<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported): December 1, 1997
YURIE SYSTEMS, INCORPORATED
(Exact name of Registrant as specified in its charter)
State or other jurisdiction of incorporation: Delaware
Commission File No.: 0-36413
I.R.S. Employer Identification No.: 52-1778987
Address of principal executive offices: 8301 Professional Place
Landover, MD 20785-2237
Registrant's telephone number, including area code: (301) 352-4600
Former name or former address, if changed since last report: Not applicable
Page 1 of 5 Pages
Exhibit Index at Page 5
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References in this Report on Form 8-K to "Yurie," the "Company" or the
Registrant" refer to Yurie Systems, Inc.
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS.
------------------------------------
On December 1, 1997, the Company entered into a definitive merger agreement
(the "Merger Agreement") providing for the merger (the "Merger") of Nicole
Acquisition Corporation, a wholly-owned subsidiary of the Company, with and into
privately-held Data Labs, Inc., a Delaware corporation, ("Data Labs") and
pursuant to which Data Labs would become a wholly-owned subsidiary of the
Company. The Merger was effected on December 1, 1997 (the "Effective Time")
pursuant to an executed certificate of merger filed with the Secretary of State
of the State of Delaware.
Data Labs is based in Maryland and manufactures and markets branch
office ATM access products. Prior to the Merger, the Company sold Data Labs
branch office ATM access product on a private label basis as Yurie's LDR5.
Pursuant to the terms of the Merger Agreement, the Company issued 358,412
shares of its common stock in exchange for all of the outstanding shares of
common and preferred stock of Data Labs, all warrants to purchase shares of
Data Labs common stock, all vested options to purchase shares of Data Labs
common stock outstanding immediately prior to the Effective Time of the Merger
and fifty percent (50%) of the unvested options to purchase shares of Data Labs
common stock outstanding immediately prior to the Effective Time of the Merger.
The remaining unvested options equal to approximately 5,820 shares of Yurie
common stock were assumed by the Company. Ten percent of the shares issued in
the Merger or 35,841 shares were placed into an escrow to cover indemnification
claims in connection with the transaction.
The Merger is intended to be accounted for as a pooling of interests for
financial reporting purposes in accordance with generally accepted accounting
principles.
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS.
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(a) Financial Statements of Business Acquired
(i) Financial statements of Data Labs as of December 31, 1995 and 1996
and for the nine month periods ending September 30, 1996 and 1997.*
(b) Pro Forma Financial Information
(i) Unaudited pro forma financial information of the Company as of
December 31, 1995 and 1996 and for the nine month periods ending September 30,
1996 and 1997.*
(c) Exhibits. The following exhibits are furnished as part of this report:
Exhibit Description
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2.1 Agreement and Plan of Merger by and among Yurie
Systems, Inc., Nicole Acquisition Corporation and
Data Labs, Inc. dated December 1, 1997 (Schedules
not included pursuant to Rule 601(b)(2) of
Regulation S-K).
4.1 Registration Rights Agreement by and among Yurie
Systems, Inc. and the shareholders of Data Labs,
Inc. dated as of December 1, 1997.
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* Previously filed in a current report on Form 8-K dated November 24, 1997 (File
No. 0-36413), and omitted pursuant to General Instruction B(3) of Form 8-K.
Page 2 of 5 Pages
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FORWARD LOOKING STATEMENTS
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The Private Securities Litigation Reform Act provides a "safe harbor" for
forward-looking statements. Certain statements included in this Report on Form
8-K are forward-looking. Such forward-looking statements are based on the
Company's current expectations and are subject to a number of risks and
uncertainties that could cause the Company's actual future results and financial
position to differ significantly from results expressed or implied in any
forward-looking statements made by, or on behalf of, the Company. The Company
assumes no obligation to update any forward-looking statements contained herein
or that made be made from time to time by, or on behalf of, the Company.
Information presented in this Form 8-K should be read in conjunction with the
Company's recent Prospectus, its Annual Report on Form 10-K and its Quarterly
Reports on Form 10-Q filed with the Securities and Exchange Commission.
Page 3 of 5 Pages
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
YURIE SYSTEMS, INC.
By: /s/ Harry D'Andrea
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Name: Harry D'Andrea
Title: Chief Financial Officer and
Treasurer
Dated: December 9, 1997
Page 4 of 5 Pages
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EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit Description
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<S> <C>
2.1 Agreement and Plan of Merger by and among Yurie
Systems, Inc., Nicole Acquisition Corporation and
Data Labs, Inc. dated December 1, 1997 (Schedules
not included pursuant to Rule 601(b)(2) of
Regulation S-K).
4.1 Registration Rights Agreement by and among Yurie
Systems, Inc. and the shareholders of Data Labs,
Inc. dated as of December 1, 1997.
</TABLE>
Page 5 of 5 Pages
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AGREEMENT AND PLAN OF MERGER
BY AND AMONG
YURIE SYSTEMS, INC.,
NICOLE ACQUISITION CORPORATION
AND
DATA LABS, INC.
DATED AS OF DECEMBER 1, 1997
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TABLE OF CONTENTS
PAGE
ARTICLE I - THE MERGER..................................................... 2
1.1 The Merger..................................................... 2
1.2 Effective Time................................................. 2
1.3 Certain Effects of the Merger.................................. 2
1.4 Certificate of Incorporation................................... 2
1.5 Bylaws......................................................... 3
1.6 Directors and Officers......................................... 3
1.7 Escrow Shares.................................................. 3
1.8 Shareholder Representative..................................... 3
ARTICLE II - CONVERSION AND EXCHANGE OF SECURITIES......................... 4
2.1 Shares of the Surviving Corporation............................ 4
2.2 Conversion of Company Common Stock............................. 4
2.3 Conversion of Data Labs Securities............................. 4
2.4 Exchange Agent................................................. 5
2.5 No Fractional Yurie Common Stock............................... 5
2.6 Exchange of Certificates; Distribution of Yurie Common Stock... 6
2.7 Data Labs Stock Options........................................ 8
2.8 Data Labs Warrants............................................. 9
2.9 Closing of Stock Transfer Books................................ 9
2.10 Dissenting Shares.............................................. 9
ARTICLE III - REPRESENTATIONS AND WARRANTIES OF DATA LABS.................. 10
3.1 Corporate Existence and Power.................................. 10
3.2 Corporate Authorization........................................ 10
3.3 Consents and Approvals......................................... 10
3.4 Non-Contravention.............................................. 11
3.5 Capitalization................................................. 11
3.6 Subsidiaries................................................... 12
3.7 Financial Statements........................................... 12
3.8 Absence of Undisclosed Liabilities............................. 12
3.9 Properties..................................................... 13
3.10 Real Property.................................................. 13
3.11 Condition of Tangible Assets................................... 13
3.12 Intellectual Property.......................................... 13
3.13 Absence of Certain Changes..................................... 16
3.14 Litigation..................................................... 17
3.15 Material Contracts............................................. 18
3.16 Taxes.......................................................... 20
3.17 Employees...................................................... 22
3.18 Transactions with Affiliates................................... 22
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PAGE
3.19 Insurance Coverage............................................. 22
3.20 Compliance with Laws; No Defaults.............................. 23
3.21 Finders' Fees.................................................. 23
3.22 Environmental Matters.......................................... 23
3.23 Employees and Employee Plans................................... 25
3.24 Other Information.............................................. 26
3.25 Investment Representations..................................... 26
3.26 Shareholders................................................... 27
ARTICLE IV - REPRESENTATIONS AND WARRANTIES OF YURIE
AND THE COMPANY........................................................... 27
4.1 Corporate Existence and Power.................................. 27
4.2 Corporate Authorization........................................ 27
4.3 Consents and Approvals......................................... 27
4.4 Non-Contravention.............................................. 27
4.5 Capitalization................................................. 28
4.6 SEC Documents.................................................. 28
4.7 Yurie Common Stock............................................. 29
4.8 Ownership of the Company; No Prior Activities.................. 29
4.9 Absence of Material Adverse Changes............................ 29
4.10 Compliance with Laws; No Defaults.............................. 29
4.11 Finders' Fees.................................................. 30
4.12 Yurie Employee Plans........................................... 30
4.13 Taxes.......................................................... 30
4.14 Absence of Claims.............................................. 31
ARTICLE V - COVENANTS...................................................... 31
5.1 Mutual Covenants and Agreements................................ 31
5.2 Certain Covenants of Data Labs................................. 32
5.3 Covenants of Yurie and the Company............................. 36
ARTICLE VI - CLOSING MATTERS............................................... 38
6.1 The Closing.................................................... 38
6.2 Documents and Certificates..................................... 38
ARTICLE VII - CONDITIONS OF CLOSING........................................ 38
7.1 Conditions to Obligations of Yurie, the Company and Data Labs.. 38
7.2 Conditions Applicable to Yurie and the Company................. 38
7.3 Conditions Applicable to Data Labs............................. 40
ARTICLE VIII - TERMINATION................................................. 42
8.1 Termination.................................................... 42
8.2 Notice of Termination; Effect of Termination................... 42
8.3 Procedure Upon Termination..................................... 43
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PAGE
ARTICLE IX -- INDEMNIFICATION.............................................. 43
9.1 Losses......................................................... 43
9.2 Indemnification of Yurie....................................... 43
ARTICLE X - MISCELLANEOUS.................................................. 44
10.1 Survival of Representations, Warranties and Covenants.......... 44
10.2 Expenses....................................................... 44
10.3 Further Assurances............................................. 44
10.4 Parties in Interest............................................ 44
10.5 Entire Agreement............................................... 44
10.6 Amendment...................................................... 45
10.7 Waiver......................................................... 45
10.8 Assignability.................................................. 45
10.9 Certain Definitions............................................ 45
10.10 Headings and Interpretation.................................... 46
10.11 Notices........................................................ 46
10.12 Governing Law.................................................. 47
10.13 Consent to Jurisdiction........................................ 47
10.14 Invalidity of Provisions....................................... 48
10.15 Mutual Contribution............................................ 48
10.16 Counterparts................................................... 48
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EXHIBITS
Exhibit A: Amended and Restated Certificate of Incorporation of Data Labs,
Inc.
Exhibit B: Amended and Restated Bylaws of Data Labs, Inc.
Exhibit C: Calculation of Exchange Ratios
Exhibit D: Legal Opinion of Tucker, Flyer & Lewis
Exhibit E: Form of Yu Employment Agreement
Exhibit F: Form of Employment Agreement
Exhibit G: Escrow Agreement
Exhibit H: Legal Opinion of Fried, Frank, Harris, Shriver & Jacobson
Exhibit I: Registration Rights Agreement
Exhibit J: Affiliate Letter
SCHEDULES
Schedule 3.1 Jurisdiction in which Data Labs is Qualified to do Business
Schedule 3.3 Required Consents and Approvals
Schedule 3.4 Contraventions as a Consequences of the Merger
Schedule 3.5 Outstanding Equity Interests in Data Labs, Inc.
Schedule 3.8 Liabilities and Obligations
Schedule 3.9 Properties and Assets
Schedule 3.10 Real Property
Schedule 3.12(a) Intellectual Properties
Schedule 3.12(b) Licenses
Schedule 3.12(c) Employee Non-Disclosure and Assignment Agreements
Schedule 3.12(d) Intellectual Property Litigation
Schedule 3.13 Certain Changes and Events
Schedule 3.14 Litigation
Schedule 3.15 Material Contracts
Schedule 3.16 Taxes and Excessive Parachute Payments
Schedule 3.17 Employees
Schedule 3.18 Transactions With Affiliates
Schedule 3.19 Insurance
Schedule 3.21 Finders' Fees
Schedule 3.22 Environmental Liabilities
Schedule 3.23 Employees and Employee Plans
Schedule 3.25 Domicile and Principal Office of Shareholders
Schedule 3.26 List of Shareholders
Schedule 5.2(e) Severance and Termination Payments for Data Labs Employees
Schedule 5.2(k) Agreements Subject to Termination
Schedule 7.3(j) List of Employees, Wages and Years of Service
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DEFINED TERMS
Term Section
- ---- --------
Acquisition Proposals....................................................5.2(k)
Affiliate...............................................................10.9(a)
Agreement..............................................................Preamble
CERCLA..................................................................3.22(d)
Closing Date................................................................6.1
Closing.....................................................................6.1
Common Exchange Ratio....................................................2.3(a)
Company................................................................Preamble
Confidentiality Agreement................................................5.1(c)
Constituent Corporations...............................................Preamble
Control.................................................................10.9(c)
Data Labs Common Stock.................................................Preamble
Data Labs Employee Plans...................................................3.23
Data Labs Intellectual Property Rights.....................................3.12
Data Labs Stock Options.....................................................2.7
Data Labs Preferred Stock..............................................Preamble
Data Labs Securities........................................................3.5
Data Labs Third Party Intellectual Property Rights......................3.12(b)
Data Labs Warrants..........................................................2.8
Data Labs..............................................................Preamble
Delaware General Corporation Law.......................................Preamble
Dissenting Shares..........................................................2.10
Effective Time..............................................................1.2
Employees..................................................................3.17
Environmental Laws......................................................3.22(e)
Environmental Liabilities...............................................3.22(f)
ERISA......................................................................3.23
ERISA Affiliate............................................................3.23
Escrow Agent................................................................1.7
Escrow Agreement............................................................1.7
Escrow Shares...............................................................1.7
Exchange Act................................................................3.3
Exchange Agent..............................................................2.4
Financial Statements........................................................3.7
Governmental Authority......................................................3.3
Hazardous Substance.....................................................3.22(g)
Information Statement....................................................5.2(h)
IRS.....................................................................3.23(b)
Liabilities or Obligations..................................................3.8
Loses.......................................................................9.1
Material Adverse Effect.................................................10.9(c)
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Merger......................................................................1.1
Order....................................................................8.1(c)
Person..................................................................10.9(d)
Preferred Exchange Ratio.................................................2.3(b)
Registration Rights Agreement............................................5.3(d)
Release.................................................................3.22(h)
Returns....................................................................3.16
Securities Act..............................................................2.7
Selling Shareholders................................................Article III
Shareholder Consent......................................................5.2(h)
Shareholder Representative..................................................1.8
Significant Shareholder.................................................3.15(c)
Subsidiary..............................................................10.9(f)
Surviving Corporation.......................................................1.1
Taxes......................................................................3.16
Unaudited Balance Sheet.................................................3.7(ii)
Yurie Closing Price.....................................................10.9(f)
Yurie Common Stock.....................................................Preamble
Yurie Employee Plans........................................................4.5
Yurie SEC Documents.........................................................4.6
Yurie..................................................................Preamble
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<PAGE>
AGREEMENT AND PLAN OF
MERGER AND REORGANIZATION
This Agreement and Plan of Merger dated as of December 1, 1997 (the
"AGREEMENT") by and among Yurie Systems, Inc., a Delaware corporation ("YURIE"),
Nicole Acquisition Corporation, a Delaware corporation and a wholly-owned
subsidiary of Yurie (the "COMPANY"), and Data Labs, Inc., a Delaware corporation
("DATA LABS"; Data Labs and the Company being hereinafter sometimes called the
"Constituent Corporations"):
WITNESSETH:
WHEREAS, the authorized capital stock of Yurie consists of (i) 10,000,000
shares of Preferred Stock, par value $.01 per share, of which no shares are
issued and outstanding, and (ii) 50,000,000 shares of Common Stock, par value
$.001 per share (the "YURIE COMMON STOCK"), of which 24,909,976 shares were
issued and outstanding as of September 30, 1997;
WHEREAS, the authorized capital stock of the Company consists of 100 shares
of Common Stock, par value $.01 per share, all of which shares are owned
beneficially and of record by Yurie;
WHEREAS, the authorized capital stock of Data Labs consists of (i)
6,400,000 shares of Preferred Stock, (a) of which 3,200,000 are designated as
Series A Preferred Stock, par value $.01 per share, of which 3,130,000 were
issued and outstanding (the "DATA LABS PREFERRED STOCK") as of September 30,
1997 and (b) of which 3,200,000 shares are designated as Series A-1 Preferred
Stock par value $.01 per share, of which no shares are issued and outstanding;
and (ii) 10,000,000 shares of Common Stock, par value $.001 per share (the "DATA
LABS COMMON STOCK"), of which 4,047,755 shares were issued and outstanding as of
December 1, 1997;
WHEREAS, the respective Boards of Directors of Yurie, the Company and Data
Labs have by resolutions approved this Agreement and deemed it advisable for
their respective mutual benefit and of their respective shareholders that the
Company merge with and into Data Labs under and pursuant to the General
Corporation Law of the State of Delaware (the "DELAWARE CORPORATION LAW") and
upon the terms and subject to the conditions hereinafter set forth;
WHEREAS, the Company, Yurie and Data Labs desire to make certain
representations, warranties, covenants and other agreements in connection with
this Agreement; and
WHEREAS, the parties intend that the Merger be treated as a "pooling of
interests" transaction for accounting purposes.
NOW, THEREFORE, in consideration of these premises and the mutual
agreements, provisions and covenants contained in this Agreement, the parties
hereby agree as follows:
<PAGE>
ARTICLE I
THE MERGER
1.1 The Merger. In accordance with Section 251 of the Delaware
----------
Corporation Law, the Company shall be merged with and into Data Labs (the
"MERGER"), and Data Labs shall be the surviving corporation (such corporation in
its capacity as such surviving corporation being hereinafter called the
"SURVIVING CORPORATION"). The terms and conditions of the Merger, the mode of
carrying the same into effect, and the manner and basis of converting shares of
each of the Constituent Corporations into the consideration which the holders of
those shares are to receive upon conversion of such shares, shall be as set
forth in this Agreement.
1.2 Effective Time. The Merger shall become effective as of the time of
--------------
the filing of the executed certificate of merger with the Secretary of State of
Delaware pursuant to Section 251(c) of the Delaware Corporation Law (the
"EFFECTIVE TIME").
1.3 Certain Effects of the Merger. As of the Effective Time, the effect
-----------------------------
of the Merger shall be as provided in this Agreement, the Certificate of Merger
and the applicable provisions of the Delaware Corporation Law. Without limiting
the generality of the foregoing and subject thereto, at the Effective Time, the
separate existence of the Company shall cease and the Company shall be merged
into Data Labs; the Surviving Corporation shall possess, without further act or
deed, all the rights, privileges, powers and franchises of a public as well as
of a private nature, and be subject to all the restrictions, disabilities and
duties of each of the Constituent Corporations; and any and all rights,
privileges, powers and franchises of each of the Constituent Corporations, and
all property, real, personal and mixed, and all debts due to any of the
Constituent Corporations on whatever account, as well as stock subscriptions and
all other things in action or belonging to each of the Constituent Corporations,
shall be vested in the Surviving Corporation; and all property, rights,
privileges, powers and franchises, and all and every other interest shall be
thereafter as effectively the property of the Surviving Corporation as they were
of the several and respective Constituent Corporations, and the title to any
real estate vested by deed or otherwise, in any of the Constituent Corporations,
shall not revert or be in any way impaired by reason of the Merger; but all
rights of creditors and all liens upon any property of any of the Constituent
Corporations shall be preserved unimpaired, and all debts, liabilities and
duties of the respective Constituent Corporations shall thenceforth attach to
the Surviving Corporation, and may be enforced against it to the same extent as
if such debts, liabilities and duties had been incurred or contracted by it.
Any action or proceeding, whether civil, criminal or administrative, pending by
or against any of the Constituent Corporations shall be prosecuted as if the
Merger had not taken place, and the Surviving Corporation may be substituted in
such action or proceeding.
1.4 Certificate of Incorporation. At the Effective Time, the certificate
----------------------------
of incorporation of the Surviving Corporation shall be amended and restated,
substantially in the form set forth on EXHIBIT A hereto, and shall be the
certificate of incorporation of the
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Surviving Corporation until thereafter amended as provided by law and such
certificate of incorporation.
1.5 Bylaws. At the Effective Time, the bylaws of the Surviving
------
Corporation shall be amended and restated, substantially in the form set forth
on EXHIBIT B hereto, and shall be the bylaws of the Surviving Corporation until
thereafter amended.
1.6 Directors and Officers. The directors and officers of the Surviving
----------------------
Corporation from and after the Effective Time shall be the directors and
officers of the Company immediately prior to the Effective Time, each to hold
office in accordance with applicable law and the certificate of incorporation
and bylaws of the Surviving Corporation.
1.7 Escrow Shares. At the Effective Time, Yurie shall deliver to an
-------------
escrow agent (the "ESCROW AGENT") appointed pursuant to an Escrow Agreement
(the "ESCROW AGREEMENT"), 35,841 shares of Yurie Common Stock issued in the name
of the Shareholder Representative (as defined below) pursuant to Section 2.3
(the "ESCROW SHARES") to be held and applied in accordance with Article IX
herein and the escrow agreement by and among Yurie, the Shareholder
Representative (as defined below) and American Stock Transfer & Trust Company
(the "Escrow Agreement"). By virtue of their approval of this Agreement under
the Delaware Corporation Law, the shareholders of Data Labs shall be deemed to
have approved and agreed to the Escrow Agreement and its terms and conditions,
including, without limitation, the indemnification of the Shareholder
Representative.
1.8 Shareholder Representative. The shareholders of Data Labs, by virtue
--------------------------
of their approval of the Agreement under the Delaware Corporation Law, shall be
deemed to have irrevocably constituted and appointed Wenli Yu, David Cowan and
Thomas Smith as a committee, effective as of the Effective Time (together with
such person's permitted successors, the "SHAREHOLDER REPRESENTATIVE"), as their
true and lawful agent and attorney-in-fact to enter into any agreement in
connection with the transactions contemplated by this Agreement, including,
without limitation, the resolution of indemnity claims under Article IX hereof
and in accordance with the Escrow Agreement, and any transactions contemplated
by the Escrow Agreement, to exercise all or any of the powers, authority and
discretion conferred on it under any such agreement, to waive any terms and
conditions of any such agreement (other than the consideration to be received by
the Data Labs shareholders in the Merger), to give and receive notices on their
behalf and to be their exclusive representative with respect to any matter,
suit, claim, action or proceeding arising with respect to any transaction
contemplated by any such agreement, including, without limitation, the defense,
settlement or compromise of any claim, action or proceeding for which Yurie or
the Company may be entitled to indemnification and the Shareholder
Representative agrees to act as, and to undertake the duties and
responsibilities of, such agent and attorney-in-fact. This power of attorney is
coupled with an interest and is irrevocable. The members constituting the
Shareholder Representative shall act by majority vote or consent. The
Shareholder Representative shall not be liable for any action taken or not taken
by it in connection with its obligations under this Agreement (i) with the
consent of shareholders who, as of the Effective Time, owned a majority in
number of the outstanding shares of Data Labs Common Stock (treating the Data
Labs Preferred Stock on an as converted basis) or (ii) in
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the absence of its own gross negligence or willful misconduct. If one or more of
the members of the committee acting as the Shareholder Representative shall be
unable or unwilling to serve in such capacity, any successor thereof shall be
named by those persons holding two-thirds of the outstanding shares of the Data
Labs Common Stock (treating Data Labs Preferred Stock on an as-converted basis)
at the Effective Time, and the successor(s) so named shall serve and exercise
the powers of the Shareholder Representative hereunder. If such committee is
composed of one person and no other members thereto are so named within 30 days
of the resignation or termination of the last resigning member thereof, the
remaining member of such committee shall serve as the Shareholder
Representative.
ARTICLE II
CONVERSION AND EXCHANGE OF SECURITIES
2.1 Shares of the Surviving Corporation. The authorized number and par
-----------------------------------
value of shares of all classes of stock of the Company immediately prior to the
Effective Time shall be the authorized number and par value of shares of the
classes of stock of the Surviving Corporation from and after the Effective Time.
2.2 Conversion of Company Common Stock. At the Effective Time, each share
----------------------------------
of Common Stock, par value $.01 per share, of the Company issued and outstanding
immediately prior to the Effective Time shall, by virtue of the Merger and
without any action on the part of the holder thereof, automatically be converted
into and represent one validly issued, fully paid and nonassessable share of
Common Stock, par value $.01 per share, of the Surviving Corporation.
2.3 Conversion of Data Labs Securities. The maximum consideration to be
----------------------------------
issued in exchange for (i) all issued and outstanding shares of Data Labs Common
Stock and Data Labs Preferred Stock immediately prior to the Effective Time
(other than shares of Data Labs Common Stock and Data Labs Preferred Stock held
in the treasury of Data Labs, which shall not be considered as outstanding for
purposes of this Agreement), (ii) all warrants to purchase shares of Common
Stock of Data Labs outstanding immediately prior to the Effective Time, (iii)
all vested options and 50% of the unvested options to purchase shares of Common
Stock of Data Labs outstanding immediately prior to the Effective Time shall be
358,412 shares of Common Stock of Yurie (the "Consideration"). Pursuant to the
foregoing, at the Effective Time each share of Data Labs capital stock shall, by
virtue of the Merger and without any action on the part of the holder thereof,
automatically be canceled and extinguished and converted into the right to
receive the following:
(a) With respect to each share of Data Labs Common Stock, a fraction
of a share of Yurie Common Stock (the "COMMON EXCHANGE RATIO"), as determined in
accordance with EXHIBIT C, upon surrender of the certificate or certificates
representing such shares of Data Labs Common Stock in the manner provided in
Section 2.6;
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(b) With respect to each share of Data Labs Preferred Stock, a
fraction of a share of Yurie Common Stock (the "PREFERRED EXCHANGE RATIO"), as
determined in accordance with EXHIBIT C, upon surrender of the certificate or
certificates representing such shares of Series A Preferred in the manner
provided in Section 2.6;
(c) At the Effective Time, each share of Data Labs Common Stock or
Data Labs Preferred Stock held in the treasury of Data Labs, immediately prior
to the Effective Time shall, by virtue of the Merger and without any action on
the part of the holder thereof, automatically be canceled and retired and all
rights in respect thereof shall cease to exist.
(d) If between the date of this Agreement and the Effective Time, the
outstanding shares of Yurie Common Stock, Data Labs Common Stock or Data Labs
Preferred Stock shall have been changed (subject to compliance with the
applicable provisions of Article V) into a different number of shares or a
different class, by reason of any stock dividend, subdivision, reclassification,
split-up, combination, exchange of shares or the like, the Common Exchange Ratio
and Preferred Exchange Ratio, as the case may be, shall be appropriately
adjusted.
(e) Each certificate representing shares of Yurie Common Stock to be
issued in the Merger shall bear a legend substantially in the following form:
THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933 AND MAY NOT BE OFFERED, SOLD OR
OTHERWISE TRANSFERRED, PLEDGED OR HYPOTHECATED UNLESS AND UNTIL SUCH
SHARES ARE REGISTERED UNDER SUCH ACT OR AN OPINION OF COUNSEL
SATISFACTORY TO YURIE IS OBTAINED TO THE EFFECT THAT SUCH REGISTRATION
IS NOT REQUIRED. THE HOLDER OF THIS CERTIFICATE IS ENTITLED TO
CERTAIN REGISTRATION RIGHTS SET FORTH IN A REGISTRATION RIGHTS
AGREEMENT DATED AS OF DECEMBER 1, 1997, A COPY OF WHICH MAY BE
OBTAINED FROM THE SECRETARY OF YURIE SYSTEMS, INC.
2.4 Exchange Agent. American Stock Transfer & Trust Company, or such
--------------
other national or state bank or trust company as may be selected by Yurie, shall
act as the agent for Data Labs shareholders for purposes of mailing and
receiving transmittal letters and distributing consideration to Data Labs
shareholders (the "EXCHANGE AGENT").
2.5 No Fractional Yurie Common Stock. Notwithstanding any other provision
--------------------------------
of this Agreement, neither certificates nor scrip for fractional shares of Yurie
Common Stock shall be issued to any holder of Data Labs Common Stock or Data
Labs Preferred Stock in the Merger and the holder thereof shall not be entitled
to any voting or other rights of a holder of shares or a fractional share
interest. Each holder of shares of Data Labs Common Stock or Data Labs
Preferred Stock who otherwise would have been entitled to receive a fraction of
a share of Yurie
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<PAGE>
Common Stock (after aggregating all fractional shares of Yurie Common Stock to
be received by such holder) shall receive in lieu thereof cash (rounded to the
nearest whole cent), without interest, in an amount determined by multiplying
such holder's fractional interest by the Yurie Closing Price (as defined in
Section 10.9(f) of this Agreement). All amounts of cash in respect of fractional
interests which have not been claimed at the end of three years from the
Effective Time by surrender of certificates for shares of Data Labs Common Stock
or Data Labs Preferred Stock shall be repaid to the Surviving Corporation,
subject to the provisions of applicable escheat or similar laws, for the account
of the holders entitled thereto.
2.6 Exchange of Certificates; Distribution of Yurie Common Stock. The
------------------------------------------------------------
procedures for exchanging outstanding shares of Data Labs Common Stock and Data
Labs Preferred Stock for Yurie Common Stock pursuant to the Merger are as
follows:
(a) Exchange Agent. Within five (5) business days after the Effective
--------------
Time, Yurie shall cause its transfer agent to deposit with the Exchange Agent
for the benefit of the holders of shares of Data Labs Common Stock and Data Labs
Preferred Stock, for exchange in accordance with this Section 2.6, through the
Exchange Agent, certificates representing the shares of Yurie Common Stock (such
shares of Yurie Common Stock, together with any dividends or distributions with
respect thereto, being hereinafter referred to as the "Exchange Fund") issuable
pursuant to Section 2.3 in exchange for outstanding shares of Data Labs Common
Stock and Data Labs Preferred Stock. The Exchange Agent shall not be entitled
to vote or exercise any rights of ownership with respect to any shares of Yurie
Common Stock held by it from time to time hereunder, except that it shall
receive and hold all dividends or other distributions paid or distributed with
respect to such shares for the account of the persons entitled thereto.
(b) Exchange Procedures. Within five (5) business days after the
-------------------
Effective Time, the Exchange Agent shall mail to each holder of record of a
certificate or certificates which immediately prior to the Effective Time
represented outstanding shares of Data Labs Common Stock or Data Labs Preferred
Stock (each a "Data Labs Certificate" and, collectively, the "Data Labs
Certificates") whose shares were converted pursuant to Section 2.3 into the
right to receive shares of Yurie Common Stock (i) a letter of transmittal (which
shall specify that delivery shall be effected, and risk of loss and title to the
Data Labs Certificates shall pass, only upon delivery of the Data Labs
Certificates to the Exchange Agent) and (ii) instructions for use in effecting
the surrender of the Data Labs Certificates in exchange for certificates
representing shares of Yurie Common Stock. Upon surrender of a Data Labs
Certificate for cancellation to the Exchange Agent or to such other agent or
agents as may be appointed by Yurie, together with such letter of transmittal,
duly executed, the holder of such Data Labs' Certificate shall be entitled to
receive in exchange therefor a certificate representing that number of whole
shares of Yurie Common Stock which such holder has the right to receive pursuant
to the provisions of this Article II and cash in lieu of any fractional shares,
and the Data Labs Certificate so surrendered shall immediately be canceled. In
the event of a transfer of ownership of Data Labs Common Stock or Data Labs
Preferred Stock which is not registered in the transfer records of Data Labs, a
certificate representing the proper number of shares of Yurie Common Stock may
be issued to a transferee if the Data Labs Certificate representing such Data
Labs Common Stock
-6-
<PAGE>
or Data Labs Preferred Stock is presented to the Exchange Agent, accompanied by
all documents required in evidence and effect such transfer and by evidence that
any applicable stock transfer taxes have been paid. Until surrendered as
contemplated by this Section 2.6, each Data Labs Certificate shall be deemed at
any time after the Effective Time to represent only the right to receive upon
such surrender the certificate representing shares of Yurie Common Stock and
cash in lieu of any fractional shares of Yurie Common Stock as contemplated by
Section 2.5 above, or the rights any holder may have with respect to Dissenting
Shares.
(c) Distributions with Respect to Unexchanged Shares. No dividends or
------------------------------------------------
other distributions declared or made after the Effective Time with respect to
Yurie Common Stock with a record date after the Effective Time shall be paid to
the holder of any unsurrendered Data Labs Certificate with respect to the shares
of Yurie Common Stock represented thereby, and no cash payment in lieu of
fractional shares shall be paid to any such holder pursuant to Section 2.5,
until the holder of record of such Data Labs Certificate shall surrender such
Data Labs Certificate. Subject to the effect of applicable laws, following
surrender of any such Data Labs Certificate, there shall be paid to the record
holder of the certificates representing whole shares of Yurie Common Stock
issued in exchange therefor, without interest, (i) at the time of such Yurie
Common Stock to which such holder is entitled pursuant to this Section 2.6 and
the amount of dividends or other distributions with a record date after the
Effective Time previously paid with respect to such whole shares of Yurie Common
Stock, and (ii) at the appropriate payment date, the amount of dividends or
other distributions with a record date after the Effective Time but prior to
surrender and a payment date subsequent to surrender payable with respect to
such whole shares of Yurie Common Stock.
(d) No Further Ownership Rights in Data Labs Common Stock or Data Labs
------------------------------------------------------------------
Preferred Stock. At the Effective Time, each holder of an outstanding
- ---------------
certificate or certificates for shares of Data Labs Common Stock or Data Labs
Preferred Stock shall cease to have any rights as a shareholder of Data Labs,
except such rights, if any, as such holder may have with respect to Dissenting
Shares (as hereinafter defined). All shares of Yurie Common Stock issued upon
the surrender for exchange of shares of Data Labs Common Stock or Data Labs
Preferred Stock in accordance with the terms hereof, including any cash paid
pursuant to Sections 2.6(c) and 2.5, shall be deemed to have been issued in full
satisfaction of al rights pertaining to such shares of Data Labs Common Stock or
Data Labs Preferred Stock, and there shall be no further registration of
transfers on the stock transfer books of the Surviving Corporation of the shares
of Data Labs Common Stock or Data Labs Preferred Stock which were outstanding
immediately prior to the Effective Time. If, after the Effective Time, Data
Labs Certificates are presented to the Surviving Corporation for any reason,
they shall be canceled and exchanged as provided in this Section 2.6.
(e) Termination of Exchange Fund. Any portion of the Exchange Fund
----------------------------
which remains undistributed to the stockholders of Data Labs for one year after
the Effective Time shall be delivered to Yurie, upon demand, and any
stockholders of Data Labs who have not previously complied with this Section 2.6
shall thereafter look only to Yurie for payment of their claim for Yurie Common
Stock, cash in lieu of fractional shares of Yurie Common Stock, and dividends or
distributions with respect to Yurie Common Stock.
-7-
<PAGE>
(f) No Liability. Neither Yurie nor Data Labs, nor any of their
------------
respective directors, officers, employees or agents, shall be liable to any
holder of shares of Data Labs Common Stock or Data Labs Preferred Stock or Yurie
Common Stock, as the case may be, for such shares (or dividends or distributions
with respect thereto) delivered to a public official pursuant to any applicable
abandoned property, escheat or similar law.
(g) Lost Certificates. In the event that any Data Labs Certificate
-----------------
shall have been lost, stolen or destroyed, upon the making of an affidavit of
that fact by the person claims such Data Labs Certificate to be lost, stolen or
destroyed and, if required by Yurie or the Exchange Agent, the posting by such
person of a bond in such reasonable amount as Yurie or the Exchange Agent may
direct as indemnity against any claim that may be made against it with respect
to such Data Labs Certificate, Yurie shall cause the Exchange Agent to issue, in
exchange for such lost, stolen or destroyed Data Labs Certificate the shares of
Yurie Common Stock, cash in lieu of fractional shares and unpaid dividends and
distributions on shares of Yurie Common Stock as contemplated by Sections 2.5
and 2.6.
2.7 Data Labs Stock Options. At the Effective Time, all options to
-----------------------
purchase shares of Data Labs Common Stock outstanding as of the Effective Time
under the Data Labs Stock Option Plan, whether vested or unvested (the "DATA
LABS OPTIONS"), shall, by virtue of the Merger and without further action on the
part of Data Labs or the holder thereof, be assumed by Yurie and shall be
converted into an option to purchase Yurie Common Stock without any other
changes in the terms and conditions of such options. The number of shares of
Yurie Common Stock that the holder of Data Labs Option shall be entitled to
receive upon the exercise of such option shall be a number of whole and
fractional shares determined by multiplying the number of shares of a Data Labs
Common Stock subject to such option, determined immediately before the Effective
Time, by the Common Exchange Ratio applicable to shares of Data Labs Common
Stock. The exercise price of each share of Yurie Common Stock subject to a Data
Labs Option shall be the amount (rounded up to the nearest whole cent) obtained
by dividing the exercise price per share of Data Labs Common Stock at which such
option is exercisable immediately before the Effective Time by the Common
Exchange Ratio applicable to shares of Data Labs Common Stock, but shall be not
less than $.01. The assumption and substitution of the Data Labs Options as
provided herein shall not give the holders of such options additional benefits
which they did not have immediately prior to the Effective Time or relieve the
holders of any obligations or restrictions applicable to their options or the
shares obtainable upon exercise of the options. Only whole shares of Yurie
Common Stock shall be issued upon exercise of any Data Labs Option, and in lieu
of receiving any fractional share of Yurie Common Stock, the holder of such
option shall receive in cash the fair market value of the fractional share, net
of the applicable exercise price of the fractional share and applicable
withholding taxes. Yurie shall (i) reserve out of its authorized but unissued
shares of Yurie Common Stock sufficient shares to provide for the exercise of
the Data Labs Options and (ii) shall register under the Securities Act of 1933,
as amended (the "SECURITIES ACT"), not later than 30 days after the Effective
Time and maintain the effectiveness of such registration statement for so long
as the Data Labs Options remain outstanding, those shares of Yurie Common Stock
to be issued upon the exercise of the Data Labs Options for a period ending on
the first date by which all Data Labs Options
-8-
<PAGE>
have been exercised, which registration shall initially be effective under a
registration statement on Form S-8 or such other form as may be permitted under
the Securities Act.
2.8 Data Labs Warrants. At the Effective Time, all of the warrants to
------------------
purchase shares of Data Labs Common Stock outstanding as of the Effective Time
("DATA LABS WARRANTS") shall, by virtue of the Merger and without further action
on the part of Data Labs or the holder thereof, be assumed by Yurie and shall be
converted into a warrant to purchase Yurie Common Stock without any other
changes in the terms and conditions of such warrants. The number of shares of
Yurie Common Stock that the holder of a Data Labs Warrant shall be entitled to
receive upon the exercise of such warrant shall be a number of whole and
fractional shares determined by multiplying the number of shares of Data Labs
Common Stock subject to such warrant, determined immediately before the
Effective Time, by the Exchange Ratio applicable to shares of Data Labs Common
Stock. The exercise price of each share of Yurie Common Stock subject to a Data
Labs Warrant shall be the amount (rounded up to the nearest whole cent) obtained
by dividing the exercise price per share of Data Labs Common Stock at which such
warrant is exercisable immediately before the Effective Time by the Common
Exchange Ratio applicable to shares of Data Labs Common Stock, but shall be not
less than $.01. The assumption and substitution of the warrants as provided
herein shall not give the holders of such warrants additional benefits which
they did not have immediately prior to the Effective Time or relieve the holders
of any obligations or restrictions applicable to their warrants or the shares
obtainable upon exercise of the warrants. Only whole shares of Yurie Common
Stock shall be issued upon exercise of any Data Labs Warrants, and in lieu of
receiving any fractional share of Yurie Common Stock, the holder of such Data
Labs Warrant shall receive in cash the fair market value of the fractional
share, net of the applicable exercise price of the fractional share and
applicable withholding taxes. Yurie shall reserve out of its authorized but
unissued shares of Common Stock sufficient shares to provide for the exercise of
the Data Labs Warrants.
2.9 Closing of Stock Transfer Books. The stock transfer books of Data
-------------------------------
Labs shall be closed at the close of business on the business day immediately
preceding the Effective Time. In the event of a transfer of ownership of Data
Labs Common Stock or Data Labs Preferred Stock which is not registered in the
transfer records of Data Labs, the shares of Yurie Common Stock and cash for
fractional shares (if any) to be issued in the Merger as provided herein may be
delivered to a transferee, if the certificate representing such Data Labs Common
Stock or Data Labs Preferred Stock is presented to the Exchange Agent,
accompanied by all documents required to evidence and effect such transfer and
by payment of any applicable stock transfer taxes.
2.10 Dissenting Shares. Shares of Data Labs Common Stock or Data Labs
-----------------
Preferred Stock that have not been voted for adoption of this Agreement and with
respect to which appraisal rights shall have been properly perfected in
accordance with Section 262 of the Delaware Corporation Law (the "DISSENTING
SHARES") shall not be converted into the right to receive shares of Yurie Common
Stock and cash (if any) in accordance with this Agreement at or after the
Effective Time, unless and until the holder of such Dissenting Shares withdraws
such holder's demand for such appraisal in accordance with Section 262(k) of the
Delaware Corporation Law or becomes ineligible for such appraisal. If a holder
of Dissenting Shares shall
-9-
<PAGE>
withdraw in accordance with Section 262(k) of the Delaware Corporation Law or
such holder's demand for such appraisal shall become ineligible for such
appraisal, then, as of the later of the Effective Time or the occurrence of such
event, such holder's Dissenting Shares shall cease to be Dissenting Shares and
shall be converted into the right to receive the shares of Yurie Common Stock
and cash (if any) into which such holder's Data Labs Common Stock or Data Labs
Preferred Stock was converted as of the Effective Time pursuant to this
Agreement.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF DATA LABS
Data Labs hereby represents and warrants to each of Yurie and the Company
as follows:
3.1 Corporate Existence and Power. Data Labs is a corporation duly
-----------------------------
incorporated, validly existing and in good standing under the laws of the State
of Delaware and has all corporate power and authority necessary to enable it to
own, lease or otherwise hold its properties and assets and to carry on its
business as now conducted. Data Labs is duly qualified to do business as a
foreign corporation and upon acknowledgment of receipt by the State of Maryland
of $206.00 in late filing fees, will be in good standing in each jurisdiction
where the character of the property owned or leased by it or the nature of its
activities makes such qualification necessary, except for those jurisdictions
where the failure to be so qualified would not have a Material Adverse Effect
(as defined in Section 10.9(c) hereof) on Data Labs. All jurisdictions in which
Data Labs is so qualified to do business are listed on SCHEDULE 3.1. Data Labs
has previously delivered to Yurie and the Company true and complete copies of
the certificate of incorporation and bylaws of Data Labs, as amended to date and
as currently in effect, and all minutes of meetings (including actions in lieu
thereof) of the board of directors (and each committee thereof) and shareholders
of Data Labs.
3.2 Corporate Authorization. The execution, delivery and performance by
-----------------------
Data Labs of this Agreement and the agreements contemplated hereby, and the
consummation by Data Labs of the Merger and other transactions contemplated
hereby and thereby are within Data Labs' corporate power and authority, and have
been duly authorized by all necessary corporate action, including all necessary
shareholder votes. The Board of Directors of Data Labs has (i) determined that
this Agreement and the transactions contemplated hereby, including the Merger,
are fair to and in the best interest of Data Labs' shareholders, (ii) approved
this Agreement and the transactions contemplated hereby, including, but not
limited to the Merger and the Exhibits hereto, and (iii) resolved to recommend
approval and adoption of this Agreement and the Merger by Data Labs'
shareholders. This Agreement and the Exhibits hereto has been duly authorized,
executed and delivered by Data Labs and, subject to its execution by the other
parties hereto, constitutes a valid and binding obligation of Data Labs,
enforceable against Data Labs in accordance with its terms.
3.3 Consents and Approvals. Except as set forth on SCHEDULE 3.3, the
----------------------
execution, delivery and performance by Data Labs of this Agreement, and the
consummation of the Merger and other transactions contemplated by this Agreement
by Data Labs, do not and will not require
-10-
<PAGE>
any consent, approval or action by or in respect of, or any declaration, filing
or registration with, any governmental or regulatory body, court, agency,
official or authority (each, a "GOVERNMENTAL AUTHORITY") or other third party,
other than (i) routine filings with the Secretary of State of the State of
Delaware necessary to consummate the Merger, (ii) compliance with the applicable
requirements of the Securities Act, the Securities Exchange Act of 1934 (the
"EXCHANGE ACT") and any applicable state securities and blue sky laws in
connection with the offering, sale and delivery of the shares of Yurie Common
Stock to be issued in the Merger and (iii) consents, approvals, actions,
declarations, filings or registrations where the failure to obtain such
consents, approvals, action, or to make such declaration, filing or
registration, would not have a Material Adverse Effect.
3.4 Non-Contravention. Except as disclosed on SCHEDULE 3.4, the
-----------------
execution, delivery and performance by Data Labs of this Agreement, and the
consummation of the Merger and other transactions contemplated by this Agreement
by Data Labs, do not and will not, with or without the giving of notice, the
lapse of time or both: (i) contravene or conflict with the certificate of
incorporation or bylaws of Data Labs, (ii) assuming compliance with the matters
referred to in Section 3.3, contravene or conflict with or constitute a
violation of any provision of any law, rule, regulation, judgment, injunction,
order or decree currently in effect and binding upon or applicable to Data Labs,
(iii) to its knowledge, require any consent, approval or other action by any
person, contravene or conflict with or constitute a violation of or a default
under, or give rise to any right of termination, cancellation or acceleration of
any right or obligation of Data Labs or to a loss of any benefit to which Data
Labs is entitled, under any provision of (A) any material agreement, contract,
indenture, lease or other instrument binding upon Data Labs or (B) assuming
compliance with the matters referred to in Section 3.3, any license, franchise,
permit or other similar authorization held by Data Labs or (iv) except for the
rights of any holders of Dissenting Shares, result in the creation or imposition
of any mortgage, pledge, security interest, lien, claim, charge, restriction,
encumbrance or assessment of any kind (each, a "LIEN") on any asset of Data
Labs.
3.5 Capitalization. As of December 1, 1997, the authorized capital stock
--------------
of Data Labs consists of (i) 6,400,000 shares of Preferred Stock, of which
3,200,000 are designated Series A Preferred, 3,130,000 of which were issued and
outstanding and none of which are treasury shares, and (ii) 10,000,000 shares of
Data Labs Common Stock, of which 4,047,755 shares were issued and outstanding
and none of which are treasury shares. All issued and outstanding shares of
Data Labs Common Stock and Data Labs Preferred Stock are validly issued, fully
paid and nonassessable, and have not been issued in violation of any preemptive,
first refusal or other subscription rights of any shareholder of Data Labs or
any other person, and have been issued in compliance with federal and state
securities laws. Except as set forth on SCHEDULE 3.5, there are no outstanding
(i) shares of capital stock or other voting securities of Data Labs, (ii)
securities of Data Labs convertible into or exchangeable for shares of capital
stock or voting securities of Data Labs, (iii) options, warrants, exchange
rights, subscription rights or other agreements, commitments or rights to
purchase or otherwise acquire from Data Labs, or agreements, commitments or
obligations of Data Labs to issue or sell, any capital stock, voting securities
or securities convertible into or exchangeable for capital stock or voting
securities of Data Labs or (iv) any agreement, commitment or obligation of Data
Labs to grant, or enter into
-11-
<PAGE>
any such option, warrant, call, right, commitment or agreement (the items in
clauses (i), (ii) (iii) and (iv) being referred to collectively as the "DATA
LABS SECURITIES"). Except as set forth on SCHEDULE 3.5, there are no outstanding
obligations of Data Labs to sell, issue or deliver, or to repurchase, redeem or
otherwise acquire, any Data Labs Securities. SCHEDULE 3.5 sets forth a true and
complete list of the record owners of all Data Labs Securities.
3.6 Subsidiaries. Data Labs does not hold or own, directly or indirectly,
------------
any capital stock or other equity securities of any other corporation, or have
any direct or indirect equity or ownership interest in any association,
partnership, joint venture or other entity.
3.7 Financial Statements. Data Labs has previously delivered to Yurie and
--------------------
the Company the following financial statements (collectively, the "FINANCIAL
STATEMENTS"):
(i) the audited consolidated balance sheet of Data Labs as of
December 31, 1995 and December 31, 1996, and the related statements of
operations, shareholders' equity and cash flows for the period from
January 1, 1995 through December 31, 1995 and January 1, 1996 through
December 31, 1996, together with the notes thereto, in each case
audited by, and accompanied by the report thereon, of Arthur Andersen
LLP; and
(ii) the unaudited consolidated balance sheet of Data Labs as of
September 30, 1997 (the "UNAUDITED BALANCE SHEET") and the related
statements of operations and cash flows for the nine months then
ended.
Each of the Financial Statements has been prepared in accordance with generally
accepted accounting principles applied on a consistent basis, is correct and
complete in all material respects and fairly presents the financial position of
Data Labs as of its date or the results of operations or changes in financial
position, as is appropriate, of Data Labs for the periods then ended (subject,
in the case of unaudited interim financial statements to normal recurring year-
end adjustments, which adjustments will not be material in amount or effect).
The account records underlying the Financial Statements accurately and fairly
reflect, in reasonable detail, the transactions of Data Labs, and Data Labs'
books of account have been maintained on a consistent basis. To its knowledge,
all accounts receivable of Data Labs are valid and enforceable, are not subject
to any valid defense, set off or counterclaim, and are collectible in full in
accordance with their terms in the ordinary course of business of Data Labs,
except to the extent of any reserves therefor reflected on the Unaudited Balance
Sheet or taken in the ordinary course of business which in the aggregate are not
material to Data Labs.
3.8 Absence of Undisclosed Liabilities. To its knowledge, Data Labs has
----------------------------------
no Liabilities or Obligations, except those Liabilities or Obligations which are
(a) fully reflected or in the aggregate adequately reserved against in the
Unaudited Balance Sheet (including any notes thereto), (b) disclosed in this
Agreement or on SCHEDULE 3.8 hereto, or (c) incurred in the ordinary course of
business and in the aggregate are not material to Data Labs. There has not been
any assertion against Data Labs of any liability or obligation of any nature or
in any amount not (a) fully reflected or in the aggregate adequately reserved
against in the Unaudited Balance
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<PAGE>
Sheet, (b) disclosed in this Agreement or on SCHEDULE 3.8 hereto, or (c)
incurred in the ordinary course of business and in the aggregate not material in
amount to Data Labs. For the purposes of this Agreement, the phrase "LIABILITIES
OR OBLIGATIONS" shall include any direct or indirect indebtedness, claim, loss,
damage, deficiency (including deferred income tax and other net tax
deficiencies), cost, expense, obligation, guarantee, or responsibility, whether
accrued, absolute or contingent, fixed or unfixed, liquidated or unliquidated,
secured or unsecured.
3.9 Properties. Except as set forth on SCHEDULE 3.9, all of the material
----------
assets and properties of Data Labs are reflected on the Unaudited Balance Sheet
(except to the extent not required to be so reflected by generally accepted
accounting principles), and Data Labs has good, valid and marketable title to
all of its owned assets and properties, whether real, personal or mixed,
tangible or intangible, free and clear of all liens, except (a) liens for
current Taxes not delinquent, (b) liens in connection with workers'
compensation, unemployment insurance or other social security obligations, (c)
deposits or pledges to secure bids, tenders, contracts (other than contracts for
the payment of money), leases, statutory obligations, surety and appeal bonds
and other obligations of like nature arising in the ordinary course of business
and (d) mechanic's, workman's, materialmen's or other like liens arising in the
ordinary course of business with respect to obligations which are not due or
which are being contested in good faith.
3.10 Real Property. Data Labs does not own any real property. Set forth
-------------
on SCHEDULE 3.10 is an accurate and complete list and summary description of all
real property currently leased by or on behalf of Data Labs and, except as set
forth on SCHEDULE 3.10, none of the described leases require any consent to the
transactions contemplated by this Agreement. Data Labs has previously delivered
to Yurie and the Company accurate and complete copies of all leases listed and
described on SCHEDULE 3.10. Except as set forth on SCHEDULE 3.10, Data Labs has
possession of each of the aforementioned properties and no event has occurred
which, with the lapse of time or notice or both, could result in a default under
any of the described leases. All rents or other payment obligations which have
become due in respect of each of such leased properties have been paid, Data
Labs has complied with its obligations under the said leases and Data Labs has
not received, since January 1, 1997, any notice of any breach of its obligations
under any covenants, agreements, statutory requirements, planning consents,
bylaws, orders and regulations affecting any of such properties, their use and
any business of Data Labs there carried on.
3.11 Condition of Tangible Assets. All tangible property, including
----------------------------
leased property and the fixtures therein, of Data Labs is in good operating
condition, reasonable wear and tear excepted and, the operation and use of such
property in the business of Data Labs conforms to all applicable laws,
ordinances, regulations, permits, licenses and certificates in all material
respects.
3.12 Intellectual Property. (a) Data Labs owns, or has the right to use
---------------------
by license, all patents, trademarks, trade names, service marks, copyrights, and
any applications therefor, maskworks, formulae, designs, schematics, technology,
trade secrets, know-how, computer software programs or applications (in both
source code and object code form), and tangible or intangible proprietary
information or material that are used or proposed to be used in the business
-13-
<PAGE>
of Data Labs as currently conducted (excluding any of the foregoing validly
licensed or purchased from third parties as set forth on SCHEDULE 3.12(b), the
"DATA LABS INTELLECTUAL PROPERTY RIGHTS"). SCHEDULE 3.12(a) sets forth a list of
all trademarks, service marks, trade names, registered copyrights and patents
(and any applications for the registration thereof) owned or licensed and used
by Data Labs during the last 3 years, specifying as to each, as applicable: (i)
the nature of such right; (ii) the owner of such right; and (iii) if applicable,
the jurisdictions by or in which such right has been issued or registered or in
which an application for such issuance or registration has been filed, including
the respective registration or application numbers. Data Labs has no patents or
patent applications. All registered trademarks, service marks and copyrights
held by Data Labs are valid and subsisting.
(b) SCHEDULE 3.12(b) sets forth a complete list of (i) all material
licenses, sublicenses and other agreements as to which Data Labs is a party and
pursuant to which any person is authorized to use any Data Labs Intellectual
Property Right, including the identity of all parties thereto (other than
customer licensing agreements received by customers in connection with purchases
of Data Labs' products that would not have a Material Adverse Effect on Data
Labs Intellectual Property Rights), and (ii) all licenses, sublicenses and other
agreements as to which Data Labs is a party and pursuant to which Data Labs is
authorized to use (1) any third party patents, trademarks or copyrights
(including software) (the "DATA LABS THIRD PARTY INTELLECTUAL PROPERTY RIGHTS")
which are incorporated in, or form a part of, any Data Labs product, or (2) any
trade secret of a third party in or as to any Data Labs product including the
identity of all parties thereto. Data Labs has no knowledge that the Data Labs
Third Party Intellectual Property Rights are not owned by or have not been
assigned or licensed to the licensor of such right. Data Labs is not, nor will
it be as a result of the execution and delivery of this Agreement or the
performance of its obligations hereunder, in breach or violation of any license,
sublicense or agreement described on SCHEDULE 3.12(b).
(c) No claims with respect to Data Labs Intellectual Property Rights
or Data Labs Third Party Intellectual Property Rights (to the extent arising out
of any use, reproduction or distribution of such Data Labs Third Party
Intellectual Rights by or through Data Labs), have been asserted or, to Data
Labs' knowledge, are threatened by any person. Data Labs has no knowledge of
any valid grounds for any bona fide claims (i) to the effect that the
manufacture, sale, licensing or use of any product as now used, sold or licensed
or proposed for use, sale or license by Data Labs infringes on any copyright,
patent, trademark, service mark or trade secret, (ii) against the use by Data
Labs of any trademarks, trade names, trade secrets, copyrights, patents,
technology, know-how or computer software programs and applications used in Data
Labs' business as currently conducted, (iii) challenging the ownership, validity
or effectiveness of any of Data Labs Intellectual Property Rights, or (iv)
challenging Data Labs' license or legally enforceable right to use, or the
validity or effectiveness of Data Labs Third Party Intellectual Property Rights.
Data Labs (i) has not been sued or charged in writing as a defendant in any
claim, suit, action or proceeding which involves a claim of infringement of any
patents, trademarks, service marks, copyrights or violation of any trade secret
or other proprietary right of any third party, and (ii) except as set forth on
SCHEDULE 3.12(d), has not been threatened or charged in writing, orally or
otherwise with infringement or violation of any patents, trademarks, service
marks, copyrights or trade secrets or other proprietary right of any third
party.
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<PAGE>
(d) To Data Labs' knowledge, there is no unauthorized use, disclosure,
infringement or misappropriation of any Data Labs Intellectual Property Rights
or any Data Labs Third Party Intellectual Property Right to the extent licensed
by or through Data Labs, by any third party, including any employee or former
employee of Data Labs.
(e) No Data Labs Intellectual Property Right or, to Data Labs'
knowledge, Data Labs Third Party Intellectual Property Right is subject to any
outstanding order, judgment, decree, legal or governmental proceeding (other
than pending applications for patent, trademark registration or copyright
registration) or stipulation restricting in any manner the licensing thereof by
Data Labs. Except for contracts licensing Data Labs' products executed in the
ordinary course of business and in accordance with Data Labs' past practices,
Data Labs has not entered into any agreement to indemnify any other person
against any charge of infringement of any third party's intellectual property
right.
(f) Data Labs has taken reasonable measures to protect and preserve
(i) the validity and enforceability of trademarks included in the Data Labs
Intellectual Property Rights, (ii) the confidentiality and validity and
enforceability of unpublished copyrighted works or pending patent applications
included in the Data Labs Intellectual Property Rights, (iii) the validity and
enforceability of patents included in the Data Labs Intellectual Property
Rights, and (iv) the confidentiality and validity and enforceability of its
trade secrets and other confidential information. Except as set forth on
SCHEDULE 3.12(c), each employee and consultant of Data Labs has executed a
nondisclosure and assignment of inventions agreement to protect the
confidentiality and to vest in Data Labs exclusive ownership of such
Intellectual Property Rights. To Data Labs' knowledge, no employee or
consultant of Data Labs has used any trade secrets or other confidential
information of any other person in the course of their work for Data Labs and,
except as set forth on SCHEDULE 3.12(d), Data Labs has not been sued, charged or
threatened with any such claim. To Data Lab's knowledge, no employee or
consultant has used, divulged or appropriated for the benefit of, himself or any
person other than Data Labs any trade secret or confidential information of Data
Labs. Data Labs has no written or oral agreements with employees or consultants
with respect to the ownership of inventions, trade secrets or other works
created by them as a result of which any such employee or consultant may have
nonexclusive rights to the portions of Data Labs' Intellectual Property Rights
so created by such individual.
(g) No officer or employee of Data Labs is in violation of any term of
any employment contract, patent disclosure agreement, proprietary information
agreement, noncompetition agreement, nonsolicitation agreement, confidentiality
agreement, or any other similar contract or agreement or any restrictive
covenant relating to the right of any such officer or employee to be employed or
engaged by Data Labs because of the nature of the business conducted or to be
conducted by Data Labs or relating to the use of trade secrets or proprietary
information of others; to Data Labs' knowledge, no consultant of Data Labs is in
violation of any term of any employment contract, patent disclosure agreement,
proprietary information agreement, noncompetition agreement, nonsolicitation
agreement, confidentiality agreement, or any other similar contract or agreement
or any restrictive covenant relating to the right of any
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such officer or employee to be employed or engaged by Data Labs because of the
nature of the business conducted or to be conducted by Data Labs or relating to
the use of trade secrets or proprietary information of others; and, to Data
Labs' knowledge, the continued employment or retention of its officers,
employees or consultants does not subject Data Labs to any material liability
with respect to any of the foregoing matters; and, except as set forth on
SCHEDULE 3.12(d), Data Labs has not been sued, charged or threatened with any
claim with respect to any of the foregoing matters.
3.13 Absence of Certain Changes. Except as disclosed on SCHEDULE 3.13,
--------------------------
since September 30, 1997, the business of Data Labs has been conducted in the
ordinary course and there has not been:
(i) any event, occurrence, development or state of
circumstances or fact which has had or could reasonably be expected to
result in or have a Material Adverse Effect on Data Labs;
(ii) any declaration, setting aside or payment of any dividend
or other distribution with respect to any shares of capital stock of
Data Labs, or any repurchase, redemption or other acquisition by Data
Labs of any outstanding shares of capital stock or other securities
of, or other equity or ownership interests in, Data Labs;
(iii) any amendment of any term of any outstanding security of
Data Labs;
(iv) any incurrence, assumption or guarantee by Data Labs of
any indebtedness for borrowed money other than in the ordinary course
of business, but in any event not exceeding an aggregate of $20,000;
(v) any creation or assumption by Data Labs of any Lien on any
asset, other than liens incurred in the ordinary course of business or
that do not in the aggregate have a Material Adverse Effect;
(vi) any making of any loan, advance or capital contributions
to or investment in any person;
(vii) any damage, destruction or other casualty loss (whether or
not covered by insurance) affecting the business or assets of Data
Labs which has had or would reasonably be expected to result in or
have a Material Adverse Effect on Data Labs;
(viii) any acquisitions of any capital assets or any other
investments for aggregate consideration in excess of $20,000;
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(ix) any sale, lease, pledge, transfer or other disposition of
any capital assets for aggregate consideration in excess of $20,000;
(x) any transaction or commitment made, or any contract or
agreement entered into, by Data Labs relating to its assets or
business (including the acquisition or disposition of any assets)
other than those transactions covered by any other subparagraphs of
this Section 3.13 or any relinquishment by Data Labs of any contract
or other right, in either case, involving an amount in excess of
$20,000, other than transactions, commitments and relinquishments in
the ordinary course of business and those contemplated by this
Agreement;
(xi) any change in any method of accounting or significant
accounting practice by Data Labs;
(xii) any (A) grant of any severance or termination pay to any
director, officer or employee of Data Labs, (B) entering into of any
employment, severance, management, consulting, deferred compensation
or other similar agreement (or any amendment to any such existing
agreement) with any director, officer, consultant or employee of Data
Labs, (C) change in benefits payable under existing severance or
termination pay policies or employment, severance, management,
consulting or other similar agreements or (D) change in compensation,
bonus or other benefits payable to directors, consultants, officers or
employees of Data Labs;
(xiii) any labor dispute, other than routine individual
grievances, or any activity or proceeding by a labor union or
representative thereof to organize any employees of Data Labs, or any
lockouts, strikes, slowdowns, work stoppages or threats thereof by or
with respect to any employees of Data Labs;
(xiv) any agreement or commitment containing a covenant
limiting or purporting to limit the freedom of Data Labs to compete
with any person in any geographic area or engage in any line of
business;
(xv) any joint venture or similar arrangement which involves a
sharing of profits or future payments to other persons; or
(xvi) any agreement, undertaking or commitment to do any of the
foregoing.
3.14 Litigation. Except as set forth on SCHEDULE 3.14, there is no action,
----------
suit, investigation or proceeding pending or threatened against or affecting,
Data Labs or any of its properties or assets before any court or arbitrator or
any Governmental Authority. Except as set forth on SCHEDULE 3.14, there is no
litigation pending or, to Data Labs' knowledge, threatened against any officer
or key employee relating to Data Labs or its business. Neither Data Labs nor,
to Data Labs' knowledge, any officer or key employee is subject to any judgment,
order or
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decree relating to Data Labs entered in any lawsuit or proceeding or issued by
any Governmental Authority. The foregoing sentences include, without limiting
their generality, actions pending or threatened (or any basis therefor known to
Data Labs) involving the prior employment or engagement of any of the Data Labs'
officers or key employees or their use in connection with Data Labs' business of
any information or techniques allegedly proprietary to any of their former
employers or to any other Person.
3.15 Material Contracts. (a) Except for agreements, contracts, plans,
------------------
leases, arrangements or commitments disclosed on SCHEDULE 3.15 provided to Yurie
pursuant to this Agreement, Data Labs is not a party to or subject to:
(i) any collective bargaining agreement;
(ii) any agreements that contain any unpaid severance
Liabilities or Obligations;
(iii) any bonus, deferred compensation, incentive compensation,
pension, profit-sharing or retirement plans, or any other employee
benefit plans or arrangements;
(iv) any employment or consulting agreement, contract or
commitment with an employee or individual consultant or salesperson or
consulting or sales agreement, contract or commitment with a firm or
other organization;
(v) any agreement or plan, including, without limitation, any
stock option plan, stock appreciation right plan or stock purchase
plan, any of the benefits of which will be increased, or the vesting
of benefits of which will be accelerated, by the occurrence of any of
the transactions contemplated by this Agreement or the value of any of
the benefits of which will be calculated on the basis of any of the
transactions contemplated by this Agreement;
(vi) any fidelity or surety bond or completion bond;
(vii) any lease of personal property having a remaining value
individually in excess of $20,000;
(viii) any agreement of indemnification or guaranty;
(ix) any agreement, contract or commitment containing any
covenant limiting the freedom of Data Labs or any of its officers or
employees to engage in any line of business or compete with any
person;
(x) any agreement, contract or commitment relating to capital
expenditures and involving future obligations in excess of $20,000;
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(xi) any agreement, contract or commitment relating to the
disposition or acquisition of assets not in the ordinary course of
business or any ownership interest in any corporation, partnership,
joint venture or other business enterprise;
(xii) any mortgages, indentures, loans or credit agreements,
security agreements or other agreements or instruments relating to the
borrowing of money or extension of credit, including guaranties
referred to in clause (viii) hereof;
(xiii) any purchase order or contract for the purchase of raw
materials or acquisition of assets involving $20,000 or more;
(xiv) any construction contracts;
(xv) any distribution, joint marketing, teaming or development
agreement;
(xvi) any distributor, dealer, franchise, original equipment
manufacturer, reseller, manufacturer's representative or sales agency
contract or commitment;
(xvii) any agreements pertaining to Data Labs' maintenance or
support of its products, services or supplies;
(xviii) any agreement, contract or commitment which involves
$20,000 or more and is not cancelable without penalty within thirty
(30) days; and
(xix) any other agreement, contract or commitment that is
material to Data Labs.
Data Labs has not breached, or received any claim or threat that it has
breached, any of the terms or conditions of any agreement, contract or
commitment set forth in any of Data Labs' Schedules in such a manner as would
permit any other party to cancel or terminate the same, which cancellation or
termination would not have a Material Adverse Effect. Each agreement, plan,
contract or commitment set forth in any of Data Labs' Schedules is a valid and
binding agreement of Data Labs and, to Data Labs' knowledge, each other party
thereto and is in full force and effect and is not subject to any default
thereunder of which Data Labs has knowledge by any party obligated to Data Labs
pursuant thereto. Data Labs has obtained all necessary consents, waivers and
approvals as are required in connection with the Merger under any of Data Labs'
agreements, contracts, licenses or leases.
(b) Except as disclosed on SCHEDULE 3.15, there is no contract,
agreement, commitment or obligation to which Data Labs is a party or is bound
that at the time it was entered into or made was, or is currently, known or
expected by Data Labs to result in any material loss to Data Labs upon
completion or performance thereof, or any bid, offer or proposal which if
accepted would result as such a contract, agreement, commitment or obligation.
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<PAGE>
(c) Except as disclosed on SCHEDULE 3.15, Data Labs is not a party to
any agreement with any of its securityholders or optionholders, or any affiliate
of any Significant Shareholder of Data Labs, nor is any Significant Shareholder
of Data Labs a party to any agreement with any other such Significant
Shareholder relating to Data Labs or any of its securities. "SIGNIFICANT
SHAREHOLDER" shall mean any shareholder that holds greater than 10% of any class
of capital stock of Data Labs.
3.16 Taxes. (a) The term "TAXES" as used herein means all federal, state,
-----
local, foreign and other net income, gross income, gross receipts, sales, use,
ad valorem, transfer, franchise, profits, license, lease, service, service use,
withholding (including backup withholding), payroll, employment, excise,
severance, stamp, occupation, premium, property (real or personal), windfall
profits, customs duties, unemployment insurance, environmental (including taxes
under Internal Revenue Code (S) 59A), worker's compensation, Pension Benefit
Guaranty Corporation premiums, disability, capital stock, social security (or
similar), registration, alternative or add-on minimum, estimated, or other taxes
of any kind whatsoever, including any interest, penalty or addition thereto,
whether disputed or not, and the term "TAX" means any one of the foregoing
taxes. The term "RETURNS" as used herein means all returns, declarations,
reports, claims for refund, or information returns or statements relating to
Taxes, including any schedule or attachment thereto, and including any amendment
thereof, and "RETURN" means any one of the foregoing returns. All citations to
the Code, or the Treasury Regulations promulgated thereunder, shall include any
amendments or any substitute or successor provisions thereto.
(b) Data Labs has filed (or has had filed on its behalf) all Returns
required to be filed as of the date hereof with respect to periods ending on or
before the date hereof (taking into account all extensions of time within which
to file any Return that have been granted by the relevant taxing authority).
All such Returns are true, complete and correct, and Data Labs has maintained
all required records with respect thereto. Except as set forth on Schedule
3.16, Data Labs is not currently the beneficiary of any extension of time within
which to file any Return. All Taxes shown to be payable by Data Labs on the
Returns, or on subsequent assessments with respect thereto, with respect to any
period ending on or prior to the date hereof have been paid in full, and no
other material Taxes are payable by Data Labs with respect to items or periods
covered by such Returns (whether or not shown on or reportable on such Returns).
Data Labs has paid all estimated Taxes required to be paid on or prior to the
date hereof. No claim has ever been made by an authority in a jurisdiction
where Data Labs does not file Returns that it is or may be subject to taxation
by that jurisdiction.
(c) Data Labs has withheld and paid over all Taxes required to have
been withheld and paid over by it in connection with amounts paid or owing to
any employee, creditor, independent contractor, shareholder or other third
party.
(d) The amount of Data Labs' liability for unpaid Taxes as of the date
of the Unaudited Balance Sheet (including unpaid Taxes with respect to portions
of periods ending after the date of the Unaudited Balance Sheet) does not, in
the aggregate, exceed the amount of
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the net current liability accruals for Taxes set forth on the Unaudited Balance
Sheet and Data Labs will incur no additional Taxes subsequent to the date of the
Unaudited Balance Sheet until the Effective Time except in the ordinary course
of business (including, for this purpose, transactions of which Yurie has
knowledge which are required to be undertaken by Data Labs in order to
consummate the Merger).
(e) No issues have been raised (and are currently pending) by any
taxing authority in connection with any of the Returns of Data Labs. SCHEDULE
3.16 lists all federal, state, local and foreign income tax Returns filed with
respect to Data Labs for taxable periods ended on or after December 31, 1992,
indicates those returns that have been audited and indicates those returns that
currently are the subject of audit. Data Labs has delivered to Yurie and the
Company correct and complete copies of all federal income tax returns,
examination reports, and statements of deficiencies assessed against or agreed
to by Data Labs since December 31, 1992.
(f) Data Labs has not waived any statute of limitations in respect of
Taxes or agreed to any extension of time with respect to a Tax assessment or
deficiency, which waiver or extension remains currently in effect.
(g) Data Labs has not filed a consent under Section 341(f) of the
Code concerning collapsible corporations. Data Labs has not made any payments,
is not obligated to make any payments, and is not a party to any agreement that
could obligate it to make any payments that will not be deductible under Section
280G of the Code. Except as may be required under Section 448 of the Code in
connection with this transaction, Data Labs has not agreed to make any
adjustment under Section 481(a) of the Code by reason of a change in accounting
method or otherwise, and Data Labs will not be required to make any such
adjustment as a result of the transactions contemplated by this Agreement. Data
Labs is not a party to any safe harbor lease within the meaning of Section
168(f)(8) of the Code, as in effect prior to amendment by the Tax Equity and
Fiscal Responsibility Act of 1982. Data Labs is not and has not ever been, a
"United States real property holding corporation" within the meaning of Section
897(c)(2) of the Code. Data Labs is not (and has not ever been) a party to any
Tax allocation or sharing agreement. Data Labs (A) has not ever been a member
of a group of corporations filing a consolidated, unitary or combined Return and
(B) is not liable for the Taxes of any other person under Treas. Reg. (S)
1.1502-6 (or any similar provision of state, local or foreign law), as a
transferee or successor, by contract, or otherwise. Data Labs has no
unrecognized gain as of the date hereof under Section 453 of the Code. Data
Labs has not participated in or cooperated with any international boycott within
the meaning of Section 999 of the Code. The ability of Data Labs to use its net
operating loss and other carryovers will not have been affected by Sections 382,
383 or 384 of the Code (other than as a result of the Merger and the
contemplated exercise of Data Labs Warrants in connection therewith). Data Labs
is not a party to any joint venture, partnership, or other arrangement or
contract which could be treated as a partnership for federal income tax
purposes. Data Labs has not had a permanent establishment in any foreign
country, as defined in any applicable Tax treaty or convention between the
United States and such foreign country. No power of attorney has been granted
by Data Labs, and is currently in force, with respect to any matter relating to
Taxes. To the best of Data Labs' knowledge, Data Labs has disclosed on its
federal income Tax Returns all positions taken therein that could give rise to a
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substantial understatement of federal income Tax within the meaning of Section
6662 of the Code.
(h) SCHEDULE 3.16 sets forth the following information with respect to
Data Labs as of the most recent practicable date: (A) the basis of Data Labs
and its assets, and (B) the amount of any net operating loss, net capital loss,
unused investment or other credit, unused foreign tax, or excess charitable
contribution allocable to Data Labs.
3.17 Employees. SCHEDULE 3.17 sets forth a true and complete list of (a)
---------
the names, titles, annual salaries and other compensation of all employees of
Data Labs (the "EMPLOYEES") as of the date first above written and the location
at which such Employees regularly perform services for Data Labs and (b) the
wage rates for non-salaried Employees of Data Labs (by classification). Any
agreements, commitments or understandings between Data Labs and any Employee
concerning such Employee's future salary, compensation or terms of employment
are summarized on SCHEDULE 3.17. Except as set forth on SCHEDULE 3.17, as of
the date first written above none of such Employees has indicated to Data Labs
that he intends to resign or retire as a result of the transactions contemplated
by this Agreement or otherwise. Data Labs has no Employees represented by a
union and Data Labs (i) is in compliance with all applicable laws and
regulations respecting employment wages and (ii) is not engaged in any unfair
labor practice.
3.18 Transactions with Affiliates. Except as set forth on SCHEDULE 3.18,
----------------------------
there are no loans, leases, royalty agreements or other agreements between Data
Labs, on the one hand, and any affiliate of Data Labs, any of the shareholders
of Data Labs, any affiliate of any Significant Shareholder of Data Labs, or any
member of any such Significant Shareholder's family, on the other hand. Except
as set forth on SCHEDULE 3.18, none of the officers or directors of Data Labs
(a) to Data Labs' knowledge, has any material direct or indirect interest in any
entity which does business with Data Labs, (b) has any material direct or
indirect interest in any property, asset or right which is used by Data Labs in
the conduct of its business, or (c) has any contractual relationship with Data
Labs other than such relationships which occur from being an employee, officer,
director or shareholder of Data Labs.
3.19 Insurance Coverage. SCHEDULE 3.19 sets forth an accurate and
------------------
complete list of all insurance policies and fidelity bonds covering the assets,
business, equipment, properties, operations, employees, officers and directors
of Data Labs. There is no claim by Data Labs pending under any of such policies
or bonds as to which coverage has been questioned, denied or disputed by the
underwriters of such policies or bonds. All premiums payable under all such
policies and bonds have been paid, and Data Labs has otherwise complied with the
terms and conditions of all such policies and bonds. Such policies of insurance
and bonds (or other policies and bonds providing substantially similar insurance
coverage) have been in effect since the dates indicated on SCHEDULE 3.19 and
remain in full force and effect. Data Labs has no knowledge of any threatened
termination of, and has not received written notice of, any premium increase
with respect to, any of such policies or bonds.
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3.20 Compliance with Laws; No Defaults. (a) Data Labs is not in violation
---------------------------------
of any applicable provisions of any law, statute, ordinance, regulation,
judgment, order, injunction, permit, license, certificate or other
authorization, or its governing instruments, except for violations that have not
had and would not reasonably be expected to have a Material Adverse Effect on
Data Labs.
(b) Data Labs is not in default under, and no condition exists that
with notice or lapse of time or both would constitute a default under, any
applicable law, statute, ordinance, regulation, judgment, order, injunction,
permit, license, certificate or other authorization, or its governing
instruments, except defaults that would not reasonably be expected to have a
Material Adverse Effect on Data Labs.
(c) Data Labs is in compliance with all currently applicable laws
respecting employment and employment practices, terms and conditions of
employment and wages and hours in all material respects, and is not engaged in
any unfair labor practice, failure to comply with which or engagement in which,
as the case may be, has had, or would reasonably be expected to have, a Material
Adverse Effect on Data Labs.
3.21 Finders' Fees. Except as set forth on SCHEDULE 3.21, there is no
-------------
investment banker, broker, finder or other intermediary that has been retained
by or is authorized to act on behalf of Data Labs who might be entitled to any
fee or commission from Yurie, the Company, Data Labs or any other person upon
consummation of the transactions contemplated by this Agreement.
3.22 Environmental Matters. (a) Except as disclosed on SCHEDULE 3.22,
---------------------
(i) to Data Labs' knowledge, no notice, notification, demand,
request for information, citation, summons, complaint or order has
been issued, no complaint has been filed, no penalty has been assessed
and no investigation or review is pending or threatened by any
governmental entity or other person with respect to any (A) alleged
violation by Data Labs of any Environmental Law (as defined below) or
liability thereunder, (B) alleged failure by Data Labs to have any
permit, certificate, license, approval, registration or authorization
required under any Environmental Law in connection with the conduct of
its business or (C) Release of Hazardous Substances;
(ii) to Data Labs' knowledge, no polychlorinated biphenyls,
radioactive material, urea formaldehyde, lead, asbestos, asbestos-
containing material or any other Hazardous Substance or underground
storage tank (active or abandoned) is or was present at any premises
now leased and actually occupied by Data Labs or was present at any
premises owned or leased and actually occupied by Data Labs in the
five years preceding the date of this Agreement; and
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(iii) to Data Labs' knowledge, there are no Environmental
Liabilities (as defined below) that have had or may reasonably be
expected to have a Material Adverse Effect on Data Labs.
(b) To Data Labs' knowledge, there has been no environmental
investigation, study, audit, test, review or other analysis conducted of which
Data Labs has possession, or to which it has access, in relation to the current
or prior business of Data Labs or any property or facility now or previously
owned or leased by Data Labs which has not been delivered to Yurie at least five
days prior to the date hereof.
(c) To Data Labs' knowledge, it has not transported or arranged for
the transportation (directly or indirectly) of any Hazardous Substance to any
location which is listed or proposed for listing under CERCLA (hereinafter
defined), or on any similar state list or which is the subject of Federal, state
or local enforcement actions or other investigations which may lead to claims
for clean-up costs, remedial work, damages to natural resources or for personal
injury claims, including, but not limited to, claims under CERCLA or analogous
state environmental clean-up laws.
(d) "CERCLA" means the Comprehensive Environmental Response,
Compensation and Liability Act of 1980, as amended.
(e) "ENVIRONMENTAL LAWS" means any and all laws or regulations,
judicial decisions, orders or permits relating to the environment or human
health or safety or to emissions, discharges or releases of pollutants,
contaminants, petroleum or petroleum products, chemicals or industrial, toxic,
radioactive or hazardous substances or wastes into the environment including,
without limitation, ambient air, surface water, ground water, or land, or
otherwise relating to the manufacture, processing, distribution, use, treatment,
storage, disposal, transport or handling of pollutants, contaminants, petroleum
or petroleum products, chemicals or industrial, toxic, radioactive or hazardous
substances medical wastes or other wastes or the clean-up or other remediation
thereof.
(f) "ENVIRONMENTAL LIABILITIES" means all environmental liabilities
arising in connection with or in any way relating to the assets of Data Labs or
Data Labs' use or ownership thereof, whether vested or unvested, contingent or
fixed, actual or potential, which (i) arise under or relate to Environmental
Laws or arise in connection with or relate to any matter disclosed or required
to be disclosed on SCHEDULE 3.22 and (ii) arise from or relate in any way to
actions occurring or conditions existing before the Closing Date.
(g) "HAZARDOUS SUBSTANCE" means petroleum products or hazardous
substances as defined in Section 101 of CERCLA.
(h) "RELEASE" has the meaning specified in 42 U.S.C. (S) 9601(22).
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(i) For purposes of this Section, the term "Data Labs" shall include
any business or business entity (including a corporation) which is a
predecessor, in whole or in part, of Data Labs.
3.23 Employees and Employee Plans. (a) Data Labs has set forth on
----------------------------
SCHEDULE 3.23 all employee benefit plans (as defined in Section 3(3) of the
Employee Retirement Income Security Act of 1974, as amended ("ERISA")) and all
bonus, stock option, stock purchase, incentive, deferred compensation,
supplemental retirement, severance insurance (including any self-insured or
post-retirement arrangements), disability, vacation, profit-sharing and other
similar employee benefit plans, arrangements, policies or agreements, and all
unexpired employment and severance agreements, written or otherwise, for the
benefit of, or relating to, any current or former employee of Data Labs or any
trade or business (whether or not incorporated) which, together with Data Labs
would be treated as a single employer under Section 414 of the Code (an "ERISA
AFFILIATE"), (together, the "DATA LABS EMPLOYEE PLANS").
(b) With respect to each Data Labs Employee Plan, Data Labs has made
available to Yurie, a true and correct copy of (i) the most recent annual report
(Form 5500), if applicable, filed with the Internal Revenue Service ("IRS"),
(ii) such Data Labs Employee Plan, (iii) each trust agreement and group annuity
contract, if any, relating to such Data Labs Employee Plan, (iv) the most recent
actuarial report or valuation, if any, relating to a Data Labs Employee Plan and
(v) an accurate summary plan description of such Data Labs Employee Plan.
(c) With respect to the Data Labs Employee Plans, individually and in
the aggregate, to Data Labs' knowledge, no event has occurred and there exists
no condition or set of circumstances which could subject Data Labs to any
liability under ERISA, the Code or any other applicable law that may have a
Material Adverse Effect on Data Labs.
(d) Each Data Labs Employee Plan which is intended to be qualified
under Section 401(a) of the Code has been determined by the Internal Revenue
Service to be so qualified, and each trust forming a part thereof has been
determined by the Internal Revenue Service to be exempt from tax pursuant to
Section 501(a) of the Code. Data Labs has furnished to Yurie copies of the most
recent Internal Revenue Service determination letters with respect to each such
plan and, except as otherwise disclosed in Schedule 3.23, no such Data Labs
Employee Plan has been amended since the date of such determination letters.
(e) Each Data Labs Employee Plan has been maintained in material
compliance with its terms and the requirements prescribed by any and all
statutes, orders, rules and regulations, including but not limited to ERISA and
the Code, which are applicable to such Data Labs Employee Plan.
(f) Neither Data Labs nor any of its ERISA affiliates maintains or has
ever maintained or contributed to any "multiemployer plan" (as that term is
defined in Section 3(37) of ERISA) or any plan subject to Title IV of ERISA. No
"prohibited transaction" (as that term is defined in Section 406 of ERISA or
Section 4975 of the Code) has occurred with respect to any
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Data Labs Employee Plan. There is no contract, agreement, plan or arrangement
covering any employee or former employee of Data Labs or any of its ERISA
affiliates that, individually or collectively, could give rise to the payment of
any amount that would not be deductible pursuant to the terms of Section 280G of
the Code. No tax under Section 4980B of the Code has been incurred with respect
to any Data Labs Employee Plan that is a group health plan, as defined in
Section 5000(b)(1) of the Code. With respect to the employees and former
employees of Data Labs or any of its ERISA affiliates, there are no employee
post-retirement medical or health plans in effect, except as required by Section
4980B of the Code.
(g) With respect to the Data Labs Employee Plans, individually and in
the aggregate, there are no funded benefit obligations for which contributions
have not been made or properly accrued and there are no unfunded benefit
obligations which have not been accounted for by reserves, or otherwise properly
footnoted in accordance with generally accepted accounting principles, on the
financial statements of Data Labs, which obligations in the aggregate may have a
Material Adverse Effect on Data Labs.
(h) Except as set forth on SCHEDULE 3.23, Data Labs is not a party to
any oral or written (i) agreement with any officer or any other key employee of
Data Labs, the benefits of which are contingent, or the terms of which are
altered, upon the occurrence of a transaction involving Data Labs of the nature
contemplated by this Agreement, (ii) agreement with any officer of Data Labs
providing any term of employment or compensation guarantee extending for a
period longer than one year from the date hereof or for the payment of
compensation in excess of $80,000 per annum, or (iii) agreement or plan,
including any stock option plan, stock appreciation right plan, restricted stock
plan or stock purchase plan, any of the benefits of which will be increased, or
the vesting of the benefits of which will be accelerated, by the occurrence of
any of the transactions contemplated by this Agreement or the value of any of
the benefits of which will be calculated on the basis of any of the transactions
contemplated by this Agreement.
3.24 Other Information. None of the representations and warranties of
-----------------
Data Labs contained herein or in and of the Schedules hereto contains any untrue
statement of a material fact or omits to state a material fact necessary to make
the statements contained herein or therein not misleading in light of the
circumstances in which it was made. Data Labs has disclosed to Yurie and the
Company all material information relating to Data Labs.
3.25 Investment Representations. (a) Except as disclosed in SCHEDULE 3.25,
--------------------------
to Data Labs' knowledge, based on suitability questionnaires circulated to each
shareholder of Data Labs and such other knowledge as Data Labs may have obtained
with respect to its shareholders without additional inquiry, each shareholder of
Data Labs receiving shares of Yurie Common Stock in the Merger (each, a "Selling
Shareholder") is an "Accredited Investor" as defined in Securities Act Rule
501(a).
(b) To Data Labs' knowledge, SCHEDULE 3.25 sets forth the location
where each Selling Shareholder is a resident, is domiciled, or maintains its
principal executive office.
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3.26 Shareholders. Set forth on SCHEDULE 3.26(a) is a complete list of the
------------
shareholders of record of Data Labs as of December 1, 1997, together with each
shareholders' address and the amount of Data Labs Preferred Stock and/or Data
Labs Common Stock held by each such shareholder.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF YURIE AND THE COMPANY
Yurie and the Company hereby represent and warrant to Data Labs as follows:
4.1 Corporate Existence and Power. Each of Yurie and the Company is a
-----------------------------
corporation duly incorporated, validly existing and in good standing under the
laws of the State of Delaware and has all corporate power and authority
necessary to enable it to own, lease or otherwise hold its properties and assets
and to carry on its business as now conducted and proposed to be conducted.
4.2 Corporate Authorization. The execution, delivery and performance by
-----------------------
Yurie and the Company of this Agreement, the Registration Rights Agreement, and
the Escrow Agreement and all other agreements contemplated hereby and the
consummation by Yurie and the Company of the Merger and other transactions
contemplated hereby and thereby, are within the corporate power and authority of
Yurie and the Company, respectively, and, have been duly authorized by all
necessary corporate action. Each of this Agreement, the Registration Rights
Agreement and the Escrow Agreement and all other agreements contemplated hereby
has been duly and validly authorized, executed and delivered by Yurie and the
Company and, subject to its execution by the other parties hereto or thereto,
constitutes a valid and binding obligation of Yurie and the Company, enforceable
against Yurie and the Company in accordance with its terms.
4.3 Consents and Approvals. The execution, delivery and performance by
----------------------
Yurie and the Company of this Agreement, and the consummation of the Merger and
other transactions contemplated by this Agreement by Yurie and the Company, do
not and will not require any consent, approval or action by or in respect of, or
any declaration, filing or registration with, any Governmental Authority or
other third party, other than (i) routine filings with the Secretary of State of
the State of Delaware necessary to consummate the Merger, (ii) compliance with
the applicable requirements of the Securities Act, the Exchange Act and any
applicable state securities and blue sky laws in connection with the offering,
sale and delivery of the shares of Yurie Common Stock to be issued in the Merger
and (iii) consents, approvals, actions, declarations, filings or registrations
where the failure to obtain such consents, approvals, action, or to make such
declaration, filing or registration, would not have a Material Adverse Effect.
4.4 Non-Contravention. The execution, delivery and performance by Yurie
-----------------
and the Company of this Agreement, and the consummation of the Merger and other
transactions contemplated by this Agreement by Yurie and the Company, do not and
will not, with or without the giving of notice, the lapse of time or both: (i)
contravene or conflict with the certificates of incorporation or bylaws of Yurie
or the Company; or (ii) assuming compliance with the matters
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referred to in Section 4.3, contravene or conflict with or constitute a
violation of any provision of any law, rule, regulation, judgment, injunction,
order or decree binding upon or applicable to Yurie or the Company; (iii) to its
knowledge, require any consent, approval or other action by any person,
contravene or conflict with or constitute a violation of or a default under, or
give rise to any right of termination, cancellation or acceleration of any right
or obligation of Yurie or to a loss of any benefit to which Yurie is entitled,
under any provision of (A) any material agreement, contract, indenture, lease or
other instrument binding upon Yurie or (B) assuming compliance with the matters
referred to in Section 4.3, any license, franchise, permit or other similar
authorization held by Yurie or (iv) except for the rights of any holders of
Dissenting Shares, result in the creation or imposition of any Lien on any asset
of Yurie.
4.5 Capitalization. (a) As of September 30, 1997, the authorized capital
--------------
stock of Yurie consisted of (i) 10,000,000 shares of Preferred Stock, par value
$.01 per share, none of which were issued and outstanding or held in the
treasury of Yurie, and (ii) 50,000,000 shares of Common Stock, par value $.01
per share, of which 24,909,976 shares were issued and outstanding and no shares
were held in the treasury of Yurie. As of September 30, 1997, there were
reserved for issuance an aggregate of up to 2,082,089 shares of Common Stock
under Yurie's various employee benefit plans (the "YURIE EMPLOYEE PLANS") and an
aggregate of 20,000 shares of Common Stock reserved for issuance pursuant to
options granted outside of the Yurie Employee Plans. Except as disclosed in
this Agreement or any Yurie SEC Document (as defined below), there are no
options, warrants, exchange rights, subscription rights or other agreements,
commitments or rights to purchase or otherwise acquire from Yurie, or
agreements, commitments or obligations of Yurie to issue or sell, any capital
stock, voting securities or securities convertible into or exchangeable for
capital stock or voting securities of Yurie, other than those contemplated by
this Agreement.
(b) The authorized capital stock of the Company consists of 100 shares
of Common Stock, par value $.01 per share, all of which are issued and
outstanding and owned of record by Yurie. All issued and outstanding shares of
Yurie Common Stock and Common Stock, par value $.01 per share, of the Company
are validly issued, fully paid and nonassessable, and have not been issued in
violation of any preemptive, first refusal or other subscription rights of any
shareholder of Yurie, the Company or any other person.
4.6 SEC Documents. Yurie has filed with the SEC and has made available to
-------------
Data Labs a true and complete copy of the following Yurie documents: (i) its
annual report on Form 10-K for the fiscal year ended December 31, 1996; (ii) its
quarterly reports on Form 10-Q for the fiscal quarters ended March 31, 1997,
June 30, 1997 and September 30, 1997; (iii) its proxy statement dated May 23,
1997; (iv) its registration statement on Form S-1 that was declared effective on
October 6, 1997; (v) post-effective amendments to its registration statement on
Form S-1 and (vi) its current report on Form 8-K filed on November 24, 1997
(collectively, the "YURIE SEC DOCUMENTS"), which are all of the documents that
Yurie was required to file with the Commission from February 5, 1997 through the
date hereof. As of their respective dates, the Yurie SEC Documents complied in
all material respects with the requirements of the Securities Act, or the
Exchange Act, as the case may be, and the rules and regulations of the
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Commission thereunder applicable to such Yurie SEC Documents, and none of the
Yurie SEC Documents, as of their respective dates, contained any untrue
statement of a material fact or omitted to state a material fact required to be
stated therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading. None of Yurie's
subsidiaries is required to file any forms, reports or other documents with the
Commission. The consolidated financial statements of Yurie and its subsidiaries
included in the Yurie SEC Documents complied as to form in all material respects
with the published rules and regulations of the Commission with respect thereto,
were prepared in accordance with general accepted accounting principles applied
on a consistent basis during the periods involved (except as may be indicated in
the notes thereto or, in the case of the unaudited statements, as permitted by
Rule 10-01 of Regulation S-X) and fairly presented in accordance with applicable
requirements of generally accepted accounting principles (subject, in the case
of the unaudited statements, to normal recurring adjustments, none of which will
be material) the consolidated financial position of Yurie and its subsidiaries
as of their respective dates and the consolidated results of operations and the
consolidated cash flows of Yurie and its subsidiaries for the periods presented
therein.
4.7 Yurie Common Stock. The shares of Yurie Common Stock to be issued and
------------------
exchanged for shares of Data Labs Common Stock and Data Labs Preferred Stock in
the Merger will, at the Effective Time, be duly authorized, validly issued,
fully paid and nonassessable and subject to no preemptive rights. The shares of
Yurie Common Stock to be issued upon the exercise of the Data Labs Options and
the Data Labs Warrants, when issued in accordance with the terms of the
agreements relating to such Data Labs Options and Data Labs Warrants, will be
duly authorized, validly issued, fully paid and nonassessable and subject to no
preemptive rights.
4.8 Ownership of The Company; No Prior Activities. (a) The Company was
---------------------------------------------
formed solely for the purpose of engaging in the transactions contemplated by
this Agreement.
(b) As of the date hereof and the Effective Time, except for
obligations or liabilities incurred in connection with its incorporation or
organization and the transactions contemplated by this Agreement and except for
this Agreement and any other agreements or arrangements contemplated by this
Agreement, the Company has not and will not have incurred, directly or
indirectly, through any subsidiary or affiliate (other than its parent), any
obligations or liabilities or engaged in any business activities of any type or
kind whatsoever or entered into any agreements or arrangements with any person.
4.9 Absence of Material Adverse Changes. Since September 30, 1997, Yurie
-----------------------------------
has not, except as may result from the transactions contemplated by this
Agreement and except as disclosed in any public filing or press release issued
by Yurie, suffered any material adverse change in its business, results of
operations or financial condition.
4.10 Compliance With Laws; No Defaults. (a) Yurie is not in violation of
---------------------------------
any applicable provisions of any law, statute, ordinance, regulation, judgment,
order, injunction, permit, license, certificate or other authorization, or its
governing instruments, except for
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violations that have not had and would not reasonably be expected to have a
Material Adverse Effect on Yurie.
(b) Yurie is not in default under, and no condition exists that with
notice or lapse of time or both would constitute a default under, any applicable
law, statute, ordinance, regulation, judgment, order, injunction, permit,
license, certificate or other authorization, or its governing instruments,
except defaults that would not reasonably be expected to have a Material Adverse
Effect on Yurie.
(c) Yurie is in compliance with all currently applicable laws
respecting employment and wages in all material respects, and is not engaged in
any unfair labor practice, failure to comply with which or engagement in which,
as the case may be, has had, or would reasonably be expected to have, a Material
Adverse Effect on Yurie.
4.11 Finders' Fees. Except as provided in Section 5.3(f), there is no
-------------
investment banker, broker, finder or other intermediary that has been retained
by or is authorized to act on behalf of Yurie who might be entitled to any fee
or commission from Yurie or the Company or any other person upon consummation of
the transactions contemplated by this Agreement.
4.12 Yurie Employee Plans. Each employee benefit plan, as such term is
--------------------
defined in Section 3(3) of ERISA, of Yurie or any of its affiliates
(collectively the "Yurie Employee Plans") complies in all material respects with
all applicable requirements of ERISA and the Code, and other applicable laws.
None of the Yurie Employee Plans is an employee pension benefit plan, which is
subject to Title IV of ERISA or Section 412 of the Code, or a multiemployer
plan, as such terms are defined in ERISA. Neither Yurie nor any of its
directors, officers, employees or agents has, with respect to any Yurie Employee
Plan, engaged in any "prohibited transaction," as such term is defined in the
Code or ERISA, not has any Yurie Employee Plan engaged in such prohibited
transaction which could result in any taxes or penalties or other prohibited
transactions, which in the aggregate could have a Material Adverse Effect.
4.13 Taxes. (a) Yurie has (i) timely filed all Returns required to be
-----
filed (taking into account any extension of time within which to file any Return
that has been granted by the relevant taxing authority) for all taxable periods
ending on or prior to the date hereof, and such Returns are true, complete and
correct in all material respects, (ii) paid or accrued all Taxes shown to be
due and payable on such Returns, (iii) properly accrued all Taxes for periods
subsequent to the periods covered by such Returns, and (iv) disclosed on
Schedule 4.9 all actions, suits, proceedings, investigations, audits or claims
now pending against it in respect of any Taxes.
(b) Prior to the Merger, Yurie will be in control of the Company
within the meaning of Section 368(c) of the Internal Revenue Code.
(c) Yurie has no plan or intention to cause Data Labs to issue
additional shares of its stock that would result in Yurie losing control of Data
Labs within the meaning of Section 368(c) of the Code.
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(d) Yurie has no plan or intention to reacquire any of its stock
issued in the Merger.
(e) Yurie has no plan or intention to liquidate Data Labs; to merge
Data Labs with or into another corporation; to sell or otherwise dispose of the
stock of Data Labs except for transfers of its stock to corporations controlled
by Yurie; or to cause Data Labs to sell or otherwise dispose of any of its
assets or of any of the assets acquired from Company, except for dispositions
made in the ordinary course of business or transfers of assets to a corporation
controlled by Data Labs.
(f) The Company is a recently formed corporation, having no assets or
liabilities other than assets transferred to it pursuant to the Merger, and the
Company has been created and maintained through the Effective Time solely for
the purposes of effecting the Merger. The Company will have no liabilities
assumed by Data Labs, and will not transfer to the Company any assets subject to
liabilities, in the Merger.
4.14 Absence of Claims. To Yurie's knowledge, as of the Effective Time, (a)
-----------------
it has no claim or cause of action of any kind (in law or in equity) against
Data Labs or its directors, officers or employees arising from or relating to
Yurie's existing supplier-customer relationship with Data Labs, and (b) there is
no breach or noncompliance by Data Labs of its representations, warranties or
covenants under this Agreement.
ARTICLE V
COVENANTS
5.1 Mutual Covenants and Agreements. Each of the parties hereby covenants
-------------------------------
and agrees with the other parties as follows:
(a) Cooperation. It shall cooperate fully with the other parties
hereto in furnishing any information or performing any action reasonably
requested by any such party, which information or action is necessary to the
successful consummation of the transactions contemplated by this Agreement or is
necessary, appropriate or desirable for the corporate purposes of Yurie.
(b) Other Required Information. It shall furnish to the other parties
hereto any application or statement, and all information concerning itself and
its subsidiaries as is required to be set forth in any application or statement,
to be filed with any Governmental Authority in connection with the transactions
contemplated by this Agreement, or otherwise.
(c) Confidentiality. Data Labs and Yurie have agreed in a
confidentiality agreement dated September 30, 1997 (the "CONFIDENTIALITY
AGREEMENT") to protect, among other things, the confidential information of the
other party. The Company and Yurie each hereby affirm each of their obligations
under such agreement which shall continue in full force and effect in accordance
with its terms. If this Agreement is terminated in accordance with
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Section 8.1 hereof, Yurie shall, and shall cause its agents, accountants,
advisors, counsel and other representatives to deliver to Data Labs all
documents and other material, and all copies thereof, obtained by Yurie or on
its behalf from Data Labs in connection with this Agreement, whether so obtained
before or after the execution hereof, and will not disclose any such information
or documents to any third parties or make any use of any confidential
information contained therein. If this Agreement is terminated in accordance
with Section 8.1 hereof, Data Labs shall, and shall cause its agents,
accountants, advisors, counsel and other representatives to, deliver to Yurie
all documents and other material, and all copies thereof, obtained by Data Labs
or on its behalf or by a shareholder of Data Labs from Yurie in connection with
this Agreement, whether so obtained before or after the execution hereof, and
will not disclose any such information or documents to any third parties or make
any use of any confidential information contained therein.
(d) Publicity. Except as otherwise required by applicable law or by
any applicable rules of any securities exchange or market, Data Labs shall not
issue any press release or make any other public statement concerning the
transactions contemplated by this Agreement without obtaining the prior approval
of Yurie.
(e) Pooling. From and after the date hereof and until the Effective
Date, it shall not knowingly take any action, or knowingly fail to take any
action, that would jeopardize the treatment of the Merger as a "pooling of
interest" for accounting purposes.
(f) Miscellaneous Agreements And Consents. Subject to the terms and
conditions provided in this Agreement, it shall use all reasonable efforts to
take, or cause to be taken, all action, and to do, or cause to be done, all
things necessary, appropriate or desirable under applicable laws and regulations
to consummate the transactions contemplated by this Agreement. It will, and
will cause each of its subsidiaries to, use their respective reasonable efforts
to obtain consents of all third parties and Governmental Authorities necessary,
appropriate or desirable for the consummation of the transactions contemplated
by this Agreement.
5.2 Certain Covenants of Data Labs. Data Labs hereby covenants and agrees
------------------------------
with Yurie and the Company, until the Effective Time, as follows:
(a) Preservation of Business Organization. Data Labs shall use all
reasonable efforts to preserve the business organization of Data Labs and its
goodwill as to payors, providers, suppliers, distributors, clients and others
having business relations with Data Labs.
(b) Carry On In Regular Course. Data Labs shall carry on its business
in the ordinary course in a manner consistent with its past practices.
(c) Consents. Data Labs shall use all reasonable efforts to obtain
consents in writing to the transactions contemplated by this Agreement and/or
such amendments, assignments or modifications of such documents or instruments
as may be required in order that the transactions contemplated by this Agreement
shall not result in any default with respect to
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any law, rule, regulation, order, decree, license, agreement, contract,
commitment or instrument to which Data Labs is a party or by which Data Labs, or
any of its assets is bound.
(d) Capital Stock. Data Labs shall not redeem, purchase or otherwise
acquire, any Data Labs Securities, or agree to do any of the foregoing. Except
for any agreement by which Data Labs was bound immediately prior to the date
hereof and specifically disclosed on the Data Labs Disclosure Schedules, Data
Labs shall not accelerate, amend or change the period of exercisability of
options granted under employee stock plans or authorize cash payments in
exchange for any options granted under any of such plans. Data Labs shall not
issue, deliver, sell or grant or authorize or propose the issuance, delivery,
sale or grant of, or purchase or propose the purchase of, any shares of its
capital stock or securities convertible into, or subscriptions, rights, warrants
or options to acquire, or other agreements or commitments of any character
obligating it to issue any such shares or other convertible securities, other
than the issuance by Data Labs of (i) stock options that Data Labs has disclosed
on SCHEDULE 3.5 hereto and (ii) shares of Data Labs Common Stock pursuant to the
exercise of Data Labs stock options or Data Labs warrants outstanding as of the
date of this Agreement.
(e) Other Actions. Without the prior written consent of Yurie, Data
Labs shall not (i) amend its certificate of incorporation or bylaws as described
on SCHEDULE 3.13, (ii) declare, set aside or pay any dividend or otherwise make
a distribution with respect to any shares of capital stock of Data Labs, or
repurchase, redeem or otherwise acquire any outstanding shares of capital stock
or other securities of, or other equity or ownership interests in, Data Labs,
(iii) amend any term of any outstanding security of Data Labs, (iv) incur,
assume or guarantee any indebtedness for borrowed money other than in the
ordinary course of business and in amounts and on terms consistent with past
practices, but in any event not exceeding an aggregate of $10,000, (v) create or
assume any Lien on any asset, (vi) make any loan, advance or capital
contributions to or investment in any person, (vii) acquire any capital assets
or any other investments for aggregate consideration in excess of $10,000,
(viii) sell, lease, pledge, transfer or dispose of any capital assets for
aggregate consideration in excess of $10,000, (ix) enter into any transaction or
make any commitment or any contract or agreement relating to its assets or
business (including the acquisition or disposition of any assets) or relinquish
any contract or other right, in either case, involving an amount in excess of
$10,000, other than transactions, commitments and relinquishments in the
ordinary course of business consistent with past practices and those
contemplated by this Agreement, (x) other than in the ordinary course of
business, make or change any election in respect of Taxes, adopt or change any
method of accounting or accounting practice in respect of Taxes (except with
respect to any change required under Section 448 of the Code in connection with
the Merger), enter into any closing agreement, settle any claim in respect of
Taxes, or consent to any extension or waiver of the limitation period applicable
to any claim or assessment in respect of Taxes, (xi) except as disclosed on
SCHEDULE 5.2(e), grant any severance or termination pay to any director, officer
or employee of Data Labs, enter into any employment, severance, management,
consulting, deferred compensation or other similar agreement (or any amendment
to any such existing agreement) with any director, officer or employee of Data
Labs, change the benefits payable under existing severance or termination pay
policies or employment, severance, management, consulting or other similar
agreements or change the compensation, bonus or other benefits payable to
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directors, officers or employees of Data Labs, other than increases in the
ordinary course of business of the compensation of the employees of Data Labs,
(xii) enter into any partnership arrangements, joint development agreements or
strategic alliances, (xiii) transfer or license to any person or entity or
otherwise extend, amend or modify any rights to the Data Labs Intellectual
Property Rights or enter into grants to future patent rights, other than in the
ordinary course of business, (xiv) make any grant of exclusive rights to any
third party, (xv) enter into any transaction with any of its shareholders or any
affiliates of any of its shareholders, other than in the ordinary course of, and
pursuant to the reasonable requirements of, its business and upon terms that are
no less favorable to Data Labs than Data Labs could obtain in a comparable
transaction with a person who was not such a shareholder or an affiliate of
such a shareholder or other than as contemplated by this Agreement, or (xvi)
agree to do any of the foregoing.
(f) Access. Subject to the Confidentiality Agreement, Data Labs shall
permit officers, employees, agents, attorneys and accountants and other persons
designated by Yurie full access after reasonable notice during normal business
hours to the properties, books, contracts, commitments, tax returns, examination
reports of the Internal Revenue Service and other records of Data Labs in
connection with and in furtherance of the transactions contemplated by this
Agreement. Unless prohibited by law or contract, such designees of Yurie shall
be furnished with true, accurate and complete copies of such contracts,
commitments and other records and all other information with respect to the
assets and business of Data Labs as such designees may reasonably request.
(g) Documents and Information to be Furnished. Data Labs shall
deliver to Yurie promptly after such documents are available Data Labs'
unaudited monthly financial reports with respect to periods ending after the
date hereof and all other documents, financial statements, budgets, proxy or
information statements, reports, correspondence, notices and other items Data
Labs delivers, or is required to deliver, to any of its shareholders.
(h) Shareholder Consent. Data Labs shall take all action necessary
in accordance with applicable law to obtain the written consent of its
shareholders owning at least 95% of each class or series of Data Labs' issued
and outstanding capital stock entitled to vote on this matter no later than
December 1, 1997 (the "SHAREHOLDER CONSENT") for the purpose of approving and
adopting this Agreement (including the transactions contemplated hereby). On or
before December 1, 1997, or as promptly as practicable thereafter, Data Labs
shall mail to each shareholder who was a shareholder on the record date for
determining shareholders entitled to vote, (i) an information statement (the
"INFORMATION STATEMENT") with respect to the matters to be submitted for
shareholder approval in the Shareholder Consent, and its Board of Directors
shall recommend to its shareholders the adoption of this Agreement (including
the transactions contemplated hereby), (ii) the Consent, and (iii) a notice that
appraisal rights are available for the shares of Data Labs Common Stock and Data
Labs Preferred Stock held by each such shareholder of Data Labs, together with
a copy of Section 262 of the Delaware Corporation Law, in satisfaction of Data
Labs' obligations under Section 262(d)(2) of the Delaware Corporation Law. In
addition, the Information Statement shall be accompanied by such other
information provided by Yurie as Yurie deems necessary in order to provide for
the offer and sale of the Yurie Common Stock to be issued in the Merger to be
exempt from any applicable
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registration or qualification requirements under either federal or state
securities or "Blue Sky" laws. Data Labs shall use all reasonable efforts to
obtain all votes and approvals of its shareholders necessary for the approval
and adoption of this Agreement under the Delaware Corporation Law (including the
transactions contemplated hereby).
(i) Notices of Certain Events. Data Labs shall promptly notify Yurie
of:
(i) any notice or other communication from any person alleging
that the consent of such person is or may be required in connection
with the transactions contemplated by this Agreement;
(ii) any notice or other communication from any Governmental
Authority in connection with the transactions contemplated by this
Agreement;
(iii) any actions, suits, claims, investigations or proceedings
commenced relating to or involving or otherwise affecting Data Labs
that, if pending on the date of this Agreement, would have been
required to have been disclosed pursuant to Article III or that relate
to the consummation of the transactions contemplated by this
Agreement; and
(iv) any matter arising and discovered after the date of this
Agreement that, if existing or known on the date of this Agreement,
would have been required to be disclosed pursuant to this Agreement or
that constitutes a breach or prospective breach of this Agreement by
Data Labs or any of its affiliates.
(j) Accuracy of Representations And Warranties. Data Labs shall not
(a) take or agree or commit to take any action that would make any
representation and warranty of Data Labs hereunder inaccurate in any respect at,
or as of any time prior to, the Closing Date or (b) omit or agree or commit to
omit to take any action necessary to prevent any such representation or warranty
from being inaccurate in any respect at any such time.
(k) No Solicitation. Until the earlier of the Effective Time or
termination of this Agreement pursuant to its terms, Data Labs shall not, and
will instruct its directors, officers, employees, representatives, investment
bankers, agents and affiliates not to, directly or indirectly, initiate,
solicit, encourage or participate in discussions with, provide information to,
or approve a transaction with, any corporation, partnership, person or other
entity or group concerning any merger, purchase or sale of substantial assets,
sale of shares of capital stock (or securities convertible or exchangeable or
otherwise evidencing, or any agreement or instrument evidencing, the right to
acquire capital stock) or similar transaction involving Data Labs (all such
transactions being referred to herein as "ACQUISITION PROPOSALS"). Data Labs
will immediately cease any and all existing activities, discussions or
negotiations with any parties conducted heretofore with respect to any of the
foregoing. Data Labs will (i) notify Yurie as promptly as practicable if any
inquiry or proposal is made or any information or access is requested in writing
in connection with an Acquisition Proposal or potential Acquisition Proposal and
(ii) as promptly as practicable notify Yurie of the significant terms and
conditions of any such Acquisition
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Proposal. In addition, subject to the other provisions of this Section 5.2(l),
from and after the date of this Agreement until the earlier of the Effective
Time and termination of this Agreement pursuant to its terms, Data Labs will
not, and will instruct their respective directors, officers, employees,
representatives, investment bankers, agents and affiliates not to, directly or
indirectly, make or authorize any public statement, recommendation or
solicitation in support of any Acquisition Proposal made by any person, entity
or group (other than Yurie).
(l) Affiliates. On or prior to the Closing, Data Labs shall deliver
to Yurie a letter identifying all persons which are, at the time the Merger is
consented to by the shareholders of Data Labs, "affiliates" of Data Labs for
purposes of Rule 145 under the Securities Act. Data Labs shall cause each such
person which is identified as an "affiliate" in such letter to deliver to Yurie
on or prior to the Effective Date a written statement in form of Exhibit J to
the effect that each such person will not offer to sell, transfer or otherwise
dispose of any of the shares of Yurie Common Stock issued to such person
pursuant to the Merger except (i) in accordance with the applicable provisions
of the Securities Act and the rules and regulations thereunder and (ii) until
February 20, 1998 or such earlier time as financial results covering at least 30
days of combined operations of Yurie and Data Labs have been published.
5.3 Covenants of Yurie and the Company. Yurie and the Company hereby
----------------------------------
covenant and agree with Data Labs as follows:
(a) Consents. Yurie shall use all reasonable efforts to obtain
consents in writing to the transactions contemplated by this Agreement and/or
such amendments, assignments or modifications of such documents or instruments
as may be required in order that the transactions contemplated by this Agreement
shall not result in any default with respect to any law, rule, regulation,
order, decree, license, agreement, contract, commitment or instrument to which
Yurie is a party or by which Yurie or any of its assets is bound.
(b) Documents And Information To Be Furnished. Yurie shall furnish to
Data Labs, promptly after filed with the Commission, its unaudited quarterly
financial reports in the form filed with the Commission on Form 10-Q prescribed
under the Exchange Act and such other reports, statements, documents and other
items Yurie files with the Commission or delivers, or is required to deliver, to
any of its shareholders.
(c) Notices Of Certain Events. Yurie shall promptly notify Data Labs
of:
(i) any notice or other communication from any person alleging
that the consent of such person is or may be required in connection
with the transactions contemplated by this Agreement;
(ii) any notice or other communication from any Governmental
Authority in connection with the transactions contemplated by this
Agreement; and
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(iii) any actions, suits, claims, investigations or proceedings
commenced relating to or involving or otherwise affecting Yurie or any
of its subsidiaries that, if pending on the date of this Agreement,
would have been required to have been disclosed pursuant to Article IV
or that relate to the consummation of the transactions contemplated by
this Agreement.
(d) Resale Registration Statement. Yurie shall grant registration
rights to the shareholders of Data Labs in accordance with the terms of a
registration rights agreement (the "Registration Rights Agreement") attached as
EXHIBIT I hereto.
(e) Financial Results of Combined Operations. Yurie shall use its
best efforts to publish, not later than February 20, 1998, financial results
covering at least thirty (30) days of combined operations of Yurie and Data
Labs.
(f) Prepayment or Assumption of Bank Loan. Yurie may, at its option,
(i) pay or cause the Surviving Corporation to pay Data Labs' obligations of up
to $385,122.23 that are due or owing at or after the Effective Date pursuant to
the Silicon Valley Line of Credit or (ii) assume (or cause the Surviving
Corporation to assume) Data Labs' obligations of up to $384,122.23 under the
Silicon Valley Line of Credit.
(g) Expenses of Advisors. On or promptly after the Effective Date,
Yurie shall, or shall cause Surviving Corporation to, pay financial advisor's
fees and expenses to Broadview Associates LLC, as described in a written
agreement between Broadview Associates LLC and Data Labs, a copy of which has
been delivered to Yurie.
(h) Taxes.
(i) Following the Merger, Data Labs will continue its historic
business or use a significant portion of its historic business assets
in a business.
(ii) Neither Yurie nor Data Labs will take any tax reporting
position inconsistent with the characterization of the Merger as a
reorganization under Section 368(a) of the Code.
(i) Credit to Employees. Yurie shall cause each Data Labs Employee
Plan in effect immediately prior to the date hereof to remain in full force and
effect until such time as Yurie effectuates a transition of all Data Labs
employees listed on Schedule 7.3(j) hereto to Yurie's Employee Plans. Such
transition will occur as soon as possible, but not later than January 1, 1998.
To the extent permitted by law and each of Yurie's employee benefit plans, the
Company shall preserve, transfer, carry forward and grant full credit for all
accruals, rights, interests, balances and seniority accrued by each such
employee in and under each Data Labs Employee Plan. Yurie shall, within thirty
days after the date hereof, pay each such employee the cash value of each and
every accrual, right, interest, balance and seniority to the extent it is not or
cannot be preserved, transferred, carried forward or fully credited by Yurie.
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ARTICLE VI
CLOSING MATTERS
6.1 The Closing. Subject to the satisfaction or waiver of all conditions
-----------
precedent set forth in Article VII, the closing of the Merger (the "CLOSING")
shall be held at the offices of Fried, Frank, Harris, Shriver & Jacobson, 1001
Pennsylvania Avenue, N.W., Suite 800, Washington, D.C. 20004, on December 1,
1997 or as soon as thereafter as practicable (the "CLOSING DATE"). If any
condition in Article VII is not satisfied (or is not duly waived) at the
Closing, any party whose obligations are subject to such condition may extend
the period in which the Closing must be consummated (during which period each
other party shall use its respective reasonable efforts to cause all such
conditions to be satisfied in all material respects). If all conditions are
determined to be satisfied (or are duly waived) at the Closing (whether or not
delayed), the Closing shall be consummated by the making of all necessary
filings with the Secretary of State of Delaware under the Delaware Corporation
Law. If the Closing is consummated, Yurie will be deemed to have waived any of
the conditions set forth in Sections 7.1 and 7.2 to the extent not satisfied at
or prior to the Closing.
6.2 Documents and Certificates. Each of Yurie, the Company and Data Labs
--------------------------
shall use all reasonable efforts, on or prior to the Closing, to execute and
deliver all such instruments, documents or certificates as may be necessary or
advisable, on the advice of counsel, for the consummation at the Closing of the
transactions contemplated by this Agreement or to cause the Effective Time,
subject to consummation at the Closing, to occur as soon as practicable.
ARTICLE VII
CONDITIONS OF CLOSING
7.1 Conditions to Obligations of Yurie, the Company and Data Labs. The
-------------------------------------------------------------
obligations of each of Yurie, the Company and Data Labs under this Agreement to
cause the Merger to be consummated are, at its option, subject to the
satisfaction of the following condition:
(a) No Litigation. None of the parties hereto shall be subject to
any order or injunction of a court of competent jurisdiction or any applicable
law, rule, regulation or decree restraining, enjoining or prohibiting
consummation of the Merger or placing any limitation upon such consummation or
invalidating, suspending or requiring modification of any provision of this
Agreement.
7.2 Conditions Applicable to Yurie and the Company. The obligations of
----------------------------------------------
Yurie and the Company under this Agreement to cause the Merger to be consummated
are, at their option, subject to the satisfaction of the following conditions,
in addition to the conditions contained in Section 7.1:
(a) Agreements and Covenants. Data Labs shall have performed or
complied with all agreements and covenants required by this Agreement to be
performed or complied with by Data Labs on or prior to the Closing Date.
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(b) Accuracy of Representations And Warranties. The representations
and warranties of Data Labs contained in this Agreement and in any document
delivered in connection herewith shall be true and correct in all material
respects as of the Closing Date.
(c) No Material Adverse Change. Since the date of this Agreement,
there shall have been no Material Adverse Effect on Data Labs.
(d) Officers' Certificate. Data Labs shall have furnished to Yurie
and the Company (i) a certificate dated the Closing Date, signed by its chief
executive officer and its principal financial officer, to the effect that the
conditions set forth in Sections 7.2(a) through 7.2(c) have been satisfied and
(ii) certified copies of resolutions duly adopted by Data Labs' Board of
Directors and shareholders evidencing the taking of all corporate action
necessary to authorize the execution, delivery and performance of this Agreement
and the consummation of the transactions evidenced hereby.
(e) Opinion of Counsel. Yurie and the Company shall have received
from Tucker, Flyer and Lewis, counsel to Data Labs, an opinion dated the Closing
Date substantially in the form set forth in EXHIBIT D.
(f) Governmental Approvals. Data Labs shall have received all
necessary approvals of Governmental Authorities of the transactions contemplated
by this Agreement, and each of such approvals shall remain in full force and
effect at the Closing Date.
(g) Third Party Consents. The holders of any note, guarantee or other
evidence of indebtedness of Data Labs, the lessors of any real or personal
property or assets leased by Data Labs, the parties (other than Data Labs) to
any other contract, commitment or agreement to which Data Labs is a party, and
any other person (other than Governmental Authorities) which owns or has
authority to grant any franchise, license, permit, easement, rights or other
authorization necessary for the business or operations of Data Labs, to the
extent that their consent or approval of the Merger or any other transactions
contemplated by this Agreement is required under the pertinent lease, contract,
commitment or agreement or other document or instrument or under applicable
laws, rules or regulations for the consummation of the transactions contemplated
hereby in the manner herein provided, shall have granted such consent or
approval.
(h) Litigation. On the Closing Date, there shall not be in force any
rule, regulation, order, decree or injunction restraining, enjoining or
prohibiting Yurie from consummation of the Merger or placing any limitation upon
such consummation or invalidating, suspending or requiring modification of any
provision of this Agreement.
(i) Appraisal Rights. Holders of 95% or more of the outstanding
shares of Data Labs Common Stock and Data Labs Preferred Stock shall have
consented to or voted at a duly called shareholders meeting in favor of this
Agreement and the Merger in accordance with the Delaware Corporation Law and
shall not have any appraisal rights under Section 262 of the Delaware
Corporation Law.
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(j) Tax Certificate. Data Labs shall have paid any sales, use,
transfer and documentary Taxes and recording and filing fees applicable to the
transactions set forth in this Agreement. Data Labs shall have delivered to
Yurie a properly executed statement satisfying the requirements of Treasury
Regulation Sections 1.897-2(h) and 1.1445-2(c)(3) in a form reasonably
acceptable to Yurie.
(k) Employment Agreements. Mr. Wenli Yu shall have executed and
delivered the Wenli Yu Employment Agreement, substantially in the form attached
as EXHIBIT E, and each Data Labs' employee listed on Schedule 7.3(j) shall have
delivered a standard employment agreement, substantially in the form attached as
EXHIBIT F.
(m) Employees. Neither Wenli Yu nor Raul Montalvo, no more than ten
percent (10%) of Data Labs' engineers as of the date hereof and no more than
twenty percent (20%) of Data Labs' employees as of the date hereof (excluding,
for purposes of such calculation, administrative and finance personnel) shall
have (i) voluntarily terminated their employment with Data Labs on or prior to
the Effective Time or (ii) refused to accept employment with, or given notice
that they do not intend to continue employment with, the Surviving Corporation.
(n) Due Diligence. Yurie shall be satisfied with the results of its
continuing due diligence regarding Data Labs.
(o) Receipt of Pooling Letter. Yurie shall have received a letter
from Deloitte & Touche LLP, dated as of the Effective Date and addressed to
Yurie, stating substantially to the effect that, based on such firm's review of
this Agreement and the other procedures set forth in such letter, such firm
concurs that the merger will qualify as a pooling of interests transaction under
Opinion 16 of the Accounting Principles Board.
(p) Comfort Letters. Yurie shall have received from Arthur Andersen
LLP, independent auditors for Data Labs, dated as of the Effective Date, a
letter to the effect that Data Labs qualifies as an entity for a "pooling of
interests" transaction under generally accepted accounting principles.
(q) Delivery of Books and Records. Data Labs shall have delivered all
of its books and records to Yurie including, but not limited to, the originals
of (i) all corporate and other records of Data Labs, including minute books,
stock books, stock transfer registers, books of account, leases, contracts and
financial statements and (ii) such other documents as reasonably requested by
Yurie.
(r) Escrow Agreement. Data Labs shall have delivered an Escrow
Agreement to Yurie, substantially in the form attached as EXHIBIT G.
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7.3 Conditions Applicable to Data Labs. The obligations of Data Labs
----------------------------------
under this Agreement to cause the Merger to be consummated are, at its option,
subject to the satisfaction of the following conditions, in addition to the
conditions contained in Section 7.1:
(a) Agreements and Covenants. Yurie and the Company shall have
performed or complied with all agreements and covenants required by this
Agreement to be performed or complied with by them on or prior to the Closing
Date.
(b) Accuracy of Representations And Warranties. The representations
and warranties of Yurie contained in this Agreement and in any document
delivered in connection herewith shall be true and correct in all material
respects as of the Closing Date.
(c) No Material Adverse Change. Since the date of this Agreement,
there shall have been no Material Adverse Effect on Yurie and its subsidiaries,
taken as a whole.
(d) Officers' Certificate Concerning This Agreement. Yurie shall have
furnished to Data Labs a certificate dated the Closing Date, signed by the chief
financial officer of Yurie, to the effect that, the conditions set forth in
Sections 7.3(a) through 7.3(c) hereof have been satisfied.
(e) Opinion Of Counsel. Data Labs shall have received from Fried,
Frank, Harris, Shriver & Jacobson, counsel to Yurie an opinion dated the Closing
Date substantially in the form set forth on EXHIBIT H.
(f) Required Consents. Yurie shall have received all consents or
approvals of the Merger or any other transactions contemplated by this Agreement
required under any lease, contract, commitment, note, guaranty or other evidence
of indebtedness of Yurie or any of its subsidiaries, or any lease of any real
property of Yurie and its subsidiaries, or under applicable law for the
consummation of the transactions contemplated hereby.
(g) Governmental Approvals. Yurie and the Company shall have received
all necessary approvals of Governmental Authorities of the transactions
contemplated by this Agreement, and each of such approvals shall remain in full
force and effect at the Closing Date.
(h) Registration Rights Agreement. Yurie shall have executed and
delivered the Registration Rights Agreement substantially in the form of EXHIBIT
I hereto.
(i) Litigation. On the Closing Date, there shall not be in force any
rule, regulation, order, decree or injunction restraining, enjoining or
prohibiting Data Labs from consummation of the Merger or placing any limitation
upon such consummation or invalidating, suspending or requiring modification of
any provision of this Agreement.
(j) Benefits to Employees. Yurie shall, or shall cause the Surviving
Corporation to, (i) offer employment to each Data Labs employee listed on
Schedule 7.3(j) hereto, at the rate of pay and level of service (in years)
listed on Schedule 7.3(j) and (ii) provide
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each such employee with Yurie's standard employee benefits package effective as
of January 1, 1998, and, with the administrative assistance of Data Labs, make
arrangements for such employees Data Labs benefits to remain effective until
such date that Yurie's benefits package becomes effective. Yurie will take any
and all steps necessary to make Yurie's 401(k) Plan available for the benefit of
Data Labs' employees listed on Schedule 7.3(j), effective January 1, 1998. Any
Data Labs employee not listed on Schedule 7.3(j) shall receive cash severance
benefits equivalent to two weeks' pay at the employee's current rate of base
pay.
ARTICLE VIII
TERMINATION
8.1 Termination. This Agreement may be terminated at any time prior to
-----------
the Effective Time of the Merger, whether before or after approval of the Merger
by the shareholders of Data Labs:
(a) by mutual written consent duly authorized by the Boards of
Directors of Yurie and Data Labs;
(b) by either Data Labs or Yurie, if the Merger shall not have been
consummated by December 1, 1997; provided, however, that the right to terminate
this Agreement under this Section 8.1(b) shall not be available to any party
whose action or failure to act has been a principal cause of or resulted in the
failure of the Merger to occur on or before such date and such action or failure
to act constitutes a breach of this Agreement;
(c) by either Data Labs or Yurie, if a court of competent jurisdiction
or governmental, regulatory or administrative agency or commission shall have
issued an order, decree or ruling or taken any other action (an "ORDER"), in any
case having the effect of permanently restraining, enjoining or otherwise
prohibiting the Merger, which order, decree or ruling is final and
nonappealable;
(d) by Yurie, upon breach of any representation, warranty, covenant or
agreement on the part of Data Labs set forth in this Agreement;
(e) by Data Labs, upon breach of any representation, warranty,
covenant or agreement on the part of Yurie set forth in this Agreement;
8.2 Notice of Termination; Effect of Termination. Any termination of this
--------------------------------------------
Agreement under Section 8.1 above will be effective immediately upon the
delivery of written notice of the terminating party to the other parties hereto.
In the event of the termination of this Agreement as provided in Section 8.1,
this Agreement shall be of no further force or effect, except (i) as set forth
in this Section 8.2, Sections 5.1(c), 5.1(d), 8.3 and Article X (Miscellaneous),
each of which shall survive the termination of this Agreement, and (ii) nothing
herein shall relieve any party from liability for any willful breach of this
Agreement. No termination of this Agreement
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shall affect the obligations of the parties contained in the Confidentiality
Agreement, all of which obligations shall survive termination of this Agreement
in accordance with their terms.
8.3 Procedure Upon Termination. In the event of the termination of this
--------------------------
Agreement, the Board or Boards of Directors so terminating may direct its or
their officers not to file the certificate of merger in the office of the
Secretary of State of the State of Delaware, notwithstanding favorable action by
the shareholders of the Company and Data Labs.
ARTICLE IX
INDEMNIFICATION
9.1 Losses. The terms "LOSS" or "LOSSES" shall mean each and all of the
------
following items: claims, losses, liabilities, settlement payments, obligations,
actions, causes of actions, encumbrances, damages, fines, forfeitures,
penalties, costs and expenses (including, without limitation, interest which may
be imposed in connection therewith); provided, however, that attorneys' fees and
expenses shall not be considered Losses for purposes of this Section 9.1 unless
such fees and expenses arise out of the defense of Third Party Claims.
9.2 Indemnification of Yurie. Data Labs shall indemnify and hold Yurie
------------------------
harmless from, against, for and in respect of (i) any and all LOSSES suffered,
sustained, incurred or required to be paid by Yurie, net of any resulting income
tax benefits to Yurie and net of any reserves reflected on Data Labs' balance
sheet at September 30, 1997, because of the breach of any written
representation, warranty, agreement, covenant, or other matter of Data Labs
contained in this Agreement or in other documents executed at or prior to the
Closing in connection herewith and (ii) all reasonable costs and expenses
(including, without limitation, interest and penalties and, solely in the case
of Third Party Claims, reasonable attorney's fees and expenses) incurred by
Yurie in connection with any action, suit, proceeding, demand, assessment or
judgment incident to any of the matters indemnified against in this Section 9.2.
Yurie's sole recourse with respect to the satisfaction of this indemnification
obligation of Data Labs shall be limited to claims which may be made by Yurie
under the Escrow Agreement, and no shareholder of Data Labs shall have any
personal liability in connection with such indemnification obligation. Yurie
shall have the right to make a claim against Data Labs under the Escrow
Agreement for breaches of representation, warranties, covenants, agreements, or
other matters set forth in this Agreement for a period of nine months from the
date of Closing. Yurie may employ counsel, at its own expense, in order to bring
such a claim. The representations, warranties, covenants, agreements and other
matters shall survive for this purpose for nine months from the date of Closing;
provided, however, that indemnification obligations as to which notice of any
claim for indemnification has been given prior to the end of such nine-month
period shall survive, without limitation as to time, until resolution of such
claim for indemnification.
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ARTICLE X
MISCELLANEOUS
10.1 Survival of Representations, Warranties, and Covenants. Except as
------------------------------------------------------
provided in accordance with Article IX and the Escrow Agreement, the
representations and warranties of each party contained herein or in any exhibit,
certificate, document or instrument delivered pursuant to or in connection with
this Agreement shall not survive the Closing, and the covenants and agreements
of the parties (other than Sections 1.7, 1.8, 2.4, 2.6, 2.7, 2.8, 5.3(d),
5.3(e), 5.3(h), and Article IX (together with the Escrow Agreement)) shall not
survive the Closing. The covenants of Section 5.3(h) shall survive for nine
months from the date of Closing.
10.2 Expenses. All fees and expenses (including all accounting, legal and
--------
investment banking fees and expenses and all other expenses) incurred by Yurie
and the Company in connection with this Agreement and the transactions
contemplated hereby will be paid by Yurie. All fees and expenses (including
without limitation all accounting and investment banking fees and expenses)
incurred by Data Labs in connection with this Agreement and the transactions
contemplated hereby will be paid by Data Labs; provided, however, that all legal
fees and related expenses of Data Labs in connection with the Merger, as well as
any related post-closing legal fees and related expenses, shall be paid by the
Selling Shareholders.
10.3 Further Assurances. If at any time after the Effective Time, Yurie
------------------
or the Company shall consider it advisable that any further conveyance,
agreements, documents, instruments and assurances of law or any other things are
necessary or advisable to vest, perfect, confirm or record in the Surviving
Corporation the title to any property, rights, privileges, powers and franchises
of Data Labs, the officers of Data Labs last in office and such other persons,
if any, as the Board of Directors of Data Labs last in office may authorize
shall, at Yurie's expense, execute and deliver, upon Yurie's or the Company's
reasonable request, any and all proper conveyances, agreements, documents,
instruments and assurances of law, in a form acceptable to counsel to such
officers or other persons (at such officer's or other person's expense) and do
all things reasonably necessary or proper to vest, perfect, confirm or record
title to such property, rights, privileges, powers and franchises in the
Surviving Corporation, and otherwise to carry out the provisions of this
Agreement.
10.4 Parties in Interest; Third Party Beneficiaries. All the terms and
----------------------------------------------
provisions of this Agreement shall be binding upon, shall inure to the benefit
of and shall be enforceable by the respective successors and permitted assigns
of the parties hereto. Except as Sections 1.7, 2.6, 2.7 and 2.8 provide in
respect of holders of Data Labs Options or Data Labs Warrants, and except as
provided in Sections 5.3(d) and 5.3(e) with respect to the shareholders of Data
Labs, nothing expressed or implied in this Agreement is intended or shall be
construed to confer upon or give any person other than the parties hereto any
rights or remedies under or by reason of this Agreement or any transaction
contemplated hereby.
10.5 Entire Agreement. This Agreement, the Registration Rights Agreement,
----------------
the Escrow Agreement, the Confidentiality Agreement, and the Employment
Agreements together with the Schedules and Exhibits hereto and thereto,
supersede any other agreement, whether
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written or oral, that may have been made or entered into by Yurie and Data Labs
(or by any officer or officers of such parties) relating to the matters
contemplated hereby or thereby. This Agreement, the Registration Rights
Agreement, the Confidentiality Agreement, the Escrow Agreement and the
Employment Agreements, together with the Schedules and Exhibits hereto and
thereto, constitute the entire agreement by the parties, and there are no
agreements or commitments except as set forth herein and therein.
10.6 Amendment. This Agreement may not be amended except by an instrument
---------
in writing signed by Yurie and the Shareholder Representative.
10.7 Waiver. Any party to this Agreement may, by written notice to the
------
other parties to this Agreement, (a) extend the time for the performance of any
of the obligations or other actions of the other parties under this Agreement,
(b) waive any inaccuracies in the representations or warranties of the other
parties contained in this Agreement or in any document delivered pursuant to
this Agreement, (c) waive compliance with any of the conditions or covenants of
the other parties contained in this Agreement, or (d) waive or modify
performance of any of the obligations of the other parties under this Agreement.
Except as provided in the preceding sentence or as expressly provided in this
Agreement, no action taken pursuant to this Agreement, including without
limitation any investigation by or on behalf of any party, shall be deemed to
constitute a waiver by the party taking such action of compliance with any
representations, warranties, covenants, conditions or agreements contained in
this Agreement. The failure of any party hereto to enforce at any time any of
the provisions of this Agreement shall in no way be construed to be a waiver of
any such provision, nor in any way to affect the validity of this Agreement or
any part hereof or the right of such party thereafter to enforce each and every
such provision. No waiver of any breach of or non-compliance with this
Agreement shall be held to be a waiver of any other or subsequent breach or non-
compliance.
10.8 Assignability. This Agreement shall not be assignable by Data Labs,
-------------
on the one hand, or Yurie or the Company, on the other hand, without the prior
written consent of Yurie, on the one hand, or Data Labs, on the other hand, as
the case may be.
10.9 Certain Definitions. For purposes of this Agreement, the following
-------------------
terms shall have the meanings set forth below:
(a) "AFFILIATE" shall mean, when used with respect to a specified
person, another person that directly, or indirectly through one or more
intermediaries, controls or is controlled by or is under common control with the
person specified;
(b) "CONTROL" (including, with its correlative meanings, "CONTROLLED
BY" and "UNDER COMMON CONTROL WITH") shall mean possession, directly or
indirectly, of power to direct or cause the direction of management or policies
(whether through ownership of securities or partnership or other ownership
interests, by contract or otherwise);
(c) "MATERIAL ADVERSE EFFECT" shall mean, when used with respect to
Data Labs, on the one hand, and Yurie and its subsidiaries, taken as a whole, on
the other
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hand, as the case may be, any change, effect or circumstance that, individually
or when taken together with all other such changes, effects or circumstances
that have occurred prior to the date of determination of the Material Adverse
Effect, is or could reasonably be materially adverse to the financial condition,
business, properties, intellectual property rights, assets, operations or
prospects of Data Labs or Yurie and its subsidiaries, taken as a whole, as the
case may be; provided, however, that the following shall not be considered a
Material Adverse Effect: any adverse effect that primarily results from the
execution and delivery of this Agreement or from changes in Data Labs' or
Yurie's respective industry or the financial markets.
(d) "PERSON" shall mean any individual, corporation, partnership,
limited liability company, trust, joint venture, unincorporated association,
Governmental Authority or other entity; and
(e) "SUBSIDIARY" of any person shall mean a corporation, company or
other entity (i) more than 50% of whose outstanding shares or securities
(representing the right to vote for the election of directors or other managing
authority) are, or (ii) which does not have outstanding shares or securities (as
may be the case in a partnership, limited liability company, joint venture or
unincorporated association), but more than 50% of whose ownership interest
representing the right to make decisions for such other entity is, now or
hereafter owned or controlled, directly or indirectly, by such person.
(f) "YURIE CLOSING PRICE" shall mean the closing price of the Yurie
Common Stock on the Closing Date.
10.10 Headings and Interpretation. The headings contained in this
---------------------------
Agreement are for reference purposes only and shall not affect the meaning or
interpretation of this Agreement. Terms such as "herein," "hereof" and
"hereinafter" refer to this Agreement as a whole and not to the particular
sentence or paragraph where they appear, unless the context otherwise requires.
Whenever the words "include," "includes" or "including" are used in this
Agreement they shall be deemed to be followed by the words "without limitation."
The phrase "made available" in this Agreement shall mean that the information
referred to has been made available if requested by the party to whom such
information is to be made available. Unless the context otherwise requires, (i)
terms used in the plural include the singular, and vice versa, and (ii) words in
the masculine gender include the feminine or neuter, and vice versa.
10.11 Notices. All notices and other communications under this Agreement
-------
shall be in writing and shall be delivered by hand or overnight courier service,
mailed or sent by telex, graphic scanning or other telegraphic communications
equipment of the sending party, as follows:
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If to Yurie or the Company:
Yurie Systems, Inc.
8301 Professional Place
Landover, Maryland 20785
Attention: John J. McDonnell, General Counsel
Facsimile: 301/986-5081
with a copy (which shall not constitute notice) to:
Fried, Frank, Harris, Shriver & Jacobson
1001 Pennsylvania Avenue, N.W.
Suite 800
Washington, D.C. 20004
Attention: Richard A. Steinwurtzel, Esq.
Facsimile: 202/639-7003
If to Data Labs:
Data Labs, Inc.
444 N. Frederick Avenue
Suite 240
Gaithersburg, Maryland 20877
Attention: Wenli Yu
Facsimile: 301/990-0677
with a copy (which shall not constitute notice) to:
Tucker, Flyer & Lewis
1616 L Street, N.W.
Washington, D.C. 20036-5612
Attention: Jack Lewis, Esq.
Facsimile: 202/429-3231
or to such other address as any party may have furnished to the others in
writing in accordance herewith, except that notices of change of address shall
only be effective upon receipt. All notices and other communications given to
any party hereto in accordance with the provisions of this Agreement shall be
deemed to have been given on the date of receipt if delivered by hand or
overnight courier service or sent by telex, graphic scanning or other
telegraphic communications equipment of the sender, or on the date five business
days after dispatch by certified or registered mail if mailed, in each case
delivered, sent or mailed (properly addressed) to such party as provided in this
Section 10.11 or in accordance with the latest unrevised direction from such
party given in accordance with this Section 10.11.
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10.12 Governing Law. This Agreement shall be governed by and construed
-------------
and enforced in accordance with the laws of the State of Delaware, without
giving effect to the principles of conflicts of law thereof.
10.13 Consent to Jurisdiction. Each of Data Labs, Yurie and the Company
-----------------------
hereby irrevocably submits to the exclusive jurisdiction of any state or federal
court in the State of Delaware over any suit, action or proceeding brought
against it by any of the other parties hereto and arising out of or relating to
this Agreement and the transactions contemplated hereby.
10.14 Invalidity of Provisions. Each of the provisions contained in this
------------------------
Agreement is distinct and severable and a declaration of invalidity or
unenforceability of any such provision or part thereof by a court of competent
jurisdiction shall not affect the validity or enforceability of any other
provision hereof. The parties agree to replace such invalid or unenforceable
provision of this Agreement with a valid and enforceable provision that will
achieve, to the extent possible, the economic, business and other purposes of
such invalid or unenforceable provision.
10.15 Mutual Contribution. The parties to this Agreement and their
-------------------
counsel have mutually contributed to its drafting. Consequently, no provision
of this Agreement shall be construed against any party on the ground that such
party drafted the provision or caused it to be drafted or the provision contains
a covenant of such party.
10.16 Counterparts. This Agreement may be executed simultaneously in one
------------
or more counterparts, each of which shall be deemed to be an original but all of
which together shall constitute one and the same instrument.
-48-
<PAGE>
IN WITNESS WHEREOF, this Agreement has been duly executed and delivered by
the parties on the date first above written.
YURIE SYSTEMS, INC.
By:
----------------------------------
Name: Harry J. D'Andrea
Title: Chief Financial Officer
NICOLE ACQUISITION CORPORATION
By:
----------------------------------
Name: Harry J. D'Andrea
Title: President
DATA LABS, INC.
By:
----------------------------------
Name: Wenli Yu
Title: President and
Chief Executive Officer
-49-
<PAGE>
REGISTRATION RIGHTS AGREEMENT
BY AND AMONG
YURIE SYSTEMS, INC.
AND
CERTAIN SHAREHOLDERS OF
DATA LABS, INC.
DATED AS OF DECEMBER 1, 1997
<PAGE>
TABLE OF CONTENTS
-----------------
Page
----
<TABLE>
<S> <C>
1. CERTAIN DEFINITIONS................................................ 1
-------------------
2. REGISTRATION RIGHTS................................................ 2
-------------------
2.1. Required Registration......................................... 2
---------------------
2.2. Piggyback Registrations....................................... 4
-----------------------
2.3. Allocation of Securities Included in Registration Statement... 5
-----------------------------------------------------------
2.4. Registration Procedures....................................... 6
-----------------------
2.5. Registration Expenses......................................... 10
---------------------
2.6. Certain Limitations on Registration Rights.................... 10
------------------------------------------
2.7. No Required Sale.............................................. 11
----------------
2.8. Indemnification............................................... 11
---------------
3. PIGGYBACK UNDERWRITTEN OFFERINGS................................... 14
--------------------------------
4. GENERAL............................................................ 15
-------
4.1. Recapitalizations, Exchanges, etc., Affecting Merger Shares... 15
-----------------------------------------------------------
4.2. Rule 144...................................................... 15
--------
4.3. Nominees for Beneficial Owners................................ 16
------------------------------
4.4. Amendments and Waivers........................................ 16
----------------------
4.5. Notices....................................................... 16
-------
4.6. Miscellaneous................................................. 17
-------------
4.7. Prior Agreements.............................................. 18
----------------
4.8. No Inconsistent Agreements.................................... 19
--------------------------
4.9. Third-Party Beneficiaries..................................... 19
-------------------------
4.10. Designation of Shareholder Counsel........................... 19
----------------------------------
</TABLE>
i
<PAGE>
REGISTRATION RIGHTS AGREEMENT
This Registration Rights Agreement (this "Agreement"), dated as of
December 1, 1997, by and between Yurie Systems, Inc., a Delaware corporation
(the "Company"), and certain shareholders of Data Labs, Inc., a Delaware
corporation ("Data Labs"), listed on Exhibit A hereto (collectively, the
---------
"Representative Shareholders").
WHEREAS, the Company has entered into a merger agreement, dated as of
December 1, 1997 (the "Merger Agreement") by and among the Company, Nicole
Acquisition Corporation and Data Labs, pursuant to which the shareholders of
Data Labs listed on Exhibit B hereto (the "Shareholders") will receive shares of
---------
common stock of the Company; and
WHEREAS, it is a condition precedent to the consummation of the
transactions contemplated by the Merger Agreement that the Company enter into
this Agreement for the purpose of granting certain rights with respect to
registering under the Securities Act of 1933, as amended, the common stock and
common stock equivalents issuable pursuant to the Merger Agreement
NOW, THEREFORE, in consideration of these premises and the mutual
agreements, provisions and covenants contained in this Agreement, and certain
other good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, the parties hereby agree as follows:
1. CERTAIN DEFINITIONS.
-------------------
As used in this Agreement, the following terms shall have the
following meanings:
"COMMISSION" means the Securities and Exchange Commission or any other
federal agency at the time administering the Securities Act.
"COMMON STOCK" means the Common Stock, $.01 par value per share, of
the Company and warrants to acquire shares of such Common Stock, and any equity
securities issued or issuable with respect to the Common Stock in connection
with a reclassification, recapitalization, merger, consolidation or other
reorganization of the Company.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, and the
rules and regulations of the Commission promulgated thereunder, all as the same
shall be in effect from time to time.
<PAGE>
"MERGER SHARES" means any (i) shares of Common Stock issued in
connection with the Merger Agreement to any Shareholder for shares of stock of
Data Labs (including the shares of Common Stock placed in escrow pursuant to the
Merger Agreement), (ii) shares of Common Stock issued or issuable upon exercise
of any warrants to purchase shares of Common Stock held as of the Effective Date
by any Shareholder, and (iii) any shares of Common Stock issued or issuable,
directly or indirectly, with respect to the Common Stock referenced in clauses
(i) or (ii), above by way of stock dividend, stock split or combination of
shares. Such shares of Common Stock shall continue to be Merger Shares until
(x) such shares have been disposed of in accordance with a registration
statement made effective in accordance with the terms of this Agreement; (y)
such shares are eligible for disposition pursuant to Rule 144 (or any successor
provision to Rule 144), or (z) such shares have been otherwise transferred or
disposed of pursuant to an applicable exemption under the Securities Act and new
certificates for such shares that do not bear legends restricting further
transfer have been delivered by the Company or its transfer agent.
"PERSON" means any individual, corporation, limited liability company,
limited or general partnership, joint venture, association, joint-stock company,
trust, unincorporated organization or government or any agency or political
subdivisions thereof.
"RULE 144" means Rule 144 promulgated under the Securities Act or any
successor rule thereto or any complementary rule thereto.
"SECURITIES ACT" means the Securities Act of 1933, as amended, and the
rules and regulations of the Commission thereunder, all as the same shall be in
effect from time to time.
2. REGISTRATION RIGHTS.
-------------------
2.1. Required Registration.
---------------------
(a) (i) Not later than January 15, 1998, the Company shall
file such amendments to its registration statement on Form S-1 under the
Securities Act or file a new registration statement on Form S-1, if required by
the rules promulgated pursuant to the Securities Act, which registration
statement shall be a shelf registration pursuant to Rule 415 of the Securities
Act providing for the registration of the Merger Shares for resale. On or after
February 5, 1998, the Company may convert such registration statement filed
pursuant to this Section 2.1 into a registration statement on Form S-3 under the
Securities Act, provided, however, that, to the extent permitted by the
securities laws, the Company shall not withdraw the registration statement filed
on Form S-1 until
-2-
<PAGE>
the new registration statement is effective (the registration statements on Form
S-1 and S-3 are collectively referred to herein as the "Registration
Statement").
(ii) The Company may, at its option, register additional shares of
Common Stock on the Registration Statement (x) on behalf of shareholders of the
Company; or (y) in connection with a primary offering of Common Stock by the
Company; provided, however, that the inclusion of such additional shares will
not delay the filing of the Registration Statement or limit the Company's
obligations to the Shareholders under this Agreement.
(iii) The Company shall use its best efforts to cause the
Registration Statement to become effective as soon as possible, but not later
than the earlier of (x) February 20, 1998 and (y) the date on which the combined
financial results of the Company and Data Labs are filed pursuant to Section 5.3
of the Merger Agreement. The Company's obligation to maintain the effectiveness
of the Registration Statement shall terminate on December 7, 1998, or such
earlier time as there are no remaining Merger Shares.
(b) (i) If, after the Registration Statement becomes effective, the
Board of Directors of the Company, in its good faith judgment, determines that
any registration of Merger Shares should not be continued because it would
materially interfere with any underwritten offering by the Company or material
merger or acquisition (which merger or acquisition would be required to be
reported pursuant to Item 2 or Item 5 of Form 8-K) (a "Valid Business Reason"),
---------------------
the Company may cause the Registration Statement to be withdrawn and its
effectiveness terminated, or may postpone amending or supplementing such
Registration Statement until such Valid Business Reason no longer exists, but in
no event for more than one (1) month (such period of postponement or withdrawal,
the "Postponement Period"); and the Company shall give written notice of its
-------------------
determination to postpone or withdraw the Registration Statement and of the fact
that the Valid Business Reason for such postponement or withdrawal no longer
exists, in each case, promptly after the occurrence thereof; provided, however,
that (x) the Company shall not be permitted to postpone or withdraw a
registration statement within six (6) months after the expiration of any
Postponement Period, and (y) the Company must similarly postpone or withdraw all
registration statements for the resale of the Company's Common Stock by Persons
other than the Company.
(ii) Each Shareholder agrees that, upon receipt of any notice from
the Company that the Company has determined to withdraw the Registration
Statement pursuant to clause (b)(i) above, such Shareholder will discontinue any
disposition of Merger Shares pursuant to the Registration Statement and, if so
directed by the Company, will deliver to the Company (at the Company's expense)
all copies, other than permanent
-3-
<PAGE>
file copies, then in such Shareholder's possession of the prospectus covering
such Merger Shares that was in effect at the time of receipt of such notice.
(iii) If the Company shall give any notice of withdrawal or
postponement of the Registration Statement pursuant to clause (b)(i) above, the
Company shall, at such time as the Valid Business Reason that caused such
withdrawal or postponement no longer exists (but in no event later than one (1)
month after the date of the postponement or withdrawal), use its best efforts to
effect the registration under the Securities Act of the Merger Shares. If the
Company shall have withdrawn or prematurely terminated a registration statement
filed under Section 2.1 as a result of any stop order, injunction or other order
or requirement of the Commission or any other governmental agency or court, the
Company shall as soon as possible use its best efforts to effect the
registration under the Securities Act of Merger Shares covered by the withdrawn
or postponed registration statement in accordance with this Section 2.1.
2.2. Piggyback Registrations.
-----------------------
(a) If, at any time prior to December 1, 1998 or the earlier
termination of the Company's obligations under Section 2.1(a)(iii), the Company
proposes or is required to register any of its equity securities under the
Securities Act (other than pursuant to (i) registrations on such form or similar
form(s) solely for registration of securities in connection with an employee
benefit plan or dividend reinvestment plan or a merger or consolidation or (ii)
a registration under Section 2.1) on a registration statement on Form S-1, Form
S-2 or Form S-3 (or an equivalent general registration form then in effect),
whether or not for its own account, the Company shall give prompt written notice
of its intention to do so to one (1) counsel for the Shareholders designated in
Section 4.11 hereof (the "Shareholder Counsel"). Upon the written request of
the Shareholder Counsel, made within 10 days following the receipt of any such
notice (which request shall specify each Shareholder who wishes to exercise
piggyback rights and the maximum number of Merger Shares intended to be disposed
of by each such Shareholder), the Company shall, subject to Sections 2.2(b), 2.3
and 2.6 hereof, use its best efforts to cause all Merger Shares identified in
the Shareholder Counsel's notice to be registered under the Securities Act (with
the securities which the Company at the time proposes to register) to permit the
sale or other disposition by such Shareholders of the Merger Shares to be so
registered. There is no limitation on the number of such piggyback
registrations pursuant to the preceding sentence which the Company is obligated
to effect. No registration effected under this Section 2.2(a) shall relieve the
Company of its obligations to cause the Registration Statement to become
effective.
(b) If, at any time after giving notice of its intention to register
any equity securities and prior to the effective date of the registration
statement filed in connection with such registration, the Company shall
determine for any reason not to register or to delay registration of such equity
securities, the Company may, at its election, give notice of such determination
to the Shareholder Counsel and (i) in the case of a determination not to
-4-
<PAGE>
register, shall be relieved of its obligation to register any Merger Shares in
connection with such abandoned registration, without prejudice, however, to the
rights of the Shareholders under Section 2.1, and (ii) in the case of a
determination to delay such registration of its equity securities, shall be
permitted to delay the registration of such Merger Shares requested by a
Shareholder to be included therein for the same period as the delay in
registering such other equity securities.
(c) Any Shareholder shall have the right to withdraw its request for
inclusion of its Merger Shares in any registration statement pursuant to this
Section 2.2 by giving written notice to the Company of its request to withdraw;
provided, however, that (i) such request must be made in writing prior to the
earlier of the execution of the underwriting agreement or the execution of the
custody agreement with respect to such registration and (ii) such withdrawal
shall be irrevocable and, after making such withdrawal, a Shareholder shall no
longer have any right to include Merger Shares in the registration as to which
such withdrawal was made.
2.3. Allocation of Securities Included in Registration Statement.
-----------------------------------------------------------
If any registration pursuant to Section 2.2(a) involves an
underwritten offering, and the lead underwriter of such offering shall advise
the Company that, in its view, the number of securities requested to be included
in such registration by the Shareholders or by the Company exceeds the largest
number that can be sold in an orderly manner in such offering within a price
range acceptable to the Company, the Company shall include in such registration:
(a) first, all Common Stock that the Company proposes to register for
-----
its own account;
(b) second, all Common Stock requested to be registered by any
------
shareholder(s) of the Company who have exercised their demand registration
rights under registration rights agreements with the Company;
(c) third, all Common Stock requested to be registered by any
-----
shareholders of the Company, other than the Shareholders, who have exercised
their piggyback registration rights with respect to such offering, in accordance
with the terms of the registration rights agreements pursuant to which such
registration rights are granted; and
(d) fourth, all Common Stock requested to be registered by the
------
Shareholder, allocated on a pro rata basis among all Shareholders requesting
--------
that Merger
-5-
<PAGE>
Shares be included in such registration, based on the number of Merger Shares
then owned by each Shareholder requesting inclusion in relation to the number of
Merger Shares then owned by all Shareholders requesting inclusion.
2.4. Registration Procedures.
-----------------------
If and whenever the Company is required by the provisions of this
Agreement to use its best efforts to effect or cause the registration of any
Merger Shares under the Securities Act as provided in this Agreement, the
Company shall, as expeditiously as possible:
(a) prepare and file with the Commission a registration statement on
an appropriate registration form of the Commission for the disposition of such
Merger Shares, which form (i) shall be selected by the Company and (ii) shall be
available for the sale of the Merger Shares by the Shareholders, and such
registration statement shall comply as to form in all material respects with the
requirements of the applicable form and include all financial statements
required by the Commission to be filed therewith, and the Company shall use its
best efforts to cause such registration statement to become and remain effective
for the time periods set forth in subsection (b) of this Section 2.4; provided,
however, that before filing a registration statement or prospectus or any
amendments or supplements thereto, or comparable statements under securities or
blue sky laws of any jurisdiction, the Company will furnish to the Shareholder
Counsel copies of all such documents proposed to be filed (including all
exhibits thereto), which documents will be subject to the reasonable review and
reasonable comment of such counsel, and the Company shall not file any
registration statement or amendment thereto or any prospectus or supplement
thereto to which the Shareholder Counsel shall reasonably object in writing;
(b) prepare and file with the Commission such amendments and
supplements to such registration statement and the prospectus used in connection
therewith as may be necessary to keep such registration statement effective for
a period not to exceed one (1) year and to comply with the provisions of the
Securities Act with respect to the sale or other disposition of all Merger
Shares covered by such registration statement in accordance with the intended
methods of disposition by the seller or sellers thereof set forth in such
registration statement;
(c) furnish, without charge, to each seller of such Merger Shares such
number of copies of such registration statement, each amendment and supplement
thereto (in each case including all exhibits), and the prospectus included in
such registration statement (including each preliminary prospectus, if any) in
conformity with the requirements of the Securities Act, and other documents, as
such seller may reasonably request in order to facilitate the public sale or
other disposition of the Merger Shares
-6-
<PAGE>
owned by such seller (the Company hereby consenting to the use in accordance
with applicable law of each such registration statement (or amendment or post-
effective amendment thereto) and each such prospectus (or preliminary
prospectus, if any, or supplement thereto) by each such seller of Merger Shares
in connection with the offering and sale of the Merger Shares covered by such
registration statement or prospectus);
(d) register or qualify the Merger Shares covered by such registration
statement under such other securities or "blue sky" laws of such jurisdictions
as any sellers of Merger Shares shall reasonably request, and do any and all
other acts and things which may be reasonably necessary or advisable to enable
such sellers to consummate the disposition of the Merger Shares in such
jurisdictions, except that in no event shall the Company be required to qualify
to do business as a foreign corporation in any jurisdiction where it would not,
but for the requirements of this paragraph (d), be required to be so qualified,
to subject itself to taxation in any such jurisdiction or to consent to general
service of process in any such jurisdiction;
(e) promptly notify the Shareholder Counsel: (i) when the
registration statement, any pre-effective amendment, the prospectus or any
prospectus supplement related thereto or post-effective amendment to the
registration statement has been filed and, with respect to the registration
statement or any post-effective amendment, when the same has become effective;
(ii) of any request by the Commission or state securities authority for
amendments or supplements to the registration statement or the prospectus
related thereto or for additional information; (iii) of the issuance by the
Commission of any stop order suspending the effectiveness of the registration
statement or the initiation of any proceedings for that purpose; (iv) of the
receipt by the Company of any notification with respect to the suspension of the
qualification of any Merger Shares for sale under the securities or blue sky
laws of any jurisdiction or the initiation of any proceeding for such purpose;
(v) of the existence of any fact of which the Company becomes aware which
results in the registration statement, the prospectus related thereto or any
document incorporated therein by reference containing an untrue statement of a
material fact or omitting to state a material fact required to be stated therein
or necessary to make any statement therein not misleading; and (vi) if at any
time the representations and warranties contemplated by Section 3 below cease to
be true and correct in any material respect; and, if the notification relates to
an event described in clause (v), the Company shall promptly prepare and furnish
to each such seller a reasonable number of copies of a prospectus supplemented
or amended so that, as thereafter delivered to the purchasers of such Merger
Shares, such prospectus shall not include an untrue statement of a material fact
or omit to state a material fact required to be stated therein or necessary to
make the statements therein in the light of the circumstances under which they
were made not misleading;
-7-
<PAGE>
(f) comply with the Exchange Act, the Securities Act and all
applicable rules and regulations of the Commission, and make generally available
to its security holders, as soon as reasonably practicable after the effective
date of the registration statement, an earnings statement (which need not be
audited) covering the period of at least twelve consecutive months beginning
with the first day of the Company's first calendar quarter after the effective
date of the registration statement, which earnings statement shall satisfy the
provisions of Section 11(a) of the Securities Act and Rule 158 thereunder;
(g) (i) cause all such Merger Shares covered by such registration
statement to be listed or qualified on the principal securities market or
exchange on which similar securities issued by the Company are then listed (if
any), if the listing or qualification of such Merger Shares is then permitted
under the rules of such market or exchange, or (ii) if no similar securities are
then so listed, to either cause all such Merger Shares to be listed on a
national securities exchange or to secure designation of all such Merger Shares
as a Nasdaq "national market system security" within the meaning of Rule 11Aa2-1
of the Commission or, failing that, secure Nasdaq authorization for such shares
and, without limiting the generality of the foregoing, take all actions that may
be required by the Company as the issuer of such Merger Shares in order to
facilitate the managing underwriter's arranging for the registration of at least
two market makers as such with respect to such shares with the National
Association of Securities Dealers, Inc. (the "NASD");
(h) provide and cause to be maintained a transfer agent and registrar
for all such Merger Shares covered by such registration statement not later than
the effective date of such registration statement;
(i) if required, obtain an opinion from the Company's counsel and a
"cold comfort" letter from the Company's independent public accountants in
customary form and covering such matters as are customarily covered by such
opinions and "cold comfort" letters, which opinion and letter shall be
reasonably satisfactory to the Shareholder Counsel;
(j) deliver promptly to the Shareholder Counsel copies of all
correspondence between the Commission and the Company, its counsel or auditors
and all memoranda relating to discussions with the Commission or its staff with
respect to the registration statement, and, upon receipt of such confidentiality
agreements as the Company may reasonably request, make reasonably available for
inspection by any seller of such Merger Shares covered by such registration
statement participating in any disposition to be effected pursuant to such
registration statement and by any attorney, accountant or other agent retained
by any such seller, all pertinent financial and other records, pertinent
corporate documents and properties of the Company, and cause all of
-8-
<PAGE>
the Company's officers, directors and employees to supply all information
reasonably requested by any such seller, attorney, accountant or agent in
connection with such registration statement;
(k) use its best efforts to obtain the withdrawal of any order
suspending the effectiveness of the registration statement;
(l) within a reasonable time prior to the filing of any registration
statement, any related prospectus, any amendment to such a registration
statement or amendment or supplement to such a prospectus, provide copies of
such document to the Shareholder Counsel; invite the Shareholder Counsel to
attend drafting sessions (if any) with respect to such documents, make such
reasonable changes in any such document prior to or after the filing thereof as
the Shareholder Counsel may reasonably request, provided that such changes shall
not (x) unreasonably delay the filing of such document or (y) unreasonably
interfere with the good faith judgment of the Company and its counsel with
respect to disclosures made in such documents about the Company, and make
available for discussion of such document such of the representatives of the
Company as shall be reasonably requested by the Shareholder Counsel;
(m) upon request, at least one (1) day prior to the filing of any
document which is to be incorporated by reference into the registration
statement or the prospectus (after the initial filing of such registration
statement) provide copies of such document to the Shareholder Counsel, and make
the Company's representatives reasonably available for discussion of such
document;
(n) cooperate with the selling holders of Merger Shares to facilitate
the timely preparation and delivery of certificates not bearing any restrictive
legends representing the Merger Shares to be sold, and cause such Merger Shares
to be issued in such denominations and registered in such names in accordance
with the written instructions of the selling holders of Merger Shares at least
three (3) business days prior to any sale of Merger Shares; and
(o) take all such other commercially reasonable actions the Company
deems necessary or advisable in order to expedite or facilitate the disposition
of such Merger Shares.
The Company may require as a condition precedent to the Company's
obligations under this Section 2.4 that each seller of Merger Shares as to which
any registration is being effected furnish the Company such information
regarding such seller and the distribution of such securities as required by the
Securities Act and as the Company may from time to time reasonably request
provided that such information shall be used only in connection with such
registration.
-9-
<PAGE>
Each Shareholder agrees that promptly after receipt of any notice from
the Company of the happening of any event of the kind described in clause (v) of
paragraph (e) of this Section 2.4, such Shareholder will discontinue its
disposition of Merger Shares pursuant to the registration statement covering
such Merger Shares until such Shareholder's receipt of the copies of the
supplemented or amended prospectus contemplated by paragraph (e) of this Section
2.4 and, if so directed by the Company, will deliver to the Company (at the
Company's expense) all copies, other than permanent file copies, then in such
Shareholder's possession of the prospectus covering such Merger Shares that was
in effect at the time of receipt of such notice. In the event the Company shall
give any such notice, the applicable period mentioned in paragraph (b) of this
Section 2.4 shall be extended by the number of days during such period from and
including the date of the giving of such notice to and including the date when
each seller of any Merger Shares covered by such registration statement shall
have received the copies of the supplemented or amended prospectus contemplated
by paragraph (e) of this Section 2.4.
2.5. Registration Expenses.
----------------------
All expenses incurred by the Company in complying with this
Article 2, including, without limitation, all registration and filing fees
(including all expenses incident to filings with the Nasdaq or other exchange),
fees and expenses of complying with securities and blue sky laws, printing
expenses, fees and expenses of the Company's counsel and accountants, and the
fees and disbursements of all independent public accountants (including the
expenses of any audit and/or "cold comfort" letter) shall be paid by the
Company; provided, however, that (i) all underwriting discounts and selling
commissions applicable to the Merger Shares, shall be borne by the seller or
sellers thereof, in proportion to the number of Merger Shares sold by such
seller or sellers, and (ii) each seller of Merger Shares shall pay the
attorneys' fees and expenses of any attorney retained by such seller in
connection with the registration.
2.6. Certain Limitations on Registration Rights.
-------------------------------------------
In the case of a registration under Section 2.2 if the Company
has determined to enter into an underwriting agreement in connection therewith,
all securities to be included in such registration shall be subject to an
underwriting agreement and no Person may participate in such registration unless
such Person agrees to sell such Person's securities on the basis provided
therein and completes and executes all reasonable questionnaires and other
documents (including custody agreements and powers of attorney) which must be
executed in connection therewith, and provides such other information to the
Company or the underwriter as may be necessary to register such Person's
securities.
-10-
<PAGE>
2.7. No Required Sale.
----------------
Nothing in this Agreement shall be deemed to create an
independent obligation on the part of any Shareholder to sell any Merger Shares
pursuant to any effective registration statement.
2.8. Indemnification.
---------------
(a) In the event of any registration of any securities of the
Company under the Securities Act pursuant to this Article 2, the Company will,
and hereby does, indemnify and hold harmless, to the fullest extent permitted by
law, each seller of Merger Shares, its directors, officers, fiduciaries,
employees and shareholders or general and limited partners (and the directors,
officers, employees, shareholders and partners thereof), in the sale of such
securities, and each other Person, if any, who controls such seller within the
meaning of the Securities Act, against any and all losses, claims, damages or
liabilities, joint or several, actions or proceedings (whether commenced or
threatened) in respect thereof ("Claims") and expenses (including reasonable
fees of counsel and any amounts paid in any settlement effected with the
Company's consent, which consent shall not be unreasonably withheld) to which
each such indemnified party may become subject under the Securities Act,
Exchange Act or otherwise, insofar as such Claims or expenses arise out of or
are based upon (i) any untrue statement or alleged untrue statement of a
material fact contained in any registration statement, together with the
documents incorporated by reference therein, under which such securities were
registered under the Securities Act or the omission or alleged omission to state
therein a material fact required to be stated therein or necessary to make the
statements therein not misleading, (ii) any untrue statement or alleged untrue
statement of a material fact contained in any preliminary, final or summary
prospectus or any amendment or supplement thereto, together with the documents
incorporated by reference therein, or the omission or alleged omission to state
therein a material fact required to be stated therein or necessary in order to
make the statements therein, in the light of the circumstances under which they
were made, not misleading, or (iii) any violation by the Company or its
affiliates of any federal, state or common law, rule or regulation applicable to
the Company or its affiliates and relating to action required of or inaction by
the Company or its affiliates in connection with any such registration, and the
Company will promptly reimburse any such indemnified party for any legal or
other expenses reasonably incurred by such indemnified party in connection with
investigating or defending any such Claim as such expenses are incurred;
provided, however, that the Company shall not be liable to any such indemnified
party in any such case to the extent such Claim or expense arises out of or is
based upon any untrue statement or alleged untrue statement of a material fact
or omission or alleged omission of a material fact made in such registration
statement or amendment thereof or supplement thereto or in any such prospectus
or any preliminary,
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final or summary prospectus in reliance upon and in
conformity with written information furnished to the Company by or on behalf of
such indemnified party specifically for use therein. Such indemnity and
reimbursement of expenses shall remain in full force and effect regardless of
any investigation made by as on behalf of such indemnified party and shall
survive the transfer of such securities by such seller.
(b) Each Representative Shareholder that holds Merger Shares
that are registered in a registration statement pursuant to Section 2.1 or 2.2
of this Agreement shall, severally and not jointly, indemnify and hold harmless
(in the same manner and to the same extent as set forth in paragraph (a) of this
Section 2.8) to the extent permitted by law the Company, its officers,
directors, fiduciaries, employees and shareholders, and each Person controlling
the Company within the meaning of the Securities Act and all other prospective
sellers and their directors, officers and respective controlling Persons, with
respect to any untrue statement or alleged untrue statement of any material fact
in, or omission or alleged omission of any material fact from, such registration
statement, any preliminary, final or summary prospectus contained therein, or
any amendment or supplement thereto, if such statement or alleged statement or
omission or alleged omission was made in reliance upon and in conformity with
information furnished to the Company or its representatives by or on behalf of
such Shareholder specifically for use therein and reimburse such indemnified
party for any legal or other expenses reasonably incurred in connection with
investigating or defending any such Claim as such expenses are incurred;
provided, however, that the aggregate amount which any such seller of Merger
Shares shall be required to pay pursuant to this Section 2.8 shall in no case be
greater than the amount of the net proceeds received by such Person upon the
sale of the Merger Shares pursuant to the registration statement giving rise to
such claim. Such indemnity and reimbursement of expenses shall remain in full
force and effect regardless of any investigation made by or on behalf of such
indemnified party and shall survive the transfer of such securities by such
seller of Merger Shares.
(c) Indemnification similar to that specified in the preceding
paragraphs (a) and (b) of this Section 2.8 (with appropriate modifications)
shall be given by the Company and each seller of Merger Shares with respect to
any required registration or other qualification of securities under any state
securities and "blue sky" laws.
(d) Any Person entitled to indemnification under this Agreement
shall notify promptly the indemnifying party in writing of the commencement of
any action or proceeding with respect to which a claim for indemnification may
be made pursuant to this Section 2.8, but the failure of any indemnified party
to provide such notice shall not relieve the indemnifying party of its
obligations under the preceding paragraphs of this Section 2.8, except to the
extent the indemnifying party is materially prejudiced thereby
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and shall not relieve the indemnifying party from any liability which it may
have to any indemnified party otherwise than under this Article 2. In case any
action or proceeding is brought against an indemnified party and it shall notify
the indemnifying party of the commencement thereof, the indemnifying party shall
be entitled to participate therein and, unless in the reasonable opinion of
outside counsel to the indemnified party a conflict of interest between such
indemnified and indemnifying parties may exist in respect of such claim, to
assume the defense thereof jointly with any other indemnifying party similarly
notified, to the extent that it chooses, with counsel reasonably satisfactory to
such indemnified party, and after notice from the indemnifying party to such
indemnified party that it so chooses, the indemnifying party shall not be liable
to such indemnified party for any legal or other expenses subsequently incurred
by such indemnified party in connection with the defense thereof other than
reasonable costs of investigation; provided, however, that (i) if the
indemnifying party fails to take reasonable steps necessary to defend diligently
the action or proceeding within 20 days after receiving notice from such
indemnified party that the indemnified party believes it has failed to do so; or
(ii) if such indemnified party who is a defendant in any action or proceeding
which is also brought against the indemnifying party reasonably shall have
concluded that there may be one or more legal defenses available to such
indemnified party which are not available to the indemnifying party; or (iii) if
representation of both parties by the same counsel is otherwise inappropriate
under applicable standards of professional conduct, then, in any such case, the
indemnified party shall have the right to assume or continue its own defense as
set forth above (but with no more than one firm of counsel for all indemnified
parties in each jurisdiction, except to the extent any indemnified party or
parties reasonably shall have concluded that there may be legal defenses
available to such party or parties which are not available to the other
indemnified parties or to the extent representation of all indemnified parties
by the same counsel is otherwise inappropriate under applicable standards of
professional conduct) and the indemnifying party shall be liable for any
expenses therefor. No indemnifying party shall, without the written consent of
the indemnified party, effect the settlement or compromise of, or consent to the
entry of any judgment with respect to, any pending or threatened action or claim
in respect of which indemnification or contribution may be sought hereunder
(whether or not the indemnified party is an actual or potential party to such
action or claim) unless such settlement, compromise or judgment (A) includes an
unconditional release of the indemnified party from all liability arising out of
such action or claim and (B) does not include a statement as to or an admission
of fault, culpability or a failure to act, by or on behalf of any indemnified
party.
(e) If for any reason the foregoing indemnity is unavailable or
is insufficient to hold harmless an indemnified party under Sections 2.8(a), (b)
or (c), then each indemnifying party shall contribute to the amount paid or
payable by such indemnified party as a result of any Claim in such proportion as
is appropriate to reflect
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<PAGE>
the relative fault of the indemnifying party, on the one hand, and the
indemnified party, on the other hand, with respect to such offering of
securities. The relative fault shall be determined by reference to, among other
things, whether the untrue or alleged untrue statement of a material fact or the
omission or alleged omission to state a material fact relates to information
supplied by the indemnifying party or the indemnified party and the parties'
relative intent, knowledge, access to information and opportunity to correct or
prevent such untrue statement or omission. If, however, the allocation provided
in the second preceding sentence is not permitted by applicable law, then each
indemnifying party shall contribute to the amount paid or payable by such
indemnified party in such proportion as is appropriate to reflect not only such
relative faults but also the relative benefits of the indemnifying party and the
indemnified party as well as any other relevant equitable considerations. The
parties hereto agree that it would not be just and equitable if contributions
pursuant to this Section 2.8(e) were to be determined by pro rata allocation or
by any other method of allocation which does not take account of the equitable
considerations referred to in the preceding sentences of this Section 2.8(e).
The amount paid or payable in respect of any Claim shall be deemed to include
any legal or other expenses reasonably incurred by such indemnified party in
connection with investigating or defending any such Claim. No Person guilty of
fraudulent misrepresentation (within the meaning of Section 11(f) of the
Securities Act) shall be entitled to contribution from any Person who was not
guilty of such fraudulent misrepresentation. Notwithstanding anything in this
Section 2.8 to the contrary, no indemnifying party (other than the Company)
shall be required pursuant to this Section 2.8 to contribute any amount in
excess of the net proceeds received by such indemnifying party from the sale of
the Merger Shares in the offering to which the Claims of the indemnified parties
relate, less the amount of any indemnification payment made by such indemnifying
party pursuant to Sections 2.8(b) and (c).
(f) The indemnity agreements contained herein shall be in
addition to any other rights to indemnification or contribution which any
indemnified party may have pursuant to law or contract and shall remain
operative and in full force and effect regardless of any investigation made or
omitted by or on behalf of any indemnified party and shall survive the
disposition of Merger Shares by any Shareholder.
(g) The indemnification and contribution required by this
Section 2.8 shall be made by periodic payments of the amount thereof during the
course of the investigation or defense, as and when bills are received or
expense, loss, damage or liability is incurred.
3. PIGGYBACK UNDERWRITTEN OFFERINGS.
--------------------------------
In the case of a registration pursuant to Section 2.2 hereof, if the
Company shall have determined to enter into an underwriting agreement in
connection therewith, all of
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the Merger Shares to be included in such registration shall be subject to such
underwriting agreement. Any Shareholder participating in such registration may,
at its option, require that any or all of the representations and warranties by,
and the other agreements on the part of, the Company to and for the benefit of
such underwriters shall also be made to and for the benefit of such Shareholders
and that any or all of the conditions precedent to the obligations of such
underwriters under such underwriting agreement be conditions precedent to the
obligations of such Shareholders. Such underwriting agreement shall also contain
such representations and warranties by the participating Shareholders as are
customary in agreements of that type.
4. GENERAL.
--------
4.1. Recapitalizations, Exchanges, etc., Affecting Merger Shares
-----------------------------------------------------------
The provisions of this Agreement shall, to the extent reasonably
practicable, apply, to the full extent set forth herein with respect to the
Merger Shares, to any and all securities or capital stock (of the Company or any
successor to the Company and/or any other issuer thereof) which may be issued in
respect of, in exchange for, or in substitution of such Merger Shares, by reason
of, and shall be appropriately adjusted to reflect, any stock dividend, stock
split, reverse stock split, combination, recapitalization, reclassification,
merger, consolidation or otherwise. The adjustments contemplated by this
paragraph shall be made cumulative with respect to all such transactions
contemplated by this Section that occur from time to time. Any issuer of any
such securities other than the Company shall be required to assume in writing,
to the extent relevant, the Company's obligations with respect to the
registration rights granted hereunder or enter into a registration rights
agreement substantially similar to this Agreement and giving effect to the
allocations and adjustments contemplated by this Section, in connection with any
such transaction pursuant to which the Shareholders shall receive securities of
such issuer, as contemplated by this Section.
4.2. Rule 144.
--------
The Company covenants that (i) so long as it remains subject to the
reporting provisions of the Exchange Act, it will timely file the reports
required to be filed by it under the Securities Act or the Exchange Act
(including, but not limited to, the reports under Sections 13 and 15(d) of the
Exchange Act referred to in subparagraph (c)(1) of Rule 144 under the Securities
Act), and (ii) will take such further action as any Shareholder may reasonably
request, all to the extent required from time to time to enable such Shareholder
to sell Merger Shares without registration under the Securities Act within the
limitation of the exemptions provided by (A) Rules 144 and 145 under the
Securities Act, as such Rules may be amended from time to time, or (B) any
similar rule or regulation hereafter adopted by the Commission. Upon the
request of any Shareholder,
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the Company will deliver to such Shareholder a written statement as to whether
it has complied with such requirements.
4.3. Nominees for Beneficial Owners.
------------------------------
If Merger Shares are held by a nominee for the beneficial owner
thereof, the beneficial owner thereof may, at its option, be treated as the
holder of such Merger Shares for purposes of any request or other action by any
Shareholder pursuant to this Agreement (or any determination of any number or
percentage of shares constituting Merger Shares held by any Shareholder(s)
contemplated by this Agreement), provided that the Company shall have received
assurances reasonably satisfactory to it of such beneficial ownership.
4.4. Amendments and Waivers.
----------------------
This Agreement may be amended, modified, supplemented or waived only
upon the written agreement of the Company and the Representative Shareholders.
4.5. Notices.
-------
All notices, demands, requests or other communications that may be or
are required to be given, served or sent by any party to any other party
pursuant to this Agreement shall be in writing (and shall be deemed to have been
duly given upon receipt) and shall be mailed by first-class, overnight,
registered or certified mail, return receipt requested, postage prepaid, or
transmitted by hand delivery or facsimile transmission, addressed as follows:
(i) if to the Company:
Yurie Systems, Inc.
8301 Professional Place
Landover, Maryland 20785
Attn: John J. McDonnell, Esq.
Facsimile: 301-352-4678
with a copy to:
Fried, Frank, Harris, Shriver & Jacobson
1001 Pennsylvania Ave., N.W.
Suite 800
Washington, D.C. 20004
Attn: Richard A. Steinwurtzel, Esq.
Facsimile: 202-639-7008
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<PAGE>
(ii) if to any of the Shareholders, to the
addresses set forth on Exhibit B.
----------
with a copy to:
Tucker, Flyer & Lewis
1615 L St., N.W.
Suite 400
Washington, D.C. 20036
Attn: Jack L. Lewis, Esq.
(iii) if to the Shareholder Counsel:
Tucker, Flyer & Lewis
1615 L St., N.W.
Suite 400
Washington, D.C. 20036
Attn: Jack L. Lewis, Esq.
Each party may designate by notice in writing a new address to which any notice,
demand, request or communication may thereafter be so given, served or sent.
Each notice, demand, request or communication that is mailed, delivered or
transmitted in the manner described above shall be deemed sufficiently given,
served, sent and received for all purposes at such time as it is delivered to
the addressee (with the return receipt, the delivery receipt or the affidavit of
messenger being deemed conclusive evidence of such delivery) or at such time as
delivery is refused by the addressee upon presentation.
4.6. Miscellaneous.
-------------
(a) This Agreement shall be binding upon and inure to the benefit of
and be enforceable by the parties hereto and the respective successors, personal
representatives and assigns of the parties hereto, whether so expressed or not;
provided, however, that the registration rights granted pursuant to this
Agreement shall not be transferred with the transfer of shares of Common Stock
held by the Shareholders unless: (i) such shares of Common Stock are Merger
Shares; (ii) the transferee of such Merger Shares agrees in writing to be bound
by the provisions of this Agreement; and (iii) for the purposes any notice
provision contained in this Agreement, notice to the Shareholder Counsel or, if
required, to the persons at the addresses listed on Exhibits A and B hereto
shall constitute any notice that such transferee may be entitled to under this
Agreement.
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<PAGE>
(b) This Agreement and the Merger Agreement (with the documents
referred to herein or therein or delivered pursuant hereto or thereto) embody
the entire agreement and understanding between the parties hereto and supersede
all prior agreements and understandings relating to the subject matter hereof.
(c) This Agreement shall be construed and enforced in accordance with
and governed by the laws of the State of Delaware without giving effect to the
conflicts of law principles thereof.
(d) The headings in this Agreement are for convenience of reference
only and shall not limit or otherwise affect the meaning hereof. All section
references are to this Agreement unless otherwise expressly provided.
(e) This Agreement may be executed in any number of counterparts,
each of which shall be an original, but all of which together shall constitute
one instrument.
(f) Any term or provision of this Agreement which is invalid or
unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective
to the extent of such invalidity or unenforceability without rendering invalid
or unenforceable the remaining terms and provisions of this Agreement or
affecting the validity or enforceability of any of the terms or provisions of
this Agreement in any other jurisdiction.
(g) The parties hereto acknowledge that there would be no adequate
remedy at law if any party fails to perform any of its obligations hereunder,
and accordingly agree that each party, in addition to any other remedy to which
it may be entitled at law or in equity, shall be entitled to injunctive relief,
including specific performance, to enforce such obligations without the posting
of any bond, and, if any action should be brought in equity to enforce any of
the provisions of this Agreement, none of the parties hereto shall raise the
defense that there is an adequate remedy at law.
(h) Each party hereto shall do and perform or cause to be done and
performed all such further acts and things and shall execute and deliver all
such other agreements, certificates, instruments, and documents as any other
party hereto reasonably may request in order to carry out the intent and
accomplish the purposes of this Agreement and the consummation of the
transactions contemplated hereby.
4.7. Prior Agreements.
----------------
Each of the Shareholders agrees that any agreement previously entered
into by it pursuant to which Data Labs granted to any Shareholder any
registration rights shall
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be superseded by this Agreement and each such agreement shall be null and void
and no longer in effect.
4.8. No Inconsistent Agreements.
--------------------------
Neither the Company nor any Shareholder will, on or after the date of
this Agreement, enter into any agreement with respect to its securities which is
inconsistent with the rights granted in this Agreement or may delay the
effectiveness of the Registration Statement or otherwise conflicts with the
provisions hereof. Notwithstanding the foregoing, the Company may grant
registration rights to future shareholders in future registration rights
agreements.
4.9. Third-Party Beneficiaries.
-------------------------
Nothing expressed or implied in this Agreement is intended or shall
be construed to confer upon or give any person, firm or corporation other than
the parties hereto and their permitted successors or assigns any rights or
remedies under or by reason of this Agreement, provided, however, that the
Shareholders listed on Exhibit B hereto shall be third-party beneficiaries to
---------
this Agreement.
4.10. Designation of Shareholder Counsel.
----------------------------------
Each of the Shareholders designates Tucker, Flyer & Lewis as
Shareholder Counsel for purposes of this Agreement until such later time as a
majority of the holders of the Merger Shares designate different counsel.
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IN WITNESS WHEREOF, the undersigned have executed this Registration Rights
Agreement as of the date set forth above.
YURIE SYSTEMS, INC.
By:
------------------------------
Name:
Title:
WENLI YU
-----------------------------------
EDISON VENTURE FUND III, L.P.
By: EDISON PARTNERS III, L.P.
General Partner
By:
------------------------------
BESSEMER VENTURE PARTNERS IV, L.P.
By: DEER IV & CO. LLC
General Partner
By:
------------------------------
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EXHIBIT A
Wenli Yu
Edison Venture Fund III, L.P.
Bessemer Venture Partners IV, L.P.
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EXHIBIT B
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