EXHIBIT 2
AGREEMENT AND PLAN OF MERGER
by and among
EXCELSUS TECHNOLOGIES, INC.,
CERTAIN INDIVIDUALS and the ENTITY named as "Principals,"
PULSE ENGINEERING, INC.
and
PULSE ACQUISITION CORPORATION
Dated: May 23, 2001
AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER (hereinafter called this "Agreement"), dated
as of May 23, 2001 by and among Excelsus Technologies, Inc., a California
corporation (the "Company"), and the persons and entity who or which are
signatories hereto (collectively, the "Principals" and individually, a
"Principal"), Pulse Engineering, Inc., a Delaware corporation, ("Pulse") and
Pulse Acquisition Corporation, a Delaware corporation and a wholly-owned
subsidiary of Pulse ("Acquisition Corp.") (Pulse and Acquisition Corp. are
sometimes each referred to as an "Acquisition Company" and sometimes
collectively referred to herein as the "Acquisition Companies").
RECITALS
A. The Company is engaged in the business of developing, marketing, selling
and distributing filters, splitters and other signal transmission related
components, systems and test equipment for Digital Subscriber Line, Home
Networking, and Residential Gateway applications.
B. Each of the Principals is a shareholder of the Company and the
Principals, in the aggregate, are the holders of approximately 52% of the issued
and outstanding shares of capital stock of the Company.
C. The respective Board of Directors of Acquisition Corp., Pulse, Pulse's
ultimate parent corporation, Technitrol, Inc. ("Technitrol"), and the Company
each has determined that it is in the best interests of their respective
shareholders for Acquisition Corp. to merge with and into the Company upon the
terms and subject to the conditions set forth herein.
D. Defined terms are set forth in Article X and elsewhere throughout this
Agreement.
AGREEMENT
In consideration of the representations, warranties, covenants and
agreements contained herein, the Company, the Principals, Pulse and Acquisition
Corp., intending to be legally bound, hereby agree as follows:
ARTICLE I
THE MERGER; CLOSING; EFFECTIVE TIME; ARTICLES
OF INCORPORATION AND BYLAWS
1.1 The Merger. Subject to the terms and conditions of this Agreement, at
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the Effective Time (as defined in Section 1.3) Acquisition Corp. shall be merged
with and into the Company and the separate corporate existence of Acquisition
Corp. shall thereupon cease (the "Merger"). The Company shall be the surviving
corporation in the Merger (sometimes hereinafter referred to as the "Surviving
Corporation") and shall continue to be governed by the laws of the State of
California. The Surviving Corporation shall have the name "Excelsus
Technologies, Inc." and shall succeed, without other transfer, to all of the
rights and properties of Acquisition Corp. and shall be subject to all of the
debts and liabilities of Acquisition Corp. in
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the same manner as if the Company had itself incurred them. The corporate
existence, franchises, rights, debts, duties and obligations of the Company,
with its purposes, powers and objects, shall continue unaffected and unimpaired
by the Merger.
1.2 Closing. The closing of the Merger (the "Closing") shall take place (i)
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at the offices of ▇▇▇▇▇▇ & ▇▇▇▇▇▇▇, ▇▇▇ ▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇▇,
▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇, at 10:00 a.m., local time, on July 2, 2001, or as promptly as
practicable thereafter following the satisfaction of the conditions set forth in
Sections 7.1(b) and 7.2(a) (the "Closing Date"), or (ii) at such other place and
time and/or on such other date as the parties may agree, subject in all cases to
Articles VII and VIII.
1.3 Effective Time. Provided that this Agreement has not been terminated
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pursuant to Article VIII hereof, as soon as practicable following the Closing,
(i) a certificate of merger (the "Certificate of Merger") in substantially the
form attached as Exhibit A hereto, shall be prepared in accordance with the
DGCL, duly executed by the Company and Acquisition Corp. and thereafter
delivered by Acquisition Corp. to the Secretary of State of the State of
Delaware for filing as provided in the DGCL, and (ii) the Agreement and Plan of
Merger and an Officer's Certificate from the Company and Acquisition Corp.,
respectively, certifying that the respective corporation had the authority to
execute the Agreement and Plan of Merger, shall be delivered to the Secretary of
State of the California for filing as provided in the CCC. The Merger shall
become effective upon: (i) the filing of the Certificate of Merger (together
with any other documents required by law to effectuate the Merger) with the
Secretary of State of the State of Delaware or at such time thereafter as is
provided in the Certificate of Merger, and (ii) the filing of the Agreement and
Plan of Merger and the Officer's Certificates (together with any other documents
required by law to effectuate the Merger) with the Secretary of State of the
State of California (the "Effective Time").
1.4 Articles of Incorporation. At the Effective Time, the Articles of
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Incorporation of the Company, as in effect immediately prior to the Effective
Time shall be the Articles of Incorporation of the Surviving Corporation until
thereafter amended as provided by the CCC and such Articles of Incorporation;
provided, however, that immediately after the Effective Time the Articles of
Incorporation of the Surviving Corporation shall be amended and restated.
1.5 By-Laws. At the Effective Time, the Bylaws of Company, as in effect
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immediately prior to the Effective Time, shall be the Bylaws of the Surviving
Corporation until thereafter amended; provided, however, that immediately after
the Effective Time the Bylaws of the Surviving Corporation shall be amended and
restated.
ARTICLE II
DIRECTORS AND OFFICERS
2.1 Board of Directors of the Surviving Corporation. At the Effective Time,
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each of the members of the Board of Directors of the Company immediately prior
to the Effective Time shall submit his or her resignation and, concurrently with
such resignations, the directors of Acquisition Corp. shall become the directors
of the Surviving Corporation, each to
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serve until his or her successor has been duly elected and appointed and
qualified or until his or her earlier death, resignation or removal.
2.2 Executive Officers of the Surviving Corporation. At the Effective Time,
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each of the executive officers of the Company immediately prior to the Effective
Time shall submit his or her resignation, and, concurrently with such
resignation, the executive officers of Acquisition Corp. shall become the
executive officers of the Surviving Corporation, each to serve until his or her
successor has been duly elected and appointed and qualified or until his or her
earlier death, resignation or removal.
ARTICLE III
APPROVAL OF SHAREHOLDERS
3.1 Meeting of Holders of Capital Stock. Within thirty (30) days following
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the execution and delivery of this Agreement by all parties hereto, the Company
shall call a meeting of the holders of the shares of its issued and outstanding
Preferred Stock (the "Preferred Stock") and Common Stock (the "Common Stock")
for the purpose of authorizing the conversion of each share of Preferred Stock
into one (1) share of Common Stock, the Merger, this Agreement and the
transactions contemplated by this Agreement. The Company's Board of Directors
shall take all necessary actions under the Company's Bylaws and the CCC and
consistent with the rights and powers of the holders of the Preferred Stock and
Common Stock to convene the meeting(s) and recommend the conversion to the
holders of the Preferred Stock and the Merger, this Agreement and the
transactions contemplated hereby to the holders of the Common Stock. At the
Company's meeting of Shareholders at which the Merger and this Agreement will be
voted upon, each of the Principals agrees to vote all shares of Preferred Stock
and Common Stock held by him or her for the approval of the Merger, this
Agreement and all transactions contemplated by this Agreement. In addition, at
the Company's meeting of holders of the Preferred Stock at which the conversion
of the Preferred Stock will be voted upon, each of the Principals agrees to vote
all shares of Preferred Stock held by him or her for the conversion of each
share of Preferred Stock into one (1) share of Common Stock immediately prior to
or at the Effective Time ("Preferred Stock Conversion").
ARTICLE IV
CONVERSION AND CANCELLATION OF SHARES IN THE MERGER
4.1 Conversion and Cancellation of Shares. The manner of converting and
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canceling shares of the Company and Acquisition Corp. in the Merger shall be as
follows:
(a) At the Effective Time, the aggregate of all shares of the capital
stock of the Company (the "Shares") issued and outstanding immediately
prior to the Effective Time (other than Shares owned by the Acquisition
Companies, or Shares owned directly or indirectly by the Company as
treasury stock), all vested and unvested options for the purchase of shares
of Common Stock of the Company, including such options that terminated
unexercised prior to the Effective Time as a result of the merger ("Common
Stock Options") (subject to the provisions of Section 4.1(d)(ii)), and all
stock purchase warrants of the Company for the purchase of Shares
("Warrants") shall, by virtue of the Merger and without any action on the
part of the holders thereof, be converted into the
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right to receive the merger consideration ("Merger Consideration"), which
shall be determined as an aggregate of USD $87.5 million (the "Purchase
Price") less USD $15 million and plus the Net Worth, if any, as provided
for in Section 4.1(c). The Merger Consideration shall be allocated among
the holders of Shares, Common Stock Options and Warrants as set forth in
Section 4.1(d). Payment of the Merger Consideration shall be subject to the
escrow provisions of Section 4.4 below.
(b) Because the Funded Debt of the Company on the Closing Date will be
paid at the Closing, the Pre-Closing Balance Sheet (as defined below) will
set forth the amount of the Funded Debt of the Company on the Closing Date
as shown on the pay-off letter(s) from the Company's lender(s), for
purposes of the calculation in Section 4.1(c) of this Agreement. The
Acquisition Companies will then pay such Funded Debt at the Closing (the
"Funded Debt Payoff").
(c) The Merger Consideration shall be increased at Closing
dollar-for-dollar by the Interim Net Worth on the Closing Date. The Net
Worth shall be determined on an interim and final basis as follows:
(i) The "Interim Net Worth" shall be the Net Worth as set forth
on a consolidated balance sheet for the Company estimated as
of the Closing Date (the "Pre-Closing Balance Sheet"). The
Company shall provide to the Acquisition Companies at least
two (2) Business Days prior to the Closing Date a copy of
the Pre-Closing Balance Sheet, which, except as otherwise
provided herein, shall have been prepared in accordance with
GAAP consistent with the Company's past practices (but only
to the extent such past practices are consistent with GAAP).
The Interim Net Worth shall be used to determine the Merger
Consideration payable on the Closing Date.
(ii) As promptly as practicable but not later than sixty (60)
days after the Closing Date, the Acquisition Companies shall
cause to be prepared and delivered to the Shareholders'
Agent a consolidated balance sheet of the Company as of the
Closing Date (the "Closing Balance Sheet"), from which the
Net Worth shall be computed. The Closing Balance Sheet shall
have been audited by KPMG, LLP ("KPMG") and, except as
otherwise provided herein, prepared in accordance with GAAP
consistent with the Company's past practices (but only to
the extent such past practices are consistent with GAAP).
Upon reasonable notice, the Acquisition Companies will give
the Shareholders' Agent and his designated accountant access
to the premises of the Company, to its books and records and
to the appropriate personnel of the Company for purposes of
confirming the Closing Balance Sheet. Unless the
Shareholders' Agent notifies the Acquisition Companies in
writing that he disagrees with the Closing Balance Sheet
within fifteen (15) days after receipt thereof, the Closing
Balance Sheet shall
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be conclusive and binding on the Acquisition Companies and
the Shareholders. If the Shareholders' Agent notifies the
Acquisition Companies in writing of the Shareholders'
Agent's disagreement with the Closing Balance Sheet within
such 15-day period, then the Acquisition Companies and the
Shareholders' Agent shall attempt in good faith to resolve
their differences with respect thereto within thirty (30)
days after the Acquisition Companies' receipt of the
Shareholders' Agent's written notice of disagreement. Any
dispute regarding the Closing Balance Sheet not resolved by
the Acquisition Companies and the Shareholders' Agent within
such 30-day period will be resolved by ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ LLP
(the "Final Audit Firm"). The Acquisition Companies, on the
one hand, and the Company and the Principals, on the other
hand, each represent and warrant to the other that neither
it nor they nor their Affiliates currently have any material
audit, advisory, tax or other relationship with the Final
Audit Firm. At the Closing, each of the Acquisition
Companies, on the one hand, and the Company and the
Principals, on the other, will restate such representation
and warranty as at the Closing Date. If, for any reason, any
party is unable to make such a representation and warranty
as at the Closing Date, the Shareholders' Agent and
Acquisition Companies shall select such other Big Five or
other accounting firm as they may agree to serve as the
Final Audit Firm. The determination by the Final Audit Firm
shall, except as otherwise provided herein, be based on GAAP
consistent with the Company's past practices (but only to
the extent the Company's past practices are consistent with
GAAP) and shall be made as promptly as possible, but in no
event later than sixty (60) days after the date the Final
Audit Firm was retained. Such determination of the Closing
Balance Sheet (with such modifications therein, if any, as
reflect such determination) by the Final Audit Firm shall be
binding and conclusive upon the parties, which agree not to
contest or appeal the same. The procedure set forth in this
Subsection (ii) shall be the exclusive method for resolution
of a dispute concerning the amount of the Net Worth under
this Section 4.1(c). For the sake of clarity, the mediation
and arbitration provisions under Section 11.8 hereof are not
applicable to disputes under this Section 4.1(c). The fees
and expenses of the Final Audit Firm shall be shared equally
by the Acquisition Companies, on the one hand, and the
Shareholders, on the other, and the fees of the Shareholders
shall be paid from the Escrow Fund.
(iii)The foregoing notwithstanding, in the event that the
Interim Net Worth is less than the final Net Worth pursuant
to Section 4.1(c)(ii), the Acquisition Companies shall
deposit the difference in the Escrow Fund within five (5)
days following the final determination of the Closing
Balance Sheet pursuant to Section
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4.1(c)(ii) hereof, and the amount of such payment shall bear
interest from the Closing Date to the date of payment at the
same rate of interest as is earned on all funds deposited in
the Escrow Fund (the "Earned Rate").
(iv) In the event that the Interim Net Worth exceeds the final
Net Worth, the Shareholders shall be severally and not
jointly liable for the payment of the difference, and the
amount of such payment shall bear interest from the Closing
Date to the date of payment at the Earned Rate. Such payment
shall be made to the Acquisition Companies solely from the
Escrow Fund not more than five (5) days following the final
determination of the Closing Balance Sheet pursuant to
Section 4.1(c)(ii) hereof.
(v) The quality and valuation of the Inventory of the Company
and the Subsidiaries as of the Closing shall be determined
for purposes of calculating the Closing Balance Sheet
pursuant to Section 4.1(c)(ii) as follows: (A) the value of
the Inventory as of the Closing Date shall be determined
from the books of the Company and the Subsidiaries in
accordance with GAAP and the inventory policy set forth on
Schedule 4.1(c)(v) hereto; (B) a physical inventory shall be
taken jointly by the Company and the Acquisition Companies
and observed by KPMG on the Closing Date in accordance with
the procedures attached to Schedule 4.1(c)(v); and (C) any
disagreement regarding the value of the Inventory shall be
resolved in the manner and at the time described in Section
4.1(c)(ii) hereof.
(vi) The Company shall record a receivable or other asset on both
the Pre-Closing Balance Sheet (which shall be reasonably
estimated in good faith) and the Closing Balance Sheet on
account of any Tax refund (or equivalent benefit through a
reduction in Tax liability) resulting from: (i) the payment
of the Merger Consideration, including but not limited to
payments in cancellation of the Common Stock Options or
Warrants; (ii) the exercise of Common Stock Options or
Warrants subsequent to the date of this Merger Agreement;
and (iii) the payment of any severance or other similar
payments, including transfers of property, made by the
Company or its Subsidiaries by reason of the transactions
contemplated by this Agreement as if the items (i) through
(iii) above occurred within the period covered by the
Pre-Closing Balance Sheet.
(d) The Merger Consideration shall be divided at the Closing into
three (3) parts - the amounts payable to the holders of (A) Shares; (B)
Common Stock Options (including the holders of Common Stock Options which
terminated unexercised prior to the Effective Time as a result of the
Merger) and (C) Warrants. Schedule 4.1(d) sets forth the amount of the
Merger Consideration that would be payable to the Persons in
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each category if, as of the Closing Date: (a) Net Worth was equal to USD
$15 million and (b) except for the Preferred Stock Conversion, between the
date hereof and the Closing Date, there is no increase or decrease in the
number of outstanding Shares, Common Stock Options or Warrants and no such
Options or Warrants are exercised. Schedule 4.1(d) shall be updated at the
time of Closing to take account of the actual number of Shares, Common
Stock Options and Warrants then outstanding and any adjustment to the
Merger Consideration required under Sections 4.1(c) of this Agreement. The
portion of the Merger Consideration to be shared by each group is as set
forth below:
(i) Shares. At the Effective Time, the Shares issued and
outstanding immediately prior to the Effective Time (other
than Shares described in Section 4.1(e)) shall, by virtue of
the Merger and without any action on the part of Acquisition
Corp., the Company, or the holder thereof, cease to be
outstanding, be canceled, retired and converted into and
become the right to receive that amount in U.S. Dollars
determined by dividing the portion of the Merger
Consideration payable on account of the Shares by the
aggregate number of Shares. Except for such sums as may be
deposited in escrow pursuant to the terms of the Escrow
Agreement, such amount shall be distributed pro rata to the
Shareholders of record in the proportion (the "Ownership
Percentage") that the number of Shares issued and
outstanding in the name of each such Shareholder immediately
prior to the Effective Time bears to the total number of
Shares issued and outstanding immediately prior to the
Effective Time. The Shareholders of record of the Company as
of the date of this Agreement are listed in Schedule 4.1(d),
which Schedule shall be completed within fifteen (15) days
after the date of execution hereof and updated on the
Closing Date, as of the Effective Time.
(ii) Common Stock Options. At the Effective Time, each
outstanding Common Stock Option, and each Common Stock
Option which is terminated unexercised prior to the
Effective Time as a result of the Merger, vested or
unvested, shall be canceled, and each holder of a Common
Stock Option shall be entitled to receive, upon such
cancellation of such Common Stock Option and in exchange
therefor, from the Company the portion of the Merger
Consideration payable to such holders of Common Stock
Options an amount equal to the product of (x) the amount, if
any, by which the Merger Consideration per Share exceeds the
exercise price of such Common Stock Option, multiplied by
(y) the vested and unvested number of Shares subject to such
Common Stock Option. At or before the Effective Time, the
Company shall cause to be effected any necessary amendments
to any plan or agreement pursuant to which any such Common
Stock Option has been issued to give effect to the
provisions of this Section 4.1(d)(ii).
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Notwithstanding the foregoing, to the extent that any
payment under this Section 4.1(d)(ii) is made with respect
to the unvested Common Stock Option, or an unvested portion
of a Common Stock Option, to or for the benefit of a
"disqualified individual" of the Company within the meaning
of Section 280G(c) of the Code with respect to the Merger,
the deduction for which, in the determination of the
Company, may be disallowed by reason of Section 280G of the
Code, such payment shall not be made unless and until such
payment satisfies the exemption set forth in Section
280G(b)(5)(A)(ii) of the Code. The Company shall obtain the
prior written consent of the Acquisition Companies as to the
terms and the manner of effecting the provisions of this
Section 4.1(d)(ii), which consent shall not be unreasonably
withheld or delayed.
(iii)Warrants. At the Effective Time, each outstanding Warrant,
whether or not then exercisable, shall be canceled, and each
holder of a warrant shall be entitled to receive in exchange
therefor from the portion of the Merger Consideration
payable to the holders of Warrants an amount determined in
the same manner as is set forth in Section 4.1(d)(ii) with
respect to Common Stock Options. The Company shall obtain
the prior written consent of the Acquisition Companies as to
the terms and manner of effecting the provisions of this
Section 4.1(d)(iii), which consent shall not be unreasonably
withheld or delayed.
(e) At the Effective Time, each Share owned directly or indirectly by
the Company as authorized but unissued or treasury stock or by any
Subsidiary, and each Share issued and outstanding at the Effective Time and
owned by any of the Acquisition Companies, or any direct or indirect
subsidiary thereof, shall, by virtue of the Merger and without any action
on the part of the holder thereof, cease to be outstanding, be canceled and
retired without payment of any consideration therefor and cease to exist.
(f) At the Effective Time, each share of common stock of Acquisition
Corp. issued and outstanding immediately prior to the Effective Time shall
be converted automatically into one share of Common Stock of the Surviving
Corporation.
4.2 Payment for Shares; Company Stock Options and Warrants.
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(a) Subject to the provisions of Section 4.4, immediately prior to the
Effective Time, Pulse or its designee shall deliver to National City Bank
of Cleveland, Ohio or other entity selected by the Acquisition Companies
and agreed to by the Shareholders' Agent (the "Payment Agent"), the Merger
Consideration, as adjusted pursuant to Sections 4.1(b) and (c) and net of
the Escrow Fund, by means of a wire transfer of immediately available
funds. The Payment Agent shall hold and disburse the Merger Consideration
pursuant to the terms hereof (including, without limitation, the Escrow
Agreement provided for in Section 4.4) and the terms of a Payment Agreement
(the "Payment
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Agreement") to be entered into prior to the Effective Time among the
Acquisition Companies and the Payment Agent.
(b) As soon as reasonably practicable after the Effective Time, the
Payment Agent shall mail to each holder of record of a certificate or
certificates which, immediately prior to the Effective Time, represented
outstanding Shares as set forth on Schedule 4.1(d), (the "Certificates"),
which Shares were converted into the right to receive a portion of the
Merger Consideration pursuant to Section 4.1(d), a letter of transmittal
and instructions for use in effecting the surrender of the Certificates in
exchange for the Merger Consideration. The letter of transmittal shall
specify that delivery shall be effected, and risk of loss and title to the
Certificates shall pass, only upon delivery of the Certificates to the
Payment Agent and shall be in such form and have such other provisions as
the Acquisition Companies and the Company may reasonably specify. Upon
surrender of a Certificate for cancellation to the Payment Agent, together
with such letter of transmittal duly executed, the holder of such
Certificate shall be entitled to receive in exchange therefor a check
representing the holder's pro rata portion of the Merger Consideration then
being distributed, as set forth in Schedule 4.1(d); provided, however, that
if such portion of the Merger Consideration is at least $100,000, such
payment shall be made by wire transfer of immediately available funds. The
holders shall also be entitled to receive the holder's pro rata portion of
any amount remaining in the Escrow Fund created pursuant to Section 4.4 at
such time as the Escrow Fund is distributed in accordance with the Escrow
Agreement. The Certificate so surrendered shall forthwith be canceled. In
the event of a transfer of ownership of Shares which is not registered in
the transfer records of the Company, payment of the Merger Consideration
may be made to a transferee if the Certificate representing such Shares is
presented to the Payment Agent accompanied by all documents required to
evidence and effect such transfer and by evidence that any applicable stock
transfer taxes have been paid. Until surrendered as contemplated by this
Section 4.2, each Certificate shall be deemed at any time after the
Effective Time to represent only the right to receive, upon such surrender,
that portion of the Merger Consideration as contemplated by this Section
4.2. No interest shall be paid on the Merger Consideration.
(c) After the Effective Time, the Payment Agent shall follow the same
procedure described in Section 4.2(b) with respect to the surrender of
certificates or agreements representing Common Stock Options and Warrants.
The right to receive the portion of the Merger Consideration attributable
to any surrendered Common Stock Option or Warrant shall be transferable
only to the Persons and under the circumstances that such Common Stock
Option or Warrant was transferable pursuant to its terms and subject to
satisfactory evidence of such transfer.
(d) Neither the Acquisition Companies nor the Company shall be liable
to any holder of Shares for cash delivered to a public official pursuant to
any applicable abandoned property, escheat or similar law.
(e) In the event that any Certificate for Shares, Common Stock Option
or Warrant shall have been lost, stolen or destroyed, the Payment Agent
shall issue in exchange therefor, upon the making of an affidavit of that
fact by the holder thereof, such
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portion of the Merger Consideration as may be specified pursuant to this
Agreement; provided, however, that the Acquisition Companies or the Payment
Agent may, in their or its discretion, require as a condition precedent
thereto the delivery of a suitable bond or indemnity.
(f) All Merger Consideration paid upon the surrender for exchange of
Shares, Common Stock Options or Warrants in accordance with the terms
hereof shall be deemed to have been paid in full satisfaction of all rights
pertaining to such Shares, Common Stock Options or Warrants. After the
Effective Time, all Certificates, Common Stock Options or Warrants
presented to the Surviving Corporation shall be canceled and exchanged, as
provided in this Section 4.2.
(g) Any portion of the Merger Consideration which remains
undistributed to the holders of Shares, Common Stock Options or Warrants
for one (1) year after the Effective Time (other than amounts held in the
Escrow Fund and any amounts held in Escrow Fund for one (1) year after the
remainder of the Escrow Fund has been distributed) shall be delivered to
Pulse, upon demand, and any holders of Shares, Common Stock Options or
Warrants who have not theretofore complied with this Section 4.2 shall
thereafter look only to Pulse for the Merger Consideration to which they
are entitled.
(h) The Payment Agent, at the direction of the Surviving Corporation,
shall be entitled to deduct and withhold from the consideration otherwise
payable pursuant to this Agreement to any holder of Shares, Common Stock
Options or Warrants such amounts as the Surviving Corporation is required
to deduct and withhold with respect to the making of such payment under the
Internal Revenue Code of 1986, as amended (the "Code"), or any provision of
state, local or foreign tax law. To the extent that amounts are so withheld
by the Payment Agent or Surviving Corporation and paid by the Payment Agent
or Surviving Corporation to the appropriate governmental entity, such
withheld amounts shall be treated for all purposes of this Agreement as
having been paid to the holder of the Shares, Common Stock Options or
Warrants in respect of which such deduction and withholding was made.
(i) The provisions of this Section 4.2 shall also apply to Company
Dissenting Shares (as hereafter defined) that lose their status, as such,
effective on the date of loss of such status, and the holder of such Shares
shall be entitled to receive in exchange for such Shares the portion of the
Merger Consideration to which such holder is entitled pursuant to Section
4.1 hereof.
4.3 Shares of Dissenting Holders.
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(a) Notwithstanding anything to the contrary contained in this
Agreement, any holder of Shares with respect to which dissenters' rights,
if any, are granted by reason of the Merger under the CCC and who perfects
such rights in accordance with the procedures set forth in the CCC
("Company Dissenting Shares") shall not be entitled to receive any Merger
Consideration pursuant to Section 4.1, but shall be entitled to receive
payment of the appraised value of such Shares held by such holder in
accordance with the
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provisions of Section 1300 of the CCC. The Shares of any holder who fails
to perfect dissenters' rights under the CCC, or any Shares that
subsequently lose such status, shall thereupon be deemed to have been
converted, as of the Effective Time, into the right to receive that portion
of the Merger Consideration pursuant to Section 4.1 payable with respect
thereto.
(b) Any payments relating to Company Dissenting Shares shall be made
solely by the Surviving Corporation, and no funds or other property have
been or will be provided by the Acquisition Companies for such payment. The
Company shall give the Acquisition Companies (i) prompt notice of any
demands received by the Company for the payment of fair value for Shares,
withdrawals of such demands and any other instruments served pursuant to
the CCC and received by the Company which relate to such demand for
appraisal, and (ii) the right to participate in all negotiations and
proceedings with respect to such demands. The Company shall not, except
with the prior written consent of the Acquisition Companies, voluntarily
make any payment with respect to any demands for appraisal of Shares or
offer to settle or settle any such demands.
4.4 Escrow Agreement. At the Effective time, the Acquisition Companies
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shall deliver to National City Bank of Cleveland, Ohio or other entity selected
by the Acquisition Companies and agreed to by the Shareholders' Agent (the
"Escrow Agent") the sum of $15 Million Dollars ($15,000,000) (the "Escrow Fund")
to be held by it in escrow and disbursed at the times, in the amounts, to the
Persons and upon the occurrence of the events set forth in the Escrow Agreement
to be entered into at the Closing among the Escrow Agent, the Shareholders'
Agent and Pulse. The Acquisition Companies shall add to the Escrow Fund such
additional sums as may be required by the terms of Section 4.1(c)(iii).
4.5 Transfer of Shares After the Effective Time. No transfers of Shares
----------------------------------------------
shall be made on the stock transfer books of the Surviving Corporation at or
after the Effective Time. If, after the Effective Time, certificates
representing Shares are presented to the Surviving Corporation, they shall be
canceled and exchanged for their applicable portion of the Merger Consideration.
12
ARTICLE V
REPRESENTATIONS AND WARRANTIES
5.1 Representations and Warranties of the Principals. Each of the
-----------------------------------------------------
Principals, severally, and not jointly, hereby represents and warrants to the
Acquisition Companies as set forth below, provided that certain representations
and warranties are explicitly qualified by reference to the disclosure schedules
attached hereto (each a "Schedule" and collectively the "Schedules"). Disclosure
of any matter, item, fact or exception on any Disclosure Schedule shall be
deemed to be disclosure of such matter, item, fact or exception on all other
applicable Disclosure Schedules; provided that the Principals shall use their
best efforts to insert appropriate cross references on their disclosure
schedules to other schedules or disclosure documents containing relevant
information. After the date of this Agreement, Principals shall have the right
to update the Disclosure Schedules, from time to time, based on the occurrence
of events after the date of this Agreement through the date immediately prior to
the Closing Date, in order to maintain the truth and accuracy of the
representations and warranties made by the Principals in this Agreement, and the
Acquisition Companies shall have the right at any time prior to the Closing to
terminate this Agreement without liability and without giving rise to any claim
or cause of action by the Company, or any Shareholder or other Person if, in the
reasonable judgment of the Acquisition Companies, such updating constitutes or
creates a material change in the disclosures made; provided that the Acquisition
Companies shall not have the right to terminate with respect to any amendment or
modification of a schedule to which they consent in writing in advance.
(a) Ownership of Shares. Except as described on Schedule 5.1(a), (i)
such Principal is the legal and beneficial owner of the number of Shares
listed opposite, his, her or its name on Schedule 5.1(a), and (ii) the
Shares so listed are free and clear of all Encumbrances, and will be free
and clear of Encumbrances on the Effective Date.
(b) Power, Authorization and Enforceability of Agreement. Such
Principal has the legal capacity to execute and deliver this Agreement, to
perform his, her or its obligations hereunder and to consummate the
transactions contemplated hereby with respect to such Principal. This
Agreement has been, and all other agreements, documents and instruments
required to be delivered by such Principal pursuant to the provisions
hereof (the "Principal Documents") have been, and at the Effective Time
will be, duly executed and delivered by such Principal and this Agreement
constitutes, and such of the Principal Documents, when executed and
delivered will constitute, the legal, valid and binding obligations of such
Principal enforceable against such Principal in accordance with its
respective terms, except as enforcement may be limited by debtor relief
laws or equitable principles relating to the granting of specific
performance and other equitable remedies as a matter of judicial
discretion.
(c) Compliance with Other Instruments and Regulations. Except as
disclosed on Schedule 5.1(c), the execution and delivery by such Principal
of, and the performance by such Principal of his, her or its respective
obligations under, this Agreement and the Principal Documents and the
consummation of the transactions contemplated hereby and
13
thereby with respect to each such Principal do not violate, conflict with,
result in any breach of, or constitute a default under (or with the giving
of notice or the passage of time or both, violate, conflict with or
constitute a default under), (i) any Regulation that is applicable to such
Principal, (ii) any mortgage, lease, indenture, agreement, contract or
other instrument, document or understanding, oral or written, to which such
Principal is a party or by which such Principal is bound or has rights or
(iii) any judgment order or award of any court, board or arbitrator binding
upon such Principal.
(d) No Third Party Options. There are no existing agreements, rights
of first refusal, pending divorce Actions, judgment orders, options,
contracts or rights with, of or to any Person to acquire any of the Shares
owned by any Principal from such Principal, nor has such Principal pledged,
assigned or transferred any such Shares, or any right or interest therein
or entered into any agreement to pledge, assign or transfer any such
Shares, or any right or interest therein, except as provided in this
Agreement.
(e) Brokers and Finders. None of the Principals has employed any
broker or finder or incurred any liability for any fees or commissions with
respect to the sale of such Principal's Shares as contemplated herein.
5.2 Representations and Warranties of the Company. The Company hereby
------------------------------------------------
represents and warrants to the Acquisition Companies as follows, provided that
certain representations and warranties are explicitly qualified by reference to
the Schedules. Disclosure of any matter, item, fact or exception on any
Disclosure Schedule shall be deemed to be disclosure of such matter, item, fact
or exception on all other applicable Disclosure Schedules; provided that the
Company shall use its best efforts to insert appropriate cross references on its
disclosure schedules to other schedules or disclosure documents containing
relevant information. After the date of this Agreement, Company shall have the
right to update the Disclosure Schedules, from time to time, based on the
occurrence of events after the date of this Agreement through the date
immediately prior to the Closing Date, in order to maintain the truth and
accuracy of the representations and warranties made by the Company in this
Agreement, and the Acquisition Companies shall have the right at any time prior
to the Closing to terminate this Agreement without liability and without giving
rise to any claim or cause of action by the Company any Shareholder or other
Person if, in the reasonable judgment of the Acquisition Companies, such
updating constitutes or creates a material change in the disclosures made;
provided that the Acquisition Companies shall not have the right to terminate
with respect to any amendment or modification of a schedule to which they
consent in writing in advance.
(a) Existence and Qualification: Power: Compliance With Laws. The
Company is a corporation duly organized, validly existing and in good
standing under the laws of the State of California. The Company is duly
qualified to transact business, and is in good standing, in its
jurisdiction of organization and each other jurisdiction in which the
conduct of its business or the ownership or leasing of its properties makes
such qualification necessary, except where the failure to so qualify and to
be in good standing would not have a Material Adverse Effect (as
hereinafter defined) on the Company. The Company has all requisite
corporate power and corporate authority to conduct its business as
conducted on the date hereof, to own and lease its properties as owned or
leased on the date hereof, and to execute and deliver this Agreement and
consummate the
14
transactions contemplated hereby; all requisite approvals from the Board of
Directors of the Company have been duly and lawfully obtained as of the
date hereof. Attached as Schedule 5.2(a) are complete and correct copies of
the Company's Articles of Incorporation and By-Laws, as amended to date.
The Company's Articles of Incorporation and By-Laws, as so delivered, are
in full force and effect.
(b) Subsidiaries.
(i) Schedule 5.2(b) hereto correctly sets forth the names, the
forms of legal entity, jurisdictions of organization, chief
executive offices and principal places of business of all
subsidiaries of the Company (each a "Subsidiary" and
together the "Subsidiaries"). Except as described on
Schedule 5.2(b), neither the Company nor any Subsidiary owns
any capital stock or equity interest in any other entity.
Except for a single share of the Hong Kong subsidiary owned
by T. ▇▇▇▇▇▇▇ ▇▇▇▇▇, which is being transferred to a
designee of Pulse at the Closing, all of the issued and
outstanding shares of capital stock, or all of the units of
equity interest, as the case may be, of each Subsidiary are
owned of record and beneficially by the Company, and all
such shares or equity interests so owned are duly
authorized, validly issued, fully paid and nonassessable,
and were issued in compliance with all `applicable state,
federal and foreign securities and other laws, and are owned
free and clear of all Encumbrances. No Subsidiary has any
shares of capital stock or units of equity interest
authorized and/or reserved for issuance. There are no
preemptive rights or any outstanding subscriptions, options,
warrants, rights (including any form of "poison pill"
rights), convertible securities or other agreements or
commitments of any kind to which any Subsidiary is a party
or is bound relating to the issued or unissued capital
stock, units of equity interest or other securities of any
Subsidiary.
(ii) Each Subsidiary is a legal entity of the form described for
that Subsidiary on Schedule 5.2(b), duly organized, validly
existing, and in good standing under the laws of its
jurisdiction of organization, is duly qualified to do
business as a foreign organization and is in good standing
as such in each jurisdiction in which the conduct of its
business or the ownership or leasing of its properties makes
such qualification necessary, except where the failure to so
qualify and to be in good standing would not have a Material
Adverse Effect on the Company.
(iii)Each Subsidiary has all requisite power and authority to
conduct its business and to own and lease its properties in
each jurisdiction in which it operates as of the date hereof
and will operate as of the Effective Time. The Company has
delivered to Acquisition Corp. complete and correct copies
of the Articles of Incorporation and
15
By-laws, and other similar organizational documents, as
amended to date, respecting each Subsidiary. The Articles of
Incorporation and By-laws, and other organizational
documents of the Subsidiaries, as so delivered, are in full
force and effect.
(c) Authorized Capital. The authorized capital stock of the Company
consists of: (i) 40,000,000 shares of Common Stock, of which 5,222,869
shares of Common Stock are issued and outstanding, and (ii) 10,000,000
shares of Preferred Stock, of which 1,000,000 shares are designated as
Series A Preferred Stock and 1,100,000 will be so designated as of the
Effective Time. 1,100,000 shares of Series A Preferred Stock are issued and
outstanding. No other class or series of Preferred Stock is authorized or
outstanding. All of the outstanding Shares of capital stock have been duly
authorized and are validly issued, fully paid and nonassessable and are
held by the persons in the amounts set forth in Schedule 4.1(d). Schedule
5.2(c) lists all stock options, warrants and other securities convertible
into or exchangeable for shares of capital stock of the Company and their
respective exercise prices. All Common and Preferred Stock, Common Stock
Options, Warrants and securities convertible into or exchangeable for
Shares have been offered, sold and issued in full compliance with all
applicable federal and state laws and regulations governing the offer and
sale of securities. Except as set forth in Schedule 5.2(c), there are no
preemptive rights or any outstanding subscriptions, options, warrants,
rights (including any form of "poison pill" rights), convertible securities
or other agreements or commitments of any kind to which the Company is a
party or is bound relating to the issued or unissued Common or Preferred
Stock or other securities of the Company or any of its Subsidiaries. Except
as set forth in Schedule 5.2(c), there are no accrued or cumulated
dividends on any of the shares of capital stock of the Company or any of
the Subsidiaries. After the Effective Time, the Surviving Corporation shall
have no obligation to issue, transfer or sell any shares of capital stock
of the Surviving Corporation pursuant to any Common Stock Option, Warrant
right or other security which has been issued or granted on or before the
Effective Time.
(d) Authority; Compliance With Other Agreements and Instruments and
Government Regulations. The execution and delivery of this Agreement and
the consummation of the transactions contemplated hereby by the Company
have been duly authorized by all necessary corporate action, except for
approval by the holders of Preferred Stock and Common Stock, and do not:
(i) require any consent or approval not heretofore obtained of
any director, in such person's capacity as such, or creditor
of the Company or any other entity;
(ii) violate or conflict with any provision of the Company's
Articles of Incorporation or By-Laws;
(iii)except as set forth on Schedule 5.2(d), result in a breach
of, constitute a default under or cause or permit the
triggering of any payment or obligations pursuant to, any of
the Company's or any
16
Subsidiary's Employee Plans existing on the date of this
Agreement or any grant or award made under any of the
foregoing;
(iv) result in or require the creation or imposition of any
Encumbrance upon or with respect to any property now owned
or leased by the Company or any Subsidiary;
(v) violate any requirement of any Regulation applicable to the
Company or any Subsidiary; or
(vi) except as set forth on Schedule 5.2(d), result in a breach
of, constitute a default under, or otherwise give any
contracting party additional rights or compensation under,
or cause or permit the acceleration of any obligation owed
under, any indenture or loan or credit agreement, note,
deed, instrument, lease, security agreement, mortgage,
commitment or any other contract to which the Company or any
Subsidiary is a party or by which the Company or any
Subsidiary or any of their property is bound or affected.
(e) No Governmental Approvals Required. Other than (i) the filings
provided for in Section 1.3, (ii) filings under the HSR Act, and (iii)
those as are set forth on Schedule 5.2(e) (collectively, the "Company
Regulatory Filings"), no authorization, consent, approval, order, license
or permit from, or filing, registration or qualification with, any
government or governmental agency is required to authorize or permit the
execution and delivery of this Agreement by the Company and the
consummation by the Company of the transactions contemplated hereby.
(f) Financial Statements. The Company has furnished to Acquisition
Corp. the audited consolidated balance sheets, statements of income and
statements of cash flow from inception of the Company through December 31,
2000 (collectively the "Audited Financial Statements") and unaudited
consolidated balance sheets, income statements and statements of cash flows
as of and for the three (3) month period ended March 31, 2001 (the "Interim
Financial Statements") (the Audited Financial Statements and the Interim
Financial Statements, including the notes thereto, are sometimes
collectively referred to as the "Financial Statements"). Except as
disclosed in the Financial Statements, as of their respective dates, the
Financial Statements (i) are in accordance with the Books and Records of
the Company and the Subsidiaries, (ii) were prepared in accordance with
GAAP, and (iii) fairly present in all material respects, the consolidated
financial position, results of operations and cash flows of the Company and
the Subsidiaries as of the dates and for the periods covered thereby,
subject, in the case of the Interim Financial Statements, to normal
year-end accruals and audit adjustments, none of which are expected to be
material, and the absence of footnotes.
(g) Absence of Certain Changes: No Other Liabilities. Except as
disclosed on Schedule 5.2(g), from December 31, 2000, the Company and its
Subsidiaries have: (i) conducted their respective businesses only in, and
have not engaged in any transaction other than according to, the ordinary
and usual course of such businesses consistent with
17
past practice; and (ii) not engaged in any of the activities described in
Section 6.1 hereof (other than Section 6.1(a) which shall have been
complied with and Schedule 6.1). Since December 31, 2000 there has not been
any Material Adverse Effect or Material Adverse Change, any declaration,
setting aside or payment of any dividend or other distribution with respect
to the capital stock of the Company or any Subsidiary, any material change
by the Company or any Subsidiary in the accounting principles, practices or
methods applicable to it, or any damage to or destruction or loss of any
material Asset of the Company or any Subsidiary, whether or not covered by
insurance. Neither the Company nor any Subsidiary has any Liability which
is required to be reflected in the Financial Statements in accordance with
GAAP and which is not so reflected or disclosed in the Financial
Statements, except for (x) any Liability incurred after December 31, 2000
in the ordinary course of business and which is substantially offset in
amount by rights or assets relating to such Liability, and (y) any
Liability that is set forth on Schedule 5.2(g).
(h) Brokers and Finders, Attorneys, Accountants and Other
Professionals. Except as disclosed on Schedule 5.2(h), neither the Company
nor any of its Subsidiaries has employed any broker or finder, attorney,
accountant, appraiser or other professional advisor, or incurred any
liability for any fees, commissions or other compensation to any such
Persons in connection with the transactions contemplated herein (the
"Professional Fees"). All Professional Fees described on Schedule 5.2(h)
have been or will be paid on or before the Effective Time.
(i) Actions. Except for those matters set forth on Schedule 5.2(i),
(i) there are no Actions (A) pending as to which the Company or any of its
Subsidiaries have been served or have received notice, or (B) to the
knowledge of the Company, threatened in writing against or affecting the
Company or any of its Subsidiaries or any property of any of them, and (ii)
there is no reasonable basis, to the knowledge of the Company, for any
Action against or affecting the Company or any of its Subsidiaries or any
property of any of them. No Action involving product liability or
allegations that any product designed, manufactured or sold by the Company
or any Subsidiary has been defective or improperly designed or manufactured
has been instituted or, to the Company's knowledge, threatened against the
Company or any Subsidiary. Except as disclosed on Schedule 5.2(i), there is
no pending, or to the Company's knowledge, threatened recall or
investigation of any product sold by the Company or any Subsidiary. To the
Company's knowledge, there are no facts that would give rise to any such
Actions. Based on an inquiry made of each current officer and director,
none of them has knowledge of any claim by him or her against or with
respect to the Company.
(j) Binding Obligations. This Agreement will, when executed and
delivered by the Company, constitute the legal, valid and binding
obligation of the Company, enforceable against the Company in accordance
with its terms, except as enforcement may be limited by debtor relief laws
or equitable principles relating to the granting of specific performance
and other equitable remedies as a matter of judicial discretion.
(k) Material Contracts. Schedule 5.2(k) lists each Contract to which
the Company or any Subsidiary is a party or to which the Company, any
Subsidiary, or any of their respective properties is subject or by which
any thereof is bound, that is deemed a
18
Material Contract (as defined in the next succeeding sentence) under this
Agreement. Each such Contract was entered into in the ordinary course of
business. A Material Contract for the purposes of this subsection (k) is
each contract that (A) after December 31, 2000 obligates the Company or any
Subsidiary to pay an amount of $75,000 or more, (B) has a term expiring
beyond December 31, 2001, (C) contains a covenant not to compete, (D)
provides for the extension of credit other than in the ordinary course of
business and other than consistent with normal credit terms, (E) limits the
ability of the Company or any Subsidiary to conduct its business, including
as to manner or place, (F) provides for a guaranty or indemnity by the
Company or any Subsidiary, (G) grants a power of attorney, agency or
similar authority to another person or entity, (H) contains an option or a
right of first refusal, (I) contains a right or obligation of or to any
Affiliate, officer or director, or of the Company or any Subsidiary,
including, without limitation, agreements, commitments or arrangements
pursuant to which any amounts may become payable by the Company or any
Subsidiary (whether currently or in the future) to current or former
officers, directors or employees of the Company or other Persons as a
result of the change of control of the Company as contemplated by this
Agreement, (J) constitutes a collective bargaining agreement or provides
for severance benefits to any officer, director or employee of the Company
or any Subsidiary, (K) relates to product distribution, (L) involves joint
marketing or product development, (M) relates to manufacturing, evaluation
or testing or regulatory compliance by other parties with respect to
products of the Company or its Subsidiaries, (N) involves an order by any
government entity relating to the testing, manufacture, registration,
labeling, marketing or sale of products developed, manufactured, marketed
or sold by the Company or its Subsidiaries, (O) is a joint venture or
partnership agreement or arrangement, (P) is a material consignment or
similar agreement relating to inventory or equipment, (Q) represents a
contract upon which the business of the Company or any Subsidiary is
materially dependent, (R) any agreement to acquire shares of capital stock
of the Company from former officers, directors, consultants or other
Persons or (S) was not made in the ordinary course of business and
consistent with the Company's past custom and practices. True, correct and
complete copies of the Contracts appearing on Schedule 5.2(k), including
all amendments and supplements, have been delivered or made available to
Acquisition Corp. Schedule 5.2(k) designates each Contract for which a
Consent is required to execute this Agreement or consummate the transaction
contemplated by this Agreement. Each Contract is valid and in full force
and effect; the Company or the applicable Subsidiary and each other party
to the Contract have duly performed all its obligations thereunder to the
extent that such obligations to perform have accrued; and no breach or
default, alleged breach or default, or event which would (with the passage
of time, notice or both) constitute a breach or default thereunder by the
Company or any Subsidiary, as the case may be (or, to the knowledge of the
Company, any other party or obligor with respect thereto), has occurred or
as a result of this Agreement or its performance will occur. Neither the
Company nor any Subsidiary has any subcontract, non-disclosure or other
agreement with any subcontractor or supplier. Except as set forth on
Schedule 5.2(k), to the Company's knowledge, consummation of the
transactions contemplated by this Agreement will not (and will not give any
person a right to) terminate or modify any rights of, or accelerate or
augment any obligation of the Company or any Subsidiary under, any of the
Material Contracts so listed.
19
(l) No Other Agreements to Sell the Shares or Assets. Except as
described on Schedule 5.2(l), neither the Company nor any Subsidiary has
any legally enforceable commitment or legal obligation, absolute or
contingent, to any other Person other than Pulse and Acquisition Corp., to
sell, assign, transfer or effect a sale of any of the Shares, any security
convertibles into the capital stock of the Company, any capital stock or
equity investment in any Subsidiary, or any of the Assets of the Company or
any Subsidiary (other than Inventory in the ordinary course of business),
to effect any merger, consolidation, liquidation, dissolution or other
reorganization of the Company or any Subsidiary, or to enter into any
agreement or cause the entering into of an agreement with respect to any of
the foregoing.
(m) Title and Condition of Assets. Schedule 5.2(m) includes a correct
and complete list of all material Fixtures and Equipment owned, leased or
used by the Company and its Subsidiaries on the date of this Agreement.
Except as described in Schedule 5.2(m), (i) the Company and its
Subsidiaries have title (or are the lessees or the licensees of certain
Fixtures and Equipment) to all of the Assets (including, without
limitations, the inventory of the Company and its Subsidiaries and the
Fixtures and Equipment identified in Schedule 5.2(m)), free and clear of
all Encumbrances, and (ii) the Fixtures and Equipment identified on
Schedule 5.2(m) are in good operating condition and repair (subject to
normal wear and tear) and are sufficient to permit the Surviving
Corporation to conduct the Business as now conducted. Except as set forth
on Schedule 5.2(m), no Shareholder of the Company has any interest in any
of the Assets owned or used by the Company.
(n) Real Property. Neither the Company nor its Subsidiaries own any
Real Property. Schedule 5.2(n) constitutes a complete and correct list of
all Real Properties leased by the Company or its Subsidiaries ("Leases").
Each Lease is in full force and effect and constitutes a valid and binding
obligation of the Company or a Subsidiary, as applicable, and, to the
Company's knowledge, all other parties thereto and is enforceable in
accordance with its terms. The Company or the applicable Subsidiary has the
sole right to use or occupy the Real Property subject of each Lease and,
upon the consummation of the transactions contemplated hereby, each Lease
will continue in full force and effect and constitute a valid and binding
obligation on the part of the Company or the relevant Subsidiary and, to
the Company's knowledge, all other parties to such Lease, and such Lease is
enforceable in accordance with its terms. The Company has received no
notice of and, to the Company's knowledge no portion of the Real Property
is subject to, any pending condemnation proceeding by any public or
quasi-public authority and, there is no threatened condemnation proceeding
with respect thereto. Each of the properties constituting the Real Property
is supplied with utilities and other services necessary for the operation
of the facilities located thereon as presently conducted, and all of such
services are adequate to conduct that portion of the Business as is
presently conducted at such facility. Except as set forth on Schedule
5.2(n), neither the Company nor any Subsidiary has sublet, underlet or
assigned any portion of the Real Property and no third party is in
possession of any portion of the Real Property. To the Company's knowledge,
the structures, improvements and fixtures at or upon the Real Property,
including, but not limited to, roofs and structural elements thereof and
the electrical, plumbing, heating, ventilation, air conditioning and
similar units and systems, have to
20
date been maintained in a reasonable manner for the conduct of the Business
and are in reasonable operating condition to allow the Business to continue
to be conducted as heretofore conducted, subject to the provision of usual
and customary maintenance and repair performed in the ordinary course of
business consistent with past practice.
(o) Intellectual Property.
(i) Schedule 5.2(o) contains a complete list of all of the
Company's (a) U.S. patents and patent applications
(including provisionals, divisionals, continuations,
continuations in part, continuing prosecution applications
and file wrapper continuations, reissues, and
reexaminations), statutory invention registrations and
completed invention disclosure forms; (b) all other national
applications, patents, or inventor's certificates; (c) all
PCT and other treaty applications and patents; (d) logos,
trademarks, trade names, service marks, collective and
certification marks and trade dress, if any; (e) registered
copyrights, including computer code, used in the conduct of
the Business, copyright registrations, including any
derivative works arising therefrom or based thereon; (f)
software developed by or for the Company and (g) licenses,
sublicenses, agreements, and permissions (as amended to
date) constituting part of the Intellectual Property, except
for such licensed, sublicenses, agreements and permissions
that involve the payment of not more than $500 per year. The
Company or a Subsidiary owns or possesses all right, title,
and interest in and to, and lawfully uses and has the right
to possess and use, pursuant to license, sublicense,
agreement or permission all of the Intellectual Property.
Except as set forth in Schedule 5.2(o) or as provided in the
documents and instruments set forth in Schedule 5.2(o), (A)
the Company or a Subsidiary is the sole owner of, and has
the exclusive right to use, license, sublicense, and assign
or otherwise transfer, the Intellectual Property, free from
any Encumbrances of any nature or any orders of any court or
other governmental body (whether domestic or foreign), and
no person or entity has a right to receive a royalty, other
payment, or accounting in respect of any Intellectual
Property; (B) neither the Company nor any Subsidiary has any
licenses, sublicenses, or partial ownership interest granted
by or to it or any other agreements to which it is a party
(including, without limitation, joint development
agreements, consulting agreements, or foundry agreements),
relating in whole or in part to any of its Intellectual
Property; (C) to the Company's knowledge, none of the
Intellectual Property, nor the Company's nor a Subsidiary's
use thereof, infringes, interferes with or otherwise
violates any rights of any third party; (D) there has been
no notice to, and there are no Actions threatened or
instituted against, the Company or any Subsidiary or any of
the Principals that are presently outstanding alleging that
the Company's or any
21
Subsidiary's use of the Intellectual Property or any other
aspects of the operations of the Company or its Subsidiaries
infringes, interferes with or otherwise violates any rights
of a third party; (E) to the Company's knowledge, there is
no infringement, interference or violation by any third
party of the Company's or any Subsidiary's rights in or to
the Intellectual Property, nor has Company nor any
Subsidiary represented, whether orally or in writing, to any
third party, that the Company or Subsidiary would not
enforce the Intellectual Property or rights associated
therewith against any third party; (F) to the Company's
knowledge, no claim has been threatened, and the Company
knows of no basis for any such claim, by any person with
respect to the ownership, validity, license or use of, or
any infringement resulting from, any of the Intellectual
Property used by the Company or any Subsidiary or the
production, provision or sale of any services or products by
the Company or the Subsidiary; (G) to the Company's
knowledge, no trademark, trade dress, if any, service ▇▇▇▇,
collective or certification ▇▇▇▇, or trade name used by the
Company or any Subsidiary infringes or interferes with any
trademark, trade dress, service ▇▇▇▇, collective or
certification ▇▇▇▇, or trade name, whether registered or at
common law, of any other person or entity; (H) none of the
Shareholders of the Company or any officer, director or
employee of the Company or any Subsidiary owns or has any
interest in any Intellectual Property (including without
limitation, any trade secret, invention or process), owned
or used by the Company or any Subsidiary or the Business;
(I) to the Company's knowledge, all inventors have been
properly included and/or removed from the Intellectual
Property as applicable; (J) to the Company's knowledge, no
claims of inequitable conduct or fraud on the patent
authority of the United States or any other country have
been made or can be supported with respect to any patent,
trademark or application of any kind that constitutes a part
of the Intellectual Property; and (K) to the Company's
knowledge, all prior art material to patentability with
respect to the Intellectual Property as applicable has been
cited to the relevant patent or governmental authority, and
the Company, its Subsidiaries, and legal representatives are
aware of no prior art which is material which has not been
so cited.
(ii) Except as set forth in Schedule 5.2(o), the Intellectual
Property represents all rights the Company considers
necessary to operate the Business as presently operated. All
registration and renewal fees in respect of the registered
Intellectual Property have been fully paid by the due dates,
and nothing has knowingly been done or omitted to be done
whereby the Company's or any Subsidiary's rights in the
Intellectual Property might cease to be valid and subsisting
or otherwise go abandoned. To the Company's
22
knowledge, all applications for registration forming part of
the Intellectual Property are proceeding normally and there
are no facts or developments known to the Principals, the
Company or any Subsidiary which would indicate that such
applications or any of them may fail in any respect to be
granted. No disclosures have been made by the Company or any
Subsidiary or any of their directors, officers or employees
or former directors, officers or employees of any of the
trade secrets or other information relating to the Company
or any Subsidiary which is of a confidential nature
(together "Trade Secrets") other than pursuant to an
obligation of confidentiality on the part of the party to
whom such Trade Secrets have been disclosed. To the
Company's knowledge, the Company and any Subsidiaries, as
applicable, have made at least reasonable efforts under the
circumstances to protect and maintain the secrecy of the
Trade Secrets and, to the Company's knowledge, such
reasonable efforts are consistent with the requirements and
recommendations for such efforts set forth inss.3426, et
seq. of the California Civil Code ("Uniform Trade Secrets
Act"). Except as disclosed on Schedule 5.1(o), neither the
Company nor any Subsidiary is a party to any contract or
agreement for the sharing, exchanging or developing of, or
passing on or otherwise transferring to any Person, any
Trade Secrets or any other rights in the Intellectual
Property.
(p) Environmental Issues.
(i) Except as disclosed on Schedule 5.2(p), the activities and
operations of the Company and its Subsidiaries have at all
times complied, and are in compliance, with all applicable
Environmental Requirements, and neither the Company nor any
of its Subsidiaries has generated, stored, handled,
manufactured, transported, disposed of or released any
Hazardous Materials on or at the Real Property, except in
compliance with all applicable Environmental Requirements
pertaining to the Company and each of its Subsidiaries.
(ii) Except as disclosed on Schedule 5.2(p), (A) to the knowledge
of the Company, the prior owners or occupants of the Real
Property complied with all applicable Environmental
Requirements pertaining to the Real Property, (B) neither
the Company nor any of its Subsidiaries has received any
notice, request for information, inspection report,
investigation request, directive or other communication from
any regulatory or environmental authority concerning any
alleged violation of Environmental Requirements pertaining
to the Company or any of its Subsidiaries or the Real
Property, (C) there exists no judgment, decree, order, writ
or injunction outstanding, nor any litigation, action, suit,
known
23
investigation, claim (including citation or directive) or
proceeding pending against the Company, any of its
Subsidiaries, or any of the Real Property arising from the
alleged violation (or liability pursuant to law) of
Environmental Requirements or from an alleged release of
Hazardous Materials in violation of or by operation of
Environmental Requirements, and (D) to the Company's
knowledge, no Hazardous Materials have migrated from other
properties to, upon, about or beneath the Real Property.
(iii)Except as disclosed on Schedule 5.2(p), neither the Company
nor any Subsidiary owns and/or operates any above or
underground storage tanks and has not owned and/or operated
any such tanks during the Company's or any Subsidiary's
existence.
(q) Permits. Schedule 5.2(q) sets forth a full and complete list of
all material Permits required as of the date of this Agreement to allow the
present operations, planned expansion of operations set forth on Schedule
5.2(q), and any past or ongoing alterations of the operations of the
Company and its Subsidiaries under any applicable Regulation. Except as set
forth on Schedule 5.2(q), (i) all Permits identified on Schedule 5.2(q)
(the "Existing Permits") are in full force and effect, and (ii) the
consummation of the transactions contemplated by this Agreement will not
conflict with the terms of, result in default under, or violate the terms
of, any Existing Permit or result in the termination of, or, require
Consent or other action pursuant to, any of the Existing Permits. Except as
set forth on Schedule 5.2(q), the Company and its Subsidiaries are in full
compliance with all Existing Permits.
(r) Compliance with Regulations. Except as disclosed in Schedule
5.2(r), the Company and each of its Subsidiaries are now operating and
conducting the Business, and have been operating and conducting the
Business in all material respects in compliance with all applicable
Regulations. All products now being commercially distributed by the Company
or any of its Subsidiaries, or on behalf of the Company or any of its
Subsidiaries, in any jurisdiction meet the applicable legal requirements of
such jurisdiction and all requisite governmental approvals have been duly
obtained and are in full force and effect. No investigation or review by
any governmental entity with respect to the Company or its Subsidiaries is
pending or, to the knowledge of the Company, threatened nor, to the
knowledge of the Company, has any governmental entity indicated an
intention to conduct the same.
(s) Political Contributions and Other Payments. None of the Company,
any of its Subsidiaries, nor, to the Company's knowledge, any Person acting
on their behalf has, during the past three (3) years (i) except for lawful
political contributions in the ordinary course of business, made any
payment to any governmental official, employee or agent (domestic or
foreign) to wrongfully induce the recipient or the recipient's employer to
do business with, grant favorable treatment to or compromise or forego any
claim by or against the Company or any of its Subsidiaries, or (ii) made
any significant payment or conferred any significant benefit which the
Company, or any Subsidiary, in
24
the exercise of reasonable business judgment, considers or reasonably
should consider to be improper.
(t) Tax Matters. Except as disclosed in Schedule 5.2(t), the Company
and each of its Subsidiaries represent the following:
(i) As of the time of filing, all Tax Returns required to be
filed under federal, state, county, local or any foreign
laws by or on behalf of the Company and each of its
Subsidiaries were in all material respects (and, as to Tax
Returns not filed as of the date hereof until the Effective
Time, will be in all material respects) true, complete and
correct and filed on a timely basis.
(ii) The Company and each of its Subsidiaries, within the time
and in the manner prescribed by law, paid (and until the
Effective Time will, within the time and in the manner
prescribed by law, pay) all Taxes due.
(iii)To the knowledge of the Company, all transactions which
could give rise to an understatement of income Tax (within
the meaning of Section 6662 of the Code or any corresponding
provision of state, local or foreign Tax law) were
adequately disclosed (or, with respect to Tax Returns filed
after the date hereof but before the Effective Time) will be
adequately disclosed on the Tax Returns.
(iv) The Company and each of its Subsidiaries have each complied
(and until the Effective Time will comply) in all material
respects with all applicable laws, rules and regulations
relating to the payment and withholding of Taxes or similar
provisions under any foreign laws and, except as is not
material, have, within the time and in the manner prescribed
by law, withheld from employee wages and paid over to the
proper governmental authorities all amounts required to be
so withheld and paid over under all applicable laws.
(v) Neither the Company nor any Affiliate is a "United States
real property holding corporation" (as that term is defined
in Section 897(c)(2) of the Code and Treasury Regulation
ss.1.897-2(b)) and shall furnish to Pulse on or before the
Effective Time a certification of Company's non-United
States real property interest status, as set forth in
Treasury Regulation ss.ss.1.1445-2(c) and 1.897-2(h). No
Shareholder of the Company is a nonresident alien for
purposes of U.S. income taxation.
(vi) As of the Effective Time, the Company and each of its
Subsidiaries will establish on its books and records
reserves and accruals that are adequate for the payment of
any Taxes incurred, but not yet
25
due and payable, in connection with the payment of the
Merger Consideration, including, but not limited to,
employment and income Taxes arising out of: (i) payments to
the holders of Common Stock Options pursuant to Section
4.1(d)(ii) and payments to the holders of Warrants pursuant
to Section 4.1(d)(iii), (ii) the exercise of Common Stock
Options or Warrants subsequent to the date of this Merger
Agreement, and (iii) the payment of any severance or other
payments made, or property transferred, by the Company or
its Subsidiaries by reason of the transactions contemplated
by this Agreement.
(vii)Neither the Company nor any of its Subsidiaries has any
liability for unpaid Taxes which have not been accrued for
or reserved on the Company's books and records, whether
asserted or unasserted, contingent or otherwise.
(viii)Neither the Company nor any of its Subsidiaries has
executed any waiver of any statute of limitations on or
extended the period for the assessment or collection of any
Tax.
(ix) No assessments or written notices of deficiency have been
received by the Company or any of its Subsidiaries with
respect to any Tax Returns which the Company and its
Subsidiaries have filed with respect to taxable periods
ended on or before the Effective time which have not been
paid in full, completely discharged or fully reserved in
accordance with GAAP in the Financial Statements.
(x) Neither the Company nor any of its Subsidiaries has filed
any consent, statement or election with the Internal Revenue
Service under Section 341(f) of the Code or any
corresponding provision of state, local or foreign income
Tax law.
(xi) No audit or other examination of any return of the Company
or any of its Subsidiaries is presently in progress, nor has
the Company or any of its Subsidiaries been notified in
writing of, nor, to the knowledge of the Company, has there
been, any request for such an audit or other examination
with respect to any taxable year of the Company or any of
its Subsidiaries ending on or prior to the Effective Time.
To the knowledge of the Company, the Company is not the
subject of any current or threatened criminal investigation,
examination or proceeding relating to the filing of Tax
returns or the payment of Taxes and none is contemplated.
(xii)None of the Company or any of its Affiliates is a party to
any Tax sharing, Tax allocation, Tax indemnity or similar
agreement.
26
(xiii)There are no liens for Taxes (other than for current Taxes
not yet due and payable) upon the assets of the Company or
its Subsidiaries.
(xiv)The Company has never been a member of an affiliated group
of corporations, within the meaning of Section 1504 of the
Code, other than as a common parent corporation.
(xv) None of the assets of the Company or its Subsidiaries is
property which the Company or its Subsidiaries is required
to treat as being owned by any other Person pursuant to the
so-called "safe harbor lease" provisions of former Section
168(f)(8) of the Code.
(xvi)None of the assets of the Company or its Subsidiaries
directly or indirectly secures any debt the interest on
which is tax exempt under Section 103(a) of the Code.
(xvii)None of the assets of the Company or its Subsidiaries is
"tax-exempt use property" within the meaning of Section
168(h) of the Code.
(xviii)Neither the Company nor any of its Subsidiaries is a
party to any joint venture, partnership, or other
arrangement or contract which could be treated as a
partnership for federal income tax purposes.
(xix)Schedule 5.2(t) sets forth for each non U.S. Subsidiary as
of the last day of its preceding tax year (i) the basis of
its assets, (ii) its current and accumulated earnings and
profits and, (iii) the amount of any unused losses or other
Tax attributes available in future years.
(xx) There are no rulings, requests for rulings or closing
agreements with any taxing authority which could affect the
Taxes of the Company or any of its Subsidiaries for any
period after the Effective Time.
(xxi)The Company and its Subsidiaries have not participated (and
will not participate prior to the Effective Time) in or
cooperated with an international boycott within the meaning
of Section 999 of the Code.
(xxii)The Company and its Subsidiaries have complied with all
information reporting requirements of, and has maintained
all required records and supporting information with respect
to, Section 6038A of the Code and the regulations thereunder
pertaining to information with respect to certain
foreign-owned corporations.
27
(xxiii)For the period from the date of its formation through
September, 1999 (the "S Qualification Period"), the Company
was a validly electing S corporation within the meaning of
Sections 1361 and 1362 of the Code, and was a validly
electing S corporation in each state in which the Company
did business or was subject to Tax for such S Qualification
Period (but only if and to the extent each such state had
adopted the provisions of Subchapter S of the Code or
comparable provisions). Schedule 5.2(t) identifies each
Subsidiary of the Company that was a "qualified subchapter S
subsidiary" within the meaning of Section 1361(b)(3)(B) of
the Code. Each such Subsidiary so identified was a qualified
subchapter S subsidiary for federal income Tax purposes and
for purposes of the income Taxes in each of the states in
which the Company or the qualified subchapter S Subsidiaries
do business or are subject to Tax (but only if and to the
extent each such state had adopted the provisions of
Subchapter S of the Code or comparable provisions), at all
times during the S Qualification Period.
(u) (Intentionally Omitted)
(v) Accounts Receivable. All of the accounts receivable shown on the
balance sheet contained in the Interim Financial Statements (A) reflect
actual transactions, (B) have arisen from bona fide transactions in the
ordinary and usual course of the conduct of the Business, and (C) are not
subject to any setoff or counterclaim and, except as set forth on Schedule
5.2(g), are fully collectible in accordance with the terms of the
underlying contracts, subject to the reserve(s) shown on the Interim
Financial Statements, which in all respects is (are) adequate.
(w) Inventory. The values at which Inventory is shown on the Interim
Financial Statements have been determined in accordance with GAAP and the
valuation policies (attached as Schedule 4.1(c)(v)) of the Company and its
Subsidiaries. Neither the Company nor any Subsidiary consigns inventory or
has a vendor managed inventory program with any third party.
(x) Employees; Labor Relations.
(i) Schedule 5.2(x) contains, as of the dates shown on such
Schedule, accurate and complete information as to names and
rates of compensation (whether in the form of salaries,
bonuses, commissions or other supplemental compensation now
or hereafter payable, including all employer contributions
under the Company's or any Subsidiary's retirement,
profit-sharing or other deferred compensation plans) of all
employees of the Company and the Subsidiaries (grouped by
entity and categories as indicated thereon) together with
information as to any employment contracts or severance
arrangements (oral and written) with any such employees, any
arrangements involving the indebtedness of such
28
employees to Company or any Subsidiaries and any
arrangements involving the indebtedness of Company or any
Subsidiaries to such employees in any amount. Schedule
5.2(x) of this Agreement also contains accurate and complete
information, as of the Closing Date, of the vested and
accrued vacation and sick pay (including the number of days
accrued therefor) for such employees. Schedule 5.2(x) set
forth which persons have signed the Company's form of
non-disclosure agreement, a copy of which is attached to
Schedule 5.2(x).
(ii) There are no amounts owing to any former officers or
employees of the Company or any Subsidiary (other than
pursuant to the terms of any Employee Plan), and there are
no persons previously employed by the Company or any
Subsidiary who now have or may have a legal right to return
to work or a legal right to be reinstated or re-engaged by
the Company or any Subsidiary.
(iii)Except as set forth on Schedule 5.2(x), there are no claims
pending or, to the Company's knowledge, threatened by any
employees against the Company or any Subsidiary. Schedule
5.2(x) contains a correct and complete list of all former
employees of the Company and each Subsidiary and an
indication whether the Company or Subsidiary, as the case
may be, has granted or obtained a release to or from such
employee. Except as described on Schedule 5.2(x), neither
the Company nor any Subsidiary is a party to any collective
bargaining or union contract and is not aware of any current
union organization effort or campaign with respect to its
employees.
(y) Insurance. Schedule 5.2(y) to this Agreement constitutes a full
and complete list of all insurance policies maintained by the Company and
its Subsidiaries. Except as reflected on Schedule 5.2(y), all such policies
are in full force and effect and, to the knowledge of the Company, no event
has occurred that would give any insurance carrier a right to terminate any
such policy. Neither the Company nor any Subsidiary has received a written
notice of any default, cancellation or non-renewal with respect to any of
such policies.
(z) Bank Accounts. Since January 1, 2001, there has been no change in
the banking or safe deposit arrangements of the Company and its
Subsidiaries and none of them have granted any powers of attorney. A list
of all bank accounts, safe deposit boxes and powers of attorney of the
Company and its Subsidiaries and of all Persons authorized to act with
respect thereto is set forth on Schedule 5.2(z).
(aa) Employee Benefits and Plans.
(i) Schedule 5.2(aa) to this Agreement lists all Employee Plans
of the Company and its Subsidiaries. Neither the Company nor
any of its
29
Subsidiaries is obligated to adopt any additional Employee
Plans. A copy of the Employee Plans and the summary plan
description, if any, for each Employee Plan, as well as
copies of any other summaries or descriptions of any such
Employee Plans that are currently provided to employees or
other beneficiaries have been made available to Acquisition
Corp.
(ii) Except as disclosed on Schedule 5.2(aa), each Employee Plan
is in compliance in all material respects with, and has been
administered in all material respects consistent with its
own terms and the applicable provisions of ERISA, the Code
and Regulations. The Company or its Subsidiaries, as the
case may be, have filed or caused to be filed annual reports
on Form 5500 for each Employee Plan for all years and
periods for which such reports were required and within the
time period required by ERISA and the Code, and true,
correct and complete copies of such reports, including the
dollar amounts contributed and level of contribution as a
percentage of compensation for each participant, for the
past three (3) years have been made available to Acquisition
Corp. The Company and its Subsidiaries have made all
payments and contributions (including employee salary
reduction payments) to each Employee Plan on a timely basis
as required by the terms of such plan and applicable
Regulations.
(iii)No non-exempt "prohibited transaction," as defined in
Section 406 of ERISA and Section 4975 of the Code, has
occurred in respect of any such Employee Plan, and no civil
or criminal action brought pursuant to Part 5 of Title I of
ERISA is pending or, to the knowledge of the Company
threatened in writing against any fiduciary of any such plan
with respect to such plan, which, in either of such events,
which would result in a Material Adverse Effect or Material
Adverse Change. (iv) Except as set forth on Schedule
5.2(aa), the Company and Subsidiaries have no pension plans
as defined in Section 3(2) of ERISA.
(v) Each Employee Plan that provides medical benefits has been
operated in material compliance with all requirements of
Section 4980B(f) of the Code and Sections 601 through 608 of
ERISA relating to continuation of group health coverage.
(vi) Neither the Company, its Subsidiaries, nor any entity that
is treated as a single employer with the Company pursuant to
Section 414(b), (c), (m) or (o) of the Code, currently
maintains any Employee Plan that is subject to Title IV of
ERISA, nor has the Company or any of its Subsidiaries
previously maintained any such plan that has
30
resulted in any liability or potential liability for the
Company or any of its Subsidiaries under said Title IV.
(vii)Neither the Company nor any of its Subsidiaries maintains
any plan or program, nor is any a party to any agreement
providing post-retirement medical benefits (other than
benefits required by law), death benefits or other
post-retirement welfare benefits.
(viii) Neither the Company, its Subsidiaries, nor any entity
referred to in Section 5.2(aa)(vi) maintains, or has ever
contributed to or been required to contribute to, any
multiemployer plan within the meaning of Sections 3(37) or
4001(a)(3) of ERISA.
(ix) There is no lawsuit or written complaint (including any
dispute of which the Company has received written notice
that might reasonably be expected to result in a lawsuit or
complaint against, by or relating to any Employee Plan or
any fiduciary, as defined in Section 3(21) of ERISA)
respecting or concerning an Employee Plan. No Employee Plan
is currently under examination by the Internal Revenue
Service or the Department of Labor, and neither the Company
nor any of its Subsidiaries has received notice from the
Internal Revenue Service or the Department of Labor of an
impending examination of any such Employee Plan.
(bb) Warranty Claims. All products manufactured by or on behalf of the
Company and/or the Subsidiaries meet all specifications therefor. There
have been no product warranty claims against the Company and its
Subsidiaries for the last two full calendar years.
(cc) Disclosure. To the knowledge of the Company, none of the
representations and warranties made by the Company in this Agreement
(including the Exhibits and Schedules hereto) or made in any certificate
furnished by the Company contains any untrue statement of a material fact
or omits to state any material fact, the omission of which would be
misleading in the light of the circumstances under which they were made.
5.3 Representations and Warranties of the Acquisition Companies. Pulse and
-----------------------------------------------------------
Acquisition Corp., jointly and severally, hereby represent and warrant to the
Company and the Principals as set forth below, provided that certain
representations and warranties are qualified by reference to the Schedules:
(a) Existence and Qualification: Power: Compliance With Laws. The
Acquisition Companies are corporations duly organized, validly existing and
in good standing under the laws of the State of Delaware. Each of Pulse and
Acquisition Corp. is duly qualified to transact business, and is subsisting
or in good standing, in each other jurisdiction in which the conduct of its
business or the ownership or leasing of its properties makes such
qualification necessary, except where the failure to so qualify and
31
to be in good standing will not act to materially impair the enforceability
of obligations, or ability to perform obligations under this Agreement.
Each of Pulse and Acquisition Corp. has all requisite corporate power and
authority to conduct its business, to own and lease its properties and to
execute and deliver this Agreement and consummate the transactions
contemplated hereby.
(b) Authority; Compliance With Other Agreements and Instruments and
Government Regulations. The execution and delivery of this Agreement and
the consummation of the transactions contemplated hereby by Pulse and
Acquisition Corp. have been duly authorized by all necessary corporate
action, and do not:
(i) except as set forth on Schedule 5.3(b), require any consent
or approval not heretofore obtained of any director,
stockholder, security holder or creditor of Pulse or
Acquisition Corp. or any other entity;
(ii) violate or conflict with any provision of the Certificates
of Incorporation or By-Laws of the Acquisition Companies;
(iii)except as set forth on Schedule 5.3(b), violate any
requirement of any Regulations applicable to Pulse or
Acquisition Corp.; or
(iv) except as set forth on Schedule 5.3(b), result in a breach
of, constitute a default under, or cause or permit the
acceleration of any obligation owed under, any indenture or
loan or credit agreement or any contract to which Pulse or
Acquisition Corp. is a party or by which they, or any of
their property is bound or affected.
(c) No Governmental Approvals Required. Other than the filings
provided for in Section 1.3, filings under the HSR Act, and those as set
forth on Schedule 5.3(c) (together, the "Acquisition Regulatory Filings"),
no authorization, consent, approval, order, license or permit from, or
filing, registration or qualification with, any governmental agency is
required to authorize or permit under applicable laws the execution and
delivery of this Agreement by Pulse or Acquisition Corp. and the
consummation by Pulse and Acquisition Corp. of the transactions
contemplated hereby.
(d) Brokers and Finders. Except as set forth on Schedule 5.3(d),
neither Pulse nor Acquisition Corp. has employed any broker or finder or
incurred any liability for any brokerage, finder's, or similar fees or
commissions in connection with the transactions contemplated herein.
(e) Actions. Except for those matters set forth on Schedule 5.3(e),
(i) there are no Actions pending as to which Pulse or Acquisition Corp. has
been served or has received written notice or, to the knowledge of Pulse or
Acquisition Corp., threatened in writing against or affecting Pulse or
Acquisition Corp. or any property of any of them, and (ii) there is no
reasonable basis, to the knowledge of Pulse or Acquisition Corp., for any
Action against or affecting Pulse or Acquisition Corp. or any property of
any of
32
them, that in the case of subsections (i) and (ii) above would have the
effect of prohibiting, preventing or impairing consummation of the
transactions specified in this Agreement by Pulse or Acquisition Corp.
(f) Binding Obligations. This Agreement will, when executed and
delivered by Pulse and Acquisition Corp., constitute the legal, valid and
binding obligation of each of Pulse and Acquisition Corp., enforceable
against each of Pulse and Acquisition Corp. in accordance with its terms,
except as enforcement may be limited by debtor relief laws or equitable
principles relating to the granting of specific performance and other
equitable remedies as a matter of judicial discretion.
(g) Board Approval. The respective Boards of Directors of Pulse and
Acquisition Corp. have (i) approved this Agreement and the transactions
contemplated hereby and (ii) determined that the Merger is advisable and on
terms fair to, and is in the best interest of, the respective stockholders
of Pulse and Acquisition Corp.
(h) Financing. Pulse and Acquisition Corp. have, as of the date of
this Agreement, and will have as of the Closing, a credit facility ("Credit
Facility") available to them sufficient to enable either or both of them to
finance payment of the Merger Consideration (the "Financing"), subject,
however, to the approval of the transaction provided for in or contemplated
by this Merger Agreement by the lender providing the Financing.
ARTICLE VI
COVENANTS
6.1 Interim Operations of the Company. The Company covenants and agrees
-----------------------------------
that, during the period from the date of this Agreement and continuing until the
earlier of the termination of this Agreement or the Effective Time, except as
expressly contemplated by this Agreement or the transaction described in
Schedule 6.1 or with the prior written consent of Pulse or Acquisition Corp.:
(a) The business of the Company and its Subsidiaries shall be
conducted only in the ordinary and usual course and substantially in
accordance with past custom and practice and in material compliance with
all applicable Regulations, and each of the Company and its Subsidiaries
shall use its reasonable best efforts to preserve its business organization
intact, keep available the services of its officers and employees, and
maintain its goodwill and existing relations with customers, suppliers,
landlords, creditors, agents and other business associates;
(b) Except for an amendment to its Certificate of Determination and to
its Articles of Incorporation to cure a prior overissue of Preferred Stock,
a copy of which amendments will be submitted to the Acquisition Companies
prior to filing for their review, the Company shall not (i) amend its
Articles or Certificate of Incorporation or By-Laws or those of any of its
Subsidiaries (or equivalent charter documents); (ii) split, combine or
reclassify the outstanding shares of capital stock of the Company or equity
interest in any Subsidiary; or (iii) declare, set aside or pay any dividend
payable in cash,
33
stock or property with respect to the shares of capital stock of the
Company or equity interests in any Subsidiary;
(c) Except for the exercise by the holders of outstanding Company
Stock Options, Warrants or shares of Preferred Stock of their purchase or
conversion rights with respect to the Company's Common Stock, neither the
Company nor any of its Subsidiaries shall (i) authorize, issue, sell,
pledge, dispose of or encumber any additional shares of, or securities
convertible or exchangeable for, or options, warrants, calls, commitments
or rights of any kind to acquire, any shares of capital stock of the
Company or capital stock or other equity interests in any Subsidiary,
except for options issued in the ordinary course of business pursuant to an
existing plan previously provided to the Acquisition Companies to
employees, directors and consultants for services rendered or to be
rendered to the Company or any Subsidiary, all of which options shall
terminate at the Effective Time; (ii) acquire directly or indirectly by
redemption or otherwise any shares of the capital stock of the Company or
any Subsidiary, except from former employees, directors and consultants
pursuant to agreements providing for the repurchase of shares in connection
with any termination of service in accordance with the terms of such
agreements and all applicable Regulations (including, without limitation,
state and federal securities laws); or (iii) acquire or make any material
investment, whether by purchase of stock or assets, merger or
consolidation, contributions to capital, property transfers or otherwise,
in any other entity;
(d) Neither the Company nor any of its Subsidiaries shall (i)
establish, adopt, enter into or amend any Employee Plan, except for any
amendments that are required by applicable Regulations, (ii) grant any
general or uniform increase in the rates of pay (including without
limitation, any severance pay), or benefits to officers, directors or
employees (or a class thereof), or (iii) other than in the ordinary course
of business consistent with past practice, grant any increase in the
compensation (including without limitation, severance pay) or benefits of
any director, officer or employee;
(e) Neither the Company nor any of its Subsidiaries shall sell (other
than sales of Inventory in the ordinary course of business), lease, or
otherwise dispose of any material Asset or property of the Company or any
Subsidiary or mortgage, pledge, or impose an Encumbrance on any Asset or
property of the Company or any Subsidiary, including the sale, lease, lapse
of rights in or other disposition of any of the Intellectual Property used
in the conduct of the Business. Notwithstanding the foregoing, however, the
Company intends to distribute the Concept (as defined in Schedule 6.1) and
certain related assets on or prior to the Effective Time in connection with
the Merger, as described in Schedule 6.1. The parties agree that this
distribution shall be based on an agreed value of $14,300 and shall be made
pro rata to the Shareholders; provided, however this provision does not in
any way negate the representation and warranty made by the Company in
Section 5.2(t)(vi) of this Agreement. The Company has advised the
Acquisition Companies that the distribution is in redemption of a portion
of the Shares (such portion to be determined by dividing such value by the
sum of such value and the amount of the Purchase Price).
34
(f) Neither the Company nor any of its Subsidiaries shall cancel or
waive any claims or rights with a value to the Company or any Subsidiary in
excess of $75,000;
(g) Neither the Company nor any of its Subsidiaries shall make any
change in the accounting methods used by the Company or any Subsidiary,
except for changes required or mandated by GAAP;
(h) Neither the Company nor any of its Subsidiaries shall make any
capital expenditure or commitment for additional property, plant or
equipment of the Company or any Subsidiary which exceeds $75,000;
(i) Neither the Company nor any of its Subsidiaries shall make any
payment, discharge or satisfaction of any liability or obligation (whether
accrued, absolute, contingent or otherwise) in excess of $75,000, other
than the payment, discharge or satisfaction, in the ordinary course of
business, of liabilities or obligations incurred in the ordinary course of
business;
(j) Neither the Company nor any Subsidiary shall make or change any
material election in respect of Taxes, adopt or change any accounting
method in respect of Taxes, enter into any closing agreement, settle any
claim or assessment in respect of Taxes (except settlements effected solely
through payment of immaterial sums of money), or consent to any extension
or waiver of the limitation period applicable to any claim or assessment in
respect of Taxes; and
(k) Neither the Company nor any of its Subsidiaries shall authorize or
enter into an agreement to do any of the foregoing in subsections (b)-(j)
or to breach any of the covenants in subsection (a) of this Section 6.1.
Notwithstanding anything to the contrary set forth elsewhere in this
Agreement, the Company may not modify, supplement or amend Schedule 6.1
following the execution of this Merger Agreement without the prior written
consent of the Acquisition Companies, which consent shall not be unreasonably
withheld or delayed
6.2 Conduct. During the period from the date of this Agreement and
-------
continuing until the earlier of the termination of this Agreement or the
Effective Time, except as expressly contemplated or permitted by this Agreement
or with the other party's prior written consent, neither Pulse or Acquisition
Corp., on the one hand, nor the Company, any Principal or any Subsidiary, on the
other hand, shall, except in any case as may be required by law or existing
contractual obligations; (a) intentionally taking any action which would make
any of its representations or warranties contained in this Agreement materially
untrue or materially incorrect or prevent it from performing or cause it not to
perform its covenants hereunder in any material respect; (b) intentionally
taking any action that will result in any of the conditions to the Merger set
forth in Article VII not being satisfied or in a violation of any provision of
this Agreement; or (c) intentionally taking any other action that would
materially adversely delay or materially adversely impair the ability of Pulse
and Acquisition Corp., on the one hand, or the Company, the Principals or the
Subsidiaries, on the other hand, to consummate the Merger and the other
transactions contemplated by this Agreement.
35
6.3 Filings; Consents; Other Action. Subject to the terms and conditions
---------------------------------
herein provided, the Company and the Acquisition Companies shall (a) promptly
make their respective filings and thereafter make any other required submissions
under the HSR Act and other Company Regulatory Filings and Acquisition
Regulatory Filings; (b) use their commercially reasonable best efforts to
promptly take, or cause to be taken, all other action and do, or cause to be
done, all other things necessary, proper or appropriate to consummate and make
effective the transactions contemplated by this Agreement as soon as
practicable, including using their reasonable best efforts to obtain the
consents and approvals referred to on Schedules 5.2(d) and 5.3(b); and (c) Pulse
and Acquisition Corp. shall use their reasonable best efforts to obtain the
Financing and the approval of its lender to the transaction provided for in this
Merger Agreement, which Financing, if available under the terms of the Credit
Facility, shall be accepted by Pulse and Acquisition Corp. Each party agrees to
reasonably cooperate with the other parties for the purpose of obtaining prior
to Closing all consents and approvals required in connection with this Agreement
and the transactions contemplated hereby and thereby.
6.4 Access. Upon reasonable notice, the Company shall (and shall cause each
------
of its Subsidiaries to) afford Pulse's Representatives access, during normal
business hours and upon reasonable request throughout the period commencing on
the date hereof until the Effective Time ("Due Diligence Period"), to the
Business, Assets, Contracts, Books, and Records of itself and its Subsidiaries.
During such period, the Company shall (and shall cause each of its Subsidiaries
to) furnish promptly to Pulse all information concerning the Business, Assets
and personnel of itself and its Subsidiaries as Pulse or its Representatives may
reasonably request; provided, however, that all communications, meetings, visits
and other contacts with the Company's and the Subsidiaries' customers shall
comply with the procedures set forth in Schedule 6.4. Such access may include,
but shall not be limited to, meetings with management, customer visits, plant
visits and legal, environmental and computer systems due diligence. No
investigation pursuant to this Section 6.4 shall affect or be deemed to modify
any representation or warranty made by any party hereto or limit a party's right
to indemnification under Article XI of this Agreement.
6.5 Publicity. Promptly following execution and delivery of this Agreement
---------
by all parties, a press release in the form of Schedule 6.5 shall be issued by
Technitrol. Thereafter, neither the Principals, the Company nor any of their
respective Affiliates or Representatives shall issue any press release after the
date hereof or otherwise make any public statement with respect to the
transactions contemplated hereby without the consent of Pulse (which shall not
be unreasonably withheld, conditioned or delayed), except to the extent that the
disclosing party is advised by its counsel that such a press release or
statement is required by applicable Regulations, and then only after
consultation with Pulse. Also thereafter, Pulse shall consult with the
Principals before Pulse or any of its Affiliates or Representatives shall issue
any press release after the date hereof or otherwise make any public statement
with respect to the transactions contemplated hereby. The Company shall consult
with Pulse prior to making any filings with any foreign, federal or state
governmental or regulatory agency with respect to the Merger. Promptly after
making any filings with any foreign, federal or state governmental or regulatory
agency with respect to the Merger, Pulse shall send copies thereof to the
Company. Nothing in this Section 6.5 shall be construed to prohibit any party
from discussing the transaction contemplated by this Agreement with its bankers,
accountants, lawyers and other advisers who have a need to know. All actions
taken or omitted pursuant to this Section 6.5 shall
36
be in compliance with the requirements of Article XII hereof and, in the event
of a conflict, the provisions of Article XII shall prevail.
6.6 Further Assurances. Upon the terms and subject to the conditions
-------------------
contained herein, the parties agree, both before and after the Effective Time
(a) to use all commercially reasonable efforts to take, or cause to be taken,
all actions and to do, or cause to be done, all things necessary, proper or
advisable to consummate and make effective the transactions contemplated by this
Agreement, subject to the Financing approval described in Section 6.3
hereinabove, (b) to execute any documents, instruments or conveyances of any
kind which may be reasonably necessary or advisable to carry out any of the
transactions contemplated hereunder, and (c) to cooperate with each other in
connection with the foregoing. Without limiting the foregoing, the parties agree
to use their commercially reasonable efforts (i) to obtain all necessary
waivers, consents and approvals from other parties to the Contracts and Leases,
(ii) to obtain all necessary Permits as are required to be obtained under any
Regulations, (iii) to give all notices to, and make all registrations and
filings with, third parties, including without limitation, submissions of
information requested by governmental authorities, (iv) with respect to the
Company, to seek shareholder approval of this Agreement and the transactions
contemplated herein, and (v) to fulfill all conditions to this Agreement.
6.7 Employment Agreements. The employment agreements in effect on the date
---------------------
hereof between the Company and the Persons set forth on Schedule 6.7 shall be
terminated at and as of the Effective Time with no future liability to the
Company or Acquisition Companies.
6.8 Notification of Certain Matters. From the date hereof through the
---------------------------------
Effective Date, the Company and the Principals shall give prompt written notice
to the Acquisition Companies, and the Acquisition Companies shall give prompt
written notice to the Company and the Principals, of (a) the occurrence, or
failure to occur, of any event, which would be likely to cause any
representation or warranty contained in this Agreement, or in any exhibit or
schedule hereto, and made by such party, to be untrue or inaccurate in any
material respect at or prior to the Effective Time, and (b) any failure of the
Company or the Principals, or the Acquisition Companies, as the case may be, to
comply with or satisfy in any material respect any covenant, condition or
agreement to be complied with or satisfied by it under this Agreement or any
exhibit or schedule hereto. The Company and the Principals shall promptly notify
the Acquisition Companies in writing of any Default by any such party, the
threat or commencement of any material Action, or any material development that
occurs before the Effective Time that could affect the Company, its
Subsidiaries, the Shareholders, the Assets or the Business. If at any time prior
to the Effective Time, the Company or any Principal shall have actual knowledge
that any representation or warranty contained in this Agreement or in any
exhibit or schedule hereto and made by either of the Company or any Principal is
untrue or inaccurate in any material respect, the Company or the Principal(s),
as applicable, shall notify the Acquisition Companies. Further, if at any time
prior to the Effective Time, the Acquisition Companies shall have actual
knowledge that any representation or warranty contained in this Agreement or in
any exhibit or schedule hereto and made by either of the Acquisition Companies
is untrue or inaccurate in any material respect, Pulse shall notify the Company
and the Principals thereof. The giving of any notice, the providing of any
disclosure, modification of any schedule or any other action taken pursuant
hereto prior to or at the Effective Time shall not be deemed to cure
37
any breach of a representation, warranty, covenant or agreement to satisfy any
condition or to cause or result in a waiver or limitation of any right to
indemnification pursuant to Article XI following the Closing.
6.9 Tax Matters.
-----------
(a) With respect to any income Tax Return required to be filed by the
Company and its Subsidiaries from the date of this Agreement through the
Effective Time, the Company shall provide Pulse and its authorized
representatives with copies of such completed Tax Return at least fifteen
(15) Business Days prior to the due date (or extended due date if an
extension has been obtained) for the filing of such Tax Return. Pulse and
its authorized representatives shall have the right to review such Tax
Return prior to the filing of such Tax Return. The Company and Pulse agree
to consult and resolve in good faith any issues arising as a result of the
review of such Tax Return by Pulse and its authorized representatives. With
respect to the taxable year ending December 31, 2000, the Company will
prepare and file its income Tax Returns and pay any Taxes due, prior to the
Effective Time, subject to Pulse's review, as described herein.
(b) With respect to any income Tax Returns of the Company and its
Subsidiaries for any period that ends on, with respect to, or after the
Effective Time, the Company will, or Pulse will cause the Company to,
prepare and file such returns. The Tax Returns for the period ending on the
Effective Time shall be prepared consistent with past practice and
elections in effect on the date of execution of this Agreement, but, in any
event, such Tax Returns shall be prepared in accordance with applicable
law. In the event an election is made to waive the carry back of net
operating losses of the Company for its federal or state Tax Returns for
the period that commenced on January 1, 2001 and ends as of the Effective
Time, such waiver shall not be taken into account in taking the actions
referred to in Section 4.1(c)(vi).
(c) Prior to the Effective Time, the Company and its Subsidiaries
shall (i) make available to Pulse, as reasonably requested, copies of all
Tax Returns and associated workpapers for periods prior to the Effective
Time, and (ii) will cause its non-legal tax advisers to be reasonably
available to Pulse and its advisers for the purpose of discussing any Tax
matters relating to the Company and its Subsidiaries.
(d) After the Effective Time, Pulse and the Shareholders' Agent will
provide each other with such cooperation and information as either of them
reasonably may request of the other in filing any Tax Return, amended Tax
Return, determining a liability for Taxes or participating in or conducting
any audit or other proceeding in respect of Taxes. Without limiting the
scope of the foregoing, Pulse and the Shareholders' Agent shall each make
available to the other, as reasonably requested, all information, records
or documents in their possession relating to all Tax matters of the Company
and its Subsidiaries for all taxable periods prior to or including the
Effective Time and shall preserve all such information, records and
documents until the expiration of any applicable Tax statute of limitations
or extensions thereof. Neither Pulse, the Surviving Corporation nor their
respective affiliates, successors or assigns shall settle or otherwise
compromise any amount alleged by any taxing authority to be due (all or any
material
38
portion of which the Shareholders may be responsible for pursuant to this
Agreement) without the advance written consent of the Shareholders' Agent
(which consent shall not be unreasonably withheld or delayed).
(e) To the extent the Surviving Corporation or its Affiliates,
successors or assigns obtains a tax refund or derives a tax benefit (either
being herein referred to as a "Tax Benefit") on one or more federal or
state Tax Returns in connection with the matters described in Section
4.1(c)(vi), which Tax Benefit is in excess of the amount recorded as a
receivable on the Closing Balance Sheet pursuant to Section 4.1(c)(vi),
Pulse shall promptly pay the difference into the Escrow Fund, to be held
and disbursed as provided in the Escrow Agreement. In the event the amount
recorded as a receivable on the Closing Balance Sheet pursuant to Section
4.1(c)(vi) exceeds the amount of such Tax Benefit, the difference shall be
paid promptly to Pulse from the Escrow Fund (and the Acquisition Companies
shall not seek separate indemnification for such amounts). If the Escrow
Fund has already been disbursed, any such payment to the Shareholders shall
be distributed directly. Any payment required hereunder by Pulse or the
Escrow Fund shall be accompanied by interest on the amount paid at the
Earned Rate from the Effective Date to the date on which such payment is
made.
6.10 Shareholders' Agent.
-------------------
(a) ▇▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇, in an individual capacity and not as a
Principal or Shareholder, shall be constituted and appointed as agent
("Shareholders' Agent") for and on behalf of the Company's Shareholders and
holders of Common Stock Options and Warrants and the Shareholders' Agent
shall have the exclusive right, power and authority on their behalf, to:
(a) resolve and settle all claims and disputes relating to this Agreement
and the Escrow Agreement, including, without limitation, claims and
disputes over the amount of the Net Worth under Section 4.1(c) of this
Agreement, claims for indemnification under Article XI of this Agreement
and the disbursement of the Escrow Fund; (b) give and receive notices under
Section 9.7 of this Agreement; (c) give and receive notices and
communications under the Escrow Agreement to authorize delivery to Pulse
and Acquisition Corp. of property from the Escrow Fund in satisfaction of
claims by them, to object to such deliveries; (d) agree to, negotiate,
enter into settlements and compromises of, and demand, and represent all
Shareholders and holders of Common Stock Options and Warrants at any,
mediation and/or arbitration in connection with this Agreement and/or the
Escrow Agreement and comply with orders of courts and awards of arbitrators
with respect to such claims; (e) take all other actions and exercise all
other powers granted to the Shareholders' Agent in this Agreement,
including any and all actions required or permitted to be taken by the
Shareholders' Agent under the Escrow Agreement; and (f) to take all actions
necessary or appropriate in the judgment of the Shareholders' Agent for the
accomplishment of the foregoing. Such agency may be changed by the holders
of a majority in interest of the Escrow Fund from time to time upon not
less than ten (10) days' prior written notice to Pulse. No bond shall be
required of the Shareholders' Agent, and the Shareholders' Agent shall
receive no compensation for his services. Notices or communications to or
from the Shareholders' Agent shall constitute notice to or from each of the
Shareholders. Any resolution or settlement of any claims by the
Shareholders' Agent shall be binding on each Principal, Shareholder and
39
holder of Common Stock Options and Warrants who is a party to the claim
(i.e., settlement of an indemnification claim) or is otherwise affected
thereby (i.e., reaching agreement with Pulse regarding any adjustment).
(b) The Shareholders' Agent shall not be liable for any act done or
omitted hereunder as Shareholders' Agent while acting in good faith, and
any act done or omitted pursuant to the advice of counsel shall be
conclusive evidence of such good faith. The Shareholders shall jointly and
severally indemnify the Shareholders' Agent and hold him harmless against
any loss, liability or expense incurred without gross negligence or bad
faith on the part of the Shareholders' Agent and arising out of or in
connection with the acceptance or administration of his duties hereunder.
(c) The Shareholders' Agent shall have reasonable access to
information about the Company or the Surviving Corporation and the
reasonable assistance of the Surviving Corporation's officers and employees
which is reasonably necessary for purposes of performing its duties and
exercising its rights hereunder, provided that the Shareholders' Agent
shall treat confidentially and not disclose any nonpublic information from
or about Company or the Surviving Corporation to anyone other than
Shareholder's Agent's attorneys and professional advisors and other persons
on a need to know basis who agree in advance thereof in writing to treat
such information confidentially; provided that Pulse is made a third party
beneficiary of any such confidentiality agreement.
6.11 Interim Covenants of the Principals. Each of the Principals covenants
-----------------------------------
and agrees that, during the period from the date of this Agreement and
continuing until the earlier of the termination of this Agreement or the
Effective Time, except with the prior written consent of Pulse or Acquisition
Corp., none of the Principals shall sell, dispose, pledge, assign or otherwise
transfer his Shares, Warrants or Company Stock Options, nor authorize nor enter
into an agreement to do any of the foregoing (except that the Principals may
exercise any Warrants or Company Stock Options).
ARTICLE VII
CONDITIONS
7.1 Conditions to Obligations of Each Party. The respective obligations of
---------------------------------------
each party to this Agreement to consummate and effect this Agreement and the
transactions contemplated hereby shall be subject to the satisfaction, at or
prior to the Effective Time, of each of the following conditions, any of which
may be waived, in writing, by agreement of all the parties hereto:
(a) Shareholder Approval. This Agreement and the Merger shall have
been duly approved and adopted by the requisite vote of the Shareholders in
accordance with the requirements of the CCC, the Company's Articles of
Incorporation and Bylaws and any shareholders' or other agreements
requiring or affecting the voting of Shares for the Merger or otherwise.
(b) Governmental and Regulatory Consents. The waiting period
applicable to the consummation of the Merger under the HSR Act shall have
expired or been
40
terminated. Except for the filings provided for in Section 1.3, the Company
Regulatory Filings, Acquisition Regulatory Filings and all other filings
required to be made prior to the Effective Time by the Acquisition
Companies or the Company with, and all consents, approvals, orders,
registrations and authorizations required to be obtained prior to the
Effective Time by the Acquisition Companies or the Company from,
governmental and regulatory authorities in connection with the execution
and delivery of this Agreement by the Company or the Acquisition Companies
and the consummation of the transactions contemplated hereby by the Company
and the Acquisition Companies shall have been made or obtained (as the case
may be) and no non-standard (i.e., permitted by applicable Regulations in
all instances) conditions shall be attached to any such consents.
(c) Actions. No court or governmental or regulatory authority of
competent jurisdiction shall have enacted, issued, promulgated, enforced or
entered any statute, rule, regulation, judgment, decree, injunction or
other order (whether temporary, preliminary or permanent) (collectively, an
"Order") which is in effect and makes illegal or prohibits consummation of
the transactions contemplated by this Agreement; provided that each party,
as applicable, shall have used reasonable efforts to obtain the removal of
any Order.
7.2 Additional Conditions to Obligations of Pulse and Acquisition Corp. The
------------------------------------------------------------------
obligation of Pulse and Acquisition Corp. to consummate the Merger is subject to
the fulfillment of each of the following conditions, any or all of which may be
waived in whole or in part by Pulse and Acquisition Corp., as the case may be,
to the extent permitted by applicable law:
(a) Continuing Warranties: Certificate. The representations and
warranties of the Principals and the Company contained in Sections 5.1 and
5.2 shall be true and correct in all material respects on the date of this
Agreement, and as of the Effective Time as though made on and as of the
Effective Time, except for changes explicitly provided for by this
Agreement and except for those representations and warranties that address
matters only as of a particular date and which shall remain true and
correct in all material respects as of that date, and the Company shall
have performed in all material respects all of its covenants and
obligations hereunder theretofore to be performed, and the Acquisition
Companies shall have received at the Effective Time certificates to the
foregoing effect, dated the Effective Time, and executed by the Principals
and on behalf of the Company by an executive officer of the Company, in
form and substance reasonably satisfactory to the Acquisition Companies.
(b) Certain Authorizations and Consents. All Consents referred to in
Schedule 5.2(d) shall have been obtained by the Company, and no condition
shall be attached to any of such consents which, in the good faith judgment
of the Acquisition Companies, would materially and adversely affect the
business of the Company or the Surviving Corporation's performance of the
contract or other document which was the subject of the Consent. Any
landlord Consent which requires an increase in rents or an extension of the
lease term shall be deemed to materially and adversely affect the lease
which is the subject of such Consent.
41
(c) No Material Adverse Change. From and including the date hereof,
there shall not have occurred any event which has had a Material Adverse
Effect, nor has there occurred a Material Adverse Change.
(d) Opinion of Counsel to the Company. The Company and the Principals
shall have delivered to the Acquisition Companies an Opinion of ▇▇▇▇▇▇ &
▇▇▇▇▇▇▇, counsel to the Company, dated the Effective Time, in a form
reasonably acceptable to the Acquisition Companies and their counsel.
(e) Employment Agreements. All employment agreements listed on
Schedule 6.7 and all severance arrangements other than those set forth on
Schedule 5.2(x) shall have been terminated with no future liability to the
Company, the Acquisition Companies or the Surviving Corporation following
the Closing. ▇▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇ shall have executed and delivered the
employment, noncompetition and proprietary information agreements with the
Company substantially in the form appended hereto as Exhibit B. Each of the
Persons identified by the Acquisition Companies on Schedule 7.2(e) shall
have executed and delivered noncompetition agreements with the Company
substantially in the form of Exhibit C, effective at the Effective Time.
(f) Resignations. Resignations executed and delivered by each officer
and director of the Company and each of its Subsidiaries effective as of
the Effective Time shall have been delivered to the Acquisition Companies.
▇▇▇▇▇▇ ▇▇▇▇▇▇ shall have resigned as an employee of the Company and shall
have executed and delivered a release in favor of the Company in form and
substance reasonably satisfactory to the Acquisition Companies.
(g) Other Agreements. The Principals, Shareholders, the Shareholders'
Agent and other relevant Persons and the Company shall have executed and
delivered all documents reasonably necessary to cancel and terminate,
effective as of the Effective Time, all agreements affecting the ownership,
voting or transfer of Shares.
(h) Dissenter's Right. Not more than five percent (5%) of the Shares
outstanding on the date hereof shall be Dissenting Shares.
(i) Financing. The Financing described as Section 5.3(h) shall be
available to either of the Acquisition Companies, and the lender shall have
given all necessary approvals for the use of the Funds and to complete the
transactions contemplated hereby.
(j) Documents. At the Closing, the Company, Principals and/or
Shareholders, as applicable, shall deliver the following documents (in
addition to any other documents required to be delivered by them
hereunder):
(i) The Company shall execute and deliver at the Closing, the
Certificates of Merger;
(ii) The Escrow Agreement, the form of which is attached hereto
as Exhibit A, shall be executed and delivered by the
Shareholders' Agent and the Escrow Agent;
42
(iii)The Principals shall have delivered their stock
certificates (or lost share affidavits reasonably acceptable
to the Acquisition Companies) for capital stock of the
Company outstanding immediately prior to Closing, together
with their duly executed letters of transmittal in form and
substance reasonably satisfactory to the Acquisition
Companies;
(iv) The corporate record books including the minute book, stock
book and corporate seal of the Company and each of the
Subsidiaries;
(v) T. ▇▇▇▇▇▇▇ ▇▇▇▇▇ and any other person holding the same shall
each deliver to the designee of Pulse the certificates for
the shares of capital stock, owned by him (or registered in
his name) in each Subsidiary other than that listed or
described in Schedule 6.1, duly endorsed for transfer and
with all stock transfer stamps affixed and fees and taxes
required to be paid to effect such a transfer. Each such
transfer shall be without additional consideration; and
(vi) Such other documents reasonably requested by the Acquisition
Companies, to consummate or effectuate the transactions
provided for in this Agreement or contemplated hereby.
(k) Opinion of Financial Adviser. ▇▇▇▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇ & ▇▇▇▇▇
Capital shall, at least ten (10) days prior to the Closing, deliver to the
Company's Board of Directors its written opinion, dated the date of this
Agreement, to the effect that as of such date the Merger Consideration is
fair to the holders of the Shares, Common Stock Options and Warrants from a
financial point of view. The Company shall promptly upon receipt thereof,
but in all events by the next business day, deliver a copy of such written
opinion to the Acquisition Companies.
(l) Cancellation of Common Stock Options and Warrants. All Common
Stock Options and Warrants shall have been cancelled and the holders
thereof shall have become entitled to receive only their respective shares
of the Merger Consideration, as provided for in Section 4.1(d).
7.3 Additional Conditions to Obligations of the Principals and the Company.
----------------------------------------------------------------------
The obligations of the Company to consummate the Merger and the obligations of
the Principals hereunder, are subject to the fulfillment of each of the
following conditions, any or all of which may be waived in whole or in part by
the Company or the Principals to the extent permitted by applicable law:
(a) Continuing Warranties; Certificate. The representations and
warranties of the Acquisition Companies contained in Section 5.3 shall be
true and correct in all but non-material respects on the date of this
Agreement and on and as of the Effective Time as though made on and as of
the Effective Time, except for the changes contemplated by this Agreement,
and the Acquisition Companies shall have performed in all but non-material
respects all of their respective covenants and obligations hereunder
theretofore to be performed, and the Company shall have received at the
Effective Time certificates to the foregoing effect, dated the Effective
Time, and executed on behalf of the
43
Acquisition Companies by an executive officer of each of the Acquisition
Companies in form and substance reasonably satisfactory to the Company and
the Principals.
(b) Certain Authorizations and Consents. All Consents referred to in
Schedule 5.3(b) shall have been obtained by the Acquisition Companies,
except to the extent that the failure to obtain such consents would not act
to materially impair Acquisition Corp.'s or Pulse's ability to perform its
obligations under this Agreement.
(c) Employment Agreements. Acquisition Corp. shall have executed and
delivered to ▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇, and ▇▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇ shall have entered
into, an employment agreement with the Company, effective at the Effective
Time substantially in the form appended hereto as Exhibit B.
(d) Release from Guaranty. ▇▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇ shall have received a
full and unconditional release of all liabilities and obligations from all
other parties to the personal guaranty described on Schedule 5.2(k).
(e) Documents. At the Closing, Pulse and/or Acquisition Corp., as
applicable, shall deliver the following documents (in addition to any other
documents required to be delivered by them hereunder):
(i) Acquisition Corp. shall execute and deliver at the Closing,
the Certificates of Merger;
(ii) The Escrow Agreement, the form of which is attached hereto
as Exhibit A, shall be executed and delivered by Pulse, the
Surviving Corporation and the Escrow Agent; and
(iii)Such other documents reasonably requested by the Company or
the Principals to consummate or effectuate the transactions
provided for in this Agreement or contemplated hereby.
(f) Opinion of Financial Advisor. ▇▇▇▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇ & ▇▇▇▇▇
Capital shall, at least ten (10) days prior to the Closing, deliver to the
Company's Board of Directors its written opinion, dated the date of this
Agreement, to the effect that as of such date the Merger Consideration is
fair to the holders of the Shares, Common Stock Options and Warrants from a
financial point of view.
ARTICLE VIII
TERMINATION
8.1 Termination by Mutual Consent. This Agreement may be terminated and the
----------------------------
Merger may be abandoned at any time prior to the Effective Time, before or after
the approval by holders of the Company's shares of capital stock, by the mutual
written consent of Acquisition Corp., Pulse and the Company by action of their
respective Boards of Directors.
8.2 Termination By Either Pulse, Acquisition Corp. or the Company.
---------------------------------------------------------------------
Notwithstanding anything in this Agreement to the contrary otherwise provided,
this Agreement
44
may be terminated and the Merger may be abandoned by either Pulse, Acquisition
Corp. or the Company (and by written notice to the other parties) if the Merger
shall not have been consummated by July 31, 2001, provided that the terminating
party shall not have first breached its obligations hereunder in any manner that
contributed materially to the failure to consummate the Merger.
8.3 Termination by Pulse or Acquisition Corp. Notwithstanding anything in
----------------------------------------
this Agreement to the contrary otherwise provided, this Agreement may be
terminated and the Merger may be abandoned at any time prior to the Effective
Time, by either Pulse or Acquisition Corp. (with written notice to the
Shareholders' Agent and the Company) if (a) the Company or any of the Principals
shall have failed to comply in any material respect with any of their respective
covenants or agreements contained in this Agreement to be complied with or
performed by the Company or the Principals at the time of such termination, or
shall have failed to comply with any condition of Closing, and such failure has
not been cured within fifteen (15) days after notice to the Company and the
Principals from Acquisition Corp. or Pulse, provided that such time shall not
extend beyond July 31, 2001, (b) a material breach or misrepresentation of any
representation or warranty by the Company or any of the Principals contained in
this Agreement, (c) the Shareholder consents described in Section 7.1(a) have
not been obtained by July 31, 2001, or (d) the results of the customer visits
conducted by Pulse in accordance with Section 6.4 do not, in the reasonable
business judgment of Pulse, indicate that the Company sales for the Year 2001
will equal or exceed $55 million. If, as a result of such customer visits; Pulse
elects to terminate this Agreement, it will describe, with reasonable
particularity, in a written notice to the Shareholders' Agent and the Company
within five business days after the last customer visit, the adverse information
provided to it which led to its conclusion.
8.4 Termination by the Company or the Principals. This Agreement may be
--------------------------------------------
terminated and the Merger may be abandoned at any time prior to the Effective
Time by the Company or by the Principals (with written notice to the Acquisition
Companies) if (a) Acquisition Corp. or Pulse shall have failed to comply in any
material respect with any of the covenants or agreements contained in this
Agreement to be complied with or performed by Acquisition Corp. or Pulse, as
applicable, at the time of such termination, or shall have failed to comply with
any condition of Closing, and such failure has not been cured within fifteen
(15) days after notice to the Acquisition Companies from the Company, provided
that such time shall not extend beyond July 31, 2001, (b) a material breach or
misrepresentation of any representation or warranty by Acquisition Corp. or
Pulse contained in this Agreement, or (c) the Shareholder consents described in
Section 7.1(a) have not been obtained by July 31, 2001, provided the Company has
complied with Section 3.1 of this Agreement.
8.5 Effect of Termination. In the event of termination of this Agreement as
-----------------------
provided in Article VIII, this Agreement shall forthwith become void and there
shall be no liability or obligation on the part of the Acquisition Companies,
the Principals or the Company or their respective officers, directors,
securityholders or Affiliates, except to the extent that such termination arises
from or as a result of any other party's intentionally taking any action which:
(a) would make any of its representations or warranties contained in this
Agreement materially untrue or materially incorrect or prevent it from
performing or cause it not to perform its covenants hereunder in any material
respect; (b) will result in any of the conditions to the Merger set forth in
Article VII not being satisfied or in a violation of any provision of this
Agreement; or
45
(c) would materially adversely delay or materially adversely impair the ability
of Pulse and Acquisition Corp., on the one hand, or the Company, the Principals
or the Subsidiaries, on the other hand, to consummate the Merger and the other
transactions contemplated by this Agreement. The provisions of Article XII,
Sections 9.5, 11.8 and this Section 8.5 shall remain in full force and effect
and survive any termination of this Agreement.
ARTICLE IX
MISCELLANEOUS AND GENERAL
9.1 Payment of Expenses. Irrespective of whether or not the Merger shall be
-------------------
consummated, each party hereto shall pay its own legal, accounting, investment
banking, consulting, valuation and other advisory fees and out of pocket
expenses incident to preparing for, entering into and carrying out this
Agreement.
9.2 Modification or Amendment. Subject to the applicable provisions of both
-------------------------
the DGCL and the CCC, at any time prior to the Effective Time, the parties
hereto may (a) extend the time for the performance of any of the obligations or
other acts of the other parties thereto, (b) waive any inaccuracies in the
representations and warranties contained herein or in any document delivered
pursuant hereto, and (c) waive compliance with any of the agreements contained
herein. Any agreement on the part of a party hereto to any such extension or
waiver shall be valid only if set forth in a written instrument signed on behalf
of such party. Prior to the Effective Time, this Agreement may be amended only
with the written consent of all of the parties hereto.
9.3 Waiver of Conditions. The conditions to each party's obligation to
---------------------
consummate the Merger are for the sole benefit of such party and may be waived
by such party in whole or in part to the extent permitted by applicable law. If,
with actual knowledge of the failure of any condition, or the breach of any
representation, warranty or covenant of any of the Company, the Principals,
Pulse or Acquisition Corp, the party or parties for whose benefit such
condition, representation, warranty or covenant exists or was made elects to
proceed with the Closing, such condition, representation, warranty, or covenant
that is unsatisfied or breached at the Closing Date shall be deemed to be waived
and, if required by the other parties, the electing party shall so acknowledge
by a writing delivered at the Closing.
9.4 Counterparts. For the convenience of the parties hereto, this Agreement
------------
may be executed in any number of counterparts, each such counterpart being
deemed to be an original instrument, and all such counterparts shall together
constitute one and the same agreement.
9.5 Governing Law. This Agreement shall be governed by, and construed and
-------------
enforced in accordance with, the laws of the State of California, without giving
effect to its conflicts of law principles.
9.6 Director and Officer Indemnification. Pulse and Acquisition Corp. agree
------------------------------------
not to cause or allow the Surviving Corporation to modify, and to cause the
Surviving Corporation to honor, any and all rights to indemnification or
exculpation from liabilities for acts or omissions occurring at or prior to the
Effective Time now existing in favor of the officers and
46
directors of Company ("Indemnified Executives") as provided in its Articles of
Incorporation or Bylaws, as currently in effect. For a period of five (5) years
after the Effective Time, the Surviving Corporation shall maintain in effect a
directors' and officers' liability insurance policy covering those persons who
are covered by the Company's directors' and officers' liability insurance policy
with coverage in the amount and scope at least as favorable as the Company's
existing coverage with respect to all periods prior to the Effective Time. The
costs for such insurance policy shall be paid by the Company immediately prior
to the Effective Time. The provisions of this Section 9.6 are intended to be in
addition to the rights otherwise available to the officers and directors of the
Company by law, charter, statute, bylaw or agreement, and shall operate for the
benefit of, and shall be enforceable by, each Person who is or was a director or
officer of the Company, their heirs and their representatives.
9.7 Notices. All notices, requests, demands and other communications which
-------
are required or may be given under this Agreement shall be in writing and shall
be deemed to have been duly given when received, if personally delivered; when
transmitted, if transmitted by telecopy, electronic or digital transmission
method; the day after it is sent, if sent for next day delivery to a domestic
address by a recognized overnight delivery service (e.g., Federal Express); and
upon receipt, if sent by certified or registered mail, return receipt requested.
In each case notice shall be sent to:
if to Acquisition Corp.:
Pulse Acquisition Corporation
c/o Technitrol, Inc.
▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇ - ▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇-▇▇▇▇
Attention: ▇▇▇▇▇ ▇. ▇▇▇▇▇▇
By Fax: (▇▇▇) ▇▇▇-▇▇▇▇
with a copy to:
▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇, Esquire
Technitrol, Inc.
▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇ - ▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇-▇▇▇▇
By Fax: (▇▇▇) ▇▇▇-▇▇▇▇
if to Pulse:
Pulse Engineering, Inc.
c/o Technitrol, Inc.
▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇ - ▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇-▇▇▇▇
Attention: Chief Financial Officer
By Fax: (▇▇▇) ▇▇▇-▇▇▇▇
with a copy to ▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇ at the address provided above.
47
if to Company:
Excelsus Technologies, Inc.
▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇-▇▇▇▇
Attention: ▇▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇
By Fax: (▇▇▇) ▇▇▇-▇▇▇▇
with copies to:
▇▇▇▇▇▇ & ▇▇▇▇▇▇▇
▇▇▇ "▇" ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇,
▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇-▇▇▇▇
Attention: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇
By Fax: (▇▇▇) ▇▇▇-▇▇▇▇
and
▇▇▇▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇ & ▇▇▇▇▇▇▇
▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
By Fax: (▇▇▇) ▇▇▇-▇▇▇▇
if to a Principal, then it shall be sent to the Shareholders' Agent at the
address set forth above for the Company;
or to such other persons or addresses as may be designated in writing by the
party to receive such notice.
9.8 Entire Agreement. This Agreement (including all schedules and any
-----------------
exhibits or annexes hereto), (a) constitutes the entire agreement, and
supersedes all other prior agreements, understandings, representations and
warranties, both written and oral, among the parties, with respect to the
subject matter hereof, including, in particular but without limitation, the
Confidentiality Agreement and the Letter of Intent between Technitrol and the
Company dated March 14, 2001, and (b) shall not be assignable by operation of
law or otherwise; provided, however, that (i) Pulse and/or Acquisition Corp. may
assign their respective rights and duties under this Agreement to one or more
third parties (and any such third party transferees may further so assign)
provided that any such assignee or reassignee is an Affiliate of Pulse and is
bound by all of the terms and conditions of this Agreement. No assignment or
reassignment shall release Pulse or Acquisition Corp. from any of their
respective liabilities or obligations under this Agreement.
9.9 No Third Party Beneficiaries. Nothing in this Agreement express or
------------------------------
implied, is intended to confer upon any person (including, in particular, but
without limitation, the employees of the Company) other than the parties hereto
any rights or remedies under or by reason of this Agreement, except as set forth
in Sections 4.1, 4.2, 4.3, 4.4, 9.6 and Article XI.
48
9.10 Captions. The Article, Section and paragraph captions herein are for
--------
convenience of reference only, do not constitute part of this Agreement and
shall not be deemed to limit or otherwise affect any of the provisions hereof.
9.11 Representation By Counsel; Interpretation. The parties acknowledge
------------------------------------------
that each party to this Agreement has been represented by counsel in connection
with this Agreement and the transactions contemplated by this Agreement.
Accordingly, any rule of law, including but not limited to, Section 1654 of the
California Civil Code, or any legal decision that would require interpretation
of any claimed ambiguities in this Agreement against the party that drafted it,
has no application and is expressly waived.
9.12 Severability. If any provision of this Agreement is determined to be
------------
invalid, illegal or unenforceable, the remaining provisions of this Agreement,
to the extent permitted by law, shall remain in full force and effect and the
application of such provision to other persons or circumstances will be
interpreted so as reasonably to effect the intent of the parties hereto provided
that the essential terms and conditions of this Agreement for all parties remain
valid, binding and enforceable.. The parties further agree to replace such void
or unenforceable provision of this Agreement with a valid and enforceable
provision that will achieve, to the extent possible, the economic, business and
other purposes of such void or unenforceable provision.
ARTICLE X
DEFINITIONS
As used herein, the terms below shall have the following meanings. Any of
such terms, unless the context otherwise requires, may be used in the singular
or plural, depending upon the reference.
"Action" shall mean any action, claim, suit, litigation, proceeding,
arbitration, or governmental or agency audit, inquiry, or investigation,
including, without limitation, claims for indemnification.
"Affiliate" shall have the meaning set forth in the Securities Exchange Act
of 1934, as amended, and the rules and regulations thereunder.
"Assets" shall mean all of the right, title and interest in and to the
properties, assets and rights of any kind, wheresoever located and whether or
not reflected in the Books and Records, whether tangible or intangible, real or
personal, used in connection with, or related to, the Business owned by the
Company and each of its Subsidiaries or, in which the Company and each of its
Subsidiaries has any interest.
"Books and Records" shall mean (a) all records and lists of the Company and
each of its Subsidiaries pertaining to the Assets, (b) all records and lists
pertaining to the Business, customers, suppliers or personnel of the Company and
each of its Subsidiaries, (c) all product, business and marketing plans of the
Company and each of its Subsidiaries pertaining to the Business and (d) all
books, ledgers, files, reports, plans, drawings and operating records of the
Company and each of its Subsidiaries pertaining to the Business and computer
files.
49
"Business" shall mean the Company's and each of its Subsidiary's business
of developing, selling, marketing and distributing filters, splitters and other
signal transmission related components, systems and test equipment for Digital
Subscriber Line, Home Networking, and Residential Gateway applications.
"Business Day" shall mean any day other than a Saturday, Sunday or a day on
which federally chartered financial institutions are not open for business in
the City of San Diego, California.
"CCC" shall mean the California General Corporation Law, as amended from
time to time.
"Code" shall mean the U.S. Internal Revenue Code of 1986, as amended, and
the rules and regulations thereunder.
"Confidentiality Agreement" shall mean that certain Confidentiality
Agreement dated July 18, 2000, by and among the Company and Technitrol.
"Consent" shall mean any consent, waiver, approval, order or authorization
of, or registration, declaration or filing with, or notice to, any governmental
authority or other Person.
"Contract" shall mean any agreement, contract, note, loan, evidence of
indebtedness, purchase order, letter of credit, indenture, security or pledge
agreement, franchise agreement, covenant not to compete, employment agreement,
lease, license, instrument, obligation or commitment to which the Company and
each of its Subsidiaries is a party or by which the Company and each of its
Subsidiaries is bound and which relates to the Business or the Assets, whether
oral or written.
"Court Order" shall mean any judgment, decision, consent decree,
injunction, ruling or order of any federal, state, local or foreign court or
governmental agency, department or authority that is binding on any Person or
its property under applicable law.
"Default" shall mean a breach of or default under any Contract or Lease.
"DGCL" shall mean the Delaware General Corporation Law, as amended from
time to time.
"Employee Plans" shall mean all employee benefit plans as defined in
Section 3(3) of the Employee Retirement Income Security Act of 1974 ("ERISA")
and all severance, bonus, employment, stock option, restricted stock, stock
purchase, change-in-control, collectively bargained plans, incentive,
retirement, pension, profit sharing and deferred compensation plans and other
similar fringe or employee benefit plans, programs or arrangements, and all
employment or compensation agreements, written or otherwise, for the benefit of
or relating to any employee or former employee of, and related to employment by,
the Company and each of its Subsidiaries whether or not subject to ERISA.
"Encumbrance" shall mean any claim, lien, pledge, option, charge, easement,
security interest, deed of trust, mortgage, right-of-way, encroachment, building
or use restriction,
50
conditional sales agreement, encumbrance or other right of third parties,
whether voluntarily incurred or arising by operation of law, and includes,
without limitation, any agreement to give any of the foregoing in the future,
and any contingent sale or other title retention agreement or lease in the
nature thereof.
"Environmental Damages" shall mean any and all losses which are incurred at
any time as a result of the existence, in violation of and/or by operation of
applicable Environmental Requirements, at or prior to the Effective Time, of
Hazardous Materials upon, about or beneath the Real Property or migrating to or
from the Real Property, or the existence of a violation of Environmental
Requirements pertaining to the Real Property, regardless of whether the
existence of such Hazardous Materials or the violation of Environmental
Requirements arose prior to the present ownership or operation of the Real
Property. Notwithstanding the foregoing, Environmental Damages shall not include
consequential damages or damages comprised of lost income or profits.
"Environmental Requirements" shall mean all applicable Regulations of any
governmental authority in effect on the date of this Agreement relating to the
protection of human health or the environment, including, but not limited to,
the provisions cited within the definition of "Hazardous Materials", and (a) all
Regulations pertaining to reporting, licensing, permitting, investigation, and
remediation of emissions, discharges, releases or threatened releases of
Hazardous Materials and/or such other pollutants or contaminants subject to
regulation or control, and (b) all Regulations pertaining to the protection of
the health and safety of employees or the public.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as amended,
and the rules and regulations thereunder.
"Fixtures and Equipment" shall mean all of the furniture, fixtures, tools,
dies, furnishings, machinery, automobiles, trucks, equipment, and other tangible
personal property owned by the Company and each of its Subsidiaries and used in
connection with the Business, wherever located, and including any such Fixtures
and Equipment in the possession of any of the Company's suppliers, including all
warranty rights with respect thereto, all as are described on Schedule 5.2(m).
"Funded Debt" means (a) the aggregate indebtedness for borrowed money
(including the principal and accrued interest and prepayment and other penalties
and including the current portion thereof) of the Company and the Subsidiaries
to a bank, financing institution, individual, leasing company, or any other
Person which, under GAAP, is required to be shown as indebtedness on a balance
sheet or any other transaction having the commercial effect of borrowing money
or any guarantees by the Company and the Subsidiaries of any of the foregoing
which are due and owing as of the Closing, (b) all indebtedness for the deferred
purchase price of property or services (other than current trade liabilities
incurred in the ordinary course of business and payable in accordance with
customary practices), (c) any other indebtedness which is evidenced by a note,
bond, debenture or similar instrument, (d) all capital lease obligations to pay
rent and other amounts under any lease of (or other arrangement conveying the
right the use) real or personal property, or a combination thereof, which
obligations are required to be classified and accounted for as capital leases on
a balance sheet
51
under GAAP, (e) all obligations in respect of outstanding letters of credit,
acceptances and similar obligations, and (f) all liabilities secured by any
Encumbrance on any property owned by the Company or any Subsidiary even though
the Company or any Subsidiary, as applicable, has not assumed or otherwise
become liable for the payment thereof.
"GAAP" means U.S. generally accepted accounting principles, consistently
applied from period to period.
"HSR Act" shall mean the ▇▇▇▇-▇▇▇▇▇-▇▇▇▇▇▇ Antitrust Improvements Act of
1976, as amended, and the rules and regulations thereunder.
"Hazardous Materials" shall mean any substances in concentrations or
conditions that are classified as of the date of this Agreement as (a) a
"hazardous" substance or waste, toxic substance and/or hazardous material
pursuant to applicable Regulations, including, without limitation, to the
Comprehensive Environmental Response, Compensation, and Liability Act of 1980,
as amended by the Superfund Amendments and Reauthorization Act of 1986, 42 USC
9601, et seq., the Solid Waste Disposal Act, as amended by the Resource
Conservation and Recovery Act of 1976 and the Hazardous and Solid Waste
Amendments of 1984, 42 USC 6901 et seq., the Federal Water Pollution Control
Act, as amended by the Clean Water Act of 1977, 33 USC 1251 et seq., the Clean
Air Act of 1966, as amended, 42 USC 7401 et seq., the Toxic Substances Control
Act of 1976, 15 USC 2601 et seq., or the Hazardous Materials Transportation Act,
49 USC 5101 et seq., and (b) asbestos-containing construction material; (c)
polychlorinated biphenyls in regulated concentrations; and (d) petroleum,
including crude oil or any fracture thereof, natural gas, natural gas liquids,
liquefied natural gas or synthetic gas usable for fuel.
"Intellectual Property" shall mean all intellectual property owned by the
Company or any Subsidiary, or currently used in the operation of the Business,
whether registered or unregistered, including the intellectual property set
forth below:
(a) all trade secrets and confidential business information (including
customer and supplier lists, ideas, research and development, know-how,
formulas, compositions, manufacturing and production processes and
techniques, technical data, designs, schematics and models, prototypes,
drawings, specifications, pricing and cost information, and business and
marketing plans and proposals);
(b) all trademarks, service marks, trade dress, logos, trade names,
collective and certification marks, and corporate names, together with all
translations, adoptions, derivations, and combinations thereof and goodwill
associated with the foregoing and including any registrations and renewals
in connection therewith;
(c) all inventions (whether domestic or international, patentable or
unpatentable and whether or not reduced to practice), including all
improvements thereto, and all patents, patent applications, and patent
disclosures, together with all reissuances, continuations,
continuations-in-part, divisions, revisions, extensions, and reexaminations
thereof, all statutory invention registrations and completed invention
disclosure forms.
52
(d) all copyrightable works, all copyrights, all maskworks and works
made for hire and all applications, registrations, and renewals in
connection therewith;
(e) all computer software (including all source and object code, data,
and any related documentation associated therewith);
(f) all rights to all domain names and web sites and goodwill
associated therewith;
(g) all other proprietary rights, methods, processes and products; and
(h) all copies and tangible embodiments thereof (in whatever form or
medium).
"Inventory" shall mean all supplies, raw materials, work-in-process, and/or
finished goods and other inventory used in the conduct of the Business and owned
by the Company and its Subsidiaries, wherever located.
"Knowledge" means actual knowledge of such fact or other matter and, as
used in this Agreement, the phrases "to the knowledge of the Company," "to the
Company's knowledge" or any phrases of similar import shall mean, collectively,
the actual knowledge of ▇▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇, ▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇
▇▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇ ▇▇▇▇▇▇▇▇ or T. ▇▇▇▇▇▇▇ ▇▇▇▇▇ after having reviewed
this Merger Agreement and the Schedules hereto with the Company's counsel and,
in connection with such review, having performed such further investigation,
review or analysis as they, in good faith, have deemed necessary or appropriate
under the circumstances. As used in this Agreement, the phrases "to the
knowledge of the Acquisition Companies," "to the Acquisition Companies
"knowledge," "to the knowledge of Pulse or Acquisition Corp." "to Pulse or
Acquisition Corp.'s knowledge" or any phrase of similar import shall mean,
collectively, the actual knowledge of ▇▇▇▇▇ ▇▇▇▇▇▇, III, ▇▇▇▇ ▇▇▇▇▇▇▇▇ and ▇▇▇
▇▇▇▇▇ ▇▇▇▇▇ after having reviewed this Merger Agreement and the Schedules hereto
with the Acquisition Companies' counsel and, based thereon, having performed
such further investigation, review or analysis as they, in good faith, have
deemed necessary or appropriate under the circumstances.
"Liabilities" shall mean any direct or indirect liability, indebtedness,
obligation, commitment, expense, claim, deficiency or guaranty of or by any
person of any type, whether accrued, absolute, contingent, matured, unmatured or
other.
"Material Adverse Effect" or "Material Adverse Change" shall mean,
individually or in the aggregate, any material adverse effect upon or material
adverse change in the Business, Assets, financial condition or results of
operations of the Company and its Subsidiaries taken as a whole.
"Merger Consideration" shall have the meaning set forth in Section 4.1(a).
"Merger Consideration per Share" shall have the meaning set forth in
Schedule 4.1 (d).
53
"Net Worth" shall mean the amount of the total assets minus the amount of
the total liabilities as reflected on the consolidated balance sheet of the
Company as of the date in question, all determined in accordance with GAAP.
"Ordinary Course of Business" or "Ordinary Course" or any similar phrase
shall mean the ordinary course of the Business and consistent with the past
custom and practice of the Company and each of its Subsidiaries.
"Permits" shall mean all licenses, permits, franchises, approvals,
authorizations, consents or orders of, or filings with, any governmental
authority, whether foreign, federal, state or local, or any other Person,
necessary for the past or present conduct of, or relating to the operation of,
the Business.
"Person" shall mean any individual, firm, corporation, limited liability
company, partnership, trust, estate, association or other entity.
"Preferred Stock" shall have the meaning set forth in Section 3.1.
"Preferred Stock Conversion" shall have the meaning set forth in Section
3.1.
"Professional Fees" shall have the meaning set forth in Section 5.2(h).
"Purchase Price" shall mean the gross amount set forth in Section 4.1(a)
prior to the adjustments provided for in Section 4.1 to determine the Merger
Consideration.
"Real Property" shall mean that real property owned, leased or occupied by
the Company or its Subsidiaries as described on Schedule 5.2(n) hereto.
"Regulations" shall mean any laws, statutes, codes, ordinances,
regulations, rules, requirements, court decisions and orders of any federal,
state, local or foreign government (including the Hong Kong Special
Administrative Region and the Peoples' Republic of China) and any other
governmental department or agency.
"Representative" shall mean any officer, director, trustee, principal,
attorney, agent, employee or other representative.
"Shareholders" shall mean the holders of shares of the capital stock of the
Company.
"Shareholders' Agent" shall have the meaning set forth in Section 6.11.
"Tax" or "Taxes" means any federal, state, local, foreign (including,
without limitation, Hong Kong) or other local tax or other government charge in
the nature of a tax, including, without limitation, income, corporation, gross
receipts, profits, gains, capital stock, capital duty, franchise, withholding,
social security, unemployment, disability, premium, occupation, payroll,
property (including real and personal), transfer, commercial rent, wealth,
welfare, stamp, excise, sales, use, value added, customs, duties, alternative
minimum, estimated or similar tax (including any fee, assessment, or other
charge in the nature of or in lieu of any
54
tax), and any interest and penalties, additions to tax or additional amounts in
respect of the foregoing, and including any transferee or secondary liability in
respect of any tax (whether imposed by law, contractual agreement or otherwise)
and any liability in respect of any tax as a result of being a member of any
affiliated, consolidated, combined, unitary or similar group.
"Tax Returns" shall mean all returns, reports, declarations, and
information returns and statements relating to Taxes, including any amendments
or supplements thereto, and the term "Tax Return" means any one of the
foregoing.
ARTICLE XI
INDEMNIFICATION
11.1 Indemnification by the Shareholders. Each of the Shareholders,
--------------------------------------
severally and not jointly, agrees to indemnify, defend and hold each of the
Acquisition Companies and their respective Representatives, shareholders and
Affiliates (collectively, the "Acquisition Indemnified Parties") harmless from
and against any and all claims, liabilities, losses and expenses, including
reasonable attorney's fees (collectively, "Losses and Expenses"), actually
incurred by any of the Acquisition Indemnified Parties in connection with or
arising from:
(a) any breach by the Company of any of the Company's covenants or
agreements in this Agreement or in any certificate delivered by the Company
pursuant hereto or in any other document to which the Company is a party
that is furnished in connection with this Agreement;
(b) any breach of any warranty or the inaccuracy of any representation
of the Company contained in this Agreement or any certificate delivered by
the Company pursuant hereto; or
(c) except with respect to any claim or Action disclosed in the
Financial Statements or disclosed on any Schedule hereto, any claim or
Action with respect to the Company arising from facts occurring prior to
the Effective Time, including, without limitation, the design, manufacture,
sale and distribution of product;
provided, however, that the Shareholders shall be required to indemnify and hold
the Acquisition Indemnified Parties harmless under Sections 11.1(a)-(c) with
respect to any Losses and Expenses incurred by them only to the extent that the
aggregate amount of such Losses and Expenses for which they are entitled to
indemnification exceeds $250,000 (the "Basket"), and then the Shareholders shall
only be liable for all Losses and Expenses in excess of the Basket.
Notwithstanding the foregoing, the maximum liability of the Shareholders shall
not exceed, in the aggregate, $15 million plus interest actually earned on the
Escrow Fund while held by the Escrow Agent (the "Cap"). The Escrow Fund shall be
the sole and exclusive remedy for the indemnity obligations of the Shareholders.
Any of the Acquisition Indemnified Parties may seek indemnification hereunder
against the Escrow Fund by delivering notice of such claim to the Escrow Agent
pursuant to the Escrow Agreement. Any indemnity payment under this Agreement
shall be treated as a purchase price adjustment for federal, state and local Tax
purposes.
55
11.2 Indemnification by the Principals. Each of the Principals, severally
---------------------------------
and not jointly, agrees to indemnify, defend and hold each of the Acquisition
Indemnified Parties harmless from and against any and all Losses and Expenses
actually incurred by any of the Acquisition Indemnified Parties in connection
with or arising from:
(a) any breach by the Principals of any covenant or agreement in this
Agreement or in any certificate delivered by the Principals pursuant
hereto; or
(b) any breach of any warranty or the inaccuracy of any representation
of the Principals contained in this Agreement or any certificate delivered
by the Principals pursuant hereto;
provided, however, that the maximum liability of each Principal shall not exceed
the portion of the Merger Consideration actually received by such Principal. Any
of the Acquisition Indemnified Parties may seek indemnification hereunder
against the Principals by delivering notice of such claim to such Principal and
the Escrow Agent pursuant to the Escrow Agreement. Any indemnity payment under
this Section shall be treated as a purchase price adjustment for federal, state
and local Tax purposes.
11.3 Indemnification by Acquisition Companies. Acquisition Corp. and Pulse
----------------------------------------
agree to indemnify, defend and hold the Company and the Shareholders and their
respective Representatives, shareholders and Affiliates (collectively, the
"Company Indemnified Parties") harmless from and against any and all Losses and
Expenses actually incurred by them in connection with or arising from:
(a) any breach by either Acquisition Company of any of their
respective covenants or agreements in this Agreement or in any certificate
delivered by either Acquisition Company pursuant hereto or in any other
document to which either of them is a party that is furnished in connection
with this Agreement;
(b) any failure by either Acquisition Company to perform any of its
respective obligations in this Agreement or in any other document to which
it is a party; or
(c) any breach of any warranty or the inaccuracy of any representation
of Pulse or Acquisition Corp. contained or referred to in this Agreement or
in any certificate delivered by or on behalf of them pursuant hereto;
All indemnification claims asserted by any of the Company Indemnified Parties
shall be brought on such Persons' behalf by the Shareholders' Agent as provided
for in Section 6.10 of this Agreement.
11.4 Basket Not Applicable; Insurance and Taxes.
------------------------------------------
(a) Notwithstanding anything to the contrary contained in this
Agreement, in no event shall the Basket be applicable to Losses and
Expenses (i) arising as a result of a breach of the representations and
warranties set forth in Sections 5.1, 5.2(a), 5.2(b), 5.2(c), 5.2(d),
5.2(h), 5.2(j), 5.2(l) or 5.2(t)(vi) or (ii) which are due to actual fraud
by the Company.
56
(b) Notwithstanding the foregoing, in no event shall an Indemnified
Party (as defined below in Section 11.5 below) be entitled to
indemnification hereunder to the extent any Losses and Expenses are covered
by insurance proceeds actually received by the Indemnified Party. The
Indemnified Party shall make a good faith effort to obtain the benefit of
any such coverage.
(c) The amount of any indemnity payment otherwise required to be made
pursuant to this Agreement shall be reduced by the amount of any directly
corresponding foreign or domestic, federal, state or local income tax
benefit actually recognized and utilized to offset or reduce the tax
liability of the Indemnified Party from payment of the liability upon which
the claim for indemnity is based, but only to the extent that such income
tax benefit results in an actual reduction of income taxes due in the year
of payment of the claim for indemnity (or in a refund of income taxes
already paid) or such subsequent period prior to the full release of all
funds in the Escrow Fund.
11.5 Notice of Claims. Either of Acquisition Corp. or Pulse, on the one
----------------
hand, or the Shareholders' Agent on the other (the "Indemnified Party"), seeking
indemnification hereunder shall give to the party obligated to provide
indemnification to such Indemnified Party (the "Indemnitor") a notice (a "Claim
Notice") describing in reasonable detail the facts giving rise to any claim for
indemnification hereunder and shall include in such Claim Notice (if then known)
the amount or the method of computation of the amount of such claim, and a
reference to the provision of this Agreement or any other agreement, document or
instrument executed hereunder or in connection herewith upon which such claim is
based; provided, however, that a Claim Notice in respect of any claim, action at
law or suit in equity by or against a third Person, as described below in
Section 11.6, as to which indemnification will be sought shall be given promptly
after the claim, action or suit is commenced and served upon the Indemnified
Party; provided, further, that failure to give such notice shall not relieve the
Indemnitor of its obligations hereunder except to the extent it shall have been
actually prejudiced by such failure.
11.6 Third Person Claims.
-------------------
(a) Subject to Section 11.6(b), the Indemnified Party shall have the
right to conduct and control, through counsel of its choosing, the defense,
compromise or settlement of any Third Person claim, action or suit against
such Indemnified Party as to which indemnification will be sought by any
Indemnified Party from any Indemnitor hereunder, and in any such case the
Indemnitor shall cooperate in connection therewith and shall furnish such
records, information and testimony and attend such conferences, discovery
proceedings, hearings, trials and appeals as may be reasonably requested by
the Indemnified Party in connection therewith; provided, however, that the
Indemnitor may participate, through counsel chosen by it and at its own
expense, in the defense of any such claim, action or suit as to which the
Indemnified Party has so elected to conduct and control the defense
thereof; and provided, further, that the Indemnified Party shall not,
without the written consent of the Indemnitor (which written consent shall
not be unreasonably withheld, conditioned or delayed), pay, compromise or
settle any such claim, action or suit, except that no such consent shall be
required if, following a written request from the Indemnified Party, the
Indemnitor shall fail, within 10 days after the making of such request, to
acknowledge and agree or contest in writing that such
57
Indemnitor has an obligation to provide indemnification hereunder to such
Indemnified Party. Notwithstanding the foregoing, the Indemnified Party
shall have the right to pay, settle or compromise any such claim, action or
suit without such consent, provided, however, that in such event the
Indemnified Party shall waive any right to indemnity therefor hereunder
unless such consent is unreasonably withheld. The Indemnitor shall
reimburse the Indemnified Party for all Losses and Expenses (including,
without limitation, reasonable attorney's fees) on a periodic basis upon
presentation of evidence of such Losses and Expenses.
(b) If any Third Person claim, action or suit against any Indemnified
Party is solely for money damages and will have no continuing effect in any
material respect on the Indemnified Party, the Business or the Assets, then
the Indemnitor shall have the right to conduct and control, through counsel
of its choosing, the defense, compromise or settlement of any such Third
Person claim, action or suit against such Indemnified Party as to which
indemnification will be sought by any Indemnified Party from any Indemnitor
hereunder if the Indemnitor has acknowledged and agreed in writing that
Indemnitor has an obligation to provide indemnification to the Indemnified
Party in respect thereof, and in any such case the Indemnified Party shall
cooperate in connection therewith and shall furnish such records,
information and testimony and attend such conferences, discovery
proceedings, hearings, trials and appeals as may be reasonably requested by
Indemnitor in connection therewith; provided, however, that the Indemnified
Party may participate, through counsel chosen by it and at its own expense,
in the defense of any such claim, action or suit, as to which Indemnitor
has so elected to conduct and control the defense thereof. Notwithstanding
the foregoing, the Indemnified Party shall have the right to pay, settle or
compromise any such claim, action or suit, provided, further, that in such
event the Indemnified Party shall waive any right to indemnity therefor
hereunder unless the Indemnified Party shall have sought the consent of
Indemnitor to such payment, settlement or compromise and such consent was
unreasonably withheld, conditioned or delayed in which event no claim for
indemnity therefor hereunder shall be waived.
11.7 Payment and Right of Offset. Upon the final determination of a
------------------------------
liability under Section 11.1, 11.2 or 11.3 hereof, whether reached by written
agreement of the parties or pursuant to binding arbitration pursuant to Section
11.8 hereto, the appropriate party or parties shall pay to the other, within ten
(10) days after such determination, the amount so determined by agreement or by
arbitration, as the case may be. In the event that any of the Acquisition
Indemnified Parties is not paid in full pursuant to the foregoing provisions
promptly after any Principal's obligation to indemnify has been determined in
accordance herewith, such Acquisition Indemnified Party shall have the right,
notwithstanding any other rights that it may have against any other Person, to
set-off the unpaid amount of any such claim against any other amounts owed by it
under this Agreement or any other agreement or instrument to the Person so
determined to be liable to the Acquisition Indemnified Party. Upon the payment
in full of any claim, either by set-off or otherwise, the Person making payment
shall be subrogated to the rights of the Indemnified Party, if any, against any
Third Person with respect to the subject matter of such claim.
11.8 Binding Arbitration.
-------------------
58
(a) The Net Worth adjustment in Section 4.1(c) shall be resolved
exclusively in accordance with Section 4.1(c)(ii) hereof. With respect to
any other dispute arising out of, based upon, or in connection with this
Agreement, the matter shall be referred to the San Diego offices of the
American Arbitration Association ("AAA") for an informal, nonbinding
mediation consisting of one or more conferences between the parties in
which a retired judge will seek to guide the parties to a resolution of the
claims. The fees and expenses of the mediator shall be paid one-half each
by the Acquisition Companies, on the one hand, and the Company and the
Shareholders' Agent (payable solely from amounts available in the Escrow
Fund) on the other hand. The parties shall select a mutually acceptable
neutral from among the AAA panel of mediators. In the event the parties
cannot agree on a mediator, the Administrator of AAA will appoint a
mediator. The mediation process shall continue until the earliest to occur
of the following: (i) the claims are resolved, (ii) the mediator makes a
finding that there is no possibility of resolution through mediation, or
(iii) any party elects to terminate the mediation.
(b) Any dispute, controversy or claim, not resolved by mediation,
between or among the parties to this Agreement (the "Disputing Parties")
arising out of, based upon or related to this Agreement, or the breach
thereof, shall be settled by a single arbitrator by final and binding
arbitration, conducted in the State of California in accordance with the
Commercial Arbitration Rules of the American Arbitration Association (the
"AAA"). Such arbitration shall be administered by the AAA. Arbitration
shall be the exclusive remedy for determining any such dispute, regardless
of its nature. Unless mutually agreed by the parties otherwise, any
arbitration shall take place in San Diego County, California.
(c) The arbitrator shall be selected by the Disputing Parties within
fifteen (15) days after demand for arbitration is made by a Disputing
Party. If the Disputing Parties are unable to agree on an arbitrator within
such period, then each Disputing Party shall select one arbitrator, and
each such arbitrator shall select a third arbitrator and the dispute shall
be settled by the panel consisting of such three arbitrators (such panel,
or the single arbitrator agreed to by both parties, as the case may be,
being hereinafter referred to as the "Arbiter").
(d) This agreement to resolve any disputes by final and binding
arbitration shall extend to claims against any Representative, Subsidiary
or Affiliate of each party, and when acting within such capacity, any
officer, director, shareholder, employee or agent of each party, or of any
of the above, and shall apply as well to claims arising out of state and
federal statutes and local ordinances as well as to claims arising under
the common law. In the event of a dispute subject to this paragraph the
Disputing Parties shall be entitled to reasonable discovery subject to the
discretion of the Arbiter. The remedial authority of the Arbiter shall be
the same as, but no greater than, would be the remedial power of a court
having jurisdiction over the parties and their dispute. In the event of a
conflict between the Commercial Rules of the AAA and these procedures, the
provisions of these procedures shall govern.
(e) Except as may otherwise be agreed to in writing by the Disputing
Parties or as ordered by the Arbiter upon substantial justification, the
hearings of the dispute
59
shall be held and concluded within ninety (90) days of submission of the
dispute to arbitration. The Arbiter shall render its final award within
thirty (30) days following closing of the record. The Arbiter shall state
the factual and legal basis for the award. The decision of the Arbiter
shall be final and binding, and no appeal shall be permitted therefrom.
Final judgment may be entered upon such an award in state or federal court
having the arbitration jurisdiction thereof, but entry of such judgment
shall not be required to make such award effective.
(f) Any filing or administration fees shall be borne initially by the
Disputing Party requesting administration by the AAA. If more than one
Disputing Party requests such administration, the fees shall be borne
initially by the party incurring such fees as provided by the rules of the
AAA. The initial fees and costs of the Arbiter shall be borne equally
between the Disputing Parties. The prevailing party in such arbitration, as
determined by the Arbiter, and in any enforcement or other court
proceedings, shall be entitled, to the extent permitted by law, to
reimbursement from the other party for all of the prevailing party's
reasonable costs (including but not limited to the Arbiter's compensation),
expenses, and reasonable attorneys' fees.
Nothing in this Section shall limit any right that any party may otherwise have
to seek to obtain (i) preliminary injunctive relief in order to preserve the
status quo pending the disposition of any such arbitration proceeding or (ii)
temporary or permanent injunctive relief from any breach of any provision of
this Agreement.
11.9 Survival of Company's and Principals' Representations. Notwithstanding
-----------------------------------------------------
any investigations or inquiries made by the Acquisition Companies, (a) the
representations and warranties of the Principals and the Company shall survive
the Closing and shall continue in full force and effect (i) with respect to any
representation or warranty contained herein relating to tax or environmental
issues, for 60 days after the applicable statute of limitations, (ii) for an
unlimited period of time with respect to the representations and warranties in
Sections 5.1(a), 5.1(b), 5.1(c), 5.1(d), 5.2(a), 5.2(b), 5.2(c), 5.2(d), 5.2(j)
and 5.2(l) and (iii) with respect to any other representation or warranty, for
the period until March 31, 2003 and (b) the covenants and agreements of the
Shareholders, Principals and those covenants and agreements of the Company
required to be performed at or prior to the Closing shall survive the Closing
for so long as they remain applicable.
11.10 Survival of Acquisition Companies' Representations. Notwithstanding
---------------------------------------------------
any investigations or inquiries made by the Company, the Principals or the
Shareholders, (a) the representations and warranties of the Acquisition
Companies shall survive the Closing and shall continue in full force and effect
(i) for an unlimited period of time with respect to the representations and
warranties in Sections 5.3(a), 5.3(b) and 5.3(f), and (ii) with respect to any
other representation or warranty, until March 31, 2003 and (b) the covenants and
agreements of Technitrol, the Acquisition Companies and the Surviving
Corporation shall survive the Closing for so long as they remain applicable.
60
ARTICLE XII
CONFIDENTIALITY
12.1 Confidential Information.
------------------------
(a) No Disclosure. The parties acknowledge that the transactions
described herein are of a confidential nature and shall not be disclosed
except to key employees, consultants, advisors and Affiliates, or as
required by law, until such time as the parties make a public announcement
regarding the transaction as provided in Section 6.5.
(b) Preservation of Confidentiality. In connection with its evaluation
of the desirability of entering into a transaction with the Company, the
review of offering materials negotiation of this Agreement, the preparation
for the consummation of the transactions contemplated hereby, and the
performance of obligations hereunder, (collectively, the "Purposes"), each
of the Acquisition Companies acknowledges that it has had and will have
access to confidential information relating to the Company or the
Principals, including without limitation, financial information, technical,
manufacturing or marketing information, methods, developments, business
plans, scientific or statistical data, Intellectual Property, diagrams,
drawings or other proprietary information relating thereto, which
confidential information shall be deemed "Confidential Information" for
purposes of this Agreement. Notwithstanding anything to the contrary herein
contained, nevertheless, "Confidential Information" shall not include
information which (i) at the time of disclosure to a party is generally
available to the public or thereafter becomes available through a cause not
constituting a breach of this Agreement or this Article XII, (ii) at the
time of disclosure to a party is already in that party's possession, as can
be documented by written records in existence at the time of such
disclosure or otherwise substantiated, provided that such information is
not subject to another confidentiality agreement with, or other legal
obligation of secrecy or confidentiality to, the provider of such
information, (iii) becomes available to a party on a nonconfidential basis
from a person other than the provider of the information, so long as such
source is not otherwise subject to a confidentiality agreement with, or
other legal obligation of secrecy or confidentiality to, the provider of
the information, or (iv) is independently developed by a party.
(c) Disclosure of Confidential Information. Each of the Acquisition
Companies shall treat all Confidential Information as confidential,
preserve the confidentiality thereof and not disclose any Confidential
Information, except to its Representatives and Affiliates who need to know
such Confidential Information in connection with the transactions
contemplated hereby.
(d) Ownership. Until the Effective Time or the termination of this
Agreement, all Confidential Information shall remain the property of the
party who originally possessed such information. In the event of the
termination of this Agreement for any reason whatsoever, each of the
Acquisition Companies shall, and shall cause its Representatives to, return
to the Company all Confidential Information and all copies thereof, and
destroy all files, documents and other information that contain or embody
any Confidential Information, in whatever form or media. The Acquisition
Companies shall not use any Confidential Information in their respective
business or operations or in any manner other than for the Purposes.
61
(e) Legal Process. If Pulse or Acquisition Corp. or any of its
Representatives or Affiliates is requested or required (by oral questions,
interrogatories, requests for information or documents in legal
proceedings, subpoena, civil investigative demand or other similar process)
or is required by operation of law to disclose any Confidential
Information, it shall provide the Company with prompt written notice of
such request or requirement, which notice shall, if practicable, be at
least 48 hours prior to making such disclosure, so that the Company may
seek a protective order or other appropriate remedy and/or waive compliance
with the provisions of this Agreement. If, in the absence of a protective
order or other remedy or the receipt of such a waiver, Pulse or Acquisition
Corp. or any of its Representatives are nonetheless, in the opinion of
counsel, legally compelled to disclose Confidential Information, then it
may disclose that portion of the Confidential Information which such
counsel advises is legally required to be disclosed, provided that such
party uses its reasonable efforts to preserve the confidentiality of the
Confidential Information, whereupon such disclosure shall not constitute a
breach of this Agreement.
62
ARTICLE XIII
NO SOLICITATION
13.1 No-Shop Exclusivity. From and after the date hereof, until the
--------------------
termination or expiration of this Agreement as provided for in Article VIII
hereof (the "Exclusivity Period"), the Principals and the Company will not, and
the Company will cause each of its Subsidiaries, Representatives and Affiliates
not to, directly or indirectly, initiate, solicit, encourage, take any action to
facilitate or consider any inquiries, proposals or offers by any Person (except
the Acquisition Companies) relating to any Acquisition Proposal (as defined
below), or participate in any discussions or negotiations with, or disclose or
afford access to non-public information concerning the Company or its
Subsidiaries, or otherwise assist, cooperate with or encourage, or enter into
any agreement or understanding with any Person, in connection with any
Acquisition Proposal. The term "Acquisition Proposal" means any proposal
relating to a possible acquisition or change of control of the Company or any
Subsidiary by (i) merger, consolidation or similar transaction; (ii) sale of all
or a substantial proportion of the assets of the Company or any Subsidiary;
and/or (iii) sale of more than 15% of the equity securities (or securities
converted into equity securities) of the Company or any Subsidiary. In addition,
during the Exclusivity Period, the Principals and the Company will not, and the
Company will cause its Representatives and Affiliates not to, directly or
indirectly, make or authorize any statement, recommendation or solicitation in
support of an Acquisition Proposal made by any Person (other than the
Acquisition Companies). The Company shall promptly notify the Acquisition
Companies if any proposal or offer, or any inquiry or contact with respect
thereto, is made as well as the terms and conditions of any such proposal or
offer.
63
Each of the parties has duly executed and delivered this Agreement on the
date first hereinabove written.
EXCELSUS TECHNOLOGIES, INC.,
a California corporation
By: /s/ ▇▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇
---------------------------------------
▇▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇
President
PULSE ENGINEERING, INC.,
a Delaware corporation
By: /s/ ▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
---------------------------------------
Name: ▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
Title: President
PULSE ACQUISITION CORPORATION,
a Delaware corporation
By: /s/ ▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
---------------------------------------
Name: ▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
Title: President
PRINCIPALS:
/s/ ▇▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇
------------------------------------------
▇▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇, Individually
/s/ ▇▇▇▇▇▇▇ ▇. ▇▇▇▇
------------------------------------------
▇▇▇▇▇▇▇ ▇. ▇▇▇▇, Individually
PALOMAR, LLC
By: Mobius Trust Company, its Manager
By: /s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇
---------------------------------------
▇▇▇▇▇▇ ▇. ▇▇▇▇▇
Managing Director
64
SCHEDULES
NUMBER SUBJECT MATTER
------ --------------
4.1(c)(v) Inventory Valuation Policy
4.1(d) Merger Consideration; List of Shareholders, Option holders and
Warrant holders
5.1(a) Share Ownership of the Principals
5.1(c) Compliance with Other Instruments and Regulations
5.2(a) Articles and Bylaws
5.2(b) Company Subsidiaries
5.2(c) Company Capital Stock
5.2(d) Company Consents and Breaches
5.2(e) Company Governmental Approvals
5.2(g) Material Changes
5.2(h) Company Brokers and Finders
5.2(i) Company Actions
5.2(k) Company Material Contracts
5.2(1) Company Agreements to Sell Shares or Assets
5.2(m) Fixtures and Equipment
5.2(n) Company Real Property
5.2(o) Intellectual Property
5.2(p) Environmental Matters
5.2(q) Permits
5.2(r) Compliance with Regulations
5.2(t) Tax Matters
5.2(x) Labor Relations
5.2(y) Insurance
5.2(z) Bank Accounts
5.2(aa) Employee Benefits and Plans
5.3(b) Acquisition Corp. Consents, Breaches, etc.
5.3(c) Acquisition Corp. Governmental Approvals
5.3(d) Acquisition Corp. Brokers and Finders
5.3(e) Acquisition Corp. Actions
6.1 Interim Operations of Company
6.4 Procedures for Customer Visits
6.5 Form of Press Release
6.7 Company Employment Agreements
LETTER SUBJECT
------ -------
A Escrow Agreement
B Employment and Noncompetition Agreements for which ▇▇▇▇▇▇▇▇▇ ▇.
▇▇▇▇
C Form of Non-Competition Agreement
Pulse Acquisition Corporation
c/o Technitrol, Inc.
▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇ - ▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇-▇▇▇▇
July 6, 2001
Excelsus Technologies, Inc.
▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇-▇▇▇▇
Attention: ▇▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇
Re: MERGER TRANSACTION
------------------
Dear Sir or Madam:
This letter is being executed in connection with the Agreement and
Plan of Merger dated as of May 23, 2001 (the "Merger Agreement"), by and among
Excelsus Technologies, Inc. (the "Company"), the undersigned entities (the
"Acquisition Companies") and the other persons and entity signatory thereto and
hereto. All the capitalized terms used, but not defined, in this letter shall
have the meanings set forth in the Merger Agreement. This letter constitutes an
amendment to the Merger Agreement solely with respect to the matters set forth
herein.
1. The parties hereto confirm and agree that all payments made or to
be made by the Company to ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇ under paragraph 4 of the Confidential
Settlement and Release Agreement between ▇▇. ▇▇▇▇▇▇ and the Company (the
"Settlement Agreement") shall, to the extent unpaid, be accrued as a liability
on both the Company's Pre-Closing and Closing Balance Sheets. All payments to
▇▇. ▇▇▇▇▇▇ with respect to Common Stock Options held by ▇▇. ▇▇▇▇▇▇ shall be
treated in accordance with other payments made by the Company with respect to
Common Stock Options held by other individuals.
2. On or before July 20, 2001, the Company will provide the following
documents to the Acquisition Companies:
(a) a certificate from the Company signed by the Company's Chief
Financial Officer listing and representing (i) all payments made, or estimated
to be made pre-Closing, by the Company directly or indirectly as compensation
since the inception of the Company through the Effective Time with respect to
the individuals listed on Attachment I hereto and made a part hereof (the
"Affected Persons"); and (ii) all severance payments to be made to ▇▇▇▇▇▇ ▇.
▇▇▇▇▇▇ pursuant to Paragraph 4 of the Settlement Agreement; and such certificate
shall be countersigned by ▇▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇ in his individual capacity,
certifying and representing only as to the accuracy of the payments made, and
estimated to be made, to ▇▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇ or for his benefit; and
(b) a copy of a memorandum addressed to the Company from the
Company's outside legal counsel describing the circumstances of the reassignment
of ▇▇. ▇▇▇▇▇▇ from the position of Chairman and Chief Executive Officer of the
Company to Manager of Special Projects and the financial arrangements which were
entered into in connection with that reassignment and as a modification to his
existing employment agreement, which memorandum shall contain reasonable
Excelsus Technologies, Inc.
Attention: ▇▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇
July 6, 2001
Page 2
supporting details, and the accuracy of the facts in such memorandum shall be
certified to by the Company.
3. At the Closing the Company will provide to the Acquisition
Companies the following:
(a) a copy of the final report issued by PricewaterhouseCoopers,
LLP ("PWC") relating to the analysis prepared by PWC attached hereto as Exhibit
A (the "Analysis"), which report shall set forth the procedures undertaken by
PWC and the assumptions and other matters relied upon by them in connection with
the Analysis. The information in the final report and the Analysis as to the
amounts of compensation and severance payments made or to be made to the
Affected Persons shall be consistent with (i) the certificate described in
Paragraph 2(a) hereof; (ii) the amounts described in Paragraph 10 hereof and
(iii) the cash and other compensatory payments listed or described in the Proxy
and Information Statement, dated July 10, 2001, being distributed by the Company
to its shareholders in connection with the Merger (the "Proxy Statement");
except that all amounts and calculations in the Analysis that rely upon or are
derived from the Merger Consideration or the Merger Consideration per Share
shall be based upon the Merger Consideration, the estimated Merger Consideration
per Share and the assumptions relating to the determination of each (including
without limitation the conversion of the Preferred Stock into Common Stock), as
set forth in the Proxy Statement; and
(b) a Certificate of the Secretary of the Company (i) setting
forth (A) the proposals submitted to the Shareholders of the Company in the
Proxy Statement approving the Merger Agreement and the Company's Settlement
Agreement and Mutual Release with ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇ and (B) the proposal
submitted to the Shareholders of the Company in the Proxy Statement approving
certain payments made or to be made by the Company to T. ▇▇▇▇▇▇▇ ▇▇▇▇▇; and (ii)
specifying the percentage of the holders of the Company's Common Stock and
Preferred Stock that voted in favor of each proposal.
4. (a) Subject to their receiving on or before July 20, 2001 the items
set forth under Paragraph 2 and at the Closing the items set forth under
Paragraph 3 hereof, which are in form and substance reasonably satisfactory to
the Acquisition Companies, and, only with respect to payments made, or to be
made, to T. ▇▇▇▇▇▇▇ ▇▇▇▇▇, subject to the approval of the proposal described in
paragraph 3(b)(i)(B) above by the holders of the outstanding voting stock of the
Company in accordance with Section 280G of the Code, the Acquisition Companies
agree that payments made, or to be made, contingent on, or in contemplation of,
the Merger, to the individuals set forth in the Analysis, other than ▇▇▇▇▇▇ ▇.
▇▇▇▇▇▇, shall not be treated as "excess parachute payments" pursuant to Section
280G of the Code for purposes of the Pre-Closing and Closing Balance Sheets. All
such payments made, or to be made, will be treated by the Company on the
Company's 2001 short period Federal Income Tax Return covering the period from
January 1, 2001 to the Effective Time (the "2001 Tax Return") as fully
deductible for income tax purposes. On account of such deductions, the Company
will record an income tax refund receivable and/or a deferred tax asset on both
the Pre-Closing and Closing Balance Sheets, in accordance with Section
4.1(c)(vi) of the Merger Agreement. Nothing in this Paragraph, however, shall
limit or prohibit the Acquisition Companies' rights to seek indemnification
under Article XI of the Merger Agreement or exercise their rights under
Paragraph 5 of this letter agreement.
(b) Subject to their receiving on or before July 20, 2001 the
items set forth under Paragraph 2 and at the Closing the items set forth under
Paragraph 3 hereof, which are in form and substance reasonably satisfactory to
the Acquisition Companies, the Acquisition Companies agree that payments made,
or to be made, to ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇ pursuant to the Settlement Agreement
(collectively, the "▇▇▇▇▇▇ Payments"), shall not be treated as "excess parachute
payments" pursuant to Section 280G
Excelsus Technologies, Inc.
Attention: ▇▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇
July 6, 2001
Page 3
of the Code for purposes of the Pre-Closing and Closing Balance Sheets. All such
payments made, or to be made, will be treated by the Company on the 2001 Tax
Return as fully deductible for income tax purposes. On account of such
deductions, the Company will record an income tax refund receivable and/or a
deferred tax asset on both the Pre-Closing and Closing Balance Sheets, in
accordance with Section 4.1(c)(vi) of the Merger Agreement. Nothing in this
Paragraph, however, shall limit or prohibit the Acquisition Companies' rights to
seek indemnification under Article XI of the Merger Agreement or exercise their
rights under Paragraph 5 of this letter agreement.
5. Subject to the Company's recording an income tax refund receivable
and/or a deferred tax asset with respect to the ▇▇▇▇▇▇ Payments on both the
Pre-Closing and Closing Balance Sheets, in accordance with Section 4.1(c)(vi) of
the Merger Agreement and the agreement by the Acquisition Companies that the
▇▇▇▇▇▇ Payments shall not be treated as "excess parachute payments" pursuant to
Section 280G of the Code for purposes of the Pre-Closing and Closing Balance
Sheets, the parties agree that a portion of the amount held in the Escrow Fund
on March 31, 2003 (the "Extended Amount") shall continue to be held in the
Escrow Fund pursuant to the Escrow Agreement through and including March 15,
2005 or such later date if the Acquisition Companies and the Shareholders' Agent
mutually agree in writing in order to accommodate a request by the Internal
Revenue Service for an extension of the statute of limitations with respect to
the 2001 Tax Return. The portion of the Escrow Fund which shall constitute the
Extended Amount shall be determined on or before July 20, 2001 by mutual
agreement between the Company and the Acquisition Companies; provided, however,
that the Extended Amount shall not exceed $950,000. The Company shall endeavor
to obtain from PWC its computation of the Extended Amount and deliver the same
to the Acquisition Companies not later than July 10, 2001. Thereafter, the
parties shall proceed in good faith to agree upon the same. After March 31,
2003, the Extended Amount shall be available to the Acquisition Companies for
any and all Losses and Expenses suffered or incurred by the Acquisition
Companies or any of their Affiliates only with respect to, or relating to: (i)
the ▇▇▇▇▇▇ Payments, including without limitation, any tax, amount, interest
and/or penalties owing by the Company to the Internal Revenue Service with
respect to, or relating to the ▇▇▇▇▇▇ Payments and any and all reasonable legal
or other professional fees incurred by the Acquisition Companies, the Company
and/or their Affiliates in connection therewith; and (ii) any Action against the
Acquisition Companies or the Surviving Corporation with respect to the
distribution of the proceeds of the CAIS Note done by the Surviving Corporation
pursuant to the directions of the Shareholders' Agent. Notwithstanding anything
to the contrary, any Losses and Expenses related to the ▇▇▇▇▇▇ Payments shall
not be subject to the Basket requirement under Article XI of the Merger
Agreement.
6. (a) The Promissory Note dated January 1, 2001 executed by CAIS,
Inc. ("CAIS") in favor of the Company in original face amount of $1,400,000 (the
"CAIS Note") shall be retained by the Surviving Corporation following the
Closing. The parties agree that the Company shall not attribute any value to the
CAIS Note or any other asset collectible from CAIS on either the Pre-Closing or
the Closing Balance Sheet. The Acquisition Companies agree to cause the
Surviving Corporation to (i) deposit into the Escrow Fund, for the benefit of
the holders of Shares, Common Stock Options and Warrants, any and all payments
of any type or description (collectively, the "CAIS Payments") received by the
Surviving Corporation with respect to the CAIS Note (other than an
administrative fee of $50.00 per payment) within five (5) business days of
receipt; and (ii) notify the Shareholders' Agent in writing of the foregoing
with respect to each payment received. All CAIS Payments deposited into the
Escrow Fund on or before March 31, 2003, together with interest thereon, shall
be distributed on April 1, 2003, or as promptly thereafter as the Payment Agent
can reasonably do so, to the holders of Shares, Common Stock Options and
Warrants in accordance with their respective interests in the Escrow Fund at the
time of distribution. All CAIS Payments deposited into the Escrow Fund on or
after April 1, 2003 shall be distributed to the
Excelsus Technologies, Inc.
Attention: ▇▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇
July 6, 2001
Page 4
holders of Shares, Common Stock Options and Warrants in accordance with their
respective interests in the Escrow Fund at the time of distribution at any time
after December 31, 2003 at the sole direction of the Shareholders' Agent, and
the expenses of the Escrow Agent with resect to such distribution shall be
deducted from the amounts so distributed so as to be borne by the holders of
Shares, Common Stock Options and Warrants in accordance with their respective
interests in the Escrow Fund at the time of distribution. The parties
acknowledge and agree that the deposit of the CAIS Payments in the Escrow Fund
and the subsequent distribution thereof by the Escrow Agent is solely to
facilitate the distribution of the CAIS Payments to the holders of Shares,
Common Stock Options and Warrants. Notwithstanding anything to the contrary in
the Merger Agreement or the Escrow Agreement, the CAIS Payments together with
the interest thereon earned while such amounts are held in the Escrow Fund,
shall not be available to the Acquisition Companies or any other Persons to
satisfy any indemnification, reimbursement, adjustment or other obligations of
the Shareholders or the Principals under the Merger Agreement or otherwise.
(b) In the event that any payment under the CAIS Note is not
received by the Surviving Corporation within five (5) business days of when due,
appropriate accounting or collections personnel of the Surviving Corporation
shall endeavor, but shall not be obligated to, contact CAIS by telephone and in
writing and request that the delinquent payment be made immediately. In the
event that such payment is not received within five (5) business days of such
communication, the Surviving Corporation shall endeavor, but shall not be
obligated to, promptly notify the Shareholders' Agent in writing with a
description of such delinquent payment and the actions taken by the Surviving
Corporation personnel. From and after such notification to the Shareholders'
Agent, the Surviving Corporation shall have no duty or obligation to expend any
efforts or monies to collect such delinquent payment, including, but not limited
to, filing any claim in the event of a bankruptcy or insolvency of CAIS, or any
endorser of the CAIS Note. Further, neither the Surviving Corporation nor any of
its Affiliates shall incur or assume any liability for failure to collect all or
any amounts due under the CAIS Note for any reason, including, without
limitation, negligence or failure to act, other than as set forth in this
paragraph 6.
(c) The Surviving Corporation shall be entitled to follow the
directions of the Shareholders' Agent with respect to the disposition of the
proceeds of the CAIS Note and shall neither have nor incur any liability of any
kind for complying with such directions.
7. Section 7.3(d) of the Merger Agreement provides that one of the
conditions to the obligations of the Company to consummate the Merger and the
obligations of the Principals under the Merger Agreement is the receipt by
▇▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇ of a full and unconditional release (the "Release") of all
liabilities and obligations from all other parties to the personal guaranty
described on Schedule 5.2(k) to the Merger Agreement. The parties agree that in
the event that the Release is not obtained prior to the Closing, (i) the
Acquisition Companies shall, jointly and severally, and the Acquisition
Companies shall cause the Surviving Corporation to, defend, indemnify and hold
▇▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇ harmless from and against any and all claims, costs, expenses
and liabilities, including reasonable attorney's fees, arising out of or related
to any Action against ▇▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇ under the Guaranty; provided that only
the Surviving Corporation shall be liable for indemnification arising out of any
event or condition occurring or existing prior to the Effective Time; and (ii)
subject to the foregoing clause (i), ▇▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇ and the Company agree to
waive the satisfaction of the condition set forth in Section 7.3(d) of the
Merger Agreement.
8. The parties acknowledge and confirm that the obligations of the
Principals set forth in Section 3.1 of the Merger Agreement to vote in favor of
the Merger, the Merger Agreement and all
Excelsus Technologies, Inc.
Attention: ▇▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇
July 6, 2001
Page 5
transactions contemplated therein are subject to the prior affirmative vote of
the holders of a majority of the Company's Series A Preferred Stock to convert
all shares of Series A Preferred Stock into shares of Common Stock on a one for
one basis.
9. The parties agree that the obligation of the Company to call a
special meeting of the Shareholders within thirty (30) days following the
execution and delivery of the Merger Agreement by all parties, as set forth in
Section 3.1, is hereby extended to July 11, 2001. All references to July 31,
2001 in Sections 8.2, 8.3 and 8.4 of the Merger Agreement are hereby deleted and
replaced with August 7, 2001.
10. The parties hereby acknowledge and agree that T. ▇▇▇▇▇▇▇ ▇▇▇▇▇
holds a nonqualified option dated September 1, 2000 to purchase 35,000 shares of
the Company's Common Stock (the "September 1 Option"). Pursuant to a letter
agreement (the "Waiver Agreement") entered into by and between the Company and
▇▇. ▇▇▇▇▇ dated July 9, 2001, ▇▇. ▇▇▇▇▇ has agreed to waive the right to any
payment under his September 1 Option. In consideration for the waiver, the
Company has agreed to propose to the Shareholders that a cash payment be made to
▇▇. ▇▇▇▇▇ (the "Proposed Payment") equivalent to what ▇▇. ▇▇▇▇▇ would have been
entitled to in accordance with Section 4.1(d)(ii) of the Merger Agreement with
respect to the September 1 Option had ▇▇. ▇▇▇▇▇ not waived the right to payment
under the September 1 Option and the September 1 Option remained unexercised as
of the Effective Time. The Proposed Payment will only be made by the Company to
▇▇. ▇▇▇▇▇ if such payment is approved by a vote of the Company's Shareholders in
a manner that complies with Section 280G(b)(5) of the Code. The Proposed
Payment, if approved by the Company's shareholders, shall be made to ▇▇. ▇▇▇▇▇
net of pro-rata amounts to be deposited into the Escrow Fund and ▇▇. ▇▇▇▇▇ shall
be entitled to receive his pro-rata share of any amounts distributed to the
holders of Shares, Common Stock Options and Warrants from the Escrow Fund.
11. The parties hereby acknowledge and confirm that all payments to
the holders of Shares, Common Stock Options and Warrants shall be reduced,
pro-rata based on the gross Merger Consideration allocated to each such holder
under the Merger Agreement, for amounts to be deposited into the Escrow Fund,
including, without limitation, the payments to be made with respect to Common
Stock Options, as set forth in Section 4.1(d)(ii) of the Merger Agreement, and
Warrants, as set forth in Section 4.1(d)(iii) of the Merger Agreement. All
holders of Shares, Common Stock Options and Warrants shall be entitled to
receive their respective pro-rata share of any amounts distributed to the
holders of Shares, Common Stock Options and Warrants from the Escrow Fund. The
parties further acknowledge and confirm that the terms "Shareholder" and
"Shareholders" when used in the Merger Agreement in the context of any covenant,
obligation or benefit applicable to the Shareholders, including without
limitation the covenants, obligations and benefits of the Shareholders set forth
in Article IV, Section 6.9, Section 6.10 and Article XI, shall refer to and
include all holders of Shares, Common Stock Options and Warrants.
Excelsus Technologies, Inc.
Attention: ▇▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇
July 6, 2001
Page 6
12. Except as specifically amended hereby, the Merger Agreement and
all agreements entered into contemporaneously with the Merger Agreement shall
continue in full force and effect. In the event of any conflict between the
terms this letter and the terms of the Merger Agreement or the terms of any
other agreement entered into contemporaneously with the Merger Agreement, the
terms of this letter shall prevail.
Very truly yours,
PULSE ENGINEERING, INC.
By: /s/ ▇▇▇▇ ▇. ▇▇▇▇▇
-------------------------------------
Name: ▇▇▇▇ ▇. ▇▇▇▇▇
Title: Secretary
PULSE ACQUISITION CORPORATION
By: /s/ ▇▇▇▇ ▇. ▇▇▇▇▇
-------------------------------------
Name: ▇▇▇▇ ▇. ▇▇▇▇▇
Title: Secretary
Acknowledged and Agreed to:
EXCELSUS TECHNOLOGIES, INC.
By: /s/ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇-▇▇▇▇▇▇▇▇▇ Dated: July 6, 2001
-------------------------------
Name: ▇▇▇▇▇▇▇ ▇▇▇▇▇▇-▇▇▇▇▇▇▇▇▇
Title: Chairman
/s/ ▇▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇ Dated: July 6, 2001
----------------------------------
▇▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇, Individually
/s/ ▇▇▇▇▇▇▇ ▇. ▇▇▇▇ Dated: July 6, 2001
----------------------------------
▇▇▇▇▇▇▇ ▇. ▇▇▇▇, Individually
PALOMAR, LLC
By: Mobius Trust Company, its Manager
By: /s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇ Dated: July 6, 2001
-------------------------------
▇▇▇▇▇▇ ▇. ▇▇▇▇▇
Managing Director
Signature Page to Letter Amendment
to
Merger Agreement
LIST OF EXHIBITS AND ATTACHMENTS TO THE JULY 6, 2001 LETTER AGREEMENT
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Attachment I List of Affected Persons
Exhibit A PWC Report