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AGREEMENT AND PLAN OF REORGANIZATION
among
EFTC CORPORATION
RM ELECTRONICS ACQUISITION CORPORATION
and
RM ELECTRONICS, INC.
(d/b/a Personal Electronics)
dated as of March 31, 1998
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TABLE OF CONTENTS
Page
RECITALS .........................................................1
AGREEMENT.........................................................1
ARTICLE I
THE MERGER...............................................1
1.1 The Merger....................................1
1.2 The Closing...................................2
1.3 Effective Time................................2
1.4 Certain Tax Positions.........................2
1.5 Effect of Merger..............................2
ARTICLE II
SURVIVING CORPORATION....................................2
2.1 Articles of Incorporation.....................2
2.2 Bylaws........................................3
2.3 Directors.....................................3
2.4 Officers......................................3
ARTICLE III
EFFECT OF MERGER ON CAPITAL STOCK........................3
3.1 Effect on Capital Stock.......................3
3.2 Exchange of Certificates......................4
3.3 No Further Ownership Rights in Personal
Electronics Common Stock......................4
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF PERSONAL ELECTRONICS...5
4.1 Organization, Standing and Power..............5
4.2 Capitalization; Shareholders..................5
4.3 Subsidiaries..................................6
4.4 Due Authorization.............................6
4.5 Financial Statements..........................7
4.6 Absence of Certain Changes....................7
4.7 Liabilities...................................8
4.8 Accounts Receivable...........................8
4.9 Litigation....................................8
4.10 Restrictions on Business Activities...........8
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Page
4.11 Governmental Authorization....................9
4.12 Contracts and Commitments.....................9
4.13 Title to Property.............................9
4.14 Intellectual Property........................10
4.15 Environmental Matters........................11
4.16 Taxes........................................12
4.17 S Corporation and Other Matters..............13
4.18 Employee Benefit Plans.......................13
4.19 Employee Matters.............................15
4.20 Interested Party Transactions................15
4.21 Insurance....................................16
4.22 Compliance With Laws.........................16
4.23 Major Customers..............................16
4.24 Suppliers....................................16
4.25 Inventory....................................16
4.26 Product Warranty and Product Liability.......17
4.27 Minute Books.................................17
4.28 Brokers' and Finders' Fees...................17
4.29 Disclosure...................................17
4.30 ▇▇▇▇-▇▇▇▇▇-▇▇▇▇▇▇............................18
4.31 Pooling-of-Interests Treatment...............18
4.32 Applicability of Disclosure..................19
4.33 Conduct of Business..........................19
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUB.20
5.1 Organization, Standing and Power.............20
5.2 Capitalization...............................21
5.3 Due Authorization............................21
5.4 SEC Documents; Financial Statements..........22
5.5 Absence of Certain Changes...................23
5.6 Compliance with Laws.........................23
5.7 Brokers' and Finders' Fees...................23
5.8 Pooling-of-Interests Treatment...............23
5.9 Reliance.....................................23
5.10 Terms of the Merger..........................23
ARTICLE VI
CONDUCT PRIOR TO EFFECTIVE TIME.........................25
6.1 No Solicitation; Acquisition Proposals.......25
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Page
6.2 Notice of Breach.............................26
ARTICLE VII
ADDITIONAL COVENANTS....................................26
7.1 Access to Information........................26
7.2 Confidentiality..............................26
7.3 Publicity....................................27
7.4 Filings; Cooperation.........................27
7.5 Employment Matters...........................27
7.6 Stock Options................................27
7.7 Director Nominee.............................28
7.8 Further Assurances...........................28
7.9 Certain Tax Matters..........................28
7.10 Repayment and Cancellation of Notes..........29
7.11 Pooling-of-Interests.........................29
7.12 Publication of Financial Information.........29
7.13 Allocation of Taxes..........................30
7.14 Listing......................................31
ARTICLE VIII
CONDITIONS PRECEDENT....................................31
8.1 Conditions to Obligations of Each Party to
Effect the Merger............................31
8.2 Additional Conditions to Obligations of
Personal Electronics to Effect the Merger....32
8.3 Additional Conditions to the Obligations
of Parent and Merger Sub to Effect the
Merger...................................... 33
ARTICLE IX
RESTRICTIONS ON TRANSFER................................34
9.1 Legends......................................34
9.2 Notice of Proposed Dispositions..............35
ARTICLE X
TERMINATION, AMENDMENT AND WAIVER.......................35
10.1 Termination..................................35
10.2 Effect of Termination........................36
10.3 Amendment....................................36
10.4 Extension; Waiver............................36
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ARTICLE XI
GENERAL PROVISIONS......................................36
11.1 Survival of Representations and Warranties...36
11.2 Indemnification by Parent....................37
11.3 Notices......................................37
11.4 Interpretation...............................38
11.5 Counterparts.................................39
11.6 Entire Agreement; Nonassignability;
Parties in Interest..........................39
11.7 Severability.................................39
11.8 Remedies Cumulative; No Waiver...............39
11.9 Governing Law................................39
11.10 Charters and By-Laws.........................40
11.11 Rules of Construction........................40
11.12 Expenses. ..................................40
11.13 Attorneys Fees...............................40
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EXHIBITS
Exhibit 1.3 (A) Articles of Merger
Exhibit 1.3 (B) Plan of Merger
Exhibit 7.5 Form of Employment Agreement
Exhibit 8.2(c) Opinion of Counsel to Parent
Exhibit 8.2(d) Registration Rights Agreement
Exhibit 8.3(c) Opinion of Counsel to Personal Electronics
Exhibit 8.3(g) Indemnification Agreement
Exhibit 8.3(i) Form of Tax Representation Letter
Exhibit 8.3(l) Form of Pooling Representation Letter
SCHEDULES
Schedule 3.1 Personal Electronics Common Stock and Pro Forma Conversions
to Parent Common Stock
Schedule 7.6 Options Issuable by Parent
Personal Electronics Disclosure Schedule
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INDEX OF DEFINED TERMS
Page
Act ..................................1
Agreement ..................................1
Annual Financial Statements.........................7
Average Closing Price Per Share.....................4
CERCLA .................................11
Closing ..................................2
Closing Date ..................................2
COBRA .................................15
Code ..................................1
Confidential Information...........................26
Designee .................................28
Effective Time ..................................2
Employment Agreements..............................27
environment .................................11
Environmental Law .................................11
ERISA .................................14
ERISA Affiliate .................................14
Exchange Act .................................27
Exchange Ratio ..................................4
Governmental Entity.................................7
Hazardous Substance................................11
Holder .................................35
HSR Act .................................18
include .................................38
includes .................................38
including .................................38
Indemnification Agreement..........................33
Indemnification Threshold..........................37
Intellectual Property..............................10
Interim Personal Electronics Financial Statements...7
Inventory .................................16
knowledge .................................38
KPMG Peat Marwick .................................23
Lien ..................................5
Losses .................................37
made available .................................38
material .................................38
Material Adverse Effect............................38
Merger ..................................2
Merger Consideration................................3
Merger Sub ..................................1
Merger Sub Common Stock.............................4
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NASD .................................22
Parent ..................................1
Parent Balance Sheet Date..........................23
Parent Common Stock.................................1
Parent SEC Documents...............................22
Parent Stock Option Plans..........................21
PE Indemnified Parties.............................40
PE Shareholders ..................................1
Personal Electronics................................1
Personal Electronics Authorizations.................9
Personal Electronics Common Stock...................5
Personal Electronics Disclosure Schedule............5
Personal Electronics Employee Plans................14
Pre-Closing Period.................................29
Refund .................................30
Registration Rights Agreement......................32
release .................................11
Representatives .................................26
Restricted Period .................................29
Restricted Securities..............................34
Returns .................................13
SEC .................................22
Securities Act .................................16
Shareholder Indemnity Claim........................37
Surviving Corporation...............................2
Tax Items .................................30
Tax Partnerships .................................30
Taxes .................................13
Third Party Intellectual Property Rights...........10
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AGREEMENT AND PLAN OF REORGANIZATION
THIS AGREEMENT AND PLAN OF REORGANIZATION (this "Agreement"), dated as
of March 31, 1998, is among EFTC Corporation, a Colorado corporation ("Parent"),
RM ELECTRONICS ACQUISITION CORPORATION, a New Hampshire corporation and a
wholly-owned subsidiary of Parent ("Merger Sub"), and RM ELECTRONICS, INC., a
New Hampshire corporation doing business as Personal Electronics, Inc.
("Personal Electronics").
RECITALS
A. The Boards of Directors of Parent and Personal Electronics have
determined that a business combination between Parent and Personal Electronics
is in the best interests of their respective companies and shareholders, and
accordingly have approved this Agreement and the merger provided for herein
whereupon Merger Sub shall merge with and into Personal Electronics upon the
terms, and subject to the conditions, set forth herein. In addition, each of the
shareholders of Personal Electronics (collectively, the "PE Shareholders") has
approved this Agreement and the merger provided for herein.
B. This Agreement, and the exhibits and schedules contemplated hereby,
represent the entire transaction by which Parent is acquiring control of the
business conducted by Personal Electronics in exchange for an aggregate of
1,800,000 shares, subject to adjustment as specified herein, of the Common
Stock, $.01 par value, of Parent (the "Parent Common Stock").
C. The merger is intended to qualify, for federal income tax purposes,
as a tax-free reorganization within the meaning of Section 368(a) of the
Internal Revenue Code of 1986, as amended (the "Code"), and this Agreement is
intended to be a "plan of reorganization" within the meaning of the regulations
promulgated under Section 368 of the Code.
D. Parent, Merger Sub and Personal Electronics desire to make certain
representations, warranties and agreements in connection with the merger.
AGREEMENT
NOW, THEREFORE, in consideration of the foregoing, and of the
representations, warranties, covenants and agreements contained herein, the
parties hereto agree as follows:
ARTICLE I
THE MERGER
1.1 The Merger. Subject to the terms and conditions of this Agreement and
the New Hampshire Business Corporation Act (the "Act"), at the Effective Time
(as defined in Section 1.3), Merger Sub shall be merged with and into Personal
Electronics in accordance herewith and the separate corporate existence of
Merger Sub shall thereupon cease (the "Merger"). Personal
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Electronics shall be the surviving corporation in the Merger, and therefore is
sometimes hereinafter referred to as "Surviving Corporation."
1.2 The Closing. Subject to the terms and conditions of this Agreement,
the closing of the Merger (the "Closing") shall take place at the offices of
Holme ▇▇▇▇▇▇▇ & ▇▇▇▇ LLP, ▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇
▇▇▇▇▇, at 10:00 a.m., local time, within three business days following the day
on which the conditions set forth in Article VIII shall be fulfilled or waived
in accordance herewith, or at such other time or date as Parent and Personal
Electronics agree. The date on which the Closing occurs is hereinafter referred
to as the "Closing Date."
1.3 Effective Time. If all the conditions to the Merger set forth in
Article VIII shall have been fulfilled or waived in accordance herewith and this
Agreement shall not have been terminated as provided in Article X, the parties
hereto shall cause Articles of Merger and a Plan of Merger meeting the
requirements of Section 2.93-A: 11.01 et seq. of the Act to be properly executed
and duly filed in accordance with the Act on the Closing Date. Forms of the
Articles of Merger and Plan of Merger are set forth hereto as Exhibits 1.3 (A)
and (B). The Merger shall become effective at the time specified in the Articles
of Merger on the date they are accepted for filing by the Secretary of State of
the State of New Hampshire (the "Effective Time").
1.4 Certain Tax Positions. The parties hereto intend the Merger to qualify,
and will take the position for tax purposes that the Merger qualifies, as a
non-taxable reorganization under Sections 368(a)(1)(A) and (a)(2)(E) of the
Code.
1.5 Effect of Merger. At the Effective Time, the effect of the Merger
shall be as provided in this Agreement, the Articles of Merger and Plan of
Merger and the applicable provisions of the Act. Without limiting the generality
of the foregoing, and subject thereto, at the Effective Time all the property,
rights, privileges, powers and franchises of Personal Electronics and Merger Sub
shall vest in the Surviving Corporation, and all debts, liabilities and duties
of Personal Electronics and Merger Sub shall become the debts, liabilities and
duties of the Surviving Corporation.
ARTICLE II
SURVIVING CORPORATION
2.1 Articles of Incorporation. At the Effective Time, the Articles of
Incorporation of the Surviving Corporation shall be deemed amended as follows:
Article FOURTH of the existing Articles of Incorporation shall
be amended in its entirety so that as amended it reads as follows:
"FOURTH: The number of shares the Corporation is
authorized to issue shall be: One thousand (1,000) shares all
of which are of a par value of $.01 each, all are of the same
class and are common shares."
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and such Articles of Incorporation as in effect immediately prior to the
Effective Time and as amended hereby, shall be the Articles of Incorporation of
the Surviving Corporation until duly amended.
2.2 Bylaws. At the Effective Time, the Bylaws of the Surviving
Corporation shall be deemed amended and restated in the form of the Bylaws of
Merger Sub as in effect immediately prior to the Effective Time, until duly
amended in accordance with applicable law.
2.3 Directors. The directors of the Surviving Corporation shall be ▇▇▇▇
▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ and ▇▇▇▇▇▇ ▇▇▇▇▇▇.
2.4 Officers. The officers the of Surviving Corporation shall be ▇▇▇▇
▇▇▇▇▇▇▇▇, President, ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇, Treasurer and Secretary, ▇▇▇▇▇▇▇
▇▇▇▇▇▇▇▇, Vice President and Assistant Secretary, and ▇▇▇▇▇▇ ▇▇▇▇▇▇, Vice
President and Assistant Secretary.
ARTICLE III
EFFECT OF MERGER ON CAPITAL STOCK
3.1 Effect on Capital Stock. At the Effective Time, by virtue of the Merger
and without any action on the part of Parent, Merger Sub, Personal Electronics
or the holders of any of the following securities all of the following shall
occur:
(a) Conversion of Personal Electronics Common Stock.
(i) At the Effective Time, all issued and outstanding shares
of Personal Electronics Common Stock (as defined in Section 4.2) shall
no longer be outstanding, but instead shall be converted into the right
to receive an aggregate of 1,800,000 shares of Parent Common Stock,
subject to adjustment as follows (as adjusted, the "Merger
Consideration")
(A) if the Average Closing Price Per Share (as
defined below) is less than $13.89, the number of shares of
Parent Common Stock constituting the Merger Consideration will
be increased to a number equal to (i) $25,000,000, divided by
(ii) the Average Closing Price Per Share; and
(B) if the Average Closing Price Per Share is greater
than $16.67, the number of shares of Parent Common Stock
constituting the Merger Consideration will be decreased to a
number equal to (i) $30,000,000, divided by (ii) the Average
Closing Price Per Share.
Each share of Personal Electronics Common Stock will be converted into
the right to receive a number of shares of Parent Common Stock equal to
the aggregate number of shares of Parent Common Stock comprising the
Merger Consideration divided by one hundred, rounded to the sixth
decimal point (the "Exchange Ratio"). If, subsequent to the date of
this
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Agreement but prior to the Effective Time, the outstanding shares of
Parent Common Stock or Personal Electronics Common Stock are changed
into a different number of shares as a result of a stock split, reverse
stock split, stock dividend (including any dividend or distribution of
securities convertible into Parent Common Stock or Personal Electronics
Common Stock, as the case may be), subdivision, reclassification,
combination, exchange, recapitalization or other similar transaction,
the Exchange Ratio shall be appropriately adjusted.
(ii) Schedule 3.1 sets forth all shares of Personal
Electronics Common Stock outstanding as of the date of this Agreement,
along with a calculation of the shares of Parent Common Stock issuable
as of the Effective Time.
(iii) As used herein, the term "Average Closing Price Per
Share" means the average closing market price per share for shares of
the Parent Common Stock during the ten (10) consecutive trading days
ending on the third trading day prior to the Effective Time, as
reported by the Nasdaq Stock Market.
(b) Fractional Shares. No fraction of a share of Parent Common Stock
will be issued in the Merger. In lieu of such issuance, all shares of Parent
Common Stock issued to the PE Shareholders pursuant to this Agreement shall be
rounded up to the closest whole share of Parent Common Stock.
(c) Capital Stock of Merger Sub. At the Effective Time, by virtue of
the Merger and without any action on the part of any holder of any capital stock
of Parent, Merger Sub or Personal Electronics, each issued and outstanding share
of Common Stock, $.01 par value, of Merger Sub (the "Merger Sub Common Stock")
shall be converted into one (1) share of the Surviving Corporation's Common
Stock.
3.2 Exchange of Certificates. At the Closing each of the PE
Shareholders shall deliver to Parent stock certificates representing all of his
shares of Personal Electronics Common Stock endorsed in blank or accompanied by
duly executed assignment documents and Parent will deliver to each of the PE
Shareholders, in exchange for such shares of Personal Electronics Common Stock
so delivered, the number of shares of Parent Common Stock to which such
stockholder is entitled pursuant to Section 3.1 (a) hereof.
3.3 No Further Ownership Rights in Personal Electronics Common Stock.
All shares of Parent Common Stock issued upon surrender for exchange of shares
of Personal Electronics Common Stock in accordance with the terms hereof shall
be deemed to have been issued in full satisfaction of all rights pertaining to
such shares of Personal Electronics Common Stock, and there shall be no further
registration of transfers on the records of Surviving Corporation of shares of
Personal Electronics Common Stock that were outstanding immediately prior to the
Effective Time. If, after the Effective Time, Certificates are presented to
Surviving Corporation for any reason, they shall be canceled and exchanged as
provided in this Article III.
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ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF PERSONAL ELECTRONICS
Except as disclosed in a document of even date herewith and delivered
by Personal Electronics to Parent prior to the execution and delivery of this
Agreement and referring to the section number and subsection of the
representations and warranties in this Agreement (the "Personal Electronics
Disclosure Schedule"), Personal Electronics represents and warrants to Parent
and Merger Sub as follows:
4.1 Organization, Standing and Power. Personal Electronics is a
corporation duly organized and validly existing under the laws of the State of
New Hampshire, has the full corporate power to own its properties and to carry
on its business as now being conducted and is duly qualified to do business and
is in good standing in each jurisdiction in which the failure to be so qualified
and in good standing would not be reasonably expected to have a Material Adverse
Effect (as defined in Section 11.4) on Personal Electronics. Personal
Electronics has delivered to Parent a complete and correct copy of its Articles
of Incorporation and Bylaws, each as amended to date. Personal Electronics is
not in violation of any of the provisions of its Articles of Incorporation or
Bylaws or equivalent organizational documents. The Personal Electronics
Disclosure Schedule lists a complete and correct list of the officers and
directors of Personal Electronics.
4.2 Capitalization; Shareholders.
(a) The authorized capital stock of Personal Electronics consists of
300 shares of Personal Electronics Common Stock, no par value (the "Personal
Electronics Common Stock"), of which there are issued and outstanding 100
shares. There are no other outstanding shares of capital stock or other
securities of Personal Electronics and no outstanding subscriptions, options,
warrants, puts, calls, purchase or sale rights, exchangeable or convertible
securities or other commitments or agreements of any nature relating to the
capital stock or other securities of Personal Electronics, or otherwise
obligating Personal Electronics to issue, transfer, sell, purchase, redeem or
otherwise acquire such stock or securities. All outstanding shares of Personal
Electronics Common Stock are duly authorized, validly issued, fully paid and
non-assessable, are free and clear of any mortgage, pledge, lien, encumbrance,
charge or other security interest (a "Lien"), except Liens created by or imposed
upon the holders thereof, and are not subject to preemptive rights or rights of
first refusal created by statute, the Articles of Incorporation or Bylaws of
Personal Electronics or any agreement to which Personal Electronics is a party
or by which it is bound. There are not any options, warrants, calls, conversion
rights, commitments, agreements, contracts, understandings, restrictions,
arrangements or rights of any character to which Personal Electronics is a party
or by which Personal Electronics may be bound obligating Personal Electronics to
issue, deliver, or sell, or cause to be issued, delivered or sold, additional
shares of the capital stock of Personal Electronics or obligating Personal
Electronics to enter into such an option, warrant, call, conversion right,
commitment, agreement, contract, understanding, restriction, arrangement or
right. There are no contracts, commitments or agreements relating to voting,
purchase or sale of Personal Electronics' capital stock (i) between or among
Personal Electronics and any PE Shareholders and (ii) between or among any PE
Shareholders, except for the shareholders named in the Personal Electronics
Disclosure Schedule.
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Personal Electronics does not have any outstanding bonds, debentures, notes or
other indebtedness the holders of which have the right to vote (or convertible
or exercisable into securities having the right to vote) with holders of shares
of Personal Electronics Common Stock on any matter.
(b) Schedule 3.1 sets forth a true and complete list of the names of
all the record holders of Personal Electronics Common Stock, together with the
number of shares of Personal Electronics Common Stock held by each such holder.
Except as set forth in Schedule 3.1, each holder so listed that is an individual
is a competent adult and is the record and the beneficial owner of all shares or
other equity securities so listed in his or her name, with the sole right to
vote, dispose of, and receive dividends or distributions with respect to such
shares. Each holder so listed on Schedule 3.1 that is an entity is the record
and beneficial owner, or if a trust, its beneficiaries are the beneficial owners
of, all shares or other equity securities so listed in its name, has the sole
right to vote, dispose of, and receive dividends or distributions with respect
to such shares, has the full power and authority, and has or will be fully
empowered and authorized as of the Effective Time, to consummate the matters
contemplated to be consummated by such holder herein.
4.3 Subsidiaries. Personal Electronics does not directly or indirectly
own any equity or similar interest in, or any interest convertible or
exchangeable or exercisable for, any equity or similar interest in, any
corporation, partnership, joint venture or other business association or entity.
4.4 Due Authorization.
(a) Personal Electronics has the full corporate power and authority to
enter into this Agreement and to consummate the transactions contemplated
hereby. The execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby have been duly authorized by all necessary
corporate action on the part of Personal Electronics. This Agreement has been
duly executed and delivered by Personal Electronics and constitutes the valid
and binding obligation of Personal Electronics enforceable against Personal
Electronics in accordance with its terms except as such enforceability may be
limited by bankruptcy, insolvency, reorganization, fraudulent conveyance,
moratorium or other similar statutes or rules of law affecting creditors' rights
generally or by general principles of equity. The execution and delivery of this
Agreement by Personal Electronics do not, and the consummation of the
transactions contemplated hereby will not: (i) conflict with or violate any
provision of the Articles of Incorporation or Bylaws of Personal Electronics,
(ii) violate or conflict with any permit, order, license, decree, judgment,
statute, law, ordinance, rule or regulation applicable to Personal Electronics
or the properties or assets of Personal Electronics, or (iii) result in any
breach or violation of, or constitute a default (with or without notice or lapse
of time, or both) under, or give rise to a right of termination, cancellation or
acceleration of, or result in the creation of any Lien on any of the properties
or assets of Personal Electronics pursuant to or require the consent or approval
of any party to any mortgage, indenture, lease, contract or other agreement or
instrument, bond, note, concession or franchise applicable to Personal
Electronics or any of its properties or assets, except, in the case of this
clause (iii) only, where such conflict, violation, default, termination,
cancellation, acceleration or Lien would not have and could not reasonably be
expected to have a Material Adverse Effect on Personal Electronics or prevent
the consummation of the transactions contemplated hereby. No consent, approval,
order or authorization of, or registration, declaration or filing with, any
court, administrative agency or commission,
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political subdivision or other governmental authority or instrumentality
("Governmental Entity") is required by or with respect to Personal Electronics
in connection with the execution and delivery of this Agreement or the
consummation of the transactions contemplated hereby, except for the filing of
the Plan of Merger and the Articles of Merger as provided in Section 1.3 and
such other consents, authorizations, filings, approvals and registrations which,
if not obtained or made, would not have a Material Adverse Effect on Personal
Electronics or prevent the consummation of transactions contemplated hereby.
(b) All holders of Personal Electronics Common Stock have approved, by
written consent or otherwise, this Agreement and the Merger in accordance with
applicable law, and no other consent or approval of any holder of Personal
Electronics Common Stock or other equity securities of Personal Electronics is
required for Personal Electronics to execute and deliver this Agreement and
consummate the transaction contemplated hereby. By virtue of such approval, no
holder of Personal Electronics Common Stock or other equity securities of
Personal Electronics has any right to dissent and obtain payment for such
holder's shares under applicable law.
4.5 Financial Statements. Personal Electronics has delivered to Parent
true and complete copies of the unaudited balance sheet of Personal Electronics
as of December 31, 1997 and related statements of income and cash flow for the
year then ended (collectively, the "Annual Financial Statements"). Personal
Electronics also has delivered to Parent true copies of the unaudited balance
sheet of Personal Electronics as of February 28, 1998 and related statements of
income and cash flow for the two months then ended (the "Interim Personal
Electronics Financial Statements"). The Annual Financial Statements and the
Interim Personal Electronics Financial Statements were prepared in accordance
with generally accepted accounting principles applied on a basis consistent
throughout the periods indicated and consistent with each other (except as
indicated in the notes thereto and, in the case of the Interim Personal
Electronics Financial Statements, that no notes are included) and fairly present
the consolidated financial condition and operating results of Personal
Electronics at the dates and during the periods indicated therein, subject, in
the case of the Interim Personal Electronics Financial Statements, to normal,
recurring year-end audit adjustments.
4.6 Absence of Certain Changes. Except as specifically permitted by
this Agreement or as set forth in the Personal Electronics Disclosure Schedule,
since the date of the Annual Financial Statements, Personal Electronics has
conducted its business in the ordinary course consistent with past practice and
there has not occurred: (i) any change, event or condition (whether or not
covered by insurance) that has resulted in, or might reasonably be expected to
result in, a Material Adverse Effect on Personal Electronics; or (ii) any of the
following matters:
(a) any material damage, destruction or loss (whether or not covered by
insurance) to the properties and assets of Personal Electronics;
(b) any Lien on any material asset other than those otherwise permitted by
this Agreement;
(c) any labor dispute, litigation or governmental investigation affecting
the business or financial condition of Personal Electronics.
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4.7 Liabilities. Except as set forth in the Annual Financial Statements
or the Personal Electronics Disclosure Schedule and except for liabilities or
obligations incurred in connection herewith, and except for liabilities and
obligations which, individually or in the aggregate, could not reasonably be
expected to exceed $100,000, Personal Electronics does not have any liability or
obligation of any nature (whether accrued, absolute, contingent, unliquidated,
civil, criminal or otherwise, due or to become due) whether or not any such
liability or obligation would have been required to be disclosed on a balance
sheet prepared in accordance with generally accepted accounting principles.
4.8 Accounts Receivable. All of the accounts receivable shown on the
balance sheet included in the Annual Financial Statements have been collected or
are good and collectible in the aggregate recorded amounts thereof (less the
allowance for doubtful accounts also appearing in such balance sheet and net of
returns and payment discounts allowable by Personal Electronics' policies in
each case as adjusted for the passage of time through the Effective Time in
accordance with past practice) and can reasonably be anticipated to be paid in
full in the ordinary course of business consistent with past practice without
outside collection efforts, subject to no counterclaims or setoffs, except as
recorded as accounts payable.
4.9 Litigation. There is no private or governmental action, suit,
proceeding, claim, arbitration or investigation pending before any agency, court
or tribunal, foreign or domestic, or, to the knowledge of Personal Electronics,
threatened against Personal Electronics or any of its assets and properties or
any of its officers or directors (in their capacities as such) that,
individually or in the aggregate, could reasonably be expected to have a
Material Adverse Effect on Personal Electronics. There is no judgment, decree or
order against Personal Electronics, or, to the knowledge of Personal
Electronics, any of its directors or officers (in their capacities as such),
that could prevent consummation of the transactions contemplated by this
Agreement, or that could reasonably be expected to have a Material Adverse
Effect on Personal Electronics.
4.10 Restrictions on Business Activities. There is no material
agreement, judgment, injunction, order or decree binding upon Personal
Electronics which has or reasonably could be expected to have the effect of
prohibiting or impairing any current business practice of Personal Electronics,
any acquisition of property by Personal Electronics or the conduct of business
by Personal Electronics as currently conducted by Personal Electronics.
4.11 Governmental Authorization. Personal Electronics has obtained each
federal, state, county, local or foreign governmental consent, license, permit,
grant, or other authorization that is necessary for Personal Electronics to own
or lease, operate and use its respective assets and properties and to carry on
business as currently conducted (collectively "Personal Electronics
Authorizations"), Personal Electronics has performed and fulfilled its
obligations under the Personal Electronics Authorizations, and all the Personal
Electronics Authorizations are in full force and effect, except where the
failure to obtain or have any of such Personal Electronics Authorizations could
not reasonably be expected to have a Material Adverse Effect on Personal
Electronics.
4.12 Contracts and Commitments. Except as set forth on the Personal
Electronics Disclosure Schedule, Personal Electronics is not a party to any oral
or written (a)(i) obligation for
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borrowed money, (ii) obligation evidenced by bonds, debentures, notes or other
similar instruments, (iii) obligation to pay the deferred purchase price of
property or services (other than trade accounts arising in the ordinary course
of business), (iv) obligation under capital leases, (v) debt of others secured
by a Lien on its property, (vi) guaranty of liabilities or obligations of
others, (vii) agreement under which Personal Electronics is obligated to make or
expects to receive payments in excess of $100,000 (other than purchase orders
received by Personal Electronics from its customers in the ordinary course of
business) or (viii) agreement granting any person a Lien on any of its
properties or assets (except purchase money security interests created in the
ordinary course of business consistent with past practice); or (b)(i) employment
agreement or collective bargaining agreement or (ii) agreements that limit the
right of Personal Electronics, or any of its employees to compete in any line of
business; or (c) agreement that, after giving effect to the transactions
contemplated hereby, purports to restrict or bind Parent or any of its
subsidiaries, other than Surviving Corporation, in any respect (other than any
such agreement that is not material to the continued operation and current
business practices of Personal Electronics and does not affect any material
customer relationship of Personal Electronics). True and complete copies of all
agreements described in the Personal Electronics Disclosure Schedule have been
delivered to Parent. Personal Electronics has not breached and is not in default
of any of its obligations under each of such agreements. To the knowledge of
Personal Electronics, all other parties thereto have complied in all material
respects with the provisions thereof and such parties are not in breach or
violation of, or in default (with or without notice or lapse of time, or both)
under such agreements. With respect to such agreements, Personal Electronics has
not received any notice of termination, cancellation or acceleration or any
notice of breach, violation or default thereof.
4.13 Title to Property. Personal Electronics has good and marketable
title to all of its respective properties and assets, or in the case of leased
properties and assets, valid leasehold interests in such properties, free and
clear of any Lien except for Liens for Taxes not yet due and payable and except
for such Liens or imperfections of title as do not materially detract from the
value of or interfere with the current use of the properties or assets affected
thereby. The plants, property and equipment of Personal Electronics that are
used in the operations of its business are in good operating condition and
repair, ordinary wear and tear excepted. The Personal Electronics Disclosure
Schedule identifies each parcel of real property leased by Personal Electronics.
Personal Electronics does not own any real property.
4.14 Intellectual Property.
(a) Personal Electronics owns, or is licensed or otherwise possesses
legally enforceable rights to use, all patents, trademarks, trade names, service
marks, copyrights, and any applications therefor, maskworks, net lists,
schematics, technology, know-how, trade secrets, inventory, ideas, algorithms,
processes, computer software programs or applications (in both source code and
object code form), and tangible or intangible proprietary information or
material ("Intellectual Property") that are used in the business of Personal
Electronics as currently conducted, except to the extent that the failure to
have such rights could not reasonably be expected to have a Material Adverse
Effect on Personal Electronics.
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(b) The Personal Electronics Disclosure Schedule lists: (i) all patents
and patent applications and all registered and unregistered trademarks, trade
names and service marks, registered and unregistered copyrights, and maskworks,
which Personal Electronics considers to be material to its business and included
in the Intellectual Property, including the jurisdictions in which each such
Intellectual Property right has been issued or registered or in which any
application for such issuance and registration has been filed, (ii) all material
licenses, sublicenses and other agreements as to which Personal Electronics is a
party and pursuant to which any person is authorized to use any Intellectual
Property, and (iii) all material licenses, sublicenses and other agreements as
to which Personal Electronics is a party and pursuant to which Personal
Electronics is authorized to use any third party patents, trademarks or
copyrights, including software ("Third Party Intellectual Property Rights"), in
each case which are incorporated in, are, or form a part of any product or
service of Personal Electronics.
(c) To the knowledge of Personal Electronics, there is no unauthorized
use, disclosure, infringement or misappropriation of any Intellectual Property
rights of Personal Electronics, or any trade secret material to Personal
Electronics, by any third party, including any employee or former employee of
Personal Electronics. Personal Electronics has not entered into any agreement to
indemnify any other person against any charge of infringement of any
Intellectual Property, other than indemnification provisions contained in
purchase orders arising in the ordinary course of business, or contained in
license agreements relating to Intellectual Property licensed to or by Personal
Electronics in the ordinary course of business.
(d) Personal Electronics is not, and will not be as a result of the
execution and delivery of this Agreement or the performance of Personal
Electronics' obligations under this Agreement be, in breach of any license,
sublicense or other agreement relating to the Intellectual Property or Third
Party Intellectual Property Rights, the breach of which could have a Material
Adverse Effect on Personal Electronics.
(e) Personal Electronics holds no material patents, registered
trademarks, service marks or copyrights. Personal Electronics (i) has not been
sued in any suit, action or proceeding which involves a claim of infringement of
any patents, trademarks, service marks, copyrights or violation of any trade
secret or other proprietary right of any third party or (ii) has not brought any
action, suit or proceeding for infringement of Intellectual Property or breach
of any license or agreement involving Intellectual Property against any third
party. The manufacturing processes and design processes, if any, of Personal
Electronics do not infringe any patent, trademark, service ▇▇▇▇, copyright,
trade secret or other proprietary right of any third party.
(f) All of the employees, consultants and independent contractors of
Personal Electronics that have participated in the development of Personal
Electronics Intellectual Property, or any portion thereof, in any way have
entered into agreements with Personal Electronics in the form provided to
Parent, if any.
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4.15 Environmental Matters.
(a) Personal Electronics has complied with, and is in compliance with,
all Environmental Laws (as defined in this Section 4.15(a)) applicable to its
current and prior business, properties and assets. No material permits,
approvals, registrations, licenses or other authorizations are required by any
Governmental Entity pursuant to any Environmental Law with respect to the
business, operations, properties and assets, of Personal Electronics. There is
no pending or, to Personal Electronics' knowledge, threatened civil or criminal
litigation, written notice of violation, formal administrative proceeding, or
investigation, inquiry, information request or notice of potential liability by
any Governmental Entity or third party, relating to any Environmental Law to
which Personal Electronics is a party or, to Personal Electronics' knowledge,
threatened to be made a party. For purposes of this Agreement, "Environmental
Law" means any federal, state or local law, statute, ordinance, rule,
regulation, order or judgment or the common law relating to protection of public
health, safety or the environment or occupational health and safety, or that
regulates, or creates liability for, releases or threatened releases of any
Hazardous Substance. As used in this Section 4.15, the terms "release" and
"environment" have the meanings set forth in the federal Comprehensive
Environmental Response, Compensation and Liability Act of 1980 ("CERCLA"), and
"Hazardous Substance" means any substance regulated by, or the presence of which
creates liability under, any Environmental Law (including without limitation
CERCLA) and includes without limitation industrial, toxic or hazardous
substances, pollutants and contaminants, oil or petroleum products, solid or
hazardous waste, chemicals and asbestos.
(b) Personal Electronics has not caused any, and to the knowledge of
Personal Electronics there have been no, releases or threatened releases of any
Hazardous Substance in violation of, or that could reasonably be expected to
create any liability or responsibility for Personal Electronics under, any
Environmental Law at any parcel of real property or any facility currently or
formerly owned, leased, operated or controlled by Personal Electronics. Personal
Electronics has not been required to give any notices to any Governmental
Entity, with respect to any release or threatened release of Hazardous
Substances caused by or known to Personal Electronics. Personal Electronics is
not aware of any releases of Hazardous Substance at parcels of real property or
facilities other than those presently or formerly owned, leased, operated or
controlled by Personal Electronics that could reasonably be expected to have an
impact on the real property or facilities owned, leased, operated or controlled
by Personal Electronics.
(c) The Personal Electronics Disclosure Schedule lists all
environmental reports, investigations, audits or similar environmental documents
in the possession of Personal Electronics with respect to the operations of, or
real property owned, leased, operated or controlled by, or liabilities or
obligations of, Personal Electronics (whether conducted by or on behalf of
Personal Electronics or a third party and whether done at the initiative of
Personal Electronics or directed by a Governmental Entity or other third party).
True and complete copies of each such document have been provided to Parent.
(d) Personal Electronics is not subject to, and is not reasonably expected
to be subject to, any liability under any Environmental Law, that could
reasonably be expected to have a Material
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Adverse Effect, including without limitation liability arising out of the
utilization by Personal Electronics of any transporter or facility used for
treatment, recycling, storage or disposal.
4.16 Taxes.
(a) All material Returns required to be filed by or on behalf of
Personal Electronics have been duly filed on a timely basis and such Returns
(including all attached statements and schedules) are true, complete and correct
in all material respects. All Taxes shown to be payable on such Returns or on
subsequent assessments with respect thereto have been paid in full on a timely
basis, and no other Taxes are payable by Personal Electronics with respect to
items or periods covered by the Returns (whether or not shown on or reportable
on the Returns) for periods ending on or before December 31, 1996.
(b) Personal Electronics has withheld and paid over all material Taxes
required to have been withheld and paid over, and have complied with all
information reporting and backup withholding requirements, including maintenance
of required records with respect thereto, in connection with material amounts
paid or owing to any employee, creditor, independent contractor, or other third
party.
(c) There are no Liens on any of the assets of Personal Electronics
with respect to Taxes, other than Liens for Taxes not yet due and payable or for
Taxes that are being contested in good faith through appropriate proceedings and
for which appropriate reserves have been established.
(d) Personal Electronics has made available to Parent true and complete
copies of: (i) all federal and state income and franchise tax Returns of
Personal Electronics for all periods since the date of formation of Personal
Electronics, and (ii) all tax audit reports, work papers, statements of
deficiencies, closing or other agreements received by the Personal Electronics
relating to its Taxes.
(e) Except as otherwise disclosed on the Personal Electronics Disclosure
Schedule:
(i) no deficiencies have been asserted in writing and no
written notice has been received by Personal Electronics with respect
to the failure to file any Return or pay any Taxes; and
(ii) the amount of liability for unpaid Taxes of Personal
Electronics for all periods ending on or before December 31, 1996 will
not, in the aggregate, exceed the amount of the current liability
accruals for Taxes (not including any reserve for deferred taxes
established to reflect timing differences between book and tax income),
as such accruals are reflected on the balance sheet of Personal
Electronics as of such date.
(g) In this Agreement, any reference to
(i) the term "Taxes" shall mean all taxes, however,
denominated, including any interest, penalties or other additions to
tax that may become payable in respect thereof, imposed by any federal,
territorial, state, local or foreign Governmental Entity, which taxes
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shall include, without limiting the generality of the foregoing, all
income or profits taxes, payroll and employee withholding taxes,
unemployment insurance, social security taxes, sales and use taxes, ad
valorem taxes, excise taxes, franchise taxes, gross receipts taxes,
business license taxes, occupation taxes, real and personal property
taxes, stamp taxes, environmental taxes, transfer taxes, workers'
compensation, and other obligations of the same or of a similar nature
to any of the foregoing, which Personal Electronics is required to pay,
withhold or collect; and
(ii) the term "Returns" shall mean all reports, estimates,
declarations of estimated tax, information statements and returns
relating to, or required to be filed in connection with, any Taxes,
including information returns or reports with respect to backup
withholding and other payments to third parties.
4.17 S Corporation and Other Matters. Personal Electronics is, and at
all times since its inception has been, an S Corporation within the meaning of
Section 1361 of the Code for federal income tax purposes. Personal Electronics
has not filed as an S Corporation for applicable state income tax purposes in
any state.
4.18 Employee Benefit Plans.
(a) The Personal Electronics Disclosure Schedule lists, with respect to
Personal Electronics, and any trade or business (whether or not incorporated)
that is treated as a single employer with Personal Electronics (an "ERISA
Affiliate") within the meaning of Section 414(b), (c), (m) or (o) of the Code:
(i) all material employee benefit plans (as defined in Section 3(3) of the
Employee Retirement Income Security Act of 1974, as amended ("ERISA")), (ii)
each loan to a non-officer employee in excess of $50,000, loans to officers and
directors and any stock option, stock purchase, phantom stock, stock
appreciation right, supplemental retirement, severance, sabbatical, medical,
dental, vision care, disability, employee relocation, cafeteria benefit (Section
125 of the Code) or dependent care (Section 129 of the Code), life insurance or
accident insurance plans, programs or arrangements, (iii) all bonus, pension,
profit sharing, savings, deferred compensation or incentive plans, programs or
arrangements, (iv) other fringe or employee benefit plans, programs or
arrangements that apply to senior management and that do not generally apply to
all employees, and (v) any current or former employment or executive
compensation or severance agreements, written or otherwise, as to which
unsatisfied obligations remain for the benefit of, or relating to, any present
or former employee, consultant or director (collectively, the "Personal
Electronics Employee Plans").
(b) Personal Electronics has furnished to Parent a copy of each of the
Personal Electronics Employee Plans and related plan documents (including trust
documents, insurance policies or contracts, employee booklets, summary plan
descriptions and other authorizing documents, and, to the extent still in its
possession, any material employee communications relating thereto) and has, with
respect to each Personal Electronics Employee Plan which is subject to ERISA
reporting requirements, provided copies of the Form 5500, including all
schedules attached thereto and actuarial reports, if any, filed for the last
three Plan years. Personal Electronics has furnished Parent with the most recent
Internal Revenue Service determination letter issued with respect to each
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Personal Electronics Employee Plan intended to be qualified under Section 401(a)
of the Code (and each such Plan has received a favorable determination letter
and nothing has occurred since the issuance of each such letter which could
reasonably be expected to cause the loss of the tax-qualified status of any
Personal Electronics Employee Plan subject to Section 401(a) of the Code), and
all communications with respect to any plan described in Section 4.18(a) with
the Internal Revenue Service, the Department of Labor or the Pension Benefit
Guaranty Corporation. Personal Electronics has never established or maintained
in trust any Personal Electronics Employee Plan under Section 501(c)(9) of the
Code.
(c) (i) None of the Personal Electronics Employee Plans promises or
provides retiree medical or other retiree welfare benefits to any person; (ii)
there have been no violations of applicable provisions of the Code or ERISA with
respect to any Personal Electronics Employee Plan that could reasonably be
expected to have, in the aggregate, a Material Adverse Effect; (iii) each
Personal Electronics Employee Plan is in compliance with the requirements
prescribed by any and all statutes, rules and regulations (including ERISA and
the Code), except as would not have a Material Adverse Effect on Personal
Electronics, and Personal Electronics and each ERISA Affiliate have no knowledge
of any default or violation by any other party to any of the Personal
Electronics Employee Plans, which default or violation could reasonably be
expected to have a Material Adverse Effect on Personal Electronics; (iv) all
material contributions required to be made by Personal Electronics or any ERISA
Affiliate to any Personal Electronics Employee Plan have been made on or before
their due dates; and (v) neither Personal Electronics nor any ERISA Affiliate
has ever maintained or otherwise incurred any obligation under any plan subject
to Title IV of ERISA. No suit, administrative proceeding, action or other
litigation has been brought, or to the knowledge of Personal Electronics, is
threatened, against or with respect to any such Personal Electronics Employee
Plan, including any audit or inquiry by the Internal Revenue Service or United
States Department of Labor. Personal Electronics does not have any obligations
under Section 4980A of the Code ("COBRA") with respect to any former employees
or qualified beneficiaries thereunder, except as set forth in the Personal
Electronics Disclosure Schedule.
(d) The execution and delivery of this Agreement and the consummation
of the transactions contemplated hereby will not: (i) entitle any current or
former employee or other service provider or any director of Personal
Electronics, or any ERISA Affiliate to severance benefits or any other payment
(including unemployment compensation, golden parachute, bonus or otherwise),
(ii) increase any benefits otherwise payable or (iii) accelerate the time of
payment or vesting, or increase the amount of compensation due any such
employee, service provider or director.
(e) There has been no amendment to, written interpretation or
announcement (whether or not written) by Personal Electronics, or any ERISA
Affiliate relating to, or change in participation or coverage under, any
Personal Electronics Employee Plan which would increase the expense of
maintaining such Plan above the level of expense incurred with respect to that
Plan for the most recent fiscal year included in the Annual Financial
Statements.
4.19 Employee Matters. The Personal Electronics Disclosure Schedule lists
all current employees of Personal Electronics and the remuneration and benefits
to which such employees or any former employees are entitled. The Personal
Electronics Disclosure Schedule also lists all
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employment contracts and collective bargaining agreements, and all pension,
bonus, profit sharing, or other agreements or arrangements not otherwise
described in Section 4.18 providing for employee remuneration or benefits to
which Personal Electronics is a party or by which it is bound; to the knowledge
of Personal Electronics all of these contracts and arrangements are in full
force and effect, and neither Personal Electronics nor, to the knowledge of
Personal Electronics, any other party is in default. There have been no claims
of defaults and, to Personal Electronics' knowledge, there are no facts or
conditions which if continued, with or without notice, will result in a default
under these contracts or arrangements. There is no pending or, to Personal
Electronics' knowledge, threatened labor dispute, strike, or work stoppage that
could have a Material Adverse Effect on Personal Electronics. Personal
Electronics is in compliance in all material respects with all current
applicable laws and regulations respecting employment, discrimination in
employment, terms and conditions of employment, wages, hours and occupational
safety and health and employment practices, and is not engaged in any unfair
labor practice. There are no pending, or to the knowledge of Personal
Electronics, threatened claims against Personal Electronics under any workers
compensation plan or policy or for long term disability.
4.20 Interested Party Transactions. At the Effective Time, Personal
Electronics will not be indebted to any shareholder, director, officer, employee
or agent of Personal Electronics (except for amounts due as normal salaries and
bonuses and in reimbursement of ordinary expenses), and no such person is
indebted to Personal Electronics, and there are no other transactions of the
type required to be disclosed pursuant to Items 402 and 404 of Regulation S-K
under the Securities Act of 1933, as amended (the "Securities Act"), and the
Securities Exchange Act of 1934, as amended.
4.21 Insurance. Personal Electronics has policies of insurance and
bonds of the type and in amounts customarily carried by persons conducting
businesses or owning assets similar to those of Personal Electronics. The
Personal Electronics Disclosure Schedule sets forth a true and complete listing
of all such policies, copies of each of which have been provided to Parent.
There is no material claim pending under any of such policies or bonds as to
which Personal Electronics has received a denial, or, to Personal Electronics'
knowledge, as to which coverage has been questioned, denied or disputed by the
underwriters of such policies or bonds. All premiums due and payable under all
such policies and bonds have been paid and Personal Electronics is otherwise in
compliance in all material respects with the terms of such policies and bonds.
Personal Electronics has no knowledge of any threatened termination of, or
material premium increase with respect to, any of such policies. To the
knowledge of Personal Electronics, each policy or bond is legal, valid, binding,
enforceable and in full force and effect and will continue to be legal, valid,
binding, enforceable and in full force and effect following the consummation of
the transactions contemplated hereby.
4.22 Compliance With Laws. Personal Electronics has complied with, is
not in violation of, and has not received any notices of violation with respect
to, any federal, state, local or foreign statute, law or regulation with respect
to the conduct of its business, or the ownership or operation of its business,
except for such violations or failures to comply as could not reasonably be
expected to have a Material Adverse Effect on Personal Electronics.
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4.23 Major Customers. The Personal Electronics Disclosure Schedule
contains a list of the customers of Personal Electronics for the most recent
fiscal year that individually accounted for more than five percent of the total
dollar amount of net sales, showing the total dollar amount of net sales to each
such customer during each such year. Personal Electronics has no knowledge nor
has it received notice from any of the customers listed on the Personal
Electronics Disclosure Schedule, that any of the customers listed in the
Personal Electronics Disclosure Schedule will not continue to be customers of
Personal Electronics after the Closing.
4.24 Suppliers. As of the date hereof, no supplier of Personal
Electronics has indicated to Personal Electronics that it will stop, or decrease
the rate of, supplying materials, products or service to Personal Electronics.
Personal Electronics has not knowingly breached, so as to provide a benefit to
Personal Electronics that was not intended by the parties, any agreement with,
or engaged in any fraudulent conduct with respect to, any customer or supplier
of Personal Electronics.
4.25 Inventory. All inventories of raw materials, work-in process and
finished goods (including all such in transit) of Personal Electronics, together
with related packaging materials (collectively, "Inventory"), reflected in the
Interim Personal Electronics Financial Statements consist of a quality and
quantity usable and saleable in the ordinary course of business, have commercial
values at least equal to the value shown on such balance sheet (including any
reserve for inventory written down therein, as adjusted for the passage of time
through the Closing Date) or are subject to purchase obligations by customers or
suppliers at such value and are valued in accordance with generally accepted
accounting principles at the average cost. All Inventory purchased since the
date of such balance sheet consists of a quality and quantity usable and
saleable in the ordinary course of business, and is owned by Personal
Electronics. All work-in process contained in Inventory constitutes items in
process of production pursuant to contracts or open orders taken in the ordinary
course of business, from regular customers of Personal Electronics with no
recent history of credit problems with respect to Personal Electronics; neither
Personal Electronics nor any such customer is in material breach of the terms of
any obligation to the other.
4.26 Product Warranty and Product Liability. The Personal Electronics
Disclosure Schedule contains a true and complete copy of Personal Electronics'
standard warranty or warranties for its manufacturing services. There has been
no variation from such warranties, except as set forth in the Personal
Electronics Disclosure Schedule. Except as stated therein, there are no
warranties, commitments or obligations with respect to Personal Electronics'
performance of services. The Personal Electronics Disclosure Schedule contains a
description of all product liability claims and similar claims, actions,
litigation and other proceedings relating to services rendered, which are
presently pending or, to Personal Electronics' knowledge, threatened, or which
have been asserted or commenced against Personal Electronics within the last
five years, in which a party thereto either requests injunctive relief (whether
temporary or permanent) or alleges damages (whether or not covered by
insurance). There are no defects in Personal Electronics' manufacturing services
that would materially adversely affect performance of products Personal
Electronics manufactures or create an unusual risk of injury to persons or
property. Personal Electronics' manufacturing services have been designed or
performed so as to meet and comply with all governmental standards and
specifications currently in effect, and have received all governmental approvals
necessary to allow its performance.
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4.27 Minute Books. The minute books of Personal Electronics provided to
Parent contain true and complete summaries of all meetings of directors and
shareholders or actions by written consent since the time of incorporation of
Personal Electronics, and reflect all transactions referred to in such minutes
accurately in all material respects.
4.28 Brokers' and Finders' Fees. Except for commissions or fees payable
to Broadview Associates LLC, Personal Electronics has not incurred, and will not
incur, directly or indirectly, any liability for brokerage or finders' fees or
agents' commissions or investment bankers' fees or any similar charges in
connection with this Agreement or any transaction contemplated hereby.
4.29 Disclosure. None of the representations or warranties made by
Personal Electronics herein or in the Personal Electronics Disclosure Schedule,
or in any certificate furnished by Personal Electronics pursuant to this
Agreement, when all such documents are read together in their entirety, contain
or will contain at the Effective Time any untrue statement of a material fact,
or omit or will omit at the Effective Time to state any material fact necessary
in order to make the statements contained herein or therein, in the light of the
circumstances under which made, not misleading. Personal Electronics has
delivered true and complete copies of each document that Personal Electronics
believes is responsive to the Due Diligence Information Request or the
Supplemental Document and Information Request provided to Personal Electronics
on March 17, 1998 and March 18, 1998, respectively.
4.30 ▇▇▇▇-▇▇▇▇▇-▇▇▇▇▇▇. None of Personal Electronics, the PE
Shareholders or any of their respective affiliates is an "ultimate parent
entity" within the meaning of the ▇▇▇▇-▇▇▇▇▇-▇▇▇▇▇▇ Antitrust Improvements Act
of 1976, and the rules and regulations promulgated thereunder (the "HSR Act"),
that has $10,000,000 of total assets or sales (as determined under the HSR Act),
as of the date of any such ultimate parent entity's last regularly prepared
balance sheet or as of the date hereof.
4.31 Pooling-of-Interests Treatment. None of Personal Electronics or
the PE Shareholders has actual knowledge of any condition that, known to them,
would prevent Parent from accounting for the transactions provided for herein as
a pooling of interests. Since December 31, 1995 (a) Personal Electronics has
been autonomous and not a subsidiary or division of another company or part of
an acquisition which was later rescinded, (b) there has not been any sale or
spin-off of a significant amount of assets of Personal Electronics or any of its
affiliates, other than in the ordinary course of business, (c) Personal
Electronics has not acquired any of its capital stock, (d) any and all changes
in the voting capital structure and the relative ownership of shares are
described on the Personal Electronics Disclosure Schedule and none of such
changes, if any, have been made in contemplation of a business combination and
(e) the compensation, dividends, or other receipt of cash by the PE Shareholders
from Personal Electronics (whether received directly or indirectly) was not
received in contemplation of a business combination, including the Merger.
Personal Electronics does not own and has not owned any of the outstanding
shares of Parent Common Stock. Personal Electronics has not issued any of its
capital stock pursuant to awards, grants or bonuses (other than pursuant to
options listed on Personal Electronics Disclosure Schedule that were granted to
key employees during the past two years in the ordinary course of the Personal
Electronics business pursuant to a pre-existing option plan and prior to any
contemplated business combination). All debt
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incurred by Personal Electronics to its shareholders and all payments made in
connection therewith since December 31, 1995 are listed on Personal Electronics
Disclosure Schedule. Personal Electronics has not incurred and repaid any
indebtedness owed to any stockholder (other than debt incurred in the ordinary
course and on terms and conditions consistent with the past practices of
Personal Electronics). Personal Electronics does not lease any real estate from
any stockholder or affiliates of Personal Electronics. Personal Electronics does
not own or control any related business or operations. Parent will acquire all
of the outstanding voting common stock of Personal Electronics as a result of
the Merger. The exchange ratio of shares of common stock of Personal Electronics
for shares of common stock of Parent is applicable to all common stockholders of
Personal Electronics; consequently, the relative position of the stockholders of
Personal Electronics within Parent will remain the same. Loans payable to the PE
Shareholders could be deemed to represent equity interests in Personal
Electronics; therefore, the only repayments to the PE Shareholders in 1998 were
in accordance with the Personal Electronics Disclosure Schedule. Pursuant to a
Contribution Agreement dated March 30, 1998, the remaining outstanding loan
amounts have been contributed to the capital of Personal Electronics. Any
compensation, dividends, or other receipt of cash by the PE Shareholders from PE
(whether received directly or indirectly) from the period of initiation to
consummation of the Merger is consistent in amount when compared to the
established historical practice of Personal Electronics, considering increases
in earnings of Personal Electronics and the tax obligations of its shareholders.
Parent acknowledges that Parent is relying only on the representations and
warranties of Personal Electronics and the PE Shareholders set forth in this
Agreement as to whether the transactions provided for herein qualify for
pooling-of-interests method of accounting.
4.32 Applicability of Disclosure. An item disclosed in one section of
the Personal Electronics Disclosure Schedule as an exception to one particular
representation or warranty shall be deemed adequately disclosed on another
section of the Personal Electronics Disclosure Schedule as an exception to the
representations and warranties corresponding thereto if the applicability of
such item to such other representations and warranties is reasonably apparent
based solely on the information contained in Personal Electronics Disclosure
Schedule; provided, however, that Personal Electronics shall use reasonable
efforts to arrange the Personal Electronics Disclosure Schedule in paragraphs
corresponding to the lettered and numbered paragraphs and to use
cross-references as appropriate.
4.33 Conduct of Business. Except as otherwise disclosed on the Personal
Electronics Disclosure Schedule or as otherwise expressly contemplated hereby,
since the date of the Annual Financial Statements, Personal Electronics has
carried on its business in the usual, regular and ordinary course in
substantially the same manner as theretofore conducted and used reasonable
efforts to preserve intact its present business organizations, kept available
the services of its present officers and key employees and preserved its
relationships with customers, suppliers, distributors, licensors, licensees, and
others having business dealings with it. Except as otherwise disclosed on the
Personal Electronics Disclosure Schedule or as otherwise expressly contemplated
hereby, since the date of the Annual Financial Statements, Personal Electronics
has not
(a) acquired or agreed to acquire by merging or consolidating with, or by
purchasing a substantial portion of the assets of, or by any other manner, any
business or any corporation,
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partnership, association or other business organization or division thereof, or
otherwise acquired or agreed to acquire any assets, other than in the ordinary
course of business consistent with past practice;
(b) made or changed any material election in respect of Taxes, adopted
or changed any accounting method in respect of Taxes, filed any material Return
or any amendment to a material Return, entered into any closing agreement,
settled any claim or assessment in respect of Taxes, or consented to any
extension or waiver of the limitation period applicable to any claim or
assessment in respect of Taxes;
(c) revalued any of its assets, including without limitation writing
down the value of inventory or writing off notes or accounts receivable other
than in the ordinary course of business;
(d) delayed in the payment of any trade or other payables other than in the
ordinary course of business consistent with past practice;
(e) sold, leased or otherwise transferred or disposed of any property
or asset other than for fair consideration or in the ordinary course of business
consistent with past practice;
(f) changed its accounting methods, practices or policies (including
any change in depreciation or amortization policies or rates), except as
described in the notes to the Annual Financial Statements;
(g) declared, set aside, or paid any dividend or other distribution in
respect of its capital stock, or made any direct or indirect redemption,
retirement, purchase or other acquisition by Personal Electronics of any of its
capital stock or other securities or options, warrants or other rights to
acquire capital stock;
(h) canceled any debt or waived or released any right or claim by
Personal Electronics, other than in the ordinary course of business consistent
with past practice;
(i) made any payment, or discharged or satisfied any claim, liability
or obligation, other than as reflected or reserved against in the Annual
Financial Statements or the Interim Personal Electronics Financial Statements or
in the ordinary course of business consistent with past practice; or
(j) made any loan or advance (other than advances to employees in the
ordinary course of business for travel and entertainment in accordance with past
practice) to any person.
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ARTICLE V
REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUB
Parent and Merger Sub represent and warrant to Personal Electronics as
follows:
5.1 Organization, Standing and Power. Each of Parent and its
subsidiaries, including Merger Sub, is a corporation duly organized, validly
existing and in good standing under the laws of its jurisdiction of
organization, has the full corporate power to own its properties and to carry on
its business as now being conducted and is duly qualified to do business and is
in good standing in each jurisdiction in which the failure to be so qualified
and in good standing would not be reasonably expected to have a Material Adverse
Effect on Parent. Merger Sub is a newly formed corporation that has not engaged
in any business (other than certain organizational matters) since the date of
its incorporation and was formed solely for the purpose of engaging in the
transactions contemplated by this Agreement. As of the date hereof and the
Effective Time, except for obligations or liabilities incurred in connection
with its incorporation or organization and the transactions contemplated by this
Agreement and except for this Agreement and any other agreements or arrangements
contemplated by this Agreement, Merger Sub has not and will not have incurred,
directly or indirectly, through any subsidiary or affiliate, any material
obligations or liabilities or engaged in any business activities of any type or
kind whatsoever or entered into any agreements or arrangements with any person.
5.2 Capitalization. The authorized capital stock of Parent consisted of
45,000,000 shares of Parent Common Stock and 5,000,000 shares of Preferred
Stock, $.01 par value, of which, as of February 28, 1998, there were issued and
outstanding 11,841,776 shares of Parent Common Stock and no shares of Preferred
Stock. There are no other outstanding shares of capital stock or other
securities of Parent other than shares of Parent Common Stock issued after
February 28, 1998 upon the exercise of options issued under Parent's Incentive
Stock Option Plan and its Stock Option Plan for Non-Employee Directors
(collectively, the "Parent Stock Option Plans") and other outstanding stock
options granted by Parent to its and its subsidiaries' employees. The authorized
capital stock of Merger Sub consists of 1,000 shares of Merger Sub Common Stock,
all of which are issued and outstanding and are held by Parent. All outstanding
shares of Parent and Merger Sub have been duly authorized, validly issued, fully
paid and are non-assessable and free and clear of any Lien, except Liens created
by or imposed upon the holders thereof. Except as disclosed in the Parent SEC
Documents, all of the outstanding shares of capital stock of each subsidiary of
Parent are duly authorized, validly issued, fully paid and nonassessable and are
directly or indirectly beneficially owned, beneficially by Parent. As of
February 28, 1998, Parent has reserved (a) 2,295,000 shares of Parent Common
Stock for issuance to employees, directors and independent contractors pursuant
to the Parent Stock Option Plans and (b) 678,800 shares of Parent Common Stock
for issuance pursuant to other outstanding stock options granted to its and its
subsidiaries' employees and (c) 80,000 shares of Parent Common Stock for
issuance pursuant to certain Convertible Stock Purchase Warrants issued by
Parent in connection with its initial public offering on March 10, 1994. Other
than this Agreement, as disclosed in the immediately preceding sentence or as to
additional shares to be authorized under employee benefit plans of Parent, there
are no other options, warrants, puts, calls, rights, exchangeable or convertible
securities or other commitments or agreements of any
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nature to which Parent or Merger Sub is a party or by which either of them is
bound obligating Parent or Merger Sub to issue, deliver, sell, repurchase or
redeem, or cause to be issued, delivered, sold, or repurchased, any shares of
the capital stock of Parent or Merger Sub or obligating Parent or Merger Sub to
grant, extend or enter into any such option, warrant, call, right, commitment or
agreement. The shares of Parent Common Stock to be issued pursuant to the Merger
will, when issued, be duly authorized, validly issued, fully paid, and
non-assessable.
5.3 Due Authorization. Parent and Merger Sub have the full corporate
power and authority to enter into this Agreement and to consummate the
transactions contemplated hereby. The execution and delivery of this Agreement
and the consummation of the transactions contemplated hereby have been duly
authorized by all necessary corporate action on the part of Parent and Merger
Sub. This Agreement has been duly executed and delivered by Parent and Merger
Sub and constitutes the valid and binding obligations of Parent and Merger Sub
except as such enforceability may be limited by bankruptcy, insolvency,
reorganization, fraudulent conveyance, moratorium or other similar statutes or
rules of law affecting creditors' rights generally or by general principles of
equity. The execution and delivery of this Agreement do not, and the
consummation of the transactions contemplated hereby will not: (a) conflict with
or violate any provision of the Amended and Restated Articles of Incorporation
or Amended and Restated Bylaws of Parent, as amended, the Articles of
Incorporation or Bylaws of Merger Sub, or equivalent charter documents of any of
Parent's subsidiaries, as amended, (b) violate or conflict with any permit,
order, license, decree, judgment, statute, law, ordinance, rule or regulation
applicable to Parent or any of its subsidiaries or the properties or assets of
Parent or any of its subsidiaries, or (c) result in any breach or violation of,
or constitute a default (with or without notice or lapse of time, or both)
under, or give rise to any right of termination, cancellation or acceleration
of, or result in the creation of any Lien on any of the properties or assets of
Parent or any of its subsidiaries pursuant to any mortgage, indenture, lease,
contract or other agreement or instrument, bond, note, concession or franchise
applicable to Parent or any of its subsidiaries or their properties or assets,
except, in the case of this clause (c) only, where such conflict, violation,
default, termination, cancellation or acceleration would not have and could not
reasonably be expected to have a Material Adverse Effect on Parent. No consent,
approval, order or authorization of, or registration, declaration or filing
with, any Governmental Entity is required by or with respect to Parent or any of
its subsidiaries in connection with the execution and delivery of this Agreement
by Parent and Merger Sub or the consummation by Parent and Merger Sub of the
transactions contemplated hereby, except for (i) the filing of the Articles of
Merger and Plan of Merger as provided in Section 1.3, (ii) the filing of a Form
8-K with the Securities and Exchange Commission (the "SEC") and the National
Association of Securities Dealers, Inc. ("NASD") within 15 days after the
Closing Date, (iii) any filings as may be required under applicable state
securities laws and the securities laws of any foreign country, and (iv) such
other consents, authorizations, filings, approvals and registrations which, if
not obtained or made, would not have a Material Adverse Effect on Parent or
would not prevent or materially alter or delay any of the transactions
contemplated by this Agreement.
5.4 SEC Documents; Financial Statements. Parent has filed all forms,
reports and documents required to be filed with the SEC and has furnished
Personal Electronics with true and complete copies of its (a) Annual Report on
Form 10-K for the fiscal years ended December 31, 1997 and December 31, 1996, as
filed with the SEC, (b) Quarterly Reports on Form 10-Q for the
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quarter ended September 30, 1997, as filed with the SEC, (c) proxy statements
related to all meetings of its shareholders (whether annual or special) since
December 31, 1996, and (d) all other reports and registration statements filed
by Parent with the SEC since December 31, 1996, except registration statements
on Form S-8 (collectively, together with Parent's Form 10-K for the fiscal year
ended December 31, 1997, as and when filed with the SEC, the "Parent SEC
Documents"). As of their respective filing dates, the Parent SEC Documents were,
or will be, prepared in all material respects in accordance with the
requirements of the Exchange Act or the Securities Act, as applicable, and the
rules and regulations of the SEC thereunder applicable to such Parent SEC
Documents and (ii) did or will not at the time they were or are filed (or if
amended or superseded by a filing prior to the date of this Agreement, then on
the date of such filing) contain any untrue statement of a material fact or omit
to state a material fact required to be stated therein or necessary in order to
make the statements therein, in the light of the circumstances under which they
were made, not misleading. None of Parent's subsidiaries is required to file any
forms, reports or other documents with the SEC. The annual and interim financial
statements included in the Parent SEC Documents were and will be prepared in
accordance with generally accepted accounting principles applied on a basis
consistent throughout the periods indicated and consistent with each other
(except as indicated in the notes thereto) and fairly present or will fairly
present the consolidated financial condition and operating results of Parent and
its consolidated subsidiaries at the dates and during the periods indicated
therein, subject, in the case of interim financial statements, to normal,
recurring year-end audit adjustments.
5.5 Absence of Certain Changes. Except as disclosed in the Parent SEC
Documents filed with the SEC prior to the date hereof, since September 30, 1997
(the "Parent Balance Sheet Date"), each of Parent and its subsidiaries has
conducted its business in the ordinary course consistent with past practice and
there has not occurred: (a) any change, event or condition (whether or not
covered by insurance) that has resulted in, or might reasonably be expected to
result in, a Material Adverse Effect on Parent, (b) any declaration, setting
aside, or payment of a dividend or other distribution with respect to the shares
of Parent, or any direct or indirect redemption, retirement, purchase or other
acquisition by Parent of any of its capital stock or (c) any change, or any
development or combination of developments which would be required to be
disclosed as a material change in response to Item 11(a) of Form S-3. Except as
disclosed in such Parent SEC Documents, Parent is not aware of any facts which
are reasonably likely to have a Material Adverse Effect on Parent.
5.6 Compliance with Laws. Each of Parent and its subsidiaries has
complied with, is not in violation of, and have not received any notices of
violation with respect to, any federal, state, local or foreign statute, law or
regulation with respect to the conduct of its business, or the ownership or
operation of its business, except for such violations or failures to comply as
could not be reasonably expected to have a Material Adverse Effect on Parent.
5.7 Brokers' and Finders' Fees. Parent has not incurred, and will not
incur, directly or indirectly, any liability for brokerage or finders' fees or
agents' commissions or investment bankers' fees or any similar charges in
connection with this Agreement or any transaction contemplated hereby.
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5.8 Pooling-of-Interests Treatment. Parent has not taken or agreed to
take any action, and Parent is not aware of any event or condition that would
prevent Parent from accounting for the transactions provided for herein as a
pooling-of-interests. Parent has been advised by its independent accountants
KPMG Peat Marwick LLP ("KPMG Peat Marwick") that, based upon the information
made available to KPMG Peat Marwick and assuming compliance by Parent, Personal
Electronics and the PE Shareholders with their covenants herein and in the
documents contemplated hereby, KPMG Peat Marwick concurs with Parent's
management that the Merger qualifies for treatment for financial purposes as a
pooling-of-interests.
5.9 Reliance. The foregoing representations and warranties are being
made by Parent and Merger Sub with the knowledge and expectation that Personal
Electronics is placing reliance thereon.
5.10 Terms of the Merger.
(a) The terms of the Merger were negotiated at arm's length and we
believe that the aggregate fair market value of the Parent Common Stock to be
received by each PE Shareholder will be approximately equal to the aggregate
fair market value of the Personal Electronics Common Stock surrendered in
exchange therefor.
(b) None of the compensation, if any, received by any
shareholder-employee of Personal Electronics will be separate consideration for,
or allocable to, any of their shares of Personal Electronics Common Stock; none
of the shares of Parent Common Stock received by any shareholder-employee will
be separate consideration for, or allocable to, any employment agreement; and
the compensation paid by Parent to any shareholder-employee will be for services
actually rendered and will be commensurate with amounts paid to third parties
bargaining at arm's length for similar services.
(c) Following the Merger, Personal Electronics will hold at least 90%
of the fair market value of Merger Sub's net assets and at least 70% of the fair
market value of Merger Sub's gross assets held immediately prior to the Merger,
excluding shares of Parent Common Stock transferred to the PE Shareholders
pursuant to the Merger. For purposes of this representation, amounts paid by
Merger Sub to dissenters, amounts paid by Merger Sub to shareholders who receive
cash or other property in lieu of fractional shares of Parent Common Stock or
otherwise and amounts used by Merger Sub to pay reorganization expenses, will be
included as assets of Merger Sub immediately prior to the Merger.
(d) With respect to the Personal Electronics assets acquired in the
Merger, following the Merger Personal Electronics will hold at least 90% of the
fair market value of the net assets acquired in the Merger and at least 70% of
the fair market value of the gross assets acquired in the Merger. For purposes
of this representation, amounts used by Personal Electronics to pay
reorganization expenses after the Merger will be included as assets of Personal
Electronics acquired in the Merger.
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(e) Parent or a member of its qualified group (within the meaning of
Treasury Regulation ss. 1.368-1(d)) will continue Personal Electronics' historic
business or use a significant portion of Personal Electronics' historic business
assets in a business.
(f) Parent and Merger Sub will pay their respective expenses, if any,
incurred in connection with the Merger.
(g) There is no intercorporate indebtedness existing between Parent and
Personal Electronics or between Merger Sub and Personal Electronics that was
issued, acquired, or will be settled at a discount.
(h) In the Merger, Parent will exchange shares of Parent Common Stock for
Personal Electronics Common Stock.
(i) Immediately after the Effective Time, Parent will not cause
Personal Electronics to issue any warrants, options, convertible securities, or
any other type of right pursuant to which any person could acquire stock in
Personal Electronics that, if exercised or converted, would affect Parent's
acquisition or retention of control of Personal Electronics, as defined in
Section 368(c) of the Internal Revenue Code.
(j) Prior to the Merger, Parent will be in control of Merger Sub within
the meaning of Section 368(c) of the Internal Revenue Code.
(k) Neither Parent, Merger Sub, nor any other corporation related to
Parent (within the meaning of Treasury Regulation ss. 1.368-1(e)) will purchase
(for consideration other than stock permitted to be received without the
recognition of gain or loss under Section 354 of the Internal Revenue Code)
individually or in the aggregate and directly or indirectly, from the PE
Shareholders in connection with the Merger shares of Personal Electronics or
Parent stock having a value, as of the Closing, of more than 20% of the value of
all of the formerly outstanding Personal Electronics stock as of the Closing.
For purposes of this representation, shares of Personal Electronics stock
purchased by a partnership will be deemed to have been purchased pro rata by the
partners of the partnership.
(l) Parent has no plan or intention to liquidate Personal Electronics;
to merge Personal Electronics with or into another corporation (except for the
Merger) unless Personal Electronics is the surviving corporation; to sell or
otherwise dispose of the stock of Personal Electronics except for transfers of
stock to corporations controlled by Parent; or to cause Personal Electronics to
sell or otherwise dispose of any of its assets or of any of the assets acquired
from Merger Sub, except for dispositions made in the ordinary course of business
or transfers of assets to a corporation controlled by Personal Electronics, or
transfers of assets permitted by Treasury Regulation ss. 1.368-1(b)(4).
(m) Merger Sub will have no liabilities assumed by Personal
Electronics, and will not transfer to Personal Electronics any assets subject to
liabilities, in the Merger.
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(n) Parent does not own, nor has it owned during the past five years,
directly or indirectly, any shares of the stock of Personal Electronics.
(o) Neither Parent nor Merger Sub is an investment company as defined
in Section 368(a)(2)(F)(iii) and (iv) of the Internal Revenue Code.
(p) Parent has no plan or intention to cause Personal Electronics to
issue additional stock that would result in Parent losing control of Personal
Electronics within the meaning of Section 368(c) of the Internal Revenue Code.
ARTICLE VI
CONDUCT PRIOR TO EFFECTIVE TIME
6.1 No Solicitation; Acquisition Proposals. Unless Parent informs
Personal Electronics in writing that it does not intend to complete an
acquisition of Personal Electronics or unless Parent ceases negotiations with
Personal Electronics, Personal Electronics shall not, directly or indirectly,
through any officer, director, employee, representative, agent, financial
advisor or otherwise, solicit, initiate or encourage inquiries or submission of
proposals or offers from any person relating to any sale of all or any portion
of the assets, business, properties of (other than immaterial or insubstantial
assets or inventory in the ordinary course of business), or any equity interest
in, Personal Electronics or any business combination with Personal Electronics
whether by merger, purchase of assets, tender offer or otherwise or participate
in any negotiation regarding, or furnishing to any other person any information
with respect to, or otherwise cooperate in any way with, or assist in,
facilitate or encourage, any effort or attempt by any other person to do or seek
to do any of the foregoing. Personal Electronics shall use reasonable efforts to
cause all confidential materials previously furnished to any third parties in
connection with any of the foregoing to be promptly returned to Personal
Electronics and shall cease any negotiations conducted in connection therewith
or otherwise conducted with any such parties.
6.2 Notice of Breach. Each party hereto shall promptly give written
notice to the others upon becoming aware of the occurrence or impending or
threatened occurrence or nonoccurrence, of any event that could cause or
constitute a breach of any of its representations, warranties or covenants
hereunder.
ARTICLE VII
ADDITIONAL COVENANTS
7.1 Access to Information. Each party shall afford the other and its
accountants, counsel and other representatives (collectively, "Representatives")
full access during normal business hours (and at such other times as the parties
hereto agree) during the period prior to the Effective Time to: (a) all of such
party's properties, books, contracts, commitments and records, and (b) all other
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information concerning the business, properties and personnel of such party as
the other party may reasonably request. Each party agrees to provide to the
other and its accountants, counsel and other representatives copies of internal
financial statements promptly upon request. Subject to compliance with
applicable law, from the date hereof until the Effective Time, each of Parent
and Personal Electronics shall confer on a regular and frequent basis with one
or more representatives of the other party to report operational matters of
materiality and the general status of ongoing operations. No information or
knowledge obtained in any investigation pursuant to this Section 7.1 shall
affect or be deemed to modify any representation or warranty contained herein or
the conditions to the obligations of the parties hereto to consummate the
Merger.
7.2 Confidentiality. Each party hereto and its Representatives will
treat as confidential and hold in confidence all information concerning the
businesses and affairs of the other that is not already generally available to
the public and is not otherwise known to the party to whom it was disclosed on a
non-confidential basis ("Confidential Information") and refrain from using any
Confidential Information except in furtherance of this Agreement or as required
by law or regulation. In the event of the termination of this Agreement, each
party will treat and hold as such all Confidential Information received from the
other party hereto, refrain from using any of such Confidential Information and
return or destroy, at the request of the other party, all tangible embodiments
(and all copies) of such Confidential Information. In the event that a party is
requested or legally required (by oral question or request for information or
documents in any legal proceeding, interrogatory, subpoena, civil investigative
demand, or similar process) to disclose any Confidential Information, such party
will notify the other promptly of the request or requirement so that such other
party may seek an appropriate protective order or waive compliance with the
provisions of this Section 7.2. If, in the absence of a protective order or the
receipt of a waiver hereunder, a party is, on the advice of counsel, compelled
to disclose any Confidential Information to any tribunal or else stand liable
for contempt, such party may disclose the Confidential Information to the
tribunal; provided, however, that such party shall use reasonable effort to
obtain, at the request of the other party, an order or other assurance that
confidential treatment will be accorded to such portion of the Confidential
Information required to be disclosed as such other party shall designate.
7.3 Publicity. Personal Electronics shall not, and shall use its
reasonable efforts to cause its shareholders not to, issue, or cause or permit
to be issued, any press release or otherwise make any public statement regarding
the terms of this Agreement or the transactions contemplated hereby without
Parent's prior written consent. Parent and Merger Sub shall consult with
Personal Electronics before issuing any press release or otherwise making any
public statement regarding the terms of this Agreement or the transactions
contemplated hereby, except as required by law or regulation or its other legal
obligations.
7.4 Filings; Cooperation. Parent and Personal Electronics shall make,
and cause their affiliates to make, all necessary filings with respect to the
Merger and the other transactions contemplated hereby including those required
under the Securities Act and the Securities Exchange Act of 1934 (the "Exchange
Act"), and the rules and regulations thereunder, and under applicable Blue Sky
or similar securities laws, and shall use all reasonable efforts to obtain
required approvals and clearances with respect thereto to (a) comply as promptly
as practicable with all governmental requirements applicable to the transaction
and (b) obtain promptly all necessary permits, orders and
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other consents of Governmental Entities and consents of third parties necessary
for the consummation of the Merger.
7.5 Employment Matters. At the Effective Time, Parent will enter into
employment agreements with each of ▇▇▇▇▇▇ ▇▇▇▇▇▇ and ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ (the
"Employment Agreements"), which Employment Agreements shall be substantially in
the form attached hereto as Exhibit 7.5.
7.6 Stock Options. At the Effective Time, Parent will issue 260,000
non-qualified stock options to certain employees of Personal Electronics. Such
stock options will not be issued or exercisable under Parent's Equity Incentive
Plan (although the terms of such options will be identical to the terms
applicable to options issued under Parent's Equity Incentive Plan). As soon as
reasonably practicable after the Effective Time, Parent shall cause the Parent
Common Stock issuable upon exercise of such options to be registered under the
Securities Act on Form S-8. Schedule 7.6 hereto sets forth the names of the
grantees, the number of options to be granted and the manner in which such
options will vest. The exercise price of the options shall be the last closing
sale price of the Parent Common Stock on the date of grant.
7.7 Director Nominee. The PE Shareholders shall be entitled to
designate one person for election to the Board of Directors of Parent (the
"Designee") prior to Parent's Annual Meeting of Shareholders held next following
the Effective Time. Unless waived by the Designee or unless the Designee has not
been named within 10 days prior to the date Parent mails to shareholders its
Proxy Statement for such Annual Meeting, Parent also shall take such action as
may be reasonably necessary to nominate the Designee for election to the Board
of Directors at such Annual Meeting.
7.8 Further Assurances.
(a) Subject to the terms and conditions herein provided, each of the
parties hereto agrees to use all 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 under applicable laws and regulations to consummate and make
effective the transactions contemplated by this Agreement, including using all
reasonable efforts to obtain all necessary waivers, consents and approvals, to
effect all necessary registrations and filings (including, but not limited to,
filings with all applicable Governmental Entities) and to lift any injunction or
other legal bar to the Merger (and, in such case, to proceed with the Merger as
expeditiously as possible).
(b) In case at any time after the Effective Time any further action is
necessary or desirable to carry out the purposes of this Agreement, the proper
officers and/or directors of Parent and the Surviving Corporation and the PE
Shareholders shall take all such necessary action.
(c) Personal Electronics and the PE Shareholders, on the one hand, and
Parent on the other shall confirm and represent to one another, such factual
matters as the other may reasonably request in order for each party to confirm
that the Merger will qualify as a nontaxable reorganization under Sections
368(a)(1)(A) and 368(a)(2)(E) of the Code.
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(d) None of Parent, Merger Sub and Personal Electronics will (both
before and after consummation of the Merger) take any actions, other than those
contemplated by this Agreement, which would prevent the transaction effected
through the Merger from qualifying as a reorganization under the provisions of
Section 368(a) of the Code.
7.9 Certain Tax Matters.
(a) Parent shall cause Personal Electronics to continue at least one
significant historical business line of Personal Electronics, or shall use at
least a significant portion of Personal Electronics' historical business assets
in a business, in each case within the meaning of Treasury Regulation Section
1.368-1(d).
(b) The PE Shareholders shall retain and provide to Parent, and Parent
will retain and provide to the PE Shareholders, any records or other information
that may be relevant to any Return, audit or examination, proceeding, or
determination that affects any amount required to be shown on any Return.
Without limiting the generality of the foregoing, each party shall retain, until
the applicable statutes of limitations (including any extensions) have expired,
copies of all Returns, supporting work schedules, and other records or
information that may be relevant to such Returns for all tax periods or portions
thereof ending before or including the Closing Date and shall not destroy or
otherwise dispose of any such records without first providing the other party
with a reasonable opportunity to review and copy the same.
(c) Parent shall exercise complete control over the handling,
disposition, and settlement of any governmental inquiry, examination, or
proceeding that could result in a determination with respect to Taxes due or
payable by Personal Electronics for any period ending on or after the Closing
Date and the PE Shareholders shall exercise complete control with respect to any
period ending prior to the Closing Date.
(d) Parent shall pay any sales, use, transfer or documentary Taxes and
recording and filing fees, incurred in connection with this Agreement and shall
prepare and timely file all Returns with respect to such taxes and fees.
7.10 Repayment and Cancellation of Notes. The parties hereto agree that
not less than one day prior to the Effective Time, Personal Electronics shall be
authorized to repay a portion of its note payable to the PE Shareholders in an
amount equal to $1,300,000. The remaining principal balance of such notes shall
be canceled and contributed to capital as of a date no later than the day prior
to the Effective Time.
7.11 Pooling-of-Interests. From and after the date hereof, and until
the expiration of the Restricted Period (as defined below) neither Parent nor
Personal Electronics shall or shall permit any of their subsidiaries or
controlled affiliates to take, and Parent and Personal Electronics shall use
their respective best efforts to cause their other affiliates not to knowingly
take, any action, or fail to take any action, that would jeopardize the
treatment of the Merger as a pooling-of-interests. As used herein, the term
"Restricted Period" shall mean the period commencing on the date hereof and
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terminating on the date on which at least thirty days of combined operations are
publicly announced by Parent in accordance with the provisions of Section 7.12
hereof.
7.12 Publication of Financial Information. As promptly as reasonably
practicable after the first complete fiscal quarter after the Effective Time
that includes at least 30 days of combined operations of Personal Electronics
and Parent, Parent will cause to be publicly reported in a Quarterly Report on
Form 10-Q financial statements of Parent that include such combined operations.
7.13 Allocation of Taxes.
(a) The PE Shareholders shall pay all Taxes of Personal
Electronics allocable to any period ending on or before December 31, 1996
whether such Taxes are due before or after Closing. Subject to the provisions
below, the Taxes allocable to any period ending on the day before the Closing
Date (a "Pre-Closing Period") shall be determined on the basis of a closing of
the books of Personal Electronics at the end of the day before the Closing Date.
(b) For purposes of paragraph (a), Taxes allocable to a
Pre-Closing Period shall be determined in accordance with Section 1362 of the
Code and the regulations thereunder.
(c) Personal Electronics shall include the income, gain, loss,
deductions, credits, estimates, withholding amounts, tax information and similar
items (collectively "Tax Items") of Personal Electronics for federal income tax
purposes for all Pre-Closing Periods in the federal income tax return filed by
Personal Electronics. Personal Electronics shall take no position on such
returns that is materially inconsistent with past practice and that would
materially adversely affect Parent or Personal Electronics after the Closing
Date. The PE Shareholders shall prepare and deliver to Parent prior to filing, a
draft return that demonstrates the activities and Tax Items of Personal
Electronics for any other Pre-Closing Period if requested by Parent.
(d) To the extent any determination of Taxes with respect to
Personal Electronics, whether as the result of an audit or examination, a claim
for refund, the filing of an amended return, the application of an overpayment
as an offset, or otherwise, results in a refund of Taxes paid by Personal
Electronics (a "Refund"), the PE Shareholders shall be entitled to any part of
such Refund attributable to a Pre-Closing Period (but only to the extent that
the Refund amount that would otherwise be payable to the PE Shareholders exceed
the amount for that Refund as reflected on the Closing Date Balance Sheet) and
Parent shall be entitled to the balance of such Refund. The party receiving a
Refund shall, within 10 days after receipt, pay over to the other party the
portion of the Refund to which the other party is entitled under this paragraph
(along with a proportionate share of any interest amounts received with the
Refund).
(e) The PE Shareholders and Parent agree to give prompt notice
to each other of any proposed adjustment to Taxes for any Pre-Closing Period.
The PE Shareholders and Parent shall cooperate with each other in the conduct of
any audit or other proceedings involving Personal Electronics for such periods
and each may participate at its own expense, provided that Parent shall have the
right to control the conduct of any such audit or proceeding.
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(f) The PE Shareholders and Parent agree to furnish or cause
to be furnished to each other, upon request, as promptly as practicable, such
information and assistance (including access to books and records) relating to
Personal Electronics as is reasonably necessary for the preparation of any
Return, claim for refund or audit, and the prosecution or defense of any claim,
suit or proceeding relating to any proposed adjustment.
7.14 Listing. Prior to the Effective Time, Parent shall have submitted
an application to the Nasdaq Stock Market to list the shares of Parent Common
Stock constituting the Merger Consideration and Parent shall use its reasonable
best efforts to cause such application to become effective at or as soon as
reasonably practicable following the Effective Time.
ARTICLE VIII
CONDITIONS PRECEDENT
8.1 Conditions to Obligations of Each Party to Effect the Merger. The
respective obligations of each party hereto 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 the parties
hereto:
(a) No temporary restraining order, preliminary or permanent injunction
or other order issued by any court of competent jurisdiction or other legal or
regulatory restraint or prohibition preventing the consummation of the Merger,
nor any proceeding brought by any Governmental Entity, domestic or foreign,
seeking any of the foregoing, shall be pending; nor shall there be any action
taken, or any statute, rule, regulation or order enacted, entered, enforced or
deemed applicable to the Merger, which makes the consummation of the Merger
illegal.
(b) Parent, Personal Electronics and Merger Sub and their respective
subsidiaries, if any, shall have timely obtained from each Governmental Entity
all approvals, waivers and consents, if any, necessary for consummation of or in
connection with the Merger and the several transactions contemplated hereby,
including such approvals, waivers and consents as may be required under the
federal securities and state Blue Sky laws.
8.2 Additional Conditions to Obligations of Personal Electronics to
Effect the Merger. The obligations of Personal Electronics 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 Personal Electronics:
(a) Parent and Merger Sub shall have performed and complied in all
material respects with all covenants, obligations and conditions of this
Agreement required to be performed and complied with by them on or prior to the
Effective Time and the representations and warranties of Parent and Merger Sub
in this Agreement shall be complete and correct in all material respects (or in
all respects in the case of any representation or warranty that is qualified by
its terms by a
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reference to Material Adverse Effect or otherwise the concept of materiality)
when made and on and as of the Effective Time as though such representations and
warranties were made on and as of such date.
(b) Personal Electronics shall have received a certificate executed on
behalf of Parent by its Chief Financial Officer certifying that the conditions
specified in Section 8.2(a) have been fulfilled.
(c) Personal Electronics shall have received a legal opinion of Holme
▇▇▇▇▇▇▇ & ▇▇▇▇ LLP, counsel to Parent, substantially in the form attached hereto
as Exhibit 8.2(c).
(d) Parent shall have executed and delivered to the holders of Personal
Electronics Common Stock an agreement with respect to demand and piggyback
registration rights of such holders (the "Registration Rights Agreement"),
substantially in the form of Exhibit 8.2(d) attached hereto.
(e) Parent shall have executed and delivered to each employee who is to
be a party thereto the Employment Agreement to be entered into by such employee
pursuant to Section 7.5.
(f) Parent shall have delivered written option agreements to the
recipients specified on Schedule 7.6, evidencing the options to purchase Parent
Common Stock specified on such Schedule.
(g) There shall not have occurred any Material Adverse Effect on Parent.
(h) Personal Electronics and the PE Shareholders shall have confirmed,
to their reasonable satisfaction, that the Merger will qualify as a nontaxable
reorganization under Sections 368(a)(1)(A) and 368(a)(2)(E) of the Code.
(i) Personal Electronics shall have received a certificate, dated the
Closing Date, of the Secretary or an Assistant Secretary of Parent certifying as
to the resolutions of the Board of Directors of Parent attached thereto and to
such other corporate proceeding relating to the authorization, execution and
delivery of this Agreement as Personal Electronics may reasonably request.
8.3 Additional Conditions to the Obligations of Parent and Merger Sub
to Effect the Merger. The obligations of Parent and Merger Sub 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 Parent:
(a) Personal Electronics shall have performed and complied in all
material respects with all covenants, obligations and conditions of this
Agreement required to be performed and complied with by it at or prior to the
Effective Time and the representations and warranties of Personal Electronics in
this Agreement shall be complete and correct in all material respects (or in all
respects in the case of any representation or warranty that is qualified by its
terms by a reference to Material Adverse Effect or otherwise by the concept of
materiality) when made and on and as of the Effective Time as though such
representations and warranties were made on and as of such time.
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(b) Parent shall have received a certificate, dated as of the Effective
Time, executed on behalf of Personal Electronics by its President certifying
that the conditions specified in Section 8.3(a) have been fulfilled.
(c) Parent shall have received a legal opinion from Ropes & ▇▇▇▇, legal
counsel to Personal Electronics, substantially in form attached hereto as
Exhibit 8.3(c).
(d) Parent shall have been furnished with evidence satisfactory to it
of (i) the consent of ▇▇▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇ Inc. to the issuance of the Parent
Common Stock comprising the Merger Consideration and (ii) the consent or
approval of those persons whose consent or approval shall be required in
connection with the Merger under any material contract of Personal Electronics
or otherwise.
(e) There shall not have occurred any Material Adverse Effect on Personal
Electronics.
(f) Parent shall have received letters of resignation, effective as of
the Effective Time, executed and tendered by each of the then incumbent
directors of Personal Electronics.
(g) The PE Shareholders shall have (i) delivered to Parent certificates
representing all of the issued and outstanding shares of Personal Electronics
Common Stock pursuant to Section 3.2 and (ii) entered into an agreement
regarding the indemnification of Parent and Merger Sub with respect to the
representations, warranties and covenants of this Agreement (the
"Indemnification Agreement"), which Indemnification Agreement shall be
substantially in the form of Exhibit 8.3(g) attached hereto;
(h) Each employee who is to be party thereto shall have executed and
delivered to Parent, the Employment Agreement to be entered into by such
employee pursuant to Section 7.5.
(i) Parent shall have received from each of the PE Shareholders a
letter substantially in the form of Exhibit 8.3(i) attached hereto, and Parent
shall have confirmed, to its reasonable satisfaction, that the Merger will
qualify as a nontaxable reorganization under Sections 368(a)(1)(A) and
368(a)(2)(E) of the Code.
(j) Parent shall have received a letter from KPMG Peat Marwick, dated
the Closing Date, to the effect that KPMG Peat Marwick concurs with Parent's
management that the Merger qualifies for financial purposes as a
pooling-of-interests.
(k) Personal Electronics shall deliver to Parent at Closing a
"Certificate of Nonforeign Status" under section 1445 of the Code in a form
reasonably satisfactory to Parent.
(l) KPMG Peat Marwick shall have received a pooling-of-interests
representation letter, substantially in the form of Exhibit 8.3(l) attached
hereto, dated as of the Closing Date, from the executive officers of Personal
Electronics.
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(m) Parent shall have received a certificate, dated the Closing Date,
of the Secretary or an Assistant Secretary of Personal Electronics certifying as
to the resolutions of the PE Shareholders and the Board of Directors of Personal
Electronics attached thereto and to such other corporate proceeding relating to
the authorization, execution and delivery of this Agreement as Parent may
reasonably request.
ARTICLE IX
RESTRICTIONS ON TRANSFER
9.1 Legends. Each certificate representing shares of Parent Common
Stock issued in connection with the Merger (the "Restricted Securities") shall
bear a legend to the following effect:
"THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED, OR ANY STATE SECURITIES LAWS. THESE SECURITIES CANNOT
BE SOLD, TRANSFERRED, ASSIGNED, PLEDGED, HYPOTHECATED OR OTHERWISE
DISPOSED OF EXCEPT IN COMPLIANCE WITH RESTRICTIONS ON TRANSFERABILITY
CONTAINED IN AN AGREEMENT RELATING TO THE SECURITIES AND APPLICABLE
FEDERAL AND STATE SECURITIES LAWS AND NO TRANSFER WILL BE RECOGNIZED
UNLESS MADE IN COMPLIANCE WITH SUCH LAWS."
Any holder of Restricted Securities (a "Holder") who disposes of Restricted
Securities in accordance with Section 9.2 shall be entitled to have Parent cause
new certificates without legends to be issued promptly to the Holder in exchange
for outstanding certificates with legends representing the disposed shares if:
(a) the opinion of counsel referred to in Section 9.2 is to the further effect
that such legend is not required in order to establish compliance with any
provisions of the Securities Act; (b) the transfer is in connection with a
transaction intended to comply with Rule 144 and Rule 145 as promulgated by the
SEC under the Securities Act, as such Rules may be amended from time to time, or
any similar successor rule that may be promulgated by the SEC, or (c) an
appropriate registration statement with respect to such Restricted Securities
has been filed by Parent with the SEC and has been declared effective by the
SEC.
9.2 Notice of Proposed Dispositions. Each Holder of Restricted
Securities by acceptance thereof shall agree to comply in all respects with the
provisions of this Section 9.2. Prior to any proposed disposition of any
Restricted Securities (unless there is in effect a registration statement under
the Securities Act covering such proposed disposition and such disposition is
made in accordance with such registration statement) the holder thereof shall
give written notice to Parent of such Holder's intention to effect such
disposition. Each such notice shall describe the manner and circumstances of the
proposed disposition and shall be accompanied by either (a) a written opinion of
legal counsel addressed to Parent and reasonably satisfactory in form and
substance to Parent, to the effect that the proposed disposition of Restricted
Securities may be effected without registration of such Restricted Securities or
(b) a "no action" letter from the SEC to the effect that such
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disposition without registration of such Restricted Securities will not result
in recommendation by the staff of the SEC that enforcement action be taken with
respect thereto, whereupon the Holder of such Restricted Securities shall be
entitled to transfer such Restricted Securities in accordance with the terms of
the notice delivered by the Holder to Parent. The provisions of this Section 9.2
shall not apply to Restricted Securities that are then freely tradeable pursuant
to Rule 144(k) under the Securities Act, as amended from time to time, or any
similar successor rule that may be promulgated by the SEC.
ARTICLE X
TERMINATION, AMENDMENT AND WAIVER
10.1 Termination. At any time prior to the Effective Time, this Agreement
may be terminated:
(a) by mutual consent of Parent and Personal Electronics;
(b) by either Parent or Personal Electronics, if, without fault of the
terminating party, the Closing shall not have occurred on or before April 15,
1998;
(c) by Parent, if any of the conditions specified in Section 8.3 have not
been satisfied or waived at such time as such condition is no longer capable of
satisfaction;
(d) by Personal Electronics, if any of the conditions specified in
Section 8.2 have not been satisfied or waived at such time as such condition is
no longer capable of satisfaction;
(e) by either Parent or Personal Electronics if the other shall have
breached its respective representations, warranties, covenants or other
obligations under Articles IV through VII in any material respect and such
breach continues for a period of 10 days after receipt of notice of the breach
from the non-breaching party hereto.
10.2 Effect of Termination. In the event of termination of this
Agreement as provided in Section 10.1, this Agreement shall forthwith become
void and there shall be no liability or obligation on the part of Parent, Merger
Sub or Personal Electronics or their respective officers, directors,
shareholders or affiliates, except to the extent that such termination results
from the breach by a party hereto of any of its representations, warranties or
covenants set forth in this Agreement; provided that, the provisions of this
Section 10.2 and Section 7.2 (Confidentiality) and Article XI (General
Provisions) shall remain in full force and effect and survive any termination of
this Agreement.
10.3 Amendment. The respective Boards of Directors of the parties
hereto may cause this Agreement to be amended at any time by execution of an
instrument in writing signed on behalf of each of the parties hereto; provided
that an amendment made subsequent to adoption of the Agreement by the
shareholders of Personal Electronics or Merger Sub shall not (a) alter or change
the amount or kind of consideration to be received on conversion of the Personal
Electronics
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Common Stock, (b) alter or change any term of the Articles of Incorporation of
Surviving Corporation to be effected by the Merger, or (c) alter or change any
of the terms and conditions of this Agreement if such alteration or change would
adversely affect the PE Shareholders or Parent without the prior written
approval of the PE Shareholders and Parent.
10.4 Extension; Waiver. At any time prior to the Effective Time any
party hereto may, to the extent legally allowed, (a) extend the time for the
performance of any of the obligations or other acts of the other parties hereto,
(b) waive any inaccuracies in the representations and warranties made to such
party contained herein or in any document delivered pursuant hereto and (c)
waive compliance with any of the agreements or conditions for the benefit of
such party 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 an instrument in
writing signed on behalf of such party.
ARTICLE XI
GENERAL PROVISIONS
11.1 Survival of Representations and Warranties. The representations
and warranties of Personal Electronics herein shall survive the Merger and
continue in full force and effect until the earlier of the first anniversary of
the Effective Time or the date on which the Company publishes audited financial
statements for a period ending after the Effective Time, except those contained
in Sections 4.15 and 4.16, which shall survive the Merger and continue in full
force and effect for one year and that contained in the first sentence of
Section 4.17, which shall survive the Merger for any applicable statute of
limitations. The PE Shareholders have agreed to indemnify Parent pursuant to the
Indemnification Agreement, subject to the limitations contained therein. The
representations and warranties of Parent and Merger Sub shall survive the Merger
and continue in full force and effect until the earlier of the first anniversary
of the Effective Time or the date on which the Company publishes audited
financial statements for a period ending after the Effective Time, and Parent
shall indemnify the PE Shareholders pursuant to Section 11.2, in each case
subject to the limitations contained therein.
11.2 Indemnification by Parent.
(a) Indemnity Obligation of Parent. Parent hereby agrees to indemnify
and hold each of the PE Shareholders harmless from, and to reimburse each of the
PE Shareholders for, any Shareholder Indemnity Claims arising under the terms
and conditions of this Agreement. For purpose of this Agreement, the term
"Shareholder Indemnity Claim" shall mean any action, suit, proceeding, hearing,
charge, complaint, claim, demand, injunction, judgment, order, decree, ruling,
damage, dues, penalty, fines, costs, amounts paid in settlement, liabilities,
obligations, Taxes, Liens, losses, expenses and fees, including court costs and
attorneys' fees and expenses ("Losses") incurred by the PE Shareholders
resulting from any breach of a representation, warranty or covenant (as such
representation or warranty would read if all qualifications as to knowledge,
materiality and Material Adverse Effect were deleted from it) of Parent or
Merger Sub that is contained in this Agreement.
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(b) Limitation on Indemnification. Notwithstanding the foregoing, any
claim for indemnification or breach of a representation, warranty or covenant
(except breach of the representation and warranty contained in Section 5.10 and
of the covenant contained in Section 7.8(d), which shall not be subject to the
Indemnification Threshold (as hereinafter defined) or aggregate liability
contained in this Section 11.2(b)) against Parent hereunder shall be payable by
Parent only in the event, and to the extent, that the accumulated amount of
claims in respect of Parent's obligations to indemnify hereunder shall exceed
the amount of $250,000 in the aggregate (the "Indemnification Threshold"). In
addition, the aggregate liability of Parent for amounts in excess of the
Indemnification Threshold shall not exceed an amount equal to 10% of the product
of the Average Price Per Share and the number of shares of the Parent Common
Stock comprising the Merger Consideration determined pursuant to Section 3.1(a)
unless such Losses are caused by or arise out of any breach that Parent
intentionally failed to disclose at the time of the related representation was
made or deemed made, in which case, the Indemnification Threshold shall not
apply and there shall be no limitation on the aggregate liability of Parent
hereunder.
11.3 Notices. All notices and other communications hereunder shall be
in writing and shall be deemed given if delivered personally or by commercial
delivery service, or mailed by registered or certified mail, return receipt
requested, or sent via facsimile, with confirmation of receipt, to the parties
at the following address or at such other address for a party as shall be
specified by notice hereunder:
(a) if to Parent or Merger Sub, to:
EFTC Corporation
▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇▇
Facsimile No.: (▇▇▇) ▇▇▇-▇▇▇▇
with a copy to:
Holme ▇▇▇▇▇▇▇ & ▇▇▇▇ LLP
▇▇▇▇ ▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
Facsimile No.: (▇▇▇) ▇▇▇-▇▇▇▇
(b) if to Personal Electronics, to:
RM Electronics Inc.
▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇▇ ▇▇▇▇▇▇
Facsimile No.: (▇▇▇) ▇▇▇-▇▇▇▇
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with a copy to:
Ropes & ▇▇▇▇
▇▇▇ ▇▇▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇▇▇▇
Attention: ▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇, Esq.
Facsimile No.: (▇▇▇) ▇▇▇-▇▇▇▇
11.4 Interpretation. When a reference is made in this Agreement to
Exhibits, Articles or Sections, such reference shall be to an Exhibit, Article
or Section to this Agreement unless otherwise indicated. The words "include,"
"includes" and "including" when used herein shall be deemed in each case to be
followed by the words "without limitation." The phrase "made available" in this
Agreement shall mean that the information referred to has been made available if
requested by the party hereto to whom such information is to be made available.
The table of contents, index of defined terms and Article and Section headings
contained in this Agreement are for reference purposes only and shall not affect
in any way the meaning or interpretation of this Agreement. In this Agreement,
any reference to any event, change, condition or effect being "material" with
respect to any entity or group of entities means any material event, change,
condition or effect related to the condition (financial or otherwise),
properties, assets (including intangible assets), liabilities, business,
operations or results of operations of such entity or group of entities. In this
Agreement, any reference to a "Material Adverse Effect" with respect to any
entity or group of entities means any event, change or effect that is materially
adverse to the condition (financial or otherwise), properties, assets,
liabilities, business, operations or results of operations of such entity and
its subsidiaries, taken as a whole. In this Agreement, any reference to a
party's "knowledge" means such party's actual knowledge of a particular fact or
matter after due and diligent inquiry of officers, directors and other employees
of such party reasonably believed to have knowledge of such matters. Whenever
the context may require, any pronoun shall include the corresponding masculine,
feminine and neuter forms.
11.5 Counterparts. This Agreement may be executed in one or more
counterparts, all of which shall be considered one and the same agreement and
shall become effective when one or more counterparts have been signed by each of
the parties hereto and delivered to the other parties hereto, it being
understood that all parties hereto need not sign the same counterpart.
11.6 Entire Agreement; Nonassignability; Parties in Interest. This
Agreement, the Registration Rights Agreement, the Indemnification Agreement and
the documents and instruments and other agreements specifically referred to
herein or delivered pursuant hereto, including the Exhibits, the Personal
Electronics Disclosure Schedule and the other Schedules (a) constitute the
entire agreement among the parties hereto with respect to the subject matter
hereof and supersede all prior agreements and understandings, both written and
oral, among the parties hereto with respect to the subject matter hereof; (b)
are not intended to confer upon any other person any rights or remedies
hereunder; and (c) shall not be assigned by operation of law or otherwise except
as otherwise specifically provided.
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11.7 Severability. In the event that any provision of this Agreement,
or the application thereof, becomes or is declared by a court of competent
jurisdiction to be illegal, void or unenforceable, the remainder of this
Agreement will continue 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. The parties hereto 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.
11.8 Remedies Cumulative; No Waiver. Any and all remedies herein or in
the Indemnification Agreement expressly conferred upon a party shall be the sole
and exclusive remedy for all Losses or other liability sustained or incurred by
the PE Shareholders as the result of any breach of a representation, warranty or
covenant of Parent contained in this Agreement or in the Indemnification
Agreement or any other document contemplated expressly hereby, other than the
Registration Rights Agreement; provided that nothing herein shall be deemed to
limit any right or remedy of the PE Shareholders based upon an assertion of
fraud or other tortious acts. No failure or delay on the part of any party
hereto in the exercise of any right hereunder shall impair such right or be
construed to be a waiver of, or acquiescence in, any breach of any
representation, warranty or agreement herein, nor shall any single or partial
exercise of any such right preclude other or further exercise thereof or of any
other right.
11.9 Governing Law. The Merger shall be governed by the laws of the
state of New Hampshire. All other aspects of this Agreement shall be governed by
and construed in accordance with the laws of the State of Colorado (without
regard to the principles of conflicts of law thereof).
11.10 Charters and By-Laws. The Surviving Corporation agrees that all
rights to indemnification or exculpation now existing in favor of the employees,
agents, directors or officers of Personal Electronics (the "PE Indemnified
Parties") as provided in its Articles of Incorporation or By-Laws shall continue
in full force and effect for a period of not less than six years from the
Closing Date; provided, however, that, in the event any claim or claims are
asserted or made within such six-year period, all rights to indemnification in
respect of any such claim or claims shall continue until disposition of any and
all such claims. Any determination required to be made with respect to whether a
PE Indemnified Party's conduct complies with the standards set forth in the
Articles of Incorporation or By-Laws of Personal Electronics or otherwise shall
be made by independent counsel selected by the PE Indemnified Party reasonably
satisfactory to the Surviving Corporation (whose fees and expenses shall be paid
by the Surviving Corporation).
11.11 Rules of Construction. The parties hereto agree that they have
been represented by counsel during the negotiation, preparation and execution of
this Agreement and, therefore, waive the application of any law, regulation,
holding or rule of construction providing that ambiguities in an agreement or
other document will be construed against the party drafting such agreement or
document.
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11.12 Expenses. Whether or not the Merger is consummated, all costs and
expenses incurred in connection with this Agreement and the transactions
contemplated hereby (including, without limitation, the fees and expenses of its
advisers, accountants and legal counsel) shall be paid by the party incurring
such expense; provided, however that Parent will pay all reasonable expenses
incurred to complete an audit of the financial statements of Personal
Electronics or to secure an accountant's letter regarding the treatment of the
transaction as a pooling-of-interests.
11.13 Attorneys Fees. In the event of any proceeding to enforce this
Agreement, the prevailing party shall be entitled to receive from the losing
party all reasonable costs and expenses, including the reasonable fees of
attorneys, accountants and other experts, incurred by the prevailing party in
investigating and prosecuting (or defending) such action at trial or upon any
appeal.
IN WITNESS WHEREOF, Personal Electronics, Parent and Merger Sub have
caused this Agreement to be executed and delivered by their respective officers
thereunto duly authorized, all as of the date first written above.
EFTC CORPORATION
By: /s/ ▇▇▇▇ ▇▇▇▇▇▇▇▇
Name: ▇▇▇▇ ▇▇▇▇▇▇▇▇
Title: President and CEO
RM ELECTRONICS ACQUISITION CORPORATION
By: /s/ ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇
Name: ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇
Title: CFO
RM ELECTRONICS, INC.
By: /s/ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇
Name: ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇
Title: President
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