EXECUTION COPY
ASSET PURCHASE AGREEMENT
This Asset Purchase Agreement (the "Agreement"), made effective as of
September 30, 1996, is among Nortech Systems Incorporated, a Minnesota
corporation ("Purchaser"), Zercom Corporation, a Minnesota corporation
("Seller") and Communications Systems, Inc., a Minnesota corporation which is
the sole shareholder of Seller (the "Shareholder").
W I T N E S S E T H:
WHEREAS, Seller owns and operates the plant located in Merrifield,
Minnesota and leases and operates the plant in Xxxxxx, Minnesota (collectively,
the "Plant"); and
WHEREAS, Purchaser desires to purchase and assume, and Seller desires to
sell and transfer, all of the Assets and all of the Assumed Liabilities (each as
defined in this Agreement), upon the terms and conditions set forth in this
Agreement.
NOW, THEREFORE, in consideration of the purchase and sale of the Assets
and the transfer and assumption of the Assumed Liabilities, and mutual promises,
covenants and conditions set forth below, Seller and Shareholder, jointly and
severally, and Purchaser, hereby agree as follows:
1. DEFINITIONS. As used in this Agreement, the following terms have the
meanings set forth below, and where those meanings are intended, those
terms are capitalized:
1.1 "ACQUIRED CONTRACTS" means (i) all of the Contracts which
Purchaser will assume the rights and obligations under which are
designated as such on SCHEDULE 1.5 and (ii) as of the Closing
Date, all purchase orders for products and services not delivered
or rendered as of the Closing Date.
1.2 "ASSETS" means all of the assets of Seller, except the Excluded
Assets.
1.3 "ASSUMED LIABILITIES" means (i) all liabilities and obligations
accruing from and after the Closing Date under the Acquired
Contracts, (ii) all warranty obligations associated with all
products sold by Purchaser prior to the Closing Date except for
any LCF40 products shipped, or sold, by Purchaser prior the
Closing Date, and (iii) all accrued vacation earned by Seller's
employees through the Closing Date, up to a maximum dollar amount
equal to the Closing Date Purchase Price Adjustment (as defined in
Section 2.2(A)).
1.4 "BOOKS AND RECORDS" means all of Seller's books and records
relating to the Assets or Seller's business (other than Seller's
tax returns), including without limitation, lists of customers and
suppliers, and records with respect to pricing, volume, payment
history, cost, inventory, machinery and equipment, mailing lists,
distribution and customer lists, sales, purchasing and materials,
and including any such records which are maintained on computer.
1.5 "CONTRACTS" means (i) all of Seller's interest in and to all
contracts, commitments and agreements which relate to the Assets
or Seller's business, all of which are listed on an SCHEDULE 1.5,
and (ii) as of the Closing Date, all purchase orders for products
and services not delivered or rendered as of the Closing Date.
1.6 "EQUIPMENT" means all of Seller's tangible Assets (other than
Inventory and the Real Estate), including, but not limited to
furniture, machinery, equipment, tooling, computers and the
software utilized therewith, and vehicles, specifically including,
but not limited to, the items listed on SCHEDULE 1.6.
1.7 "EXCLUDED ASSETS" means all of the following:
(A) Seller's cash; and
(B) Seller's accounts receivable arising from sales of
merchandise or services to customers in the ordinary course
of Seller's business ("Accounts Receivable"); and
(C) Clearwater Classic Zercom Marine finished goods inventory
up to an amount equal to $352,558 (the "Clearwater
Inventory"); and
(D) All rights of Seller to income tax refunds; and
(E) All of the corporate records of Seller, including, without
limitation, the minutes books, stock ledgers, tax returns
and all business records and files related to the Excluded
Assets.
1.8 "FIXED ASSETS" means the fixed assets of Seller, without regard to
accumulated depreciation, as determined in accordance with GAAP.
1.9 "GAAP" means generally accepted accounting principles,
consistently applied with prior periods.
1.10 "INTELLECTUAL PROPERTY" means all patents, copyrights, trademarks,
trade names, trade secrets, and know how, utilized by Seller in
solely the operation of the Assets, but excluding all intellectual
property referred to in Section 1.7.
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1.11 "INVENTORY" means all of Seller's parts, supplies, raw materials,
work in process, finished goods and goods held for sale to
customers, but does not include the Clearwater Inventory (as
defined in Section 1.7(C)).
1.12 "INVENTORY VALUE" means the value of the Inventory as of the
Closing Date, determined in a manner consistent with the
calculation of the "Total Net Inventory" line item shown on the
Seller Statement.
1.13 "LIABILITIES AND OBLIGATIONS" means any indebtedness, claim,
obligation or liability of any kind or nature whatsoever, whether
absolute or contingent, liquidated or unliquidated, due or to
become due, accrued or not accrued, or otherwise of Seller.
1.14 "PLANS" means all plans, blueprints, designs, processes, computer
programs and related documents, formulae, process sheets,
drawings, instructions, machine manuals, any non-expired
warranties and guarantees, and similar items used or required by
Seller in its business, including, but not limited to, those items
used in production of products, relating to equipment and its
operation, and relating to the building and improvements on the
Real Estate, except those items owned by Seller's customers.
1.15 "NET FIXED ASSETS" means the fixed assets of Seller, net of
accumulated depreciation, as determined in accordance with GAAP.
1.16 "NET FIXED ASSET VALUE" means the value of the Net Fixed Assets as
of the Closing Date.
1.17 "REAL ESTATE" means the real property owned by Seller and more
particularly described on SCHEDULE 1.17, including buildings and
improvements located thereon, also as more particularly described
on SCHEDULE 1.17.
1.18 "SELLER STATEMENT" means the balance sheet of Seller as of August
31, 1996, a copy of which has been provided to Purchaser.
2. ASSUMPTION OF LIABILITIES.
2.1 ASSUMED LIABILITIES. From and after the Closing Date, Purchaser
must assume and become liable for, and must pay and satisfy as
they become due, all obligations under the Assumed Liabilities.
2.2 EXCLUDED LIABILITIES. Purchaser will have no responsibility for,
and Seller and the Shareholder, jointly and severally, agree to
indemnify and hold Purchaser harmless from, any Liabilities and
Obligations of Seller of any nature whatsoever which are not
specifically included in the Assumed Liabilities, whether similar
or dissimilar to the
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Assumed Liabilities, whether now existing or hereafter arising,
and whether known or unknown to Purchaser or Seller, including
without limitation:
(A) Purchaser has no obligation to hire any of Seller's
employees. Seller shall be responsible for any and all
Liabilities and Obligations owed to its employees,
including but not limited to any termination payments,
accrued vacation pay, unpaid wages, including those for the
current week, and otherwise, through the Closing Date. All
such obligations of Seller to employees must be satisfied,
or arrangements for the satisfaction thereof acceptable to
Purchaser must be made, on or before the Closing Date.
With regard to accrued vacation, Seller must determine,
immediately prior to the Closing, the amount of accrued
vacation earned by Seller's employee through the Closing
Date and the amount of the accrued vacation will equal the
amount of an adjustment to the Purchase Price (the "Closing
Date Purchase Price Adjustment").
(B) All Liabilities and Obligations that Seller has to
suppliers for products delivered or services rendered or to
creditors must be promptly paid and satisfied by Seller, on
or before the Closing Date, so as to avoid any adverse
impact upon the business related to the Assets in the hands
of Purchaser.
3. PURCHASE AND SALE.
3.1 PURCHASE PRICE. In payment for the Assets, Purchaser must pay
Seller on the Closing Date a purchase price equal to $6,500,000
(the "Purchase Price"), payable in accordance with Section 3.2.
The Purchase Price is subject to the Closing Date Purchase Price
Adjustment, as provided in Section 2.2(A), and the Post-Closing
Purchase Price Adjustment, as provided in Sections 3.3 and 3.4.
3.2 PAYMENT OF PURCHASE PRICE. At the Closing, Purchaser must pay
Seller the Purchase Price as follows:
(A) A payment, in the form of a cashier's or certified check or
by wire transfer, in the amount of $1,500,000, subject to
the Closing Date Purchase Price Adjustment set forth in
Section 2.2(A); and
(B) Delivery of a duly executed non-negotiable promissory note
of Purchaser in the amount of $5,000,000, substantially in
the form of EXHIBIT B (the "Note").
3.3 POST-CLOSING PURCHASE PRICE ADJUSTMENT.
(A) The Purchase Price is subject to a post-closing adjustment
in an amount equal to the Post-Closing Purchase Price
Adjustment. The "Post-Closing Purchase Price Adjustment"
equals the sum of
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(1) the Inventory Value, less $3,587,364; PLUS
(2) the Net Fixed Asset Value, less $2,359,509, plus
one-half of the deprecation expense associated with
the Fixed Assets between August 31, 1996 and the
Closing Date.
(B) DETERMINATION OF ADJUSTMENT VALUES.
(1) Promptly after the Closing Date, Seller and
Purchaser must jointly conduct a physical inventory
of the Inventory as of the Closing Date.
(2) Purchaser must, as soon as reasonably practicable
after the Closing Date but not later than 45 days
after the Closing Date, prepare a statement (the
"Closing Statement") setting forth Purchaser's
calculation, in reasonable detail, of the Inventory
Value and the Net Fixed Asset Value.
(3) Within 20 days after receipt of the Closing
Statement, Seller must give Purchaser written notice
of any exceptions to Purchaser's calculation of the
Inventory Value or the Net Fixed Asset Value.
(a) If Seller has not given Purchaser such
written notice within that 20-day period,
then the Inventory Value and the Net Fixed
Asset Value set forth in the Closing
Statement will be conclusive and binding on
the parties.
(b) If Seller gives Purchaser such written notice
within that 20-day period, then Purchaser and
Seller must promptly endeavor to resolve the
matters. If Seller and Purchaser fail to
reach an agreement with respect to such
matters on or before the thirtieth day after
Seller receives the Closing Statement, then,
as to such matters remaining in dispute, the
Seller and the Purchaser must promptly retain
an audit partner from a Big Six national
accounting firm acceptable to Purchaser and
Seller, which has not rendered services to
either Purchaser or Seller for at least three
years. That partner must make an independent
determination of such matters and deliver an
opinion to Purchaser and Seller within 20
days of that partner's retention, which
determination will be conclusive and binding
on the parties. All fees and expenses of the
audit partner must be paid by the party
generally not prevailing on the issues, or if
the audit partner determines that neither
party
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could be fairly found to be the prevailing
party, then such fees and expenses must be
paid equally Purchaser and Seller.
3.4 PAYMENT OF THE POST-CLOSING PURCHASE PRICE ADJUSTMENT.
(A) POSITIVE POST-CLOSING PURCHASE PRICE ADJUSTMENT. If the
Post-Closing Purchase Price Adjustment is greater than
zero, then Purchaser must deliver, within five days after
final determination of the Post-Closing Purchase Price
Adjustment, a substitute promissory note (the "Greater
Note") for the Note with a principal amount equal to the
$5,000,000 PLUS the amount of the Post-Closing Purchase
Price Adjustment PLUS an amount equal to (i) 6%, divided by
(ii) 365, multiplied by (iii) the number of days between
the Closing Date and the date of delivery of the Net Fixed
Asset Value, and multiplied by (iv) the Post-Closing
Purchase Price Adjustment. Upon delivery of the Net Fixed
Asset Value, Seller must immediately xxxx the Note
"Cancelled" and promptly deliver the cancelled Note to
Purchaser.
(B) NEGATIVE POST-CLOSING PURCHASE PRICE ADJUSTMENT. If the
Post-Closing Purchase Price Adjustment is less than zero,
then Purchaser must deliver, within five days after final
determination of the Post-Closing Purchase Price
Adjustment, a substitute promissory note (the "Lesser
Note") for the Note with a principal amount equal to the
$5,000,000 LESS the amount of the Post-Closing Purchase
Price Adjustment LESS an amount equal to (i) 6%, divided by
(ii) 365, multiplied by (iii) the number of days between
the Closing Date and the date of delivery of the Lesser
Note, and multiplied by (iv) the Post-Closing Purchase
Price Adjustment. Upon delivery of the Lesser Note, Seller
must immediately xxxx the Note "Cancelled" and promptly
deliver the cancelled Note to Purchaser.
3.5 ALLOCATION OF PURCHASE PRICE. The Purchaser and the Seller agreed
that the Assets are being sold and purchased at their fair market
values. Therefore, consideration paid by the Purchaser to the
Seller in exchange for the Assets has been allocated as set forth
in SCHEDULE 3.5 pursuant to arms' length negotiation, and such
allocation properly reflects the respective fair market values of
the Assets. It is further agreed that the allocation of the
consideration to the Assets as set forth in SCHEDULE 3.5 will be
binding on Seller and Purchaser for federal and state income tax
purposes and will be consistently so reflected by Purchaser and
Seller on their respective federal and state income tax returns.
Once the Closing Date Purchase Price Adjustment and the
Post-Closing Purchase Price Adjustment is determined, the amount
of the Closing Date Purchase Price Adjustment and the amount of
the Post-Closing Purchase Price Adjustment must be allocated to
the specific items shown on SCHEDULE 3.5 in on a pro rata basis.
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4. CLOSING. The closing of the transactions contemplated under this
Agreement (the "Closing") will take place at the offices of Xxxxxxxx &
Gross, P.A., 5420 Norwest Center, 00 Xxxxx Xxxxxxx Xxxxxx, Xxxxxxxxxxx,
Xxxxxxxxx 00000 on the October 31, 1996 (the "Closing Date") at 10:00
a.m., or at such other place as may be mutually agreed upon in writing by
Purchaser and Seller.
5. REAL ESTATE MATTERS.
5.1 TITLE INSURANCE AND SURVEY. Not less than fifteen (15) days
before the Closing Date, Seller will deliver to Purchaser: (i) an
ALTA 1987 Form B, 1990 Revision, commitment for an owner's policy
of title insurance issued by Commercial Partners Title LLC, as
agent for Chicago Title Insurance Company, naming Purchaser as the
proposed insured, in the amount of $1,300,000; and, (ii) a survey
of the Property prepared, at Seller's expense, by a Minnesota
Registered Land Surveyor which shall be certified to Seller, to
Purchaser, and to Commercial Partners Title LLC, as agent for
Chicago Title Insurance Company, and shall show the location of
all buildings and parking areas on the Property, all access roads
to the Property, any encroachments, and all easements affecting
the Property. Said commitment shall cover pending and levied
special assessments and shall be prepared at Seller's expense.
The premiums for the policy of title insurance shall be paid for
by Purchaser. Seller shall pay for the fees and costs for issuing
the title commitment.
5.2 PURCHASER'S OBJECTIONS. Purchaser shall be allowed ten (10) days
after receipt of said title insurance commitment and said survey
for the examination thereof and the making of any objections to
the marketability of title, such objections must be made in
writing within that 10-day period or all objections are deemed to
be waived. If any objections are so made, Seller shall be allowed
sixty (60) days to make such title marketable. If such defects
are cured within said sixty (60) day period, Purchaser shall be
notified in writing of the curing of said defects, and Purchaser
then shall be allowed ten (10) days after receipt of such notice
to perform in accordance with the terms of this Agreement. If
such title is not marketable and not made so within said sixty
(60) day period and Purchaser does not waive, by written notice
given to Seller within ten (10) days after the end of said sixty
(60) day period, the curing of said defects, this Agreement shall
be null and void, in which event neither Purchaser nor Seller
shall be liable for damages hereunder to the other. If Purchaser
elects to waive said objections, it shall be allowed ten (10) days
after it so notifies Seller to perform in accordance with the
terms of this Agreement.
5.3 PRORATIONS, ETC. Seller and Purchaser agree to the following
prorations and allocation of costs in connection with this
Agreement and the transactions contemplated hereby:
(A) Real estate taxes and installments of special assessments
due and payable in the year prior to the year in which the
closing occurs and in all prior years
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shall be paid by Seller on or before the Closing Date. The
real estate taxes and installments of special assessments
due and payable in the year of closing shall be prorated
between Seller and Purchaser as of the Closing Date so that
Seller pays that part of the real estate taxes and
installments of special assessments due and payable in the
year of closing which is equal to a fraction which has as a
denominator the number "365" and which has as a numerator a
number equal to the number of days which have passed in the
calendar year of closing to, and including, the Closing
Date, and so that Purchaser pays the remainder thereof.
(B) All other operating costs of the Assets, such as but not
limited to utilities, shall be allocated between Seller and
Purchaser based upon the Closing Date, such that Seller
shall pay that portion of the operating costs pertaining to
that period of time up to and including the Closing Date,
and Purchaser shall pay that portion of the operating costs
from and after the actual Closing Date. Prepaid license
fees or permit fees, if any, relating to licenses or
permits assigned to Purchaser as provided above shall be
prorated and credited to Seller and paid for by Purchaser
as of the Closing Date.
(C) Real estate transfer and deed taxes shall be paid by
Seller. Recording fees shall be paid by Purchaser.
6. DELIVERIES OF SELLER.
6.1 SELLER'S DELIVERIES. On the Closing Date, subject to the terms
and conditions set forth in this Agreement, Seller must make the
following deliveries:
(A) A Xxxx of Sale, Assignment and Assumption Agreement in a
form reasonably acceptable to Purchaser certificates of
title, and other instruments of conveyance reasonably
requested by Purchaser, duly executed by Seller;
(B) Assignments of all Intellectual Property;
(C) A certified search showing all financing statements on file
against the Assets dated no earlier than 10 business days
prior to the Closing Date, together with appropriate
releases or termination statements for any security
interests in the Assets;
(D) A Non-Compete Agreement, substantially in the form of
EXHIBIT A (the "Non-Compete Agreement"), duly executed by
Seller and the Shareholder;
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(E) A general warranty deed conveying good and marketable title
to the Real Estate, free and clear of all liens, charges
and encumbrances except title defects waived by Purchaser
pursuant to Section 5.2;
(F) A standard seller's affidavit, certifying that there are no
judgments, bankruptcies, tax liens, mechanic's liens,
parties in possession, unrecorded interests, encroachment
and boundary line questions or related matters affecting
the Real Estate, duly executed by Seller;
(G) A "non-foreign person affidavit" sufficient in form and
substance to Purchaser and its counsel establishing that
this transaction is exempt from the withholding
requirements of the Foreign Investment Real Property Tax
Act;
(H) A Security Agreement, substantially in the form of EXHIBIT
C (the "Security Agreement"), duly executed by Purchaser;
and
(I) All other items or documents reasonably requested by
Purchaser.
6.2 PURCHASER'S DELIVERIES. On the Closing Date, subject to the terms
and conditions set forth in this Agreement, Purchaser must make
the following deliveries:
(A) Payment of the Purchase Price as provided in Section 3.2;
(B) The Non-Compete Agreement, duly executed by Purchaser;
(C) A Xxxx of Sale, Assignment and Assumption Agreement in a
form reasonably acceptable to Seller, duly executed by
Seller;
(D) A certificate of the Secretary of Purchaser, certifying a
copy of the resolutions of Purchaser's board of directors
which authorize the execution, delivery ad performance of
this Agreement as having been duly adopted and as being in
full force and effect on the Closing Date;
(E) The Security Agreement, duly executed by Purchaser;
(F) A mortgage in a form satisfactory to Seller; and
(G) All other items or documents reasonably requested by
Seller.
7. INVESTIGATION.
7.1 From and after the date hereof and through the Closing Date,
Seller shall afford to the officers and representatives of
Purchaser free access to the properties and records of
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Seller, including, without limitation, the Plans, in order that
Purchaser may have full opportunity to make such investigation at
reasonable times as it shall desire of the assets and of the
affairs of Seller, and Seller shall provide to Purchaser
reasonable assistance in the conduct of said investigation by
Purchaser.
7.2 Without limiting the generality of the foregoing, Purchaser, and
its representatives and consultants, shall be permitted access to
the Real Estate prior to Closing in order to, at Purchaser's sole
expense, inspect the same, conduct soil borings, environmental
inspections and tests, which environmental inspections and tests
may include, without limitation, soil tests, chemical tests, and
installation of such monitoring xxxxx as may be appropriate in
Purchaser's opinion, and prepare a survey and take measurements.
During such access, such personnel shall not cause any
unreasonable interference with Seller' s operations or damage to
Assets, except as may be necessary to conduct an environmental
inspection, provided Purchaser shall promptly repair any such
damage and restore the Assets to their condition immediately prior
to such damage. As part of such investigations, Purchaser or its
representatives or consultants shall be permitted access to the
building and other improvements located on the Real Estate.
8. REPRESENTATIONS AND WARRANTIES OF THE SELLER AND SHAREHOLDER. Seller and
Shareholder, jointly and severally, represent and warrant to Purchaser
that, except as specifically set forth on the Schedules attached to this
Agreement, the following statements are true and correct as of the date
of this Agreement and will be true and correct on the Closing Date as if
made on the Closing Date:
8.1 SELLER. Seller is a corporation duly organized and existing and
in good standing under the laws of the state of Minnesota and is
entitled to own or lease its properties and to carry on its
business as and in the places where such properties are now owned,
leased or operated, or such business is now conducted. Seller has
full power and authority to sell, convey, assign, transfer and
deliver the Assets as herein provided, and all corporate and other
proceedings necessary to be taken by Seller in connection with the
transactions provided for by this Agreement and necessary to make
the same effective have been duly and validly taken, and this
Agreement has been duly and validly executed and delivered by each
of Seller and Shareholder and constitutes a valid and binding
obligation of each of Seller and Shareholder enforceable in
accordance with its terms. Seller is qualified to do business as
a foreign corporation in all jurisdictions in which the nature of
Seller's business, the location of its assets or other factors
require it to be so qualified. Shareholder constitutes the sole
shareholder of Seller, and no other persons or entities hold stock
or other equity interests in Seller. Seller does not have any
subsidiaries, nor does it have any equity interest in any entity.
8.2 TITLE. Except as set forth on SCHEDULE 8.2 and except title
defects waived by Purchaser pursuant to Section 5.2, Seller has
good and marketable title to the Assets, free and clear of any
mortgages (other than the Plant located in Xxxxxx, Minnesota),
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liens, security interests, pledges, easements or encumbrances of
any kind or nature whatsoever. At the Closing, Seller will convey
good and marketable title to the Assets to be sold hereunder, free
and clear of any and all mortgages, liens, security interests,
pledges, easements, or encumbrances of any kind or nature
whatsoever, except title defects set forth on SCHEDULE 8.2, with
respect to personal property, and title defects waived by
Purchaser pursuant to Section 5.2.
8.3 FINANCIAL STATEMENTS. The Seller Statement is true, complete and
correct and has been prepared in accordance with generally
accepted accounting principles consistently followed throughout
the periods indicated. The Seller Statement fairly presents the
financial condition and assets and liabilities (whether accrued,
absolute, contingent or otherwise) of Seller as of the date
indicated.
8.4 LIABILITIES. Except as and to the extent reflected or reserved
against in the Seller Statement, or as otherwise disclosed herein,
Seller had, as of the date of Seller Statement, no other material
Liabilities and Obligations. As of the date of this Agreement,
Seller is not subject to and does not have any Liabilities and
Obligations, except as disclosed in the Seller Statement, and
except for such Liabilities and Obligations as have arisen in the
ordinary course of business of Seller since the date of said
Seller Statement, none of which newly arisen Liabilities and
Obligations have a material adverse effect upon the Assets, or
Seller, its organization, business, properties or financial
condition.
8.5 OTHER OPERATIONS. During the past five (5) years, neither Seller
nor Shareholder, nor any subsidiaries or affiliated or controlled
entities of Seller or Shareholder, have sold companies or
businesses selling products which compete with the products
produced by Seller, other than the sale of CSE and Xxxxx
Electronic.
8.6 NON-BREACH, ETC. The execution and delivery of this Agreement and
the consummation of the transactions contemplated hereby by Seller
and Shareholder will not (a) result in a breach of any of the
terms or conditions of, or constitute a default under, any
mortgage, note, bond, indenture, agreement, license or other
instrument or obligation, including the Contracts, to which Seller
or Shareholder is now a party or by which it or any of its
properties or assets may be bound or affected, or (b) violate any
order, writ, injunction or decree of any court, administrative
agency or governmental body.
8.7 CONTRACTS.
(A) Except as listed in SCHEDULE 1.5 and except for any
outstanding purchase orders, Seller is not a party to any
written or oral:
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(1) contract, agreement or understanding for the
employment of any officer, consultant, director or
employee;
(2) contract, agreement or understanding with any labor
union;
(3) contract, agreement or understanding for the sale of
products or performance of services;
(4) license or franchise agreement, either as licensor
or licensee or franchiser or franchisee, including
any related to Intellectual Property, or
distributor, dealership or sales agency contract,
agreement or understanding;
(5) lease for real or personal property under which
Seller is a lessor or lessee, or contract, agreement
or understanding to purchase or sell real property
or a material amount of personal property;
(6) pension, profit-sharing, bonus, deferred
compensation, retirement or stock option or stock
purchase plan in effect with respect to employees or
others;
(7) contract or agreement granting to any person the
right to use any property or property right of
Seller, including any trademark or patent licensing
agreement, contract or understanding;
(8) plan or contract or other arrangement providing for
insurance for any officer, director or employee or
member of their families;
(9) construction contract;
(10) contract or agreement containing covenants by Seller
not to compete in any line of business or with any
person;
(11) joint venture contract or partnership or arrangement
or other agreement involving a sharing of profits;
or
(12) contract or agreement relating to the borrowing or
lending of money by Seller, providing for letters of
credit, or providing for any mortgage, lien or
security interest upon any of the Assets; or
(13) any guaranties or indemnifications by Seller, except
for Seller's obligations resulting from the
endorsement of checks deposited for collection;
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(14) any contracts calling for payments by Seller in
excess of Ten Thousand and no/100 Dollars
($10,000.00);
(15) other material contract, agreement or understanding.
(B) Seller has provided to Purchaser true, current, correct and
complete copies of all of the Contracts, including all
items specified in Section 8.7(A), and will provide
Purchaser will true, correct and complete copies of all
purchase orders outstanding at any time between the date of
this Agreement and the Closing Date.
(C) Seller has performed all obligations required to be
performed by it to date under each of the Contracts, and
Seller and, to Seller's and Shareholder's knowledge, each
other party to each Contract is not in default under any of
the Contracts, all of which are in full force and effect.
Except as stated on SCHEDULE 1.5 each of Acquired Contracts
are assignable without consent.
8.8 EQUIPMENT. Except as may be set forth on SCHEDULE 1.6, all items
included in the Equipment are located on the Real Estate, and are
in good condition and repair, ordinary wear and tear excepted.
8.9 REAL ESTATE.
(A) Seller has good and marketable title in fee simple to Real
Estate, including the buildings and improvements thereon,
free and clear of all encumbrances, charges, easements,
restrictions, rights and conditions, except title defects
waived by Purchaser pursuant to Section 5.2.
(B) Seller's present use of the Real Estate, and the other
Assets located thereon, complies with all federal, state
and local laws, regulations, zoning and other ordinances,
and private restrictions which are applicable to the Real
Estate and the other Assets located thereon.
(C) To Seller's and Shareholder's knowledge, there are no
pending, proposed or threatened changes in any zoning
ordinances which apply to the Real Estate. If Seller
becomes aware of any pending, proposed or threatened zoning
changes before Closing, it will immediately notify
Purchaser of such zoning changes.
(D) Except as set forth on SCHEDULE 8.2, to Seller's and
Shareholder's knowledge, no condition exists and no
activity has ever been conducted at the Real Estate which
has given rise to, or may give rise to, any liability under
any applicable
13
federal, state or local environmental protection, health,
safety or similar law, statutory or common.
(E) There are no public improvements (water, sewer, sidewalk,
street, alley, curbing, etc.) or condemnation actions
affecting the Real Estate or other Assets thereon which
have been completed or are in progress and for which
assessments may be levied after closing. Neither Seller
nor Shareholder have any knowledge of any planned
improvements which may result in assessments or
condemnation actions. If Seller becomes aware of any
planned improvements or condemnation actions before
Closing, it will promptly notify Purchaser of such planned
improvements or condemnation actions.
(F) All utilities, including, but not limited to, telephone,
city sewer, city water, electricity, gas and any other
utilities necessary for the operations of the Assets, are
available, connected and operational, and adequate for
conducting the operations of the Real Estate and the other
Assets as those operations are being conducted by Seller.
(G) No portion of the Real Estate is the subject of any lease
or leasehold interest contract or agreement for use of the
Real Estate.
(H) The Real Estate has direct legal access to, abuts, and is
served by a publicly dedicated and maintained road. This
road provides a valid means of ingress and egress to and
from the Real Estate, sufficient for the present operation
of the Real Estate and the Assets thereon.
(I) The building, structures and improvements included in the
Real Estate are in good condition and repair, ordinary wear
and tear excepted, and there is no material defect or wear
and tear to any such building, structure or improvement, or
any other deterioration, damage or defect, which would
prohibit or impair the continued use of such buildings,
structures or improvements for the purposes for which they
are now employed, or which would require any material
expenditure for repair or replacement.
(J) Any existing easements, including, but not limited to,
those upon, above or below the Real Estate, do not
interfere with the present use of the Real Estate and the
Assets thereon.
(K) To Seller's and Shareholder's knowledge, there are no
underground tanks on the Real Estate, nor are their any
transformers, capacitors or other appliances in use or
stored upon the Real Estate which contain PCBs. There is
no urea-formaldehyde insulation and no asbestos on the Real
Estate. To Seller's and Shareholder's knowledge, there is
no hazardous substance or hazardous waste
14
(hereinafter a "Hazardous Substance"), as defined in the
Comprehensive Environmental Response Compensation and
Liability Act of 1980 ("CERCLA"), or the Resource
Conservation and Recovery Act of 1976 ("RCRA") or the
Minnesota Environmental Response and Liability Act, Minn.
Stat. CL 115A ("XXXXX"), or the so-called "Minnesota
Superfund Xxxx," Minnesota Statutes Chapter 115B (1984) or
any other applicable federal, state or local environmental
laws, statutes or regulations or as defined in 42 U.S.C.
3251, as amended, located anywhere in or on the Real
Estate. To Seller's and Shareholder's knowledge, no
condition exists, and no activity has ever been conducted
at the Real Estate which has given rise to, or may give
rise to, any liability or obligation under any applicable
federal, state or local environmental protection, health,
safety, or similar law, whether statutory or common law.
(L) Except in the ordinary course of its own business where
Seller has complied with the legal requirements applicable
thereto, Seller has not engaged in the business of
generating, transporting, storing, treating or disposing of
Hazardous Substances in or on the Real Estate. The Seller
has not used the Real Estate for the storing or disposal of
waste or for the storing or disposal of Hazardous
Substances during the period that Seller has been an owner
of the Real Estate. To Seller's and Shareholder's
knowledge, neither the Real Estate nor any of its various
components contains, is composed of, or emits any
hazardous, toxic, or contaminated chemicals, substances,
materials or pollutants or other Hazardous Substances.
(M) Seller is not a party to, and is not currently threatened
with, any legal action or other proceeding before any court
or administrative agency relating to or affecting the Real
Estate or any portion thereof. Seller has not been charged
with, and, to Seller's and Shareholder's knowledge, is not
under investigation regarding any violation of any law or
administrative regulation, federal, state or local
concerning the Real Estate.
8.10 ASSETS COMPLETE, ETC. No tooling, fixtures or any manufacturing
operation is located other than at the Plant, except that tooling
which is held by third parties who perform manufacturing
operations for Seller as disclosed by Seller to Purchaser. Those
third parties holding the tooling ("Tooling Holders") have been
paid all amounts owed to them, or will be paid such amounts on or
before Closing, so that as of the Closing, no amounts will be owed
to the Tooling Holders by Seller. There are no contracts,
agreements, or understandings with the Tooling Holders except as
referenced on SCHEDULE 1.5. Promptly after the Closing, Seller
will send notices to the Tooling Holders advising them that the
Tooling is the property of Purchaser, and will take such other
actions as may be reasonably required to give Purchaser ownership
and control of the tooling held by the Tooling Holders. Seller
does not lease or otherwise
15
use any property owned by third parties in its operations, except
as may occur under leases disclosed on SCHEDULE 1.5.
8.11 LITIGATION. There are no claims, actions, suits, proceedings or
investigations (whether or not purportedly on behalf of Seller)
pending or, to Seller's and Shareholder's knowledge, threatened
against or affecting Seller or the Assets, at law or in equity or
admiralty or before or by any federal, state, municipal or other
governmental department, commission, board, agency or
instrumentality, domestic or foreign, nor has any such action,
suit, proceeding or investigation been pending during the sixty
(60) month period preceding the date of this Agreement; and, to
Seller's and Shareholder's knowledge, Seller is not operating
under or subject to, or in default with respect to, any order,
writ, injunction or decree of any court or federal, state,
municipal or other governmental department, commission, board,
agency or instrumentality, domestic or foreign.
8.12 COMPLIANCE WITH LAWS. Seller has substantially complied with,
and, to Seller's and Shareholder's knowledge, the Assets
substantially comply with, all applicable laws, regulations and
orders applicable, including without limitation CERCLA, RCRA,
XXXXX, the Occupational Safety & Health Act, the Clean Air Act,
the Clean Water Act, the Toxic Substances Control Act, the Safe
Drinking Water Act, and the Refuse Act, and the present uses by
Seller of the Assets do not violate any such laws, regulations and
orders.
8.13 INTELLECTUAL PROPERTY. SCHEDULE 8.13 lists all service marks,
patents, trademarks, trade names, trademark and trade name
registrations, brand names, copyright registrations and all
pending applications for any of the foregoing used or owned by
Seller solely for the operation of the Assets and all licenses
granted by or to Seller which relate, in whole or in part, to
Intellectual Property. Seller owns, or has a license to use, all
Intellectual Property. The use by Seller of the Intellectual
Property, and the conduct by Seller of its business, does not
infringe on the intellectual property rights of any third party,
and no claim has been asserted to such effect or otherwise
affecting the Intellectual Property. The Intellectual Property to
be assigned, transferred or conveyed to Purchaser under this
Agreement constitutes all the Intellectual Property used by Seller
in the operation of the Assets.
8.14 LABOR CONTROVERSIES. There are no controversies pending or, to
the best knowledge of Seller and Shareholder, threatened, between
Seller and (i) any union or (ii) any of Seller's employees.
Seller is not currently subject to (A) any threats of strikes or
work stoppages, or (B) any organizational efforts or demands for
collective bargaining or any union organization. Seller is in
substantial compliance with applicable labor laws. Seller is not
party to any collective bargaining agreements.
16
8.15 PENSION AND PROFIT SHARING PLANS; BENEFITS. All of Seller's
employee benefit plans, including, but not limited to, any
disability, medical, dental, workers compensation, health
insurance, life insurance, vacation, benefits plans, incentive
plans, fringe benefit plans, pension or profit sharing plans, and
any other material plans, programs, agreements or arrangements
which provide benefits to any current or former employee of Seller
are disclosed on SCHEDULE 8.15. All the accrued obligations of
Seller, whether arising by operation of law, by contract or by
past custom, for payments by it to trust or other funds or any
governmental agency with respect to unemployment compensation
benefits, social security benefits or any other benefits for
employees of Seller shall have been paid prior to Closing or, if
due after Closing, shall be paid when due under applicable laws,
regulations, or provisions of benefit plans or policies as the
case may be. All accrued vacation benefits payable to employees
of Seller shall have been paid prior to or contemporaneously with
Closing. All other accrued benefits, and all other reasonably
anticipated obligations of Seller, whether arising by operation of
law, by contract or by past custom, for holiday pay, bonuses or
other forms of compensation or benefits which are and may become
payable to employees of Seller shall be paid in accordance with
the provisions of applicable laws, regulations, benefit plans or
policies, as the case may be. In no event shall Purchaser assume
or be responsible for past or future obligations of Seller to any
employee, including any obligations to pay salary, benefits,
severance pay, vacation pay or other benefits to any employee,
regardless of whether such employees are hired by Purchaser.
8.16 CHANGES IN SUPPLIERS AND CUSTOMERS. Seller is not aware of any
facts which indicate that any of the customers of Seller intends
to cease being a customer of Seller (or intends to not continue as
a customer with Purchaser after the Closing Date), nor is Seller
aware of any facts which indicate that any supplier to Seller
intends to cease doing business with Seller, or to not do business
with Purchaser after the Closing Date, whether as a result of the
transactions contemplated hereby or otherwise.
8.17 CONDUCT OF BUSINESS. Except as disclosed on Schedule 8.17,
between the date of the Seller Statement and the Closing Date,
Seller has not and will not have
(A) incurred any Liabilities and Obligations (absolute or
contingent), except for Liabilities and Obligations
disclosed in the Seller Statement or in the Schedules, and
except for Liabilities and Obligations which have arisen in
the ordinary course of business of Seller, none of which
newly arisen Liabilities and Obligations have a material
adverse effect upon Seller, the Assets, or Seller's
organization, business, properties, or financial condition;
(B) mortgaged, pledged or subjected to any lien, charge or
other encumbrance, any of the Assets, tangible or
intangible;
17
(C) sold or transferred any assets included in the Assets,
other than sales of inventory or utilization of supplies in
the ordinary course of business;
(D) sold, assigned or transferred any Intellectual Property, or
other intangible assets of Seller or relating to the Assets
or Seller's business, or included in the Assets;
(E) suffered any extraordinary losses or waived any rights of
substantial value relating to Seller's business or the
Assets;
(F) suffered any material damage, destruction or loss to any
Assets, whether or not covered by insurance;
(G) entered into any transaction involving or relating to
Seller's business or the Assets other than in the ordinary
course of business;
(H) increased the compensation payable, or to become payable by
Seller to any of its employees, other than increases
consistent with past practices, including, but not limited
to, any bonus payment or deferred compensation;
(I) made or suffered any amendment or termination of any of the
Contracts;
(J) increased any benefits to employees of Seller under
pension, insurance or other employee benefit programs,
other than increases consistent with past practices;
(K) changed its methods of accounting in any material respect;
(L) acquired a significant portion of the assets or stock of
any person or business entity; or
(M) suffered a termination of, or amended, any license or
permit.
8.18 EMPLOYEES. Seller is not aware that any employees of Seller
intend to cease their employment with Seller, whether as a result
of the transactions contemplated hereby or otherwise.
8.19 LICENSES AND PERMITS. All licenses, permits, franchises,
approvals and governmental authorizations required for the Assets,
or their operations, are listed on SCHEDULE 8.19. No other
licenses, permits, franchises, approvals or other governmental
authorizations are required for the Assets, or their operations,
as heretofore conducted by Seller. True, current, correct and
complete copies of such licenses, permits, franchises, approvals,
and governmental authorizations have been delivered by Seller to
18
Purchaser. Seller has performed in all material respects all
obligations required to be performed by it to date under all, and
is not in default under any, such licenses, permits, franchises,
approvals, or governmental authorizations or the laws, regulations
and requirements of the licensing and permit authorities. All
such licenses, permits, franchises, approvals, and governmental
authorizations are in full force and effect. Except as set forth
on SCHEDULE 8.19, all such licenses, permits, franchises,
approvals, and governmental authorizations will be assigned to
Purchaser at the Closing, to the extent permitted by law.
8.20 PLANS. The Plans relating to products produced by Seller are
complete and of such quality that competent personnel by use of
such Plans can produce, manufacture and assemble such products so
that they meet the specifications and requirements applicable
thereto.
8.21 SUPPLIERS. SCHEDULE 8.21 lists all significant suppliers of
products or services to Seller.
8.22 MATERIAL CHANGE. Since the date of the Seller Statement, there
has been no material change in the condition, financial or
otherwise, of Seller, Seller's business, or the Assets from that
shown in the Seller Statement, except changes occurring in the
ordinary course of business, which changes have not materially
adversely affected the Assets or the business related to the
Assets. To Seller's and Shareholder's knowledge, no statute,
order, judgment, writ, injunction, decree, permit, rule or
regulation of any court or governmental or regulatory body has
been adopted or entered, or is proposed to be adopted or entered,
which may materially and adversely affect Seller, the Assets or
the business of Seller. To Seller's and Shareholder's knowledge,
there has been no event or occurrence affecting Seller, the
Assets, or the business of Seller which may have a material
adverse effect upon Seller's Assets.
8.23 DISCLOSURE. No representation or warranty made by Seller or
Shareholder in this Agreement, or in any agreements, certificates
or documents delivered to Purchaser in connection with this
Agreement, contains any untrue statement of a material fact or
omits to state a material fact necessary to make such
representation or warranty not misleading.
8.24 BROKER. Seller has not used, and has not incurred, and the making
of this Agreement and the closing of the transactions contemplated
hereby will not give rise to, any obligation of Purchaser to pay
any fee to any broker, finder, agent or similar person.
9. REPRESENTATIONS AND WARRANTIES BY PURCHASER. Purchaser represents and
warrants to Seller and Shareholder that the following statements are true
and correct as of the date of this Agreement and will be true and correct
on the Closing Date as if made on the Closing Date:
19
9.1 ORGANIZATION AND STANDING. Purchaser is a corporation duly
organized, validly existing and in good standing under the laws of
the State of Minnesota and has the requisite corporate power to
own its properties and to carry on its business as it is now being
conducted.
9.2 NO CONFLICT. Neither the execution and delivery of this Agreement
nor the consummation of the transactions contemplated under this
Agreement will (a) result in a breach of any of the terms or
conditions of, or constitute a default under, any mortgage, note,
bond, indenture, agreement, license or other instrument or
obligation to which Purchaser is a party or by which it or any of
its properties or assets may be bound or affected, or (b) violate
any order, writ, injunction or decree of any court, administrative
agency or governmental body, or (c) conflict with or result in the
breach of the terms, conditions or provisions of the Articles of
Incorporation or Bylaws of the Purchaser.
9.3 AUTHORITY. Purchaser has full power and authority to enter into
this Agreement and to carry out the transactions contemplated
hereby, and all corporate and other proceedings required to be
taken by Purchaser in connection with this Agreement and the
transactions contemplated hereby and necessary to make the same
effective have been duly and validly taken. This Agreement
constitutes a valid and binding obligation of Purchaser, has been
executed and delivered by a duly authorized officer of Purchaser,
and is enforceable against Purchaser in accordance with its terms.
9.4 CONSENTS AND APPROVALS. No consent, authorization, order or
approval of or filing or registration with, any governmental
authority or other person is required for the execution and
delivery of this Agreement and the consummation by Purchaser of
the transactions contemplated by this Agreement, except as
provided under Section 25.
9.5 BROKER. Purchaser has not used, and has not incurred, and the
making of this Agreement and the closing of the transactions
contemplated hereby will not give rise to, any obligation of
Seller or Shareholder to pay any fee to any broker, finder, agent
or similar person.
9.6 LITIGATION. There are no claims, actions, suits, inquiries,
investigations, or proceedings pending, or to the knowledge of
Purchaser, threatened which question or challenge the validity of
this Agreement or seek to restrain or enjoin any action taken or
to be taken by Purchaser pursuant to this Agreement or in
connection with the transactions contemplated hereby.
10. COVENANTS OF THE SELLER.
10.1 ACTION BY SELLER. Seller will not take or permit to be taken any
action or do or permit to be done anything in the conduct of its
business or otherwise, which would be
20
contrary to or in breach of any of the terms, conditions or
provisions of this Agreement, or which would cause any of the
representations and warranties of Seller to be untrue as of the
Closing Date.
10.2 FEES. Seller shall pay all fees and disbursements of counsel and
accountants for Seller arising in connection with this Agreement
and the transactions contemplated hereby.
10.3 FURTHER ASSURANCES. On the Closing Date, and from time to time
thereafter, at the request of Purchaser, Seller will execute and
deliver to Purchaser all such assignments, endorsements and other
documents, and take such other action as Purchaser may reasonably
request in order more effectively to transfer and assign to
Purchaser the Assets transferred to Purchaser pursuant to this
Agreement, to confirm the title of Purchaser thereto and to assist
Purchaser in exercising its rights with respect thereto and under
this Agreement.
10.4 ACCOUNTS RECEIVABLE. Seller agrees that any actions taken by
Seller to collect the Accounts Receivable must be taken in a
manner reasonably intended to minimize problems or disruption in
the ongoing customer relationships of the business of Seller.
10.5 CHANGE OF NAME. Seller agrees to amend its articles of
incorporation effective on or before the Closing Date to change
its name to a name distinguishable from and not confusingly
similar to "Zercom Corporation".
11. COVENANTS OF PURCHASER
11.1 ACQUIRED CONTRACTS. From and after the Closing Date, Purchaser
shall perform its obligations under the Acquired Contracts in a
manner which will not adversely affect Seller's ability to collect
its accounts receivable applicable to such Acquired Contracts.
11.2 ACTION BY PURCHASER. Purchaser will not take or permit to be
taken any action or do or permit to be done anything in the
conduct of its business or otherwise, which would be contrary to
or in breach of any of the terms, conditions or provisions of this
Agreement, or which would cause any of the representations and
warranties of Purchaser to be untrue as of the Closing Date.
11.3 FEES. Purchaser shall pay all fees and disbursements of counsel
and accountants for Purchaser arising in connection with this
Agreement and the transactions contemplated hereby.
12. CONDITIONS PRECEDENT OF PURCHASER. The obligation of Purchaser to
consummate the transactions contemplated by this Agreement is subject to
all of the following conditions:
21
12.1 REPRESENTATIONS AND WARRANTIES TRUE AT CLOSING. The
representations and warranties of Seller and Shareholder contained
in this Agreement or in any certificate or document required to be
delivered pursuant to the provisions of this Agreement must be
true on and as of the Closing Date as though such representations
and warranties were made at and as of such date.
12.2 COMPLIANCE WITH THE AGREEMENT. Seller and Shareholder must have
performed and complied with all agreements and conditions in this
Agreement which are to be performed or complied with by Seller and
Shareholder prior to or at the Closing Date.
12.3 DELIVERIES. The documents required to be delivered by Seller
under Section 6.1 must be tendered by Seller for delivery to
Purchaser at the Closing.
12.4 INJUNCTION. On the Closing Date, there must not be an effective
injunction, writ, preliminary restraining order or any order of
any nature issued by a court of competent jurisdiction directing
that the transactions provided for herein or any of them not be
consummated as herein provided.
12.5 CASUALTY. Prior to the Closing Date, none of the Assets, or any
portion thereof, shall have been adversely affected in any
material way as a result of any fire, accident, flood or other
casualty or act of God or the public enemy.
12.6 ADVERSE DEVELOPMENT. There shall have been no developments in the
business of Seller, or in the Assets, between the date of the
Seller Statement and the Closing Date which would have a
materially adverse effect on Seller's business or the Assets.
12.7 REAL ESTATE. All requirements relating to the Real Estate must
have been satisfied.
12.8 LENDERS' APPROVALS. Purchaser must have obtained approval from
its lending institutions for the transactions contemplated hereby.
12.9 INVESTIGATIONS. Purchaser must be satisfied with the results of
its legal, accounting, business, environmental and other due
diligence review of Seller's business and the Assets. Without
limiting the generality of the foregoing, if Purchaser chooses to
conduct an environmental inspection of the Real Estate and the
Assets prior to the Closing Date, the results of that inspection
must be satisfactory to Purchaser, in its sole discretion.
12.10 ASSIGNMENT OF LEASE. Purchaser must have received an assignment
of Seller's leasehold interest in the land and building located at
Xxxxxx, Minnesota, where a portion of Seller's business is
conducted, together with the Landlord's consent to such
assignment, without any material changes to the associated lease.
22
13. CONDITIONS PRECEDENT OF THE SELLER. The obligation of Seller to
consummate the transactions contemplated by this Agreement is subject to
all of the following conditions:
13.1 REPRESENTATIONS AND WARRANTIES TRUE AT CLOSING. The
representations and warranties of Purchaser contained in this
Agreement or in any certificate or document required to be
delivered pursuant to the provisions of this Agreement must be
true on and as of the Closing Date as though such representations
and warranties were made at and as of such date.
13.2 PURCHASER'S COMPLIANCE WITH THE AGREEMENT. Purchaser must have
performed and complied with all agreements and conditions in this
Agreement which are to be performed or complied with by Purchaser
prior to or at the Closing Date.
13.3 DELIVERIES. The documents required to be delivered by Purchaser
under Section 6.2 must be tendered by Purchaser for delivery to
Seller at the Closing.
13.4 INJUNCTION. On the Closing Date, there must not be an effective
injunction, writ, preliminary restraining order or any order of
any nature issued by a court of competent jurisdiction directing
that the transactions provided for herein or any of them not be
consummated as herein provided.
14. SURVIVAL AND INDEMNIFICATION.
14.1 SURVIVAL. The representations, warranties, covenants and
indemnification provisions contained in this Agreement, and in any
certificate delivered pursuant to this Agreement at the Closing,
will survive the Closing.
14.2 PURCHASER'S INDEMNIFICATION COVENANTS. Purchaser must indemnify
Seller and Shareholder, and each of them, from and against all
liability, demands, claims, actions or causes of action,
assessments, losses, fines, penalties, costs, damages and
expenses, including reasonable attorneys' fees, sustained or
incurred by Seller or Shareholder as a result of or arising out of
or by virtue of: (i) any inaccuracy in a representation or
warranty made by Purchaser to Seller or Shareholder in this
Agreement; (ii) the failure of Purchaser to comply with, or the
breach by Purchaser of, any of the covenants in this Agreement to
be performed by Purchaser; and (iii) Purchaser's failure to honor,
discharge, pay or fulfill when due any Acquired Contract.
14.3 SELLER'S AND SHAREHOLDER'S INDEMNIFICATION COVENANTS. Seller and
Shareholder, jointly and severally, must indemnify Purchaser from
and against all liability, demands, claims, actions or causes of
action, assessments, losses, fines, penalties, costs (including
investigation and remediation costs), damages and expenses,
including reasonable attorneys' fees, sustained or incurred by the
Purchaser (collectively, "Losses" or, individually, a "Loss") as a
result of or arising out of or by virtue of: (i)
23
any inaccuracy in a representation or warranty made by Seller or
Shareholder to Purchaser in this Agreement; (ii) the failure of
Seller or Shareholder to comply with, or the breach by Seller or
Shareholder of, any of the covenants in this Agreement to be
performed by Seller or Shareholder; and (iii) the failure of
Seller or Shareholder to state or disclose to Purchaser a known
material fact necessary to make the statements made in this
Agreement not misleading.
14.4 NOTICE AND OPPORTUNITY TO DEFEND. Promptly after the receipt by
any party to this Agreement of any notice of any claim or the
commencement of any action or of any proceeding (a "Claim") by a
third party (i.e. a party who is not a party to this Agreement),
the party receiving such notice must, if a claim might be made
against any party obligated to provide indemnification pursuant to
Section 14.2 or 14.3 (an "Indemnifying Party"), give such
Indemnifying Party written notice of the Claim. In the case of a
Claim asserted by a third party, such Indemnifying Party has the
right, at its option to compromise or defend, at its own expense
and by its own counsel, any such matter involving the asserted
liability of the party seeking such indemnification (the
"Indemnified Party") so long as such settlement does not include
any admission of liability on the part of the Indemnified Party or
the assumption of any obligation by such Indemnified Party not
paid for in full by the Indemnifying Party. If any Indemnifying
Party undertakes to compromise or defend any such asserted
liability, it must promptly notify the Indemnified Party of its
intention to do so, and the Indemnified Party agrees to fully
cooperate in good faith with the Indemnifying Party and its
counsel in the compromise of, or defense against, any such
asserted liability. In this event, the Indemnified Party and
Indemnifying Party have the right to participate in the defense of
such asserted liability and to approve any compromise or
settlement, which approval may not be unreasonably withheld.
14.5 LIMITATION ON INDEMNIFICATION. An Indemnified Party is not
entitled to any recovery for Losses under Section 14.3 until the
total amount of all Losses exceed $25,000. If the total amount of
all Losses exceed $25,000, then the Indemnified Party is entitled
to recover that portion of the total amount of all Losses which
exceeds $25,000 but which is less than the Purchase Price.
14.6 TERMINATION OF INDEMNIFICATION OBLIGATIONS. On October 31, 2001,
the parties will be released from the agreements of
indemnification contained in Sections 14.2 and 14.3 in respect of
any claims under those Sections which have not been made prior to
that date All agreements of indemnification under Sections 14.2
and 14.3 shall remain effective in respect of claims made in
writing by giving notice, as provided in Section 15, prior to
October 31, 2001 until such claims are finally determined and
satisfied in full.
15. NOTICES. All notices required or permitted to be given under this
Agreement must be in writing and are deemed given when delivered in
person, or three business days after being
24
deposited in the United States mail, postage prepaid, registered or
certified, addressed as set forth below, or on the next business day
after being deposited with a nationally- recognized overnight courier
service addressed as set forth below, or upon dispatch if sent by
facsimile with telephonic confirmation of receipt from the intended
recipient to the telecopy number set forth below:
15.1 To the Seller or Shareholder, addressed to:
Communication Systems, Inc.
000 Xxxxx Xxxx Xxxxxx
Xxxxxx, Xxxxxxxxx 00000
Attention: Xxxxxxx Xxxx
Facsimile No. (000) 000-0000
with a copy to:
Xxxxxxxxx & Xxxxxx P.L.L.P.
00 Xxxxx 0xx Xxxxxx
0000 XXX Xxxxxx
Xxxxxxxxxxx, Xxxxxxxxx 00000
Attention: Xxxxxxx X. Xxxxxxx
Facsimile No. (000) 000-0000
15.2 To Purchaser:
Nortech Systems Incorporated
000 Xxxx Xxxx Xxxxxx, Xxxxx 000
Xxxxxxx, Xxxxxxxxx 00000
Attention: Xxxxxxx X. Xxxxxxxxx
Facsimile No. (000) 000-0000
with a copy to:
Xxxxxxxx & Gross, P.A.
0000 Xxxxxxx Xxxxxx
00 Xxxxx Xxxxxxx Xxxxxx
Xxxxxxxxxxx, Xxxxxxxxx 00000
Attention: Xxxx X. Xxxxx
Facsimile No. (000) 000-0000
or to such other address or to such other person as Purchaser or Seller
shall have last designated by notice given in accordance with the
provisions of this Section 15, except that
25
any notice of a change of address will not be deemed effective until
actually received by the party to whom notice is directed.
16. MODIFICATION. This Agreement, and the Exhibits and Schedules attached to
and made a part of this Agreement, contains the entire agreement between
the parties with respect to the transactions contemplated by this
Agreement and may not be modified or amended except by an instrument in
writing signed by all of the parties.
17. EXPENSES. Whether or not the transactions contemplated hereby are
consummated, each of the parties shall pay its own expenses incurred in
connection with the authorization, preparation, execution or performance
of this Agreement and all transactions contemplated hereby, including
without limitation all fees and expenses of agents, representatives,
counsel and accountants. Seller shall be responsible for any costs or
expenses required to obtain the landlord's consent to Seller's assignment
to Purchaser of the lease for the real estate at Xxxxxx, Minnesota.
18. ASSIGNMENT. This Agreement is not assignable by any party without the
prior written consent of the other parties.
19. MINNESOTA LAW TO GOVERN. This Agreement shall be governed by and
construed and enforced in accordance with the internal laws of the State
of Minnesota, without regard to the conflicts of laws provisions.
20. COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which is an original but all of which together
constitute one and the same instrument.
21. HEADINGS AND CAPTIONS. The descriptive headings and captions within this
Agreement are inserted for convenience only and do not constitute a part
of this Agreement.
22. ACCESS TO BOOKS AND RECORDS. Under the terms of this Agreement,
Purchaser is receiving some of the books and records which relate to
Seller's business relating to the Assets, while Seller is retaining other
records. Each party agrees that for a period of five (5) years
commencing on the Closing Date, said party shall preserve any books and
records relating to the Assets and the related business, and that during
such period it will afford to the other party reasonable access to all
such books and records at reasonable business hours and upon reasonable
notice and a reasonable opportunity to copy such books and records from
time to time. After the termination of that five (5) year period, each
party shall be free to dispose of any such records in such form as it
pleases, unless the other party has requested said records. If the other
party has made such a request, the party receiving the request either
shall give to the requesting party the originals or copies of such
records, or may retain such records subject to the requesting party's
continuing right to inspect the same.
26
23. JOINT AND SEVERAL LIABILITY. All agreements, covenants, representations,
warranties and obligations of Seller and Shareholder hereunder shall be
joint and several obligations of Seller and Shareholder.
24. ZERCOM MARINE PRODUCT LINE. If any of the Zercom Marine product line
inventory acquired by Purchaser remains unsold by the second anniversary
of the Closing Date, the Purchase Price and the Note (or, the Greater
Note or the Lesser Note, as the case may be) must be reduced by the value
of such inventory, provided Purchaser uses its best efforts to utilize
that inventory. But, in no event shall the reduction exceed $300,000.
The value of that inventory must be determined in a manner consistent
with the valuation method used to determine the Inventory Value as set
forth in Section 1.12.
25. XXXXXX, ERT AND WATERSTRIKE AGREEMENTS.
25.1 ASSIGNMENT. Between the date of this Agreement and the Closing
Date, Purchaser and Seller will each use their best efforts to
obtain the assignment of all obligations and rights under (i) that
certain Agreement between Seller, Xxx Xxxxxxx and Xxxxx Xxxxxxxx
(d/b/a XxxXxx Enterprises) dated June 7, 1993 (as amended on
January 6, 1994), (ii) that certain Consent to Contract Assignment
between Seller, XxxXxx Enterprises and Emerging Recreational
Technologies, Inc. ("ERT") dated November 1, 1995, (iii) that
certain Exclusive Marketing and Distribution Agreement and Option
to Purchase between Seller and ERT dated November 1, 1995, and
(iv) that certain Asset Purchase Agreement between Waterstrike
Incorporated and Seller dated January 1, 1995 (collectively, the
"License and Distribution Agreements") to Purchaser.
25.2 NON-ASSIGNMENT. To the extent the parties are unsuccessful in
obtaining such assignments (in whole or in part) by the Closing
Date, Purchaser will cooperate with and, using the assets and
property conveyed hereby, will assist Seller in performing its
obligations under the License and Distribution Agreements
consistent with the terms of such contracts and consistent with
the financial benefits available under such contracts.
26. MISCELLANEOUS
26.1 THIRD PARTIES. Nothing in this Agreement, whether expressed or
implied, is intended to confer any rights or remedies under or by
reason of this Agreement on any other person other than the
parties to this Agreement and their respective successors and
assigns, nor is anything in this Agreement intended to relieve or
discharge the obligation or liability of any third person to any
party to this Agreement, nor does any provision give any third
party any right of subrogation or actions over or against either
party to this Agreement. This Agreement is not intended to and
does not create any third party beneficiary rights whatsoever.
27
26.2 NON-WAIVER. The failure in any one or more instances of a party
to insist upon performance of any of the terms, covenants or
conditions of this Agreement, to exercise any right or privilege
in this Agreement conferred, or the waiver by said party of any
breach of any of the terms, covenants or conditions of this
Agreement, must not be construed as a subsequent waiver of any
such terms, covenants, conditions, rights or privileges, but the
same will continue and remain in full force and effect as if no
such forbearance or waiver had occurred. No waiver is effective
unless it is in writing and signed by an authorized representative
of the waiving party.
26.3 SEVERABILITY. The invalidity of any provision of this Agreement
or portion of a provision will not affect the validity of any
other provision of this Agreement or the remaining portion of the
applicable provision.
26.4 NON-EXCLUSIVITY. The rights, remedies, powers and privileges
provided in this Agreement are cumulative and not exclusive and
shall be in addition to any and all rights, remedies, powers and
privileges granted by law, rule, regulation or instrument.
26.5 NO WARRANTY. NEITHER SELLER NOR SHAREHOLDER MAKE ANY EXPRESS
WARRANTY REGARDING THE INVENTORY, INCLUDING, WITHOUT LIMITATION,
ANY WARRANTY REGARDING THE QUALITY OR SALABILITY OF THE INVENTORY.
PURCHASER ACKNOWLEDGES THAT THERE ARE NO IMPLIED WARRANTIES
REGARDING THE INVENTORY, INCLUDING, BUT NOT LIMITED TO, ANY
IMPLIED WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR
PURPOSE AND NO WARRANTY REGARDING PERFORMANCE, QUALITY OR ABSENCE
OF HIDDEN DEFECTS, IS MADE. SELLER TAKES THE INVENTORY "AS IS"
AND "WITH ALL FAULTS".
28
IN WITNESS WHEREOF, the parties have duly executed this Agreement as of
the date first above written.
NORTECH SYSTEMS INCORPORATED
By: s/ Xxxxxxx X. Xxxxxxxxx
___________________________________
Its: CEO
__________________________________
ZERCOM CORPORATION
By: s/ Xxxxxx Xxxxxxx
___________________________________
Its: Chairman
__________________________________
COMMUNICATIONS SYSTEMS, INC.
By: s/ Xxxxxx Xxxxxxx
___________________________________
Its: President
__________________________________
29
LIST OF EXHIBITS
Exhibit A Non-Compete Agreement
Exhibit B Note
Exhibit C Security Agreement
30
EXHIBIT A
NON-COMPETE AGREEMENT
AGREEMENT dated November 4, 1996 between Nortech Systems Incorporated, a
Minnesota corporation ("Purchaser"), Zercom Corporation, a Minnesota corporation
("Seller"), and Communications Systems, Inc., a Minnesota corporation and the
sole shareholder of Seller ("Shareholder").
WITNESSETH:
WHEREAS, Purchaser and Seller and shareholder are parties to that certain
Asset Purchase Agreement (the "Purchase Agreement") dated September 30, 1996,
pursuant to which Purchaser is acquiring from Seller substantially all of the
assets of Seller, as defined in the Purchase Agreement.
WHEREAS, Seller, directly, and Shareholder as the sole shareholder of
Seller, will be financially benefitted by the Purchase Agreement.
WHEREAS, as a condition to closing the Purchase Agreement and in order to
satisfy a requirement set forth therein, Purchaser desires to receive Seller's
and Shareholder's covenant not to compete and other agreements set forth herein.
NOW, THEREFORE, in consideration of the premises and the mutual covenants
hereinafter set forth, Purchaser and Seller and Shareholder agree as follows:
ARTICLE I
NON-COMPETE COVENANT
In order to satisfy a condition of the Purchase Agreement, during the ten
(10) year period commencing with the date of this Agreement, Seller and
Shareholder shall not, anywhere within the United States directly or indirectly,
own, manage, control, operate, be employed by or an agent for, participate in,
or be connected in any material manner with the ownership, management, operation
or control of any business which is competitive with the business of Purchaser.
For these purposes, the business of manufacturing and selling the following
products and parts of those products shall be deemed to be a business
competitive with the business of Purchaser:
(a) Contract manufacturing of printed circuit boards and
electromechanical assemblies for any third party and
31
(b) The manufacture of the following proprietary products:
- In-dash engine displays
- Intercon 1
- Marine fishing products
- Remote radio broadcasting equipment
ARTICLE II
NON-DISCLOSURE COVENANT
During and after the term of this Agreement, Seller and Shareholder shall
not communicate, divulge or use, any secret, confidential information,
confidential customer list, or trade secrets which relate to the assets acquired
by Purchaser under the Purchase Agreement to or on behalf of any person or
entity, except as designated by Purchaser. This obligation shall apply with
respect to any such item until such item ceases (other than due to Seller or
Shareholder) to be secret or confidential.
ARTICLE III
REMEDIES
In the event of any actual threatened breach of the provisions of
Articles I or II hereof by Seller, Purchaser shall be entitled to all rights and
remedies available at law or in equity, including without limitation the right
to obtain damages for such breach or non-adherence and the right to enjoin
Seller and Shareholder or any person or entity in or threatening breach or
non-adherence from commencing or continuing, and to remedy, the activities which
constitute such breach or non-adherence.
ARTICLE IV
CONSIDERATION
Seller acknowledges that under the Purchase Agreement, and Shareholder
acknowledges that as the sole shareholder of Seller, each will be benefitted by
the Purchase Agreement, and each is entering into this Agreement to satisfy a
condition of said Purchase Agreement.
ARTICLE V
MISCELLANEOUS
5.1 ENTIRE AGREEMENT; USE OF TERMS. This Agreement, together with the
Purchase Agreement, contains the entire agreement among the parties, superseding
in all respects any and all prior oral or written agreements or understandings
pertaining to the subject matter hereof and transactions contemplated hereby,
and shall be amended or modified only by a written instrument signed by all of
the parties hereto. Unless the context clearly requires otherwise, terms
employed herein shall have the same meaning as set forth in the Purchase
Agreement.
32
5.2 WAIVER. No waiver by any party of any condition, or of the breach
of any term, covenant, representation or warranty contained in this Agreement,
whether by conduct or otherwise, in any one or more instances shall be deemed to
be or construed as a further and continuing waiver of any such condition or
breach or a waiver of any other condition or breach of any other term, covenant,
representation, or warranty of this Agreement, or the agreements and documents
executed in connection herewith.
5.3 BINDING EFFECT; ASSIGNMENT. This Agreement shall be binding upon,
and shall inure to the benefit of and be enforceable by, the parties hereto and
their respective heirs, successors and assigns, but this Agreement shall not be
assignable by Seller.
5.4 GENERAL. This Agreement may be executed in several counterparts,
each of which shall be deemed to be an original, but all of which shall
constitute one and the same instrument. The section headings contained herein
are for reference purposes only and shall not in any way affect the meaning or
interpretation of this Agreement. This Agreement shall be governed, enforced
and construed under the laws of the State of Minnesota.
5.5 JOINT AND SEVERAL LIABILITY. All agreements, covenants,
representations, and warranties of Seller and Shareholder hereunder shall be
joint and several obligations of Seller and Shareholder.
NORTECH SYSTEMS INCORPORATED
By:___________________________________
Its:__________________________________
ZERCOM CORPORATION
By:___________________________________
Its:__________________________________
COMMUNICATIONS SYSTEMS, INC.
By:___________________________________
Its:__________________________________
33
EXHIBIT B-1
PROMISSORY NOTE
$4,000,000.00 Minneapolis, Minnesota
November 4, 1996
FOR VALUE RECEIVED, the undersigned Nortech Systems Incorporated
("Maker") , a Minnesota corporation, hereby promises to pay to the order of
Zercom Corporation ("Payee") , a Minnesota corporation, at Xxxxxx, Minnesota, or
at such other place as may be designated from time to time in writing by the
holder hereof, the principal sum of Four Million Dollars ($4,000,000.00) with
simple interest on the outstanding principal balance beginning on the date
hereof at a rate equal to the prime or reference rate established from time to
time by First Bank Minneapolis.
Principal in the amount of One Hundred Sixty Thousand Dollars
($160,000.00) or more per installment shall be payable semiannually commencing
May 1, 1997, and continuing on the first day of every November and May
thereafter for a total of five (5) years, at which time all remaining principal
and accrued interest, if not sooner paid, shall be paid in full.
This Note is given to evidence the unpaid balance of the purchase price
owed by Maker to Payee for the purchase of the assets of Payee, pursuant to the
terms of that certain Asset Purchase Agreement (the "Asset Purchase Agreement")
dated 1996, between Maker and Payee. This Note is subject to and governed by
the terms and provisions of the Asset Purchase Agreement, including rights of
offset as set forth therein. This Note is secured by that certain Security
Agreement of even date herewith.
Each payment (including prepayments, if made) hereunder shall be applied
first to payment of accrued interest, and the balance to payment of principal.
Prepayments can be made at any time, and from time to time, at the election of
Maker, without penalty. If default is made in the payment of any installment of
this Note, and such payment is not made within fifteen (15) days after notice
from the Note holder of non-payment, the Note holder may declare the entire
unpaid principal balance of this Note and all accrued interest due and payable
without further notice.
In the event that the holder hereof shall institute any action for the
enforcement or collection of this Note, there shall be immediately due from the
Maker, in addition to the unpaid balance, all reasonable costs and expenses of
said action, including reasonable attorneys' fees.
34
IN WITNESS WHEREOF, the undersigned has caused this Note to be executed
on the date first above written.
NORTECH SYSTEMS INCORPORATED
By ___________________________________
Its ________________________________
35
EXHIBIT B-2
THE INDEBTEDNESS EVIDENCED BY THIS NOTE IS SECURED BY A COMBINATION MORTGAGE,
ASSIGNMENT OF RENTS AND LEASES, SECURITY AGREEMENT AND FIXTURE FINANCING
STATEMENT (THE "MORTGAGE") OF EVEN DATE HEREWITH, ON LAND IN CROW WING COUNTY,
MINNESOTA, AND REFERENCE IS MADE TO THE MORTGAGE FOR RIGHTS AS TO ACCELERATION
OF THE INDEBTEDNESS EVIDENCED BY THIS NOTE.
PROMISSORY NOTE
$1,000,000.00 Minneapolis, Minnesota
November 4, 1996
FOR VALUE RECEIVED, the undersigned Nortech Systems Incorporated
("Maker") , a Minnesota corporation, hereby promises to pay to the order of
Zercom Corporation ("Payee") , a Minnesota corporation, at Xxxxxx, Minnesota, or
at such other place as may be designated from time to time in writing by the
holder hereof, the principal sum of One Million Dollars ($1,000,000.00) with
simple interest on the outstanding principal balance beginning on the date
hereof at a rate equal to the prime or reference rate established from time to
time by First Bank Minneapolis.
Principal in the amount of Forty Thousand Dollars ($40,000.00) or more
per installment shall be payable semiannually commencing May 1, 1997, and
continuing on the first day of every November and May thereafter for a total of
five (5) years, at which time all remaining principal and accrued interest, if
not sooner paid, shall be paid in full.
This Note is given to evidence the unpaid balance of the purchase price
owed by Maker to Payee for the purchase of the assets of Payee, pursuant to the
terms of that certain Asset Purchase Agreement (the "Asset Purchase Agreement")
dated 1996, between Maker and Payee. This Note is subject to and governed by
the terms and provisions of the Asset Purchase Agreement, including rights of
offset as set forth therein.
Each payment (including prepayments, if made) hereunder shall be applied
first to payment of accrued interest, and the balance to payment of principal.
Prepayments can be made at any time, and from time to time, at the election of
Maker, without penalty. If default is made in the payment of any installment of
this Note, and such payment is not made within fifteen (15) days after notice
from the Note holder of non-payment, the Note holder may declare the entire
unpaid principal balance of this Note and all accrued interest due and payable
without further notice.
In the event that the holder hereof shall institute any action for the
enforcement or collection of this Note, there shall be immediately due from the
Maker, in addition to the unpaid balance, all reasonable costs and expenses of
said action, including reasonable attorneys' fees.
36
IN WITNESS WHEREOF, the undersigned has caused this Note to be executed
on the date first above written.
NORTECH SYSTEMS INCORPORATED
By:___________________________________
Its:__________________________________
37
EXHIBIT C
SECURITY AGREEMENT
THIS AGREEMENT, made effective as of November 4, 1996, is by and between
Nortech Systems Incorporated ("Debtor"), a Minnesota corporation, and Zercom
Corporation ("Secured Party"), a Minnesota corporation, a wholly-owned
subsidiary of Communication Systems, Inc., a Minnesota corporation.
W I T N E S S E T H:
WHEREAS, Debtor has agreed to purchase certain assets of Secured Party
pursuant to that certain Asset Purchase Agreement (the "Purchase Agreement"),
dated effective September 30, 1996;
WHEREAS, Pursuant to the Purchase Agreement, Debtor has agreed to deliver
to Secured Party a Promissory Note (the "Note") in the amount of $5,000,000.00
and Debtor has agreed to grant Secured Party a security interest (the "Security
Interest") in the purchased assets in order to secure Debtor's performance of
obligations under the Note and Purchase Agreement; and
WHEREAS, Pursuant to the Purchase Agreement, the Purchase Price is
subject to a Post-Closing Purchase Price Adjustment (each as defined in the
Purchase Agreement) and, pursuant to such adjustment, the Note must be cancelled
and replace by a promissory note (the "Substitute Note") that is has a principal
amount which is either greater or less than the principal amount of the Note,
depending upon the magnitude of the Post-Closing Purchase Price Adjustment.
NOW, THEREFORE, in consideration of the premises and the mutual
undertakings herein contained, the parties agree as follows:
ARTICLE 1.
SECURITY INTEREST AND COLLATERAL
To secure the payment and performance of each and every debt, liability,
and obligation which Debtor may now or at any time hereafter owe to Secured
Party under the Purchase Agreement (whether such debt, liability, or obligation
now exists or is hereafter created or incurred, and whether it is or may be
direct or indirect, due or to become due, absolute or contingent, primary or
secondary, liquidated or unliquidated, or joint, several, or joint and several;
all such debts, liabilities and
38
obligations herein collectively referred to as the "Obligations"), Debtor hereby
grants Secured Party a security interest (the "Security Interest") in the
following property (the "Collateral"):
All of the Assets (as defined in the Purchase Agreement) purchased by
Debtor from Secured Party pursuant to the Purchase Agreement;
together with all substitutions and replacements for and products of any of the
foregoing property, all proceeds of any and all of the foregoing property and,
in the case of all tangible Collateral, together with all (i) accessions, (ii)
accessories, attachments, parts, equipment, and repairs now or hereafter
attached or affixed to or used in connection with any such goods, and (iii)
warehouse receipts, bills of lading, and other documents of title now or
hereafter covering such goods.
ARTICLE 2.
REPRESENTATIONS, WARRANTIES, AND AGREEMENTS
Debtor represents, warrants, and agrees that:
27. Debtor is a Minnesota corporation in good standing in Minnesota.
28. The Collateral will be used for business purposes.
29. If any part or all of the tangible Collateral will become so related to
particular real estate as to become a fixture, the real estate concerned
is as described in EXHIBIT 1 attached hereto, and the Debtor is the
record owner of any such real estate.
30. Debtor's chief executive office is located at 000 Xxxx Xxxx Xxxxxx, Xxxxx
000, Xxxxxxx, Xxxxxxxxx 000000.
31. Debtor will keep each item of Collateral free and clear of all security
interests, liens and encumbrances, except the Security Interest and the
lien of the Secured Party and its successors and assigns, and will defend
the Collateral against all claims or demands of all persons other than
Secured Party and its assigns. Debtor will not sell, mortgage, encumber,
or otherwise dispose of the Collateral or any interest therein without
the prior written consent of Secured Party, except that Debtor may sell
any Inventory (as defined in the Purchase Agreement) constituting
Collateral to buyers in the ordinary course of business, unless, upon the
occurrence of an Event of Default (as defined in Article 5 herein),
Secured Party revokes Debtor's right to do so.
32. The officer executing this Agreement has authority to act for Xxxxxx.
00
00. Xxxxxx will not permit any tangible Collateral to be located in any state
(and, if county filing is required, in any county) in which a financing
statement covering such Collateral is required to be, but has not in fact
been, filed in order to perfect the Security Interest.
34. Each right to payment and each instrument, document, chattel paper, and
other agreement constituting or evidencing Collateral is (or will be when
arising or issued) the valid, genuine, and legally enforceable
obligation, subject to no defense, set off, or counterclaim (other than
those arising in the ordinary course of business) of the account debtor
or other obligor named therein or in Debtor's records pertaining thereto
as being obligated to pay such obligation. Debtor will not agree to any
material modification or amendment nor agree to any cancellation of any
such obligation outside of Debtor's ordinary course of business without
Secured Party's prior written consent, and will not subordinate any such
right to payment to claims of other creditors of such account debtor or
other obligor.
35. Debtor must:
a. Keep all tangible Collateral in good repair, working order and
condition, normal depreciation excepted, and will, from time to
time, replace any worn, broken or defective parts thereof;
b. Promptly pay all taxes and other governmental charges levied or
assessed upon or against any Collateral or upon or against the
creation, perfection, or continuance of the Security Interest;
c. Keep all Collateral free and clear of all security interests,
liens, and encumbrances except the Security Interest and blanket
lien of Secured Party and liens or other encumbrances permitted by
the Secured Party;
d. At all reasonable times, permit Secured Party or its
representatives to examine or inspect any Collateral wherever
located, and to examine, inspect, and copy Debtor's books and
records pertaining to the Collateral and its business and
financial condition and to discuss with account debtors and other
obligors requests for verifications of amounts owed to Debtor;
e. Keep accurate and complete records pertaining to the Collateral
and pertaining to Debtor's business and financial condition and
submit to Secured Party such periodic reports concerning the
Collateral and Debtor's business and financial condition as
Secured Party may from time to time reasonably request;
f. Promptly notify Secured Party of any material loss of or material
damage to any Collateral or of any adverse change, known to
Debtor, in the prospect of payment
40
of any sums due on or under any instrument, chattel paper, or
account constituting Collateral;
g. If Secured Party at any time so requests, and after the occurrence
of an Event of Default, promptly deliver to Secured Party any
instrument, document, or chattel paper constituting Collateral,
duly endorsed or assigned by Debtor;
h. At all times keep all tangible Collateral insured against risks of
fire (including so-called extended coverage), theft, collision (in
case of Collateral consisting of motor vehicles), and such other
risks and in such amounts as Secured Party may reasonably request,
with any loss payable to Secured Party to the extent of its
interest;
i. From time to time execute such financing statements as Secured
Party may reasonably require in order to perfect the Security
Interest and, if any Collateral consists of motor vehicles,
execute such documents as may be required to have the Security
Interest properly noted on a certificate of title;
j. Pay when due or reimburse Secured Party on demand for all
reasonable costs of collection of any of the Obligations and all
other reasonable out-of-pocket expenses (including in each case
all reasonable attorneys' fees) incurred by Secured Party in
connection with the creation, perfection, satisfaction,
protection, defense, or enforcement of the Security Interest or
the creation, continuance, protection, defense, or enforcement of
this Agreement or any or all of the Obligations, including
expenses incurred in litigation or bankruptcy or insolvency
proceedings;
k. Execute, deliver or endorse any and all instruments, documents,
assignments, security agreements, and other agreements and
writings which Secured Party may at any time reasonably request in
order to secure, protect, perfect, or enforce the Security
Interest and Secured Party's rights under this Agreement;
l. Not use or keep any Collateral, or permit it to be used or kept,
for any unlawful purpose or in violation of any foreign, federal,
state, or local law, statute, rule, or ordinance;
m. Permit Secured Party, after an Event of Default has occurred, to
send requests to account debtors or other obligors for
verification of amounts owed to Debtor; and
n. Not permit any tangible Collateral to become part of or to be
affixed to any real property without first assuring to the
reasonable satisfaction of Secured Party that the Security
Interest will be prior and senior to any interest or lien then
held or thereafter
41
acquired by any mortgagee or encumbrancer of such real property or
the owner or purchaser of any interest therein.
If Debtor at any time fails to perform or observe any agreement contained in
this Section 9 of Article 2, and if such failure shall continue for a period of
ten (10) calendar days after Secured Party gives Debtor written notice thereof
(or, in the case of the agreements contained in subsections (h) and (i) of this
Section 9 of Article 2, immediately upon the occurrence of such failure, without
notice or lapse of time), Secured Party may (but need not) perform or observe
such agreement on behalf and in the name, place, and stead of Debtor (or, at
Secured Party's option, in Secured Party's own name) and may (but need not) take
any and all other actions which Secured Party may reasonably deem necessary to
cure or correct such failure (including without limitation, the payment of
taxes, the satisfaction of security interests, liens, or encumbrances, the
performance of obligations under contracts or agreements with account debtors or
other obligors, the procurement and maintenance of insurance, the execution of
financing statements, the endorsement of instruments, and the procurement of
repairs, transportation or insurance); and, except to the extent that the effect
of such payment would be to render any loan or forbearance of money usurious or
otherwise illegal under any applicable law, Debtor shall thereupon pay Secured
Party on demand the amount of all moneys expended and all costs and expenses
(including reasonable attorneys' fees) incurred by Secured Party in connection
with or as a result of Secured Party's performing or observing such agreements
or taking such actions, together with interest thereon from the date expended or
incurred by Secured Party at the highest rate permitted by law. To facilitate
the performance or observance by Secured Party of such agreements of Debtor,
Debtor hereby irrevocably appoints (which appointment is coupled with an
interest) Secured Party, or its delegate, as the attorney-in-fact of Debtor with
the right (but not the duty) from time to time to create, prepare, complete,
execute, deliver, endorse, or file, in the name of and on behalf of Debtor, any
and all instruments, documents, financing statements, applications for
insurance, and other agreements and writings required to be obtained, executed,
delivered, or endorsed by Debtor under this Section 9 of Article 2.
ARTICLE 3.
COLLECTION RIGHTS OF SECURED PARTY
Secured Party may at any time after the occurrence of any Event of
Default notify any account debtor, or any other person obligated to pay any
amount due, that such chattel paper, account, or other right to payment has been
assigned or transferred to Secured Party for security and shall be paid directly
to Secured Party. If Secured Party so requests at any time, Debtor will notify
such account debtors and other obligors in writing and will indicate on all
invoices to such account debtors or other obligors that the payment due is
payable directly to Secured Party. At any time after Secured Party or Debtor
gives such notice to an account debtor or other obligor, Secured Party may (but
need not), in its own name or in Debtor's name, demand, xxx for, collect or
receive any money or property at any time payable or receivable on account of,
or securing, any such chattel paper, account, or other
42
right to payment, or grant any extension to, make any compromise or settlement
with or otherwise agree to waive, modify, amend, or change the obligations
(including collateral obligations) of any such account debtor or other obligor.
ARTICLE 4.
ASSIGNMENT OF INSURANCE
Debtor hereby assigns to Secured Party, as additional security for the
payment of the Obligations, any and all moneys (including but not limited to
proceeds of insurance and refunds of unearned premiums) due or to become due
under, and all other rights of Debtor under or with respect to, any and all
policies of insurance covering the Collateral, and Debtor hereby directs the
issuer of any such policy to pay any such moneys directly to Secured Party.
Both before and after the occurrence of an Event of Default, Secured Party may
(but need not), in its own name or in Debtor's name, execute and deliver proofs
of claim, receive all moneys, endorse checks and other instruments representing
payment of such moneys, and adjust, litigate, compromise, or release any claim
against the issuer of any such policy.
ARTICLE 5.
EVENTS OF DEFAULT
Each of the following occurrences constitute an event of default under
this Agreement (herein call "Event of Default"):
1. Debtor fails to pay any or all of the Obligations when due or (if
payable on demand) on demand;
2. Debtor fails to observe or perform any covenant or agreement in
this Security Agreement, the Purchase Agreement, or the Note (or the Substitute
Note) binding on Debtor and such failure continues for ten (10) days after
notice of such failure delivered by Secured Party;
3. Any representation or warranty by Debtor set forth in this
Security Agreement, the Purchase Agreement, or the Note (or the Substitute Note)
proves to be materially false or misleading;
4. A garnishment summons or a writ of attachment is issued against or
served upon the Secured Party for the attachment of any property of the Debtor
or any indebtedness owing to Debtor.
43
ARTICLE 6.
REMEDIES UPON EVENT OF DEFAULT
Subject to the terms of the Purchase Agreement and applicable laws, upon
the occurrence of an Event of Default under Article 5 and at any time
thereafter, Secured Party may exercise any one or more of the following rights
and remedies:
1. Declare all unmatured Obligations to be immediately due and payable, and
the same shall thereupon be immediately due and payable, without
presentment or other notice or demand;
2. Exercise and enforce any or all rights and remedies available upon
default to a secured party under the Uniform Commercial Code, as adopted
by the State of Minnesota, including but not limited to the right to take
possession of any Collateral, proceeding without judicial process or by
judicial process (without a prior hearing or notice thereof, which Debtor
hereby expressly waives), and the right to sell, lease or otherwise
dispose of any or all of the Collateral, and in connection therewith,
Secured Party may require Debtor to assemble the Collateral and make it
available to Secured Party at a place to be designated by Secured Party
which is reasonably convenient to both parties, and if notice to Debtor
of any intended disposition of Collateral or any other intended action is
required by law in a particular instance, such notice shall be deemed
commercially reasonable if given (in the manner specified in Article 7)
at least ten (10) calendar days prior to the date of intended disposition
or other action;
3. Exercise or enforce any and all other rights or remedies available to
Secured Party by law or agreement against the Collateral, against Debtor,
or against any other person or property.
Secured Party is hereby granted a nonexclusive, world-wide and royalty-free
license to use or otherwise exploit all trademarks, trade secrets, and
franchises of Debtor that Secured Party deems necessary or appropriate to the
disposition of any collateral.
ARTICLE 7.
MISCELLANEOUS
This Agreement can be waived, modified, amended, terminated, or
discharged, and the Security Interest can be released, only explicitly in a
writing signed by Secured Party. A waiver signed by Secured Party shall be
effective only in the specific instance and for the specific purpose given.
Mere delay or failure to act shall not preclude the exercise or enforcement of
any of Secured Party's rights or remedies. All rights and remedies of Secured
Party shall be cumulative and may be exercised singularly or concurrently, at
Secured Party's option, and the exercise or enforcement of
44
any one such right or remedy shall neither be a condition to nor bar the
exercise or enforcement of any other. All notices to be given to Debtor
shall be deemed sufficiently given if delivered or mailed by registered or
certified mail, postage prepaid, to Debtor at its address set forth above or
at the most recent address shown on Secured Party's records. Secured Party's
duty of care with respect to Collateral in its possession (as imposed by law)
shall be deemed fulfilled if Secured Party exercises reasonable care in
physically safekeeping such Collateral or, in the case of Collateral in the
custody or possession of a bailee or other third person, exercises reasonable
care in the selection of the bailee or other third person, and Secured Party
need not otherwise preserve, protect, insure or care for any Collateral.
Secured Party shall not be obligated to preserve any rights Debtor may have
against prior parties, to realize on the Collateral at all or in any
particular manner or order, or to apply any cash proceeds of Collateral in
any particular order of application. This Agreement shall be binding upon and
inure to the benefit of Debtor and Secured Party and their respective heirs,
representatives, successors and assigns and shall take effect when signed by
Debtor and delivered to Secured Party, and Debtor waives notice of Secured
Party's acceptance hereof. Secured Party may execute this Agreement if
appropriate for the purpose of filing, but the failure of Secured Party to
execute this Agreement shall not affect or impair the validity or
effectiveness of this Agreement. A carbon, photographic, or other
reproduction of this Agreement or of any financing statements signed by
Debtor shall have the same force and effect as the original for all purposes
of a financing statement. Except to the extent otherwise required by law,
this Agreement shall be governed by the internal laws of the State of
Minnesota. If any provision or application of this Agreement is held
unlawful or unenforceable in any respect, such illegality or unenforceability
shall not affect other provisions or applications which can be given effect,
and this Agreement shall be construed as if the unlawful or unenforceable
provision or application had never been contained herein or prescribed
hereby. All representations and warranties contained in this Agreement shall
survive the execution, delivery, and performance of this Agreement and the
creation and payment of the Obligations.
SECURED PARTY:
ZERCOM CORPORATION
By ____________________________
Its _________________________
DEBTOR:
NORTECH SYSTEMS INCORPORATED
By_____________________________
Its__________________________
45
AMENDMENT NO. 1 TO
ASSET PURCHASE AGREEMENT
This Amendment, made effective as of November 4, 1996, is by and between
Zercom Corporation, a Minnesota corporation ("Zercom"), Nortech Systems
Incorporated, a Minnesota corporation ("Nortech"), and Communications Systems,
Inc., a Minnesota corporation ("CSI").
WHEREAS, Zercom, Nortech and CSI are parties to that certain Asset
Purchase Agreement dated effective as of September 30, 1996 (the "Purchase
Agreement"); and
WHEREAS, Zercom, Nortech and CSI believe it is in their best interests to
amend the Purchase Agreement as provided in this Amendment.
NOW, THEREFORE, in consideration of the above premises and other good and
valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, the parties agree as follows:
1. The parties wish to amend and restate in its entirety Section 3.2
of the Purchase Agreement as follows:
3.2 PAYMENT OF PURCHASE PRICE. At the Closing, Purchaser must pay
Seller the Purchase Price as follows:
(A) A payment, in the form of a cashier's or certified check or
by wire transfer, in the amount of $1,500,000, subject to
the Closing Date Purchase Price Adjustment set forth in
Section 2.2(A); and
(B) Delivery of a duly executed non-negotiable promissory note
of Purchaser in the amount of $4,000,000, substantially in
the form of EXHIBIT B-1 (the "$4,000,000 Note").
(C) Delivery of a duly executed non-negotiable promissory note
of Purchaser in the amount of $1,000,000, substantially in
the form of EXHIBIT B-2 (the "$1,000,000 Note").
2. The parties wish to amend and restate in its entirety Section 3.4
of the Purchase Agreement as follows:
3.4 PAYMENT OF THE POST-CLOSING PURCHASE PRICE ADJUSTMENT.
(A) POSITIVE POST-CLOSING PURCHASE PRICE ADJUSTMENT. If the
Post-Closing Purchase Price Adjustment is greater than
zero, then Purchaser must deliver, within five days after
final determination of the Post-Closing Purchase Price
Adjustment, a substitute promissory note (the "Greater
Note") for the $4,000,000 Note with a principal amount
equal to the $4,000,000 PLUS the amount of the Post-Closing
Purchase Price Adjustment PLUS an amount equal to (i) 6%,
divided by (ii) 365, multiplied by (iii) the number of days
between the Closing Date and the date of delivery of the
Net Fixed Asset Value, and
multiplied by (iv) the Post-Closing Purchase Price
Adjustment. Upon delivery of the Net Fixed Asset Value,
Seller must immediately xxxx the $4,000,000 Note
"Cancelled" and promptly deliver the cancelled $4,000,000
Note to Purchaser.
(B) NEGATIVE POST-CLOSING PURCHASE PRICE ADJUSTMENT. If the
Post-Closing Purchase Price Adjustment is less than zero,
then Purchaser must deliver, within five days after final
determination of the Post-Closing Purchase Price
Adjustment, a substitute promissory note (the "Lesser
Note") for the $4,000,000 Note with a principal amount
equal to the $4,000,000 LESS the amount of the Post-Closing
Purchase Price Adjustment LESS an amount equal to (i) 6%,
divided by (ii) 365, multiplied by (iii) the number of days
between the Closing Date and the date of delivery of the
Lesser Note, and multiplied by (iv) the Post-Closing
Purchase Price Adjustment. Upon delivery of the Lesser
Note, Seller must immediately xxxx the $4,000,000 Note
"Cancelled" and promptly deliver the cancelled $4,000,000
Note to Purchaser.
3. The parties wish to amend and restate in its entirety Section 24
of the Purchase Agreement as follows:
24. ZERCOM MARINE PRODUCT LINE. If any of the Zercom Marine product
line inventory acquired by Purchaser remains unsold by the second
anniversary of the Closing Date, the Purchase Price and the
$4,000,000 Note (or, the Greater Note or the Lesser Note, as the
case may be) must be reduced by the value of such inventory,
provided Purchaser uses its best efforts to utilize that
inventory. But, in no event shall the reduction exceed $300,000.
The value of that inventory must be determined in a manner
consistent with the valuation method used to determine the
Inventory Value as set forth in Section 1.12.
4. The parties wish to add a new Section 26.6 and a new Section 26.7
of the Purchase Agreement to read as follows:
26.6 MORTGAGE. The owner's title insurance policy relating to the Real
Estate and the mortgage registration tax associated with the
mortgage referred to in Section 6.2(F) must be paid by Purchaser.
26.7 LETTERS OF CREDIT. Purchaser acknowledges that there are two
outstanding letters of credit issued by First Bank Minnesota
(letter nos. MPL000133, in the amount of $235,042.30 and dated
September 23, 1996, and MPL000134, in the amount of $225,745.70
and dated September 23, 1996). Such letters of credit are in the
name of Xxxxxx Apparatus Corporation, a wholly-owned subsidiary of
Shareholder ("Xxxxxx"). Purchaser warrants and agrees that
(A) Purchaser must not make any purchases or place any orders
subsequent to the Closing which may result in a draw
against either of those letters of credit,
(B) Purchaser must promptly reimburse Xxxxxx for any draws made
against either of those letters of credit which occur
subsequent to the Closing for orders placed by Seller prior
to the Closing, and
(C) Purchaser must promptly arrange for substitute letters of
credit in Purchaser's name.
5. Except as modified by this Amendment No. 1, all of the terms of
the Purchase Agreement shall remain in full force and effect.
IN WITNESS WHEREOF, this Amendment No. 1 is made effective as of the day
and year first written above.
ZERCOM CORPORATION COMMUNICATIONS SYSTEMS, INC.
By s/ Xxxxxx Xxxxxxx By s/ Xxxxxx Xxxxxxx
______________________________ _________________________________
Its President Its Chairman
___________________________ _____________________________
NORTECH SYSTEMS INCORPORATED
By s/ Xxxxxxx X. Xxxxxxxxx
____________________________
Its CEO
__________________________