except for exceptions set forth in reasonable detail in
Exhibit E attached hereto and referring to the warranty or
warranties to which the exception relates, the Company and
the Principal Shareholder, jointly and severally, but
subject to the limitations set forth in Article XI, hereby
represent and warrant to, and agree with, TSI and Newco as
follows:
SECTION 2.1 Organization. The Company is a
corporation, duly organized, validly existing, and in good
standing under the laws of the State of California, and has
all requisite corporate power and authority to own its
property and conduct the business in which it is engaged.
The Company has previously delivered to TSI copies of its
articles of incorporation and by-laws, neither of which has
been amended since the date of such delivery.
SECTION 2.2 Capitalization. The Company is authorized
to issue only 5,000,000 shares of Company Common Stock of no
par value. No other shares of stock, common, preferred, or
otherwise, are authorized. As of the date hereof, there are
100,000 shares of Company Common Stock issued and
outstanding (the "Outstanding Common Shares"). The
Outstanding Common Shares are owned as specified on Exhibit
A attached hereto. None of the outstanding Common Shares
were initially issued on or after December 31, 1994. All of
the Outstanding Common Shares have been fully paid, have
been validly issued, and are non-assessable. Holders of the
Outstanding Common Shares do not have preemptive rights or
other similar rights. The Company does not have any
treasury shares.
Except for the Xxxxxx Option, the Company does not have
outstanding any options or warrants to purchase, or
contracts to issue, or contracts or any other rights
entitling anyone to acquire shares of its capital stock of
any class or kind, or securities convertible into such
shares. Immediately prior to the Effective Time of the
Merger, the outstanding shares of Company Common Stock shall
not exceed the above-mentioned 100,000 Outstanding Common
Shares. The Company does not have in effect any stock
option or stock purchase plan.
At the Closing and at the Effective Time of the Merger,
the Shareholders owning shares of Company Common Stock shall
have good and marketable title thereto, free and clear of
all claims, liens and encumbrances.
SECTION 2.3 Subsidiaries, Etc. The Company has no
equity interest in any corporation, partnership or other
entity, except only that the Company has made an $8,500
investment in Aerometrology in France. The Company has no
further obligations to or with respect to Aerometrology.
SECTION 2.4 Qualification. The Company is qualified
to do business in the State of California, its state of
incorporation, and in the State of Texas. The Company does
not have assets, facilities or employees located in any
state or country other than the State of California, except
that the Company maintains one employee in a small office in
Houston, Texas.
SECTION 2.5 Financial Statements and Liabilities.
2.5.1 Attached hereto as Exhibit B are the balance
sheets of the Company as of December 31, 1993 and December
31, 1994 and the statements of income and retained earnings
of the Company for the fiscal years ending on said dates
reviewed by Xxxxxx Stroll, Certified Public Accountant (the
"Annual Statements"), and the Balance Sheet of the Company
as of June 30, 1995, and the statements of income and
retained earnings of the Company for the fiscal period
ending on said date compiled by the Company (the "Interim
Statements").
The Annual Statements fairly present, in all material
respects, the financial position of the Company as of the
dates indicated, and the results of operations of the
Company for the periods then ended.
The Interim Statements fairly present, in all material
respects, the financial position of the Company as of the
dates indicated and the results of operations of the Company
for the period then ended.
The Closing Statements, including but not limited to
the Balance Sheet as of the Effective Date included therein,
which are to be prepared in accordance with Section 1.6
hereof, will fairly present, in all material respects, the
financial condition and assets and liabilities of the
Company as of the date of said statements and the results of
operation of the Company for the period ending on said Date,
in accordance with generally accepted accounting principles
applied on a consistent basis.
2.5.2 As of the date of this Agreement, the Company
is not subject to and does not have (i) any indebtedness,
claim, obligation or liability required to be reflected on
the Company's Balance Sheet or in the footnotes thereto
where the same has been prepared in accordance with
generally accepted accounting principles, or, (ii) to the
best knowledge of the Company and the Principal Shareholder,
any other material liability of any kind or nature
whatsoever, whether absolute or contingent, liquidated or
unliquidated, due or to become due, accrued or unaccrued or
otherwise (hereinafter collectively "Liabilities"), except
(iii) as disclosed in the Interim Statement, (iv) for such
Liabilities that have arisen in the ordinary course of
business of the Company since the date of said Interim
Statement, none of which newly arisen Liabilities, when
coupled with any benefits or receivables arising in
connection with the incurrence of such Liabilities, have a
material adverse affect upon the Company, its assets,
business, or financial condition, and (v) as specifically
disclosed in this Agreement or in the Exhibits delivered
hereto.
SECTION 2.6 Real Estate. The Company does not own or
have title to any real estate, and has never owned or had
title to any real estate. The Company does not lease any
real estate other than pursuant to one real estate lease
(the "Lease") for its facility in California, and a real
estate lease (the "Houston Lease") for its office space in
Houston, Texas, both of which Leases are listed on Exhibit
C, Leases and Contracts, attached hereto, true and correct
copies of which have been made available (including
providing a copy thereof to be retained by TSI) to TSI.
Other than pursuant to the Lease and the Houston Lease, and
pursuant to its previous lease (the Prior Lease") of real
estate located at 000 Xxx Xxx Xxxxxx, Xxxxxxxxx, Xxxxxxxxxx
00000 (the "Prior Location"), the Company has not leased any
other real estate during the past five years. The Company
and to the best knowledge of the Company and the Principal
Shareholder, the other party thereto is not in material
default under the Lease or the Houston Lease, and there are
no facts which, with notice and/or the passage of time,
would constitute such a default. To the best knowledge of
the Company and the Principal Shareholder, all buildings
leased by the Company pursuant to the Lease are in good
condition, normal wear and tear excepted, and the heating,
air conditioning, plumbing and electrical systems of each
such building are in good operating order, ordinary wear and
tear excepted. The Company has not received notice that
said buildings do not comply with municipal, state and
federal statutes, ordinances, rules and regulations
applicable to the construction of the buildings and their
actual use and, to the best knowledge of the Company and the
Principal Shareholder, the buildings comply in all material
respects with said statutes, ordinances, rules and
regulations. No consent is required under the Lease or the
Houston Lease in connection with the Merger.
SECTION 2.7 Leased Tangible Personal Property. The
Company does not lease any personal property other than
pursuant to (i) leases in the ordinary course of business
which expire on not more than 30 days notice by the Company
without payment of any penalty or termination payment, and
(ii) leases ("Personal Property Leases") which are listed on
Exhibit C, true and correct copies of which have been made
available to TSI. Each of the Company and, to the best
knowledge of the Company and the Principal Shareholder, the
other parties thereto is not in material default under any
of the Personal Property Leases, and there is no fact which,
with notice and/or passage of time, would constitute such a
default. No consent is required under the Personal Property
Leases in connection with the Merger.
SECTION 2.8 Assets. The equipment, furniture,
computers, and other tangible personal property (other than
inventory) owned, leased or used by the Company in its
business is in good condition, normal wear and tear
excepted, and is in good operating order. Exhibit D-1
attached hereto lists all furniture, equipment, and other
tangible personal property of the Company (other than
inventory and supplies) having an original cost of $500 or
more. Exhibit D-1 also lists all equipment, furniture,
computers and other tangible personal property which (i) is
used by the Company or which is located on the Company's
premises and (ii) which is not owned by the Company, except
for items leased under Leases elsewhere disclosed herein and
except for normal personal property of employees. Except
for sales of inventory and other dispositions of assets in
the ordinary course of business, since December 31, 1994, no
tangible assets (whatever their original cost) have been
transferred from the Company, whether by sale, dividend or
otherwise.
SECTION 2.9 Intangibles. Attached hereto as Exhibit
D-2 is an accurate and complete list of all of the following
types of intangible personal property owned or used (whether
by license or otherwise) by the Company in its business,
including all distributorship, franchise and license
agreements (whether the Company is the grantor or grantee of
such distributorship, franchise or license) (the "Intangible
Agreements"): patents, patent applications, registered
trademarks and other material trademarks, trademark
applications, and material trade names (whether the Company
owns such items or is licensed to use them), excluding any
license agreement (and the patents, patent applications,
trademarks and trademark applications subject thereto) for
commercially available software purchasable for less than
$1,000. The Company is the sole and exclusive owner of each
of said items of intangible personal property shown as owned
by it. Said items represent the only intangible personal
property of the types listed above required by the Company
in order to operate the businesses presently conducted by
the Company.
Except as set forth on Exhibit D-2, the Principal
Shareholder does not own any patents or registered
copyrights, or applications for the same, or any inventions
which are usable in the Company's business as presently
conducted.
Except as set forth on Exhibit D-2, there are no
pending claims or demands against the Company with respect
to any of such items of intangible personal property, and no
proceedings have been instituted, are pending, or, to the
best knowledge of the Company and the Principal Shareholder,
have been threatened to terminate or cancel any Intangible
Agreements or which challenge the right of the Company with
respect to any of such intangible assets. To the best
knowledge of the Company and the Principal Shareholder, (i)
the Intangible Agreements will be renewed at their next
expiration date, and (ii) the Company and its assets and
business and any part thereof, do not infringe the patent,
trademark, trade name, copyright, or the other rights of any
other person. Except as set forth on Exhibit D-2, to the
best knowledge of the Company and the Principal Shareholder,
the Company has the unrestricted (but not necessarily
exclusive) right to use, free from any rights or claims of
others, all trade secrets and customer lists which it has
used or which it is now using in connection with the sale of
any and all products or services which have been or are
being sold by it.
SECTION 2.10 Accounts Receivable and Inventory and
Backlog.
2.10.1 Accounts. All accounts receivable of the
Company reflected in the Closing Balance Sheet to be
included in the Closing Statements will have originated in
the ordinary course of its business, will be valid, and will
be fully collectible and not subject to any defense,
counterclaim or setoff, except and only to the extent of the
reserve against accounts receivable reflected in the Balance
Sheet included in the Closing Statements.
2.10.2 Inventory. Except and only to the extent of
any reserve against inventory reflected in the Closing
Balance Sheet included in the Closing Statements: (i) all
inventory in the Company's possession is owned by the
Company and will be recorded on its books and records as of
the date of the Closing Statements, in accordance with
generally accepted accounting principles, in all material
respects, and (ii) all inventory reflected in the Closing
Balance Sheet to be included in the Closing Statements will
be valued at the lower of cost, calculated on a FIFO method,
or market. No inventory in the Company's possession has
been consigned to the Company.
2.10.3 Backlog. Exhibit D-3 attached hereto sets
forth the Company's backlog as of the date indicated on such
Exhibit. The Company's backlog is fairly and accurately
described on said Exhibit, and all items included in such
backlog reflect bona fide orders to the Company from
customers of the Company. To the best knowledge of the
Company and the Principal Shareholder, the customers for
such orders do not intend to cancel such orders; provided,
however, it is understood that such orders are subject to
cancellation in the ordinary course of the Company's
business.
SECTION 2.11 Title to Assets. The Company has or will
have, as applicable, good and marketable title in and to all
of its property (i) reflected in the December 31, 1994,
balance sheet included with the Annual Statements plus all
assets purchased by the Company since December 31, 1994,
less all assets which the Company has disposed of in the
ordinary course of business since such date, and (ii) which
will be reflected in the Closing Balance Sheet which will be
included in the Closing Statements, which property in each
case is or will be free and clear of any security interests,
consignments, liens, judgments, encumbrances, restrictions,
or claims of any kind except (a) security interests listed
and described on Exhibit F attached hereto, (b) liens for
current taxes or assessments not yet due or delinquent, and
(c) and such other minor imperfections of title which do not
materially restrict or interfere with the Company's use of
such assets and which do not materially impair the value of
such assets to the Company.
SECTION 2.12 Contracts.
2.12.1 Contracts. Exhibit C attached hereto lists,
and the Company has made available (including providing a
copy thereof to be retained by TSI) to TSI, true and
complete copies of, all of the following contracts or other
obligations to which the Company is a party or by which it
is bound:
(a) Employment agreements and any other contracts
with or loans to any of the Company's Shareholders,
officers, directors, employees, consultants, salesmen,
distributors or sales representatives;
(b) Any employee benefit plan made available
by the Company to any of its employees;
(c) Any collective bargaining agreement;
(d) Any contracts with customers
specifically including, without limitation, all
contracts with customers pursuant to which the
Company is performing or will perform services for
customers such as, but not limited, to contract
research, together with lists of all such
completed customer contracts, which impose any
material liabilities upon, or reasonably could be
expected to result in any material liabilities
against, the Company, other than warranty
obligations.
(e) Any deeds of trust, mortgages,
conditional sales contracts, security agreements,
pledge agreements, trust receipts, or any other
agreements or arrangements whereby any assets of
the Company are subject to a lien, encumbrance,
charge or other restriction;
(f) Any loan agreements, letters of credit
on which the Company could be obligated to
reimburse the issuing bank, or lines of credit;
(g) Any contracts to which the Company is a
party restricting the Company from doing business
in any areas or in any way limiting competition
and any contracts to which the Company is a party,
including without limitation contracts with
suppliers, which limit, restrict or transfer
rights to any technology utilized or developed by
the Company or which establish rights of a
supplier or customer to a particular product
marketed or being developed by the Company,
excluding the license implied in any sale of
product, and excluding any license for
commercially available software purchasable for
less than $1,000; for each such contract, Exhibit
C briefly describes the restrictions or
limitations contained in the contract;
(h) Other than purchase orders issued in the
ordinary course of the Company's business, any
contracts calling for aggregate payments by the
Company in excess of $1,000 and which are not
terminable without cost or liability on notice of
90 days or less;
(i) Any joint venture, partnership or
limited partnership agreement involving the
Company;
(j) Any guarantees by the Company of the
obligations of any other party except those
resulting from the endorsement of customer checks
deposited by the Company for collection;
(k) Any other contracts which may have a
material impact on the Company's assets, results
of operations or financial condition; and
(l) Any commitments to enter into any of the
types of contracts and obligations referred to in
this Section 2.12.1.
The Company has not received notice of any material
default under any such contracts, obligations or
commitments, is not in material default under any such
contracts, obligations or commitments, and there are no
facts which, with notice and/or the passage of time, would
constitute such a default. To the best knowledge of the
Company and the Principal Shareholder, no other party to
such contracts, obligations or commitments is in material
default and there are no facts which, with notice and/or the
passage of time, would constitute such a default. No
consent is required under the contracts, obligations and
commitments referred to in this Section 2.12.1 in connection
with the Merger.
2.12.2 Purchase Commitments. None of the Company's
purchase commitments is substantially in excess of the
normal, ordinary, and usual requirements of the Company's
business or was made at any price substantially in excess of
then-current market price.
2.12.3 Bids and Contracts. Exhibit C-1 attached
hereto lists, and the Company has previously made available
to TSI true and complete copies of:
(i) All outstanding bids for sales of the Company's
products or services which either are still open
in accordance with their terms or which were
issued on or after July 1, 1995 and were for an
aggregate amount equal to or exceeding $30,000
(but bids and price indications issued by
representatives and distributors of the Company
which have not been approved by the Company need
not be listed); and
(ii) Unfilled purchase orders from customers quoting
prices for the Company's products or services.
SECTION 2.13 Suppliers and Customers. Attached hereto
as Exhibit G is a list setting forth all suppliers to the
Company who are significant to the Company, including
without limitation (i) all suppliers who have supplied
products and/or services to the Company in the 8-month
period beginning January 1, 1995, where the total
consideration payable to the supplier exceeded $2,000, and
(ii) to the best knowledge of the Company and the Principal
Shareholder, suppliers who are a sole source (i.e., a
supplier who could not be replaced on reasonably equivalent
terms by another supplier) for a special and/or critical
product supplied by them. Exhibit G also lists all open
ended purchase orders issued by the Company which exist on
the date hereof. For these purposes, open-ended purchase
orders shall mean purchase orders or other contractual
arrangements providing for extended deliveries by the
supplier, multiple deliveries by the supplier, or which
provide for purchases of quantities significantly in excess
of those required in the normal course of business of the
Company.
To the best knowledge of the Company and the Principal
Shareholder, none of the Company's current customers or
suppliers intends to terminate its relationship with the
Company or materially reduce the volume of its purchases
from the Company (subject, however, to the understanding
that certain customers of the Company may have made
significant purchases which they are not likely to repeat in
the near future because the purchase has satisfied their
requirements) or materially reduce the volume of amounts
supplied to the Company, whether as a result of the Merger
or otherwise.
SECTION 2.14 Transactions with Directors, Officers,
Employees and Affiliates. Excluding cash dividends to
shareholders and cash salaries, benefits and expenses paid
to the Principal Shareholder and his wife, all of which are
listed on Exhibit E, there have been no transactions since
January 1, 1995, between the Company and any director,
officer, employee or affiliate (as defined in Rule 405
promulgated by the SEC) of the Company, except on an arm's
length basis in accordance with normal business practices.
Since said date, none of the officers, directors, employees
or affiliates of the Company, or any member of the immediate
family of any such persons, has been a director of officer
of, or has had a material interest in, any firm,
corporation, association or business enterprise which during
such period has been a material supplier, customer or sales
agent of the Company or has competed to a material extent
with the Company.
SECTION 2.15 Litigation. There are no legal,
administrative, arbitration or other proceedings or claims
pending or, to the best of the Company's knowledge,
threatened against the Company, nor is the Company subject
to any existing judgments. The Company is not operating
under or subject to, or in material default with respect to,
any order, writ, injunction or decree of any court or
federal, state, municipal or other governmental department,
commission, board, agency or instrumentality, domestic or
foreign.
SECTION 2.16 Insurance. Attached hereto as Exhibit H
is a list of all insurance policies applicable to the
Company, copies of which policies have been made available
(including providing a copy thereof to be retained by TSI)
to TSI. The Company has not received any notice of
cancellation with respect to any such insurance policy. All
premiums due under any such insurance policy have been paid
in full.
SECTION 2.17 Authority Relative to Agreement;
Enforceability. Shareholders owning 50.1 percent of the
shares of Company Common Stock on the applicable record date
will have the power to approve the Merger on behalf of the
Company. The Principal Shareholder will vote his stock in
favor of the Merger, which will constitute a sufficient
number of votes to approve the Merger.
The execution, delivery and performance of this
Agreement are within the legal capacity and power of the
Company; have been duly authorized by all requisite
corporate action on the part of the Company, other than
Shareholders approval; require the approval or consent of no
other persons, entities or agencies, and will neither
violate nor constitute a default under, nor create a lien or
breach under, nor result in the acceleration of performance
or right to accelerate performance under (whether or not
after the giving of notice or lapse of time or both), the
terms of the articles of incorporation and by-laws of the
Company or of any material agreement, obligation or
commitment binding upon the Company. This Agreement is a
legal, valid and binding obligation of the Company
enforceable against the Company in accordance with its
terms, except insofar as the enforcement thereof may be
limited by bankruptcy, insolvency, moratorium or similar
laws affecting the enforcement of creditors' rights
generally and subject to equitable principles limiting the
availability of equitable remedies.
SECTION 2.18 Compliance With Applicable Laws;
Environmental Matters.
2.18.1 Laws. The Company, its operations, assets
and, to the best knowledge of the Company and the Principal
Shareholder, all real property ("Company Real Property") now
or previously operated, used or leased by, to or for the
Company, including, without limitation, the Prior Location
and all real property subject to the Lease, are in
compliance in all material respects with all federal, state,
county, and municipal laws, ordinances, regulations, rules,
reporting requirements, judgments, orders, decrees and
requirements of common law applicable to the conduct and
business of the Company and to the assets owned, used or
occupied by it (collectively referred to hereinafter as the
"General Laws"), including without limitation all applicable
federal, state, county and municipal laws, ordinances,
regulations, rules, reporting requirements, judgments,
orders, decrees and requirements of common law concerning or
relating to the protection of health and the environment
(collectively referred to hereinafter as the "Environmental
Laws"). The Company has not received any notice of
violation, citation, complaint, request for information,
order, directive, compliance schedule or other similar
enforcement order, or any other notice from any
administrative or governmental agency or entity, indicating
that either the Company or the Company Real Property were
not or currently are not in compliance in all material
respects with all Environmental Laws and General Laws, and
to the best knowledge of the Company and the Principal
Shareholder, no such item is threatened.
2.18.2 Environmental Laws. To the best knowledge of
the Company and the Principal Shareholder, all businesses
and operations of the Company and the Company Real Property
are in compliance in all material respects with any: (i)
judgments, orders, decrees, awards or directives, of any
court, arbitrator or administrative or governmental agency
or entity binding the Company and concerning compliance with
the Environmental Laws; and (ii) consent decrees,
administrative orders, settlement agreements or other
settlement documents entered into by the Company with any
administrative or governmental agency or entity concerning
compliance with the Environmental Laws.
2.18.3 Hazardous Materials; Storage Tanks. All
assets owned, leased or licensed by the Company, including
without limitation, to the best knowledge of the Company and
the Principal Shareholder, the Company Real Property, are
free in all material respects of all materials designated as
hazardous substances, wastes, hazardous materials,
pollutants or contaminants under any Environmental Laws
(collectively, "Hazardous Materials") other than Hazardous
Materials which are properly stored and licensed where
required, and are free of physical conditions which violate
any Environmental Laws in any material respect. To the best
knowledge of the Company and the Principal Shareholder, all
storage tanks and associated pipes, pumps and structures
(whether above or below ground) located in or on the Company
Real Property, all of which are listed in Exhibit I, are, in
all material respects, in sound condition, free of
corrosion, meet all design and performance standards
required by all Environmental Laws, and do not now, and did
not at any time in the past, evidence impaired integrity or
leakage. No Hazardous Materials used or generated by the
Company or generated by the Company at the Company Real
Property have been treated, stored, transported or disposed
of in violation of any Environmental Laws in all material
respects; and all Hazardous Materials which have been
utilized in the business or operation of the Company or
which have been removed, released, discharged or emitted
from the Company Real Property were and are documented,
transported and disposed of in compliance, in all material
respects, with all Environmental Laws.
2.18.4 Licenses and Permits. Exhibit J attached
hereto lists material permits, licenses and other
authorizations issued by administrative or governmental
agencies or entities under the General Laws and the
Environmental Laws or otherwise required for the conduct of
the Company's business as presently conducted which are held
by the Company or its employees or agents ("Licenses and
Permits"). The Licenses and Permits include all such
permits which are necessary to the Company's business and
operations and the Company is and has been in compliance in
all material respects with the terms and conditions of the
Licenses and Permits. Under the General Laws and the
Environmental Laws and the Licenses and Permits, the
consummation of the transactions contemplated by this
Agreement do not and will not: [(i) affect the validity of
the Licenses and Permits, NOTE subject to deletion or
modification after a list of permits is reviewed.]; or (ii)
require the consent of any governmental authority or third
party.
SECTION 2.19 ERISA and Employment Matters.
2.19.1 (a) No employee of the Company has a written
or oral agreement (or an assurance pursuant to any employee
manual) which would preclude the Company from terminating
such employee's employment at any time with no obligation of
the Company to make any payment except wages and accrued
benefits to the date of termination. The Company has not
engaged in any discriminatory hiring or employment practices
nor have any employment discrimination complaints been filed
against the Company with any state or federal agency. The
Company has not been threatened by any former employee with
any suit alleging wrongful termination or other claim
against the Company.
(b) The Company has made available (including
providing a copy thereof to be retained by TSI) to TSI (i)
all employment manuals utilized by the Company within the
past three (3) years, (ii) copies of any determination
letters received by the Company from the Internal Revenue
Service or any other governmental authority with respect to
any employee benefit plan, together with a copy of the most
recent submission for a determination letter by the Company
for each employee benefit plan maintained by the Company,
(iii) copies of any summary plan descriptions or summaries
of material modifications relating to any employee benefit
plan (as defined in Section 3(3) of ERISA) that have been
prepared or distributed in the past three (3) years, and
(iv) any annual reports (Form 5500 series) filed for any
employee benefit plan or fringe benefit plan (within the
meaning of Code Section 6039D) for plan years ending in
1990, 1991, 1992, 1993, and 1994.
2.19.2 There are no present or former Company
employees, directors or independent contractors entitled to
(i) pension benefits that are "unfunded" as defined under
ERISA or (ii) any pension benefit or welfare benefit to be
paid after termination of employment other than pursuant to
the Aerometrics, Inc. 401(K) Profit Sharing Plan (the
"Plan") or as otherwise required by law. Except with
respect to continuation coverage under group health plans
pursuant to Section 4980B of the Internal Revenue Code of
1986, as amended (the "Code") or state law, and except with
respect to continuation coverage under group life insurance
plans pursuant to state law, no other benefits (whether or
not pursuant to any plan or benefit arrangement that is
subject to the Employee Retirement Income and Security Act
("ERISA")) whatsoever are payable to any present or former
Company employees after termination of employment or to any
present or former directors or independent contractors after
cessation of service to the Company (including, but not
limited to, any post-retirement medical or death benefits,
any severance benefits or any disability benefits).
2.19.3 Except only pursuant to the Plan, there are
no arrangements or contracts with any director, officer,
employee or independent contractor of the Company that
require any deferred compensation, retirement or welfare
benefits to be paid or provided following termination of
services.
2.19.4 Each "employee welfare benefit plan" (as
defined in Section 3(1) of ERISA) of the Company is either
funded through insurance or is unfunded for purposes of
ERISA. There are no reserves, assets, surplus or prepaid
premiums under any such plan, the Company is not in material
default under any such plan, and all such plans are in
compliance in all material respects with all applicable laws
(including, but not limited to, ERISA, the Code and the Age
Discrimination in Employment Act of 1967) since such laws
became effective in respect to such plans.
2.19.5 Each of any "employee welfare benefit plan"
(as defined above) maintained by the Company, any fiduciary
thereof and the Company is not subject to any liability
(other than normal liabilities and expenses associated with
maintenance of such plan or arrangement as an ongoing
benefit plan or arrangement) under ERISA or the Code or any
other applicable law, including without limitation,
liability resulting from a partial plan termination.
2.19.6 The Plan, any fiduciary thereof and the
Company is not subject to any liability (other than normal
liabilities and expenses associated with maintenance of such
plan or arrangement as an ongoing benefit plan or
arrangement) under ERISA or the Code or any other applicable
law, including without limitation, liability resulting from
a partial plan termination. The Plan has been administered
in compliance in all material respects with its terms and
with the applicable provisions of ERISA, the Code and all
other federal, state and other applicable laws, rules and
regulations (including, without limitation, any funding,
filing, terminating, reporting, disclosure and fiduciary
obligations and any prohibited transaction restrictions).
The Plan is "qualified" within the meaning of Section 401(a)
of the Code, and has from its inception been so qualified,
and any trust created pursuant to the Plan is exempt from
federal income tax under Section 501(a) of the Code. The
Company has received a favorable determination letter for
the Plan from the Internal Revenue Service which is dated
January 20, 1995.
2.19.7 Except for the Plan and any other employee
benefit plans identified in Exhibit C, the Company neither
maintains, nor has it ever maintained or ever been obligated
to contribute to, (i) a multi-employer plan within the
meaning of Section 3(37) of ERISA, or (ii) any employee
benefit plan within the meaning of Section 3(3) of ERISA.
2.19.8 There are and there have been no inquiries,
proceedings, claims or suits pending or, to the Company's
best knowledge, threatened by any governmental agency or
authority or by any participant or beneficiary against the
Plan, the assets of the trust under the Plan, the Company,
the plan administrator of the Plan, any fiduciary of the
Plan or any of the Company's "employee welfare benefit
plans" (as defined above) with respect to the operation of
the Plan or such benefit plans.
2.19.9 The consummation of the transactions
contemplated by this Agreement will not, alone or together
with any other event, (i) entitle any employee of the
Company to severance pay (except as referred to in Section
5.5 hereof) or any other payment, or (ii) accelerate the
time of payment or vesting, or increase the amount of,
compensation due to any such employee.
2.19.10 The Company has no obligation for (i) any
long-term disability benefits to or for any of the Company's
employees who become disabled prior to the Closing Date (as
defined in Article IX hereof) (including any individual who
is disabled but has not satisfied any applicable waiting
period) and (ii) any life insurance benefits promised, due
and/or payable to or for any of the Company's employees who
die prior to the Closing Date.
SECTION 2.20 Taxes. All tax and information returns
required to have been filed by the Company have been filed
with the appropriate authority; and all federal, state and
local taxes (including without limitation income, franchise,
property, sales, use, value-added, withholding, excise,
capital or other tax liabilities), charges, assessments,
penalties and interest of the Company ("Tax Liabilities")
required to be paid on or before the date hereof were paid
on or before that date, except to the extent that such taxes
are in good faith being contested and have been fully
reserved in the Closing Balance Sheet. Such returns were
correct as filed. No assessments or additional Tax
Liabilities have been proposed or threatened against the
Company or any of its assets, and the Company has not
executed any waiver of the statute of limitations on the
assessment or collection of any Tax Liabilities.
The Closing Balance Sheet which will be included in the
Closing Statements will include adequate provision for (i)
all Tax Liabilities incurred or accrued as of the date of
said Statements, and (ii) any and all Tax Liabilities which
may hereafter be assessed or imposed on the Company with
respect to time periods ending on or before said date.
True and complete copies of the Company's federal,
state and local tax returns for the years 1990 through 1995
have been made available (including providing a copy thereof
to be retained by TSI) previously by the Company to TSI.
The federal, state and local tax returns of the Company
have never been audited or examined by the Internal Revenue
Service or any state or local taxing authority. There are
no pending investigations of the Company or its tax returns
by any federal, state or local taxing authority, no federal,
state or local tax liens upon any of the Company's assets,
and no presently effective extensions to the limitation
periods for the imposition of tax liability against the
Company for any of its open taxable years.
SECTION 2.21 Business Changes. Except as described on
Exhibit E, from December 31, 1994, to the Closing Date,
there has not been and will not be:
2.21.1 any material adverse change in the Company's
working capital, financial condition, assets, liabilities
(whether absolute, accrued, contingent or otherwise),
operating profits, or business;
2.21.2 any damage, destruction or loss (whether or
not covered by insurance) materially and adversely affecting
the Company's business;
2.21.3 any increase or decrease in the rates of
compensation payable or to become payable by the Company to
any of its officers, directors or employees over or under
the rates in effect during the year ended December 31, 1994,
other than general increases made in accordance with past
practices; or any declaration, payment, commitment, or
obligation of any kind for the payment by the Company of any
bonus (other than standard year-end bonuses consistent with
past practices which are described on Exhibit K), additional
salary or compensation, or retirement, termination or
severance benefits to officers, directors or employees;
2.21.4 any material amendment or termination of any
material contract, lease or license to which the Company is
a party or by which it may be bound, other than in the
ordinary course of business;
2.21.5 any disposition, mortgage, pledge, or
subjection to any lien, claim, charge, option, or
encumbrance of any property or asset of the Company, or any
cancellation or compromise of any debt or claim of the
Company otherwise than in the ordinary course of business;
2.21.6 any labor dispute or threat of a labor
dispute or any attempt or threat of an attempt by a labor
union to organize the Company's employees;
2.21.7 any acquisition by the Company of the assets
or capital stock of another business entity;
2.21.8 other than Tax Distributions, any
distribution or disposition of the Company's assets other
than in the ordinary course of business;
2.21.9 any termination of any permit or license
issued to the Company or to any of its employees or agents
upon which a material portion of the Company's business is
dependent;
2.21.10 any order, judgment, writ, injunction, decree
or permit issued by which the Company is bound;
2.21.11 other than Tax Distributions and Medical
Reimbursements, any dividend or distribution declared, set
aside or paid in respect of the Company Common Stock or any
repurchase by the Company of shares of Company Common Stock.
SECTION 2.22 Industrial Revenue Bonds. The Company is
not indebted under any industrial revenue bonds.
SECTION 2.23 Products and Warranties. (a) Except as
set forth in Exhibit L, there have been no product liability
claims sounding in tort or strict product liability made
against the Company of any kind. None of the products sold
or leased by the Company on or before the Effective Time of
Merger, contains any defect or other condition which will
result in any material product liability claim sounding in
tort or strict product liability against the Company.
(b) Exhibit L attached hereto describes or
specifically references all warranties made by the Company
with respect to products sold or leased by the Company
during the last three (3) years. Except for warranty
experience consistent with the Company's past experience and
disclosed in the Annual Statements and the Interim
Statements, all products sold or leased by the Company
during the last three (3) years complied with the Company's
standard warranties applicable thereto and with all
requirements in the agreements of sale applicable to such
products. Except as listed on Exhibit L, there has been no
departure in any material respect by the Company from such
standard warranties in connection with the products sold by
the Company in the last three (3) years. The products
currently sold by the Company comply with the specifications
applicable thereto, and there are no material defects in
such products.
(c) During the last five (5) years, the Company has
not had any product recalls or any other materially adverse
expenses or problems associated with products sold by the
Company (hereinafter "Product Events"). The Company will
promptly advise TSI of any Product Events which occur from
the date hereof through the Effective Time of the Merger.
SECTION 2.24 Merger. The Company has not, except for
sales of inventory in the ordinary course of business, sold,
transferred or distributed any significant portion of its
assets (within the meaning of the Internal Revenue Code)
during the two-year period preceding the date hereof nor, to
the best knowledge of the Company and the Principal
Shareholder, has the Company taken any other action which
would preclude the Merger from qualifying as a
reorganization within the meaning of Section 368 of the
Code.
SECTION 2.25 Full Disclosure. No written
representation or warranty made by the Company or the
Principal Shareholder to TSI under or in connection with
this Agreement, and no certification furnished or to be
furnished to TSI pursuant to this Agreement, contains or, if
delivered between the date hereof and the Closing Date, will
contain any untrue statement of a material fact or , to the
best knowledge of the Company and the Principal Shareholder,
when all such are read together, omits or will omit to state
a material fact necessary to make the statements contained
herein or therein not misleading.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF TSI
TSI hereby represents and warrants to, and agrees with,
the Company as follows:
SECTION 3.1 Organization. Each of TSI and each
"Material Subsidiary" (as defined herein) is a corporation,
duly organized, validly existing, and in good standing under
the laws of the state of its organization, and has all
requisite corporate power and authority to own its property
and conduct the business in which it is engaged. TSI has
previously delivered to the Company copies of its articles
of incorporation and by-laws, neither of which has been
amended since the date of such delivery. For purposes of
this Agreement, the term "Material Subsidiary" shall mean
any subsidiary of TSI which, as of the date hereof,
constitutes a "significant subsidiary" as defined in the
SEC's Regulation S-X. For purposes of this Agreement, the
term "TSI Corporations" shall mean TSI and each Material
Subsidiary collectively.
SECTION 3.2 Capitalization. TSI is only authorized to
issue 8,000,000 shares of TSI Common Stock, $.10 par value.
As of August 31, 1995, there were 5,260,101 shares of TSI
Common Stock issued and outstanding, 824,018 shares of TSI
Common Stock reserved for issuance pursuant to stock option
plans, stock option agreements, and the employee stock
purchase plan of TSI, and no outstanding rights to purchase
any capital stock of TSI other than stock options granted to
employees and non-employee directors of TSI.
SECTION 3.3 SEC Filings. During the period from
January 1, 1994, through the date hereof, TSI has filed with
the SEC all reports and statements (consisting solely of
TSI's Annual Reports on Form 10-K for the years ended March
31, 1994 and 1995, its Quarterly Reports for the three
months ended June 30, 1994, September 30, 1994, December 31,
1994, and June 30, 1995, and its proxy statement for its
1994 and 1995 annual meetings of Shareholders) which it was
required to file with the SEC pursuant to the Securities and
Exchange Act of 1934 (the "1934 Act"). No reports on Form
8-K were filed during such time period, except that a Form 8-
K was filed in May 1995 reporting the acquisition of the
assets of Alnor, Inc., which Form was subsequently amended
in July 1995 to reflect audited financial data. None of
such reports and statements filed by TSI with the SEC since
January 1, 1994, (collectively, the "TSI Reports"), when
filed, 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.
SECTION 3.4 Authority Relative to Agreement;
Enforceability. The execution, delivery and performance of
this Agreement is within the legal capacity and power of TSI
and Newco; have been duly authorized by all requisite
corporate action on the part of TSI and Newco; require the
approval or consent of no persons, entities or agencies, and
will neither violate nor constitute a default under, nor
create a lien or breach under, nor result in the
acceleration of performance or right to accelerate
performance under (whether or not after the giving of notice
or lapse of time or both), the terms of the articles of
incorporation and by-laws of TSI or Newco or of any material
agreement, obligation or commitment binding upon the TSI
Corporations. This Agreement is a legal, valid and binding
obligation of TSI and Newco enforceable against TSI and
Newco in accordance with its terms, except insofar as the
enforcement thereof may be limited by bankruptcy,
insolvency, moratorium or similar laws affecting the
enforcement of creditors' rights generally and subject to
equitable principles limiting the availability of equitable
remedies.
SECTION 3.5 Brokerage. TSI has not engaged any broker
or finder to render services in connection with this
Agreement, except that TSI has utilized Enterprise
Investments, Inc., whose fee TSI will pay.
SECTION 3.6 Financial Statements.
The consolidated financial statements of TSI included
within the TSI Reports fairly present the consolidated
financial position of TSI and the consolidated results of
its operations as at the dates and for the periods to which
they apply; such statements have been prepared in conformity
with generally accepted accounting principles, applied on a
consistent basis throughout the periods involved, and such
financial statements comply with all applicable provisions
of Regulation S-X of the SEC. The interim consolidated
financial statements presented in such Reports include all
adjustments (subject only to normal recurring year-end
adjustments and the absence of footnotes) necessary for a
fair presentation of TSI's consolidated financial position
and consolidated results of operations as of the dates and
for the periods presented therein.
The Balance Sheets included in such statements reflect
all liabilities (whether absolute, accrued, contingent or
otherwise) required to be reflected in or disclosed on such
balance sheets or in the notes thereto in accordance with
generally accepted accounting principles.
SECTION 3.7 Litigation. Except as disclosed in the
TSI Reports, there are no legal, administrative, arbitration
or other proceedings or claims pending or, to the best of
TSI's knowledge, threatened against the TSI Corporations,
nor are the TSI Corporations subject to any existing
judgment which would materially affect the consolidated
financial condition or results of operations of TSI.
SECTION 3.8 Full Disclosure. No written
representation or warranty made by TSI to the Company or the
Principal Shareholder in this Agreement, and no
certification furnished or to be furnished by TSI to the
Company pursuant to this Agreement, contains or, if
delivered between the date hereof and the Closing Date, will
contain any untrue statement of a material fact or, to the
best knowledge of TSI, when all such are read together,
omits or will omit to state a material fact necessary to
make the statements contained herein or therein not
misleading.
ARTICLE IV
COVENANTS OF THE COMPANY
SECTION 4.1 Regular Course of Business. Except as
otherwise consented to in writing by TSI during the period
commencing on the date hereof and ending at the Effective
Time of the Merger or as contemplated by this Agreement, the
Company will carry on its business diligently and in the
ordinary course and use its best efforts to preserve its
present business organization intact, keep available the
services of its present executive officers and preserve its
present relationships with persons having business dealings
with it.
SECTION 4.2 Restricted Activities and Transactions.
Except as otherwise consented to in writing by TSI, from the
date hereof and prior to the Effective Time of the Merger
the Company will not:
4.2.1 amend its articles of incorporation or
by-laws;
4.2.2 issue, sell or deliver, or agree to issue,
sell or deliver, or grant, or declare any stock dividend or
stock split with respect to, any shares of any class of
capital stock of the Company or any securities convertible
into any such shares or convertible into securities in turn
so convertible, or any options, warrants or other rights
calling for the issuance, sale or delivery of any such
shares or convertible securities;
4.2.3 mortgage, pledge or xxxxx x xxxx upon any of
its assets, tangible or intangible;
4.2.4 except in the ordinary course of business
(and consistent with past practice), (i) borrow, or agree to
borrow, any funds or voluntarily incur, assume or become
subject to, whether directly or by way of guarantee or
otherwise, any obligation or liability (absolute or
contingent), (ii) cancel or agree to cancel any material
debts or claims, (iii) lease, sell or transfer, or grant or
agree to grant any preferential rights to lease or acquire,
any of its material assets, property or rights, or (iv) make
or permit any substantive amendment or termination of any
material contract, agreement, license or other right of
which it is a party;
4.2.5 enter into or make any change in the Plan,
except as required to conform to applicable law, or
materially amend or terminate any other existing employee
benefit plan, or adopt any new employee benefit plan;
4.2.6 acquire control or ownership of any other
corporation, association, joint venture, partnership,
business trust or other business entity, or acquire control
or ownership of all or a substantial portion of the assets
of the foregoing, or enter into any agreement providing for
any of the foregoing;
4.2.7 directly or indirectly solicit, encourage or
authorize any individual, corporation or entity (including
without limitation its directors, officers, employees,
attorneys, accountants and investment bankers) to directly
or indirectly solicit or encourage any inquiry, proposal,
offer or possible offer from a third party relating to or
enter into any agreement for (i) the purchase of shares of
any class of capital stock of the Company or any securities
convertible into any such shares or convertible into
securities in turn so convertible, or the acquisition of any
option, warrant or other right to purchase or otherwise
acquire any such shares or convertible securities, (ii) a
tender or exchange offer for any shares of Company Common
Stock, (iii) a purchase, lease or other acquisition of all
or a substantial portion of the assets of the Company, any
product line or line of business of the Company or any other
material asset of the Company, or (iv) a merger,
consolidation or other combination involving the Company; or
provide any individual, corporation or other entity with
information or assistance or negotiate with any individual,
corporation or entity in furtherance of any such inquiry,
proposal, offer or possible offer. The Company will
instruct its agents (including without limitation its
directors, officers, attorneys, accountants and investment
bankers) not to take any action which the Company is
prohibited from taking pursuant to this Section 4.2.7
hereof.
4.2.8 except in the ordinary course of business,
and except as provided herein with respect to the Xxxxxx
Option, enter into or agree to enter into any transaction,
or incur or discharge any obligation or liability, material
to the business of the Company;
4.2.9 except for Medical Reimbursements and Tax
Distributions complying with Section IA.2, declare or pay
any dividend on its capital stock in cash, stock or
property, or redeem, purchase or otherwise acquire any
shares of Company Common Stock or any options or warrants to
purchase Company Common Stock;
4.2.10 enter into any material licensing arrangement
or other contract;
4.2.11 settle any pending litigation in a manner that
is materially adverse to the Company or commence any
material litigation;
4.2.12 increase the compensation payable to any of its
employees, or accrue or, except for bonuses accrued in or
reflected in the Balance Sheet included in the December 31,
1994, Annual Statements, pay any bonuses or other payments
other than regular compensation to any employee or
consultant; or
4.2.13 take any action which will prevent any of its
warranties and representations herein from being true in all
material respects as of the Effective Time of the Merger.
SECTION 4.3 No Default or Violation. Except as
otherwise consented to in writing by TSI, prior to the
Effective Time of the Merger the Company will use its best
efforts not to (i) violate, or commit a breach of or a
default under, any material contract, obligation or
commitment to which it is a party or to which any of its
assets may be subject or (ii) violate any applicable federal
or state statutes, regulations or any injunctions, orders or
judgments binding upon the Company.
SECTION 4.4 Insurance. Except as otherwise consented
to in writing by TSI, prior to the Effective Time of the
Merger, the Company will maintain in full force and effect
all policies of insurance in substantially the same amounts
and types of coverage as are presently in effect on the date
of this Agreement.
SECTION 4.5 Reports; Taxes. Except as otherwise
consented to in writing by TSI, prior to the Effective Time
of the Merger:
4.5.1 the Company will duly and timely (by the due
date or any duly granted extension thereof) file all reports
and returns required to be filed with federal, state and
local authorities; and
4.5.2 unless it is contesting the same in good
faith and has established reasonable reserves therefor, the
Company will (i) promptly pay all Tax Liabilities indicated
by such returns or otherwise lawfully levied or assessed
upon it or any of its properties, and (ii) withhold or
collect and pay to the proper governmental authorities or
hold in separate bank accounts for such payment all taxes
and other assessments which are required by law to be so
withheld or collected.
SECTION 4.6 Advice of Changes. The Company and the
Principal Shareholder will promptly advise TSI orally and in
writing of (i) any event occurring subsequent to the date of
this Agreement and prior to the Effective Time of the Merger
which would render any representation or warranty of the
Company contained in this Agreement, if made on or as of the
date of such event or the Closing Date, untrue, inaccurate
or incomplete in any material respect and (ii) any material
adverse change in the working capital, financial conditions,
assets, liabilities whether absolute, accrued contingent or
otherwise), operating profits or business of the Company.
SECTION 4.7 Notification of Takeover Proposal and
Other Matters. The Company shall promptly advise TSI orally
and in writing of any "takeover proposal" or of any
proposal, or inquiry reasonably likely to result in a
proposal, which the Company has reason to believe is or may
lead to any "takeover proposal". For purposes of this
Agreement, the term "takeover proposal" shall mean any
proposal for a merger or other business combination
involving the Company, or for the acquisition of a
substantial equity interest in the Company, a substantial
portion of the assets of the Company or a product line or
line of business of the Company, other than as contemplated
by this Agreement. The Company shall promptly advise TSI
orally and in writing of the receipt by the Company of any
notification submitted to the Company pursuant to any law of
any purchase or proposed purchase of any securities of the
Company by any person.
SECTION 4.8 Consents, Approvals and Filings. The
Company and the Principal Shareholder will use their
reasonable best efforts to obtain as promptly as possible
all necessary approvals, authorizations, consents, licenses,
clearances by orders of governmental and regulatory
authorities required in order for the Company to perform its
obligations hereunder.
SECTION 4.9 Access to Records and Properties. TSI
may, prior to the Effective Time of the Merger, through its
employees, agents and representatives, make or cause to be
made a detailed review of the business and financial
condition of the Company and make or cause to be made such
investigation as it deems necessary or advisable of the
properties, assets, businesses, books and records of the
Company. The Company agrees to assist TSI in conducting
such review and investigation and will provide, and will
cause its independent public accountants to provide, TSI and
its employees, agents and representatives full access to,
and complete information concerning, all aspects of the
businesses of the Company, including its books, records
(including tax returns filed for in preparation),
projections, personnel and premises, the audit work papers
and other records of its independent public accountants and
any documents (including any documents filed on a
confidential basis) included in any report filed with any
governmental agency. Neither any investigation by TSI nor
the receipt by TSI of any data or information from the
Company shall affect the right of TSI to terminate this
Agreement as provided in Article X hereof.
SECTION 4.10 Efforts. The Company and the Principal
Shareholder shall use their reasonable best efforts (a) to
cause to be fulfilled and satisfied all of the conditions to
the closing to be fulfilled and satisfied by them, and (b)
to cause to be performed all of the matters required of them
at or prior to the Closing. The Company and the Principal
Shareholder shall use their reasonable best efforts to make
all of their warranties and representations contained in
this Agreement (except those representations and warranties
which are expressly limited to a state of facts existing at
a time prior to the Closing) true and correct in all
material respects as at the Closing, with the same effect as
if the same had been made and this Agreement had been dated
as at the Closing.
SECTION 4.11 Maintenance of Assets. The Company shall
keep the property and assets used in its businesses in good
order, repair and operating condition.
SECTION 4.12 Shareholders Meeting. The Company shall
call a special meeting of its Shareholders to be held as
soon as practicable for the purpose of voting upon the
transactions contemplated by this Agreement, or shall have
its Shareholders act by unanimous written consent. In
connection with any such meeting or action, the members of
the Board of Directors shall, subject to the exercise of
their fiduciary duties, recommend approval of such
transactions, use their best efforts to obtain such
Shareholders approval and vote their shares of Company
Common Stock in favor of the Merger.
SECTION 4.13 Merger. The Company shall take all
reasonable steps necessary for the Merger to qualify as a
reorganization within the meaning of Section 368 of the
Code, and shall omit from taking any action which will
preclude such accounting and/or tax treatment.
SECTION 4.14 Notification Regarding Dissenters'
Shares. The Company shall give TSI (i) prompt notice of any
notice of intent to demand fair value for any shares of
Company Common Stock, withdrawals of such notices, and any
other instruments served pursuant to the Appraisal Laws and
received by the Company and (ii) the opportunity to direct
any negotiations and proceedings with respect to demands for
fair value for shares of Company Common Stock under the
Appraisal Laws. The Company shall not, without the prior
written consent of TSI, voluntarily make any payment with
respect to any demands for fair value of shares of Company
Common Stock or offer to settle or settle any such demands.
ARTICLE V
COVENANTS OF TSI
SECTION 5.1 Efforts. Subject to TSI Board approval,
TSI shall use its reasonable best efforts (a) to cause to be
fulfilled and satisfied all of the conditions to the Closing
to be fulfilled and satisfied by it, and (b) to cause to be
performed all of the matters required of it or Newco at or
prior to the Closing. TSI shall use its reasonable best
efforts to make all of its warranties and representations
contained in this Agreement (except those representations
and warranties which are expressly limited to a state of
facts existing at a time prior to the Closing) true and
correct in all material respects as at the Closing, with
the same effect as if the same had been made and this
Agreement had been dated as at the Closing.
SECTION 5.2 Consents, Approvals and Filings. TSI will
use its reasonable best efforts to obtain as promptly as
possible all necessary approvals, authorizations, consents,
licenses, clearances or orders of governmental and
regulatory authorities required in order for TSI and Newco
to perform its respective obligations hereunder.
SECTION 5.3 Advice of Changes. TSI will promptly
advise the Company orally and in writing of (i) any event
occurring subsequent to the date of this Agreement which
would render any representation or warranty of TSI contained
in this Agreement, if made on or as of the date of such
Agreement or the Closing Date, untrue, inaccurate or
incomplete in any material respect and (ii) any material
adverse change in the working capital, financial condition,
assets, liabilities (whether absolute, accrued, contingent
or otherwise), operating profits or business of TSI.
SECTION 5.4 SEC Reports. Between the date hereof and
the Closing Date, TSI shall timely file with the SEC (and,
contemporaneously with such filings, shall deliver to the
Company a copy of) all reports and statements required to be
filed by TSI under the 1934 Act. None of such reports and
statements shall contain an untrue statement of a material
fact or shall omit 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.
SECTION 5.5 Company Employees. After the Merger,
manufacturing operations of the Company will be moved to
TSI's facility in Minnesota. This will result in the
termination of a number of the Company's employees. Such
employees will be offered a severance package in accordance
with the terms set forth on Exhibit M attached hereto.
Subject to its normal policies and procedures relating to
its facilities, TSI intends to maintain a research operation
at the Company's facility in Sunnyvale, California.
Benefits for employees of the Company who continue with the
Company ("Continuing Employees") will be changed to be
consistent with TSI's benefits provided, as they may change
from time to time, subject, however, to appropriate review
by TSI to maintain good employee relations. Wherever
appropriate, taking into consideration the entire benefit
package to be provided to Continuing Employees, TSI will
consider past service with the Company when administering
the benefits provided to the Continuing Employees.
SECTION 5.6 Loans; Line of Credit. The Company
presently is indebted to Dr. Bachalo and/or his spouse,
Xxxxxx Xxxxxxx under several loans which have an aggregate
principal amount of $455,000, which amount bears interest at
the rate of ten percent (10%) per annum (the "Loans").
Interest on the Loans is current. At the Closing, TSI shall
cause the principal amount of the Loans to be repaid in full
to Dr. Bachalo and Xxxxxx Xxxxxxx.
The Company presently has a revolving line of credit
arrangement in place with Xxxxx Fargo Bank. The amount of
principal owed under the line of credit on October 2, 1995
was $ 184,592. The maximum amount borrowable under the
line of credit is $500,000. Within 20 days after the
Closing Date, TSI shall cause said line of credit to be
repaid in full or otherwise obtain the release of Principal
Shareholder from his guarantee of such line of credit.
ARTICLE VI
TSI SHARES AND REGISTRATIONS
SECTION 6.1 Shares Not Registered; Investment Intent.
The TSI Common Shares to be issued in the Merger have not
been registered under the Securities Act of 1933 (the
"Securities Act") or any state securities laws.
Such TSI Common Shares have not been registered under
the Securities Act or any state securities laws by reason of
their contemplated issuance in transactions exempt from the
registration requirements of the Securities Act. TSI's
reliance upon these exemptions is predicated in part upon
the understanding that each recipient of TSI Common Shares
in the Merger understands and acknowledges that TSI Common
Shares will be acquired for each Recipient's own account,
and not with a view to, or for resale in connection with
any distribution or public offering thereof. The TSI Common
Shares may not be transferred or resold without (i)
registration under the Securities Act or any applicable
state securities laws, or (ii) an exemption from the
registration requirements of the Securities Act and
applicable state securities laws. Although Rule 144
promulgated under the Securities Act by the Securities &
Exchange Commission (the "Commission") may permit sales at a
future date provided said Rule remains in effect, in any
event each Recipient may not sell any securities pursuant to
Rule 144 prior to the expiration of a period from time to
time set forth therein after such Recipient has acquired
such securities. Any sales pursuant to Rule 144 can be made
only in full compliance with the provisions of Rule 144.
Except as provided in Section 6.2, TSI has not agreed
to, and has no obligation to, file a registration statement
to permit sale of the TSI Common Shares received under or in
connection with this Agreement.
At its election, TSI may require that each Recipient of
TSI Common Shares which have not been registered execute and
deliver to TSI an investment letter confirming that such TSI
Common Shares are being acquired for the Recipient's own
account and not with a view to, or for resale in connection
with, any distribution or public offering thereof, and
confirming that the TSI Common Shares cannot be transferred
or resold without (i) registration under the Securities Act
or any applicable state securities laws, or (ii) an
exemption from the requirements of the Securities Act and
applicable state securities laws.
SECTION 6.2 Certain Registration Rights; Rule 144
Reporting. TSI shall provide to Principal Shareholder the
registration rights provided in Exhibit R attached hereto.
With a view of making available to the Principal
Shareholder benefits of certain rules and regulations of the
Securities and Exchange Commission (the "SEC") which may
permit the sale of the TSI Common Shares received by the
Principal Shareholder hereunder to the public without
registration, TSI agrees to use its reasonable efforts to:
(a) Make and keep public information available, as
those terms are understood and defined in SEC Rule 144 or
any similar or analogous rule promulgated under the 1933
Act, at all times;
(b) File with the SEC, in a timely manner, all reports
and other documents required of the Company under the 1933
Act and 1934 Act;
(c) So long as Principal Shareholder owns any such TSI
Common Shares, furnish to Principal Shareholder forthwith
upon request: a written statement by TSI as to its
compliance with the reporting requirements of said Rule 144,
the 1933 Act and the 1934 Act; a copy of the most recent
annual or quarterly report of TSI; and such other reports
and documents as Principal Shareholder may reasonably
request in availing himself of any rule or regulation of the
SEC allowing him to sell any such securities without
registration.
ARTICLE VII
CONDITIONS TO OBLIGATIONS OF TSI AND NEWCO
The obligations of TSI and Newco under this Agreement
to consummate the Merger shall be subject to the
satisfaction, or to the waiver by them in the manner
contemplated by Section 11.3 hereof, on or before the
Closing Date, of the following conditions:
SECTION 7.1 Representations and Warranties True. The
representations and warranties of the Company contained in
this Agreement shall be in all material respects true and
accurate as of the date when made, and, except as to
representations and warranties which are expressly limited
to a state of facts existing at a time prior to the Closing
Date, shall be in all material respects true and accurate at
and as of the Closing Date as if made on the Closing Date.
SECTION 7.2 Performance of Covenants. Each of the
Company and the Principal Shareholder shall have performed
and complied in all material respects with each and every
covenant, agreement and condition required by this Agreement
to be performed or complied with by it or them prior to or
on the Closing Date.
SECTION 7.3 No Governmental or Other Proceeding or
Litigation. No order of any court or administrative agency
shall be in effect which restrains or prohibits any
transaction contemplated hereby or which would limit or
affect TSI's ownership of the Company; no suit, action
(other than the exercise of dissenters' rights),
investigation, inquiry or proceeding by any governmental
body or other person or entity shall be pending or
threatened against TSI, Newco or the Company, which
challenges the validity or legality, or seeks to restrain
the consummation, of the transactions contemplated hereby or
which seeks to limit or otherwise adversely affect TSI's
ownership of the Company or the Surviving Corporation; and
no written advice shall have been received by TSI, Newco,
the Company or their respective counsel from any
governmental body, and remain in effect, stating that an
action or proceeding will, if the Merger is consummated or
sought to be consummated, be filed seeking to invalidate or
restrain the Merger or limit or otherwise adversely affect
TSI's ownership of the Company or the Surviving Corporation.
SECTION 7.4 Approvals and Consents. The approval of
the Shareholders of the Company and all approvals of
applications to public authorities, Federal, state, or
local, if any (including, but not limited to a tax clearance
from the State of California), and all consents or approvals
of any non-governmental persons, the granting of which is
necessary for the consummation of the Merger or for
preventing the termination or material breach of any real
property lease, or other right, privilege, license or
agreement of TSI or the Company which is material to the
business of TSI or the Company, or for preventing any
material loss or disadvantage to TSI or the Company, by
reason of the Merger, shall have been obtained; and no such
consents or approvals shall have imposed a condition to such
consent or approval which in the opinion of TSI is unduly
burdensome to the consolidated financial condition or
operations of TSI or to the Company's business.
SECTION 7.5 Opinion of Counsel. TSI and Newco shall
have received an opinion of Cooley, Godward, Xxxxxx,
Xxxxxxxxx & Xxxxx, counsel to the Company, dated the Closing
Date and addressed to TSI and Newco, substantially in the
form and substance of Exhibit N annexed hereto.
SECTION 7.6 Certificates. The Company and the
Principal Shareholder shall have furnished TSI with a
certificate of the Company, in form and substance
satisfactory to TSI, signed by the Company's President and
Dr. Bachalo, to the effect that the Company's
representations and warranties contained in this Agreement
are true and correct in all material respects on and as of
the Closing Date as though such representations and
warranties were made at such time (except as contemplated in
Section 7.1 hereof) and that the Company has performed and
complied in all material respects with all terms, covenants
and provisions of this Agreement required to be performed or
complied with by it prior to or on the Closing Date.
SECTION 7.7 Dissenting Shares. As of the Closing
Date, no shares of Company Common Stock shall be eligible
for treatment as Dissenting Shares hereunder.
SECTION 7.8 Resignations. The Company shall have
received resignations (in form and substance satisfactory to
TSI) from each of its directors from his position as a
director, and each of its officers from his position as an
officer, in each case effective as of the Effective Time of
the Merger.
SECTION 7.9 Noncompete, Confidentiality and
Employment. Dr. Bachalo shall have entered into a
Noncompete Agreement substantially in the form of Exhibit O-
1 attached hereto, the Confidentiality Agreement
substantially in the form of Exhibit O-2 attached hereto,
the TSI Agreement as set forth on Exhibit P, and the
Employment and Consulting Agreement as set forth on
Exhibit Q.
SECTION 7.10. Employee Agreements. Each employee of
the Company who is to continue with the Company and who is
specified by TSI in accordance with its normal policies
shall have entered into TSI's standard agreement (or an
equivalent agreement) with employees providing for, inter
alia, confidentiality and grant of invention rights to TSI.
A copy of the standard TSI Agreement is attached hereto as
part of Exhibit P.
SECTION 7.11 Environmental Survey. If an
environmental survey or surveys is conducted before Closing,
TSI shall not have received results therefrom indicating
that the Company fails to comply with any Environmental Law
in any material respect or otherwise disclosing any material
adverse results.
SECTION 7.12 Investment Letters. All Shareholders of
the Company shall have executed investment letters for the
benefit of TSI acknowledging the securities law restrictions
applicable to the TSI Common Shares that they will receive.
SECTION 7.13 Xxxxxx Option. The Company shall have
bought out the Xxxxxx Option and shall have obtained a
release from Xxxxxx as provided in Section 1A.1 hereof.
SECTION 7.14 Closing Documentation. TSI shall have
received such additional documentation at the Closing as TSI
and its counsel may reasonably require to evidence
compliance by the Company with all of its obligations
hereunder.
ARTICLE VIII
CONDITIONS TO OBLIGATIONS OF THE COMPANY
The obligations of the Company and the Principal
Shareholder under this Agreement to consummate the Merger
shall be subject to the satisfaction, or to the waiver by it
in the manner contemplated by Section 11.3 hereof, on or
before the Closing Date of the following conditions:
SECTION 8.1 Representations and Warranties True. The
representations and warranties of TSI contained in this
Agreement shall be in all material respects true and
accurate as of the date when made, and, except as to
representations and warranties which are expressly limited
to a state of facts existing at a time prior to the Closing
Date, shall be in all material respects true and accurate at
and as of the Closing Date as if made on the Closing Date.
SECTION 8.2 Performance of Covenants. TSI and Newco
shall have performed and complied in all material respects
with each and every covenant, agreement and condition
required by this Agreement to be performed or complied with
by it prior to or on the Closing Date.
SECTION 8.3 No Governmental or Other Proceedings or
Litigation. No order of any court or administrative agency
shall be in effect which restrains or prohibits any
transaction contemplated hereby or which would limit or
affect TSI's ownership of the Company; no suit, action
(other than the exercise of dissenters' rights),
investigation, inquiry or proceeding by any governmental
body or other person or entity shall be pending or
threatened against TSI, Newco or the Company, which
challenges the validity or legality, or seeks to restrain
the consummation, of the transactions contemplated hereby or
which seeks to limit or otherwise effect TSI's ownership of
the Company' and no written advice shall have been received
by TSI, Newco, the Company or their respective counsel from
any governmental body, and remain in effect, stating that an
action or proceeding will, if the Merger is consummated or
sought to be consummated, be filed seeking to invalidate or
restrain the Merger or limit or otherwise affect TSI's
ownership of the Company.
SECTION 8.4 Approvals and Consents. All approvals of
applications to public authorities, Federal, state or local,
the granting of which is necessary for the consummation of
the Merger, shall have been obtained.
SECTION 8.5 Certificates. TSI and Newco shall have
furnished the Company with certificates of TSI and Newco,
respectively, in form and substance satisfactory to the
Company, signed by their respective presidents or executive
vice presidents, to the effect that the respective
representations and warranties of such corporations
contained in this Agreement are true and correct in all
material respects on and as of the Closing Date as though
such representations and warranties were made at such time
(except as contemplated in Section 8.1 hereof) and that such
corporations have respectively performed and complied in all
material respects with all terms, covenants and provisions
of this Agreement required to be performed or complied with
by them prior to or on the Closing Date.
SECTION 8.6 Opinion of Counsel. The Company and the
Principal Shareholder shall have received an opinion of
Xxxx, Plant, Xxxxx, Xxxxx & Xxxxxxx, P.A., counsel to TSI
and Newco, dated the Closing Date and addressed to the
Company and the Principal Shareholder substantially in the
form and substance of Exhibit T annexed hereto.
SECTION 8.7 Noncompete and Employment Agreement. TSI
shall have executed and delivered the Noncompete Agreement
substantially in the form of Exhibit O-1 attached hereto,
and the Employment and Consulting Agreement substantially in
the form of Exhibit Q attached hereto.
SECTION 8.8 Release. The Company and the Principal
Shareholder shall have obtained a release of any and all
claims against them from Xxxxxx which release is in form and
substance acceptable to them.
SECTION 8.9 Closing Documentation. The Company shall
have received such additional documentation at the Closing
as the Company and its counsel may reasonably require to
evidence compliance by TSI and Newco with all of their
obligations under this Agreement.
ARTICLE IX
CLOSING; CLOSING DATE
Unless this Agreement shall have been terminated and
the Merger herein contemplated shall have been abandoned
pursuant to a provision of Article X hereof and subject to
compliance with the conditions hereto, a closing (the
"Closing") will be held on the date hereof, at the offices
of Cooley, Godward, Palo Alto, California, or on such other
date and/or at such other location which is mutually
acceptable to TSI and the Company, commencing at 10:00 A.M.
At such time and place, the documents referred to in
Articles VII and VIII hereof will be exchanged by the
parties and, immediately thereafter, the Articles of Merger
will be filed by Newco and the Company with the Secretaries
of State of the State of Minnesota and the State of
California; provided, however, that if any of the conditions
provided for in Articles VII and VIII hereof shall not have
been met or waived by the date on which the Closing is
otherwise scheduled, then, subject to Section 10.1.4 hereof,
the party to this Agreement which is unable to meet such
condition or conditions shall be entitled (provided that
such party is acting in good faith) to postpone the Closing
for a reasonable period of time by notice to the other
parties until such condition or conditions shall have been
met (which such notifying party will seek to cause to happen
at the earliest practicable date) or waived. The date on
which the Closing occurs is hereinafter referred to as the
Closing Date.
ARTICLE X
TERMINATION
SECTION 10.1 Termination and Abandonment. This
Agreement may be terminated and the Merger may be abandoned
before the Effective Time of the Merger, notwithstanding any
approval and adoption of this Agreement by the Shareholders
of the Company or Newco:
10.1.1 by the mutual consent of the Board of
Directors of TSI and the Company; or
10.1.2 by TSI, if the Shareholders of the Company
fail to approve the Merger at the meeting of such
Shareholders called to vote upon the Merger; or
10.1.3 by TSI if there has been a material
misrepresentation or material breach on the part of the
Company or the Principal Shareholder in the representations,
warranties or covenants of the Company or the Principal
Shareholder set forth herein, or by the Company if there has
been a material misrepresentation or material breach on the
part of TSI or Newco in the representations, warranties or
covenants of TSI or Newco set forth herein; or
10.1.4 by the Board of Directors of either the
Company or TSI, at its discretion, if the Merger is not
effective by October 31, 1995, except that a party whose
breach of this Agreement has caused a delay in the
consummation of the Merger shall not be entitled to
terminate this Agreement pursuant to this Section 10.1.4.
SECTION 10.2 Termination Procedures. The power of
termination provided for by this Article X may be exercised
for TSI, Newco or the Company only by its respective Board
of Directors and will be effective only after written notice
thereof, signed on behalf of the party for which it is given
by its Chief Executive Officer in the case of TSI, or its
President in the case of the Company, or other duly
authorized officer, shall have been given to the other. If
this Agreement is terminated in accordance with this Article
X, then the Merger shall be abandoned without further action
by the Company, TSI and Newco, and their officers shall not
file the Articles of Merger with the Secretaries of State of
the States of Minnesota or California.
SECTION 10.3 Liability Upon Termination. In the event
of termination and abandonment of the Merger pursuant to
this Article X, no party hereto shall have any liability or
further obligation to any other party hereto except a party
that is in material breach of its representations,
warranties or covenants hereunder shall be liable for
damages incurred by the other parties hereto to the extent
that such damages are proximately caused by such breach.
ARTICLE XI
INDEMNIFICATION
SECTION 11.1 Indemnification by the Company and
Principal Shareholder. Subject to the limitations set forth
below, the Principal Shareholder and, prior to Closing, the
Company, each, jointly and severally, hereby agree that,
notwithstanding the Closing, the delivery of instruments of
conveyance, and regardless of any investigation at any time
made by or on behalf of any party hereto or of any
information any party hereto may have in respect thereof,
they, or after Closing, the Principal Shareholder, will
save, indemnify and hold TSI and Newco and, after Closing,
the Surviving Corporation, (hereinafter, collectively, "the
Indemnitees") harmless from and against any and all
liabilities, losses, damages, claims, deficiencies, costs
and expenses (including, without limitation, reasonable
attorney fees and other costs and expenses incident to any
suit, action or proceeding) arising out of or resulting from
and will pay to the Indemnitees the amount of damages
suffered thereby together with any amount which they or any
of them may pay or become obligated to pay on account of:
(a) the breach or inaccuracy of any warranty or
representation by the Company or the Principal
Shareholder herein; provided, however, that if and to
the extent a reserve is established on the Closing
Balance Sheet included in the Closing Statements which
reserve relates to a particular warranty or
representation, recovery can be had with respect to a
breach or inaccuracy in such warranty or representation
only insofar as damages exceed the amount of the
reserve applicable to such breach;
(b) any breach by the Company or the Principal
Shareholder of any material covenant hereunder;
(c) all liabilities of the Company arising
before the Effective Time of the Merger (whether
absolute, accrued, contingent or otherwise)
required to be reflected or disclosed on the
Closing Balance Sheet and the notes thereto in
accordance with generally accepted accounting
principles, except for such Liabilities as are
specifically reflected in the Closing Balance
Sheet included in the Closing Statements and
except for such Liabilities which are specifically
disclosed in the Exhibits hereto, but only to the
extent that the amount of any such liabilities
would, if deducted from the Final Value, have
resulted in, or increased, the Decreased Value as
described in Section 1.6 hereof.
(d) Warranty expense with respect to
products of the Company sold before the Effective
Time of Merger but only to the extent that the
aggregate amount of such warranty expense in any
of the one year periods commencing on the
Effective Time of Merger and its anniversaries
exceeds two and one-half percent (2-1/2%) of the
Company's sales for the one-year period ending on
the Effective Time of Merger. The amount of the
warranty expense shall be determined based on
TSI's standard method of determining such expense
in the ordinary course of business, but the
warranty expense (i) shall not include any travel
expenses and (ii) shall not include any expenses
in the nature of goodwill expenditures which are
not required under the terms of the applicable
warranty. To the extent a breach of the
representation and warranty set forth in Section
2.23(b) hereof occurs and gives rise to warranty
expense, this Section 11.1(d) shall be the
exclusive measure of the amount of such warranty
expense, if any, to be subject to indemnification
by the Principal Shareholder.
In the event of any claim by Indemnitees under this
Section 11.1, Indemnitees shall be entitled to exercise all
remedies provided by law and/or equity with respect thereto,
including exercising a right of offset against amounts due
Principal Shareholder.
If the Closing hereunder is held, the Company and the
Surviving Corporation will have no liability with respect to
indemnification claims by the Indemnitees. In such event,
the amounts held in escrow and the Principal Shareholder
shall be responsible for all indemnification claims.
SECTION 11.2 Escrow. At the Closing, TSI and the
Principal Shareholder, as representatives of all the
Shareholders in the Company, shall enter into an Escrow with
a national or state chartered bank acceptable to the
parties, (the "Escrow Agent") all pursuant to an Escrow
Agreement substantially in the form attached hereto as
Exhibit S (with such changes thereto as the Escrow Agent
may reasonably require). The amounts of cash and TSI Shares
specified in Section 1.6 will be delivered to the Escrow
Agent at Closing. As described in Section 1.6, said amounts
will be available for payment to TSI in the event of any
Decreased Value after the final determination of Closing
Book Value.
Following completion of the adjustments to the purchase
price pursuant to Section 1.6, the Claims Cash and the
Claims Shares shall remain in Escrow as provided in Section
1.6 and shall be subject to claims by TSI. The remaining
balance in Escrow shall be distributed on the second
anniversary of the Effective Time of Merger, subject to any
outstanding claims by TSI.
SECTION 11.3 Procedure for Claims; Payment First Out
of Escrow. Wherever the Indemnitees, or any of them, have a
claim for indemnification, they shall deliver notice of such
claim to the Principal Shareholder specifying the claim and
describing it in reasonable detail.
It is specifically understood that to the extent the
Indemnitees are ultimately determined to be due any payments
upon indemnification claims, the first source for such
payment shall be the amounts held in Escrow, if any. Only
after such amounts are exhausted shall the Indemnitees have
a right to directly recover from the Principal Shareholder.
SECTION 11.4. Limitations on Indemnification. Subject
to the proviso at the end of this Section, the
indemnification obligations of the Principal Shareholder are
subject to each of the following limitations, understandings
or qualifications:
(a) Each of the representations and warranties
made by the Company or the Principal Shareholder in
this Agreement shall survive for a period of two (2)
years after the Effective Time of Merger, provided,
however, that the representations and warranties made
in Section 2.2 hereof (relating to capitalization and
title), shall survive without limitation, the
representations and warranties made in Subsections
2.19.1(b), 2.19.2, 2.19.4, 2.19.5, 2.19.6, 2.19.7, and
2.19.8 (relating to ERISA and related matters) and in
Section 2.20 hereof (relating to taxes), shall survive
until the applicable statutes of limitations relating
to tax and employee benefit matters shall have expired,
and the representations and warranties in Section
2.18.1, but only insofar as they relate to
Environmental Laws, 2.18.2 and 2.18.3 shall survive for
a period of five (5) years after the Effective Time of
Merger. After the expiration date of any
representations and warranties no claim for
indemnification based on such representations and
warranties may be asserted by the Indemnitees, except
that claims first asserted in writing with reasonable
detail before the expiration date may be pursued until
they are finally resolved.
(b) No claim by Indemnitees for indemnification
can be made unless and until the amount of damages
incurred by the Indemnitees, in the aggregate for all
claims asserted, exceeds $65,000, and Indemnitees may
recover indemnifiable damages only to the extent that
such damages exceed $65,000; provided, however, that
damages under Section 2.2 hereof (relating to
Capitalization and Title) may be recovered in their
entirety;
(c) The total amount recoverable by Indemnitees,
in the aggregate, shall not exceed $2,645,000 less the
Option Payment;
(d) The Indemnitees shall not be entitled to
recover under this Article XI to the extent that the
claim is reimbursed by payments from insurance paid for
by the Company prior to the Closing Date;
(e) Claims may be recovered under Section 2.5,
relating to Financial Statements and Liabilities, only
to the extent that the amount of such claim would, when
deducted from the Final Value, result in, or increase,
any Decreased Value as determined in accordance with
Section 1.6;
(f) Where a claim is payable hereunder, Principal
Shareholder at his election, may choose to pay up to
one-half of the amount of such claim in the form of TSI
Shares, which Shares shall be valued for these purposes
at the Average Price, regardless of the price at which
they then may be trading.
(g) This Article XI shall be the sole and
exclusive remedy for any claim by any Indemnitee under
or in connection with this Agreement (it being
understood, however, that the limitations of this
Article XI do not apply to any claims which may be made
under or in connection with the Non-Compete or the
Employment and Consulting Agreement).
Provided, however, that the foregoing limitations,
understandings and qualifications shall not apply and shall
not limit or restrict any claim for indemnification by any
Indemnitees where and to the extent that such claim arises
from a knowing and intentional misrepresentation of a
material fact by the Company or the Principal Shareholder or
a knowing and intentional omission of facts or information
necessary to make a material representation or warranty not
materially misleading by the Company or the Principal
Shareholder.
ARTICLE XII
INDEMNIFICATION BY TSI
SECTION 12.1 Indemnification by TSI. Subject to the
limitations set forth below, TSI hereby agrees that,
notwithstanding the Closing, the delivery of instruments of
conveyance, and regardless of any investigation at any time
made by or on behalf of any party hereto or of any
information any party hereto may have in respect thereof, it
will indemnify and hold the Company (but only up until
Closing), and the Shareholders of the Company (hereinafter,
collectively, "the TSI Indemnitees") harmless from and
against any and all liabilities, losses, damages, claims,
deficiencies, costs and expenses (including, without
limitation, reasonable attorney fees and other costs and
expenses incident to any suit, action or proceeding) arising
out of or resulting from and will pay to the Indemnitees the
amount of damages suffered thereby together with any amount
which they or any of them may pay or become obligated to pay
on account of:
(a) the breach or inaccuracy of any warranty
or representation by TSI herein;
(b) any breach by TSI or the Surviving
Corporation of any material covenant or hereunder;
(c) Any income taxes alleged to be due from
the Principal Shareholder with respect to the
operations of the Company during the Stub Period
(specifically excluding, however, any income taxes
which are imposed as a result of the transactions
provided for hereunder).
In the event of any claim by Indemnitees under this
Section 12.1, TSI Indemnitees shall be entitled to exercise
all remedies provided by law and/or equity with respect
thereto.
If the Closing hereunder is held, the Company shall no
longer benefit from the foregoing indemnification.
SECTION 12.2 Procedure for Claims. Wherever the TSI
Indemnitees, or any of them, have a claim for
indemnification, they shall deliver notice of such claim to
TSI specifying the claim and describing it in reasonable
detail.
SECTION 12.3 Limitation on Indemnification. Subject
to the proviso at the end of this Section, the
indemnification obligations of TSI are subject to each of
the following limitation, understandings or qualifications:
(a) Each of the representations and
warranties made by TSI shall survive for a period
of two (2) years after the Effective Time of
Merger. After the expiration date of such
representations and warranties no claim for
indemnification based on such representations and
warranties may be asserted by the TSI Indemnitees,
except that claims first asserted in writing with
reasonable detail before the expiration date may
be pursued until they are finally resolved.
(b) No claim by TSI Indemnitees for
indemnification under clauses 12.1(a) and 12.1(b)
can be made unless and until the amount of damages
incurred by the TSI Indemnitees, in the aggregate
for all claims asserted, exceeds $65,000, and TSI
Indemnitees may recover indemnifiable damages only
to the extent that such damages exceed $65,000.
(c) The total amount recoverable by TSI
Indemnitees, in the aggregate, shall not exceed
$2,645,000 less the Option Payment.
(d) This Article XII shall be the sole and
exclusive remedy for any claim by any TSI Indemnitee
under or in connection with this Agreement (it being
understood, however, that the limitations of this
Article XII do not apply to any claims which may be
made under or in connection with the Non-Compete or the
Employment and Consulting Agreement.
Provided, however, that the foregoing limitations,
understandings and qualifications shall not apply and shall
not limit or restrict any claim for indemnification by any
TSI Indemnitees where and to the extent that such claim
arises from a knowing and intentional misrepresentation of a
material fact by TSI or from a knowing and intentional
omission of facts or information necessary to make a
material representation or warranty not materially
misleading by TSI.
ARTICLE XIII
MISCELLANEOUS PROVISIONS
SECTION 13.1 Amendment and Modification. To the
fullest extent permitted by applicable law, this Agreement
may be amended, modified and supplemented with respect to
any of the terms contained herein by mutual consent of the
respective Boards of Directors of the Company and TSI, or by
their respective officers duly authorized by such Boards of
Directors, by an appropriate written instrument executed at
any time prior to the Effective Time of the Merger;
provided, however, that following an affirmative vote at the
Shareholders' meeting referred to in Section 4.12 hereof,
this Agreement may not be amended to reduce the
consideration payable in the Merger in respect of shares of
Company Common Stock without obtaining the approval of the
Company's Shareholders in the manner required by law.
SECTION 13.2 Waiver of Compliance. To the fullest
extent permitted by law, each of TSI, Newco and the Company
may, pursuant to action by its respective Board of
Directors, or its respective officers duly authorized by its
Board of Directors, by an instrument in writing extend the
time for or waive the performance of any of the obligations
of the other or waive compliance by the other with any of
the covenants, or waive any of the conditions of its
obligations, contained herein; provided, however, that the
obtaining of the approval of the Shareholders referred to in
Section 7.4 shall not be waivable and provided further that
any instrument executed on behalf of TSI shall bind or
effect Newco in the same manner. No such extension of time
or waiver shall operate as a waiver of, or estoppel with
respect to, any subsequent or other failure.
SECTION 13.3 Survival of Representations and
Warranties. The respective representations and warranties of
each party hereto contained herein shall not be deemed to be
waived or otherwise affected by any investigation made by
the other parties hereto. The representations and
warranties of TSI, Newco and the Company contained herein or
in any document furnished pursuant hereto shall survive the
Merger, subject to the limitations of Articles XI and XII.
SECTION 13.4 No Third Party Rights. Except as
otherwise provided in this Agreement, nothing herein
expressed or implied is intended, nor shall be construed, to
confer upon or give any person, firm or corporation, other
than TSI, Newco and the Company and their respective
security holders, any rights or remedies under or by reason
of this Agreement.
SECTION 13.5 Confidentiality. TSI and the Company
shall honor the confidentiality agreements previously
delivered by each such party to the other with respect to
matters pertaining to the Merger.
SECTION 13.6 Plan. TSI will consider its options with
respect to the Plan, including a rollover into TSI's
qualified plan, but the vesting requirements imposed will
not be more stringent than under the Plan as it now exists.
SECTION 13.7 Notices. All notices, requests, demands
and other communications required or permitted hereunder
shall be in writing and shall be deemed to have been duly
given when delivered by hand or when mailed by registered or
certified mail, postage prepaid, or when given by telex or
facsimile transmission (promptly confirmed in writing), as
follows:
(a) If to the Company and the Principal Shareholder:
Xx. Xxxxxxx Xxxxxxx and Xxxxxx Xxxxxxx
00000 Xxxxxxxxxxx Xxx
Xxx Xxxxx Xxxxx, XX 00000
with a copy to:
W. Xxxx Xxxxxx
Xxxxxx Godward Xxxxxx Xxxxxxxxx & Xxxxx
0 Xxxx Xxxx Xxxxxx
Xxxx Xxxx, Xxxxxxxxxx 00000
or to such other person as to the Company shall
designate in writing, such writing to be delivered
to TSI in the manner provided in this Section; and
(b) If to TSI or Newco:
Xxxxx Xxxxxxxx, Secretary
TSI, Incorporated
X.X. Xxx 00000
000 Xxxxxxxx Xxxx
Xx. Xxxx, XX 00000
with a copy to:
Xxxx X. Xxxxxx
Xxxx, Plant, Xxxxx, Xxxxx & Xxxxxxx, P.A.
3400 City Center
00 Xxxxx Xxxxx Xxxxxx
Xxxxxxxxxxx, XX 00000
or to such other person as TSI shall designate in
writing, such writing to be delivered to the
Company in the manner provided in this Section.
SECTION 13.8 Assignment. This Agreement and all of
the provisions hereof shall be binding upon and inure to the
benefit of the parties hereto and their respective
successors and permitted assigns, but neither this Agreement
nor any of the rights, interests or obligations hereunder
shall be assigned by any of the parties hereto without the
prior written consent of the other parties; provided,
however, that Newco may assign this Agreement and its
rights, interests and obligations hereunder to another
directly or indirectly wholly-owned subsidiary of TSI
without the consent of the Company.
SECTION 13.9 Governing Laws. This Agreement and the
legal relations between the parties hereto shall be governed
by and construed in accordance with the laws of the State of
Minnesota.
SECTION 13.10 Counterparts. This Agreement may be
executed simultaneously in two or more counterparts and by
the different parties hereto on separate counterparts, each
of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
SECTION 13.11 Headings and References. The headings
of the Sections and Articles of this Agreement are inserted
for convenience of reference only and shall not constitute a
part hereof. All references herein to Sections and Articles
are to sections and articles of this Agreement, unless
otherwise indicated.
SECTION 13.12 Entire Agreement. This Agreement
(including the Exhibits hereto and the documents referred to
herein, all of which form a part hereof) and the
confidentiality agreements delivered by TSI and the Company
to each other contain the entire understanding of the
parties hereto in respect of the subject matter contained
herein and supersede all prior agreements and understandings
between the parties with respect to such subject matter.
There are no restrictions, promises, representations,
warranties, covenants, or undertakings, other than those
expressly set forth or referred to herein or therein.
SECTION 13.13 Expenses. Whether or not the
transactions contemplated hereby are consummated, each of
the parties hereto shall pay its own expenses incurred in
connection with the authorization, preparation, execution or
performance of this Agreement and all transactions
contemplated hereby, including without limitation all fees
and expenses of agents, representatives, counsel and
accountants. It is understood and agreed that if the Merger
is consummated as contemplated hereby, the expenses incurred
by the Company and the Shareholders of the Company may be
paid by the Surviving Corporation only to the extent that
such expenses are accrued as a liability in the Closing
Balance Sheet included in the Closing Statements. Any
excess of such expenses over the amount accrued shall be the
responsibility of the Principal Shareholder, and shall not
be borne by the Surviving Corporation.
SECTION 13.14 Reorganization. The parties hereto
contemplate and intend that the transactions described
herein will be treated as a tax-free reorganization under
the provisions of Section 368 of the Internal Revenue Code.
The parties agree to cooperate with each other as reasonably
requested by the other party, to achieve this objective, but
neither party makes any representation or warranty to the
other regarding the tax treatment to be afforded to the
transactions contemplated hereby. Subject to each party's
compliance with its obligations hereunder, no party will
knowingly take any action inconsistent with this objective.
SECTION 13.15 Publicity. Except as otherwise required
by law or the rules of the National Association of
Securities Dealers, Inc., so long as this Agreement is in
effect, neither TSI nor the Company shall issue or cause the
publication of any press release with respect to the
transactions contemplated by this Agreement without the
consent of the other party, which consent shall not be
unreasonably withheld or delayed.
SECTION 13.16 Arbitration. Excluding matters to be
resolved by the Independent Accountant pursuant to Sections
1.6.2 and 1.A.2 where the Independent Accountant's decision
shall be final, in the event of any controversy, claim or
dispute arising out of this Agreement or the transactions
contemplated hereby, said controversy, claim or dispute
(hereinafter a "Matter"), provided the amount in dispute is
$200,000 and less, shall be settled by binding arbitration
in Hennepin County, Minnesota, in accordance with the rules
and procedures then obtaining of the American Arbitration
Association, and the award by the arbitrator shall be final
and binding and may be enforced in any court having
jurisdiction. The parties shall make available to the
arbitrator all books, records and other information
requested by the arbitrator. The arbitrator may, in his
discretion, and as a cost of arbitration, employ experts to
assist it in making its determination. Each party shall
have access during normal business hours to such books,
records and other data as is reasonably necessary to analyze
the Matter in dispute with the right to copy any of the same
at its expense. In any such arbitration, the prevailing
party shall be entitled to recover, in addition to the basic
award of the arbitrator, its reasonable costs and expenses
of the arbitration, including reasonable attorneys' fees and
reasonable travel expenses. Where each party prevails in
matters contested in the arbitration, such costs and
expenses shall be borne in such proportion as the arbitrator
may determine, consistent with the principle that the
prevailing party should recover its costs and expenses of
arbitration.
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed as of the date and year first
written above.
TSI INCORPORATED
By /s/XXXXXX X. XXXXXXX
Its V. PRESIDENT & TREASURER
TSI DOMESTIC INTERNATIONAL SALES CORPORATION
By /s/XXXXXX X. XXXXXXX
Its V. PRESIDENT & TREASURER
AEROMETRICS, INC.
By /s/XX. XXXXXXX X. BACHAL0
Its President
PRINCIPAL SHAREHOLDER:
/s/XX. XXXXXXX X. BACHAL0
Xx. Xxxxxxx X. Xxxxxxx
