EXHIBIT 2.1
TRANSITION NETWORKS, INC.
STOCK PURCHASE AGREEMENT
BETWEEN
ENSTAR INC.
AND
AMERICABLE, INC.
AND
COMMUNICATIONS SYSTEMS, INC.
DATED: DECEMBER 10, 1998
TABLE OF CONTENTS
Page
ARTICLE I
Purchase and Sale of Stock 1
1.1 Purchase and Sale of Stock 1
1.2 Purchase Price 1
1.3 Working Capital Confirmation 1
1.4 Section 338(h)(10) Election 2
ARTICLE II
Settlement of Intercompany Accounts 3
2.1 Settlement of Intercompany Accounts Payable 3
2.2 Settlement of Intercompany Accounts Receivable 3
2.3 Dividend of Cash 3
ARTICLE III
The Closing 4
3.1 Time and Place of Closing 4
3.2 Conditions to Obligations of Buyer to Close 4
3.3 Conditions to Obligations of Seller to Close 5
3.4 Seller's Deliveries at Closing 5
3.5 Buyer's Deliveries at Closing 6
ARTICLE IV
Representations and Warranties of Seller 6
4.1 Existence and Authority of Seller 6
4.2 Capital Stock of Transition 7
4.3 Organization, Authority, and Qualification of Transition 7
4.4 Subsidiaries 7
ARTICLE V
Additional Representations and Warranties of Seller 7
5.1 Consents and Approvals; No Violation 7
5.2 Financial 8
5.3 Taxes 9
5.4 Title and Related Matters 10
5.5 Patents, Trademarks, and Other Intellectual Property 10
5.6 Litigation 10
5.7 Labor Matters 11
5.8 Environmental Matters 12
5.9 Liabilities 12
5.10 Planned Public Improvements and Special Assessments 12
5.11 Leased Personal Property 13
5.12 Government License and Regulation 13
5.13 Compliance with Law 13
5.14 Insurance 13
5.15 Transactions with Certain Persons 13
5.16 Bank Accounts 13
5.17 Full Disclosure 13
5.18 Equipment and Other Tangible Property 14
5.19 Inventories 14
5.20 Suppliers, Customers and Other Parties 14
ARTICLE VI
Representations and Warranties of Buyer 14
6.1 Existence and Authority of Buyer 14
6.2 Consents and Approvals; No Violation 14
6.3 Litigation 15
6.4 Acquisition of Stock for Investment 15
6.5 Full Disclosure 15
ARTICLE VII
Additional Covenants and Agreements of the Parties 15
7.1 Operation of Business Pending Closing 15
7.2 Access to Information 17
7.3 Reasonable Efforts 18
7.4 Tax Returns 18
7.5 Stock Option Cancellation 18
7.6 Employee Benefit Plans 19
7.7 Net Worth of Parent; Contingent Escrow Agreement 19
ARTICLE VIII
Indemnification 20
8.1 Indemnification by Seller and by Parent 20
8.2 Procedure 20
8.3 Limitations 21
8.4 Indemnification by Buyer 21
8.5 Procedure 22
ARTICLE IX
Termination and Abandonment 22
9.1 Termination 22
9.2 Effect of Termination 22
ARTICLE X
Miscellaneous 23
10.1 Expenses 23
10.2 Brokers 23
10.3 Further Assurances 23
10.4 Entire Agreement and Modifications 23
10.5 Binding Agreement; Assignment 23
10.6 Counterparts 23
10.7 Notices 23
10.8 Governing Law 25
10.9 Public Announcements 25
10.10 Certain Definitions 25
10.11 Arbitration 25
10.12 No Waiver 26
10.13 Survival 26
LIST OF EXHIBITS
Exhibit A Opinion from Counsel to Seller
Exhibit B Opinion from Counsel to Buyer
Exhibit C Employee Stock Option Letter
Exhibit D Contingent Escrow Agreement
SCHEDULES
Working Capital Schedule
Schedule 2.1 Intercompany Accounts Payable
Schedule 2.2 Intercompany Accounts Receivable
Disclosure Schedule
Schedule 7.5 Options Schedule
Schedule 7.6 Employee Benefit Plans - December 31, 1998
Schedule 10.10 Knowledge Definition
STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT is entered into this 10th day of December
1998, by and among Americable, Inc., a Minnesota corporation ("Seller"),
ENStar Inc., a Minnesota corporation ("Parent"), and Communications Systems,
Inc., a Minnesota corporation ("Buyer").
W I T N E S S E T H:
WHEREAS, Parent is the owner of all of the issued and outstanding stock
of Seller; and
WHEREAS, Seller is the owner of all of the issued and outstanding stock
of Transition Networks, Inc., a Minnesota corporation ("Transition"); and
WHEREAS, Buyer and Seller have reached an agreement pursuant to which
Seller will sell to Buyer and Buyer will purchase from Seller all of the
issued and outstanding stock of Transition (the "Stock") on the terms and
conditions herein set forth.
NOW, THEREFORE, the parties hereto agree as follows:
ARTICLE I
PURCHASE AND SALE OF STOCK
1.1 PURCHASE AND SALE OF STOCK
At the Closing (as defined in Section 3.1), and subject to the
terms and conditions herein set forth, Seller shall sell to Buyer, and
Buyer shall purchase from Seller, all of the Stock for the consideration
specified in section 1.2. Such purchase by Buyer and sale by Seller of
the Stock shall be effective as of December 1, 1998.
1.2 PURCHASE PRICE
The purchase price for the purchase of the Stock (the "Purchase
Price") will be Eight Million Four Hundred Eighty Two Thousand Fifty
Dollars ($8,482,050), payable by wire transfer on the Closing Date in
immediately available funds to an account specified by Seller before
Closing. The Purchase Price shall be subject to confirmation as
provided
in Section 1.3.
1.3 WORKING CAPITAL CONFIRMATION
(a) A calculation of the Working Capital (as hereinafter defined)
as of November 30, 1998 shall be prepared by Seller (the "Working
Capital Schedule") and furnished to Buyer at Closing. Seller and Buyer
agree that Buyer shall have the right to confirm the working capital of
Transition presented on the Working Capital Schedule following the
Closing pursuant to the timing and procedure set forth in this Section
1.3 (the "Post-Closing Confirmation"). The Purchase Price shall be
decreased or increased dollar-for-dollar by the amount, if any, by which
Working Capital set forth on the Working Capital Schedule is determined
to be inconsistent with Seller's calculation of Working Capital as set
forth on the Working Capital Schedule.
(b) Buyer and its independent accountants, Deloitte & Touche,
shall have the right to review and copy the books and records and
supporting work papers (including schedules, memoranda and other
documents) of Seller related to Working Capital and the Working Capital
Schedule. Buyer shall have a period of thirty (30) days (the "Objection
Period") after Closing in which to provide notice to Seller of any
objections thereto, setting forth the specific item on the Working
Capital Schedule to which each such objection relates and the specific
basis for each such objection. The Purchase Price and Working Capital
Schedule shall be deemed to be accepted by Buyer, and shall become final
and binding on the parties, except to the extent that Buyer shall have
given to Seller notice of a specific objection thereto within the
Objection Period. If Buyer shall give any such notice of objection
within the Objection Period, then Seller and Buyer shall attempt in good
faith to resolve any dispute concerning the item(s) subject to such
objection. If Seller and Buyer do not resolve any such dispute within
thirty (30) days after the end of the Objection Period, then those items
in dispute shall be submitted to a firm of independent public
accountants that have had no ongoing relationship with Seller or Buyer
for the three-year period prior to the Closing Date (as hereinafter
defined), as shall be mutually acceptable to Seller and Buyer. Such
accounting firm is herein referred to as the "Independent Accounting
Firm." The Independent Accounting Firm shall be instructed to use its
best efforts to render a decision as to all items in dispute within
thirty (30) days of submission, based solely on the terms of this
Agreement and presentations of Seller and Buyer and such other materials
as the independent accounting firm shall request, and not upon
independent review, and the parties agree to cooperate with each other
and each other's authorized representatives and with the Independent
Accounting Firm in order that all items in dispute shall be resolved as
soon as practicable. The determination of the Independent Accounting
Firm concerning any item in dispute shall be final and binding on the
parties without further right of appeal. The fees and expenses of
the Independent Accounting Firm incurred in the resolution of such
dispute shall be borne equally by Seller and Buyer. Within ten (10)
days after the Working Capital is finally determined, Buyer in the case
of an adjustment increasing the Purchase Price, or Seller, in the case
of an adjustment decreasing the Purchase Price, shall pay to the other
the required adjustment in accordance with this Section 1.3.
(c) All adjustments or payments due under Section 1.3(b) shall be
paid by wire transfer of immediately available funds.
(d) For purposes of this Section 1.3, "Working Capital" shall mean
the dollar amount of the current assets of Transition presented on the
Working Capital Schedule (excluding cash and cash equivalents) less the
dollar amount of current liabilities of Transition presented on the
Working Capital Schedule calculated consistent with past practices of
Transition.
1.4 SECTION 338(h)(10) ELECTION
Buyer and Seller shall make a timely, effective and irrevocable
joint election under Sections 338(a) and 338(h)(10) of the Internal
Revenue Code of 1986, as amended (the "Code"), to treat the purchase of
the Stock as a deemed asset sale (the "Section 338(h)(10) Elections"),
and shall file such election in accordance with applicable federal
regulations and in those states where applicable, permitted by law and
where the filing of a consolidated or combined tax return is not a
prerequisite to making the Section 338(h)(10) Elections. Promptly
following the Closing Date, Buyer and Seller shall agree on a list of
assets of Transition to which the "Aggregate Deemed Sale Price" (as
defined under applicable regulations promulgated under the Code) of the
assets shall be allocated. Such allocation shall be determined by
Buyer, but subject to Seller's approval, which shall not be unreasonably
withheld, after taking into account the applicable treasury regulations
and the fair market value of such assets. Buyer and Seller shall
complete, execute and deliver to the federal and applicable state taxing
authorities such forms and documents as may be required in order to make
the Section 338(h)(10) Elections binding and effective. Seller and
Buyer agree to act in accordance with all applicable laws and
regulations relating to the Section 338(h)(10) Elections in the
preparation and filing of any tax return. Seller will pay any Taxes (as
hereafter defined) resulting from the deemed sale of assets pursuant to
Internal Revenue Service Code Section 338(h)(10).
ARTICLE II
SETTLEMENT OF INTERCOMPANY ACCOUNTS
2.1 SETTLEMENT OF INTERCOMPANY ACCOUNTS PAYABLE
Immediately before the Closing, Seller shall make a capital
contribution to Transition by forgiving the Intercompany Accounts
Payable as detailed on Schedule 2.1 by Transition to Seller, Parent or
any of their affiliates as of the Closing Date (the "Intercompany
Accounts Payable"); provided that Intercompany Accounts Payable shall
exclude accounts payable relating to employee benefit plans.
2.2 SETTLEMENT OF INTERCOMPANY ACCOUNTS RECEIVABLE
Immediately before Closing, Seller shall cause Transition to
distribute to Seller as a dividend all of the right, title and interest
of Transition in the Intercompany Accounts Receivable as detailed on
Schedule 2.2 due from Seller or Seller's affiliates or subsidiaries as
of the Closing Date (the "Intercompany Accounts Receivable"); provided
that Intercompany Accounts Receivable shall exclude trade accounts
receivable owed by Seller or its affiliates to Transition in the
ordinary course of business.
2.3 DIVIDEND OF CASH
Immediately before Closing, Seller shall cause Transition to
distribute to Seller as a dividend the $550,049 of Transition cash and
cash equivalents at November 30, 1998 (the "November 30 Cash") or Buyer
shall pay to Seller the November 30 Cash at Closing.
ARTICLE III
THE CLOSING
3.1 TIME AND PLACE OF CLOSING
The closing of the sale and purchase of the Stock contemplated
hereby (the "Closing") shall take place at the offices of ▇▇▇▇▇▇▇▇▇ &
▇▇▇▇▇▇, ▇▇▇▇ ▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇, at 10:00 a.m. local
time on a date mutually satisfactory to the parties, but in no event
later than December 11, 1998 (the "Closing Date"), or at such other time
and place as the parties may mutually agree.
3.2 CONDITIONS TO OBLIGATION OF BUYER TO CLOSE
The obligation of Buyer to consummate the purchase of the Stock as
provided herein shall be subject to fulfillment at or prior to the
Closing, or written waiver by Buyer, of each of the following
conditions:
(a) The representations and warranties of Seller contained in this
Agreement shall be true and correct on the date hereof and as of the
Closing Date as though made as of the Closing Date, except for changes
(i) contemplated by this Agreement; or (ii) approved by Buyer.
(b) Seller shall have duly performed or complied with all of the
obligations to be performed or complied with by it under the terms of
this Agreement.
(c) Seller shall have delivered to Buyer (i) a certificate
certifying to the fulfillment of the conditions set forth in paragraphs
3.2(a) and (b), and (ii) a copy of certified resolutions of its Board of
Directors authorizing the sale of the Stock pursuant to this Agreement,
both of which shall be in a form reasonably satisfactory to Buyer.
(d) Buyer shall have received an opinion from counsel to Seller,
dated as of the Closing Date, substantially in the form attached hereto
as Exhibit A. In rendering such opinion, counsel may rely to the extent
it deems appropriate upon certificates of officers of Seller and of
public officials as to factual matters and upon opinions of other
counsel delivered together with such opinion.
(e) All government consents and licenses, permits, authorizations,
approvals or, filings with and notifications to any United States,
state, local or other governmental regulatory body required to be made
or obtained or made in connection with the consummation of the
transactions contemplated by this Agreement shall have been made or
obtained.
(f) Buyer shall receive from Seller at or prior to Closing,
Seller's Closing Deliveries (as defined in section 3.4, below).
(g) The directors of Transition shall have resigned their offices
effective as of the Closing Date.
3.3 CONDITIONS TO OBLIGATION OF SELLER TO CLOSE
The obligation of Seller to consummate the sale of the Stock as
provided herein shall be subject to fulfillment at or prior to the
Closing, or written waiver by Seller, of each of the following
conditions:
(a) The representations and warranties of Buyer contained in this
Agreement shall be true and correct in all material respects on the date
hereof and as of the Closing Date as though made as of the Closing Date.
(b) Buyer shall have duly performed or complied with all of the
obligations to be performed or complied with by it under the terms of
this Agreement at or prior to the Closing.
(c) Buyer shall have delivered to Seller (i) a certificate
certifying to the fulfillment of the conditions set forth in paragraphs
3.3(a) and (b), and (ii) a copy of certified resolutions of its Board of
Directors authorizing the purchase of the Stock pursuant to this
Agreement, both of which shall be in a form reasonably satisfactory to
Seller.
(d) Seller shall have received an opinion from counsel to Buyer,
dated as of the Closing Date, substantially in the form attached hereto
as Exhibit B. In rendering such opinion, counsel may rely to the extent
it deems appropriate upon certificates of officers of Buyer and of
public officials as to factual matters and upon opinions of other
counsel delivered together with such opinion.
(e) All government consents and licenses, permits, authorizations,
approvals or, filings with and notifications to any United States,
state, local or other governmental regulatory body required to be made
or obtained or made in connection with the consummation of the
transactions contemplated by this Agreement shall have been made or
obtained.
(f) Seller shall have received from Buyer at or prior to Closing,
Buyer's Closing Deliveries (as defined in section 3.5 below).
3.4 SELLER'S DELIVERIES AT CLOSING
At the Closing, Seller shall deliver or cause to be delivered to
Buyer (collectively, "Seller's Closing Deliveries"):
(a) The certificates representing the Stock duly endorsed by Seller
for transfer to Buyer;
(b) The opinions, certificates and other documents required to be
delivered under section 3.2, above;
(c) The minute book and stock book of Transition;
(d) Consents or assignments relating to any contracts or licenses
which, but for consent, would materially and adversely affect Buyer's
ownership and operation of Transition's business after the Closing.
(e) Certificates of Good Standing for Seller and Transition issued
by the Secretary of State of Minnesota dated within ten days of the
Closing Date; and
(f) An update to the Disclosure Schedule, if any.
3.5 BUYER'S DELIVERIES AT CLOSING
At Closing, Buyer shall pay, deliver or cause to be delivered to
Seller (collectively, "Buyer's Closing Deliveries"):
(a) The Purchase Price pursuant to section 1.2, above;
(b) A Certificate of Good Standing for Buyer issued by the
Secretary of State of Minnesota dated within ten days of the Closing
Date;
(c) The opinions, certificates, and other documents required to be
delivered under section 3.3 above; and
(d) Payments to employees for vested portion of their respective
stock options pursuant to Section 7.5.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF SELLER
Seller and Parent hereby jointly and severally represent and warrant to
Buyer that the following statements are true and correct as of the date of
this Agreement, except as set forth in the Disclosure Schedule attached
hereto, as the same may be updated at or prior to the Closing (the
"Disclosure Schedule"). The Disclosure Schedule is incorporated into this
Agreement by reference, and is made an integral part hereof. Disclosure of
any information in any one section or schedule of the Disclosure Schedule
shall be deemed to be disclosure in any other section or schedule thereof.
4.1 EXISTENCE AND AUTHORITY OF SELLER
(a) Seller is a corporation validly existing and in good standing
under the laws of the State of Minnesota and has full corporate power
and corporate authority to enter into this Agreement and to perform its
obligations hereunder. The execution, delivery and performance of this
Agreement by Seller have been duly authorized by all necessary corporate
proceedings on the part of Seller and Parent, and this Agreement
constitutes the valid and legally binding obligation of Seller and
Parent, enforceable in accordance with its terms, except to the extent
limited by bankruptcy, fraudulent conveyance, insolvency,
reorganization, moratorium or similar laws affecting creditors, rights
generally, or by general equitable principles.
(b) Seller is the record and beneficial owner of all the Stock,
free and clear of all liens, claims, encumbrances and restrictions of
every kind, and subject to no restrictions with respect to the
transferability, other than restrictions imposed by the Securities Act
of 1933 or state securities or blue sky laws, if any.
4.2 CAPITAL STOCK OF TRANSITION
The authorized capital stock of Transition consists of 3,500,000
shares of common stock. There are 2,940,000 shares of common stock
issued and outstanding, all of which are issued to and owned, legally
and beneficially, solely by Seller. All of the outstanding shares of
such stock have been duly authorized and validly issued, and are fully
paid and nonassessable. The Disclosure Schedule contains a list of all
outstanding options, warrants, calls, convertible securities, rights to
subscribe or commitments of any character relating to the authorized and
unissued or issued and outstanding stock of Transition which give any
person any right to acquire any such stock.
4.3 ORGANIZATION, AUTHORITY, AND QUALIFICATION OF TRANSITION
Transition is a corporation duly organized, validly existing and in
good standing under the laws of the State of Minnesota. The Disclosure
Schedule contains a complete and correct copy of (i) Transition's
Articles of Incorporation and (ii) Transition's Bylaws, as currently in
effect. Transition has the corporate power and authority to carry on
the business in which it is engaged, and to own and use the properties
owned and used by it. Transition is duly qualified or licensed to do
business and is in good standing in each state where the character of
its business, property and assets require such qualification, except for
those states in which the failure to be so qualified would not
individually or in the aggregate have a material adverse effect on
Transition.
4.4 SUBSIDIARIES
Transition does not own any stock or equity interest in any
corporation, partnership, joint venture, or any other entity.
4.5 DIRECTORS AND OFFICERS
The directors and officers of Transition as of the date hereof are
identified on the Disclosure Schedule.
ARTICLE V - ADDITIONAL REPRESENTATIONS AND WARRANTIES OF SELLER
Seller and Parent hereby jointly represent and warrant that the
following statements are true and correct as of the date of this Agreement,
except as set forth in the Disclosure Schedule or as contemplated in this
Agreement. Disclosure of any information in any one section or schedule of
the Disclosure Schedule shall be deemed to be disclosure in any other section
or schedule thereof.
5.1 CONSENTS AND APPROVALS; NO VIOLATIONS
There is no authorization, consent or approval of, or notice to,
any governmental or regulatory authority required to be obtained or
given or waiting period required to expire as a condition to the lawful
consummation by Seller of the sale and purchase of the Stock pursuant to
this Agreement. Neither the execution and delivery of this Agreement,
nor the consummation of the transactions contemplated hereby, will (i)
violate any provision of, or result in the acceleration of, or entitle
any party to accelerate (whether after the filing of notice or lapse of
time or both), any obligation under, or permit any person to terminate,
modify or cancel the rights of Transition or Seller under, or result in
the creation or imposition of any lien, charge, pledge, security
interest or other encumbrance upon the assets of Transition, pursuant to
any provision of, any mortgage, lien, agreement, lease, license or other
obligation to which Transition or Seller is a party, or by which
Transition or Seller is bound, or to which any of their assets are
subject, (ii) violate any provision of the Articles of Incorporation or
Bylaws of Transition or Seller, or (iii) violate or result in a breach
of, or constitute a default under, any judgment, statute, order, decree,
rule or regulation of any court or governmental agency to which
Transition or Seller is subject. The Disclosure Schedule lists all
written or oral contracts, leases, mortgages, indentures, commitments
and other instruments to which Transition is a party or by which it is
bound which involve a total receipt, or expenditure by, or liability of
Transition in excess of $10,000 or are terminable at the option of
Transition upon no more than sixty (60) days notice without penalty to
Transition (the "Contracts"). True and complete copies of all written
Contracts required to be disclosed on the Disclosure Schedule have been
made available to Buyer, and true and complete descriptions of all oral
Contracts required to be disclosed on the Disclosure Schedule are
described on such schedule. All of the Contracts are valid and in full
force and effect. No event of default on the part of Transition or, to
the knowledge of Seller or Parent, any other party has occurred under
any of the Contracts and no event of default will occur under any such
Contract upon the sale of the Stock to Buyer.
5.2 FINANCIAL
(a) The Disclosure Schedule contains unaudited balance sheets and
income statements of Transition as of and for the year ended December
31, 1997 and the eleven-month period ended November 30, 1998
(collectively, the "Financial Statements"). The Financial Statements
have been prepared from books and records of the Seller, and fairly
present the financial position of Transition as of the respective dates
and the results of operations of Transition for the periods presented
herein. The November 30, 1998 balance sheet is hereinafter referred to
as the "Balance Sheet" and November 30, 1998 as the "Balance Sheet
Date".
(b) Since the Balance Sheet Date, there has not been:
(1) any material adverse change in the business,operations,
or financial condition of Transition taken as a whole;
(2) any sale, lease, transfer or assignment of any material
assets, tangible or intangible, of Transition other than in the
ordinary course of business, or any damage, destruction or
loss, whether or not covered by insurance; or
(3) except as provided for in this Agreement, any declaration,
setting aside or payment of any distribution (whether in cash,
stock or property) by Transition to its shareholder;
(4) any repurchase, redemption or other acquisition by
Transition of any outstanding shares of common stock;
(5) any incurrence, assumption or guarantee by Transition of
any indebtedness for borrowed money other than in the ordinary
course of business and in amounts and on terms consistent with
past practices;
(6) any creation or assumption by Transition of any lien on any
asset other than in the ordinary course of business consistent
with past practices;
(7) any making of any loan or advance or any investment in any
entity by Transition;
(8) any change in any method of accounting or accounting
practice by Transition;
(9) except in the ordinary course of business consistent with
past practice, any (A)grant of any severance or termination pay
to any director, officer or employee of Transition, (B)
execution of any employment, deferred compensation or other
similar agreement (or any amendment to any such existing
agreement) with any director, officer or employee of
Transition, (C) increase in benefits payable under existing
severance or termination pay policies or employment agreements,
or (D) increase in compensation, bonus or other benefits
payable to directors, officers or employees of Transition.
(10) any entry into any agreement, action, commitment or
transaction (including any capital expenditure or capital
financing) by Transition which is material to Transition taken
as a whole, except agreements, actions, commitments or
transactions entered in the ordinary course of business or as
contemplated herein.
(c) The accounts and notes receivable reflected in the Financial
Statements are good and collectible in the ordinary course of business
at the aggregate recorded amount thereof, net of any applicable reserves
for doubtful accounts reflected in the Financial Statements and such
reserves have been calculated consistent with past practices.
5.3 TAXES
All reports and returns ("Tax Returns") required to be filed prior
to the date hereof with respect to Transition relating to all taxes,
fees or other charges imposed by any federal, state or local
jurisdiction ("Taxes") have been filed (including extensions). All
Taxes which are due from Transition with respect to periods ending on or
before the Closing Date for which a statute of limitations has not
barred the assessment of deficiencies have been paid or provision
therefor has been made on the Balance Sheet. The Tax Returns accurately
indicate all Taxes due and payable with respect to the periods covered
thereby and there are no other tax liabilities, deficiencies, interest
or penalties payable or asserted with respect to such periods. There
are no actions, suits, proceedings, investigations or claims pending or,
to the knowledge of Seller or Parent, threatened against Transition with
respect to Taxes, governmental charges or assessments. There are no
pending audits by any federal, state, local or foreign taxing authority
of any payment, return or report made or filed by Transition, nor has
Seller been notified of any claimed failure to pay or report any kind of
tax which may be assessed by any such taxing authority against
Transition.
5.4 TITLE AND RELATED MATTERS
(a) Except as set forth on the Disclosure Schedule, Transition has
good title to all of its properties and assets, other than those that
are leased, including, without limitation, the properties and assets
reflected in its Balance Sheet, free and clear of all security
interests, claims, charges or other encumbrances, except (i) such
properties and assets as may have been sold in the ordinary course of
business or such encumbrances as may have been incurred in the ordinary
course of business since the Balance Sheet Date, or (ii) such
imperfections, defects of title and encumbrances which are not material
to the business, operations, or financial condition of Transition taken
as a whole. The assets of Transition are, normal wear and tear
excepted, in a condition and working order sufficient to conduct
Transition's business in the manner currently and historically conducted
by Transition.
(b) The Disclosure Schedule contains a complete and accurate list
of all the real property owned or leased by Transition (the "Real
Property"). The Real Property and all building systems, structures,
fixtures and improvements, owned, leased or used by Transition are,
normal wear and tear excepted, in a condition and working order
sufficient to conduct Transition's business in the manner currently and
historically conducted by Transition.
5.5 PATENTS, TRADEMARKS, AND OTHER INTELLECTUAL PROPERTY
The Disclosure Schedule contains a list of all patents, patent
applications, trademarks, trademark applications, trade names, service
marks and copyrights, and licenses and rights to any of the foregoing
(collectively the "Intellectual Properties") which are used or held by
Transition and material to the conduct of the business of Transition
taken as a whole. Transition is the owner or is licensed or otherwise
has the right to use the Intellectual Properties in the conduct of its
business, and the consummation of the transactions contemplated hereby
will not alter or impair any such rights. No claims have been asserted
or, to the knowledge of Seller or Parent, threatened by any person
challenging Transition's ownership or use of any of the Intellectual
Properties. None of the Intellectual Properties infringes or otherwise
violates the rights of others or, to the knowledge of Seller or Parent,
is being infringed by others. No licenses, sublicenses or agreements
pertaining to any of the Intellectual Properties have been granted by
Transition.
5.6 LITIGATION
There are no actions, suits, proceedings, or governmental
investigations against or affecting Transition before any court,
governmental or regulatory authority, domestic or foreign, which are
pending or, to the knowledge of Seller or Parent, threatened in writing
by any third party with respect to its ownership or operation of its
business or otherwise relating to the assets of Transition. In
particular, but without limiting the generality of the foregoing, except
as listed on the Disclosure Schedule, there are no applications,
complaints or proceedings pending or, to the knowledge of Seller or
Parent, threatened (i) before any federal or state agency relating to
the business or operations of Transition involving charges of illegal
discrimination under any federal or state employment laws or
regulations; or (ii) before any federal, state or local agency relating
to the business or operations of Transition involving zoning issues
under any federal, state or local zoning law, rule or regulation other
than zoning and similar applications and proceedings required in the
ordinary course of Transition's business or operations. Transition is
not subject to any judgment, stipulation, order, decree, or agreement
arising from any such action, suit, proceeding or investigation. No
action, suit, proceeding or governmental investigation is pending or, to
the knowledge of Seller or Parent, threatened in writing, which seeks to
question, delay, or prevent the consummation of the transactions
contemplated hereby.
5.7 LABOR MATTERS
(a) Except as listed in the Disclosure Schedule, neither Seller,
Transition nor any trade or business (whether or not incorporated) under
common control of Seller and/or Transition within the meaning of Section
414(b), (c), (m) or (o) of the Code ("ERISA Affiliate"), maintains or
contributes to any bonus, deferred compensation, incentive compensation,
severance, pension, profit sharing, retirement, stock purchase, stock
option, employee welfare benefit or any other fringe benefit plan,
agreement, arrangement, arrangement or practice for which Seller,
Transition or any ERISA Affiliate has any liability. The Disclosure
Schedule sets forth a true and complete list of each plan which is an
"employee benefit plan" (within the meaning of Section 3(3) of ERISA)
maintained or contributed to by Seller, Transition or any ERISA
Affiliate (each, a "Plan"). Each Plan is and has been operated in
compliance with the provisions of ERISA, the Code, all regulations, and
all other applicable governmental laws and regulations. Each other
benefit plan, arrangement or practice which is not an "employee benefit
plan" (the "Other Benefit Arrangements") is and has been operated in
compliance with its terms and all applicable governmental laws,
regulations, rulings and announcements. The Disclosure Schedule also
sets forth all written employment agreements presently in effect between
Seller or Transition and employees of Transition, and all collective
bargaining agreements between Seller or Transition and employees of
Transition.
(b) Transition has complied with all laws, rules and regulations
relating to the employment of labor, including those relating to wages,
hours, collective bargaining, occupational safety, discrimination and
the payment of social security and other payroll related taxes, and has
not received any notice alleging failure to comply with any such laws,
rules or regulations.
No controversies, disputes or proceedings are pending, or
threatened, between Transition and any employee of Transition. There is
no labor strike, dispute, slowdown, representation campaign or work
stoppage actually pending or threatened with respect to Transition
employees.
(c) Neither Seller Transition, ERISA Affiliate nor any "party in
interest" (within the meaning of Section 4975 of the Code) has engaged
in a transaction or transactions in connection with which Transition
could be subject, individually or in the aggregate, to other civil
penalties assessed pursuant to Section 502(i) of ERISA or tax
liabilities imposed by Section 4975 of the Code. No liability under
Title IV of ERISA has been incurred either directly or indirectly by
Seller, Transition or any ERISA Affiliate. There is no pending or, to
the knowledge of Seller or Parent, threatened claim against or otherwise
involving any Plan, or any fiduciary thereof, by or on behalf of any
participant or beneficiary under any Plan (other than routine claims for
benefits), nor is there any pending or, to the knowledge of Seller or
Parent, threatened claim by or on behalf of any of the Plans. Except as
set forth in the Disclosure Schedule, there are no unfunded obligations
under any Plan providing benefits after termination of employment to any
employee of Transition (other than continuation of health coverage as
required by Part 6 of Title I of ERISA).
(d) Subject to any applicable statutes, rules or regulations,
nothing in the terms and conditions of the Plans listed on the
Disclosure Schedule, or otherwise, prohibits or limits the ability of
Buyer or Transition to terminate all such Plans concurrent with the
consummation of the transactions contemplated hereby or will trigger or
result in a financial obligation on Buyer or Transition by virtue of
such termination.
(e) Transition is not a party to any collective bargaining
agreement and no such contract is being negotiated with Transition. No
representation question exists or has been raised respecting the
employees of Transition, nor are there any campaigns being conducted to
solicit cards from the employees of Transition to authorize
representation by any labor organization.
5.8 ENVIRONMENTAL MATTERS
Transition has not violated any federal, state or local law,
regulation or rule or ordinance relating to the protection of the
environment that is applicable to the facilities and operations of
Transition, nor is there any condition with respect to the environment
created by its actions or inactions which could or would result in any
such violation. There has been no illegal release, spill, leak or
discharge at, under or in the properties currently owned or operated by
Transition of any pollutant, toxic substance, hazardous waste, hazardous
material, hazardous substance, solid waste or oil, as defined in or
pursuant to the Resource Conservation Recovery Act, as amended, the
Comprehensive Environmental Response, Compensation and Liability Act, as
amended, the Federal Clean Water Act, as amended, or any other federal,
state or local environmental law, regulation, rule or ordinance (an
"Environmental Law") in violation of any such law. There are no actions
pending or, to the knowledge of Seller or Parent, threatened in writing
against Transition which assert or allege (a) Transition or its business
has violated or any of its Real Property is in violation of any
Environmental Laws or is in default with respect to any order, writ,
judgment, variance, award or decree applicable to Transition of any
governmental authority; (b) Transition is required to clean up or take
any investigation, remedial or other response action under any
Environmental Law; or (c) Transition is required to contribute to the
cost of any past, present or future cleanup or remedial or other
response action which arises under any Environmental Law.
5.9 LIABILITIES
Transition has no liabilities, absolute, direct or contingent, or
any outstanding evidence of indebtedness, except (a) as reflected or as
reserved against on the Balance Sheet or on the Disclosure Schedule; or
(b) liabilities incurred in the ordinary course of business since the
Balance Sheet Date.
5.10 PLANNED PUBLIC IMPROVEMENTS AND SPECIAL ASSESSMENTS
Transition has not received notice of any planned, contemplated or
commenced public improvements that may result in special assessments or
special charges pertaining to the Real Property or that may otherwise
affect the availability of utility service or access to the Real
Property.
5.11 LEASED PERSONAL PROPERTY
The Disclosure Schedule sets forth a list of all machinery,
equipment, vehicles and other tangible personal property used in the
operation of Transition as of the Balance Sheet Date which is covered by
a lease to which Transition is a party.
5.12 GOVERNMENT LICENSE AND REGULATION
Transition has all domestic and foreign governmental licenses and
permits reasonably necessary to conduct its business. Such licenses and
permits are in full force and effect and will remain in full force and
effect for the benefit of Buyer immediately after Closing. To the
knowledge of Seller or Parent, no proceeding is threatened regarding the
revocation or limitation of any such governmental license or permit.
5.13 COMPLIANCE WITH LAW
The operation of Transition, its business, and Transition's use of
the Real Property do not violate any applicable federal, state or local
laws or ordinances or any other rule or regulation of any international,
federal, state or local agency or body.
5.14 INSURANCE
The Disclosure Schedule lists all insurance policies owned by or
covering assets or risks of Transition through the Closing Date. All
premiums on such policies due prior to the date hereof have been paid.
Transition has not received notice that any such insurance is in
default, will be canceled or not renewed.
5.15 TRANSACTIONS WITH CERTAIN PERSONS
Transition does not owe any amount to, or have any contract with or
commitment to, any shareholder, director, officer, employee or
consultant of Transition or Seller (other than compensation for current
services not yet due and payable and reimbursement of expenses arising
in the ordinary course of business), and no such person owes any amount
to Transition. Upon the resignation of the directors of Transition as
contemplated by Section 3.2(g), Transition will have no obligation to
any such person to pay termination compensation or any other similar
payment.
5.16 BANK ACCOUNTS
The Disclosure Schedule sets forth the names and locations of all
banks and other financial institutions at which Transition maintains
accounts of any nature, the type and number of such accounts and the
authorized signatories therefor.
5.17 FULL DISCLOSURES
As of the date hereof, this Agreement, the Exhibits hereto, the
Financial Statements and the Disclosure Schedule do not contain any
material misstatements, material misleading statements or material
omissions. There is no fact which is reasonably likely to have a
material adverse effect on Transition's business, assets, financial
condition, operations or prospects which has not been set forth in this
Agreement, the Exhibits, the Financial Statements or the Disclosure
Schedule, other than general economic conditions or facts or conditions
pertaining to or affecting the markets in which Transition competes.
5.18 EQUIPMENT AND OTHER TANGIBLE PROPERTY
Equipment. All equipment, machinery, vehicles, structures,
fixtures and other tangible property included in Transition's assets, or
used by Transition pursuant to any contract or permit (the "Tangible
Company Assets") are adequate for the purposes for which such assets are
presently used or contemplated to be used, except for such Tangible
Company Assets as have been retired from service or have been
temporarily removed from service for repairs or replacement consistent
with Transition's prior practices and normal industry standards. All
Tangible Company Assets which are reasonably necessary to the business,
results of operations, prospects or financial condition of Transition
have been well maintained and are in good operating condition and
repair, except for ordinary wear and tear.
5.19 INVENTORIES
Except as set forth on the Disclosure Schedule, the inventory of
Transition consists of items of a quality and condition that is usable
and saleable in the ordinary course of business for the purposes for
which intended, net of any applicable reserves reflected in the Balance
Sheet which have been calculated consistent with past practice.
5.20 SUPPLIERS, CUSTOMERS AND OTHER PARTIES
Suppliers. None of Transition's significant suppliers and
customers has canceled, terminated, or, to the knowledge of Seller or
Parent, made any threat to an officer of Seller or Transition to cancel
or otherwise terminate its relationship with Transition or to materially
decrease its services or supplies to Transition or its usage of the
services or products of Transition and, to the knowledge of Seller or
Parent, Transition maintains good relations with all such parties.
ARTICLE VI
REPRESENTATIONS AND WARRANTIES OF BUYER
Buyer hereby represents and warrants to Seller that the following
statements are true and correct as of the date of this Agreement:
6.1 EXISTENCE AND AUTHORITY OF BUYER
Buyer is a corporation duly organized, validly existing and in good
standing under the laws of Minnesota and has full power and authority to
enter into this Agreement and any ancillary agreements and to perform
its obligations hereunder and thereunder. The execution, delivery and
performance of this Agreement and any ancillary agreements by Buyer have
been duly authorized by all necessary proceedings on the part of Buyer,
and this Agreement and any ancillary agreements constitute the valid and
legally binding obligation of Buyer, enforceable in accordance with
their terms except to the extent limited by bankruptcy, insolvency,
reorganization, moratorium or similar laws affecting creditors' rights
generally or by general equitable principles.
6.2 CONSENTS AND APPROVALS; NO VIOLATION
There is no authorization, consent or approval of, or notice to,
any governmental or regulatory authority required to be obtained or
given or waiting period required to expire as a condition to lawful
consummation by Buyer of its purchase of the Stock pursuant to this
Agreement. Neither the execution and delivery of this Agreement, nor
the consummation of the transaction contemplated hereby, will (i)
violate any provision of the Articles or Certificate of Incorporation or
Bylaws (or other charter documents) of Buyer, (ii) violate any provision
of any agreement or other obligation to which Buyer or any of its
subsidiaries or affiliates is a party or by which any of them is bound
or to which their respective assets is subject, or (iii) violate or
result in a breach of, or constitute a default under, any judgment,
statute, order, decree, rule or regulation of any court or governmental
agency to which Buyer or any of its subsidiaries or affiliates is
subject, which in each of clauses (ii) or (iii) would affect the
consummation of the sale and purchase of the Stock pursuant to
this Agreement.
6.3 LITIGATION
No action, suit, proceeding or governmental investigation is
pending or, to the knowledge of Buyer, threatened in writing by any
third party which seeks to question, delay, or prevent the consummation
of the transaction contemplated hereby.
6.4 ACQUISITION OF STOCK FOR INVESTMENT
Buyer is acquiring the Stock for investment only and not with a
view toward, or for sale in connection with, any distribution thereof,
nor with any present intention of distributing or selling the same.
Buyer acknowledges that the Stock is not registered under the Securities
Act of 1933, as amended (the "Securities Act"), or applicable state
securities laws, and that it may not be sold, transferred, offered for
sale, pledged, hypothecated or otherwise disposed of without
registration under the Securities Act, except pursuant to an exemption
from such registration available under the Securities Act and applicable
state securities laws.
6.5 FULL DISCLOSURE
Buyer has notified Seller in writing of any fact, condition or
circumstance of which Buyer has knowledge which Buyer reasonably
believes would constitute a breach or default, or any fact, condition or
circumstance of which Buyer reasonably believes would, after notice or
lapse of time or both, constitute a breach or default by Buyer under any
agreement or document contemplated hereby.
ARTICLE VII
ADDITIONAL COVENANTS AND AGREEMENTS OF THE PARTIES
7.1 OPERATION OF BUSINESS PENDING CLOSING
Seller will use its reasonable best efforts to cause Transition to
conduct its business according to its ordinary and usual course of
business and substantially in the manner heretofore conducted and will
use its reasonable best efforts to preserve in all material respects the
business organization and business relationships of Transition intact.
By way of amplification and not limitation, Transition shall not,
between the date of this Agreement and the Closing Date, directly or
indirectly do, or propose or commit to do, any of the following, except
as contemplated by this Agreement or as previously disclosed with
reasonable specificity to Buyer, or except in the ordinary course of
business and in a manner consistent with past practice and in compliance
with applicable laws, without the prior written consent of Buyer, such
consent not to be unreasonably withheld or delayed:
(a) Amend or otherwise change its Articles of Incorporation or
Bylaws;
(b) Issue, deliver, sell, pledge, dispose of or encumber, or
authorize or commit to the issuance, sale, pledge, disposition or
encumbrance of, (i) any shares of capital stock of any class, or any
options, warrants, convertible securities or other rights of any kind to
acquire any shares of capital stock, or any other ownership interest
(including, but not limited to, stock appreciation rights or phantom
stock), of Transition, or (ii) any assets of Transition except for sales
of services and products in the ordinary course of business and in a
manner consistent with past practice;
(c) Declare, set aside, make or pay any dividend or other
distribution, payable in cash, stock, property or otherwise, with
respect to any of its capital stock (except as specifically contemplated
by this Agreement);
(d) Reclassify, combine, split, subdivide or redeem, purchase or
otherwise acquire, directly or indirectly, any of its capital stock;
(e) (i) Acquire (by merger, consolidation, or acquisition of stock
or assets) any corporation, partnership or other business organization
or division thereof, (ii) incur any obligation for borrowed money, long
term or short term debt, or issue any debt securities having a maturity
of any duration, (iii) assume, guarantee, or endorse, or otherwise as an
accommodation become responsible for, the obligations of any person, or
make any loans, advances or capital contributions to, or investments in,
any other person, (iv) enter into any employment contract or agreement
or any other contract or agreement, or (v) enter into or amend any
contract, agreement, commitment or arrangement with respect to any of
the matters set forth in this section 7.1(e);
(f) Except as set forth in the Disclosure Schedule, as previously
approved by Buyer or to the extent required under existing Plans,
agreements or arrangements as in effect on the date of this Agreement,
increase the compensation or fringe benefits of any directors, officers
or employees of Transition, or grant any severance or termination pay
not currently required to be paid under existing severance plans to, or
enter into any employment, consulting or severance agreement with any
present or former director, officer or other employee of Transition
(other than an agreement entered into in exchange for a release by an
employee, of any and all claims against Transition following such
employee's termination of employment, but only if the aggregate amount
payable to any terminated employee under any such agreement are paid by
Seller without cost or expense to Buyer or Transition), or establish,
adopt, enter into or amend or terminate any collective bargaining,
bonus, profit sharing, thrift, compensation, stock option, restricted
stock, pension, retirement, deferred compensation, employment,
termination, severance or other plan, agreement, trust, fund, policy or
arrangement for the benefit of any directors, officers or employees of
Transition, or grant any stock options or stock-based compensation to
any directors, officers or employees of Transition (provided that Buyer
acknowledges that the participation of employees of Transition in any
Plans of Seller will terminate as a result of the Closing);
(g) Except as may be required as a result of a change in law or in
generally accepted accounting principles, change any of the accounting
practices or principles used by it;
(h) Except as specifically contemplated by this Agreement, make any
tax election or settle or compromise any federal, state, local or
foreign tax liability;
(i) Take any action, including, but not limited to, introducing a
new service or product, which, in the good faith judgment of Transition,
is reasonably likely to result in any claim that Transition has violated
applicable laws, rules or regulations;
(j) Adopt a plan of complete or partial liquidation, dissolution,
merger, consolidation, restructuring, recapitalization or other
reorganization of Transition;
(k) Extend or shorten the time for payment of Transition's accounts
receivable;
(1) Pay, discharge, satisfy or settle any claims, actions, suits,
liabilities or obligations (absolute, accrued, asserted or unasserted,
contingent or otherwise), other than the payment, discharge, satisfaction
or settlement (i) involving payments of not more than Twenty-Five
Thousand Dollars ($25,000.00) in the aggregate, which also involve no
form of injunctive relief, (ii) in the ordinary course of business and
consistent with past practice of liabilities reflected or reserved
against in the Financial Statements, or (iii) incurred in the ordinary
course of business and consistent with past practice; or;
(m) Take, or offer or propose to take, or agree to take in writing
or otherwise, any of the actions described in sections 7. 1(a) through
7.1(k) or any action which would make any of the representations or
warranties of Seller contained in this Agreement untrue and incorrect as
of the date when made if such action has been taken.
7.2 ACCESS TO INFORMATION
Between the date of this Agreement and the Closing Date, Seller and
Transition will (i) afford Buyer and its authorized representatives
reasonable access, during ordinary business hours, to all books,
records, offices and other facilities and properties of Transition and
permit Buyer and its authorized representatives to make such inspections
thereof as they may reasonably request, (ii) make available to Buyer,
during ordinary business hours and upon reasonable notice, all senior
management personnel of Transition or of Seller responsible for the
management of Transition for the purpose of obtaining information
regarding Transition, and (iii) furnish Buyer with such financial and
operating data and other information with respect to the financial
statements, business and properties of Transition as Buyer may from time
to time reasonably request; provided, however, that any such
investigation shall be conducted in such a manner as not to interfere
unreasonably with the operation of the business of Transition or Seller.
Any information provided to Buyer pursuant to this Agreement shall be
held by Buyer in the strictest confidence in accordance with the
Confidentiality Agreement dated July 8, 1998 between Seller and
Buyer. No investigation pursuant to this section 7.2 shall affect any
representation or warranty of Seller or Transition herein or the
conditions to the obligations of Buyer hereunder.
7.3 REASONABLE EFFORTS
Subject to the terms and conditions herein provided, Seller and
Buyer each agree to use reasonable best efforts to take, or to cause to
be taken, all actions and to do, or cause to be done, all things
necessary, proper or advisable under applicable laws and regulations, to
consummate and make effective the purchase and sale of the Stock
pursuant to this Agreement, including without limitation (i) using its
reasonable best efforts to cause the fulfillment of the conditions
listed in sections 3.2 and 3.3, above, within its control and (ii) using
its reasonable best efforts to obtain all required consents from third
parties or governmental bodies.
7.4 TAX RETURNS
Seller shall timely file all income tax returns required of
Transition for the period ending on or before the Closing Date with the
appropriate government officials and shall ensure that the amounts of
Tax shown due on such returns are paid in a timely manner. Buyer and
Seller shall cooperate
fully, and to the extent reasonably requested by the other party, in
connection with the filing of any Tax Return or any amended Tax Return,
any audit, litigation or other proceeding with respect to taxes payable
by Transition. Such cooperation shall include the retention and (upon
the other party's request) the provision of records and information
which are reasonably relevant to any such Tax Return, audit, litigation
or other proceeding and making employees available on a mutually
convenient basis to provide additional information and explanation of
any material provided hereunder, provided that the party making any such
request will reimburse the party complying with such request for any
actual, out-of-pocket costs it has incurred. Buyer and Seller agree to
retain all books and records with respect to tax matters pertinent to
Transition relating to any tax period ending on or before the Closing
Date until the later of the expiration of the statute of limitations
therefor or (if a Tax Return is audited) the closing of the relevant Tax
Return, and to abide by all record retention agreements entered into
with any taxing authority.
7.5 STOCK OPTION CONVERSION
Set forth on the Disclosure Schedule under Section 4.2 hereto is a
list of all persons (all of whom are employees of Transition) currently
holding options to purchase Transition common stock (the "Options").
All of the Options have been granted pursuant to the Transition
Networks, Inc. 1996 Stock Option Plan and pursuant to a Stock Option and
Repurchase Agreement ("Option Agreement") in a form which is in all
material respects the same as the Stock Option and Repurchase Agreement
attached hereto as part of the Disclosure Schedule under Section 4.2.
All of the Options were granted and all Option Agreements pertaining to
all such Option grants were effective on or after November 18, 1996, and
all of the Options provide for the payment of $1.25 per share to
exercise the Options in whole or in part. The parties hereto have
determined that the Fair Value attributable to Transition's common stock
for purposes of Section 3, paragraph (c) and paragraph (g) in each
Option Agreement is $2.37 per share based upon the net consideration
received by Seller. Buyer and Seller agree to take all necessary
corporate action to convert, as of the Closing Date, all Options into
the right to receive from Transition cash equal to an amount which is
the product of (1) the number of shares each Option holder has the right
to purchase as of the Closing Date pursuant to the exercise of his or
her respective Option(s) multiplied by (2) the difference of Fair Value
minus $1.25 per share. In addition to the foregoing, the following
information is provided on the Disclosure Schedule with respect to each
such employee: (i) the total number of shares which may be purchased
pursuant to currently granted stock options; (ii) the number of shares
which each such person has the right to purchase as of the date hereof
("Vested Options"); (iii) the amount each such employee would be
entitled to receive (net of exercise cost) for their respective Vested
Options based upon Fair Value (as defined above); (iv) the number of
shares as to which such stock options are not currently exercisable
("Unvested Options"); and, (v) the dollar amount which each such
employee would be entitled to receive (net of exercise cost) for their
respective Unvested Options based upon Fair Value (as defined above) if
all such employees exercised all of their respective Unvested Options.
Buyer and Seller will cooperate to obtain an agreement substantially in
the form attached hereto as Exhibit C from each person listed on the
Disclosure Schedule under Section 4.2 hereto under which each such
person shall (A) be paid in redemption of the Options that dollar amount
indicated opposite each such employee's name under the column titled
Vested Amount, which amounts shall be payable by Buyer, and (B) be given
the opportunity to receive on September 30, 1999 that amount indicated
opposite each such employee's name under the column heading Unvested
Amount if they maintain their employment with Transition following the
Closing through such date, which amount shall be paid in each case 50%
by Seller and 50% by Buyer.
7.6 EMPLOYEE BENEFIT PLANS
From the Closing Date through December 31, 1998, the employees of
Transition shall remain participants under the employee benefit plans of
Seller as described on Schedule 7.6 attached hereto. On or before April
30, 1999, Transition shall reimburse Seller for all costs incurred by
Seller in connection with the participation of the employees of
Transition under such employee benefit plans through December 31, 1998.
Transition employees shall cease to participate in the ENStar 401(k)
Retirement Savings Plan (the "ENStar 401(k) Plan") no later than
December 31, 1998. As soon as administratively convenient following the
consummation of the transactions contemplated by this Agreement and upon
the reasonable determination of Buyer and Seller and their respective
counsel that such action will not adversely affect the ENStar 401(k)
Plan or the qualified status of the Communications Systems, Inc.
Retirement Savings Plan (the "CSI 401(k) Plan"), Parent or Seller shall
transfer the assets and liabilities of that portion of the ENStar Inc.
401(k) Plan that related to the employees of Transition to the CSI
401(k) Plan.
7.7 NET WORTH OF PARENT; CONTINGENT ESCROW AGREEMENT
Parent will not take any action prior to July 15, 1999 that would
reduce the net worth of Parent on a consolidated basis determined in
accordance with generally accepted accounting principles, except as
adjusted to reflect the market value of its interest in CorVel
Corporation, below $10,000,000 ("Net Worth Floor") If Buyer has
submitted any Indemnified Claim(s) by June 30, 1999 pursuant to section
8.2(a) of this Agreement, before reducing its net worth below the Net
Worth Floor, Parent shall deposit in an escrow account at ▇▇▇▇▇▇▇▇▇ &
▇▇▇▇▇▇, PLLP, ▇▇▇▇ ▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇, pursuant to
the terms of the Contingent Escrow Agreement in the form attached hereto
as Exhibit D, 1.25 times the amount of the Indemnified Claim(s) up to a
maximum of $800,000,
net of any applicable Basket Amount, for all Indemnified Claims other
than Indemnified Claims relating to Excluded Representations (as
hereinafter defined) as to which the maximum amount is $8,000,000, net
of any applicable Basket Amount. For purposes of the Contingent Escrow
Agreement, such amount is referred to as the "Escrow Fund."
ARTICLE VIII
INDEMNIFICATION
8.1 As Buyer's sole and exclusive remedy for breach of this
Agreement, Seller and Parent, jointly and severally, agree to indemnify,
defend and hold Buyer and its directors, officers, employees, agents and
shareholders harmless from and against any damage (other than
consequential damages), liability, loss, cost or deficiency (including,
but not limited to, reasonable attorneys' fees), less any amount
recoverable by Seller or Transition under insurance or from any third
party and less the amount of any tax benefit to Buyer or Transition as a
result thereof ("Buyer's Damages") arising out of, resulting from or
relating to:
(a) any inaccuracy in or breach of a representation or warranty
of Seller pursuant to this Agreement;
(b) any failure of Seller to duly perform or observe any term,
provision, covenant or agreement to be performed or observed by Seller
pursuant to this Agreement; and
(c) any Taxes paid or payable after the Closing Date by Buyer or by
Transition, relating to periods ending prior to the Closing Date or for
which Transition is liable because it is included in the consolidated
federal income tax return of Seller, Parent or their affiliates (other
than relating to any election or action taken by Buyer or Transition at
the direction of Buyer on or following the Closing Date) in excess of
any refund of federal income taxes receivable by Buyer or Transition
that are attributable to any periods ending on or prior to the Closing
Date or because Transition is included in the consolidated federal
income tax return of Seller, Parent or its affiliates.
8.2 PROCEDURE
(a) Notice of Claims. Buyer shall give Seller prompt notice of
any claim, demand, assessment, action, suit or proceeding to which Buyer
believes the indemnity set forth in section 8.1 applies (an "Indemnified
Claim"), including those claims arising between the date of this
Agreement and the Closing as contemplated by clause (iii) of Section
3.2(a). Such notice shall provide in reasonable detail such information
as Buyer may have with respect to such Indemnified Claim (including,
without limitation, copies of any summons, complaints or other pleadings
which may have been served on Buyer or its agents and any written claim,
demand, invoice, billing or other document evidencing the same). If
such Indemnified Claim is evidenced by a court pleading, Buyer shall
give such notice within five days of receipt of such pleading. If such
Indemnified Claim is evidenced by some other writing from a third party,
Buyer shall give such notice within ten days of the date it receives
such writing.
(b) CONTROL OF DEFENSE OF CLAIMS
If Buyer's request for indemnification arises from the claim of a
third party or a claim for which indemnification is available under
paragraph 8.1(c) hereof, Seller may assume control of the defense of
such Indemnified Claim or any litigation resulting from such Indemnified
Claim by giving Buyer notice of Seller's decision to do so. If Seller
assumes control of the defense of an Indemnified Claim, Seller shall
thereafter take all reasonable steps necessary in the defense or
settlement of such Indemnified Claim, and Seller shall hold Buyer
harmless from and against all damages arising out of or resulting from
any settlement approved by Seller or any judgment in connection with
such Indemnified Claim. Notwithstanding Seller's assumption of the
defense of an Indemnified Claim, Buyer shall have the right to
participate in the defense of such Indemnified Claim at its own expense.
Seller shall not, in the defense of such Indemnified Claim, consent to
entry of any judgment or enter into any settlement which does not
provide for a full and complete release by the third party asserting
such Indemnified Claim of all of its then existing claims against Buyer
and Transition, except in either case with a written consent of Buyer,
which consent shall not be unreasonably withheld. Buyer shall furnish
Seller in reasonable detail all information Buyer may have with respect
to any such Indemnified Claim and shall make available to Seller and its
representatives all records and other similar materials which are
reasonably required in the defense of such an Indemnified Claim
and shall otherwise cooperate with and assist Seller in the defense
thereof.
8.3 LIMITATIONS
No indemnification shall be payable by Seller or Parent to Buyer
with respect to an Indemnified Claim pursuant to Paragraph 8.1(a) unless
Seller or Parent has received notice thereof by June 30, 1999 (other
than with respect to inaccuracies in or a breach of the representations
or warranties of Seller in sections 4.1, 4.2, 4.3 or 5.3 hereof (which
are herein referred to collectively as the "Excluded Representations")
as to which Seller or Parent shall receive notice thereof prior to the
expiration of the applicable statute of limitations) and unless and
until Buyer's Damages for all Indemnified Claims, other than any
Indemnified Claims made under the Excluded Representations, in the
aggregate, exceed Fifty Thousand Dollars ($50,000) (the "Basket
Amount"), and at such time that such Buyer's Damages exceed the Basket
Amount, Seller shall be liable to Buyer only for the portion of such
Buyer's Damages which exceed the Basket Amount, and in no event shall
Seller's liability with respect to all Indemnified Claims, other than
any Indemnified Claims made under the Excluded Representations
(as to which the limitations of this Section 8.3 shall not apply), in
the aggregate, exceed Eight Hundred Thousand Dollars ($800,000). In
addition, the limitations upon the indemnification obligations of Seller
and Parent described in this Section 8.3 shall not apply to intentional
or knowing inaccuracies in or breaches of the representations and
warranties set forth In Articles IV and V hereof.
8.4 INDEMNIFICATION BY BUYER
As Seller's sole and exclusive remedy for breach of this Agreement,
Buyer agrees to indemnify, defend and hold Seller, its directors,
officers, employees, agents and shareholders harmless from and against
any damage, liability, loss, cost or deficiency (including, but not
limited to, reasonable attorneys' fees) ("Seller's Damages") arising out
of, resulting from or relating to:
(a) any inaccuracy in or breach of representation or warranty of
Buyer pursuant to this Agreement; and
(b) any failure to duly perform or observe any term, provision or
covenant to be performed or observed by Buyer pursuant to this
Agreement.
8.5 PROCEDURE
The procedures for Seller's indemnification of Buyer hereunder
shall be the same as for Buyer's indemnification of Seller pursuant to
section 8.2 and the provisions of section 8.2 shall apply, mutatis
mutandis, with respect to such indemnification by Buyer.
8.6 SELLER'S BOOKS AND RECORDS.
Between the Closing Date and June 30, 1999, Seller and Parent will
make such books and records available to Buyer as are reasonably
necessary for the purpose of the confirmation by Buyer of the
representations and warranties of Seller and Parent contained in this
Agreement.
ARTICLE IX
TERMINATION AND ABANDONMENT
9.1 TERMINATION
This Agreement may be terminated prior to Closing:
(a) by mutual written consent of the parties;
(b) at any time after December 11, 1998, by either Buyer or Seller,
unless the party seeking to terminate is not in compliance with its
obligations under section 7.3, above;
(c) by Buyer if, as of the time of the Closing, all conditions
specified in Section 3.3 have been satisfied but the conditions
specified in section 3.2 to be satisfied by Seller have not been
satisfied;
(d) by Seller if, as of the time of the Closing, all conditions set
forth in Section 3.2 have been satisfied but the conditions specified in
section 3.3 to be satisfied by Buyer have not been satisfied; or
(e) by either Buyer or Seller, if there shall be any law that makes
consummation of the transactions contemplated by this Agreement illegal
or otherwise prohibited or if any decree, permanent injunction,
judgment, order or other action by a court of competent jurisdiction or
any governmental entity preventing or prohibiting consummation of the
transactions contemplated by this Agreement shall have become final and
nonappealable.
9.2 EFFECT OF TERMINATION
In the event of the termination of this Agreement pursuant to
section 9.1 hereof, this Agreement, other than with respect to Buyer's
obligations under sections 10.1 and 10.2 and Seller's obligations under
sections 10.1 and 10.2, shall thereafter become void and have no
effect, and without any liability on the part of any party or its
shareholders or directors or officers in respect thereof, except that
nothing herein will relieve any party from liability for any breach of
this Agreement.
ARTICLE X
MISCELLANEOUS
10.1 EXPENSES
The parties shall bear their own respective expenses (including,
but not limited to, all compensation and expenses of counsel, financial
advisors, consultants, actuaries and independent accountants) incurred
in connection with this Agreement and consummation of the transaction
contemplated hereby.
10.2 BROKERS
Except for ▇▇▇▇▇▇▇▇▇, Agio, ▇▇▇▇▇ & Company, whose fee will be
borne by Seller, and ▇▇▇▇ ▇▇▇▇▇▇▇▇, whose fees will be paid by Buyer,
each party represents to the other that no broker, finder, or other
person is entitled to any brokerage or finder's fee or commission in
connection with the transaction contemplated by this Agreement.
10.3 FURTHER ASSURANCES
Upon reasonable request, from time to time, each party agrees that
it shall (or direct its employees to, if applicable) execute and
deliver such further instruments and documents as may be necessary or
desirable in the reasonable opinion of Buyer to protect the right or
title of Buyer to the Stock. all without further consideration.
10.4 ENTIRE AGREEMENT AND MODIFICATION
This Agreement, including the Disclosure Schedule and the
Confidentiality Agreement constitute the entire agreement between the
parties with respect to the purchase and sale of the Stock. No change
of, modifications of, or additions to this Agreement shall be valid
unless the same shall be in writing and signed on behalf of both
parties.
10.5 BINDING AGREEMENT; ASSIGNMENT
This Agreement shall be binding upon and inure to the benefit of
the parties named herein and to their respective successors. Neither
this Agreement nor any of the rights, interests or obligations hereunder
may be assigned by either party without the prior written consent of the
other party; provided, however that the rights and obligations of Seller
hereunder may be assigned to and assumed by a Parent or a subsidiary
corporation of Seller to which Seller may transfer the Stock, but no
such assignment shall relieve Seller of any of its obligations
hereunder. Buyer may assign its rights and obligations hereunder to a
wholly-owned subsidiary in a chain of wholly-owned subsidiaries,
provided that no such assignment shall relieve Buyer of its liability
hereunder.
10.6 COUNTERPARTS
This Agreement may be executed in one or more counterparts, each of
which shall be deemed an original but all of which together shall
constitute one and the same instrument.
10.7 NOTICES
All notices and other communications hereunder shall be in writing
and shall be deemed given on the day delivered personally, by facsimile
transmission, or telexed, or on the second business day following the
day on which mailed by registered or certified mail (return receipt
requested),
postage prepaid, to the parties at the following addresses (or at such
other address for a party as shall be specified by like notice):
(a) if to Buyer, to:
Communications Systems, Inc.
▇▇▇ ▇▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇
▇.▇. ▇▇▇ ▇▇▇
▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attention: President
Telephone: (▇▇▇) ▇▇▇-▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
with a required copy to:
▇▇▇▇▇▇▇▇▇ & ▇▇▇▇▇▇ P.L.L.P.
4200 IDS Center
▇▇ ▇▇▇▇▇ ▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, Esq.
Telephone: (▇▇▇) ▇▇▇-▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
(b) if to Seller, to:
Americable, Inc.
▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇ ▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇-▇▇▇▇
Attention: ▇▇▇▇▇ ▇. ▇▇▇▇▇, President
Telephone: (▇▇▇) ▇▇▇-▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
with a required copy to:
▇▇▇▇▇▇ & Whitney LLP
Pillsbury Center South
▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇▇▇▇, Esq.
Telephone: (▇▇▇) ▇▇▇-▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
10.8 GOVERNING LAW
This Agreement shall be governed by and construed in accordance
with the internal laws of the State of Minnesota without regard to
conflicts of law provisions.
10.9 PUBLIC ANNOUNCMENTS
No publication and/or press release of any nature shall be issued
pertaining to this Agreement or the transactions contemplated hereby
without the mutual consent of Seller and Buyer, or except as may be
required by law or the rules of Nasdaq. Buyer acknowledges that Parent
may be required to file a Form 8-K or other report with the Securities
and Exchange Commission regarding the transactions contemplated in this
Agreement. In the event that either party hereto is required by
applicable law, regulation or legal process to make a public
announcement regarding the transactions contemplated hereby, such party:
(i) shall promptly notify the other party hereto so that such other
party may seek a protective order or other appropriate remedy or, in
such other party's sole discretion, waive compliance with the terms of
this section 10.9, (ii) shall not make such announcement if such other
party delivers a written opinion of counsel that such announcement is
not required under applicable law, regulation or legal process, and
(iii) in the event that no such protective order, opinion of counsel or
other remedy is obtained, shall disclose only that portion of the
information regarding the transaction contemplated hereby which it is
advised by counsel is legally required.
10.10 CERTAIN DEFINITIONS
Wherever this Agreement refers to matters within Seller's
"knowledge," known to Seller or Parent," "knowledge of Seller or Parent"
or of which Seller or Parent "know", such reference shall be defined to
mean the actual knowledge of any one or more of those persons listed in
section 10.10 of the Disclosure Schedule. Wherever this Agreement
refers to an "affiliate" of a person, such reference shall be defined to
mean any other person controlling, controlled by or under common control
with the person in question.
10.11 ARBITRATION
Any dispute arising out of or relating to this Agreement or the
breach, termination or validity thereof, shall be settled by arbitration
in accordance with the then current Center for Public Resources Rules
for Non-Administered Arbitration of Business Disputes by a sole
arbitrator. The arbitration shall be governed by the United States
Arbitration Act, 9 U.S.C. ssl -1 6, and judgment upon the award rendered
by the arbitrator may be entered by any court having jurisdiction
thereof. The arbitrator is not empowered to award damages in excess of
compensatory damages and each party hereby irrevocably waives any right
to recover such damages with respect to any dispute resolved by
arbitration. The arbitration proceedings must be commenced within one
(1) year after accrual of the cause of action giving rise to the
proceedings. The arbitration proceedings shall be held in Minneapolis,
Minnesota. The decision of the arbitrator shall be binding and
conclusive on the parties and each party agrees to comply therewith and
perform the obligations imposed thereunder. Arbitration and the
provisions of this section 10.11 shall be a condition precedent to any
legal or equitable right of action by any party hereto. The fees and
expenses of the arbitration proceedings shall be borne by the parties
hereto as follows: Buyer shall be responsible for fifty percent (50%)
of such fees and expenses and Seller shall be responsible for the
remaining fifty percent (50%) thereof; provided, however, that the party
ultimately prevailing in such arbitration proceeding shall be entitled
to be reimbursed by the other party for its share of such fees and
expenses. Each party shall pay the fees and expenses of its own counsel
and representatives.
10.12 NO WAIVER
The failure of any party at any time or times to require the
performance of any provision hereof shall in no manner affect the right
at a later time to enforce the same. The waiver by any party of any
condition, or the breach of any provision, term, covenant,
representation or warranty contained in this Agreement, whether by
conduct or otherwise, in any one or more instances shall not be deemed
to be construed as a further or continuing waiver of any such condition
or breach of any other provision, term, covenant, representation or
warranty of this Agreement.
10.13 SURVIVAL
Subject to the limitations set forth in section 8.3 hereof, the
representations, warranties and covenants made in this Agreement and in
any agreement or instrument executed and delivered in connection with
this Agreement shall survive the Closing.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the day and year first above written.
COMMUNICATIONS SYSTEMS, INC. AMERICABLE, INC.
By: By:
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Title: Title:
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ENSTAR INC.
By:
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Title:
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