EXHIBIT 2.1
ASSET PURCHASE AGREEMENT
This ASSET PURCHASE AGREEMENT, dated as of March 21, 2002, is by and
between Digi International Inc., a Delaware corporation ("Seller"), and
Communications Systems, Inc., a Minnesota corporation ("Buyer").
WHEREAS, Seller is engaged, among other business activities, in the
business of developing, manufacturing, marketing and selling media conversion,
hub, switch, print server and other products under the MiLAN name through its
MiLAN division; and
WHEREAS, Seller wishes to sell or cause to be sold to Buyer, and Buyer
wishes to purchase from Seller, substantially all of the operating assets and
properties used in the MiLAN Business (hereinafter defined), upon the terms and
subject to the conditions of this Agreement, including the assumption of certain
specified liabilities.
NOW, THEREFORE, in consideration of the mutual covenants herein
contained, the parties agree as follows
ARTICLE I
DEFINITIONS
As used in this Agreement, the following terms have the meanings set
forth below, and where those meanings are intended, those terms are capitalized:
1.1 "Accounts Receivable" means Seller's accounts receivable as of the
Closing Date arising from sales of MiLAN products or services to customers in
the ordinary course of the MiLAN Business, other than accounts receivable, if
any, which are identified as Excluded Assets on Schedule 1.23.
1.2 "Acquired Assets" means, other than the Excluded Assets, all of the
business, properties, assets, goodwill and rights of Seller used by Seller
primarily in the MiLAN Business, including, without limitation, all Intellectual
Property; all Accounts Receivable; all Plans; all Inventory; Prepaid Expenses;
all Fixed Assets; all Acquired Contracts; all Books and Records; telephone
numbers; and all other assets of Seller primarily related to the MiLAN Business,
including all fully depreciated assets currently used primarily in conducting
the MiLAN Business whether or not such assets are reflected on the Most Recent
Statements of Inventory, Accounts and Assets.
1.3 "Acquired Contracts" means all of Seller's interest in and to the
contracts, commitments and agreements which relate to the Acquired Assets and/or
the MiLAN Business (including agreements with customers, suppliers,
distributors, manufacturers and representatives and open purchase orders) listed
on Schedule 1.3.
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1.4 "Assumed Liabilities" means all of the following:
(a) All obligations, liabilities, agreements and commitments
of Seller under the Acquired Contracts (but not including any liability or
obligation for any breach thereof occurring on or prior to the Closing Date);
(b) Buyer's obligations under the Sublease;
(c) The Assumed Severance Costs;
(d) All of Seller's warranty obligations under MiLAN's
standard warranty, a true and correct copy of which is attached as Schedule
1.4(d), for MiLAN products (other than Procera Business products) sold after
March 1, 1997; and,
(e) Seller's accrued obligations to Category I Employees and
Category II Employees for vacation pay, holiday pay, sick pay and/or personal
time off as of the end of the Transition Period (respectively, the "Category I
Accruals" and the "Category II Accruals") as respectively indicated on Schedule
1.7 and Schedule 1.8.
1.5 "Assumed Severance Costs" means the aggregate of the severance
payments to be paid upon termination of Category II Employees whose employment
with the MiLAN Business is terminated by Buyer between the end of the Transition
Period and June 30, 2002, based upon the amounts respectively indicated on
Schedule 1.8; provided that Buyer shall be under no obligation to make a
severance payment (but shall be obligated to pay the Category II Accruals) to
Category II Employees who voluntarily terminate their employment before June 30,
2002.
1.6 "Books and Records" means all of Seller's tangible and electronic
books and records relating to the Acquired Assets or the MiLAN Business,
including without limitation, lists of customers and suppliers, and records with
respect to pricing, volume, payment history, cost, inventory, machinery and
equipment, mailing lists, distribution and customer lists, sales, purchasing and
materials, and including any such records which are maintained on computer;
provided that the term "Books and Records" does not include personnel records of
Category I or Category II Employees.
1.7 "Category I Employees" means the employees of the MiLAN Business
listed on Schedule 1.7 who, at the end of the Transition Period, will cease to
be employees of Seller, will become employees of the Buyer and will continue as
employees of the Buyer on and after June 30, 2002 (except to the extent any such
employees voluntarily terminate their employment with Seller or Buyer before
June 30, 2002), as to which Buyer shall assume the Category I Accruals
respectively indicated opposite each such employee's name on Schedule 1.7.
1.8 "Category II Employees" means the employees of the MiLAN Business
listed on Schedule 1.8 whom Buyer (or an affiliate of Buyer) will employ, at the
end of the Transition Period, but anticipates terminating between the end of the
Transition Period and June 30, 2002 at which time Buyer shall make the severance
payment opposite each employee's name as indicated on Schedule 1.8, unless any
such Category II Employee voluntarily terminates his or
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her employment prior to such date, in which case such payment shall consist only
of the applicable Category II Accrual.
1.9 "Category III Employees" means the employees of the MiLAN Business
listed on Schedule 1.9 whom Seller will continue to employ after the Closing
Date.
1.10 "Closing Date Valuations" means the sum of (i) the net book value
of the Inventory and the Accounts Receivable as of the Closing Date as
determined by the parties hereto pursuant to Section 2.4 and (ii) one-half (1/2)
of the Assumed Severance Costs.
1.11 "Escrow Agreement" means that certain Escrow Agreement among
Seller, Buyer and the bank (acting as escrow agent) named therein substantially
in the form attached hereto as Exhibit A.
1.12 "Excluded Assets" means all of the following:
(a) Seller's cash and cash equivalents on hand or in banks;
(b) All right, title and interest of Seller in the Procera
Business and all assets related to the Procera Business;
(c) All of Seller's assets which are not primarily related to
the MiLAN Business;
(d) All of the corporate records of Seller, including, without
limitation, the minute books, stock ledgers, tax returns and all business
records and files primarily related to Procera Business or the Excluded Assets;
(e) All claims or rights under any consulting, liability or
other insurance policies owned by or obtained on behalf of Seller and which
relate to or arise out of liabilities other than the Assumed Liabilities or the
Excluded Assets;
(f) Any of Seller's causes of action, judgments, claims and
demands of whatever nature relating to liabilities (other than the Assumed
Liabilities) or the Excluded Assets;
(g) Any federal, state and local income tax refunds or claims
related to the operations of Seller on or prior to the Closing Date; and
(h) All rights, title and interest of Seller in and to the
name "Digi International Inc.," "Digi" and all variations of and logos
associated with such names.
(i) Accounts Receivable related to the Milan Business which
are identified as Excluded Assets on Schedule 1.23.
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1.13 "Fixed Assets" means all of Seller's tangible assets which are
required to conduct or primarily related to the MiLAN Business (other than
Inventory and other than any of Seller's tangible assets located at Seller's
Minnetonka, Minnesota facility), including, but not limited to furniture,
fixtures, machinery, equipment, tooling, computers, listed on Schedule 1.13
(dated as of March 15, 2002) and fully depreciated assets which may not be
reflected on Schedule 1.13 and all other tangible assets required to conduct or
primarily related to the MiLAN Business which are acquired by Seller from the
date of Schedule 1.13 through the Closing Date.
1.14 "GAAP" means generally accepted accounting principles as
consistently applied by Seller in accordance with the Seller's past practices.
1.15 "Intellectual Property" means all patents, patent applications,
copyrights, trademarks, trade names (including the name "MiLAN" and variations
thereof, but specifically excluding the names "Digi International Inc.," "Digi,"
any logos associated with such names and variations thereof), assumed names,
trade secrets, licenses, software, software licenses, product designs,
documentation for finished products and products under development and know how,
required by Seller to manufacture and sell the products currently offered for
sale by the MiLAN Business or otherwise used by Seller primarily in the
operation of the MiLAN Business in Sunnyvale, California, including the
intellectual property listed on Schedule 1.15.
1.16 "Inventory" means all of Seller's parts, raw materials, work in
process, and finished goods held for sale as of the Closing Date which are
related primarily to the MiLAN Business.
1.17 "Liabilities and Obligations" means any direct or indirect
indebtedness, claim, obligation, liability, deficiency or guaranty of any kind
or nature whatsoever, whether absolute or contingent, liquidated or
unliquidated, due or to become due, accrued or not accrued, matured or
unmatured, or otherwise of Seller.
1.18 "MiLAN Business" means Seller's business of developing,
manufacturing, marketing and selling media conversion, hub, switch, print server
and other products under the MiLAN name; provided the term "MiLAN Business" does
not include the business and assets related primarily to the Procera Business or
tangible assets located at Seller's Minnetonka, Minnesota facility.
1.19 "Most Recent Statements of Inventory and Accounts" means,
collectively, the Recent Inventory and Recent Accounts Receivable statements
attached hereto as Schedules 1.23 and 1.24.
1.20 "Plans" means all plans, blueprints, designs, processes, computer
programs and related documents, formulae, process sheets, drawings,
instructions, machine manuals, any non-expired warranties and guarantees, and
similar items required by Seller to manufacture and sell the products currently
offered for sale by the MiLAN Business or primarily used by Seller in the
operation of the MiLAN Business in Sunnyvale, California, including, but not
limited to, those items used in production of products, or relating to equipment
and its operation, except those plans owned by Seller's customers which relate
to the components listed on Schedule 1.20.
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1.21 "Prepaid Expenses" means prepaid expenses incurred in the ordinary
course of the MiLAN Business determined in accordance with GAAP.
1.22 "Procera Business" means that certain Procera/Multi-Layer Switch
project of Seller which includes, without limitation, the business of engaging
in Layer 2 and below or Layer 2 and above switching.
1.23 "Recent Accounts Receivable" means the aggregate dollar amount of
Accounts Receivable reflected on Schedule 1.23, less any reserves indicated on
Schedule 1.23.
1.24 "Recent Inventory" means the aggregate dollar amount of Inventory
reflected on Schedule 1.24, less any reserves indicated on Schedule 1.24.
1.25 "Sublease" means the written agreement attached hereto as Exhibit
B pursuant to which Buyer will lease from Seller from the Closing Date through
July 31, 2002 an agreed upon portion of the facility located in Sunnyvale,
California which is occupied by the MiLAN Business and leased by the Seller
under a lease dated as of May 1, 1995 between Castlehill Properties, Inc. and
Seller.
1.26 "Transition Period" means the period beginning at the Closing Date
and running through April 12, 2002 during which period Seller will lease the
services of the Category I and Category II Employees to Buyer pursuant to the
Employee Transition Agreement attached hereto as Exhibit C.
1.27 "Transition Services Agreement" means the written agreement
attached hereto as Exhibit D.
ARTICLE II
PURCHASE AND SALE OF ACQUIRED ASSETS
2.1 Purchase and Sale of the Acquired Assets. Upon the terms and
subject to the conditions of this Agreement, Seller agrees to sell, assign,
transfer, convey and deliver, or cause to be sold, assigned, transferred,
conveyed and delivered to Buyer, and Buyer agrees to purchase, on the Closing
Date (as defined in Section 3.1), all of the Acquired Assets. Except as
expressly provided in Section 2.2(a), Buyer shall acquire the Acquired Assets
free and clear of all Liabilities and Obligations. Buyer shall not purchase, nor
have any right with respect to, the Excluded Assets.
2.2 Assumption of Certain Liabilities.
(a) Assumed Liabilities. Upon the terms and subject to the
conditions of this Agreement, Buyer shall execute and deliver to Seller on the
Closing Date an agreement pursuant to which Buyer shall assume and agree to pay,
perform and discharge, and to indemnify Seller and its affiliates against and
hold them harmless, in accordance with the indemnification
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provisions of Article IX, from all obligations and liabilities of Seller
existing on the Closing Date which are Assumed Liabilities.
(b) All Other Liabilities Excluded. Buyer will have no
responsibility for, and Seller agrees to indemnify and hold Buyer harmless, in
accordance with the indemnification provisions of Article IX, from, any
Liabilities and Obligations of Seller of any nature whatsoever which are not
specifically included in the Assumed Liabilities, whether similar or dissimilar
to the Assumed Liabilities, whether now existing or hereafter arising, and
whether known or unknown to Buyer or Seller, including without limitation (i)
all indebtedness for borrowed money; (ii) all product liability claims (other
than warranty claims assumed by Buyer pursuant to Section 1.4(d) and Section
2.2(a) above) related to or arising out of Seller's products that are shipped
prior to or on the Closing Date; (iii) environmental liabilities asserted
against Buyer and arising out of actions or operations of Seller prior to the
Closing Date; and (iv) except to the extent specifically included in the Assumed
Liabilities, all present and future Liabilities and Obligations owed by Seller
to its MiLAN Business employees pursuant to such employees' employment by
Seller, including, but not limited to any accrued payroll, annual leave, benefit
plan contributions, severance or termination payments, accrued vacation pay,
unpaid wages, including such liabilities as are incurred through the Closing
Date.
2.3 Purchase Price. The cash portion of the Purchase Price to be paid
for the Acquired Assets shall be the amount determined under this Section 2.3 as
adjusted pursuant to the provisions of Section 2.4.
(a) On the Closing Date Buyer shall pay Seller and into escrow as
provided in Section 2.3 (b) below the amount determined pursuant to the
following calculation:
(i) The Recent Accounts Receivable, plus
(ii) The Recent Inventory; plus
(iii) One Million Dollars ($1,000,000); minus
(iv) The Category I Accruals and the Category II Accruals;
minus
(v) One-half (1/2) of Buyer's good faith estimate of the
Assumed Severance Costs calculated based on the severance payment
amounts set forth opposite each Category II Employee's name on Schedule
1.8 and based on the number of employees listed thereon that Buyer
reasonably expects to terminate prior to June 30, 2002.
Items (i), (ii) and (v) are herein referred to as the "Estimated Closing Date
Valuations".
(b) The amount determined under this Section 2.3 shall be paid at
Closing as follows:
(i) 95% shall be paid in cash or by wire transfer of funds to
Seller; and
(ii) 5% shall be paid in cash or by wire transfer of funds to
an escrow account pursuant to the terms of Section 2.6 (the "Escrow
Amount").
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2.4 Purchase Price Adjustment. The Purchase Price shall be the amount
determined under Section 2.3(a) above increased or reduced (the "Purchase Price
Adjustment") by the difference between the Estimated Closing Date Valuations and
the Closing Date Valuations, which increase or reduction shall be determined
based on the following procedure:
(a) On March 25, 2002 Seller shall generate reports as of the
Closing Date reflecting its determination of the Accounts Receivable and
Inventory before any reserves reflected on the Most Recent Statements of
Inventory and Accounts and thereafter Seller and Buyer shall jointly conduct a
review of Accounts Receivable and Inventory, including, at the request of either
party, a physical inventory of the Inventory.
(b) Buyer must, as soon as reasonably practicable after the
Closing Date but not later than twenty (20) days after the Closing Date, prepare
a statement with respect to the Closing Date Valuations (the "Closing
Statement") setting forth Buyer's calculation as of the Closing Date, in
reasonable detail, of the value of the Accounts Receivable and Inventory as of
the Closing Date as compared to the value of the Recent Accounts Receivable and
Recent Inventory determined in accordance with the procedures and methodologies
set forth on Schedule 2.4 hereto, as well as a final determination set forth on
an amended Schedule 1.7 of those Category II Employees it intends to terminate
on or before June 30, 2002.
(c) Within twenty (20) days after receipt of the Closing
Statement, Seller must give Buyer written notice of any exceptions to Buyer's
calculation of the Closing Date Valuations.
(i) If Seller has not given Buyer such written notice
within that twenty-day period, then the values set forth in
the Closing Statement will be conclusive and binding on the
parties.
(ii) If Seller gives Buyer such written notice within
that twenty-day period, then Buyer and Seller shall promptly
endeavor to resolve any disputes. If Seller and Buyer fail to
reach an agreement with respect to such matters on or before
twenty (20) days after Seller has delivered written notice to
Buyer of exceptions to the Closing Statement, then, as to such
matters remaining in dispute, the Seller and the Buyer shall
promptly retain an accounting firm ("Firm") acceptable to
Buyer and Seller, which has not rendered accounts or other
services to either Buyer or Seller for at least three years.
The Firm shall make an independent determination of any
matters in dispute and deliver an opinion to Buyer and Seller
within 45 days of the Firm's retention, which determination
will be conclusive and binding on the parties. If, following
any determinations made by the Firm, the Closing Date
Valuations shall be within $50,000 of the Closing Statement
prepared by Buyer, Seller shall be responsible for all fees
and expenses of the Firm. If, following any determinations
made by the Firm, the Closing Date Valuations are not within
$50,000 of the Closing Statement prepared by Buyer, Buyer
shall be responsible for all fees and expenses of the Firm.
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2.5 Payment of Purchase Price Adjustment.
(a) If the Estimated Closing Date Valuations are less than the
Closing Date Valuations determined in accordance with Section 2.4, then Seller
may immediately draw the entire amount deposited in the Escrow and Buyer shall
pay the difference between the Closing Date Valuations and the Estimated Closing
Date Valuations to Seller, within five (5) days after final determination of the
Closing Date Valuations, by a wire transfer of good funds or a cashiers check.
(b) If the Estimated Closing Date Valuations are greater than
the Closing Date Valuations determined in accordance with Section 2.4, then
Buyer may immediately draw the difference from the Escrow and the remainder of
the Escrow shall then be immediately disbursed to Seller.
2.6 Escrow. The Escrow Amount shall be placed in an escrow account with
Xxxxx Fargo Bank Minnesota, N.A. (the "Escrow") pending determination of the
Purchase Price Adjustment following Closing. Funds deposited in escrow shall be
subject to the terms of the Escrow Agreement.
2.7 Allocation of Purchase Price. The allocation of the Purchase Price
for tax purposes will be determined by mutual agreement of the Buyer and Seller
following the completion of the Purchase Price Adjustment described in Section
2.4 of this Agreement and upon reaching agreement of the allocation of the
Purchase Price, such agreement will be set forth in a written schedule signed by
both parties and which shall be incorporated by reference into this Agreement as
Schedule 2.7. It is further agreed that the allocation of the consideration to
the Assets as set forth in Schedule 2.7 will be binding on Seller and Buyer for
federal and state income tax purposes and will be consistently so reflected by
Buyer and Seller on their respective federal and state income tax returns.
ARTICLE III
THE CLOSING
3.1 Closing Date. The closing of the sale and transfer of the Acquired
Assets (hereinafter called the "Closing") shall take place at the offices of
Xxxxxxxxx & Xxxxxx, 0000 XXX Xxxxxx, Xxxxxxxxxxx, Xxxxxxxxx at 9:00 a.m. on
March 25, 2002, or at such other time, date and place as shall be fixed by
agreement among the parties hereto (such date of the Closing being herein
referred to as the "Closing Date").
3.2. Transactions To Be Effected at the Closing. At the Closing:
(a) Seller's Deliveries. On the Closing Date, subject to the
terms and conditions set forth in this Agreement, Seller shall make the
following deliveries:
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(i) A Xxxx of Sale in a form reasonably acceptable to
Buyer, and other instruments of conveyance reasonably
requested by Buyer, duly executed by Seller;
(ii) Assignments of all Intellectual Property in a
form reasonably requested by Buyer;
(iii) Appropriate releases or termination statements
for any security interest in the Acquired Assets;
(iv) A certificate of an executive officer of the
Seller certifying to the fulfillment of the conditions
described in Sections 7.2(a) and 7.2(b) herein;
(v) A certificate of the Secretary of Seller,
certifying a copy of the resolutions of Seller's Board of
Directors which authorize the execution, delivery and
performance of this Agreement as having been duly adopted and
as being in full force and effect on the Closing Date.
(vi) The Sublease, duly executed by Seller;
(vii) The Escrow Agreement, duly executed by Seller;
(viii) The Transition Services Agreement, duly
executed by Seller;
(ix) The Employee Transition Agreement, duly executed
by Seller; and
(x) All other items or documents reasonably requested
by Buyer or its counsel.
(b) Buyer's Deliveries. On the Closing Date, subject to the
terms and conditions set forth in this Agreement, Buyer shall make the following
deliveries:
(i) Payment of the cash portion of the Purchase Price
determined in accordance with the provisions of Section 2.3;
(ii) An Assignment and Assumption Agreement in a form
reasonably acceptable to Seller, duly executed by Buyer;
(iii) A certificate of an executive officer of the
Buyer certifying to the fulfillment of the conditions
described in Sections 7.3(a) and 7.3(b) herein;
(iv) A certificate of the Secretary of Buyer,
certifying a copy of the resolutions of Buyer's Board of
Directors which authorize the execution, delivery and
performance of this Agreement as having been duly adopted and
as being in full force and effect on the Closing Date;
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(v) The Sublease, duly executed by Buyer;
(vi) The Escrow Agreement, duly executed by Buyer;
(vii) The Transition Services Agreement, duly
executed by Buyer;
(viii) The Employee Transition Agreement, duly
executed by Buyer; and
(ix) All other items or documents reasonably
requested by Seller or Seller's counsel.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
OF THE SELLER
The Seller hereby represents and warrants to and agrees with the Buyer
as follows, unless otherwise provided in the disclosure schedule attached hereto
(the "Disclosure Schedule"):
4.1 Organization and Good Standing. The Seller is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Delaware. The Seller has full corporate power and authority to conduct its
business as now conducted and to own and operate the assets and properties now
owned and operated by it; and is duly qualified to do business and is in good
standing in each jurisdiction wherein the conduct of its business or the
ownership of its assets and properties requires such qualification and the
failure to be so qualified would have, or could be reasonably expected to have,
a material adverse effect on the business, operations, condition, (financial or
otherwise), results of operations, business relationships, assets, liabilities
or prospects of the MiLAN Business.
4.2 Authority and Compliance. The Seller has full power and lawful
authority to execute and deliver this Agreement and to consummate and perform
the transactions contemplated hereby. This Agreement has been duly authorized by
all necessary corporate action and this Agreement has been duly executed and
delivered by the Seller and constitutes the legal, valid and binding obligation
of the Seller, enforceable in accordance with its terms. Neither the execution
and delivery of this Agreement by the Seller nor the consummation and
performance of the transactions contemplated hereby (i) will conflict with or
violate the Certificate of Incorporation or Bylaws (or other governing
instrument) of the Seller or any agreement to which the Seller is a party or by
which it is bound, or any federal, state, local or other governmental law or
ordinance or (ii) will require the authorization, approval or consent by, or any
notice to or filing with, any third party.
4.3 Financial Statements. Seller has furnished Buyer with (i) a
statement of income of the MiLAN Business for the twelve month period ended
September 30, 2001 and a statement of income of the MiLAN Business for the five
month period ended February 28, 2002 (collectively the "Financial Statements")
and (ii) the Most Recent Statements of Inventory, Accounts and Assets. The
Financial Statements and the Statements of Inventory, Accounts and Assets have
been derived from Seller's financial statements which were prepared in
accordance with GAAP
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and, except as set forth therein, the Financial Statements present
fairly the results of operations for the periods then ended.
4.4 Liabilities. Since October 1, 2001, the MiLAN Business has not
incurred any Liabilities or Obligations which in the aggregate are greater than
$50,000, except Liabilities or Obligations arising in the ordinary course of
business consistent with past practice, including but not limited to Liabilities
or Obligations to the vendors listed on Schedule 4.4 hereto.
4.5 No Material Change. Except as set forth on the Disclosure Schedule
since February 28, 2002, there has not been (a) any adverse change in any of the
Acquired Assets or in the operations or condition (financial or otherwise) of
the MiLAN Business which collectively with all other similar changes would be
Material, (b) any damage, destruction or loss, whether covered by insurance or
not, adversely affecting any of the Acquired Assets, the operations, or
condition (financial or otherwise) of the MiLAN Business which collectively with
all other similar items of damage, destruction or loss would be Material, (c)
any actual or threatened trouble or disruption of the MiLAN Business' relations
with its agents, customers, distributors or suppliers which collectively with
all other similar events of trouble or disruption would be Material, (d) any
Material liability incurred with respect to the MiLAN Business, other than
liabilities incurred in the ordinary course of business consistent with past
practice, or any failure to pay or discharge when due any Material liability
related to the MiLAN Business or any of the Acquired Assets, (e) any Material
sale, encumbrance, assignment or transfer of any assets or properties associated
with the MiLAN Business, except in the ordinary course of business consistent
with past practice, (f) any amendment or termination of any of the Acquired
Contracts, or any cancellation, modification or waiver of any Material debts or
claims held by Seller or any waiver by it of any rights of Material value
whether or not in the ordinary course of business, (g) any Material commitment
or agreement made for capital expenditures or capital additions or betterments
of the MiLAN Business, (h) any change in the accounts receivable collection
procedures, or material change in any other accounting principles, or(i) any
change in the procedures by which new customers are qualified before accepting
orders from such new customers. followed by the Seller or the methods of
applying such principles. Except as set forth on the Disclosure Schedule, since
February 28, 2002, the Seller has conducted the MiLAN Business only in the
ordinary course consistent with past practice and has not entered into any
Material transaction, contract or arrangement with respect to the MiLAN
Business, except in the ordinary course of business, consistent with past
practice.
4.6 Assets and Properties. The Seller has, and at the Closing will
convey to the Buyer, good, valid and marketable title to all of the Acquired
Assets, free and clear of all liens, pledges, mortgages, security interests,
claims or encumbrances of any nature whatsoever, except liens for current taxes
not yet due and payable. All of the Fixed Assets are in good operating condition
and repair (subject only to ordinary wear and tear) and are usable in the
ordinary course of the MiLAN Business consistent with their intended purpose.
The Acquired Assets represent all assets reasonably required to enable Buyer to
continue to conduct the business functions of the MiLAN Business currently
conducted in Sunnyvale, California in the ordinary course of business consistent
with past practice; provided that Buyer provides a substantially similar level
of support to the MiLAN Business from outside Sunnyvale, California as has been
provided by Seller.
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4.7 MiLAN Products. Except as set forth on the Disclosure Schedule, all
products produced, manufactured, distributed or sold by the MiLAN Business
conform in all respects to all applicable laws, ordinances, regulations, trade
and industry standards and customer specifications in effect at the time of such
production, manufacture, distribution or sale. To the knowledge of Seller, there
is no pending legislation, ordinance or regulation relating exclusively to the
industry in which the MiLAN Business is operated that, if adopted or enacted,
would have a materially adverse effect upon the MiLAN Business and, to Seller's
knowledge, there are no events, conditions, circumstances, activities,
practices, incidents, actions, omissions or plans which might reasonably be
expected to give rise to any liability relating to any products, produced,
manufactured, distributed or sold by the MiLAN Business.
4.8 Acquired Contracts; Consents Required. True and complete copies of
the Acquired Contracts have been delivered to Buyer and each Acquired Contract
is a valid and binding obligation of each of the parties thereto and is in full
force and effect. The Seller is not in default under any of the Acquired
Contracts, and, to the knowledge of Seller, no third party is in default under
any of the Acquired Contracts. The Acquired Contracts include all contracts,
commitments and agreements reasonably necessary to enable Buyer to carry on the
MiLAN Business as it has heretofore been conducted, except for those contracts,
commitments and agreements used by Buyer to provide finance and administration
support to the MiLAN Business. Except as set forth on the Disclosure Schedule,
no consent of any natural person, corporation, partnership, proprietorship,
association, trust or other legal entity (including without limitation, consents
from parties to the Acquired Contracts) is required to be obtained by the Seller
prior to assignment of the Acquired Contracts at Closing or otherwise, for the
execution, delivery and performance of this Agreement or the consummation of the
sale of the Acquired Assets to the Buyer.
4.9 Changes in Suppliers and Customers. Without regard to the
transactions contemplated by this Agreement (as to which no representation is
given), Seller has no knowledge of any facts which indicate that any of the
customers of the MiLAN Business intends to cease being a customer of Seller (or
knows of any reason why any of such customers would not continue as a customer
with the MiLAN Business after the Closing Date), nor is Seller aware of any
facts which indicate that any supplier to Seller intends to cease doing business
with Seller, (or knows of any reason any of such suppliers would not act as
suppliers to the MiLAN Business after the Closing Date).
4.10 Inventory. Except as set forth on the Disclosure Schedule, the
Inventory consists of items of a quality and condition that are usable in the
ordinary course of business for the purposes for which intended. The quantity of
each item of Inventory as of March 15, 2002 is that number respectively stated
on Schedule 1.24. Since March 15, 2002, all acquisitions and sales of Inventory
have been made in the ordinary course of business consistent with past practice.
4.11 Accounts. All Accounts Receivable have arisen in the ordinary
course of the MiLAN Business and represent valid obligations due Seller.
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4.12 Legal Proceedings; Compliance with Law. There are no disputes,
claims, actions, suits or proceedings, arbitrations or investigations pending
or, to the knowledge of Seller, threatened against the Seller with respect to
the MiLAN Business. Seller has no knowledge of any facts or circumstances that
could reasonably be expected to form the basis of any Material claim, liability
or litigation against the Seller with respect to the MiLAN Business or the
Acquired Assets. Excluding for purposes of this representation, compliance with
product laws, employment laws and Environmental Laws, which compliance is
addressed by the representations set forth in Sections 4.07, 4.14 and 4.16,
respectively, the conduct of the MiLAN Business by the Seller, and its use of
the Acquired Assets, are in material compliance with all applicable federal,
state, local or other governmental laws, ordinances, codes, rules and
regulations. The Seller owns or possesses in the operation of the MiLAN Business
all Material franchises, licenses, permits, consents, approvals, rights, waivers
and other authorizations, governmental or otherwise, which are necessary for it
to conduct its business as now conducted; the Seller is not in default, nor has
it received any notice of any claim or default, thereunder or any notice of any
other claim or proceeding or threatened proceeding relating thereto; and neither
the execution or delivery of this Agreement nor the consummation of the
transactions contemplated hereby will require any notice or consent thereunder
or have any material adverse effect thereon.
4.13 Intellectual Property. Seller has not received notice or claim
that its respective title to or use of the Intellectual Property is impaired,
encumbered or invalid or is unenforceable by it, except as set forth on the
Disclosure Schedule. Seller's use of any item of the Intellectual Property does
not, to the knowledge of Seller, infringe upon any intellectual property owned
by any other entity or person, and there is no claim or action pending or, to
the knowledge of Seller, threatened with respect thereto. Except as set forth on
the Disclosure Schedule, to the knowledge of Seller, there has been no
infringement or improper use of any item of the Intellectual Property by any
third party and there is no legal action instituted by Seller in which an act
allegedly constituting an infringement of any of the rights to any item of the
Intellectual Property was alleged to have been committed by a third party.
4.14 Labor and Employment Matters
(a) No employees of the MiLAN Business are represented by a
labor union and the Seller is not a party to and does not have any obligation
under any collective bargaining agreement related to any of the employees of the
MiLAN Business.
(b) There are no pending or, to Seller's knowledge, threatened
representation campaigns, elections or questions concerning union representation
involving any employees of the MiLAN Business.
(c) The Seller has no knowledge of any efforts of any labor
union to organize any employees of the MiLAN Business nor of any demands for
recognition or collective bargaining, nor of any labor disputes, strikes or work
stoppages of any kind, or threats thereof, by or with respect to any employees
of the MiLAN Business and, to the knowledge of Seller, no such activities
occurred during the twenty-four (24) month period preceding the date hereof.
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(d) Seller has complied in all Material respects with all
applicable laws relating to the employment of labor, including provisions
relating to wages, hours, equal opportunity, collective bargaining, age and sex
discrimination and the withholding and payment of social security and other
taxes related to the MiLAN Business employees. There are no disputes, claims,
actions, suits or proceedings, arbitrations or investigations pending or, to the
knowledge of Seller, threatened by, against or affecting any of the MiLAN
Business employees related to their employment by the Seller.
(e) Seller has not violated in any Material respect, to its
knowledge has no liability under, and has not received a notice or charge
asserting any violation of or liability under, the federal Occupational Safety
and Health Act of 1970 or any other federal, state, local or foreign acts
(including rules and regulations thereunder) regulating or otherwise affecting
the employee health and safety of any of the MiLAN Business employees.
(f) There are no workers' compensation claims pending or, to
the knowledge of Seller, threatened concerning any of the MiLAN Business
employees.
(g) Except as set forth on the Disclosure Schedule, the Seller
is not a party to any agreements, arrangements or understandings which would
restrict the ability of the Seller to terminate the employment of any of the
Category I Employees or Category II Employees at any time, for any lawful reason
or at will, without penalty or other Liabilities or Obligations, other than
those imposed by applicable law.
(h) The qualifications of each MiLAN Business employee for
employment under applicable immigration laws have been reviewed by Seller and a
properly completed Form I-9 is on file with respect to each employee. Seller has
complied with the U.S. Immigration and Nationality Act, as amended from time to
time, and the rules and regulations promulgated thereunder, and to the knowledge
of the Seller, there is no basis for any claim that Seller is not in compliance
with the terms thereof with respect to any employee of the MiLAN Business.
4.15 Benefit Plans. The name and current salary of each employee of the
MiLAN Business and other information, to the extent provided, relating to
Assumed Severance Costs and the Category I Accruals applicable to Category I and
Category II Employees are correctly set forth on Schedules 1.7, 1.8 and 1.9. Set
forth on the Disclosure Schedule is an accurate list or description of all
employee benefit plans maintained by the Seller for the employees of the MiLAN
Business (the "MiLAN Employee Benefit Plans"). Except as disclosed on the
Disclosure Schedule, no MiLAN Employee Benefit Plan is subject to the Employment
Retirement Income Security Act of 1974, as amended ("ERISA") and no pension plan
is or since 1977 has been sponsored or maintained by the Seller for the benefit
of the MiLAN Business employees. The Seller has no liability, actual or
contingent, with respect to any plan that is: (a) a defined benefit pension plan
subject to Title IV of ERISA, (b) a multi-employer pension plan, as that term is
defined in section 4001(a)(3) and 3(37) of ERISA, (c) a plan providing health or
medical benefits to retired employees of the Seller or (d) a welfare benefit
fund under Section 419 of the Internal Revenue Code.
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4.16 Environmental Matters.
(a) For purpose of this Section 4.16, the following
definitions apply:
"Environmental Laws" as used herein means all applicable local, state,
federal and international laws, regulations, orders, permits, ordinances or
other requirements concerning or related to the protection of human health,
safety, and the environment, all as may be amended from time to time.
"Hazardous Substances" as used herein means any hazardous or toxic
substance, materials, chemical, pollutant, contaminant or waste as those terms
are defined under any applicable Environmental Laws, including, without
limitation, the Comprehensive Environmental Response, Compensation and Liability
Act, 42 U.S.C. 9601 et seq. ("CERCLA"), and the Resource Conservation and
Recovery Act, 42 U.S.C. 6901 et seq. ("RCRA"), and any solid wastes,
polychlorinated biphenyls, urea formaldehyde, asbestos, radioactive materials,
radon, explosives, petroleum products and derivatives or constituents of the
above.
"Environmental Claim" shall mean any investigation, notice, violation,
demand allegation, action, suit injunction, judgments, order, consent, decree,
penalty, claims, cost recovery, actions, environmental or other liens, lawsuits
or proceedings (including any regulatory or governmental actions) arising (a)
pursuant to, or in connection with, an actual or alleged violation of any
Environmental Law, (b) in connection with any Hazardous Substance, (c) from any
abatement, removal, corrective action, or other response action in connection
with a Hazardous Substance, Environmental Law or requirement of any governmental
authority, of (d) from any actual or alleged damage, injury, threat or harm to
health, safety, property, natural resources or the environment.
(b) Except as set forth on the Disclosure Schedule, Seller
represents and warrants as follows:
(i) At all times during their ownership or operation
by Seller, the MiLAN Business, all real property used in the
MiLAN Business, and the Acquired Assets have been operated in
Material compliance with all Environmental Laws, including,
but not limited, Environmental Laws related to the use,
transport, storage or disposal (either off-site or on-site) of
Hazardous Substances.
(ii) Seller has obtained all Material permits,
licenses, certificates of compliance, approvals and other
authorizations (collectively "Permits") required under
Environmental Laws necessary for operation of the MiLAN
Business, and use of all real property used in the MiLAN
Business, and Seller has filed all reports and notifications
required to be filed under and pursuant to all Environmental
Laws.
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(iii) Seller has disclosed and delivered to Buyer
copies of all Permits, all environmental reports or other
investigations which Seller has obtained or ordered with
respect to the MiLAN Business.
(iv) Seller has not, and has no knowledge of any
other person who has, caused any release, threatened release
or disposal of any Hazardous Substance at any real property
used in the MiLAN Business in such form or quantities and so
situated as to create any liability or obligation under any
Environmental Law.
(v) To Seller's knowledge, the real property used in
the MiLAN Business is not affected by any release, threatened
release or disposal of any Hazardous Substance originating or
migrating from any other property.
(vi) To the knowledge of Seller, the real property
used in the MiLAN Business does not contain any asbestos,
landfills or dumps, or Hazardous Substances regulated under
Environmental Laws. To the knowledge of Seller, no real
property used in the MiLAN Business is listed or proposed for
listing on the National Priorities List (NPL) promulgated
under Federal Environmental Laws or any similar state-listed
superfund sites.
(vii) Seller has not owned or operated any above
ground or underground storage tanks in connection with the
MiLAN Business, the real property used in the MiLAN Business
or the Acquired Assets.
(viii) Seller has not generated, placed, handled,
treated, stored, transported or disposed of, released,
spilled, emitted or discharged any Hazardous Substance from,
upon, within, below, into or on the real property used in the
MiLAN Business or the Acquired Assets so as to create
liability under any Environmental Law.
(ix) Seller is not subject to, has no notice or
knowledge of and is not required to give notice of any
Environmental Claim involving the MiLAN Business, the real
property used in the MiLAN Business or the Acquired Assets. To
Seller's knowledge, there are no conditions or occurrences at
the real property used in the MiLAN Business caused by Seller
or any third party which could form the basis for any
Environmental Claim against Seller of the real property used
in the MiLAN Business or the Acquired Assets.
4.17 Plans. The Plans are complete with respect to the products
currently sold by the MiLAN Business and of such quality that competent
personnel by use of such Plans can produce, manufacture and assemble such
products so that they meet the specifications and requirements applicable
thereto.
4.18 Consents and Approvals of Governmental Authorities. No consent,
approval or authorization of, or declaration, filing or registration with, any
federal or state governmental
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body is required to be made or obtained by the Seller prior to the consummation
of the sale of the Acquired Assets to the Buyer.
4.19 Transactions with Affiliates. Neither the Seller, nor any
affiliate of the Seller, nor any director or officer of the Seller or any member
of his or her immediate family (collectively "Seller Affiliates"), owns or has a
controlling ownership interest in any corporation or other entity that is a
party to any Acquired Contract or material business arrangement or relationship
with respect to the MiLAN Business. All transactions between the MiLAN Business
and Seller or a Seller Affiliate have been on substantially the same terms and
conditions as similar transactions between non-affiliated parties and are
properly recorded on the books and records of the Seller.
4.20 Books of Account. The books, records and accounts of the Seller
accurately reflect in reasonable detail the transactions and the assets and
liabilities of the MiLAN Business. The Seller has not engaged in any
transaction, maintained any bank account or used any funds except for
transactions, bank accounts and funds which have been and are reflected in the
normally maintained books and records of the business.
4.21 Disclosure. No representation or warranty hereunder or information
contained in any schedule or any certificate, statement or other document
delivered by the Seller in connection herewith contains any untrue statement of
fact or omits to state a fact necessary in order to make the statements
contained therein or herein not misleading.
4.22 March Sales to Date. For the period from January 1, 2002, through
March 15, 2002, revenues of the MiLAN Business in the ordinary course of
business determined in accordance with GAAP consistent with Seller's past
practices were $1,353,448 and backlog of the MiLAN Business determined in
accordance with Seller's past practices was $1,631,141.
ARTICLE V
REPRESENTATIONS AND WARRANTIES
OF THE BUYER
Buyer hereby represents and warrants to, and agrees with, Seller as
follows:
5.1 Organization, Good Standing and Power. Buyer is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Minnesota and has all requisite corporate power and authority to execute this
Agreement and to consummate the transactions contemplated hereby.
5.2 Authority. The execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby have been duly authorized
by all necessary corporate action on the part of Buyer. This Agreement has been
duly executed and delivered by Buyer and constitutes a valid and binding
obligation of Buyer enforceable in accordance with its terms except as
enforcement may be limited by bankruptcy, insolvency or other similar laws
affecting the enforcement of creditors' rights generally and except that the
availability of equitable remedies, including specific performance, is subject
to the discretion of the court before which
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any proceeding therefor may be brought. The execution and delivery of this
Agreement do not (i) violate any law, (ii) conflict with any provision of the
Articles of Incorporation or Bylaws of Buyer or (iii) require the consent,
approval, order or authorization of, or the registration, declaration or filing
with, any governmental entity or other person.
5.3 Notices, Consents and Approvals. Buyer does not need to give notice
to, make any filing with, or obtain any authorization, consent or approval of
any governmental authority or other person or entity in order for the parties
hereto to consummate the transactions contemplated hereby.
5.4 Claims and Proceedings. There is no legal action, suit,
arbitration, or governmental proceeding or investigation pending or, to the
knowledge of Buyer, threatened against or affecting Buyer that could adversely
affect or prevent the consummation of the transactions contemplated hereby.
5.5 Disclosure. The representations and warranties hereunder or
information contained in any schedule or any certificate, statement or other
document delivered by the Buyer in connection herewith, taken as a whole, do not
contain any untrue statements of fact or omit to state a fact necessary in order
to make the statements contained therein or herein not misleading.
ARTICLE VI
COVENANTS
6.1 Covenants of Seller Relating to Conduct of Business. During the
period from the date of this Agreement and continuing until the Closing, Seller
agrees that it shall (i) regularly consult with Buyer and its authorized
representatives with respect to the conduct of the MiLAN Business and (ii)
disclose to Buyer all Material changes in the business, financial condition,
operations or results of operation of the MiLAN Business.
6.2 Access to Information. Seller shall afford to Buyer and Buyer's
accountants, legal counsel, environmental consultants and other representatives
reasonable access during normal business hours during the period prior to the
Closing to all MiLAN Business properties, books, contracts, commitments, tax
returns and records and, during such period shall furnish promptly to Buyer any
information concerning Seller's business, properties and personnel related
exclusively to the MiLAN Business as Buyer may reasonably request.
6.3 Legal Conditions to Closing. Each of Buyer and Seller will take all
reasonable actions necessary to comply promptly with all legal requirements
which may be imposed on it with respect to the Closing and will promptly
cooperate with and furnish information to each other in connection with any such
legal requirements. Each of Buyer and Seller will take all reasonable actions
necessary to obtain (and will cooperate with each other in obtaining) any
consent, authorization, order or approval of, or any exemption by, any person,
required to be obtained or made by it in connection with any of the transactions
contemplated by this Agreement.
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6.4 Seller's Books and Records.
(a) Except as provided in this Section, the Acquired Assets
shall include originals or copies of all of Seller's Books and Records related
to the MiLAN Business as are reasonably designated by Buyer; provided, however,
Seller shall retain ownership of all Books and Records, or copies or extracts
thereof, that relate to periods before the Closing Date except for such Books
and Records primarily related to the MiLAN Business as are reasonably requested
by Buyer, and all Books and Records that pertain to Seller's corporate
organization, regardless of date. Buyer shall be permitted to retain copies,
electronic or otherwise, of all Books and Records transferred as part of the
Acquired Assets.
(b) Each of the parties hereto agrees to maintain all Books
and Records in its possession relating to Seller or the MiLAN Business or the
Acquired Assets for the period respectively required by applicable laws.
(c) If, in order properly to prepare its tax returns, other
documents or reports required to be filed with any federal or state governmental
entities or its financial statements, it is necessary that any party hereto be
furnished with additional information relating exclusively to the Acquired
Assets or any other party and such information is in such other party's
possession, the party in possession of that information will use all reasonable
efforts to furnish such information to the requesting party.
6.5 Additional Agreements. Seller will use all reasonable efforts to
facilitate and effect the implementation of the transfer of the Acquired Assets
to Buyer and, for such purpose but without limitation, Seller promptly will at
and after the Closing Date execute and deliver to Buyer such assignments, deeds,
bills of sale, consents and other instruments necessary to effect the transfer
of the Acquired Assets to Buyer as contemplated hereby, as Buyer or its counsel
may reasonably request as necessary or desirable for such purpose.
6.6 Employment Matters.
(a) Transition Period. Immediately following the Closing,
Category I and Category II Employees will continue to be employees of Seller
upon the same terms and conditions applicable to each such employee immediately
prior to the Closing and the services of such employees will be leased to Buyer
pursuant to the Employee Transition Agreement for the Transition Period.
(b) Category I Employees. Category I Employees will be
terminated by Seller at the end of the Transition Period, and, concurrently,
Buyer shall offer employment to the Category I Employees, which offer, as to
each employee, shall provide for base compensation no less than the base
compensation currently paid to each such employee and otherwise on such terms
and conditions as Buyer in its sole discretion determines. The Category I
Employees shall receive credit following the Transition Period for services
rendered while employed by Seller prior to the end of the Transition Period for
all purposes, including, without limitation, participation in employee benefit
programs of Buyer or any other term or condition of employment which varies with
seniority. If Seller terminates a Category I Employee during the
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Transition Period in accordance with the terms of the Employee Transition
Agreement, or if such employee terminates his or her employment by Seller
voluntarily during the Transition Period, then Buyer shall promptly pay to
Seller an amount equal to the Category I Accruals applicable to such Category I
Employee.
(c) Category II Employees. The Category II Employees will be
terminated by Seller at the end of the Transition Period and, concurrently
therewith, will be offered employment at will on the same terms and conditions
applicable to Category I Employees. Upon termination of Category II Employees
between the end of the Transition Period and June 30, 2002, Buyer shall make the
severance payments respectively indicated opposite of the names of the Category
II Employees so terminated on Schedule 1.8 hereto as well as payments based on
the applicable Category II Accruals, but should not be obligated to make
severance payments (other than based upon the applicable Category II Accruals)
to Category II Employees who voluntarily terminate their employment with Seller
or Buyer prior thereto. In the event that a Category II Employee's employment by
Buyer is not terminated on or prior to June 30, 2002, Buyer shall promptly pay
to Seller 50% of the Assumed Severance Cost applicable to such Category II
Employee. In the event that a Category II Employee terminates his or her
employment by Buyer voluntarily between the end of the Transition Period and
June 30, 2002, Buyer shall promptly pay to Seller an amount equal to 50% of the
Assumed Severance Costs that were not paid to such Category II Employee because
his or her termination was voluntary. In addition, if Seller terminates a
Category II Employee during the Transition Period in accordance with the terms
of the Employee Transition Agreement, or if such employee terminates his or her
employment voluntarily during the Transition Period, then Buyer shall promptly
pay to Seller an amount equal to 50% of the Assumed Severance Costs and 100% of
the Category II Accruals applicable to such Category II Employee.
(d) Category III Employees. Following the Closing Seller shall
continue to employ the Category III Employees on Schedule 1.9 on such terms and
conditions, including potential severance pay, as Seller in its sole discretion
shall determine and Buyer shall have no financial or other responsibility with
respect to any Category III Employee; provided that if Buyer requests within 20
days after the Closing Date, Seller and Buyer shall redesignate any one or more
of the following individuals as Category I Employees and Buyer shall reflect
such change in the Closing Statement: Nai-Xxxxx X. Xxxx and Xxxxx X. Xxxx.
6.7 Customer Support. Following the Closing, Buyer shall provide
customer support to customers of the MiLAN Business consistent with the standard
level of customer support Buyer provides to customers of its Transition Networks
business.
6.8 Payments of Amounts Received on Accounts Receivable. On each Monday
following the Closing, Seller shall remit by wire transfer to Buyer (pursuant to
written instructions provided by Buyer) payments on the Accounts Receivable
received by Buyer during the preceding calendar week. At any time following the
Closing, upon Buyer's written request, Seller and Buyer shall jointly notify
remaining account debtors to forward payments to an address designated by Buyer
to enable Buyer to assume collection activities with respect to unpaid Accounts
Receivable.
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6.9 Payments to Vendors. Following the Closing, Seller shall promptly
pay in the ordinary course of business consistent with its past practice any and
all amounts due to the vendors listed on Schedule 4.4.
6.10 Transition Services of Xxxxxxx X. Xxxxxx. Buyer shall make
available to Seller at no additional cost the services of Xxxxxxx X. Xxxxxx to
provide upon Buyer's written request up to 20 hours per week of consulting
services, in the transition of the operation of the MiLAN Business from Seller
to Buyer for the period of time from the Closing until May 31, 2002.
6.11 WARN Act. Buyer will fulfill all requirements, if any, under the
WARN Act, 29 U.S.C. ss. 2101, et seq. (the "WARN Act") with respect to the
Category I Employees and the Category II Employees and shall be responsible for
any cost or expense (including any cost or expense incurred by Seller) related
to its failure to fulfill such requirements. Seller will fulfill all
requirements, if any, under the WARN Act with respect to the Category III
Employees and shall be responsible for any cost or expense (including any cost
or expense incurred by Buyer) related to its failure to fulfill such
requirements.
ARTICLE VII
CONDITIONS PRECEDENT
7.1 Conditions to Each Party's Obligation. The obligations of Buyer to
purchase the Acquired Assets and the obligation of Seller to sell the Acquired
Assets to Buyer shall be subject to the satisfaction prior to the Closing Date
of the following conditions:
(a) Consents and Approvals. All authorizations, consents,
orders or approvals of, or declarations or filings with, or expirations of
waiting periods imposed by, any governmental entity necessary for the transfer
of title to the Acquired Assets shall have been obtained or filed or shall have
occurred.
(b) No Injunctions or Restraints. No temporary restraining
order, preliminary or permanent injunction or other legal restraint or
prohibition preventing the transfer of title to the Acquired Assets shall be in
effect.
7.2 Conditions to Obligations of Buyer. The obligation of Buyer to
purchase the Acquired Assets is subject to the satisfaction on and as of the
Closing Date of each of the following conditions:
(a) Representations and Warranties. The representations and
warranties of Seller set forth in this Agreement shall be true and correct in
all material respects as of the date of this Agreement and as of the Closing
Date as though made on and as of the Closing Date, except as otherwise
contemplated by this Agreement.
(b) Performance of Obligations of Seller. Seller shall have
performed all obligations required to be performed by it under this Agreement at
or prior to the Closing Date.
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(c) Required Consents. Seller shall have delivered to Buyer
(i) written consents in form and substance reasonably satisfactory to Buyer from
those persons or entities listed on Schedule 7.2(c) attached hereto whose
consent is required to validly assign the Acquired Contracts respectively
designated on Schedule 7.2(c); and (ii) consent to the Sublease from the lessor
of Seller's Sunnyvale, California facility.
(d) Employee Retention. Buyer shall have entered into
agreements in a form satisfactory to Buyer or received reasonable assurance, in
its sole discretion, that Xxxx X. Xxxxxxx, Xxxx X. Xxxxxxx, Xxxxxx Xxxx, Xxxx X.
Xxxxxxxxx, Xxxx Xxxxxxxxx and Xxxxxxxxx Xxxx will continue in their current
positions with the MiLAN Business as employees of the Buyer following Closing
for periods of time reasonably satisfactory to Buyer.
(e) Licenses, Etc. Buyer shall have obtained any required
governmental licenses, authorizations, certificates and permits required by
applicable governmental authorities to permit Buyer to acquire the Acquired
Assets, to establish and operate the MiLAN Business in the manner in which it
was operated immediately prior to the Closing and to use and occupy a portion of
Seller's leased property pursuant to the Sublease.
(f) Releases. Buyer shall have received releases of all of the
Acquired Assets from all holders of Seller's indebtedness for borrowed money and
Seller shall have delivered to Buyer such additional documentation (including,
without limitation, UCC termination statements) in connection therewith as Buyer
shall reasonably request.
(g) Due Diligence Review; Material Adverse Change. As a result
of its further due diligence review prior to Closing (i) Buyer shall not have
discovered that information previously provided to and reviewed by Buyer is, in
any respect, false or misleading so as to cause the representations and
warranties in Article IV of this Agreement to be incorrect in any Material
respect or discovered any information regarding the MiLAN Business which has the
effect of causing the representations and warranties made by Seller pursuant to
Article IV of this Agreement to be incorrect in any Material respect, or (ii)
there shall not have occurred any Material adverse change in the Acquired Assets
or the condition (financial or otherwise), operations, results of operations or
prospects of the MiLAN Business.
(h) Delivery of Documents. Seller shall have delivered, or
caused to be delivered, to Buyer the documents detailed in Section 3.2(a).
7.3. Conditions to Seller's Obligations. The obligations of Seller to
sell the Acquired Assets is subject to the satisfaction on and as of the Closing
Date of each of the following conditions:
(a) Representations and Warranties. The representations and
warranties of Buyer set forth in this Agreement shall be true and correct in all
material respects as of the date of this Agreement and as of the Closing Date as
though made on and as of the Closing Date, except as otherwise contemplated by
this Agreement.
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(b) Performance of Obligations of Buyer. Buyer shall have
performed all obligations required to be performed by it under this Agreement
prior to the Closing Date.
(c) Delivery of Documents. Buyer shall have delivered, or
caused to be delivered, to Seller the documents detailed in Section 3.2(b).
ARTICLE VIII
NON-COMPETITION AGREEMENT
8.1 Covenants of Seller. With the exception of the activities described
in Section 8.5, Seller shall not, for a period of two (2) years following the
Closing Date, directly or indirectly, either individually or in partnership or
in conjunction in any way with any other person or entity, whether as principal,
agent, employee, officer, consultant, shareholder, guarantor, creditor or in any
other manner whatsoever:
(a) Competitive Business. Take any action in or participate
with or become interested or associated with any person, firm, partnership,
corporation or other entity whatsoever which intends to engage, or is engaged,
anywhere in the world, in the business of developing, manufacturing, marketing
or selling products the same as or similar to products being manufactured by the
MiLAN Business as of or prior to the Closing Date (the "Competitive Business");
(b) Employees. Offer employment to or endeavor to entice away
from the MiLAN Business or Buyer any Category I Employee, or interfere in any
way with the employment relationship between any such employee and the MiLAN
Business or Buyer, so long as such employee continues to be employed by the
Buyer or Buyer's successors or assigns; or
(c) No Interest. Engage in, carry on or otherwise be concerned
with or have any interest in, or advise, lend money to, guarantee the debts or
obligations of, permit its name, or any part thereof, to be used or employed by
any person, firm, association, syndicate or corporation engaged in or concerned
with or having any interest in a Competitive Business.
(d) 5% Ownership. Notwithstanding the foregoing, nothing in
this Agreement shall prevent Seller from acquiring and holding, directly or
indirectly (and including the holdings of any other person or entity not acting
at arm's length with Seller) not more than five percent (5%) of the outstanding
equity of any entity engaged in a Competitive Business if such equity is listed
on a stock exchange, provided that no shareholder, officer or director of Seller
is a member of the Board of Directors or an officer or employee of, or
consultant to, or otherwise involved with, directly or indirectly, such entity.
8.2 Covenant of Buyer. Buyer shall not, for a period of two (2) years
following the Closing Date, directly or indirectly, either individually or in
partnership or in conjunction in any way with any other person or entity,
whether as principal, agent, employee, officer, consultant, shareholder,
guarantor, creditor or in any other manner whatsoever offer employment to or
endeavor to entice away from the Seller any Category III Employee, or interfere
in any way with
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the employment relationship between any such employee and the Seller, so long as
such employee continues to be employed by Seller or Seller's successors or
assigns.
8.3 Independent Covenants. The covenants in Section 8.1 and Section 8.2
are intended to be, and shall be, construed as separate and independent
covenants for each separate state within the United States of America, and for
each foreign country other than the United States of America. To the extent that
any such covenant shall be adjudicated to be unenforceable in any one or more
states in the United States of America, or in any county or other municipal
subdivision thereof, or in any foreign country, such adjudication shall not
affect such covenant with respect to each other state, county, country, or
governmental subdivision. To the extent that any such covenant shall be declared
unenforceable beyond a time limitation adjudicated with respect to such
covenant, then such covenant shall be limited to such time limitation, but shall
be fully enforceable to the full extent of such time limitation.
8.4 Remedies. The parties acknowledge and agree that a monetary remedy
for breach of any of the covenants set forth in this Article VIII would be
inadequate, and would be impracticable and difficult to prove, and they further
agree that any such breach would cause the damaged party irrevocable harm. As a
consequence, the parties hereby acknowledge, confirm and agree that, in the
event of any such breach by a party of any covenants in this Article VIII, the
damaged party shall be entitled to temporary and permanent injunctive relief
without the necessity of proving actual damages. The parties further confirm and
agree that the damaged party shall be entitled to such relief, including
temporary restraining orders, preliminary injunctions and permanent injunctions,
without the necessity of posting a bond or making undertaking in connection
therewith, and each of the parties hereby waive any requirement for bond or
undertaking. The parties acknowledge that in the absence of such waiver, a court
might require a bond or undertaking in connection with an application for
temporary or permanent injunctive relief. The failure by a damaged party to
enforce or seek to enforce any of the covenants set forth in this Article VIII
shall in no way affect or limit its right at a future date to enforce or seek to
enforce such covenants.
8.5 Exception regarding Procera Business and Xerox Corporation. Nothing
contained in this Article VIII, or elsewhere in this Agreement, shall constitute
a restriction or limitation on the ability of Seller to own and operate the
Procera Business and the Procera Business shall not be considered a "Competitive
Business" for purposes of this Article VIII. In addition, the provisions of this
Article VIII shall not apply to any sales of products by Seller to Xerox
Corporation or its affiliates, regardless of whether such products are included
within the definition of Competitive Business.
ARTICLE IX
INDEMNIFICATION AND SURVIVAL OF
REPRESENTATIONS AND WARRANTIES
9.1 Indemnification by Seller. Seller hereby agrees to indemnify Buyer
and its affiliates and their respective officers, directors, employees,
stockholders, agents and representatives against, and agrees to hold them
harmless from any loss, liability, claim, deficiency, damage or expense
(including reasonable legal fees and expenses), as incurred
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(payable quarterly upon written request), for or on account of or arising from
or in connection with or otherwise with respect to (i) any and all liabilities
and obligations of Seller, contingent or otherwise, that are not Assumed
Liabilities, including, without limitation, all liabilities and obligations of
Seller and any of Seller's affiliates for any and all state or federal taxes
payable by Seller; and (ii) any representation or warranty of Seller contained
herein not being true and correct as of the date hereof or as of the Closing
Date; or (iii) Seller's breach of any covenant contained in this Agreement or in
any agreement related hereto.
9.2 Indemnification by Buyer. Buyer hereby agrees to indemnify Seller
and its officers, directors, employees, stockholders, agents and representatives
against, and agrees to hold them harmless from, any loss, liability, claim,
deficiency, damage or expense (including reasonable legal fees and expenses), as
incurred (payable quarterly upon written request), for or on account of or
arising from or in connection with or otherwise with respect to (i) any and all
Assumed Liabilities, (ii) any representation or warranty of Buyer contained
herein not being true and correct as of the date hereof or as of the Closing
Date, or, (iii) Buyer's breach of any covenant contained in this Agreement or in
any agreement related hereto.
9.3 Indemnification Procedure.
(a) In order for a party (the "indemnified party"), to be
entitled to any indemnification provided for under this Agreement in respect of,
arising out of or involving a claim made by any Person against the indemnified
party (a "Third-Party Claim"), such indemnified party must notify the
indemnifying party in writing of the Third-Party Claim within a reasonable time
after receipt by such indemnified party of written notice of the Third-Party
Claim. Thereafter, the indemnified party shall deliver to the indemnifying
party, within a reasonable time after the indemnified party's receipt thereof,
copies of all notices and documents (including court papers) received by the
indemnified party relating to the Third-Party Claim.
(b) If a Third-Party claim is made against an indemnified
party, the indemnifying party will be entitled to participate in the defense
thereof and, if it so chooses, to assume the defense thereof with counsel
selected by the indemnifying party; provided such counsel is not reasonably
objected to by the indemnified party. Should the indemnifying party so elect to
assume the defense of a Third-Party Claim, the indemnifying party will not be
liable to the indemnified party for any legal expenses subsequently incurred by
the indemnified party in connection with the defense thereof. If the
indemnifying party elects to assume the defense of a Third-Party Claim, the
indemnified party will (i) cooperate in all reasonable respects with the
indemnifying party in connection with such defense, (ii) not admit any liability
with respect to, or settle, compromise or discharge, any Third-Party Claim
without the indemnifying party's prior written consent and (iii) agree to any
settlement, compromise or discharge of a Third-Party Claim which the
indemnifying party may recommend and which by its terms obligates the
indemnifying party to pay the full amount of the liability in connection with
such Third-Party Claim and which releases the indemnified party completely in
connection with such Third-Party Claim. In the event the indemnifying party
shall assume the defense of my Third-Party Claim, the indemnified party shall be
entitled to participate in (but not control) such defense with its own counsel
at its own expense. If the indemnifying party does not assume the defense of any
such Third-Party Claim, the indemnified party may defend the same in such manner
as it may
25
deem appropriate, including but not limited to settling such claim or litigation
after giving notice to the indemnifying party of such terms, and the
indemnifying party will promptly reimburse the indemnified party upon written
request for all cost, expense (including reasonable attorneys' fees), loss,
liability or damage incurred and paid by the indemnified party in connection
with such claim.
9.4 Limitations on Indemnification. Notwithstanding the foregoing: (i)
any claim for indemnification must be made on or prior to the first anniversary
of the Closing Date and (ii) no party to this Agreement shall be entitled to
indemnification pursuant to this Article IX until the aggregate amount for which
indemnification is sought exceeds $125,000 and, then, only to the extent such
indemnification exceeds such amount, and (iii) the aggregate obligations of
either party under this Article IX shall not exceed $2,000,000; provided,
however, that the limitations contained in the foregoing clauses (i), (ii) and
(iii) shall not apply to (A) claims based upon the Purchase Price Adjustment
under Section 2.4; or (B) claims for indemnification based on fraud or
intentional misrepresentation; (C) product liability claims arising from or
related to products sold by Seller and asserted against Buyer, other than
warranty claims included in the Assumed Liabilities; (D) representations and
warranties contained in Sections 4.1, 4.2, 4.6, 5.1 and 5.2 or Buyer's failure
to pay amounts due Seller under the Sublease or pursuant to Sections 6.6(b) and
6.6(c) above; (E) Seller's failure to remit to Buyer payments on Accounts
Receivable acquired by Buyer as provided in Section 6.8; and (F) each party's
obligations pertaining to the WARN Act pursuant to Section 6.11. Seller and
Buyer each hereby acknowledge and agree that this Article IX shall be each
party's sole and exclusive remedy with respect to any loss, injury, damage or
other liability under this Agreement or the transactions contemplated hereby.
9.5 The indemnification obligations of the parties hereunder relate to
indemnification for all losses, injuries, damages, deficiencies, liabilities,
obligations, costs or expenses to the respective other party or parties hereto,
regardless of whether such loss, injury, damage, deficiency, liability,
obligation, cost or expense arises from a Third-Party Claim against such
indemnitee or otherwise.
9.6 Survival of Representation and Warranties. All representations and
warranties made herein by Seller or Buyer shall survive the execution and
delivery of this Agreement and shall remain in full force and effect until the
first anniversary of the Closing Date, and shall be deemed to have been relied
upon by the other party hereto, notwithstanding any investigation made by or on
behalf of such party; provided, however, that the representations and warranties
set forth in Sections 4.1, 4.2 and the first sentence of Section 4.6 hereof
shall survive the Closing and shall remain in full force and effect as provided
by law. All statements contained in any certificate, instrument or other writing
delivered by or on behalf of Seller of Buyer pursuant hereto shall constitute
representations and warranties of such party.
ARTICLE X
TERMINATION AND WAIVER
10.1 Termination. This Agreement may be terminated at any time prior to
the Closing:
(a) by mutual consent of Buyer and Seller;
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(b) by Buyer if any of the conditions set forth in Sections
7.1 and 7.2 shall not have been satisfied in any material respect and shall not
have been satisfied (or by its nature could not be satisfied) on or before March
29, 2002; or
(c) by Seller if any of the conditions set forth in Sections
7.1 and 7.3 shall not have been satisfied in any material respect and shall not
have been satisfied (or by its nature could not be satisfied) on or before March
29, 2002.
10.2 Extension; Waiver. At any time prior to the Closing, the parties
hereto may (i) extend the time for the performance of any of the obligations or
other acts of the other parties hereto, (ii) waive any inaccuracies in the
representations and warranties contained herein or in my document delivered
pursuant hereto and (iii) waive compliance with any of the agreements or
conditions contained herein. Any agreement on the part of a party hereto to any
such extension or waiver shall be valid only if set forth in a written
instrument signed on behalf of such party.
ARTICLE XI
GENERAL PROVISIONS
11.1 Notices. All notices under this Agreement must be in writing, and
may be delivered by hand or sent by facsimile transmission, telex, or certified
mail, return receipt requested. Notices sent by mail will be deemed received on
the date of receipt indicated by the returned verification provided by the U.S.
Postal Service. Notices sent by facsimile transmission or telex will be deemed
received the day on which sent, and will be conclusively presumed to have been
received in the event that the sender's copy of the facsimile transmission or
telex contains the "answer back" of the other party's facsimile transmission or
telex. Notices must be given, or sent to the parties at the following addresses:
(a) If to Buyer, to: Communications Systems, Inc.
000 Xxxxx Xxxx Xxxxxx
Xxxxxx, Xxxxxxxxx 00000-0000
Attn: Xxxx Xxxxxx
Phone: 000-000-0000
Facsimile: 000-000-0000
with a copy to: Xxxxxxxxx & Xxxxxx P.L.L.P.
0000 XXX Xxxxxx
Xxxxxxxxxxx, Xxxxxxxxx 00000
Attn: Xxxxxxx Xxxxxxx
Phone: 000-000-0000
Facsimile: 000-000-0000
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(b) If to Seller, to: Digi International Inc.
00000 Xxxx Xxxx Xxxx
Xxxxxxxxxx, Xxxxxxxxx 00000
Attn: X. Xxxxxxxx
Phone: 000-000-0000
Facsimile: 000-000-0000
with a copy to: Faegre & Xxxxxx LLP
00 Xxxxx 0xx Xxxxxx
Xxxxxxxxxxx, Xxxxxxxxx 00000
Attn: Xxxxx Xxxxxxxxx
Phone: 000-000-0000
Facsimile 000-000-0000
Any party may designate any other address for notices given it under this
Agreement by written notice to the other parties given at least ten (10) days
prior to the effective date of that change.
11.2 Interpretation. When a reference is made in this Agreement to a
Section, Schedule or Exhibit, such reference shall be to a Section, Schedule or
Exhibit of this Agreement unless otherwise indicated. The table of contents and
headings contained in this Agreement are for reference purposes only and shall
not affect in any way the meaning or interpretation of this Agreement. Whenever
the words "include", "includes" or "including" are used in this Agreement, they
shall be deemed to be followed by the words "without limitation". All accounting
terms not defined in this Agreement shall have the meanings determined by
generally accepted accounting principles. The term "Material" when capitalized
shall mean individual items, claims or events representing a cost or damage or
potential cost or damage equal to or greater than $20,000 and as excluding
individual items or events of a lesser value. The term "knowledge" when used
herein with respect to Seller shall mean the actual knowledge of Xxxxxx X.
Xxxxxxxx, Xxxxxxx X. Xxxxxx and X. Xxxxxxxx and when used herein with respect to
Buyer shall mean the actual knowledge of Xxxxxxx X. Xxxx and Xxxx X. Xxxxxx.
11.3 Counterparts. This Agreement may be executed in two or more
counterparts, all of which shall be considered one and the same agreement and
shall become effective when two or more counterparts have been signed by each of
the parties and delivered to the other parties, it being understood that all
parties need not sign the same counterpart.
11.4 Entire Agreement; No Third-Party Beneficiaries. This Agreement
(including the documents and instruments referred to herein) (a) constitutes the
entire agreement and supersedes all prior agreements and understandings, both
written and oral, among the parties with respect to the subject matter hereof
and (b) is not intended to confer upon any person other than the parties hereto
any rights or remedies hereunder.
11.5 Governing Law. This Agreement shall be governed and construed in
accordance with the laws of the State of Minnesota without regard to the rules
or principles of any jurisdiction with respect to conflict of laws.
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11.6 Remedies Cumulative. Except as otherwise provided herein, the
rights and remedies provided herein shall be cumulative and the assertion by a
party of a right or remedy hereunder shall not preclude the assertion by such
party of any other rights or remedies against another party provided herein.
11.7 Arbitration. Any controversy, dispute or claim arising out of or
relating to this Agreement, any breach or alleged breach hereof, the making of
this Agreement or fraud in the inducement, the transactions contemplated hereby,
any modification or extension of this Agreement or affecting this Agreement in
any way shall be resolved by arbitration in Minneapolis, Minnesota, in
accordance with the then current rules of the American Arbitration Association,
by three independent and impartial arbitrators, one of whom shall be appointed
by Seller, one of whom shall be appointed by Buyer, and one of whom shall be
appointed by the other two arbitrators; provided however that if the parties
shall agree at the time any dispute hereunder arises, only one arbitrator shall
be appointed. In the event that the dispute concerns any matter involving
accounting issues, at least one of the arbitrators shall be a mutually agreed
upon independent certified public accountant. Notwithstanding anything to the
contrary provided in this Agreement, the arbitration shall be governed by the
United States Arbitration Act, 9 U.S.C. ss. 1 et seq. The decision of the
arbitrators shall be binding on the parties, and judgment upon the award may be
entered in any court having jurisdiction thereof. Notwithstanding anything to
the contrary provided in this Section 11.7 and without prejudice to the above
procedures, any party may apply to any court of competent jurisdiction for
temporary injunctive or other provisional judicial relief if in such party's
sole judgment such action is necessary to avoid irreparable damage or to
preserve the status quo until such time as the arbitration award is rendered or
the controversy is otherwise resolved.
11.8 Confidentiality of Negotiations. The parties shall not disclose
the transactions contemplated by this Agreement or issue any press release or
make any public or general statements with respect to the transaction except as
may be mutually agreed to or required by law. If this Agreement terminates, no
party hereto shall disclose the existence of the negotiations pursuant hereto,
except as may be required by law.
11.9 Assignment. 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, except that Buyer
may assign, in its sole discretion, any or all of its rights, interests and
obligations hereunder to any direct or indirect wholly owned subsidiary of
Buyer, provided that Buyer shall not be released from any of its obligations
hereunder by reason of such assignment. Subject to the preceding sentence, this
Agreement will be binding upon, inure to the benefit of and be enforceable by
the parties and their respective successors and assigns.
11.10 Expenses. Buyer and Seller will each bear their respective costs
and expenses incurred in connection with the transaction contemplated by this
Agreement, including the fees and disbursements of all attorneys, accountants,
appraisers and advisors retained by or representing them in connection with the
transaction. It is the understanding of the parties that there are no brokers
who will be entitled to receive any commissions with respect to the transactions
contemplated by this Agreement.
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IN WITNESS WHEREOF, Seller and Buyer have caused this Agreement to be
signed as of the date first written above.
DIGI INTERNATIONAL INC.
By /s/ Xxxxxx X. Xxxxxxxx
-----------------------------
Its President and CEO
----------------------------
COMMUNICATIONS SYSTEMS, INC.
By /s/ Xxxx X. Xxxxxx
-----------------------------
Its CFO
----------------------------
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LIST OF EXHIBITS
Exhibit A - Escrow Agreement
Exhibit B - Sublease
Exhibit C - Employee Transition Agreement
Exhibit D - Transition Services Agreement
LIST OF SCHEDULES
1.3 Acquired Contracts
1.4(d) Standard MiLAN (5 year) warranty
1.7 Category I Employees and Category I Accruals
1.8 Category II Employees and Assumed Severance Cost Compilation
1.9 Category III Employees
1.13 Fixed Assets
1.15 Intellectual Property Listing
1.20 Excluded Components
1.23 Recent Accounts Receivable Statement
1.24 Recent Inventory Statement
2.4 Criteria for Evaluation of Inventory and Receivables
2.7 Purchase Price Allocation
4.4 Listing of Vendors
7.2(c) Required Consents
Disclosure Schedule (pertaining to Article IV representations and warranties)
31
