ASSET PURCHASE AGREEMENT

 

Exhibit 2.1

 

 

 

 

 

 

 

 

 

TABLE OF CONTENTS

 

		PAGE
SECTION 1.   Defined Terms		2
SECTION 2.   The Transaction		6
2.1	Sale and Purchase of Specified Assets	6
2.2	No Other Liabilities	9
2.3	Seller’s Employees	10
SECTION 3.   Purchase Price and Closing Financial Statements		10
3.1	Purchase Price	10
3.2	Closing Balance Sheet	11
3.3	Net Total Tangible Assets Adjustment	11
3.4	Indemnification Matters Adjustment	13
3.5	Currency and Method of Payment	13
3.6	Original Issue Discount	13
3.7	Letter of Credit	13
SECTION 4.   Representations and Warranties of Tibbetts and Principal Shareholders		14
4.1	Organization	14
4.2	Authority; Non-Contravention	15
4.3	Capital Stock and Ownership	16
4.4	Financial and Corporate Records	17
4.5	Compliance with Laws; Permits	18
4.6	Financial Statements	19
4.7	Assets	19
4.8	Obligations	20
4.9	Operations Since The Latest Balance Sheet Date	20
4.10	Accounts Receivable	21
4.11	Tangible Property	22
4.12	Real Property	22
4.13	Environmental Matters	24
4.14	Intangibles	24
4.15	Contracts	28
4.16	Employees and Independent Contractors	30
4.17	Employee Benefit Plans	31
4.18	Customers, Prospects and Suppliers	34
4.19	Taxes	35
4.20	Proceedings and Judgments	37
4.21	Insurance	37
4.22	Questionable Payments	38
4.23	Related Party Transactions	38
4.24	Brokerage Fees	38
4.25	Full Disclosure	38

 

 

i

 

 

 

SECTION 5.   Representations and Warranties Of IntriCon and Buyer		39
5.1	Organization	39
5.2	Agreement	39
5.3	Brokerage Fees	39
5.4	Absence of Litigation	39
SECTION 6.   Certain Obligations Of Tibbetts And Principal Shareholders Pending Closing		39
6.1	Voting and Cooperation; Irrevocable Proxy	39
6.2	Tibbetts Shareholder Approval	41
6.3	Conduct of the Tibbetts Business	41
6.4	Interim Financial Statements	43
6.5	IntriCon’s General Due Diligence Investigation	43
6.6	IntriCon’s Environmental Due Diligence Investigation	43
6.7	Consents	44
6.8	Acquisition Proposals	44
6.9	Advice of Changes	44
6.10	Commercially Reasonable Best Efforts	44
6.11	Tax Clearance Letter	45
SECTION 7.   Certain Obligations Of IntriCon And Buyer Pending Closing		45
7.1	Corporate Status	45
7.2	Consents	45
7.3	Advice of Changes	45
7.4	Commercially Reasonable Best Efforts	45
SECTION 8.   Conditions Precedent To Tibbetts’ And Principal Shareholders’ Closing Obligations		46
8.1	Approval of the Tibbetts Shareholders	46
8.2	IntriCon’s and Buyer’s Representations	46
8.3	IntriCon’s and Buyer’s Performance	46
8.4	Absence of Proceedings	46
SECTION 9.   Conditions Precedent To IntriCon’s And Buyer’s Closing Obligations		46
9.1	Approval of the Tibbetts Shareholders	46
9.2	Tibbetts’ and the Principal Shareholders’ Representations	46
9.3	Tibbetts’ and the Principal Shareholders’ Performance	47
9.4	Absence of Proceedings	47
9.5	Adverse Changes	47
9.6	Escrow Agreement	47
9.7	Delivery of Documents	47
9.8	Key Employment Agreements	47
9.9	Lease Agreements	47
9.10	Tax Clearance Letter	47
9.11	Estimated Net Total Tangible Assets Adjustment	48
SECTION 10.   Closing		48

 

 

ii

 

 

 

10.1	Closing	48
10.2	Tibbetts’ Obligations at the Closing	48
10.3	Obligations of IntriCon and Buyer at Closing	50
SECTION 11.   Certain Obligations After Closing		51
11.1	Transition and Cooperation	51
11.2	Use of Names	51
11.3	Contract Matters	51
11.4	Retirement and Group Insurance Plans	53
11.5	Taxes	53
11.6	Further Assurances	54
11.7	Reconciliations	54
SECTION 12.   Restrictive Covenants Of Seller and the Principal Shareholders		54
12.1	Certain Acknowledgements	54
12.2	Nondisclosure Covenants	55
12.3	Nonsolicitation and Noncompetition and Covenants	56
12.4	Certain Exclusions	56
12.5	Enforcement of Covenants	57
12.6	Scope of Covenants	57
SECTION 13.   Indemnification		57
13.1	Seller’s Indemnification	57
13.2	Principal Shareholders’ Indemnification	58
13.3	IntriCon’s Indemnification	59
13.4	Indemnification Procedures	60
13.5	Limits on Indemnification	61
13.6	Exceptions to Limitations	61
13.7	Indemnity Escrow Funds	61
13.8	Setoff and Holdback	61
13.9	Exclusivity of Remedies	62
SECTION 14.   Other Provisions		62
14.1	Termination	62
14.2	Publicity	62
14.3	Fees and Expenses	63
14.4	Notices	63
14.5	Survival	63
14.6	Interpretation of Representations	64
14.7	Reliance by IntriCon and Buyer	64
14.8	Entire Understanding	64
14.9	Assignment	64
14.10	Waivers; Remedies	64
14.11	Severability	65
14.12	Counterparts	65
14.13	Section Headings	65
14.14	References	65

 

 

iii

 

 

 

14.15	Controlling Law	65
14.16	Jurisdiction and Process	65
14.17	No Third-Party Beneficiaries	67
14.18	Bankruptcy Qualification	67
14.19	Neutral Construction	67

 

 

SCHEDULES AND EXHIBITS

 

Schedule 1.24	Knowledge Persons
Schedule 2.1.2(A)	Accounts Payable
Schedule 2.1.2(B)	Accrued Compensation and Vacation Pay
Schedule 4.1	Organization
Schedule 4.2	Authority; Non-Contravention
Schedule 4.3	Capital Stock and Ownership
Schedule 4.4	Financial and Corporate Records
Schedule 4.5	Compliance with Laws; Permits
Schedule 4.7	Assets
Schedule 4.8	Obligations
Schedule 4.9	Operations Since The Latest Balance Sheet Date
Schedule 4.10	Accounts Receivable
Schedule 4.11	Tangible Property
Schedule 4.12	Real Property
Schedule 4.14	Software and Other Intangibles
Schedule 4.15	Contracts
Schedule 4.16	Employees and Independent Contractors
Schedule 4.17	Employee Benefit Plans
Schedule 4.18	Customers, Prospects and Suppliers
Schedule 4.19	Taxes
Schedule 4.20	Proceedings and Judgments
Schedule 4.21	Insurance
Schedule 4.22	Related Party Transactions
Schedule 4.23	Brokerage Fees
Exhibit 1.15	Form of Escrow Agreement
Exhibit 3.1	Purchase Price Allocation (to be delivered at Closing)
Exhibit 9.8	Key Employees and Form of Key Employee Agreement
Exhibit 9.9	Forms of Lease Agreements
Exhibit 10.2.12	Form of Opinion of Tibbetts’ Counsel
Exhibit 10.2.13	Required Consents
Exhibit 11.4	COBRA Persons (to be delivered at Closing)

 

 

 

iv

 

 

ASSET PURCHASE AGREEMENT

PARTIES :

TIBBETTS INDUSTRIES, INC.

a Maine corporation (“Tibbetts” or “Seller”)

5 Colcord Avenue

Camden, Maine 04843

Certain Shareholders of Tibbetts listed on the Signature Page to this Agreement (“ Principal Shareholders ”)

 

INTRICON CORPORATION

a Pennsylvania (“ IntriCon ”)

1260 Red Fox Road

Arden Hills, Minnesota 55112

 

TI ACQUISITION CORPORATION

a Maine corporation (“ Buyer ”)

c/o IntriCon Corporation

1260 Red Fox Road

Arden Hills, Minnesota 55112

 

DATE :

April 19, 2007

BACKGROUND : Tibbetts is in the business of designing, developing, manufacturing and selling magnetic telecoils and miniature electro-acoustic transducers (including receivers and microphones) for use in hearing aids, medical devices, and numerous communications applications and also engages in contractual electronics research, development and manufacturing (collectively, “Tibbetts Business” or the “Business”). The Principal Shareholders own more than a majority of the outstanding Common Stock of Tibbetts. At Closing, the parties desire that Seller sells and Buyer, a wholly owned subsidiary of IntriCon, buys substantially all of Seller’s business and assets (the “Sale”) on the terms and subject to the conditions set forth in this Asset Purchase Agreement (the “Agreement”). The Board of Directors of Tibbetts has determined that the Sale and the other transactions contemplated by this Agreement (collectively, the “Transactions”) are in the best interests of Tibbetts and its shareholders. The respective Boards of Directors of IntriCon and Buyer have determined that the Transactions are in the best interests of IntriCon and Buyer and their respective shareholders.

INTENDING TO BE LEGALLY BOUND , in consideration of the foregoing and the mutual agreements contained herein and subject to the satisfaction of the terms and conditions set forth herein, the parties hereto agree as follows:

 

 

 

 

 

SECTION 1.             DEFINED TERMS

Certain defined terms used in this Agreement and not specifically defined in context are defined in this Section 1 as follows:

1.1          “Accounts Receivable” means (a) any right to payment for goods sold, leased or licensed or for services rendered, whether or not it has been earned by performance, whether billed or unbilled, and whether or not it is evidenced by any Contract; (b) any note receivable; or (c) any other receivable or right to payment of any nature.

1.2          “Asset” means any real, personal, mixed, tangible or intangible property of any nature including Cash Assets, prepayments, deposits, escrows, Accounts Receivable, Tangible Property, Real Property, Software, Contract Rights, Intangibles and goodwill, and claims, causes of action and other legal rights and remedies.

1.3          “Cash Asset” means any cash on hand, cash in bank or other accounts, readily marketable securities, and other cash-equivalent liquid assets of Tibbetts.

1.4          “Consent” means any consent, approval, order or authorization of, or any declaration, filing or registration with, or any application, notice or report to, or any waiver by, or any other action (whether similar or dissimilar to any of the foregoing) of, by or with, any Person, which is necessary in order to take a specified action or actions in a specified manner and/or to achieve a specified result.

1.5          “Contract” means any written or oral contract, agreement, instrument, order, arrangement, commitment or understanding of any nature including sales orders, purchase orders, leases, subleases, data processing agreements, maintenance agreements, license agreements, sublicense agreements, loan agreements, promissory notes, security agreements, pledge agreements, deeds, mortgages, guaranties, indemnities, warranties, employment agreements, consulting agreements, sales representative agreements, joint venture agreements, buy-sell agreements, options or warrants.

1.6          “Contract Right” means any right, power or remedy of any nature under any Contract including rights to receive property or services or otherwise derive benefits from the payment, satisfaction or performance of another party’s Obligations, rights to demand that another party accept property or services or take any other actions, and rights to pursue or exercise remedies or options.

1.7          “Employee Benefit Plan” “Employee Benefit Plan” means any employee benefit plan as defined in Section 3(3) of ERISA, any “voluntary employees’ beneficiary association” within the meaning of Section 501(c)(9) of the Code, “welfare benefit fund” within the meaning of Section 419 of the Code, or “qualified asset account” within the meaning of Section 419A of the Code, and any other plan, program, policy or arrangement for or regarding bonuses, commissions, incentive compensation, severance, vacation, deferred compensation, pensions, profit sharing, retirement,

 

2

 

 

 

 

payroll savings, stock options, stock purchases, stock awards, stock ownership, phantom stock, stock appreciation rights, equity compensation, medical/dental expense payment or reimbursement, disability income or protection, sick pay, group insurance, self insurance, death benefits, employee welfare or fringe benefits of any nature, including those benefiting retirees or former employees.

1.8          “Encumbrance” means any lien, superlien, security interest, pledge, right of first refusal, mortgage, easement, covenant, restriction, reservation, conditional sale, prior assignment, or other encumbrance, claim, burden or charge of any nature.

1.9          “Entity” means any corporation (including any non-profit corporation), general partnership, limited partnership, limited liability partnership, joint venture, estate, trust, company (including any company limited by shares, limited liability company or joint stock company), firm, society or other enterprise, association, organization or entity.

1.10       “Environmental Laws” means all applicable Laws (including interpretive letters, guidance documents, consent decrees and administrative orders) relating to the protection of public health and safety and/or protection of the environment including those governing the use, generation, handling, storage and disposal or remediation of Hazardous Substances, and those pertaining to environmental compliance and permitting, all as amended.

1.11       “ERISA” means the Employee Retirement Income Security Act of 1974, as amended, and all rulings and regulations promulgated thereunder.

1.12       “ERISA Affiliate ” means any entity, trade or business (whether or not incorporated) that is part of the same controlled group with, common control with, part of an affiliated service group with, or part of another arrangement that includes, Tibbetts or any ERISA Affiliate within the meaning of Code Section 414(b), (c), (m) or (o).

1.13       “Escrow Account” means the account set up pursuant to the Escrow Agreement.

1.14       “Escrow Agent” means the bank or trust company of national reputation to be selected by IntriCon to be the escrow agent under the Escrow Agreement, with such bank or trust company to be reasonably acceptable to the Seller.

1.15       “Escrow Agreement” means the Escrow Agreement in the form attached hereto as Exhibit 1.15 .

1.16       “GAAP” means generally accepted accounting principles under current United States accounting rules and regulations, consistently applied.

1.17       “Governmental Body” means any: (a) nation, principality, republic, state, commonwealth, province, territory, county, municipality, district or other jurisdiction of any nature; (b) federal, state, local, municipal, foreign or other government; (c) governmental or quasi-governmental authority of any nature (including any

 

3

 

 

 

 

governmental division, subdivision, department, agency, bureau, branch, office, commission, council, board, instrumentality, officer, official, representative, organization, unit, body or Entity and any court or other tribunal); (d) multi-national organization or body; or (e) individual, Entity or body exercising, or entitled to exercise, any executive, legislative, judicial, administrative, regulatory, police, military or taxing authority or power of any nature.

1.18       “Hazardous Substances” means any substance, waste, contaminant, pollutant or material that is subject to regulation by Environmental Law or that has been determined by any Governmental Body to be capable of posing a risk of injury or damage to health, safety, property or the environment including (a) all substances, wastes, contaminants, pollutants and materials defined, designated or regulated as hazardous, dangerous or toxic pursuant to any Law, and (b) asbestos, polychlorinated biphenyls, petroleum, petroleum products and urea formaldehyde, and mold.

1.19       “including” means including but not limited to.

1.20       “Insurance Policy” means any public liability, product liability, general liability, comprehensive, property damage, vehicle, life, hospital, medical, dental, disability, worker’s compensation, key man, fidelity bond, theft, forgery, errors and omissions, directors’ and officers’ liability, or other insurance policy of any nature.

1.21       “Intangible” means any name, corporate name, domain name, fictitious name, trademark, trademark registration, trademark application, service mark, service mark registration, service mark application, trade name, brand name, product name, slogan, symbol, trade dress, trade secret, know-how, patent, patent application, copyright, copyright registration, copyright application, website, design, logo, formula, invention, product, technology, written work, visual work, audio work, multimedia work, database, information or data created or maintained in any database, idea, concept, method, process, discovery, Software, or other intangible asset of any nature, whether in use, operational, active, under development or design, non-operative, or inactive, owned, distributed, marketed, maintained, supported, used, licensed or otherwise held for use by, or licensed to or with respect to which rights are granted to, a Person, whether arising under statutory or common law in any jurisdiction or otherwise, and including the goodwill of the business symbolized by and associated with any of the foregoing, and any and all Intellectual Property Rights in and to the foregoing.

1.22       “Intellectual Property Rights” means any and all intellectual property rights and industrial property rights (throughout the universe, in all media, now existing or created in the future, and for the entire duration of such rights) arising under statutory or common law, contract, or otherwise, and whether or not perfected, in any Intangible including all (a) patents, reissues and reexamined patents, and patent applications, whenever filed and wherever issued, and all priority rights resulting from such applications; (b) rights associated with works of authorship, including copyrights, moral rights, copyright applications, copyright registrations, and rights to prepare derivative works; (c) rights relating to the protection of trade secrets and confidential information; (d) rights in trademarks, service marks, trade names, logos, symbols, certification

 

4

 

 

 

 

marks, collective membership marks, and the like and registrations and applications therefor; (e) rights analogous to those set forth in this definition and any and all other proprietary rights relating to Intangible property; (f) divisions, continuations, continuations-in-part, substitutes, renewals, reissues and extensions of the foregoing (as and to the extent applicable) now existing, hereafter filed, issued, or acquired; and (g) rights to sue for past, present, and future infringement of any and all such intellectual property rights and industrial property rights.

1.23       “Judgment” means any order, writ, injunction, citation, award, decree or other judgment of any nature of any Governmental Body.

1.24       “to the knowledge of Tibbetts” and similar phrases mean the actual knowledge, implied knowledge or belief of any of the Principal Shareholders or any of the Persons set forth on Schedule 1.24. For this purpose, “implied knowledge” means all information available in the books, records and files of Tibbetts and all information that any of such persons should have reasonably known in the course of operating and managing the business and affairs of Tibbetts.

1.25       “Law” means any provision of any foreign, federal, state or local law, statute, ordinance, charter, constitution, treaty, code, rule, regulation or guideline, including common law.

1.26       “Obligation” means any debt, liability or obligation of any nature, whether secured, unsecured, recourse, nonrecourse, liquidated, unliquidated, accrued, absolute, fixed, contingent, ascertained, unascertained, known, unknown or otherwise.

1.27       “Off-the-Shelf Software” shall mean the following: ready-to-use, pre-packaged Software which is (i) commercially available to the public, and (ii) not embedded in or bundled with any of the products or services provided by Tibbetts.

1.28       “Permit” means any license, permit, approval, waiver, order, authorization, security clearance, right or privilege of any nature, granted, issued, approved or allowed by any Governmental Body.

1.29       “Person” means any individual, Entity or Governmental Body.

1.30       “Proceeding” means any demand, claim, suit, action, litigation, investigation, notice of violation, arbitration, administrative hearing or other proceeding of any nature.

1.31       “Real Property” means any real estate, land, building, condominium, town house, structure or other real property of any nature, all shares of stock or other ownership interests in cooperative or condominium associations or other forms of ownership interest through which interests in real estate may be held, and all appurtenant and ancillary rights thereto including easements, covenants, water rights, sewer rights and utility rights.

 

5

 

 

 

 

1.32       “ Reportable Transaction ” shall have the meaning set forth in Treasury Regulation Section 1.6011-4(b).

1.33        “Shareholders” means the holders of the Common Stock, $1.00 par value per share, of Tibbetts.

1.34       “Software” means any computer program, operating system, applications system, firmware or software of any nature, whether operational, under development or inactive including all object code, source code, comment code, algorithms, menu structures or arrangements, icons, operational instructions, scripts, commands, syntax, screen designs, reports, designs, concepts, technical manuals, test scripts, user manuals and other documentation therefor, whether in machine-readable form, programming language or any other language or symbols, and whether stored, encoded, recorded or written on disk, tape, film, memory device, paper or other media of any nature and all data bases necessary or appropriate to operate any such computer program, operating system, applications system, firmware or software.

1.35       “Tangible Property” means any furniture, fixtures, leasehold improvements, vehicles, office equipment, computer equipment, other equipment, machinery, tools, forms, supplies or other tangible personal property of any nature.

1.36       “ Tax” means (a) any foreign, federal, state or local income, earnings, profits, gross receipts, franchise, capital stock, net worth, sales, use, value added, occupancy, general property, real property, personal property, intangible property, transfer, fuel, excise, payroll, withholding, unemployment compensation, social security, retirement or other tax of any nature; (b) any foreign, federal, state or local organization fee, qualification fee, annual report fee, filing fee, occupation fee, assessment, sewer rent or other fee or charges of any nature; or (c) any deficiency, interest or penalty imposed with respect to any of the foregoing.

1.37       “Tax Return ” means all federal, state, local, foreign and other Tax returns and reports, information returns, statements, declarations, estimates, schedules, notices, notifications, forms, elections, certificates or other documents Tibbetts is required to file or submit to any Governmental Body with respect to the determination, assessment, collection or payment of any Tax or in connection with the administration, implementation or enforcement of or compliance with any Law relating to any Tax.

SECTION 2.             THE TRANSACTION

2.1          Sale and Purchase of Specified Assets . On the Closing Date (as defined in Section 10.1), effective to the fullest extent possible at 12:01 a.m. EST on the Effective Date and subject to the other terms and conditions of this Agreement, Seller shall sell, transfer, assign and convey to Buyer, and Buyer shall purchase, all right, title and interest in and to all of the Specified Assets (as defined in Section 2.1.1) free and clear of any Encumbrances, and Seller shall assign to Buyer, and Buyer shall assume, the Specified Liabilities of Seller (as defined in Section 2.1.2).

 

6

 

 

 

 

2.1.1.       Specified Assets . The “Specified Assets” means all Assets of Seller as of the Effective Date, wherever located and whether or not reflected on Seller’s books and records including the following Assets (but excluding those Assets specifically excepted below (collectively, the “Excluded Assets”)):

(a)          All Software owned or jointly owned by Seller or under development by Seller or Seller and any joint development partner and/or customer.

(b)          All Intangibles and Intellectual Property Rights owned by Seller or under development by Seller.

(c)          All of Seller’s Cash Assets, Accounts Receivable and other current assets but excluding all prepaid premiums and other prepayments and deposits with respect to Seller’s Employee Benefit Plans and any other Contracts not purchased by Buyer. Buyer shall not acquire Seller’s bank and checking accounts although the Cash Assets held in such accounts shall be wire transferred to Buyer as provided in Section 10.2.18.

(d)          All of Seller’s Tangible Property but excluding all Real Property (other than fixtures located thereon) owned by the Seller.

(e)          All of Seller’s Contract Rights under the Specified Contracts (as defined in Section 4.15(a)), but excluding Contract Rights under (1) this Agreement and any other Contracts entered into by Seller with Buyer in connection with the transactions contemplated by this Agreement; (2) Contracts that constitute or evidence Employee Benefit Plans of Seller; (3) all Contracts relating to the acquisition of Seller or any of Seller’s predecessors or affiliates, provided that the Specified Assets shall include the rights of Seller with respect to all noncompetition, nondisclosure and other restrictive covenants made for the benefit of Seller or its predecessors in any such Contract; and (4) all Contract Rights under any Specified Contracts requiring a material Consent that is not obtained on or before the Closing Date (“Non-Assigned Contracts”); provided that, once such material Consent is obtained, the Contract Rights under such Specified Contract shall be deemed, automatically and without further action by the parties, to be included in the Specified Assets as of the date such material Consent is delivered to Buyer.

(f)           All rights under all Insurance Policies owned, held or maintained by Seller or any of its predecessors, but excluding (1) all rights under Insurance Policies that constitute group medical, dental, hospitalization, health, disability and other Employee Benefit Plans of Seller; and (2) the rights of Seller under its Insurance Policies pertaining exclusively to actual or potential claims or losses that remain Seller’s responsibility after the Effective Date.

(g)          All transferable rights under all Permits granted or issued to Seller or otherwise held by Seller.

 

7

 

 

 

 

(h)          All of Seller’s rights with respect to telephone numbers, telephone directory listings and advertisements, and all of Seller’s goodwill.

(i)           All of Seller’s customer lists, prospect lists, supplier lists, data bases, computer media, sales and marketing materials, invoices, correspondence, files, books and records, but excluding (1) Seller’s corporate minute books, stock books and related organizational documents; and (2) Seller’s files, books and records relating exclusively to Seller’s Assets not included in the Specified Assets or to Seller’s liabilities not included in the Specified Liabilities.

(j)           All of Seller’s claims, causes of action and other legal rights and remedies, whether or not known as of the Effective Date, relating to Seller’s ownership of the Specified Assets and/or the operation of Seller’s business, but excluding causes of action and other legal rights and remedies of Seller (1) against Buyer with respect to the transactions contemplated by this Agreement; or (2) relating exclusively to Seller’s Assets not included in the Specified Assets or to Seller’s liabilities not included in the Specified Liabilities.

(k)          The share certificates evidencing Tibbetts’ ownership in Global Coils Sagl (“Global Coils”).

2.1.2.       Specified Liabilities of Seller . The “Specified Liabilities” of Seller means the following specifically described liabilities of Seller as of the Effective Date: (A) Seller’s accounts payable as of the Effective Date but only to the extent that such payables arise in the ordinary course of business consistent with past practice and that the incurrence or existence of such liability does not constitute a breach or failure of, or a default under, any representation, warranty, covenant or other provision of this Agreement (including those of Section 4.9) (Seller’s accounts payable as of the date of this Agreement are set forth on Schedule 2.1.2(A) ); (B) the liabilities of Seller under those Specified Contracts (as defined in Section 4.15(a)) to which Seller is a party, provided that the incurrence or existence of any such liability or Contract does not constitute a breach or failure of, or a default under, any representation, warranty, covenant or other provision of this Agreement (including those of Section 4.9), but only to the extent that such liabilities arise in the ordinary course of performing such Specified Contracts, in accordance with their respective terms, after the Effective Date and are not due to any breach or default by Seller under any such Specified Contract; and (C) accrued but unpaid compensation and vacation pay as of the Effective Date (but excluding benefits under Seller’s Employee Benefits Plans and excluding severance and termination benefits), which accruals are properly reflected as liabilities on the Closing Balance Sheet and are consistent with Buyer’s past practices (collectively, the "Assumed Employee Liabilities") (Seller’s accrued but unpaid compensation and vacation pay as of the date of this Agreement is set forth on Schedule 2.1.2(B)) . Notwithstanding the foregoing, the Specified Liabilities of Seller shall not include any other liability or Obligation of Seller, whether or not incurred in the ordinary course or reflected on the Closing Balance Sheet, including any liability or Obligation under (1) this Agreement or any other Contracts entered into by Seller with Buyer in connection with the transactions contemplated by this Agreement; (2) any

 

8

 

 

 

 

Contracts that constitute or evidence Employee Benefit Plans of Seller; (3) any Contracts relating to the formation or acquisition of Seller or any of Seller’s predecessors; (4) any current, long-term or deferred liabilities for any Taxes; (5) any current or long-term notes payable and all accrued interest with respect thereto, other than any capitalized lease for any of the Specified Assets; (6) any Obligation for borrowed funds or bank debt; (7) any liabilities for overdrafts or any other liabilities with respect to bank accounts; (8) any intercompany payables or guarantees of indebtedness by an affiliate of Seller; (9) any liabilities relating to or arising under Environmental Laws with respect to or in connection with Seller’s conduct of the business or the Assets and any violations of Environmental Laws relating to the Tibbetts Real Property; and (10) any accrued expenses with respect to Seller’s Insurance Policies.

2.2            No Other Liabilities . Notwithstanding any other provisions of this Agreement, Buyer shall not purchase the Specified Assets subject to, and Buyer shall not in any manner assume or be liable or responsible for any Obligations of Seller other than the Specified Liabilities. All Obligations of Seller other than the Specified Liabilities shall remain the sole responsibility of Seller, and Seller shall pay and discharge such Obligations in full as the same become due. Without limiting the generality of the foregoing, and in addition to the liabilities excluded from the Specified Liabilities under Section 2.1.2, Buyer shall not in any manner assume or be liable or responsible for, or acquire any Assets of Seller subject to, any of the following Obligations of Seller, whether or not reflected on the Closing Balance Sheet:

2.2.1.     Affiliates . Any Obligation to a Shareholder or any current or former member, shareholder partner, director or controlling Person of Seller, or to any other Person affiliated with Seller, its affiliates and predecessors including Obligations for dividends declared but not paid.

2.2.2.     Taxes . Any Obligation for any Tax including, (a) any Tax with respect to Seller’s business operations; (b) any Tax with respect to the ownership, possession, purchase, lease, sale, disposition or use of any of Seller’s Assets at any time on or before the Effective Date; and (c) any Tax resulting from the sale of the Specified Assets to Buyer or otherwise resulting from the transactions contemplated by this Agreement.

2.2.3.     Post-Closing . Any Obligation that is incurred or arises after the Effective Date, or that relates to any Proceeding of Seller or other event that occurs or circumstances that exist after the Effective Date.

2.2.4.     Transaction Related . Any Obligation that was or is incurred in connection with the negotiation, execution or performance of this Agreement and any other Contracts entered into between Buyer and Seller, or among Seller, Buyer and other parties, in connection with the transactions contemplated by this Agreement.

2.2.5.     Defaults . Any Obligation, the incurrence or existence of which constitutes or will constitute a breach or failure of, or a default under, any

 

9

 

 

 

 

representation, warranty, covenant or other provision of this Agreement including any Obligation, whether or not known to Seller, that has not been disclosed to Buyer in writing in this Agreement or the Schedules and Exhibits hereto.

2.2.6.      Employees . Other than the Assumed Employee Liabilities, any Obligation to any or all employees of Seller including Obligations under Seller’s Employee Benefit Plans, Obligations under Seller’s Group Insurance Plans and Obligations for severance pay and other termination benefits.

2.2.7.      Environmental . Any obligation arising under, in connection with or related to Environmental Laws or resulting from Seller’s failure to comply with such Laws.

2.2.8.      Infringement . Any Obligation arising in connection with or related to Seller’s (or any of Seller’s predecessors’) infringement or alleged infringement of any Software or Intangible of any Person.

2.2.9.      Encumbrances . Any Encumbrance on or affecting Seller’s Assets including the Specified Assets.

2.2.10.    Debt . Any Obligations for borrowed money or other debt (including debt owed to affiliates or third parties).

2.2.11.    Products and Services . Any Obligations for any products or components thereof manufactured or shipped, or any services provided, by Tibbetts, in whole or in part, prior to the Effective Date.

2.3            Seller’s Employees . Subject to the condition that the Closing hereunder occurs, Buyer shall offer to employ, as of the Effective Date, the Key Employees (as defined in Section 9.8) and such other employees as Buyer shall determine. The employment of the Key Employees shall be on the terms set forth in the Key Employment Agreements (as defined in Section 9.8) and the employment of any other employees will be on an “at will” basis for salaries or wages consistent with the levels in effect as of the Closing Date and with recognition of their original date of hire with Seller. Buyer does not assume, and Seller shall be fully responsible for the payment of, any severance or other benefits related to or payable upon the termination of any of Seller’s employees including any employees offered employment by Buyer who fail to accept such employment offer. Seller shall cooperate with Buyer’s efforts to employ and retain any such employees. Seller shall provide to Buyer accurate and complete copies of the personnel records of Seller’s employees at least thirty (30) days before the Closing Date. Seller shall be responsible for compliance with all Laws related to the termination by Seller of Seller’s employees.

SECTION 3.             PURCHASE PRICE AND CLOSING FINANCIAL STATEMENTS

3.1            Purchase Price . Subject to the adjustments described in this Section 3, the total consideration for the Sale shall be $4.5 million and the assumption of the

 

10

 

 

 

 

Specified Liabilities (the “Purchase Price”), the cash portion of which shall be payable as follows:

(a)         a cash payment (“Closing Payment”) payable by Buyer to Seller at Closing (as defined in Section 10.1) in the amount of $3.975 million, less any amounts that are required to be sent to the Maine Revenue Service pursuant to the Tax Clearance Letter (as defined in Section 6.11);

(b)         a cash payment in the amount of $50,000 (the "Net Total Tangible Assets Escrow Funds") payable by Buyer into the Escrow Account at Closing, with such Net Total Tangible Assets Escrow Funds to be decreased after Closing by the amount, if any, of the Net Total Tangible Assets Adjustment (as defined in Section 3.3.3), payable in accordance with the terms of Section 3.3 and the Escrow Agreement.

(c)         a cash payment in the amount of $475,000 (“Indemnity Escrow Funds”) payable by Buyer into the Escrow Account at Closing, with such Indemnity Escrow Funds to be decreased after Closing by the amount, if any, of the Indemnification Matters Adjustment (as defined in Section 3.4), payable in accordance with the terms of Section 3.4 and the Escrow Agreement.

The Purchase Price shall be allocated among the Specified Assets and the noncompetition covenants set forth in Section 12 in the manner to be set forth on Exhibit 3.1 (the “Purchase Price Allocation”) to be agreed upon by IntriCon and Tibbetts prior to Closing. The parties shall file, and shall cause their respective affiliates to file, all Tax Returns and statements, forms and schedules in connection therewith in a manner consistent with the Purchase Price Allocation and shall take no position inconsistent therewith.

3.2            Closing Balance Sheet . IntriCon shall prepare or cause to be prepared a balance sheet of Seller, prepared in accordance with GAAP (as historically applied by Tibbetts), as of the Effective Date (“Closing Balance Sheet”). IntriCon shall deliver to Seller, within ninety (90) days after the Effective Date, the Closing Balance Sheet.

3.3            Net Total Tangible Assets Adjustment . The Purchase Price shall be adjusted based upon the Net Total Tangible Assets as of the Effective Date, as follows:

3.3.1.     Definition . "Net Total Tangible Assets" means (a) the aggregate net book value of all Specified Assets reflected on the Closing Balance Sheet, minus (b) all Intangibles reflected on the Closing Balance Sheet, including but not limited to capitalized Software, goodwill and other purchase price intangibles arising from the acquisition by Tibbetts (or its affiliates or predecessors) of any parts of Tibbetts’ Business minus (c) the aggregate full face amount of all Specified Liabilities reflected on the Closing Balance Sheet minus (d) the net book value (which shall be reduced by the related liability) of any Assets leased under capitalized leases, minus (d) the net book value of any property, plant and equipment whether or not reflected on the Closing Balance Sheet, the acquisition or lease of which by Tibbetts constituted a breach or

 

11

 

 

 

 

violation of, or a default under, any representation, warranty, covenant or other provision of this Agreement (including, but not limited to, those of Section 4.8).

3.3.2.     Net Total Tangible Assets Statement . IntriCon shall (a) prepare a statement (“Net Total Tangible Assets Statement”) which shall include a clear and detailed calculation showing each separate component identified in Section 3.3.1; and (b) deliver the Net Total Tangible Assets Statement to Seller at the same time as the Closing Balance Sheet is delivered to Seller under Section 3.2. Seller shall notify IntriCon of any objections to the Net Total Tangible Assets Statement (which may include objections to the Closing Balance Sheet) within thirty (30) days after Seller receives the Closing Balance Sheet and the Net Total Tangible Assets Statement. If Seller does not notify IntriCon of any such objections by the end of that thirty day period, then the Net Total Tangible Assets Statement, as prepared by IntriCon, shall be considered final on the last day of that thirty day period. If Seller does notify IntriCon of any such objections by the end of that thirty day period, and IntriCon and Seller are unable to resolve their differences within fifteen (15) days thereafter, then the disputed items on the Net Total Tangible Assets Statement shall be reviewed, as soon as possible, at Seller’s expense, by accountants designated by Seller and, at IntriCon’s expense, by accountants designated by IntriCon. Seller and IntriCon shall instruct their respective accountants to, in good faith, use their best efforts to resolve such disputed items to their mutual satisfaction and to deliver a final Net Total Tangible Assets Statement to Seller and IntriCon as soon as possible. If the parties’ accountants are unable to resolve any such disputed items within thirty (30) days after receiving such instructions, then the remaining disputed items shall be submitted to an independent public accounting firm mutually selected by Tibbetts and IntriCon (“Arbiter”), for resolution, with the costs thereof paid fifty percent (50%) by Seller and fifty percent (50%) by IntriCon, and the Arbiter shall be instructed to deliver a final Net Total Tangible Assets Statement to Seller and IntriCon as soon as possible.

3.3.3.     Net Total Tangible Assets Adjustment and Payment of the Net Total Tangible Assets Escrow Funds . The Purchase Price shall be decreased by the amount, if any, that Tibbetts’ Net Total Tangible Assets as of the Effective Date, as finally determined in accordance with Section 3.3.2 (“Final Net Total Tangible Assets”), is less than $2,369,000 (the “Net Total Tangible Assets Adjustment”); provided, however, that the Net Total Tangible Assets Adjustment shall not exceed $50,000. If the Net Total Tangible Assets Adjustment is less than the Net Total Tangible Assets Escrow Funds, then the Net Total Tangible Assets Adjustment shall be paid to IntriCon from the Net Total Tangible Assets Escrow Funds and the balance of the Net Total Tangible Assets Escrow Funds in excess of the Net Total Tangible Assets Adjustment shall be paid to Seller. If the Net Total Tangible Assets Adjustment equals or exceeds the Net Total Tangible Assets Escrow Funds, then the full amount of the Net Total Tangible Assets Escrow Funds shall be paid to IntriCon. If there is no Net Total Tangible Assets Adjustment, then the Net Total Tangible Assets Escrow Funds shall be paid to Seller. Any payment under this Section 3.3.3 shall be made within fifteen (15) business days after the Net Total Tangible Assets Statement is finalized in accordance with Section 3.3.2.

 

12

 

 

 

 

3.4          Indemnification Matters Adjustment . The Purchase Price shall be reduced by the full aggregate amount (the “Indemnification Matters Adjustment”) owed to IntriCon or Buyer as a result of any Indemnification Matters (as defined in Section 13.4) arising from time to time after Closing. Any Indemnification Matters Adjustment owed to IntriCon or Buyer shall be paid first from the Indemnity Escrow Funds held under the Escrow Agreement and the Seller shall pay to IntriCon or Buyer the amount by which any Indemnification Matters Adjustment exceeds the total remaining Indemnity Escrow Funds. Any Indemnification Matters Adjustment that occurs after the exhaustion or release of the Indemnity Escrow Funds shall be paid by the Seller (to the extent arising under Section 31.1) or the Principal Shareholders (to the extent arising under Section 13.2). The Escrow Agreement shall provide that: (a) $100,000 (less the sum of any Indemnification Matters paid or pending) of the Indemnity Escrow Funds shall be released to the Seller 12 months after the Closing Date and (b) the balance remaining in the Indemnity Escrow Funds (less the sum of any Indemnification Matters then pending) shall be released to the Seller 18 months after the Closing Date.

3.5          Currency and Method of Payment . All dollar amounts stated in this Agreement are stated in United States currency, and all payments required under this Agreement shall be paid in United States currency. All payments required under this Agreement shall be made as follows: (a) any payment may be made by wire transfer of immediately available United States federal funds; (b) any payment exceeding $1,000,000 shall be made by wire transfer of immediately available United States federal funds; and (c) any payment not exceeding $1,000,000 may be made by ordinary check.

3.6          Original Issue Discount . For purposes of applying Sections 1272-1274 of the Internal Revenue Code of 1986, as amended (the “Code”), to any portion of the Purchase Price paid after the Closing Date, each payment not otherwise bearing interest at a stated rate shall be deemed to include interest at the highest applicable federal rate for the three month period ending on the last day of the month in which the Closing Date occurs.

3.7          Letter of Credit .       Seller intends to obtain a non-recourse loan (the “Real Property Loan”) secured by real estate located at 5 Colcord Avenue and 18 Colcord Avenue, Camden, Maine (consisting of four office/industrial buildings located on approximately 5.25 acres) (the “Pledged Real Property”) from a bank or commercial lender to be selected by Seller (“Lender”). At Closing, Buyer shall provide Lender a letter of credit (the "Real Property Letter of Credit") in the amount of $25,000 as additional collateral for the Real Property Loan on the following terms: (a) in the event that the aggregate gross proceeds (before payment of transfer taxes, commissions, liens, loans, Encumbrances and other amounts in connection with the sale or transfer) (“Aggregate Gross Proceeds”) from the sale of all of the Pledged Real Property by the Seller or the Lender after Closing to a good faith, bona fide purchaser(s) is less than the lesser of (i) $1.0 million or (ii) the amount then owed under the Real Property Loan, the Lender may draw down on the Letter of Credit in the amount of such shortfall; (b) no draw may be made on the Letter of Credit until all of the Pledged Real Property is sold; (c) in the event that any parcel of Pledged Real Property is sold to a Shareholder or an

 

13

 

 

 

 

affiliate or associate of a Shareholder or Seller, the Aggregate Gross Proceeds shall be deemed to be greater of the amount paid by such purchaser or the fair market value of such Pledged Real Property as determined by a licensed appraiser approved by IntriCon and Seller; and (d) the Letter of Credit shall expire 18 months after the Closing Date, and shall be released if all of the Pledged Real Property is sold before such expiration date. In the event that Lender draws down on the Letter of Credit, the amount so drawn shall be deemed to increase the Purchase Price.

SECTION 4.    REPRESENTATIONS AND WARRANTIES OF TIBBETTS AND PRINCIPAL SHAREHOLDERS

Tibbetts and the Principal Shareholders delivered to IntriCon and Buyer disclosure schedules (the “Disclosure Schedules”) consisting of numbered schedules corresponding to the numbered subsections of this Section 4 and setting forth, among other things, items the disclosure of which is necessary or appropriate either in response to an express disclosure requirement contained in a provision of this Section 4 or as an exception to one or more representations or warranties contained in this Section 4 (with specific reference to the particular subsection to which the information set forth in such Disclosure Schedule relates). The inclusion of an item in the Disclosure Schedules as an exception to a representation or warranty shall not be deemed an admission by Tibbetts or the Principal Shareholders that such item represents a material exception to such representation or warranty.

Knowing that IntriCon and Buyer are relying thereon, Tibbetts and each Principal Shareholder, jointly and severally, represents and warrants to IntriCon and Buyer, as set forth below in this Section 4.

4.1            Organization .

(a)         Tibbetts is a corporation, duly organized, validly existing and in good standing under the laws of the State of Maine. Tibbetts possesses the full corporate power and authority to enter into and perform its obligations under this Agreement. Tibbetts possesses the full corporate power and authority: (i) to own and use its Assets in the manner in which such Assets are currently owned and used and in the manner in which Tibbetts currently proposes to own and use such Assets, and (ii) to conduct its business as such business is currently being conducted and as Tibbetts currently proposes to conduct such business. Tibbetts is duly qualified or registered to do business, and in good standing, in each jurisdiction where such qualification or registration is required due to its conduct of business or ownership of property, except where the failure to qualify or register would not have a material adverse affect on Tibbetts, its Business, Assets, operations or condition (financial or otherwise).

(b)         Except as set forth on Schedule 4.1 , Tibbetts does not have any subsidiaries and/or own any securities of any corporation or any other interest in any Person. Except as set forth on Schedule 4.1, Tibbetts has never acquired or succeeded to all or any material portion of the Assets or businesses of any other Person, and there is no other Person that may be deemed to be a predecessor of Tibbetts.

 

14

 

 

 

 

(c)          Schedule 4.1 sets forth, for Tibbetts: (i) its exact legal name; (ii) its corporate business form and jurisdiction and date of formation; (iii) its federal employer identification number; (iv) its headquarters address, telephone number and facsimile number; (v) its directors and officers, indicating all current title(s) of each individual; (vi) its registered agent and/or office in its jurisdiction of formation (if applicable); (vii) all foreign jurisdictions in which it is qualified or registered to do business, the date it so qualified or registered, and its registered agent and/or office in each such jurisdiction (if applicable); (viii) all fictitious, assumed or other names of any type that are registered or used by it or under which it has done business at any time since its date of incorporation; and (ix) any name changes, recapitalizations, mergers, reorganizations or similar events since its date of formation.

(d)         Accurate and complete copies of the articles of incorporation, bylaws and other organizational and related documents of Tibbetts, each as amended to date, and all Contracts relating to the acquisition or formation of Tibbetts (or its affiliates or predecessors), have been delivered or made available to IntriCon.

4.2            Authority; Non-Contravention.

(a)         Tibbetts has the full right, power and authority to enter into, execute, deliver and perform its obligations under this Agreement, and the execution, delivery and performance of this Agreement and the consummation of the transactions contemplated hereby by Tibbetts has been duly authorized by all necessary corporate actions. Each Principal Shareholder has the absolute and unrestricted right, power and authority and capacity to enter into, execute, deliver and perform all of his or its obligations under this Agreement and under each other agreement, document or instrument referred to in or contemplated by this Agreement to which such Principal Shareholder is or is to become a party. This Agreement constitutes the legal, valid and binding agreement of Tibbetts and each Principal Shareholder, enforceable against Tibbetts and each Principal Shareholder in accordance with its terms.

(b)         Except as set forth on Schedule 4.2 , neither the execution, delivery and performance of this Agreement nor the consummation or performance of any of the transactions contemplated hereby by Tibbetts and each Principal Shareholder will directly or indirectly (with or without notice or lapse of time):

(i)                    contravene, conflict with or result in a violation of (a) any of the provisions of the articles or certificate of incorporation, bylaws or other organizational documents of Tibbetts, or (b) any resolution adopted by the shareholders, board of directors or any committees thereof of Tibbetts;

(ii)                   contravene, conflict with or result in a violation of, or give any Governmental Body or other Person the right to challenge any of the transactions contemplated hereby or to exercise any remedy or obtain any relief under, any Law or any Judgment to which Tibbetts, or any of the Assets owned or used by Tibbetts, is subject;

(iii)                  contravene, conflict with or result in a violation of any of the terms or requirements of, or give any Governmental Body the right to revoke,

 

15

 

 

 

withdraw, suspend, cancel, terminate or modify, any Permit that is held by Tibbetts or that otherwise relates to any of the businesses of Tibbetts or to any of the Assets owned or used by Tibbetts;

(iv)                  contravene, conflict with or result in a violation or breach of, or result in a default under, any provision of, or any Specified Contract (as defined in Section 4.15) or Contract to which Tibbetts or a Principal Shareholder are a party or by which any of them is bound;

(v)                   result in the imposition or creation of any Encumbrance upon or with respect to any Asset owned or used by Tibbetts; or

(vi)                  result in, or increase the likelihood of, the disclosure or delivery to any escrow holder or other Person of the source code for or relating to any past, present or future product of Tibbetts, or any portion or aspect of such source code, or any proprietary information or algorithm contained in or relating to any such source code.

(c)         Except as set forth on Schedule 4.2 , neither Tibbetts nor any Principal Shareholder is required to make any filing with or give any notice to, or to obtain any Consent from, any Person in connection with the execution and delivery of this Agreement or the consummation or performance of any of the transactions contemplated hereby

(d)         Under the Maine Business Corporation Act and Tibbetts articles of incorporation and bylaws, the approval of this Agreement and the Transactions requires the affirmative approval of a majority of all the votes entitled to be cast on the Agreement and the Transactions by the Shareholders.

4.3            Capital Stock and Ownership .

(a)          Schedule 4.3 sets forth the authorized capital stock of Tibbetts, including the type of shares authorized, the par value per share and the number of each type of shares that are issued and outstanding. Schedule 4.3 contains an accurate and complete list of: (i) the full legal names of all security holders of Tibbetts; (ii) the addresses of such holders’ respective current principal residences on file with Tibbetts; and (iii) the numbers of shares, type of shares and the amount which each such holder paid for the shares and the certificate numbers of the stock certificates representing such shares. Except as set forth on Schedule 4. 3, with respect to each Shareholder: (i) such Shareholder is the record holder and, to the knowledge of Tibbetts, beneficial owner of the shares of Tibbetts Stock set forth on Schedule 4.3 next to such Shareholder’s name (the “Shares”) and has good and valid title to the Shares, free and clear of any Encumbrances; (ii) the Shares are the only shares of the capital stock of Tibbetts, held by such Shareholder; (iii) such Shareholder has the ability to vote all of the Shares at any meeting of the shareholders of Tibbetts, or by written consent in lieu of any such meeting; and (iv) such Shareholder has not appointed or granted any proxy or entered into any agreement, contract, commitment or understanding with respect to any of the Shares. Except as set forth on Schedule 4.3 , Tibbetts has never authorized, offered, sold or issued any securities other than as set forth on Schedule 4.3 . Except as

 

16

 

 

 

 

set forth on Schedule 4.3 , there are no other record or, to the knowledge of Tibbetts, beneficial owners of any shares of Tibbetts Stock or any other securities of Tibbetts. Except for the shares listed on Schedule 4.3 , there were and currently are no other issued or outstanding shares of capital stock.

(b)         All of the issued and outstanding shares of capital stock of Tibbetts have been duly authorized and validly issued, and are fully paid and nonassessable. Except as set forth on Schedule 4.3 , there exists no right of first refusal or other preemptive right with respect to any of the Tibbetts Stock or any other securities of Tibbetts or the Business or Assets of Tibbetts.

(c)         All offerings, sales and issuances by any of Tibbetts of any shares of capital stock were conducted in compliance with all applicable federal and state securities Laws and all other applicable Laws.

(d)         Except as set forth on Schedule 4.3 , there is no:

(i)                    outstanding subscription, option, call, warrant or right (whether or not currently exercisable) to acquire any shares of the capital stock or other securities of Tibbetts;

(ii)                   outstanding security, instrument or obligation that is or may become convertible into or exchangeable for any shares of the capital stock or other securities of Tibbetts;

(iii)                  Contract under which Tibbetts is, is or may become obligated to sell or otherwise issue any shares of its capital stock or any other securities;

(iv)                  pending or previously asserted or, to the knowledge of Tibbetts, threatened claim by any Person to the effect that such Person is or was entitled to acquire or receive any shares of capital stock or any other securities of Tibbetts;

(v)                   condition or circumstance that may directly or indirectly give rise to or provide a basis for the assertion of a claim by any Person to the effect that such Person is or may be entitled to acquire or receive any shares of capital stock or other securities of Tibbetts or any of the Purchase Price.

(e)         Except as set forth on Schedule 4.3 , Tibbetts has never repurchased, redeemed or otherwise reacquired any shares of capital stock or other securities. All securities so reacquired by any of Tibbetts were reacquired in full compliance with the applicable provisions of all applicable Contracts and all applicable Laws.

4.4            Financial and Corporate Records .

(a)         Except as set forth in Schedule 4.4 , Tibbetts’ books and records are and have been properly prepared and maintained in form and substance adequate for preparing audited financial statements in accordance with GAAP, and such books

 

17

 

 

 

and records fairly and accurately reflect (i) all of Tibbetts’ Assets and Obligations and (ii) all of the Contracts and other transactions to which Tibbetts is or was a party or by which Tibbetts or the business or Assets of Tibbetts is or was affected.

(b)         Accurate and complete copies of the contents of Tibbetts’ minute books and stock books have been delivered or made available to IntriCon. Such minute books and stock books include (i) minutes of all meetings of the shareholders, members, partners, board of directors and any committees of the board of directors at which any material action was taken, which minutes accurately record all material actions taken at such meetings, (ii) accurate and complete written statements of all actions taken by the shareholders, members, partners, board of directors and any committees of the board of directors without a meeting, and (iii) accurate and complete records of the subscription, issuance, transfer and cancellation of all shares of capital stock and all other securities since the date of incorporation.

(c)         Tibbetts maintains internal control over financial reporting designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with GAAP and to provide a reasonable level of assurance for a company of Tibbetts’ size and type, that (i) transactions are executed with management’s authorization, (ii) transactions are recorded as necessary to permit preparation of the financial statements of Tibbetts and to maintain accountability for its Assets, (iii) access to Tibbetts’ Assets is permitted only in accordance with management’s authorization, (iv) the reporting of Tibbetts’ Assets is compared with existing Assets at regular intervals, and (v) accounts, notes and other receivables and inventory are recorded accurately, and proper and adequate procedures are implemented to effect the collection thereof on a current and timely basis.

(d)          Schedule 4.4 contains an accurate and complete list of all of Tibbetts’ bank accounts, other accounts, certificates of deposit, marketable securities, other investments, safe deposit boxes, lock boxes and safes, and the names of all officers, employees or other individuals who have access thereto or are authorized to make withdrawals therefrom or dispositions thereof.

4.5

Compliance with Laws; Permits .

(a)         Except as set forth on Schedule 4.5 : (i) Tibbetts is in full compliance with each Judgment and is in compliance, in all material respects, with each Law that is applicable to it or to the conduct of its business or the ownership or use of any of its Assets; (ii) Tibbetts has at all times been in full compliance with each Judgment or in compliance, in all material respects, with each Law that is or was applicable to it or to the conduct of any of its businesses or the ownership or use of any of its Assets; (iii) no event has occurred, and no condition or circumstance exists, that would reasonably be expected (with or without notice or lapse of time) to constitute or result in a violation by such Tibbetts of, or a failure on the part of such Tibbetts to comply, in all material respects, with, any Judgment or Law; and (iv) Tibbetts has not received, at any time, any notice or other communication (in writing or otherwise) from

 

18

 

 

 

 

any Governmental Body or any other Person regarding (A) any actual, alleged, possible or potential violation of, or failure to comply with, any Judgment or Law, or (B) any actual, alleged, possible or potential obligation on the part of such Tibbetts to undertake, or to bear all or any portion of or the cost of, any natural resource damages or cleanup or any remedial, corrective or response action of any nature.

(b)         Except as set forth on Schedule 4.5 , Tibbetts has obtained and holds all Permits required for the lawful operation of Tibbetts’ business as and where such business is presently conducted. All Permits held by Tibbetts are listed on Schedule 4.5 , and accurate and complete copies of such Permits have been delivered or made available to IntriCon. Tibbetts is in compliance in all material respects with the conditions and terms of all such Permits and there are no enforcement actions pending or, to the knowledge of Tibbetts, threatened that would affect the terms of such Permits.

4.6

Financial Statements .

(a)         Tibbetts’ fiscal year ends on the Saturday closest to September 30th of each year.

(b)         Tibbetts has delivered to IntriCon the following financial statements and related notes (the “Financial Statements”): (i) the audited balance sheets of Tibbetts as of September 30, 2006, October 1, 2005 and October 2, 2004 ; the audited statement of income of Tibbetts for the fiscal years ended September 30, 2006, October 1, 2005 and October 2, 2004; and  the audited statement of cash flows of Tibbetts for the fiscal years ended September 30, 2006, October 1, 2005 and October 2, 2004  (collectively, the “Audited Financial Statements”); and (ii) the unaudited balance sheet of Tibbetts (the “Latest Balance Sheet”) as of December 30, 2006 (the “Latest Balance Sheet Date”); the unaudited statement of operations of Tibbetts for the period from October 1, 2006 to December 30, 2006 and the unaudited statement of cash flows of Tibbetts for the period from October 1, 2006 to December 30, 2006 (collectively, the “Interim Financial Statements”).

(c)         The Financial Statements present fairly the financial position of Tibbetts as of the respective dates thereof and the results of operations of Tibbetts for the respective periods covered thereby. The Financial Statements have been prepared in accordance with GAAP. All of the Annual Financial Statements were audited by Baker, Newman, Noyes LLC, whose reports thereon are without qualification or explanatory paragraphs. All of adjustments that are necessary for a fair presentation of the Interim Financial Statements (consisting only of normal recurring adjustments) have been made.

4.7

Assets .

(a)         Tibbetts has delivered to IntriCon an accurate and complete list of all Assets of Tibbetts as reflected on the Latest Balance Sheet including (i) Cash Assets, itemized by bank or other account, showing cost and market value if different from cost; (ii) Accounts Receivable, showing customer names, individual invoice dates,

 

19

 

 

 

individual invoice amounts and allowances for doubtful accounts, or, in the case of earned but not billed receivables, customer names and individual dates on which the receivables are billable; (iii) summary categorical descriptions of other current Assets; (iv) summary categorical descriptions of Tangible Property, grouped as to type; and (v) Software and Intangibles, showing cost or amount capitalized, accumulated amortization and net book value. Without limiting the generality of the foregoing, all of Tibbetts’ inventory that is reflected on the Latest Balance Sheet: (A) has been determined in accordance with GAAP, was valued at the lower of cost or market value and on a basis consistent with that of prior years and (B) consists of items of a quality and quantity useable and saleable in the ordinary course of the business without markdown or discount, and is merchantable and fit for their particular purpose.

(b)          Schedule 4.7 accurately identifies all Assets that are being leased or licensed to Tibbetts.

(c)         Except as set forth on Schedule 4.7 , Tibbetts owns and has good, valid and marketable title to, all of its Assets that are purported to be owned by it and has the right to transfer all rights, title and interest in such Assets, free and clear of any Encumbrance.

(d)         Except for the Specified Assets, no other Assets are necessary to operate, or are material to the operation of, Tibbetts’ Business.

4.8

Obligations .

(a)          Schedule 4.8 contains an accurate and complete list of all of Tibbetts’ Obligations reflected on the Latest Balance Sheet, itemized by balance sheet account, and with aggregate net balances equal to the balances on the Latest Balance Sheet including (i) accounts payable, (ii) accrued expenses and reserves, itemized by category and with appropriate explanation, (iii) deferred revenues, itemized by customer and time periods, and (iv) other current and long-term liabilities.

(b)         Tibbetts has no Obligations other than (i) Obligations identified as such in the “liabilities” column on the Latest Balance Sheet, (ii) Obligations set forth on Schedule 4.8 , (iii) Obligations under Contracts of the type listed on Schedule 4.15 , provided that as of the Latest Balance Sheet Date, no such Obligation consisted of or resulted from a default under or violation of any such Contract, and (iv) Obligations that were incurred since the Latest Balance Sheet Date and which were not incurred in breach of any of the representations and warranties made in Section 4.9. Except as described on Schedule 4.8 , none of Tibbetts’ Obligations are guaranteed by any Person.

4.9            Operations Since The Latest Balance Sheet Date . Except as set forth on Schedule 4.9 , since the Latest Balance Sheet Date:

(a)         except in the ordinary course of its Business consistent with its past practices, Tibbetts has not: (i) pledged or hypothecated any of their Assets or otherwise

 

20

 

 

 

permitted any of their Assets to become subject to any Encumbrance; (ii) incurred any Obligation; (iii) made any loan or advance to any Person; (iv) assumed, guaranteed or otherwise become liable for any Obligation of any Person; (v) committed for any capital expenditure; (vi) purchased, leased, sold, abandoned or otherwise acquired or disposed of any business or Assets; (vii) waived or released any right or canceled or forgiven any debt or claim; (viii) discharged any Encumbrance or discharged or paid any indebtedness or other Obligation; (ix) assumed or entered into any Contract other than this Agreement; (x) amended or terminated any Specified Contract; (xi) increased, or authorized an increase in, the compensation or benefits paid or provided to any of its directors, officers, employees, salesmen, agents or representatives; (xii) established, adopted or amended (including any amendment with a future effective date) any Employee Benefit Plan; (xiii) declared, accrued, set aside, or paid any dividend or made any other distribution in respect of any shares of capital stock, other securities, Cash Assets or other Assets; (xiv) repurchased, redeemed or otherwise reacquired any shares of capital stock or other securities; (xv) sold or otherwise issued any shares of capital stock or any other securities; (xvi) amended its or certificate of incorporation, bylaws or other organizational documents; (xvii) been a party to any merger, consolidation, recapitalization, reclassification of shares, stock split, reverse stock split or similar transaction; (xviii) accrued any severance or any deferred bonuses or compensation due to any shareholder, employee or agent of Tibbetts, or paid any such severance or deferred bonuses or compensation except to the extent such severance or deferred bonuses or compensation was accrued on the Latest Balance Sheet; (xix) changed any of its methods of accounting or accounting practices in any respect; or (xx) made any Tax election.

(b)         even in the ordinary course of its Businesses consistent with its past practices, Tibbetts has not incurred any Obligation, made any loan to any Person, acquired or disposed of any business or Assets, entered into any Contract (other than customer contracts) or other transaction, or done any of the other things described in Section 4.9(a), involving an amount exceeding $10,000 in any single case or $25,000 in the aggregate; and

(c)         there has been no material adverse change or material casualty loss affecting Tibbetts or the Business, Assets or financial condition of Tibbetts; and there has been no material adverse change in the financial performance or prospects of Tibbetts; and there has been no loss, damage or destruction to, or any interruption in the use of, any of the Assets of Tibbetts (whether or not covered by insurance).

4.10         Accounts Receivable . Except as set forth on Schedule 4.10, all Accounts Receivable of Tibbetts, as set forth in the list of Assets of Tibbetts, as reflected on the Latest Balance Sheet, delivered to IntriCon as provided in Section 4.7, arose in the ordinary course of business and are proper and valid Accounts Receivable, and can be collected by Tibbetts in full (without any counterclaim or setoff), subject to normal reserves accrued for on the Latest Balance Sheet. There are no refunds, discounts, rights of setoff or assignments affecting any such Accounts Receivable. Proper amounts of deferred revenues appear on Tibbetts’ books and records, in accordance with GAAP, with respect to Tibbetts’ (a) billed but unearned Accounts

 

21

 

 

 

Receivable; (b) previously billed and collected Accounts Receivable still unearned; and (c) unearned customer deposits.

4.11       Tangible Property . Tibbetts has good and marketable title to all of their Tangible Property, free and clear of any Encumbrances, except as set forth in the Latest Balance Sheet or on Schedule 4.11 . Except as set forth on Schedule 4.11 , all material items of Tibbetts’ Tangible Property are located at Tibbetts’ offices or facilities, and Tibbetts has the full and unqualified right to require the immediate return of any of their Tangible Property which is not located at its offices or facilities. All Tangible Property of Tibbetts, wherever located, (a) is in good condition, ordinary wear and tear excepted, (b) is structurally sound, in all material respects, and free of any material defect and material deficiency, (c) is being operated and otherwise used in compliance with, all applicable Laws, and (d) is sufficient for Tibbetts’ operations and business as presently conducted.

4.12

Real Property .

(a)          Set forth on Schedule 4.12 , is an accurate and complete list of: (i) any Real Property currently owned, leased (either as landlord or tenant), subleased (either as sublandlord or subtenant) occupied, managed, operated or used by Tibbetts (“Current Tibbetts Real Property”), showing location, and in the case of leased property, rental cost and landlord, tenant, sublandlord or subtenant, as applicable; and (ii) a list of any Real Property previously owned, leased (either as landlord or tenant), subleased (either as sublandlord or subtenant) occupied, managed, operated or used by Tibbetts (“Prior Tibbetts Real Property” and, together with the Current Tibbetts Real Property, the “Tibbetts Real Property”), showing location, method of disposition and any continuing obligations with respect thereto. Except as set forth on Schedule 4.12 , no Person other than Tibbetts is in possession of any portion of the Current Tibbetts Real Property. Tibbetts has no Obligations with respect to any Prior Tibbetts Real Property. Tibbetts owns the Current Tibbetts Real Property in fee simple absolute and possess good and marketable title to the Current Tibbetts Real Property subject only to those easements, restrictions, or Encumbrances listed on Schedule 4.12. All Current Tibbetts Real Property is in good condition, ordinary wear and tear excepted, and is sufficient for the current operations of Tibbetts. No Tibbetts Real Property, nor the occupancy, maintenance or use thereof, is or was in violation of, or breach or default under, any Encumbrance, Contract or Law, including Environmental Laws, and no notice or threat from any landlord, tenant, sublandlord or subtenant, Governmental Body or other Person has been received by Tibbetts or served in connection with any Tibbetts Real Property claiming any violation of, or breach, default or liability under, any Contract or Law, including Environmental Laws, or requiring or calling attention to the need for any work, repairs, construction, alteration, installations or environmental remediation. No Proceedings are pending which would affect the zoning, use or development of any Current Tibbetts Real Property. No portion of Current Tibbetts Real Property is within an identified flood plain, wetland or other designated flood hazard area as established under any Law or otherwise by any Governmental Body. All of the Current Tibbetts Real Property has direct legal access to, abuts, and is served by a publicly dedicated and maintained road, which road does

 

22

 

 

 

 

and shall provide a valid means of ingress and egress thereto and therefrom, without additional expense. All utilities, including water, gas, telephone, electricity, sanitary and storm sewers, are public and are currently available to all Current Tibbetts Real Property at normal and customary rates, and are adequate to serve Tibbetts Current Real Property for Tibbetts’ current use thereof. Neither Tibbetts nor any Principal Shareholders has received notice of, nor has knowledge of, any proposed or threatened moratorium or curtailment in utility services applicable to the Tibbetts Current Real Property. Tibbetts has not taken any actions or omitted to take any actions that would result in a violation of Environmental Laws or that constitutes a violation of Environmental Law on or under any Tibbetts Real Property.

(b)          An accurate and complete copy of the most recent title report, title insurance policy, survey, environmental reports, structural and engineering reports, Americans with Disabilities Act compliance reports and appraisals for the Current Tibbetts Real Property have been delivered to IntriCon and are listed on Schedule 4.12 .

(c)          As to any Current Tibbetts Real Property which is leased by Tibbetts to another Person, each lease or sublease, as applicable, is in full force and effect without default by any party, all rent and additional rent is current, and all construction and other Obligations of the landlord and tenant have been complied with as required.

(d)          No casualty has occurred with respect to the Current Tibbetts Real Property which has not been fully repaired, nor has any such casualty occurred within the last six (6) months which has had a material adverse effect on the use or operation of the Tibbetts Current Real Property .

(e)          There are no unfulfilled responsibilities or Obligations of Tibbetts or the Current Tibbetts Real Property in favor of any Governmental Body to construct any improvements or to pay or share in the payment of any costs, or to dedicate or grant any property or facility, or to perform any other obligations or work (other than the customary obligations pertaining to the use, operation and ownership or leasing of such Current Tibbetts Real Property).

(f)            No work has been performed or services furnished to any of the Real Property for which a mechanic’s lien or other Encumbrance could be filed in the future.

(g)          Tibbetts has not posted bonds, security deposits or escrows with any Person respecting the use, operation and/or maintenance of any of the Current Tibbetts Real Property or utility services thereto, except as set forth on Schedule 4.12 .

(h)          The Current Tibbetts Real Property is not, nor at Closing, will be deemed part of a larger parcel of ground so as to require any form of subdivision approval; or (ii) subject to any understanding or unfulfilled commitment with, or to any unsatisfied conditions imposed by, any governmental authority.

 

23

 

 

 

 

(i)           The zoning classification of the Current Tibbetts Real Property is Industrial District (I) and the construction, operation, and use of the Current Tibbetts Real Property is in compliance with all zoning, subdivision, land use, building, fire, safety and similar Laws, codes and regulations. The present uses of the Current Tibbetts Real Property are permitted as a matter of right, without the necessity of any variance or special exception and do not constitute non-conforming uses. None of the buildings comprising the Current Tibbetts Real Property constitute non-conforming structures.

(j)           There are no Proceedings pending nor, to the knowledge of Tibbetts, threatened against or affecting the Current Tibbetts Real Property or any portion thereof or interest therein in the nature of or in lieu of condemnation or eminent domain Proceedings.

(k)          There are no assessments by any Governmental Body imposed, contemplated or confirmed and ratified against any of the Current Tibbetts Real Property for public or private improvements which are now or hereafter payable.

(l)           Unqualified, permanent certificates of occupancy have been issued with respect to each location comprising the Current Tibbetts Real Property.

4.13         Environmental Matters . Tibbetts is and has been in compliance, in all material respects, with all applicable Environmental Laws, which compliance includes the possession by Tibbetts of all Permits and other governmental authorizations required under applicable Environmental Laws, and in compliance with the terms and conditions thereof. Neither Tibbetts nor any of its employees, shareholders, directors, officers or agents has placed or caused to be placed, and Tibbetts has no knowledge of or belief that there were or are, any Hazardous Substances in, on, under or migrating from or onto any of Tibbetts’ Real Property. Tibbetts has provided IntriCon a copy of all correspondence, reports and other documents pertaining to compliance with Environmental Laws or violations or potential violations thereof. There are no, nor have there ever been, any underground storage tanks or septic systems on the Tibbetts Real Property nor does Tibbetts have any knowledge regarding (a) the Obligation to conduct any response action or (b) the existence of any past remediation to address the release or threatened release of Hazardous Substances on, from or onto the Tibbetts Real Property. There are no Obligations related to or arising from Tibbetts’ disposal of Hazardous Substances at any offsite facility nor are there any pending or, to the knowledge of Tibbetts, threatened claims by any Person for any violation of any Environmental Laws.

4.14

Intangibles .

(a)          Schedule 4.14 contains a complete and accurate list and description of all Intangibles, used, held, or owned by Tibbetts (“Tibbetts Intangibles”) that are material to Tibbetts or the operation of the Business. The Intangibles set forth in Schedule 4.14 constitute all of the Intangibles and Intellectual Property Rights necessary and/or used to operate the Business as currently conducted.

 

24

 

 

 

 

(b)         Except as set forth on Schedule 4.14 , Tibbetts has good and valid title to, and has the full right to use, all of the Tibbetts Intangibles, free and clear of any Encumbrance (other than the licenses granted to Tibbetts’ customers in the ordinary course of business). Except as set forth on Schedule 4.14 , no rights of any third party are necessary to reproduce, distribute, display, perform, market, license, modify, adapt, translate, enhance, update, create derivative works based upon, and/or exercise any other right in or to the Tibbetts Intangibles or Intellectual Property Rights (other than Off-the-Shelf Software). Except as set forth on Schedule 4.14 , no rights of any third party are necessary to reproduce, distribute, display, perform, market, license, modify, adapt, translate, enhance, update, and/or create derivative works for the Off-the-Shelf Software.

(c)         Except as set forth on Schedule 4.14 , all of the Tibbetts Intangibles owned by Tibbetts were either: (i) created as a work for hire (as defined under U.S. copyright law or patent law, as applicable) for and of Tibbetts by regular full time employees of Tibbetts or (ii) to the extent that any author, creator, contributor, or developer was not a regular full-time employee of Tibbetts at the time such person authored, created, contributed to, or developed such Intellectual Property Rights and such authoring, creation, contribution, or development was not in the scope of such person’s employment with Tibbetts, all authors, creators, contributors, and developers of the Tibbetts Intangibles have irrevocably assigned to Tibbetts any and all paternity, integrity, moral and other similar rights that they may have now, or in the future.

(d)         Except as specified on Schedule 4.14 , none of the current employees or consultants of Tibbetts is subject to any contractual or legal restrictions that might interfere with the use of his or her best efforts to promote the interests of the Business. No employee has entered into any Contract that restricts or limits in any way the scope or type of work in which the employee may be engaged or requires the employee to transfer, assign or disclose information concerning any Intangibles or Intellectual Property Rights to any Person than Tibbetts. Schedule 4.14 lists all Contracts between or among Tibbetts, any employee thereof and a third party that imparts or that imparted an obligation of noncompetition. No employee or consultant of Tibbetts (i) has used any other Person’s trade secrets or other confidential information in the course of his or her work or (ii) is, or is reasonably expected to be, in default under any term of any Contract relating to any Intangible or Intellectual Property Rights, or any confidentiality agreement or any other Contract or any restrictive covenant relating to any Intangibles or Intellectual Property Rights.

(e)         None of the Tibbetts Intangibles or their respective past or current uses, including the preparation, distribution, licensing, or offering for sale, license, or other disposition thereof, has violated or infringed upon, or is violating or infringing upon, any Software, technology, patent, copyright, trade secret or other intellectual property of any Person. None of the Tibbetts Intangibles is subject to any Judgment. No Proceeding is pending or is threatened, nor has any claim or demand been made, which challenges or challenged the legality, validity, enforceability, use or exclusive ownership by Tibbetts of any of the Tibbetts Intangibles. To the knowledge of Tibbetts, no Person is violating or infringing upon, or has violated or infringed upon at any time,

 

25

 

 

 

any Intellectual Property Right or other right of Tibbetts or with regard to the Tibbetts Intangibles.

(f)          Except as set forth on Schedule 4.14 , Tibbetts has not disclosed or delivered to any escrow agent or to any other Person, or permitted the disclosure to any escrow agent or to any other Person of, and has taken all reasonable precautions to prevent the disclosure of the source code and the object code (or any aspect or portion thereof) for or relating to any past, present or future product, trade secret, program, system, Software, or other Intangible of Tibbetts. The trade secrets included in the Tibbetts Intangibles are not part of the public knowledge or literature, and, have not been used, divulged, or appropriated either for the benefit of any Person (other than Tibbetts) or to the detriment of the Business.

(g)         All necessary registration, maintenance and renewal fees currently due in connection with the Tibbetts Intangibles have been made, all formal legal requirements (including the timely post-registration applications) have been met, and all necessary documents, recordations and certificates in connection with the Tibbetts Intangibles have been filed with the relevant patent, trademark or other authorities in the U.S. or foreign jurisdictions, as the case may be, for the purposes of perfecting and maintaining such Intangible. To the knowledge of Tibbetts, there are no facts or circumstances that would render any of the Tibbetts Intangibles invalid or unenforceable. Without limiting the foregoing, to the knowledge of Tibbetts, there are no information, materials, facts, or circumstances, including any information or fact that would constitute prior art, that would render any of the Tibbetts Intangibles invalid or unenforceable, or would adversely effect any pending application for any of the Tibbetts Intangibles, and to the knowledge of Tibbetts, it has not misrepresented, or failed to disclose, any fact or circumstance in any application for any of the Tibbetts Intangibles that would constitute fraud or a misrepresentation with respect to such application or that would otherwise affect the validity or enforceability of any such Intangible or Intellectual Property Right.

(h)         Any license, sublicense or other Contract to which Tibbetts is a party or by which Tibbetts is bound covering or relating to any Tibbetts Intangible is legal, valid, binding, enforceable and in full force and effect, and, subject to the Consents identified in Exhibit 10.2.13 , upon consummation of the transactions contemplated hereby, will continue to be legal, valid, binding, enforceable and in full force and effect on terms identical to those in effect immediately prior to the consummation of the transactions contemplated hereby. Tibbetts is not in breach of or default und