EXHIBIT 2
AGREEMENT AND PLAN OF MERGER
AMONG
DIGI INTERNATIONAL INC.,
IROQUOIS ACQUISITION INC.
AND
ITK INTERNATIONAL, INC.
DATED AS OF JULY 1, 1998
TABLE OF CONTENTS
AGREEMENT AND PLAN OF MERGER. . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
RECITALS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
ARTICLE I THE MERGER; EFFECTIVE TIME; CLOSING . . . . . . . . . . . . . . . . . . . 1
1.1 The Merger. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.2 Effective Time. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.3 Closing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
ARTICLE II CHARTER AND BY-LAWS OF THE SURVIVING CORPORATION . . . . . . . . . . . . 2
2.1 The Charter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
2.2 The By-Laws . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
ARTICLE III DIRECTORS AND OFFICERS OF THE SURVIVING CORPORATION . . . . . . . . . . 3
3.1 Directors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
3.2 Officers. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
ARTICLE IV MERGER CONSIDERATION; CONVERSION OF ITK SHARES IN THE MERGER;
SUBSTITUTION OF STOCK OPTIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
4.1 Merger Consideration; Conversion of ITK Shares in Merger. . . . . . . . . . 3
4.2 Substitution of Stock Options . . . . . . . . . . . . . . . . . . . . . . . 5
4.3 Payment for ITK Shares in the Merger. . . . . . . . . . . . . . . . . . . . 5
4.4 Fractional Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
4.5 No Transfer of ITK Shares . . . . . . . . . . . . . . . . . . . . . . . . . 6
4.6 Tax-Free Reorganization . . . . . . . . . . . . . . . . . . . . . . . . . . 6
4.7 Dissenting Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
ARTICLE V REPRESENTATIONS AND WARRANTIES OF ITK . . . . . . . . . . . . . . . . . . 7
5.1 Organization and Qualification, Subsidiaries. . . . . . . . . . . . . . . . 7
5.2 Capitalization. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
5.3 Authority Relative to This Agreement. . . . . . . . . . . . . . . . . . . . 9
5.4 No Conflict, Required Filings and Consents. . . . . . . . . . . . . . . . . 9
5.5 Compliance. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .10
5.6 Financial Statements. . . . . . . . . . . . . . . . . . . . . . . . . . . .10
5.7 Absence of Certain Changes or Events. . . . . . . . . . . . . . . . . . . .11
5.8 Absence of Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . .12
5.9 Employee Benefit Plans. . . . . . . . . . . . . . . . . . . . . . . . . . .12
5.10 Labor Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .14
5.11 Real Property and Leases. . . . . . . . . . . . . . . . . . . . . . . . . .15
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5.12 Proprietary Information of Third Parties. . . . . . . . . . . . . . . . . .15
5.13 Trademarks, Patents and Copyright . . . . . . . . . . . . . . . . . . . . .16
5.14 Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .17
5.15 Environmental Matters . . . . . . . . . . . . . . . . . . . . . . . . . . .18
5.16 Certain Interests . . . . . . . . . . . . . . . . . . . . . . . . . . . . .18
5.17 Material Contracts. . . . . . . . . . . . . . . . . . . . . . . . . . . . .19
5.18 Officers. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .20
5.19 EMPLOYEES AND EMPLOYEE BONUSES. . . . . . . . . . . . . . . . . . . . . . .21
5.20 Brokers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .21
5.21 Full Disclosure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .21
ARTICLE VI REPRESENTATIONS AND WARRANTIES OF DIGI AND MERGER SUB. . . . . . . . . .21
6.1 Organization and Qualification. . . . . . . . . . . . . . . . . . . . . . .21
6.2 Authority Relative to This Agreement. . . . . . . . . . . . . . . . . . . .22
6.3 No Conflict; Required Filings and Consents. . . . . . . . . . . . . . . . .22
6.4 Ownership of Merger Sub; No Prior Activities; Assets of Merger Sub. . . . .23
6.5 SEC Reports; Financial Statements; Capitalization . . . . . . . . . . . . .23
6.6 Stock Option Plan Registration. . . . . . . . . . . . . . . . . . . . . . .24
6.7 Absence of Certain Changes or Events. . . . . . . . . . . . . . . . . . . .24
6.8 Brokers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .24
6.9 Financing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .24
6.10 Absence of Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . .25
6.11 Eligibility to Use Form S-3 . . . . . . . . . . . . . . . . . . . . . . . .25
6.12 Full Disclosure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .25
ARTICLE VII CERTAIN COVENANTS . . . . . . . . . . . . . . . . . . . . . . . . . . .25
7.1 Conduct of ITK's Business Pending the Merger. . . . . . . . . . . . . . . .25
7.2 Books and Records; Access and Information . . . . . . . . . . . . . . . . .26
7.3 Notification of Certain Matters . . . . . . . . . . . . . . . . . . . . . .26
7.4 Confidentiality . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .27
7.5 HSR Act . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .27
7.6 ITK Audited Financial Statements. . . . . . . . . . . . . . . . . . . . . .27
7.7 Dortmund Loans and Subsidies. . . . . . . . . . . . . . . . . . . . . . . .27
7.8 NASDAQ Listing. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .28
7.9 Reasonable Efforts. . . . . . . . . . . . . . . . . . . . . . . . . . . . .28
ARTICLE VIII CONDITIONS TO CLOSING. . . . . . . . . . . . . . . . . . . . . . . . .28
8.1 Conditions to Obligation of Digi and Merger Sub to Close. . . . . . . . . .28
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8.2 Conditions to Obligation of ITK to Close. . . . . . . . . . . . . . . . . .31
ARTICLE IX REGISTRATION RIGHTS. . . . . . . . . . . . . . . . . . . . . . . . . . .32
9.1 Required Registration . . . . . . . . . . . . . . . . . . . . . . . . . . .32
9.2 Registration Procedures . . . . . . . . . . . . . . . . . . . . . . . . . .32
9.3 Expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .35
9.4 Indemnification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .35
9.5 Rule 144. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .37
ARTICLE X TERMINATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .37
10.1 Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .37
10.2 Effect of Termination . . . . . . . . . . . . . . . . . . . . . . . . . . .38
ARTICLE XI MISCELLANEOUS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .38
11.1 Survival of Representations and Warranties . . . . . . . . . . . . . . . .38
11.2 Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .38
11.3 Notices. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .38
11.4 Amendments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .40
11.5 Waiver . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .40
11.6 Certain Definitions. . . . . . . . . . . . . . . . . . . . . . . . . . . .40
11.7 Publicity. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .42
11.8 Headings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .43
11.9 Nonassignability . . . . . . . . . . . . . . . . . . . . . . . . . . . . .43
11.10 Parties in Interest. . . . . . . . . . . . . . . . . . . . . . . . . . . .43
11.11 Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .43
11.12 Governing Law. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .43
11.13 Severability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .43
11.14 Remedies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .43
11.15 Entire Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . .44
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SCHEDULES
ITK DISCLOSURE SCHEDULES:
5.1--Organization and Qualification, Subsidiaries
5.2--Capitalization
5.3--Authority Relative to This Agreement
5.6--Financial Statements
5.8--Absence of Litigation
5.9--Employee Benefit Plans
5.10--Labor Matters
5.11(b)(i)--Owned Real Property
5.11(b)(ii)--Leased Real Property
5.13--Trademarks, Patents and Copyright
5.14--Taxes
5.16--Certain Interests
5.17--Material Contracts
5.18--Officers
DIGI DISCLOSURE SCHEDULE
EXHIBITS
Certificate of Merger. . . . . . . . . . . . . . . . . . . . . . . . . . . .A
Legal Opinion of ▇▇▇▇▇, ▇▇▇▇▇▇▇ & ▇▇▇▇▇▇▇▇▇, LLP . . . . . . . . . . . . . .B
Legal Opinion of Faegre & ▇▇▇▇▇▇ LLP . . . . . . . . . . . . . . . . . . . .C
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AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER (the "AGREEMENT"), dated as of July 1, 1998,
among Digi International Inc., a Delaware corporation ("Digi"), Iroquois
Acquisition Inc., a Delaware corporation and a direct wholly owned subsidiary of
Digi ("MERGER SUB"), and ITK International, Inc., a Delaware corporation
("ITK").
RECITALS
WHEREAS, the Board of Directors of Digi, Merger Sub and ITK each have
determined that it is in the best interests of their respective stockholders for
ITK to merge with and into Merger Sub upon the terms and subject to the
conditions of this Agreement;
WHEREAS, holders of a majority of the outstanding ITK Shares (as
hereinafter defined) have concurrently consented in writing in favor of this
Agreement and the transactions contemplated hereby in lieu of a special meeting
of stockholders of ITK;
WHEREAS, for United States federal income tax purposes, it is intended
that the Merger (as hereinafter defined) shall qualify as a reorganization
within the meaning of Section 368(a) of the United States Internal Revenue Code
of 1986, as amended (the "Code"); and
WHEREAS, Digi, Merger Sub and ITK desire to make certain representations,
warranties, covenants and agreements in connection with the Merger.
NOW, THEREFORE, in consideration of the mutual representations,
warranties, covenants and agreements set forth herein, Digi, Merger Sub and ITK
hereby agree as follows:
ARTICLE I
THE MERGER; EFFECTIVE TIME; CLOSING
1.1 THE MERGER. Subject to the terms and conditions of this
Agreement, at the Effective Time (as hereinafter defined), ITK and Merger Sub
shall consummate a merger (the "MERGER") in which (i) ITK shall be merged with
and into Merger Sub and the separate corporate existence of ITK shall thereupon
cease, (ii) Merger Sub shall be the successor or surviving corporation in the
Merger and shall continue to be governed by the laws of the State of Delaware,
and (iii) the separate corporate existence of Merger Sub with all its rights,
privileges, immunities, powers and franchises shall continue unaffected by the
Merger. The corporation surviving the Merger is sometimes hereinafter referred
to as the "SURVIVING CORPORATION." The Merger shall have the effects specified
in the General Corporation Law of the State of Delaware (the "DGCL").
1.2 EFFECTIVE TIME. Digi, Merger Sub and ITK will cause counterparts
of a Certificate of Merger, substantially in the form attached hereto as EXHIBIT
A (the "CERTIFICATE OF MERGER"), to be executed and filed immediately following
the Closing (as hereinafter defined) (or on such other date as Digi and ITK may
agree) with the Secretary of State of the State of Delaware and recorded in the
office of the Recorder of New Castle County of the State of Delaware as provided
in Section 251(c) of the DGCL. The Merger shall become effective at the time at
which the Certificate of Merger shall have been accepted for record by the
Secretary of State of the State of Delaware or such later time as Digi and ITK
may agree and specify in the Certificate of Merger in accordance with Section
103(d) of the DGCL, and such time of effectiveness is hereinafter referred to as
the "EFFECTIVE TIME."
1.3 CLOSING. The closing of the Merger (the "CLOSING") shall take
place (i) at the offices of Faegre & ▇▇▇▇▇▇ LLP, ▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇,
▇▇▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇, at 10:00 a.m. on the business day on which the last to
be fulfilled or waived of the conditions set forth in Article VIII hereof shall
be fulfilled or waived in accordance with this Agreement or (ii) at such other
place and/or time and/or on such other date as Digi and ITK may agree.
ARTICLE II
CHARTER AND BY-LAWS OF THE SURVIVING CORPORATION
2.1 THE CHARTER. The Charter of Merger Sub as in effect immediately
prior to the Effective Time shall be the Charter of the Surviving Corporation,
until duly amended in accordance with the terms thereof and of the DGCL, except
that from and after the Effective Time, Article First of the Charter of Merger
Sub shall be amended to be and read as follows:
First: The name of the Corporation shall be ITK
International, Inc.
2.2 THE BY-LAWS. The By-Laws of Merger Sub in effect immediately
prior to the Effective Time shall be the By-Laws of the Surviving Corporation,
until duly amended in accordance with the terms thereof, of the Charter of the
Surviving Corporation and of the DGCL.
ARTICLE III
DIRECTORS AND OFFICERS OF THE SURVIVING CORPORATION
3.1 DIRECTORS. From and after the Effective Time, the directors of
the Surviving Corporation shall be as set forth below, such directors to serve
until their successors have been duly elected or appointed and qualified or
until their earlier death, resignation or removal in accordance with the
Surviving Corporation's Charter and By-Laws:
▇▇▇▇▇ ▇. ▇▇▇▇
▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
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▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇
▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇
3.2 OFFICERS. From and after the Effective Time, the officers of the
Surviving Corporation shall be as set forth below:
▇▇▇▇▇ ▇. ▇▇▇▇ President
▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇ Vice President and Treasurer
▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇ Secretary
Each such officer shall serve until his successor has been duly elected or
appointed and qualified or until his earlier death, resignation or removal in
accordance with the Surviving Corporation's Charter and By-Laws.
ARTICLE IV
MERGER CONSIDERATION; CONVERSION OF ITK SHARES IN THE MERGER; SUBSTITUTION OF
STOCK OPTIONS
4.1 MERGER CONSIDERATION; CONVERSION OF ITK SHARES IN MERGER. The
manner of converting shares of ITK and Merger Sub in the Merger shall be as
follows:
(a) At the Effective Time, all of the shares of common stock, $0.001
par value per share, of ITK ("ITK Shares") issued and outstanding
immediately prior to the Effective Time shall, by virtue of the Merger
and without any action on the part of the holder thereof, be converted
into the right to receive in the aggregate (1) that number of shares of
common stock, par value $.01 per share, of Digi ("Digi Common Shares,"
which term shall include any Preferred Share Purchase Rights attaching to
the outstanding common stock of Digi) which could be purchased for US
$12,500,000 (Twelve Million Five Hundred Thousand United States Dollars),
with Digi Common Shares valued for such purpose at a per-share price
equal to the closing sale price quoted on the NASDAQ National Market
System for the trading day immediately prior to the date of this
Agreement (i.e. US $20.25); provided, however, that the number of Digi
Common Shares so determined shall be rounded to the nearest whole number
in the event that a fractional share or scrip would otherwise be issuable
on such basis) (the "Share Consideration"), plus (2) US $12,500,000
(Twelve Million Five Hundred Thousand United States Dollars) (the "Cash
Consideration," and, together with the Share Consideration, the "Merger
Consideration"). If prior to the Effective Time, Digi should split or
combine the Digi Common Shares, or pay a stock dividend or other stock
distribution in respect of Digi Common Shares (other than a distribution
of Preferred Share Purchase Rights), then such exchange ratio will be
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appropriately adjusted to reflect such split, combination, dividend or
other distribution.
(b) At the Effective Time, (i) all issued and outstanding ITK Shares
to be converted pursuant to this Section 4.1 shall, by virtue of the
Merger and without any action on the part of the holders thereof, cease
to be outstanding, be canceled and retired and cease to exist, and each
holder of a certificate representing any such ITK Shares shall thereafter
cease to have any rights with respect to such ITK Shares, except the
right to receive for each of the ITK Shares, upon the surrender of such
certificate in accordance with Section 4.3(a), Share Consideration and
Cash Consideration as contemplated by Sections 4.3(a) and 4.3(b), and
cash paid in lieu of fractional Digi Common Shares as contemplated by
Section 4.4; and (ii) each share of Common Stock, par value $.01 per
share, of Merger Sub issued and outstanding immediately prior to the
Effective Time shall, by virtue of the Merger and without any action on
the part of the holder thereof, be converted into the same number of
shares of Common Stock of the Surviving Corporation.
(c) Notwithstanding anything in this Agreement to the contrary, any
ITK stockholder who fails to provide reasonable confirmation that such
stockholder either (i) is an "accredited investor" within the meaning of
Rule 501(a) under the Securities Act or (ii) is not a "U.S. person"
within the meaning of Rule 901(k) of Regulation S under the Securities
Act (an "Unaccredited Stockholder") promptly following the Effective Time
after due inquiry by Digi or ITK shall not receive any Share
Consideration and, in lieu thereof, shall receive additional Cash
Consideration in an amount equal to the Cash Consideration payable in
respect of such Unaccredited Stockholder's ITK Shares (i.e., an aggregate
of twice the Cash Consideration per ITK Share payable to ITK stockholders
who are not Unaccredited Stockholders).
4.2 SUBSTITUTION OF STOCK OPTIONS. Immediately following the
Effective Time, each outstanding option to purchase ITK Shares (an "ITK
STOCK OPTION"), whether vested or unvested, shall be exchanged for an
option to acquire Digi Common Shares (a "DIGI STOCK OPTION") on
substantially the same terms and conditions as under the ITK Stock Option
such that such substituted Digi Stock Option satisfies the "spread ratio"
test and other conditions of Section 424(a) of the Code and such that no
benefit to such optionee is reduced under the terms of such Digi Stock
Option solely as a result of such substitution. The number of Digi
Common Shares subject to such Digi Stock Option shall equal the product
(rounded down to the nearest whole share) obtained by multiplying (i) the
number of ITK shares issuable upon exercise of the ITK Stock Option
immediately prior to the Effective Time by (ii) the Option Exchange Ratio
(as hereinafter defined), and the price per Digi Common Share at which
such Digi Stock Option is exercisable shall be the quotient (rounded up
to the nearest whole cent) obtained by dividing (x) the exercise price
per ITK Share under the ITK Stock Option immediately prior to the
Effective Time by (y) the Option
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Exchange Ratio. The "OPTION EXCHANGE RATIO" shall equal the product
of (i) the number of Digi Common Shares into which each ITK Share issued
and outstanding immediately prior to the Effective Time (other than ITK
Shares held by Unaccredited Stockholders) is converted at the Effective
Time pursuant to this Article IV, times (ii) two.
4.3. PAYMENT FOR ITK SHARES IN THE MERGER. At the Effective Time:
(a) Norwest Bank Minnesota, N.A., transfer agent for the Digi Common
Shares (the "TRANSFER AGENT") shall immediately cancel upon presentation
all certificates which immediately prior to the Effective Time
represented outstanding ITK Shares (the "CERTIFICATES"), and shall
promptly deliver to the holder of such Certificates, other than
Unaccredited Stockholders, or their authorized representatives
certificates representing that number of Digi Common Shares to be issued
as Share Consideration which bears the same ratio to the total Share
Consideration as the number of ITK Shares represented by such
Certificates bears to the total number of ITK Shares issued and
outstanding immediately prior to the Effective Time, excluding ITK Shares
held by Unaccredited Stockholders;
(b) Digi shall promptly pay to each holder of Certificates or their
authorized representatives, by check payable to such holder or wire
transfer, that amount which bears the same ratio to the total Cash
Consideration as the number of ITK Shares represented by the Certificates
surrendered by such holder pursuant to the preceding paragraph bears to
the total number of ITK Shares issued and outstanding immediately prior
to the Effective Time, except that Unaccredited Stockholders shall also
receive additional Cash Consideration as provided in Section 4.1(c).
4.4 FRACTIONAL SHARES. No fractional Digi Common Shares shall be
issued in the Merger. In lieu of any such fractional securities, each ITK
stockholder who would otherwise have been entitled to a fraction of a Digi
Common Share will be paid an amount in cash (without interest) equal to the
product of such fraction times the value of a Digi Common Share determined
pursuant to Section 4.1(a).
4.5 NO TRANSFER OF ITK SHARES. No transfer of ITK Shares shall be
made on the stock transfer books of ITK after the date hereof.
4.6 TAX-FREE REORGANIZATION. The parties intend by this Agreement to
effect a reorganization and to consummate the Merger in accordance with the
provisions of Section 368(a) of the Code. The Share Consideration and the Cash
Consideration will be deemed paid solely in exchange for the ITK Shares, and no
other transaction other than the Merger represents, provides for or is intended
to be an adjustment to the consideration paid for the ITK Shares. The parties
shall not take a position on any tax returns inconsistent with this section. In
addition, each of Digi and Merger Sub represents that it presently intends to
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continue ITK's historic business or use a significant portion of ITK's business
assets in a business.
Notwithstanding the foregoing, the parties acknowledge that none of them
has filed a request for a private letter ruling with the Internal Revenue
Service that the Merger is a tax-free reorganization within the meaning of
Section 368(a) of the Code. In the event of a final determination by the
Internal Revenue Service that the Merger is not a tax-free reorganization, Digi
and Merger Sub hereby agree that they, and not the ITK stockholders, shall be
responsible for any taxes, interest and penalties that would result from the
taxation of ITK, and that the ITK stockholders, and not Digi or Merger Sub,
shall be responsible for any taxes, interest and penalties resulting from their
status as stockholders of ITK or from their receipt of the Share Consideration
in the Merger.
4.7 DISSENTING SHARES. Notwithstanding anything in this Agreement to
the contrary, ITK Shares that are issued and outstanding immediately prior to
the Effective Time and are held by stockholders who have the right (to the
extent such right is available by law) to demand and receive payment of the fair
value of their ITK Shares in the manner provided in Section 262 of the DGCL and
have not failed to perfect or effectively withdrawn or lost such right under the
DGCL, as the case may be, prior to the time provided therefor under the DGCL
("DISSENTING SHARES") will not be converted into the right to receive the Merger
Consideration; provided, however, that if any holder of Dissenting Shares shall
fail to perfect or shall have effectively withdrawn or lost such right, such ITK
Shares shall thereupon be deemed to have been converted into and to have become
exchangeable for the right to receive the Merger Consideration, without
interest. Digi shall cause the Surviving Corporation to honor its obligations
under the DGCL to holders of Dissenting Shares.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF ITK
ITK hereby represents and warrants to Digi and Merger Sub that:
5.1 ORGANIZATION AND QUALIFICATION, SUBSIDIARIES.
(a) Each of ITK and each subsidiary of ITK (each an "ITK SUBSIDIARY")
is a corporation duly organized, validly existing and, in the case of any
ITK Subsidiary organized in the United States, is in good standing under
the laws of the jurisdiction of its incorporation. Each of ITK and the
ITK Subsidiaries has the requisite power and authority and all necessary
permits, licenses and approvals to own, lease and operate its properties
and to carry on its business as it is now being conducted, except where
the failure to have such power, authority, permits, licenses and
approvals would not, individually or in the aggregate, have a Material
Adverse Effect on ITK. ITK and each ITK Subsidiary is duly qualified or
licensed as a foreign corporation to do business, and is in good
standing, in each jurisdiction where the character of the
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properties owned, leased or operated by it or the nature of its business
makes such qualification or licensing necessary, except for such failures
to be so qualified or licensed and in good standing that would not,
individually or in the aggregate, have a Material Adverse Effect on ITK.
(b) ITK DISCLOSURE SCHEDULE 5.1 contains a list of all the ITK
Subsidiaries. Except for such subsidiaries or as set forth in ITK
DISCLOSURE SCHEDULE 5.1, ITK does not (i) own of record or beneficially,
directly or indirectly, (A) any shares of capital stock, options,
warrants or other rights to purchase capital stock or securities
convertible into capital stock of any other corporation or (B) any
participating interest in any partnership, joint venture or other
non-corporate business enterprise or (ii) control, directly or
indirectly, any other entity. Except as set forth in ITK DISCLOSURE
SCHEDULE 5.1, all of the outstanding shares of capital stock of each of
the ITK Subsidiaries are, in the case of registered shares, owned
beneficially and of record, and in the case of bearer shares, owned, by
ITK, one of its other subsidiaries, or any combination of ITK and one or
more of its other subsidiaries, in each case free and clear of any liens,
charges, restrictions, claims or encumbrances of any nature whatsoever;
and there are no outstanding subscriptions, warrants, options,
convertible securities, or other rights (contingent or otherwise)
pursuant to which any of the ITK Subsidiaries is or may become obligated
to issue any shares of its capital stock to any person other than ITK or
one of the other ITK Subsidiaries. True and correct copies of stock
certificates representing all outstanding shares of capital stock of ITK
Telekommunikation AG which are represented by stock certificates have
been heretofore delivered to Digi.
5.2 CAPITALIZATION.
(a) The authorized capital stock of ITK consists of 33,000,000 shares
of ITK Shares. As of the date hereof, 27,379,151 ITK Shares are issued
and outstanding, all of which are validly issued, fully paid and
nonassessable. The stockholders and holders of subscriptions, warrants,
options, convertible securities, and other rights (contingent or other)
to purchase or otherwise acquire equity securities, of ITK and each ITK
Subsidiary, and the number of shares of capital stock of ITK and each ITK
Subsidiary, and the number of such subscriptions, warrants, options,
convertible securities, and other such rights, held by each, and their
respective addresses as set forth on the books of ITK, are as set forth
in ITK DISCLOSURE SCHEDULE 5.2. The designations, powers, preferences,
rights, qualifications, limitations and restrictions in respect of each
class and series of authorized capital stock of ITK and each ITK
Subsidiary are as set forth in the organizational documents of each,
copies of which have been provided to Digi, and all such designations,
powers, preferences, rights, qualifications, limitations and restrictions
are valid, binding and enforceable and in accordance with all applicable
laws. Except as set forth in ITK DISCLOSURE SCHEDULE 5.2, (i) no person
is known to ITK to own any share of capital stock of ITK or any
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ITK Subsidiary, (ii) no subscription, warrant, option, convertible
security, or other right (contingent or other) to purchase or otherwise
acquire equity securities of ITK or any ITK Subsidiary is authorized or
outstanding and (iii) there is no commitment by ITK or any ITK Subsidiary
to issue shares, subscription, warrants, options, convertible securities,
or other such rights or to distribute to holders of any of its equity
securities any evidence of indebtedness or asset.
(b) There are no outstanding contractual obligations of ITK or any ITK
Subsidiary to repurchase, redeem or otherwise acquire any ITK Shares or
any capital stock of any ITK Subsidiary or to provide funds to, or make
any investment (in the form of a loan, capital contribution or otherwise)
in, any ITK Subsidiary or any other person.
(c) Except as set forth in ITK DISCLOSURE SCHEDULE 5.2, there are no
voting trusts or agreements, stockholders' agreements, pledge agreements,
registration rights agreements, buy-sell agreements, rights of first
refusal, co-sale rights, preemptive rights or proxies relating to any
securities of ITK or any ITK Subsidiary (to which ITK or any ITK
Subsidiary is a party or which is otherwise known to ITK).
(d) All of the outstanding securities of ITK were issued in compliance
with all applicable securities laws.
(e) Each outstanding share of capital stock of each ITK Subsidiary is
duly authorized, validly issued, fully paid and nonassessable.
5.3 AUTHORITY RELATIVE TO THIS AGREEMENT. ITK has all necessary power
and authority to execute and deliver this Agreement, to perform its obligations
under this Agreement, and to consummate the transactions contemplated by this
Agreement. The execution and delivery of this Agreement and the consummation by
ITK of the transactions contemplated by this Agreement, have been duly and
validly authorized by all necessary corporate action of ITK and no other
corporate proceedings on the part of ITK are necessary to authorize this
Agreement or to consummate the transactions contemplated by this Agreement.
Concurrently with the execution and delivery of this Agreement, holders of ITK
Shares representing not less than 75% of the Fully Diluted Shares (as defined in
that certain Shareholders' Agreement among ITK and the stockholders of ITK
signatory thereto, dated as of August 7, 1997 (the "ITK Shareholders'
Agreement"), as provided in Section 7.02 of the ITK Shareholders' Agreement)
have duly consented in writing (i) to approve this Agreement and the
transactions contemplated by this Agreement in lieu of a special meeting of
stockholders of ITK and (ii) to terminate the Shareholders' Agreement subject to
and effective upon the consummation of the Merger. True and correct copies of
such consents are set forth in ITK DISCLOSURE SCHEDULE 5.3. To the knowledge of
ITK, (i) none of the consenting ITK stockholders is an Unaccredited Investor,
and (ii) all of such consents executed by persons who are not "U.S. persons"
within the meaning of Rule 901(k) of Regulation S under the Securities Act were
executed and delivered outside the United States. This Agreement has been duly
and validly executed and delivered by ITK. Assuming the
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due authorization by Digi and Merger Sub, and the due execution and delivery
by Digi and Merger Sub, this Agreement constitutes a legal, valid and binding
obligation of ITK, enforceable in accordance with its terms.
5.4 NO CONFLICT, REQUIRED FILINGS AND CONSENTS
(a) The execution and delivery of this Agreement by ITK does not, and
the performance of this Agreement by ITK will not, (i) conflict with or
violate the Certificate of Incorporation or By-Laws of ITK, (ii) conflict
with or violate any law, rule, regulation, order, judgment or decree
applicable to ITK or any ITK Subsidiary or by which any property or asset
of ITK or any ITK Subsidiary is bound or affected, or (iii) result in any
breach of or constitute a default (or an event which with notice or lapse
of time or both would become a default) under, or give to others any
right of termination, amendment, acceleration or cancellation of, or
result in the creation of a lien or other encumbrance on any property or
asset of ITK or any ITK Subsidiary pursuant to, any note, bond, mortgage,
indenture, contract, agreement, lease, license, permit, franchise or
other instrument or obligation of ITK or any ITK Subsidiary, except, in
the case of (ii) and (iii), for such conflicts, violations, breaches,
defaults, rights, liens and encumbrances which would not prevent or delay
consummation of the Merger, or otherwise prevent ITK from performing its
obligations under this Agreement, and which would not, individually and
in the aggregate, have Material Adverse Effect on ITK.
(b) The execution and delivery of this Agreement by ITK, does not, and
the performance of this Agreement by ITK will not, require any consent,
approval, authorization or permit of, or filing with or notification to,
any governmental or regulatory authority, domestic or foreign, except (A)
for filing and applicable requirements under United States and foreign
securities laws and state securities or "blue sky" laws, the HSR Act and
the DGCL and (B) where failure to obtain such consents, approvals,
authorizations or permits, or to make such filings or notifications,
would not prevent or delay consummation of the Merger, or otherwise
prevent ITK from performing its obligations under this Agreement, and
would not, individually or in the aggregate, have a Material Adverse
Effect on ITK.
5.5 COMPLIANCE. Neither ITK nor any ITK Subsidiary is in conflict
with, or in default or violation of, (i) any law, rule, regulation, order,
judgment or decree applicable to ITK or any ITK Subsidiary or by which any
property or asset of ITK or any ITK Subsidiary is bound or affected, or (ii) any
note, bond, mortgage, indenture, contract, agreement, lease, license, permit,
franchise or other instrument or obligation to which ITK or any ITK Subsidiary
is a party or by which ITK or any ITK Subsidiary or any property or asset of ITK
or any ITK Subsidiary is bound or affected, in each case except for any such
conflicts, defaults or violations that would not, individually or in the
aggregate, have a Material Adverse Effect on ITK. To the knowledge of ITK, no
proposed law, rule, regulation or order exists which, if enacted, would have a
Material Adverse Effect on ITK.
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5.6 FINANCIAL STATEMENTS. True and complete copies of the (i)
unaudited consolidated balance sheet of ITK as of December 31, 1997, and the
related unaudited consolidated statements of income, retained earnings and
stockholders' equity of ITK (collectively referred to herein as the "ITK
FINANCIAL STATEMENTS") and (ii) the unaudited consolidated balance sheet of ITK
as of March 31, 1998 and the related consolidated statements of income, retained
earnings and stockholders' equity of ITK (collectively referred to herein as the
"ITK INTERIM FINANCIAL STATEMENTS") have been delivered by ITK to Digi and have
been attached hereto as ITK DISCLOSURE SCHEDULE 5.6. The ITK Financial
Statements and the ITK INTERIM FINANCIAL STATEMENTS (i) were prepared in
accordance with the books of account and other financial records of ITK, (ii)
present fairly the consolidated financial condition and results of operations of
ITK and its subsidiaries as of the dates thereof or for the periods covered
thereby, (iii) have been prepared in accordance with applicable law and United
States generally accepted accounting principles ("US GAAP") applied on a basis
consistent with the past practices of ITK and (iv) include all adjustments
(consisting only of normal recurring accruals) that are necessary for a fair
presentation of the consolidated financial condition of ITK and its subsidiaries
and the results of the operations of ITK and its subsidiaries as of the dates
thereof or for the periods covered thereby. The ITK Financial Statements, upon
completion of the audit thereof by ITK's accountant, shall not require any
material amendment or revision of any line item thereof in order for ITK's
accountant to issue an unqualified form of audit opinion thereon. In addition to
the foregoing, true and complete copies of the (i) audited balance sheet of ITK
Telekommunikation AG as of June 30, 1997, and the related statements of income,
retained earnings and stockholders' equity (collectively referred to herein as
the "ITK AG 1997 Financial Statements") and (ii) the audited balance sheet of
ITK Telekommunikation AG as of September 30, 1996, and the related statements of
income, retained earnings and stockholders' equity (collectively referred to
herein as the "ITK AG 1996 Financial Statements") have been heretofore delivered
by ITK to Digi. The ITK AG 1997 Financial Statements and the ITK AG 1996
Financial Statements (i) were prepared in accordance with the books of account
and other financial records of ITK Telekommunikation AG, (ii) present fairly the
consolidated financial condition and results of operations of ITK
Telekommunikation AG and its subsidiaries as of the dates thereof or for the
periods covered thereby, (iii) have been prepared in accordance with applicable
law and German generally accepted accounting principles ("GoB") applied on a
basis consistent with the past practices of ITK Telekommunikation AG, (iv)
include all adjustments (consisting only of normal recurring accruals) that are
necessary for a fair presentation of the financial condition of ITK
Telekommunikation AG and the results of the operations of ITK Telekommunikation
AG as of the dates thereof or for the periods covered thereby, and (v) received
from ITK Telekommunikation AG's accountant an unqualified form of audit opinion.
5.7 ABSENCE OF CERTAIN CHANGES OR EVENTS. Since March 31, 1998,
except as contemplated by this Agreement or as set forth in ITK Disclosure 5.7,
ITK and the ITK Subsidiaries have conducted their businesses only in the
ordinary course and in a manner consistent with past practice and, since
March 31, 1998, except as set forth in ITK Disclosure
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Schedule 5.7, there has not been (i) any Material Adverse Change with regard
to ITK, (ii) any change by ITK or any ITK Subsidiary in its accounting
methods, principles or practices, other than changes required by US GAAP,
(iii) any revaluation by ITK or any ITK Subsidiary of any asset (including,
without limitation, any writing down of the value of inventory or writing off
of notes or accounts receivable), other than in the ordinary course of
business consistent with past practice and in accordance with US GAAP, (iv)
any issuance by ITK or any ITK Subsidiary of any stock, bonds or other
corporate securities, (v) borrowing of any amount or incurrence of any
material obligation or material liability (absolute, accrued or contingent)
by ITK or any ITK Subsidiary, except current liabilities incurred and
liabilities under contracts entered into in the ordinary course of business,
(vi) discharge or satisfaction of any material lien or material encumbrance
or payment of any material obligation or material liability (absolute,
accrued or contingent) by ITK or any ITK Subsidiary, other than current
liabilities shown on the ITK Financial Statements and current liabilities
incurred since the date of the ITK Financial Statements in the ordinary
course of business, (vii) mortgage, pledge, encumbrance or lien on any of the
material assets of ITK or any of the ITK Subsidiaries, tangible or
intangible, other than liens for current real property taxes not yet due and
payable, (viii) sale, assignment or transfer of any of the material tangible
assets of ITK or any of the ITK Subsidiaries except in the ordinary course of
business, or cancellation by ITK or any ITK Subsidiary of any material debt
or material claim except in the ordinary course of business, (ix) sale,
assignment, transfer or grant of any exclusive license with respect to any
patent, trademark, trade name, service ▇▇▇▇, copyright, trade secret or other
intangible asset or ITK or any of the ITK Subsidiaries, (x) any loss of
property or waiver of any right of substantial value, whether or not in the
ordinary course of business, (xi) any action by a customer or supplier, the
loss of which would have a Material Adverse Effect on ITK, to terminate,
materially reduce or threaten to terminate its purchases from or provision of
products or services to ITK or any ITK Subsidiary, as the case may be, (xii)
any entry by ITK or any ITK Subsidiary into any commitment or transaction
material to ITK and the ITK Subsidiaries, taken as a whole, (xiii) any
declaration, setting aside or payment of any dividend or distribution in
respect of any capital stock of ITK or any ITK Subsidiary or any redemption,
purchase or other acquisition of any of its securities, (xiv) any increase in
or establishment of any bonus, insurance, severance, deferred compensation,
pension, retirement, profit sharing, stock option (including, without
limitation, the granting of stock options, stock appreciation rights,
performance awards, or restricted stock awards), stock purchase or other
employee benefit plan, or any other increase in the compensation payable or
to become payable to any officers or key employees of ITK or any ITK
Subsidiary, except in the ordinary course of business consistent with past
practice, or (xv) any commitment to do any of the foregoing.
5.8 ABSENCE OF LITIGATION. Except as set forth in ITK DISCLOSURE
SCHEDULE 5.8, there is no claim, action, proceeding or investigation pending or,
to the knowledge of ITK, threatened against ITK or any ITK Subsidiary, or any
property or asset of ITK or any ITK Subsidiary, before any court, arbitrator or
administrative, governmental or regulatory authority or body, domestic or
foreign, which (i) individually or in the aggregate, is
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reasonably likely to have a Material Adverse Effect on ITK, or (ii) seeks to
delay or prevent the consummation of any transaction contemplated by this
Agreement. As of the date hereof, neither ITK nor any ITK Subsidiary nor any
property or asset of ITK or any ITK Subsidiary is subject to any order, writ,
judgment, injunction, decree, determination or award having, individually or
in the aggregate, a Material Adverse Effect on ITK.
5.9 EMPLOYEE BENEFIT PLANS.
(a) ITK DISCLOSURE SCHEDULE 5.9 lists each U.S. Employee Plan that
covers any employee of ITK or any ITK Subsidiary, copies or descriptions
of all of which have previously been made available or furnished to Digi.
With respect to each U.S. Employee Plan, ITK has provided the most
recently filed Form 5500 and an accurate summary description of such
plan.
(b) ITK DISCLOSURE SCHEDULE 5.9 also includes a list of each Benefit
Arrangement and Foreign Benefit Plan of ITK or any ITK Subsidiary, copies
or descriptions of which have been made available or furnished previously
to Digi.
(c) None of the U.S. Employee Plans or other arrangements listed on
ITK DISCLOSURE SCHEDULE 5.9, other than the Foreign Benefit Plans, cover
any non-United States employee or former employee of ITK or any ITK
Subsidiary.
(d) No "prohibited transaction," as defined in Section 406 of ERISA or
Section 4975 of the Code has occurred with respect to any U.S. Employee
Plan of ITK.
(e) No U.S. Employee Plan of ITK is a Multiemployer Plan and no U.S.
Employee Plan of ITK is subject to Title IV of ERISA. ITK, the ITK
Subsidiaries and their ERISA Affiliates have not incurred nor reasonably
expect to incur any material liability under Title IV of ERISA arising in
connection with the termination of any plan covered or previously covered
by Title IV of ERISA or arising in connection with any complete or
partial withdrawal from a Multiemployer Plan.
(f) Each U.S. Employee Plan of ITK which is intended to be qualified
under Section 401 (a) of the Code is so qualified and has been so
qualified during the period from its adoption to date, and each trust
forming a part thereof is exempt from tax pursuant to Section 501(a) of
the Code. ITK has furnished to Digi copies of the most recent Internal
Revenue Service determination letters with respect to each such plan.
Each U.S. Employee Plan of ITK has been maintained in material compliance
with its terms and with the requirements prescribed by any and all
statutes, orders, rules and regulations, including but not limited to
ERISA and the Code, which are applicable to such plan.
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(g) Each Benefit Arrangement of ITK has been maintained in material
compliance with its terms and with the requirements prescribed by any and
all statutes, orders, rules and regulations which are applicable to such
Benefit Arrangement of ITK.
(h) With respect to the employees, former employees and beneficiaries
of employees or former employees of ITK and any ITK Subsidiary, there are
no post-retirement medical, health or life insurance plans in effect,
except as required by Section 4980B of the Code. No tax under Section
4980B of the Code has been incurred in respect of any U.S. Employee Plan
that is a group health plan, as defined in Section 5000(b)(1) of the
Code.
(i) All contributions and payments accrued under each U.S. Employee
Plan and Benefit Arrangement, in each case of ITK, determined in
accordance with prior funding and accrual practices, as adjusted to
include proportional accruals for the period ending on the Closing Date,
will be discharged and paid on or prior to the Closing Date. Except as
disclosed in writing to Digi prior to the date hereof, there has been no
amendment to, written interpretation of or announcement (whether or not
written) by ITK, any ITK Subsidiary or any of their ERISA Affiliates
relating to, or change in employee participation or coverage under, any
U.S. Employee Plan or Benefit Arrangement, in each case of ITK, that
individually or collectively would increase materially the expense of
maintaining such U.S. Employee Plan or Benefit Arrangement above the
level of the expense incurred in respect thereof for the fiscal year
ended prior to the date hereof.
(j) There is no contract, agreement, plan or arrangement covering any
employee or former employee of ITK or any ITK Subsidiary that,
individually or collectively, could give rise to the payment of any
amount that would not be deductible pursuant to the terms of Section 280G
of the Code.
(k) Except as disclosed on ITK DISCLOSURE SCHEDULE 5.9, no employee of
ITK or any ITK Subsidiary will become entitled to any bonus, retirement,
severance or similar benefit or enhanced benefit solely as a result of
the transactions contemplated hereby.
(l) With respect to each Foreign Benefit Plan of ITK: (A) all employer
and employee contributions to each Foreign Benefit Plan required by law
or by the terms of such Foreign Benefit Plan have been made or, if
applicable, accrued in accordance with normal accounting practices; (B)
the fair market value of the assets of each funded Foreign Benefit Plan,
the liability of each insurer for any Foreign Benefit Plan funded through
insurance or the book reserve established for any Foreign Benefit Plan,
together with any accrued contributions, is sufficient to procure or
provide for the accrued benefit obligations, as of the Closing, with
respect to all current and former participants in such plan according to
the actuarial assumptions and valuations most recently used to determine
employer contributions to such Foreign Benefit Plan
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and no transaction contemplated by this Agreement shall cause such assets
or insurance obligations to be less than such benefit obligations; and
(C) each Foreign Benefit Plan required to be registered has been
registered and has been maintained in good standing with the appropriate
regulatory authorities.
5.10 LABOR MATTERS. Except as set forth in ITK DISCLOSURE SCHEDULE
5.10, (i) there are no controversies pending or, to the knowledge of ITK,
threatened between ITK or any ITK Subsidiary and any of their respective
employees, which controversies have or could have a Material Adverse Effect on
ITK, (ii) neither ITK nor any ITK Subsidiary is a member of an employers'
association or a party to, or otherwise bound by, any collective bargaining
agreement or other labor union contract applicable to persons employed by ITK or
any ITK Subsidiary, nor, to the knowledge of ITK, are there any activities or
proceedings of any labor union to organize any such employees, (iii) neither ITK
nor any ITK Subsidiary has breached or otherwise failed to comply with any
provision of any such agreement or contract and there are no grievances
outstanding against ITK or any ITK Subsidiary under any such agreement or
contract, (iv) there are no unfair labor practice complaints pending against ITK
or any ITK Subsidiary before the National Labor Relations Board or any current
union representation questions involving employees of ITK or any ITK Subsidiary,
(v) there is no strike, slowdown, work stoppage or lockout, or, to the knowledge
of ITK, threat thereof, by or with respect to any employees of ITK or any ITK
Subsidiary, and (vi) neither ITK or any ITK Subsidiary has a workers' council or
similar body or is a party to or bound by any agreement or ongoing consistent
practices or policies on a company-wide basis.
5.11 REAL PROPERTY AND LEASES.
(a) ITK and the ITK Subsidiaries have sufficient title to all their
properties and assets to conduct their respective businesses as currently
conducted, with only such exceptions as, individually or in the
aggregate, would not have a Material Adverse Effect on ITK.
(b) ITK DISCLOSURE SCHEDULE 5.11(b)(i) contains a list of all real
property owned by ITK or any ITK Subsidiary. ITK DISCLOSURE SCHEDULE
5.11(b)(ii) contains a list of real property leased by ITK or any ITK
Subsidiary, the applicable lease agreements, the name of the lessor, the
date of the lease agreement and each amendment thereto and the aggregate
annual rental or other fee payable under any such lease. Except as set
forth on ITK DISCLOSURE SCHEDULE 5.11(b)(i) or 5.11(b)(ii) each parcel of
real property owned or leased by ITK or any ITK Subsidiary (i) is owned
or leased free and clear of all mortgages, pledges, liens, security
interests, conditional and installment sale agreements, encumbrances,
charges or other claims of third parties of any kind (collectively,
"LIENS"), other than (A) Liens for current taxes and assessments not yet
past due, (B) inchoate mechanics' and materialmen's Liens for
construction in progress, (C) workmen's, repairmen's, warehousemen's and
carriers' Liens arising in the ordinary course of business of ITK or such
Subsidiary consistent with past practice, and (D) all matters of record,
Liens and other imperfections of title
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and encumbrances which, individually or in the aggregate, would not have
a Material Adverse Effect on ITK, and (ii) is neither subject to any
governmental decree or order to be sold nor is being condemned,
expropriated or otherwise taken by any public authority with or without
payment of compensation therefor, nor, to the knowledge of ITK, has any
such condemnation, expropriation or taking been proposed. Without
limiting the generality of the foregoing, there are no existing or, to
the best knowledge of ITK or any ITK Subsidiary, pending special
assessments ("ERSCHLIESSUNGSGEBUHREN") under German law affecting the
real property and there are no current public improvements (water, sewer,
sidewalk, street, alley, curbing, etc.) or condemnation actions effecting
such real property or improvements thereon for which assessments may be
levied after the date hereof. ITK has no knowledge of any plant
improvements which may result in assessments or condemnation actions.
5.12 PROPRIETARY INFORMATION OF THIRD PARTIES. To the knowledge of
ITK, no third party has claimed or has reason to claim that any person employed
by or affiliated with ITK or any ITK Subsidiary has (a) violated or may be
violating any of the terms or conditions of his employment, non-competition or
non-disclosure agreement with such third party, (b) disclosed or may be
disclosing or utilized or may be utilizing any trade secret or proprietary
information or documentation of such third party, or (c) interfered or may be
interfering in the employment relationship between such third party and any of
its present or former employees. To the knowledge of ITK, no third party has
requested information from ITK or any ITK Subsidiary which suggests that such a
claim might be contemplated. To the knowledge of ITK, no person employed by or
affiliated with ITK or any ITK Subsidiary has employed or proposes to employ any
trade secret or any information or documentation proprietary to any former
employer, and to the knowledge of ITK, no person employed by or affiliated with
ITK or any ITK Subsidiary has violated any confidential relationship which such
person may have had with any third party, in connection with the development,
manufacture or sale of any product or proposed product or the development or
sale of any service or proposed service of ITK or any ITK Subsidiary, and ITK
has no reason to believe there will be any such employment or violation. To the
knowledge of ITK, none of the execution or delivery of this Agreement, or the
carrying on of the business of ITK or any ITK Subsidiary as officers, employees
or agents by any officer, director or key employee of ITK or any ITK Subsidiary,
or the conduct or proposed conduct of the business of ITK or any ITK Subsidiary,
will conflict with or result in a breach of the terms, conditions or provisions
of or constitute a default under any material noncompetition contract, covenant
or instrument under which any such person is obligated.
5.13 TRADEMARKS, PATENTS AND COPYRIGHT. Set forth in ITK DISCLOSURE
SCHEDULE 5.13 is a list and brief description of all domestic and foreign
patents, patent rights, patent applications, trademarks, trademark applications,
service marks, service ▇▇▇▇ applications, trade names and copyrights material to
the business of ITK and the ITK Subsidiaries as currently conducted, and all
applications for such which are in the process of being prepared, owned by or
registered in the name of ITK or any ITK Subsidiary, or of which ITK or any
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ITK Subsidiary is a licensor or licensee or in which ITK or any ITK
Subsidiary has any right (and, if applicable, a brief description of the
nature of such right). ITK and the ITK Subsidiaries own or possess adequate
licenses or other valid rights to use all patents, patent rights, trademarks,
trademark rights, trade names, trade name rights, copyrights, service marks,
trade secrets, applications for patents, trademarks and for service marks,
know-how, manufacturing processes, formulae, trade secrets, customer lists
and other proprietary rights and information ("INTELLECTUAL PROPERTY")
necessary to the business of ITK and the ITK Subsidiaries as currently
conducted. To the knowledge of ITK, all technical information developed by
and belonging to ITK or any ITK Subsidiary which has not been patented has
been kept confidential. Except as set forth in ITK DISCLOSURE SCHEDULE 5.13,
neither ITK nor any ITK Subsidiary has granted or assigned to any other
person or entity any right to manufacture or assemble any products of ITK or
any ITK Subsidiary. The conduct of the business of ITK and the ITK
Subsidiaries as currently conducted does not and will not conflict in any way
with any Intellectual Property of any third party that, individually or in
the aggregate, could have a Material Adverse Effect on ITK. To the knowledge
of ITK, there are no infringements of any propriety rights owned by or
licensed by or to ITK or any ITK Subsidiary which, individually or in the
aggregate, could have a Material Adverse Effect on ITK. To the knowledge of
ITK, neither ITK nor any ITK Subsidiary has licensed or otherwise permitted
the use by any third party of any proprietary information on terms or in a
manner which, individually or in the aggregate, could have a Material Adverse
Effect on ITK. No claim is pending or, to the knowledge of ITK, threatened,
to the effect that the operations of ITK or any ITK Subsidiary infringe upon
or conflict with the asserted rights of any other person under any
Intellectual Property, and, to the knowledge of ITK, there is no basis for
any such claim (whether or not pending or threatened). No claim is pending
or, to the knowledge of ITK, threatened, to the effect that any such
Intellectual Property owned or, to the knowledge of ITK, licensed by ITK or
any ITK Subsidiary, or which ITK or any ITK Subsidiary otherwise has the
right to use, is invalid or unenforceable by ITK, and, to the knowledge of
ITK, there is no basis for any such claim (whether or not pending or
threatened). Without limiting the generality of the foregoing, neither ITK
nor any ITK Subsidiary is subject to any rights to compensation belonging to
former and current employees for inventions used in the business (employee
inventions, e.g. "ARBEITNEHMERERFINDUNGEN" under German Law).
5.14 TAXES.
(a) Except as set forth in ITK DISCLOSURE SCHEDULE 5.14:
(i) Each of ITK and the ITK Subsidiaries has timely filed all
Returns required to be filed and paid all Taxes shown as due on
such Returns. All such Returns were complete and correct in all
material respects. All Taxes with respect to which any of ITK or
any ITK Subsidiary has become obligated have been paid and
adequate reserves have been established for all Taxes accrued but
not yet payable (including any Taxes arising out of, or in
connection with,
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the transactions contemplated by this Agreement). None of ITK
or any ITK Subsidiary is currently the beneficiary of any
extension of time within which to file any Return. None of
ITK or any ITK Subsidiary has waived any statute of limitations in
respect of Taxes or agreed to any extension of time with respect
to any Tax assessment or deficiency. None of ITK or any ITK
Subsidiary is a party to any Tax sharing or similar agreement with
any person.
(ii) No issues have been raised (and are currently pending) by
any taxing authority in connection with any of the Returns filed
or required to be filed by any of ITK or any ITK Subsidiary. All
deficiencies asserted or assessments made as a result of any
examinations of such Returns have been fully paid, or are fully
reflected as a liability in the respective financial statements of
ITK or any ITK Subsidiary, or are being contested and an adequate
reserve therefor has been established and is fully reflected in
the respective financial statements of ITK or any ITK Subsidiary.
There are no liens for Taxes (other than for current Taxes not yet
due and payable) upon the assets of any of ITK or any ITK
Subsidiary. All material elections with respect to taxes
affecting ITK or any ITK Subsidiary, as of the date hereof, are
set forth in the respective financial statements of such entities.
(b) ITK DISCLOSURE SCHEDULE 5.14 sets forth the tax loss carryforwards
of ITK and each of the ITK Subsidiaries by amount, country and year of
expiration.
5.15 ENVIRONMENTAL MATTERS.
(a) ITK and each ITK Subsidiary has complied with all applicable
foreign, federal, state and/or local laws (including without limitation
case law, rules, regulations, orders, judgments, decrees, permits,
licenses and governmental approvals) that are intended to protect the
environment and/or human health or safety (collectively, "ENVIRONMENTAL
LAWS"), except where the failure to so comply would not, individually or
in the aggregate, have a Material Adverse Effect on ITK.
(b) Neither ITK nor any ITK Subsidiary has handled, generated, used,
stored, transported or disposed of any substance or waste which is
regulated by Environmental Laws, except for reasonable amounts of
ordinary office supplies and/or office cleaning supplies which have been
used in compliance with Environmental Laws.
(c) To the knowledge of ITK, there are no "ENVIRONMENTAL LIABILITIES."
For purposes of this Section, "Environmental Liabilities" are liabilities
which (i) arise out of or in any way relate to ITK or any ITK Subsidiary
or any real estate at any time owned, used or leased by ITK or any ITK
Subsidiary, or ITK's or ITK Subsidiary's use or ownership thereof,
whether vested or unvested, contingent or fixed, actual or
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potential, and (ii) arise from or relate to actions occurring (including
any failure to act) or conditions existing on or before the Closing Date.
5.16 CERTAIN INTERESTS.
(a) Except as set forth on ITK DISCLOSURE SCHEDULE 5.16, none of ITK
or any affiliate of ITK, any officer or director of ITK or any ITK
Subsidiary or any relative or spouse (or relative of such spouse) who
resides with, or is a dependent of, any such officer or director:
(i) has any ownership or financial interest in any competitor,
supplier, or customer of ITK or any ITK Subsidiary (other than
rights of ownership of securities of a publicly-held corporation
amounting to less than one percent of any class of outstanding
securities);
(ii) owns, directly or indirectly, in whole or in part, or has
any other interest in any tangible or intangible property which
ITK or any ITK Subsidiary uses in the conduct of its business or
otherwise; or
(iii) has outstanding any indebtedness to ITK or any ITK
Subsidiary.
(b) Except as set forth in ITK DISCLOSURE SCHEDULE 5.16, ITK and the
ITK Subsidiaries do not have any liability or any obligation of any
nature whatsoever to any officer, director or stockholder of ITK or any
ITK Subsidiary, or to any relative or spouse (or relative of such spouse)
who resides with, or is a dependent of, any such officer, director or
stockholder.
5.17 MATERIAL CONTRACTS.
(a) ITK DISCLOSURE SCHEDULE 5.17 lists all agreements relating to
Intellectual Property set forth in ITK DISCLOSURE SCHEDULE 5.13 and each
of the following contracts and agreements of ITK and the ITK Subsidiaries
(such contracts and agreements, together with all contracts or other
agreements listed on ITK DISCLOSURE SCHEDULES 5.2, 5.9, 5.10, 5.11(b)(ii)
and 5.18 to which ITK or any ITK Subsidiary is a party, being the "ITK
MATERIAL CONTRACTS"):
(i) each distributor, dealer, manufacturer's representative or
sales agency agreement which is (A) exclusive as to territory or
product line, (B) material to the business of ITK and the ITK
Subsidiaries, taken as a whole, or (C) not terminable on less than
90 days' notice without material cost or other material liability
to ITK or any ITK Subsidiary;
(ii) each sales agreement with a customer of ITK or any ITK
Subsidiary under the terms of which ITK or any ITK Subsidiary is
likely to receive more than $300,000 in the aggregate during the
calendar year ending December 31,
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1998 and which entitles such customer to a rebate or right of
set-off, to return any product to ITK or any ITK Subsidiary after
acceptance thereof, or which varies in any material respect from
ITK's or any ITK Subsidiary's standard form agreements;
(iii) each agreement with any supplier under the terms of which
ITK or any ITK Subsidiary is likely to pay or otherwise give
consideration of more than $300,000 in the aggregate during the
calendar year ending December 31, 1998 and containing any
provision permitting any party other than ITK or any ITK
Subsidiary to renegotiate the price or other material terms upon
the failure of ITK or any ITK Subsidiary to meet its obligations
thereunder or containing any payback or similar provisions;
(iv) each agreement for the future purchase of fixed assets or
for the future purchase of materials, supplies or equipment,
outside the ordinary course of business consistent with past
practice;
(v) each agreement relating to the borrowing of money or to the
mortgaging or pledging of, or otherwise placing a lien or security
interest on, any material asset of ITK or any ITK Subsidiary;
(vi) each guaranty of any material obligation for borrowed
money;
(vii) each agreement under which ITK or any ITK Subsidiary has
limited or restricted its right to compete in any geographical
area or with any person in any respect;
(viii) each agreement or group of related agreements with the same
party under the terms of which ITK or any ITK Subsidiary is likely
to pay consideration of more than $300,000 in the aggregate during
the calendar year ending December 31, 1998, and which is not
terminable by ITK or any ITK Subsidiary without penalty upon
notice of 30 days or less;
(ix) all contracts and agreements the absence of which would
have a Material Adverse Effect on ITK; and
(x) each loan or subsidy agreement to which ITK or any ITK
Subsidiary is a party.
(b) To the knowledge of ITK, each ITK Material Contract (i) is valid
and binding on the respective parties thereto and is in full force and
effect; and (ii) upon consummation of the transactions contemplated by
this Agreement, shall continue in full force and effect without penalty
or other adverse consequence.
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(c) Neither ITK nor any ITK Subsidiary has received any notice of
default under, or is in default under or in material breach of, any ITK
Material Contract. Neither ITK nor any ITK Subsidiary has any present
expectation or intention of not performing any material obligation under
any ITK Material Contract and, to the knowledge of ITK, no party to any
ITK Material Contract other than ITK or any ITK Subsidiary has breached
or intends to breach any ITK Material Contract.
(d) True and correct copies of all ITK Material Contracts have been
heretofore delivered to Digi.
(e) Neither ITK nor any ITK Subsidiary is subject to potential
compensatory obligations under Section 89(b) of the German Commercial
Code (HGB) or similar obligations under German or any other laws.
5.18 OFFICERS. ITK DISCLOSURE SCHEDULE 5.18 sets forth a list of the
names of the officers of ITK and the ITK Subsidiaries, together with the title
or job classification of each such person and the total compensation anticipated
to be paid to each such person by ITK and the ITK Subsidiaries in the calendar
year ending December 31, 1998. Except as set forth in ITK DISCLOSURE SCHEDULE
5.18, none of such persons has an employment agreement or understanding, whether
oral or written, with ITK or any ITK Subsidiary, which is not terminable on
notice by ITK or such subsidiary without cost or other liability to ITK or such
subsidiary.
5.19 EMPLOYEES AND EMPLOYEE BONUSES.
(a) No officer or key employee of ITK or any ITK Subsidiary has
advised ITK or any ITK Subsidiary (orally or in writing) that he intends
to terminate employment with ITK or any ITK Subsidiary. A true and
correct copy of ITK Telekommunikation AG's standard form of employment
agreement for non-officers has been heretofore delivered to Digi.
(b) ITK has accrued on its financial books and records as of June 30,
1998 all unpaid bonus obligations of ITK or any ITK Subsidiary to any
employee or former employee thereof. From and after July 1, 1998,
neither ITK nor any ITK Subsidiary will have any obligation or
commitment, whether written or oral, with respect to any bonus payment to
any employee or former employee thereof, excluding sales commissions paid
in accordance with reasonable past practice. No representation has been
made by ITK or any ITK Subsidiary to any employee or former employee
thereof with respect to the award of any bonuses which if fulfilled would
cause this Section 5.19(b) to be untrue.
5.20 BROKERS. No broker, finder or investment banker is entitled to
any brokerage, finder's or other fee or commission in connection with the
transactions contemplated by this Agreement based upon arrangements made by or
on behalf of ITK or any ITK Subsidiary.
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5.21 FULL DISCLOSURE. Neither ITK nor any of its officers has
knowingly withheld from Digi any material facts relating to ITK.
ARTICLE VI
REPRESENTATIONS AND WARRANTIES OF DIGI AND MERGER SUB
6.1 ORGANIZATION AND QUALIFICATION. Each of Digi and each subsidiary
of Digi (each a "DIGI SUBSIDIARY") is a corporation duly organized, validly
existing and in good standing under the laws of the jurisdiction of its
incorporation. Each of Digi and the Digi Subsidiaries has the requisite power
and authority and all necessary permits, licenses and approvals to own, lease
and operate its properties and to carry on its business as it is now being
conducted, except where the failure to have such power, authority, permits,
licenses and approvals would not, individually or in the aggregate, have a
Material Adverse Effect on Digi. Each of Digi and the Digi Subsidiaries is duly
qualified or licensed as a foreign corporation to do business, and is in good
standing, in each jurisdiction where the character of the properties owned,
leased or operated by it or the nature of its business makes such qualification
or licensing necessary, except for such failures to be so qualified or licensed
and in good standing that would not, individually or in the aggregate, have a
Material Adverse Effect on Digi.
6.2 AUTHORITY RELATIVE TO THIS AGREEMENT. Each of Digi and Merger Sub
has all necessary power and authority to execute and deliver this Agreement, to
perform its obligations under this Agreement, and to consummate the transactions
contemplated by this Agreement. The execution and delivery of this Agreement
and the consummation by Digi and Merger Sub of the transactions contemplated by
this Agreement have been duly and validly authorized by all necessary corporate
action of Digi and Merger Sub, and no other corporate proceedings on the part of
Digi or Merger Sub are necessary to authorize this Agreement or to consummate
the transactions contemplated by this Agreement. This Agreement has been duly
and validly executed and delivered by Digi and Merger Sub. Assuming the due
authorization by ITK, and the due execution and delivery by ITK, this Agreement
constitutes a legal, valid and binding obligation of each of Digi and Merger
Sub, enforceable in accordance with its terms.
6.3 NO CONFLICT; REQUIRED FILINGS AND CONSENTS.
(a) The execution and delivery of this Agreement by Digi and Merger
Sub does not, and the performance of this Agreement by Digi and Merger
Sub will not, (i) conflict with or violate the Certificate of
Incorporation or By-Laws of Digi or Merger Sub, (ii) conflict with or
violate any law, rule, regulation, order, judgment or decree applicable
to Digi or any Digi Subsidiary or by which any property or asset of Digi
or any Digi Subsidiary is bound or affected, or (iii) result in any
breach of or constitute a default (or an event which with notice or lapse
of time or both would become a default) under, or give to others any
right of termination, amendment, acceleration or
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cancellation of, or result in the creation of a lien or other encumbrance
on any property or asset of Digi or any Digi Subsidiary pursuant to, any
note, bond, mortgage, indenture, contract, agreement, lease, license,
permit, franchise or other instrument or obligation of Digi or any Digi
Subsidiary, except, in the case of (ii) and (iii), for such conflicts,
violations, breaches, defaults, rights, liens and encumbrances which
would not prevent or delay consummation of the Merger, or otherwise
prevent Digi from performing its obligations under this Agreement and
which would not, individually and in the aggregate, have Material Adverse
Effect on Digi.
(b) The execution and delivery of this Agreement by Digi and Merger
Sub does not, and the performance of this Agreement by Digi and Merger
Sub will not, require any consent, approval, authorization or permit of,
or filing with or notification to, any governmental or regulatory
authority, domestic or foreign, except (i) for filing and applicable
requirements under United States and foreign securities laws and state
securities or "blue sky" laws, the HSR Act and the DGCL and (ii) where
failure to obtain such consents, approvals, authorizations or permits, or
to make such filings or notifications, would not prevent or delay
consummation of the Merger, or otherwise prevent Digi and Merger Sub from
performing their obligations under this Agreement, and would not,
individually or in the aggregate, have a Material Adverse Effect on Digi.
6.4 OWNERSHIP OF MERGER SUB; NO PRIOR ACTIVITIES; ASSETS OF MERGER
SUB.
(a) Merger Sub was formed solely for the purpose of engaging in the
transactions contemplated hereby.
(b) As of the date hereof and the Effective Time, the capital stock of
Merger Sub is and will be owned 100% by Digi directly. Further, there
are not as of the date hereof and there will not be at the Effective Time
any outstanding or authorized options, warrants, calls, rights,
commitments or any other agreements of any character which Merger Sub is
a party to, or may be bound by, requiring it to issue, transfer, sell,
purchase, redeem or acquire any shares of capital stock or any securities
or rights convertible into, exchangeable for, or evidencing the right to
subscribe for or acquire, any shares of capital stock of Merger Sub.
(c) As of the date hereof and the Effective Time, except for
obligations or liabilities incurred in connection with its incorporation
or organization and the transactions contemplated hereby, Merger Sub has
not and will not have incurred, directly or indirectly through any
subsidiary or affiliate, any obligations or liabilities or engaged in any
business or activities of any type or kind whatsoever or entered into any
agreements or arrangements with any person or entity.
(d) Digi will take all action necessary to ensure that Merger Sub at
no time prior to the Effective Time owns any asset other than an amount
of cash necessary to
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incorporate Merger Sub and to pay the expenses of the Merger attributable
to Merger Sub in connection with the Merger.
6.5 SEC REPORTS; FINANCIAL STATEMENTS; CAPITALIZATION.
(a) Since October 1, 1997, Digi has filed with the SEC all reports
(Annual Report on Form 10-K, Quarterly Reports on Form 10-Q and Current
Reports on Form 8-K), definitive proxy statements and portions of the
Annual Report to Stockholders to the extent filed under the Securities
Exchange Act, in each case required to be filed by it pursuant to the
Securities Exchange Act, all of which complied as to form in all material
respects with all applicable requirements of the Securities Exchange Act
(collectively, the "DIGI SEC REPORTS"). True and correct copies of the
Digi SEC Reports have been furnished to ITK. None of the Digi SEC
Reports, including without limitation any financial statements or
schedules included therein, at the time filed contained any untrue
statement of a material fact or omitted to state a material fact required
to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading.
(b) The consolidated statements of financial position and the related
consolidated statements of income, stockholders' equity and cash flows
(including the related notes thereto) of Digi included in the Digi SEC
Reports (the "DIGI FINANCIAL STATEMENTS") complied as to form in all
material respects with applicable accounting requirements and the
published rules and regulations of the SEC with respect thereto, are in
accordance with the books and records of Digi, have been prepared in
accordance with US GAAP applied on a basis consistent with prior periods
(except as otherwise noted therein), and present fairly the consolidated
financial position of Digi and its consolidated subsidiaries as of their
respective dates, and the consolidated results of their operations and
their cash flows for the periods presented therein (subject, in the case
of the unaudited interim financial statements, to normal year-end
adjustments).
(c) The authorized capital stock of Digi is as set forth in the Digi
Financial Statements.
(d) Since October 1, 1997 there has been no change in accounting
policy for Digi.
(e) At May 31, 1998 there were outstanding options to purchase an
aggregate of 2,319,637 Digi Common Shares under Digi's stock option
plans.
6.6 STOCK OPTION PLAN REGISTRATION. Digi has filed and caused to
become effective registration statements on Form S-8 promulgated by the SEC,
covering Digi Common Shares issued pursuant to the Digi International Inc.
Stock Option Plan and the Digi International Inc. Non-Officer Stock Option
Plan.
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6.7 ABSENCE OF CERTAIN CHANGES OR EVENTS. Except as disclosed in the
Digi SEC Reports or the DIGI DISCLOSURE SCHEDULE or as contemplated by the Digi
Financial Statements and except for the transactions contemplated hereby, since
March 31, 1998, the business of Digi has been carried on only in the ordinary
and usual course, and there has been no Material Adverse Change with regard to
Digi since March 31, 1998.
6.8 BROKERS. No broker, finder or investment banker other than Bear,
▇▇▇▇▇▇▇ & Co. Inc. is entitled to any brokerage, finder's or other fee or
commission in connection with the transaction's contemplated by this Agreement
based upon arrangements made by or on behalf of Digi or any Digi Subsidiary.
6.9 FINANCING. Digi presently has sufficient cash and cash
equivalents and available lines of credit to pay the Cash Consideration.
6.10 ABSENCE OF LITIGATION. Except as set forth in the Digi SEC
Reports or the DIGI DISCLOSURE SCHEDULE, there is no claim, action, proceeding
or investigation pending or, to the knowledge of Digi, threatened against Digi
or any Digi Subsidiary, or any property or asset of Digi or any Digi Subsidiary,
before any court, arbitrator or administrative, governmental or regulatory
authority or body, domestic or foreign, which (i) individually or in the
aggregate, is reasonably likely to have a Material Adverse Effect on Digi, or
(ii) seeks to delay or prevent the consummation of any transaction contemplated
by this Agreement. As of the date hereof, neither Digi nor any Digi Subsidiary
nor any property or asset of Digi or any Digi Subsidiary is subject to any
order, writ, judgment, injunction, decree, determination or award having,
individually or in the aggregate, a Material Adverse Effect on Digi.
6.11 ELIGIBILITY TO USE FORM S-3. Digi meets the requirements for the
use of Form S-3 for registration of the sale by the ITK Stockholders of the Digi
Common Shares issued in the Merger, and Digi shall file all reports required to
be filed by Digi with the SEC in a timely manner so as to maintain such
eligibility for the use of Form S-3.
6.12 FULL DISCLOSURE. Neither Digi nor any of its officers has
knowingly withheld from ITK any material facts relating to Digi.
ARTICLE VII
CERTAIN COVENANTS
7.1 CONDUCT OF ITK'S BUSINESS PENDING THE MERGER. ITK agrees that,
from the date hereof to the Effective Time, except (i) for entering into this
Agreement and consummating the transactions expressly contemplated hereby, (ii)
to the extent that Digi shall otherwise consent in writing:
(a) ITK shall, and shall cause each ITK Subsidiary to, operate its
business substantially as presently planned or operated and only in the
ordinary, usual and
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customary manner, and, consistent with such operation, use its reasonable
efforts to preserve intact its present business organization and its
relationships with persons having business relationships with it.
(b) No amendment shall be made to the Certificate of Incorporation or
the By-Laws of ITK or any ITK Subsidiary.
(c) There shall be no changes in the number of shares, par value or
class of authorized or issued capital stock of ITK or any ITK Subsidiary,
except as a result of the exercise of presently exercisable options to
purchase ITK Shares. In addition, ITK shall not grant any option,
warrant, convertible security, or other right to acquire any shares of
capital stock of ITK or any ITK Subsidiary.
(d) There shall not be any declaration or payment of any dividend or
other distribution in respect to the capital stock of ITK.
(e) ITK shall not, and shall not permit any ITK Subsidiary to, (i)
enter into any employment contract or consulting agreement or make any
offer of employment to any person or offer to engage any person as a
consultant, or (ii) increase the wages, salary, fees or other
compensation of any person(s) presently employed or rendering any
service(s) to ITK or any ITK Subsidiary.
(f) Except in the ordinary course of business, ITK shall not, and
shall not permit any ITK Subsidiary to, enter into, materially amend or
renew, or waive or release any rights of material value under, or
materially default on, any ITK Material Contract.
(g) Without limiting the generality of the foregoing, ITK and the ITK
Subsidiaries shall ensure that ITK Telekommunikation AG shall not sell
all or any portion of their interest in w+k Video Communication GmbH &
Co. KG, a German limited partnership, without obtaining the prior written
consent of Digi, which consent shall not be unreasonably withheld;
provided, however, that any such sale shall provide for all guarantee
obligations undertaken by ITK or any ITK Subsidiary for the benefit of
third parties with regard to obligations of w+k Video Communication GmbH
& Co. KG to be (i) affirmatively terminated in writing executed by the
beneficiary or beneficiaries of the guarantee(s) or (ii) assumed by one
or more third parties whose creditworthiness shall be reasonably
acceptable to Digi.
7.2 BOOKS AND RECORDS; ACCESS AND INFORMATION. From the date of this
Agreement until the Effective Time, ITK shall give, and cause each of the ITK
Subsidiaries to give, to Digi and Digi's officers and representatives reasonable
access to its premises during normal business hours, books and records, provide
Digi with such financial and operating data and other information with respect
to its business and properties as Digi shall from time to time reasonably
request, including, without limitation, all interim financial data as soon as it
becomes available, and cooperate in the preparation of consolidated financial
statements for
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ITK for the six months ending June 30, 1998; provided, however, that any such
investigation shall be conducted in such manner as not to interfere
unreasonably with the operation of the business of ITK and the ITK
Subsidiaries.
7.3 NOTIFICATION OF CERTAIN MATTERS. Subsequent to the date of this
Agreement and on or prior to the Effective Time, ITK and Digi shall each
promptly notify the other of:
(a) the receipt of any notice of, or other communication relating to,
a default or event which, with notice or lapse of time or both, would
become a default, under any material agreement to which it is a party or
to which it or any of its respective material properties or assets may be
subject or bound;
(b) the receipt of any notice or other communication from any third
party whose consent or approval is or may be required in connection with
the transactions contemplated by this Agreement, denying such consent or
approval;
(c) the receipt of any notice or other communication from any
governmental regulatory agency or authority in connection with the
transactions contemplated hereby;
(d) any material adverse change in its consolidated business,
financial condition, operating results, assets, business prospects,
management, employee relations or customer relations, or the occurrence
of an event or development which, so far as reasonably can be foreseen at
the time of its occurrence, could result in any such change; or
(e) any condition or fact which would not permit it to satisfy a
condition to the other's obligation to effect the transactions
contemplated hereby, including the Merger.
7.4 CONFIDENTIALITY. Each of the parties hereto agrees that it shall
remain bound by the Non-Disclosure Agreement dated February 25, 1998 and the
confidentiality and no-shop letter agreement dated June 9, 1998 through the
Effective Time, at which time such agreements shall expire.
7.5 HSR ACT. Each of the parties will file any notification and
report forms and related materials that it may be required to file with the
Federal Trade Commission and the United States Department of Justice under the
HSR Act, will use its best efforts to obtain an early termination of the
applicable waiting period, and will make any further filings pursuant thereto
that may be necessary, proper, or advisable in connection therewith.
7.6. ITK AUDITED FINANCIAL STATEMENTS. ITK agrees that, as soon as
possible and, if available, on or before the Closing, ITK shall deliver the ITK
Financial Statements for the year ended December 31, 1997 including the
unqualified opinion thereon of Price Waterhouse LLP, ITK's independent auditor.
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7.7 DORTMUND LOANS AND SUBSIDIES. ITK will use its best efforts to
obtain the waivers and amendments regarding loans and subsidies for the
facilities in Dortmund, Germany as contemplated by Section 8.1(n).
7.8 NASDAQ LISTING. Digi will, at its own expense, cause the Digi
Common Shares issuable in the Merger to be listed on The Nasdaq Stock Market for
quotation on the NASDAQ National Market System prior to the Effective Time.
7.9 REASONABLE EFFORTS. Subject to the terms and conditions of this
Agreement, each party will use its reasonable efforts to satisfy as promptly as
practicable all conditions to Closing set forth in this Agreement that are
within such party's control.
ARTICLE VIII
CONDITIONS TO CLOSING
8.1 CONDITIONS TO OBLIGATION OF DIGI AND MERGER SUB TO CLOSE. The
obligation of Digi and Merger Sub to effect the closing of the transactions
contemplated by this Agreement is subject to the satisfaction prior to or at the
Closing of the following conditions:
(a) REPRESENTATIONS AND WARRANTIES. The representations and
warranties of ITK under this Agreement shall be true and correct in all
material respects as of the Closing Date with the same effect as though
made on and as of the Closing Date other than such representations and
warranties as are made as of another date, which shall be true and
correct as of such date (provided, however, that if any portion of any
representation or warranty is already qualified by materiality, for
purposes of determining whether this Section 8.1(a) has been satisfied
with respect to such portion of such representation or warranty, such
portion of such representation or warranty as so qualified must be true
and correct in all respects).
(b) OBSERVANCE AND PERFORMANCE. ITK shall have performed and complied
with all covenants and agreements required by this Agreement to be
performed and complied with by it prior to or as of the Closing Date.
(c) NO ADVERSE CHANGE. Except as otherwise disclosed or contemplated
in this Agreement (including the ITK Disclosure Schedules), there shall
have occurred no Material Adverse Change with regard to ITK since
March 31, 1998.
(d) OFFICERS' CERTIFICATE. ITK shall have delivered to Digi a
certificate, dated the Closing Date, executed by the Chief Executive
Officer and Chief Financial Officer of ITK and certifying to the
satisfaction of the conditions specified in Sections 8.1(a), (b) and (c)
hereof.
(e) CONSENTS OF THIRD PARTIES. Digi shall have received duly executed
copies of all consents and agreements necessary for ITK to effect the
transactions contemplated
-27-
hereby, other than any consent or agreement as to which the failure to
obtain such consent or agreement shall not have a Material Adverse Effect
on ITK. In addition, whether or not consent shall be required under the
terms of any agreement between ITK or any ITK Subsidiary and any customer
that accounted for more than ten percent (10%) of the consolidated net
sales of ITK and the ITK Subsidiaries for the six month period ended
June 30, 1998 (a "Significant Customer"), ITK shall have received copies
of affirmative, written confirmations from each Significant Customer,
in form mutually satisfactory to Digi and ITK, affirming the present
intention of such Significant Customer to remain a customer of ITK or
the applicable ITK Subsidiary after consummation of the Merger.
(f) LEGAL OPINION. Digi shall have received an opinion, dated the
Closing Date, from ▇▇▇▇▇, ▇▇▇▇▇▇▇ & ▇▇▇▇▇▇▇▇▇, LLP, counsel to ITK,
substantially in the form attached hereto as Exhibit B; provided,
however, that such opinion may be rendered by German counsel reasonably
acceptable to Digi, rather than ▇▇▇▇▇, ▇▇▇▇▇▇▇ & ▇▇▇▇▇▇▇▇▇, LLP, as to
matters of German law.
(g) CLOSING DOCUMENTS. Digi shall have received such further
instruments and documents as may be reasonably required for ITK to
consummate the transactions contemplated hereby.
(h) EMPLOYMENT AGREEMENTS. Each of ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇ and ▇▇▇▇▇▇▇▇
▇▇▇▇▇▇▇▇ shall have agreed with Digi that he will enter into an amended
and restated employment agreement with ITK Telekommunikation AG in a form
mutually acceptable to ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇ and ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇,
respectively, and Digi, such agreements to be formally approved after the
Effective Time by the supervisory board ("AUFSICHTSRAT") of ITK
Telekommunikation AG comprised of new members elected after the Effective
Time and to be entered into by the parties thereto promptly thereafter.
(i) AUDITOR'S RELIANCE LETTER. In the event that the audited ITK
financial statements referred to in Section 7.6 shall have been delivered
on or before the Closing, Digi shall have received a reliance letter,
reasonably acceptable in form and substance to Digi, permitting reliance
on Price Waterhouse LLP's report on such ITK financial statements and
consenting to the incorporation of such report in applicable SEC filings
of Digi, including without limitation a Current Report on Form 8-K and
all registration statements incorporating such Current Report on
Form 8-K.
(j) NO LEGAL ACTIONS. No court or governmental authority of competent
jurisdiction shall have issued an order, not subsequently vacated,
restraining, enjoining or otherwise prohibiting the consummation of the
transactions contemplated by this Agreement, and no person shall have
instituted an action or proceeding which shall not have been previously
dismissed seeking to restrain, enjoin or prohibit the
-28-
consummation of the transactions contemplated by this Agreement or
seeking damages with respect thereto.
(k) HSR ACT. The applicable waiting period under the HSR Act shall
have expired.
(l) SUPERVISORY BOARD RESIGNATIONS. Digi shall have received
resignation letters from all members of the supervisory board
("AUFSICHTSRAT") of ITK Telekommunikation AG addressed to the Vorstand of
ITK Telekommunikation AG in which they declare their resignation upon the
election of new members of the "AUFSICHSRAT" following the Effective
Time.
(m) LOCK-UP LETTERS. ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇ and ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ shall have
delivered to Digi a letter agreement, in form and substance reasonably
satisfactory to Digi, by which they shall agree not to sell or otherwise
dispose of any Digi Common Shares for a period of 180 days from and after
the Effective Time.
(n) DORTMUND LOANS AND SUBSIDIES. With respect to any loan or subsidy
agreement relating to the ITK facilities in Dortmund, Germany, pursuant
to which ITK has been, or at the time of execution of this Agreement or
at the time of Closing is, in breach or default, ITK shall have delivered
to Digi a waiver for all past non-compliance under each such agreement.
Such waiver shall be executed by the relevant lending institutions,
governmental authorities and other parties in a form reasonably
satisfactory to Digi. In addition, the relevant lending institutions,
governmental authorities and other parties shall also have entered into
an amendment to each such agreement setting forth amended terms and
conditions for the loan or subsidy which are reasonably acceptable to
Digi; provided, however, that Digi shall not be obligated to accept any
reduction in the amount of the respective loan or subsidy or adverse
change in the other economic terms of such loan or subsidy, or any
requirement or commitment to maintain more than 130 full-time employees
at the ITK facilities in Dortmund, Germany.
(o) Digi, on behalf of Merger Sub, shall have received delivery of
stock certificates representing all outstanding shares of capital stock
of ITK Telekommunikation AG.
(p) All vested options to purchase ITK Shares held by all persons who
are not employees of ITK or any of the ITK Subsidiaries at the time of
Closing shall have been exercised, including without limitation any
options that accelerate upon the occurrence of the Merger.
(q) PROCEEDINGS AND DOCUMENTS. All corporate and other proceedings
and actions taken in connection with the transactions contemplated hereby
and all certificates, opinions, agreements, instruments and documents
mentioned herein or incident to any
-29-
such transaction shall be reasonably satisfactory in form and substance
to Digi and its counsel.
8.2 CONDITIONS TO OBLIGATION OF ITK TO CLOSE. The obligation of ITK
to effect closing of the transactions contemplated by this Agreement is subject
to the satisfaction prior to or at the Closing of the following conditions:
(a) REPRESENTATIONS AND WARRANTIES. The representations and
warranties of Digi and Merger Sub under this Agreement shall be true and
correct as of the Closing Date with the same effect as though made on and
as of the Closing Date other than such representations and warranties as
are made as of another date, which shall be true and correct as of such
date (provided, however, that if any portion of any representation or
warranty is already qualified by materiality, for purposes of determining
whether this Section 8.2(a) has been satisfied with respect to such
portion of such representation or warranty, such portion of such
representation or warranty as so qualified must be true and correct in
all respects).
(b) OBSERVANCE AND PERFORMANCE. Digi and Merger Sub shall have
performed and complied with all covenants and agreements required by this
Agreement to be performed and complied with by them prior to or as of the
Closing Date.
(c) NO ADVERSE CHANGE. Except as otherwise disclosed or contemplated
in this Agreement (including the Digi Disclosure Schedule) there shall
have occurred no Material Adverse Change with regard to Digi since March
31, 1998.
(d) OFFICERS' CERTIFICATE. Digi shall have delivered to ITK a
certificate, dated the Closing Date, executed by the Chairman of the
Board or President and the Chief Financial Officer of Digi and certifying
to the satisfaction of the conditions specified in Sections 8.2(a), (b)
and (c) hereof.
(e) LEGAL OPINION. ITK shall have received an opinion, dated the
Closing Date, from Faegre & ▇▇▇▇▇▇ LLP, counsel to Digi and Merger Sub,
substantially in the form attached hereto as EXHIBIT C.
(f) CLOSING DOCUMENTS. ITK shall have received such further
instruments and documents as may be reasonably required for Digi to
consummate the transactions contemplated hereby.
(g) NO LEGAL ACTIONS. No court or governmental authority of competent
jurisdiction shall have issued an order, not subsequently vacated,
restraining, enjoining or otherwise prohibiting the consummation of the
transactions contemplated by this Agreement, and no person shall have
instituted an action or proceeding which shall not have been previously
dismissed seeking to restrain, enjoin or prohibit the
-30-
consummation of the transactions contemplated by this Agreement or
seeking damages with respect thereto.
(h) HSR ACT. The applicable waiting period under the HSR Act shall
have expired.
(i) PROCEEDINGS AND DOCUMENTS. All corporate and other proceedings
and actions taken in connection with the transactions contemplated hereby
and all certificates, opinions, agreements, instruments and documents
mentioned herein or incident to any such transaction shall be reasonably
satisfactory in form and substance to ITK and its counsel.
ARTICLE IX
REGISTRATION RIGHTS
9.1 REQUIRED REGISTRATION. Digi shall promptly, and in any event
within fifteen days after the Effective Time, prepare and file a registration
statement under the Securities Act covering the Digi Common Shares issued in
the Merger and shall use its best efforts to cause such registration
statement to become effective within 45 days after the date of filing. Digi
shall be obligated to prepare, file and cause to become effective only one
registration statement (on Form S-3 or any successor form promulgated by the
SEC ("FORM S-3")) pursuant to this Section 9.1, and to pay the expenses
associated with such registration statement. In the event that Digi shall
not be eligible to use Form S-3, Digi shall be obligated to prepare, file and
cause to become effective one registration statement on Form ▇-▇, ▇-▇ or
other applicable form or any other successor form promulgated by the SEC at
Digi's election, in which case references herein to "Form S-3" shall be
deemed to refer to such other form. In Digi's sole discretion, such
registration statement may include Digi Common Shares held by other Digi
stockholders having registration rights.
9.2 REGISTRATION PROCEDURES. Digi will:
(a) prepare and file with the SEC a registration statement with
respect to the Digi Common Shares issued in the Merger, and use its best
efforts to cause such registration statement to become and remain
effective until the earlier of one year from the Effective Time or the
date that all Digi Common Shares registered on such registration
statement have been sold; such best efforts shall include, but not be
limited to, promptly responding to all comments received from the staff
of the SEC; should Digi receive notification from the SEC that the
registration statement will receive no action or no review from the SEC,
Digi shall cause such registration statement to become effective within
seven days of such SEC notification;
(b) prepare and file with the SEC such amendments to such registration
statement and supplements to the prospectus contained therein as may be
necessary to keep such
-31-
registration statement effective for such period as may be reasonably
necessary to effect the sale of such securities, not to exceed one year
from the Effective Time;
(c) furnish without charge to the security holders participating in
such registration and to the underwriters of the securities being
registered such reasonable number of copies of the registration
statement, preliminary prospectus, final prospectus and such other
documents as such security holders or underwriters may reasonably request
in order to facilitate the public offering of such securities; and Digi
hereby consents to the use of such preliminary prospectus and final
prospectus and each amendment or supplement thereto by each of the
selling security holders and the underwriters, if any, in connection with
the offering and sale of the securities covered by such preliminary
prospectus and final prospectus and any amendment or supplement thereto;
(d) furnish to each security holder participating in such registration
and their counsel, and each managing underwriter or underwriters, if any,
without charge, at least one conformed copy of each registration
statement and each amendment thereto, including financial statements and
schedules, all documents incorporated or deemed to be incorporated
therein by reference, and all exhibits (other than exhibits to documents
incorporated by reference into such registration statement) to the extent
requested by such person (including those previously furnished or
incorporated by reference) as soon as practicable after the filing of
such documents with the SEC;
(e) prior to the effectiveness of the registration statement and
thereafter, use its best efforts to register or qualify the securities
covered by such registration statement under such state securities or
blue sky laws of such jurisdictions as such participating holders may
reasonably request in writing, use all commercially reasonable efforts to
keep each such registration or qualification (or exemption therefrom)
effective during the period such registration statement is required to be
kept effective and do any and all other acts or things in the opinion of
Digi necessary or advisable to enable the disposition in such
jurisdictions of the securities covered by such registration statement,
except that Digi shall not for any purpose be required to execute a
general consent to service of process or to qualify to do business as a
foreign corporation in any jurisdiction wherein it is not so qualified;
(f) notify the security holders participating in such registration,
promptly after it shall receive notice thereof, of the time when such
registration statement has become effective or a supplement to any
prospectus forming a part of such registration statement has been filed;
(g) in the event of any underwritten public offering, enter into and
perform its obligations under an underwriting agreement, in usual and
customary form, with the managing underwriter of such offering;
-32-
(h) notify such holders promptly of any request by the SEC for the
amending or supplementing of such registration statement or prospectus or
for additional information;
(i) prepare and file with the SEC, promptly upon the request of any
such holders, any amendments or supplements to such registration
statement or prospectus which, in the opinion of counsel for such holders
(and concurred in by counsel for Digi), is required under the Securities
Act in connection with the distribution of the Digi Common Shares by such
holder;
(j) prepare and promptly file with the SEC and promptly notify such
holders of the filing of such amendment or supplement to such
registration statement or prospectus as may be necessary to correct any
statements or omissions if, at the time when a prospectus relating to
such securities is required to be delivered under the Securities Act, any
event shall have occurred as the result of which any such prospectus or
any other prospectus as then in effect would include an untrue statement
of a material fact or omit to state any material fact necessary to make
the statements therein, in the light of the circumstances in which they
were made, not misleading;
(k) use its best efforts to avoid the issuance of, or, if issued,
obtain the withdrawal of any order suspending the effectiveness of a
registration statement, or the lifting of any suspension of the
qualification (or exemption from qualification) of any of the Digi Common
Shares for sale in any jurisdiction, at the earliest practicable moment;
and advise such holders, promptly after it shall receive notice or obtain
knowledge thereof, of the issuance of any stop order by the SEC
suspending the effectiveness of such registration statement or the
initiation or threatening of any proceeding for that purpose and promptly
use its best efforts to prevent the issuance of any stop order or to
obtain its withdrawal if such stop order should be issued;
(l) not file any amendment or supplement to such registration
statement or prospectus to which a majority in interest of such holders
shall have reasonably objected on the grounds that such amendment or
supplement does not comply in all material respects with the requirements
of the Securities Act, after having been furnished with a copy thereof at
least five business days prior to the filing thereof, unless in the
opinion of counsel for Digi the filing of such amendment or supplement is
reasonably necessary to protect Digi from any liabilities under any
applicable federal or state law and such filing will not violate
applicable law;
(m) at the request of any such holder, furnish: (i) an opinion, dated
as of the date of closing, of the counsel representing Digi for the
purposes of such registration, addressed to the underwriters, if any, and
to the holder or holders making such request, covering such matters as
such underwriters and holder or holders may reasonably request; and (ii)
letters dated as of the effective date of the registration statement and
as of the date of closing, from the independent certified public
-33-
accountants of Digi, addressed to the underwriters, if any, and to the
holder or holders making such request, covering such matters as such
underwriters and holder or holders may reasonably request;
(n) provide a transfer agent and registrar for all Digi Common Shares
registered hereunder and a CUSIP number for all such Digi Common Shares,
in each case not later than the effective date of such registration;
(o) use all commercially reasonable efforts to cause all securities
covered by the registration statement to be listed on each securities
exchange or quoted on any inter-dealer quotation system, if any, on which
similar securities issued by Digi are then listed or quoted; and
(p) comply with all applicable rules and regulations of the SEC and
make generally available to its securityholders earning statements
satisfying the provisions of Section 11(a) of the Securities Act and Rule
158 thereunder (or any similar rule promulgated under the Securities
Act), as soon as reasonably practicable after the end of any 12-month
period commencing on the first day of the first fiscal quarter of Digi
after the effective date of the registration statement, which earnings
statement shall cover said 12-month period, or shorter periods as is
consistent with the requirements of Rule 158.
9.3 EXPENSES. With respect to such registration, Digi shall bear all
fees, costs and expenses, including without limitation: all registration, filing
and NASD fees, printing expenses, fees and disbursements of counsel and
accountants for Digi, all internal Digi expenses, and all legal fees and
disbursements and other expenses of complying with state securities or blue sky
laws of any jurisdictions in which the securities to be offered are to be
registered or qualified, but excluding fees and disbursements of counsel and
accountants for the selling security holders or the underwriters (except in
respect of state securities or blue sky laws), underwriting discounts and
commissions and transfer taxes and any other related selling expenses incurred
by the selling security holders.
9.4 INDEMNIFICATION. With respect to such registration:
(a) Digi will indemnify and hold harmless each holder of Digi Common
Shares which are included in a registration statement pursuant to the
provisions of this Article IX, its directors and officers, and any
underwriter (as defined in the Securities Act) for such holder and each
person, if any, who controls such holder or such underwriter within the
meaning of the Securities Act, from and against, and will reimburse such
holder and each such underwriter and controlling person with respect to,
any and all loss, claim, damage, liability, cost (including without
limitation the reasonable cost of investigation of any claim) and
expense, joint or several, to which such holder or any such underwriter
or controlling person may become subject under the Securities Act or
otherwise, insofar as such losses, claims, damages, liabilities, costs or
expenses arise out of or are based on (i) any untrue statement or alleged
-34-
untrue statement of any material fact contained in such registration
statement, any prospectus contained therein or any amendment or
supplement thereto, or (ii) the omission or alleged omission to state
therein a material fact required to be stated therein or necessary to
make the statements therein, in light of the circumstances in which they
were made, not misleading, or (iii) any violation or alleged violation by
Digi of the Securities Act, the Securities Exchange Act, any state
securities law, or any rule or regulation promulgated under any of the
aforementioned statutes; provided, however, that Digi will not be liable
in any such case to the extent that any such loss, damage, liability,
cost or expense arises out of or is based upon an untrue statement or
alleged untrue statement or omission or alleged omission so made in
conformity with information furnished by such holder, such underwriter or
such controlling person in writing specifically for use in the
preparation thereof.
(b) Each holder of Digi Common Shares which are included in a
registration pursuant to the provisions of this Article IX will indemnify
and hold harmless Digi, its directors and officers, any controlling
person and any underwriter from and against, and will reimburse Digi, its
directors and officers, any controlling person and any underwriter with
respect to, any and all loss, damage, liability, cost or expense to which
Digi or any controlling person and/or any underwriter may become subject
under the Securities Act or otherwise, insofar as such losses, damages,
liabilities, costs or expenses are caused by any untrue or alleged untrue
statement of any material fact contained in such registration statement,
any prospectus contained therein or any amendment or supplement thereto,
or arise out of or are based upon the omission or the alleged omission to
state therein a material fact required to be stated therein or necessary
to make the statements therein, in light of the circumstances in which
they were made, not misleading, in each case to the extent, but only to
the extent, that such untrue statement or alleged untrue statement or
omission or alleged omission was so made in reliance upon and in strict
conformity with written information furnished by such holder specifically
for use in the preparation thereof; provided, however, that in no event
shall a holder's liability under this paragraph exceed the sale proceeds
in respect of Digi Common Shares sold by such holder pursuant to the
registration statement.
(c) Promptly after receipt by an indemnified party pursuant to the
provisions of paragraph (a) or (b) of this Section 9.4 of notice of the
commencement of any action involving the subject matter of the foregoing
indemnity provisions such indemnified party will, if a claim thereof is
to be made against the indemnifying party pursuant to the provisions of
said paragraph (a) or (b), promptly notify the indemnifying party of the
commencement thereof; but the omission to so notify the indemnifying
party will not relieve it from any liability which it may have to any
indemnified party otherwise than hereunder. In case such action is
brought against any indemnified party and it notifies the indemnifying
party of the commencement thereof, the indemnifying party shall have the
right to participate in, and, to the extent that it may wish, jointly
with
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any other indemnifying party similarly notified, to assume the
defense thereof, with counsel reasonably satisfactory to such indemnified
party, provided, however, if the defendants in any action include both
the indemnified party and the indemnifying party and the indemnified
party shall have reasonably concluded that there may be legal defenses
available to it and/or other indemnified parties which are different from
or additional to those available to the indemnifying party, or if there
is a conflict of interest which would prevent counsel for the
indemnifying party from also representing the indemnified party, the
indemnified party or parties shall have the right to select separate
counsel to participate in the defense of such action on behalf of such
indemnified party or parties. After notice from the indemnifying party
to such indemnified party of its election so to assume the defense
thereof, the indemnifying party will not be liable to such indemnified
party pursuant to the provisions of said paragraph (a) or (b) for any
legal or other expense subsequently incurred by such indemnified party in
connection with the defense thereof other than reasonable costs of
investigation, unless (i) the indemnified party shall have employed
counsel in accordance with the proviso of the preceding sentence, (ii)
the indemnifying party shall not have employed counsel reasonably
satisfactory to the indemnified party to represent the indemnified party
within a reasonable time after the notice of the commencement of the
action, or (iii) the indemnifying party has authorized the employment of
counsel for the indemnified party at the expense of the indemnifying
party.
9.5. RULE 144. From the Effective Time, Digi shall timely prepare and
file all documents required to be filed with the SEC as shall be necessary to
enable the ITK stockholders to sell unregistered Digi Common Shares in
accordance with Rule 144 under the Securities Act. Upon the request of any
holder of securities, Digi shall deliver to such holder a written statement as
to whether it has complied with such requirements.
ARTICLE X
TERMINATION
10.1 TERMINATION. This Agreement may be terminated and the Merger
abandoned at any time prior to the Effective Time, notwithstanding approval of
the Merger by the stockholders of ITK:
(a) by mutual consent of the Boards of Directors of Digi and ITK;
(b) by either Digi or ITK if (i) any of the conditions to their
respective obligations specified in Article VIII hereof have not been
satisfied or waived prior to July 31, 1998 (or, if later, the third
business day following expiration of the applicable waiting period under
the HSR Act), or (ii) the Merger shall not have been consummated on or
before July 31, 1998 (or, if later, the third business day following
expiration of the applicable waiting period under the HSR Act); provided,
however, that the right to
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terminate this Agreement pursuant to this Section 10.1 shall not be
available to any party whose failure to fulfill any obligation under
this Agreement shall have been the cause of, or resulted in, the failure
to satisfy any of the conditions specified in Article VIII that are
required to have been satisfied prior to the Merger or the failure to
consummate the Merger.
10.2 EFFECT OF TERMINATION. In the event of the termination of this
Agreement by either Digi or ITK, as provided above, this Agreement shall
thereafter become void and there shall be no liability on the part of any party
hereto or their respective directors, officers, stockholders or agents, except
as provided in Sections 7.4 and 11.2 hereof and except that any such termination
shall be without prejudice to the rights of any party hereto arising out of the
willful breach by any other party of any covenant or agreement contained in this
Agreement.
ARTICLE XI
MISCELLANEOUS
11.1 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. The representations
and warranties of Digi and ITK in this Agreement shall terminate immediately
upon the Effective Time.
11.2 EXPENSES. Whether or not the Merger is consummated, all costs and
expenses (including without limitation the fees and expenses of investment
bankers, attorneys and accountants) incurred in connection with this Agreement
and the transactions contemplated hereby shall be born by the party incurring
such costs and expenses, except as otherwise provided in Section 9.3; provided,
that the parties hereby agree that the reasonable fees and expenses of ▇▇▇▇▇,
▇▇▇▇▇▇▇ & ▇▇▇▇▇▇▇▇▇, LLP incurred in connection with this Agreement and the
transactions contemplated hereby, if not paid by ITK, shall be paid by Digi on
the Closing Date.
11.3 NOTICES. All notices, requests, claims, demands, and other
communications hereunder shall be in writing and shall be given (and shall be
deemed to have been duly given upon receipt) by delivery in person, by cable,
telecopy, telegram or telex or by registered or certified mail (postage prepaid,
return receipt requested) or by overnight delivery by a nationally recognized
courier service to the respective parties at the following addresses (or at such
other address for a party as shall be specified in a notice given in accordance
with this Section 11.3):
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(a) If to Digi or Merger Sub to:
Digi International Inc.
▇▇▇▇▇ ▇▇▇▇ ▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
▇▇▇▇▇▇ ▇▇▇▇▇▇ of America
Attention: ▇▇▇▇▇ ▇. ▇▇▇▇
Telecopy: (▇▇▇) ▇▇▇-▇▇▇▇
with a copy to:
Digi International Inc.
▇▇▇▇▇ ▇▇▇▇ ▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
▇▇▇▇▇▇ ▇▇▇▇▇▇ of America
Attention: ▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
Telecopy: (▇▇▇) ▇▇▇-▇▇▇▇
and to:
Faegre & ▇▇▇▇▇▇ LLP
▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇ ▇▇▇▇▇▇ of America
Attention: ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇
Telecopy: (▇▇▇) ▇▇▇-▇▇▇▇
(b) If to ITK, to:
ITK International, Inc.
c/o ITK Telecommunication ▇▇
▇▇▇▇▇▇-▇▇▇-▇▇▇▇▇▇▇▇▇▇-▇▇▇. ▇▇
▇-▇▇▇▇▇ ▇▇▇▇▇▇▇▇
▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ of Germany
Attention: ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇
Telecopy: 011-49-231-97-47-100
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with a copy to:
▇▇▇▇▇, ▇▇▇▇▇▇▇ & ▇▇▇▇▇▇▇▇▇, LLP
High Street Tower
▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇ ▇▇▇▇▇▇ of America
Attention: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇
Telecopy: (▇▇▇) ▇▇▇-▇▇▇▇
All notices and other communications shall be conclusively deemed to be received
and shall be effective, (a) if sent by hand delivery, upon receipt, (b) if sent
by registered or certified mail, on the tenth day after the day on which such
notice is mailed, (c) if sent for overnight delivery by a nationally recognized
courier service (such as Federal Express), on the third business day after the
day on which notice is sent, or (d) if sent by telecopy, on the first business
day following the successful transmission of such notice or communication to the
telecopier of the intended recipient (the number of which has been set forth
herein).
11.4 AMENDMENTS. This Agreement may be amended by all the parties
hereto by action taken by their respective Boards of Directors, without any
further approval of the stockholders of ITK, except as otherwise required by
law; provided, however, that no such amendment shall (i) materially adversely
affect the interests of, or (ii) amend the consideration payable to, the
stockholders of ITK without the further approval of the stockholders of ITK.
This Agreement may not be amended, modified or supplemented except by written
agreement of the parties hereto.
11.5 WAIVER. At any time prior to the Effective Time, Digi or ITK may
(i) extend the time for the performance of any of the obligations or other acts
of the other party hereto, (ii) waive any inaccuracies in the representations
and warranties of the other party contained herein or in any document delivered
pursuant hereto and (iii) waive compliance with any of the obligations of the
other party or any of the conditions to its own obligations contained herein to
the extent permitted by law. Any agreement on the part of Digi and ITK to any
such extension or waiver shall be valid only if set forth in an instrument in
writing signed by the parties to be bound thereby.
11.6 CERTAIN DEFINITIONS. For purpose of this Agreement, the term:
(a) "AFFILIATE" of a specified person means a person who directly or
indirectly through one or more intermediaries controls, is controlled by,
or is under common control with, such specified person;
(b) "BENEFIT ARRANGEMENT" means, with respect to any person, each
employment, severance or other similar contract, arrangement or policy
(written or oral) and each plan or arrangement (written or oral)
providing for severance benefits, insurance
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coverage (including any self-insured arrangements), workers'
compensation, disability benefits, supplemental unemployment benefits,
vacation benefits, retirement benefits, deferred compensation,
profit-sharing, bonuses, stock options, stock appreciation rights or
other forms of incentive compensation or post-retirement insurance,
compensation or benefits which (i) is not a U.S. Employee Plan, and
(ii) covers any employee, former employee (or beneficiary of any
employee or former employee) of such person or any subsidiary of such
person;
(c) "CONTROL" (including the terms "CONTROLLED BY" and "UNDER COMMON
CONTROL WITH") means the possession, directly or indirectly as trustee or
executor, of the power to direct or cause the direction of the management
and policies of a person, whether through ownership of voting securities,
as trustee or executor, by contract or credit arrangement or otherwise;
(d) "DIGI DISCLOSURE SCHEDULE" means the disclosure schedule of Digi
attached hereto, dated as of the date hereof, and forming a part of this
Agreement;
(e) "ERISA" means the United States Employee Retirement Income
Security Act of 1974, as amended;
(f) "ERISA AFFILIATES" of any entity means any other entity that,
together with such entity, would be treated as a single employer under
Section 414 of the Code;
(g) "FOREIGN BENEFIT PLAN" means, with respect to any such person, any
Benefit Arrangement of such person or any subsidiary of such person that
is not subject to the laws of the United States;
(h) "HSR ACT" means the United States ▇▇▇▇-▇▇▇▇▇-▇▇▇▇▇▇ Antitrust
Improvements Act of 1976, as amended;
(i) "ITK DISCLOSURE SCHEDULES" or "ITK DISCLOSURE SCHEDULE" means the
disclosure schedules, or any one of such disclosure schedules, of ITK,
attached hereto, dated as of the date hereof, and forming a part of this
Agreement;
(j) "KNOWLEDGE" means the actual knowledge of the executive officers
of the respective party and its subsidiaries;
(k) "MATERIAL ADVERSE CHANGE" and "MATERIAL ADVERSE EFFECT" mean, with
respect to any person, any change or effect that is or is reasonably
likely to be materially adverse to the business, operation, properties,
condition (financial or otherwise), assets or liabilities (including,
without limitation, contingent liabilities) or prospects of such person
and its subsidiaries (if any) taken as a whole;
(l) "MULTIEMPLOYER PLAN" means each U.S. Employee Plan that is a
multiemployer plan, as defined in Section 3(37) of ERISA;
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(m) "PERSON" means an individual, corporation, partnership, limited
partnership, syndicate, person (including, without limitation, a "person"
as defined in Section 13(d) of the Securities Exchange Act), trust,
association or entity or government, political subdivision, agency or
instrumentality of a government;
(n) "RETURNS" means all returns, declarations, reports, statements and
other documents required to be filed in respect of Taxes, and "Return"
means any one of the foregoing;
(o) "SEC" means the United States Securities and Exchange Commission.
(p) "SECURITIES ACT" means the United States Securities Act of 1933,
as amended, and the rules and regulations promulgated thereunder.
(q) "SECURITIES EXCHANGE ACT" means the United States Securities
Exchange Act of 1934, as amended, and the rules and regulations
promulgated thereunder.
(r) "SUBSIDIARY" or "SUBSIDIARIES" of any person means an Affiliate
controlled by such person, directly or indirectly, through one or more
intermediaries; and
(s) "TAXES" means all United States federal, state, local, foreign and
other net income, gross income, gross receipts, sales, use ad valorem,
transfer, franchise, profits, license, lease, service, service use,
withholding, payroll, employment, social security, excise, severance,
stamp, occupation, premium, property, windfall profits, customs duties,
value added, business enterprise, capital or other taxes, fees,
assessments or other charges of any kind whatsoever, together with any
interest and any penalties, additions to tax or additional amounts with
respect thereto.
(t) "U.S. EMPLOYEE PLAN" means, with respect to any person, each
"employee benefit plan," as such term is defined in Section 3(3) of
ERISA, that (i) is subject to any provision of ERISA and (ii) is
maintained or contributed to by such person, any subsidiary of such
person or any of their ERISA Affiliates;
11.7 PUBLICITY. No party other than Digi shall make any public
announcement or issue any press release concerning the transactions contemplated
by this Agreement, and any public announcement or press release by Digi shall
require the prior approval of ITK both as to the making of such announcement or
release and as to the form and content thereof, except to the extent that Digi
is advised by counsel, in good faith, that such announcement or release is
required as a matter of law or under the rules of The Nasdaq Stock Market and
full opportunity for prior consultation is afforded to ITK to the extent
practicable.
11.8 HEADINGS. The headings contained in this Agreement are for
reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
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11.9 NONASSIGNABILITY. This Agreement shall not be assigned by
operation of law or otherwise.
11.10 PARTIES IN INTEREST. This Agreement shall be binding upon and
inure solely to the benefit of the parties hereto, and nothing in this
Agreement, expressed or implied, is intended to confer upon any other person any
rights or remedies of any nature under or by reason of this Agreement (which is
intended to be for the benefit of the persons covered thereby and may be
enforced by such persons); provided, however, that subject to and upon
consummation of the Merger, the provisions of Article IX shall benefit and may
be enforced by former stockholders of ITK and their heirs, representatives,
successors and permitted assigns.
11.11 COUNTERPARTS. This Agreement may be executed in one or more
counterparts each of which shall be deemed to constitute an original and shall
become effective when one or more counterparts have been signed by each of the
parties hereto.
11.12 GOVERNING LAW. This Agreement shall be governed by and construed
and enforced in accordance with the laws of the State of Delaware, United States
of America without regard to its conflicts of law rules. All actions and
proceedings arising out of or relating to this Agreement shall be heard and
determined in any state or federal court sitting in the City of Wilmington,
State of Delaware, United States of America.
11.13 SEVERABILITY. If any term or other provision of this Agreement is
invalid, illegal or incapable of being enforced by any rule of law, or public
policy, all other conditions and provisions of this Agreement shall nevertheless
remain in full force and effect so long as the economic or legal substance of
the Merger is not affected in any manner materially adverse to any party. Upon
such determination that any term or other provision is invalid, illegal or
incapable of being enforced, the parties hereto shall negotiate in good faith to
modify this Agreement so as to effect the original intent of the parties as
closely as possible in a mutually acceptable manner in order that the
transactions contemplated hereby be consummated as originally contemplated to
the fullest extent possible.
11.14 REMEDIES. Nothing contained herein is intended to or shall be
construed so as to limit the remedies which either party may have against the
other in the event of a breach of any representation, warranty, covenant or
agreement made under or pursuant to this Agreement, it being intended that any
remedies shall be cumulative and not exclusive.
11.15 ENTIRE AGREEMENT. This Agreement constitutes the entire agreement
among the parties hereto and, other than the Non-Disclosure Agreement dated
February 25, 1998, confidentiality and no-shop letter agreement dated June 9,
1998, the Loan Facility Letter Agreement dated June 12, 1998, the Collateral
Pledge Agreement dated June 12, 1998, and the Demand Note in the principal
amount of $5,000,000 dated June 12, 1998, which shall continue until the
Effective Time, supersedes all prior agreements and understandings oral or
written, among the parties hereto with respect to the subject matter hereof and
thereof.
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IN WITNESS WHEREOF, this Agreement has been duly executed and delivered
by the duly authorized officers of Digi, Merger Sub and ITK on the date first
above written.
DIGI INTERNATIONAL INC. ITK INTERNATIONAL, INC.
By: /s/ ▇▇▇▇▇ ▇. ▇▇▇▇ By: /s/ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇
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▇▇▇▇▇ ▇. ▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇
President and Chief Executive Officer President
By: /s/ ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇
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▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇
Chairman
IROQUOIS ACQUISITION INC.
By: /s/ ▇▇▇▇▇ ▇. ▇▇▇▇
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▇▇▇▇▇ ▇. ▇▇▇▇
President and Chief Executive Officer
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