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) October 25, 1999
--------------------------------
WATKINS-JOHNSON COMPANY
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in Charter)
California 1-5631 94-1402710
---------- ------ ----------
(State or Other Jurisdiction (Commission File (IRS Employer
of Incorporation) Number) Identification No.)
3333 Hillview Avenue, Palo Alto, California 94304-1223
- --------------------------------------------------------------------------------
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code: (650) 493-4141
-----------------------------
None
- --------------------------------------------------------------------------------
(Former Name or Former Address, if Changed Since Last Report)
<PAGE>
Item 5. Other Events
On October 25, 1999, Watkins-Johnson Company (the "Company") entered
into an Agreement and Plan of Merger (the "Merger Agreement") with FP - WJ
Acquisition Corp. ("FP - WJ"), a company formed by Fox Paine Capital Fund, L.P.
("Fox Paine Capital"), which is a private investment fund managed by Fox Paine &
Company LLC ("Fox Paine"). The Merger Agreement provides that, upon satisfaction
of certain conditions, FP - WJ will merge into the Company in a merger (the
"Merger") to be accounted for as a recapitalization, with the Company surviving
the Merger. Upon the consummation of the Merger, each share of common stock of
the Company will be converted into the right to receive $41.125 in cash (other
than shares with respect to which dissenters' rights are properly exercised
under California law). The Merger Agreement is attached hereto as Exhibit 2.1
and is incorporated herein by this reference.
In connection with the Merger Agreement, the Company also entered into
a Recapitalization Agreement (the "Recapitalization Agreement"), dated as of
October 25, 1999, with FP - WJ and the Watkins Trust dated September 19, 1988
(the "Watkins Trust"). Dr. Dean A. Watkins, the Company's Chairman and
co-founder, is a trustee of the Watkins Trust. In the series of transactions
contemplated by the Recapitalization Agreement, Fox Paine Capital will purchase
a portion of the shares held by the Watkins Trust for $41.125 per share in
conjunction with the consummation of the Merger and the Watkins Trust will
maintain a 9% equity interest in the common stock of the corporation surviving
the Merger. This investment is designed to facilitate Fox Paine's requirement
that the Merger qualify for recapitalization accounting treatment.
The Merger and related expenses will be financed by: (i) a $50 million
equity investment from Fox Paine Capital and, possibly, certain other investors
(principally, related private equity funds and institutional investors which
have invested in investment funds managed by Fox Paine) which may be permitted
by Fox Paine Capital to purchase a minority interest in FP - WJ in connection
with the equity portion of the financing (with respect to which Fox Paine
Capital has provided to the Company an equity commitment letter); (ii) $41
million of debt (as well as an additional $14 million for a post-closing working
capital facility) to be loaned to the Company by CIBC World Markets Corp. and
Canadian Imperial Bank of Commerce under a secured credit facility (with respect
to which CIBC World Markets Corp., as agent for the lenders, has provided a
commitment letter to the Company); (iii) approximately $5 million in the form of
equity from the shares retained by the Watkins Trust in the corporation
surviving the Merger, as described in the preceding paragraph; and (iv) the
Company's cash on hand, including the proceeds of asset sales previously
completed in 1999 and the proceeds from the pending sale of substantially all of
the assets of the Company's Telecommunications Group (the completion of which is
a condition to closing the Merger). The debt and equity commitments for the
financing are subject to a number of conditions.
On October 26, 1999, the Company issued a press release related to the
Merger Agreement. The press release is attached hereto as Exhibit 99.1 and is
incorporated herein by this reference.
<PAGE>
For further information with respect to the terms of the Merger,
including the conditions to consummation, the representations, warranties and
covenants of the parties, and the parties' respective termination rights,
reference is made to the full text of the Merger Agreement. The foregoing
summary description of the transaction is qualified in its entirety by reference
to such exhibit.
Item 7. Financial Statements and Exhibits
(a) Exhibits
Exhibit 2.1 Agreement and Plan of Merger, dated as of October 25, 1999,
between FP - WJ Acquisition Corp. and Watkins-Johnson Company.
Exhibit 99.1 Press release issued by the Company on October 26, 1999
related to the Merger Agreement.
<PAGE>
SIGNATURE
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 herewith duly authorized.
Date: October 26, 1999 WATKINS-JOHNSON COMPANY
By: /s/ W. Keith Kennedy, Jr.
--------------------------------
W. Keith Kennedy, Jr., President
and Chief Executive Officer
<PAGE>
EXHBIT INDEX
Exhibit 2.1 Agreement and Plan of Merger, dated as of October 25, 1999,
between FP - WJ Acquisition Corp. and Watkins-Johnson Company.
Exhibit 99.1 Press release issued by the Company on October 26, 1999
related to the Merger Agreement.
AGREEMENT AND PLAN OF MERGER
BETWEEN
FP - WJ ACQUISITION CORP.,
a California corporation,
AND
WATKINS-JOHNSON COMPANY,
a California corporation
DATED October 25, 1999
<PAGE>
AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER (this "Agreement") is dated as of
October 25, 1999, between FP - WJ Acquisition Corp., a California corporation
("Purchaser"), and Watkins-Johnson Company, a California corporation (the
"Company").
BACKGROUND
A. The Boards of Directors of the Company and Purchaser have approved
the merger of Purchaser with and into the Company (the "Merger") in accordance
with the California Corporations Code (the "California Code"), with the Company
being the surviving corporation in the Merger (the Company, in its capacity as
such surviving corporation, being referred to as the "Surviving Corporation"),
upon the terms and subject to the conditions of this Agreement.
B. In the Merger, all of the issued and outstanding shares of the
Common Stock, without par value, of the Company ("Company Common Stock") (other
than shares of Company Common Stock owned, directly or indirectly, by the
Company or Purchaser) will be converted into the right to receive $41.125 per
share in cash (without interest) upon the terms and subject to the limitations
and conditions of this Agreement (the term "Company Common Stock" including, for
all purposes of this Agreement, the associated share purchase rights (the
"Rights") issued under the Rights Agreement dated as of September 30, 1996, as
amended, between the Company and ChaseMellon Shareholders Services, L.L.C. as
Rights Agreement (the "Rights Agreement")). As more specifically hereinafter
provided, the cash payable to holders of Company Common Stock in the Merger
shall be provided (i) from the cash of the Company, (ii) an aggregate of $50
million from Purchaser (which amount includes funds utilized by Sponsor (as
defined in Section 3.2(g) hereof) to purchase the Purchased Shares (as defined
in and pursuant to the Recapitalization Agreement (as defined in Recital E
below) between the Company and the Watkins Trust dated September 19, 1988, and
(iii) $41 million in debt financing to be arranged by or at the direction of
Purchaser.
C. The Board of Directors of the Company has determined that the Merger
is fair to, and in the best interests of, the holders of Company Common Stock,
has approved the Merger and has decided to recommend the approval and adoption
of this Agreement by the shareholders of the Company.
D. The parties hereto intend that the Merger be treated as a
recapitalization for financial reporting purposes.
E. For the purpose of accounting for the Merger as a recapitalization,
one or more beneficial owners of Company Common Stock (the "Additional
Investors") have,
-1-
<PAGE>
concurrently herewith, subscribed for and agreed to acquire shares of Series A
Preferred Stock (as defined in Section 2.4 hereof) pursuant to recapitalization
agreements substantially in the form attached as Exhibit A hereto (the
"Recapitalization Agreements"), each of which share of Series A Preferred Stock
shall, as more specifically hereinafter provided, be converted into a single
share of the common stock of the Surviving Corporation in the Merger.
F. Purchaser and the Company desire to make certain representations,
warranties, covenants and agreements in connection with the Merger and also to
prescribe various conditions to the Merger.
NOW, THEREFORE, Purchaser and the Company (the "Parties") hereby agree
as follows:
ARTICLE I
THE MERGER
SECTION 1.1 The Merger. Upon the terms and subject to the conditions
set forth in this Agreement, and in accordance with the California Code, at the
Effective Time (as defined in Section 1.3 below), Purchaser shall be merged with
and into the Company. At the Effective Time, the separate corporate existence of
Purchaser shall cease, and the Company shall continue as the Surviving
Corporation under the laws of the State of California under the name
"Watkins-Johnson Company," and the separate corporate existence of the Company,
with all of its rights, privileges, immunities, powers and franchises, shall
continue unaffected by the Merger.
SECTION 1.2 Closing. Unless this Agreement shall have been terminated
pursuant to Section 6.1, and subject to the satisfaction or waiver of the
conditions set forth in Article V, the closing of the Merger (the "Closing")
shall take place on the later of (i) January 5, 2000 or (ii) immediately
following the satisfaction or waiver of the conditions set forth in Article V,
other than those conditions which by their terms are to be satisfied at the
Closing, at the offices of Irell & Manella LLP, 333 South Hope Street, Suite
3300, Los Angeles, California 90071, unless another date, time or place is
agreed to in writing by the Parties. The date of the Closing is referred to as
the "Closing Date."
SECTION 1.3 Effective Time of the Merger. At the Closing, the Parties
shall cause the Merger to be consummated by filing a certificate of merger (the
"Certificate of Merger") with the Secretary of State of the State of California,
in such form as required by, and executed in accordance with the relevant
provisions of, the California Code (the date and time of the filing of the
Certificate of Merger with the Secretary of State of the
-2-
<PAGE>
State of California, or such later time as is specified in the Certificate of
Merger, being referred to as the "Effective Time").
SECTION 1.4 Effects of the Merger. From and after the Effective Time,
the Merger shall have the effects set forth in this Agreement and the California
Code.
SECTION 1.5 Articles of Incorporation and Bylaws of the Surviving
Corporation. At the Effective Time, the Articles of Incorporation of the
Surviving Corporation shall be the Articles of Incorporation of the Company as
in effect immediately prior to the Effective Time, and the Bylaws of the
Surviving Corporation shall be the Bylaws of Purchaser as in effect immediately
prior to the Effective Time, except that the Bylaws shall contain the
indemnification and exculpation provisions required by Section 4.7(a).
SECTION 1.6 Directors and Officers of the Surviving Corporation. The
directors and officers of Purchaser immediately prior to the Effective Time
shall be the initial directors and officers, respectively, of the Surviving
Corporation, each to hold office in accordance with the Articles of
Incorporation and Bylaws of the Surviving Corporation, and with the California
Code.
ARTICLE II
CONVERSION OF COMPANY CAPITAL STOCK AND CERTAIN OTHER EFFECTS OF THE MERGER
SECTION 2.1 Effect on Capital Stock. At the Effective Time, by virtue
of the Merger and without any action on the part of the holders of any shares of
Company Common Stock or any other shares of capital stock of Purchaser or the
Company:
(a) Common Stock of Purchaser. Each share of Common Stock, without par
value, of Purchaser issued and outstanding immediately prior to the Effective
Time shall be converted into and shall constitute one validly issued, fully paid
and nonassessable share of common stock, without par value, of the Surviving
Corporation, which, other than as set forth in Section 2.1(d), shall be all of
the issued and outstanding capital stock of the Surviving Corporation as of the
Effective Time.
(b) Cancellation of Certain Shares of Company Common Stock. Each share
of Company Common Stock that is owned by the Company or by any direct or
indirect subsidiary of the Company (as treasury shares or otherwise), and each
share of Company Common Stock that is owned by Purchaser or any subsidiary of
Purchaser, shall automatically be canceled and retired and shall cease to exist,
and no other consideration shall be delivered or deliverable in exchange
therefor.
-3-
<PAGE>
(c) Conversion of Issued and Outstanding Company Common Stock. Except
as otherwise provided in this Agreement and subject to Section 2.1(e), each
issued and outstanding share of Company Common Stock (other than shares to be
canceled in accordance with Section 2.1(b)) shall be converted into the right to
receive cash from the Surviving Corporation in an amount equal to $41.125 (net
of any applicable withholding taxes), payable to the holder without interest
(the "Merger Consideration").
(d) Conversion of Series A Preferred Stock. Each share of Series A
Preferred Stock issued and outstanding immediately prior to the Effective Time
shall be converted into and shall constitute one validly issued, fully paid and
nonassessable share of common stock, without par value, of the Surviving
Corporation.
(e) Shares of Dissenting Holders. Notwithstanding anything else in this
Agreement to the contrary but only to the extent required by the California
Code, shares of Company Common Stock that are issued and outstanding immediately
before the Effective Time and that are held by holders of Company Common Stock
who have not voted in favor of the Merger and who comply with all the provisions
of the California Code concerning the right of holders of Company Common Stock
to dissent from the Merger and require appraisal of their shares of Company
Common Stock (the "Dissenting Shareholders", with the shares of Company Common
Stock held by such Dissenting Shareholders being referred to as the "Dissenting
Shares") shall not be converted into the right to receive the Merger
Consideration but shall represent solely the right to receive such consideration
as may be determined to be due such Dissenting Shareholder pursuant to the
California Code; provided, however, that any Dissenting Shares which, at any
time after the Effective Time, lose their status as Dissenting Shares under the
California Code, shall forfeit the right to appraisal and all such Dissenting
Shares shall then be deemed to have been converted into the right to receive, as
of the Effective Time, the Merger Consideration as contemplated by Section
2.1(c), without interest. Prior to the Effective Time, the Company shall give
Purchaser prompt notice of any written demands for appraisal, withdrawals of
demands for appraisal and any other related instruments received by the Company
and the opportunity to direct all negotiations and proceedings with respect to
demands for appraisal. The Company shall not voluntarily make any payment with
respect to any demands for appraisal and shall not, except with the prior
written consent of Purchaser, settle or offer to settle any demand.
(f) Cancellation and Retirement of Company Common Stock. As of the
Effective Time, all shares of Company Common Stock issued and outstanding
immediately before the Effective Time shall no longer be outstanding and shall
automatically be canceled and retired and cease to exist, and each holder of a
certificate representing any such shares shall cease to have any rights with
respect to such shares, except (in each case, other than shares referred to in
Section 2.1(b) and Dissenting
-4-
<PAGE>
Shares) the right to receive the Merger Consideration, without interest, upon
surrender of such certificate in accordance with Section 2.2.
SECTION 2.2 Surrender of Certificates.
(a) Appointment of Paying Agent. Prior to the Effective Time, Purchaser
shall, under an agreement in form and substance reasonably satisfactory to the
Company (the "Paying Agent Agreement"), appoint a bank or trust company located
in the United States (which may not be an affiliate of Purchaser) to act as
Paying Agent (the "Paying Agent") for the payment of the Merger Consideration.
The Surviving Corporation (using its own funds and the proceeds from the equity
and debt commitments described in Section 3.2(g)) will make available to the
Paying Agent, as and when needed, an amount in cash equal to the total Merger
Consideration for all shares of Company Common Stock outstanding at the
Effective Time (other than shares referred to in Section 2.1(b) and Dissenting
Shares). Such cash provided to the Paying Agent shall be held for the benefit of
the holders of shares of Company Common Stock for exchange in accordance with
this Article II (the "Exchange Fund").
(b) Exchange Procedures. As soon as practicable after the Effective
Time, each holder of an outstanding certificate or certificates that represented
issued and outstanding shares of Company Common Stock immediately prior to the
Effective Time (other than shares referred to in Section 2.1(b) and Dissenting
Shares) shall, upon surrender to the Paying Agent of such certificate or
certificates and acceptance thereof by the Paying Agent, be entitled to the
amount of cash into which the total number of shares of Company Common Stock
previously represented by such surrendered certificate or certificates shall
have been converted pursuant to the Merger. The Paying Agent shall accept such
certificates upon surrender of such certificates pursuant to a Letter of
Transmittal, substitute form W-9 or similar document, and related documents, the
form of which shall be provided by Purchaser and approved by the Company prior
to the Effective Time (such approval not to be unreasonably withheld) and upon
compliance with such other reasonable terms and conditions as the Paying Agent
may impose in order to effect an orderly exchange thereof in accordance with
normal exchange practices. After the Effective Time, there shall be no further
transfers on the records of the Company or its transfer agent of certificates
representing shares of Company Common Stock (other than to give effect, (i) in
accordance with customary settlement procedures as determined by the Company's
transfer agent, to sales of shares, and (ii) to exercises of Options (as defined
in Section 2.3(a), to the extent that such sales and/or exercises took place
before the Effective Time), and if such certificates are presented to the
Company for transfer, they shall be canceled against delivery of cash as
provided above. If any cash is to be remitted to a person other than the
registered holder of a certificate for Company Common Stock surrendered for
exchange, it shall be a condition of such exchange that the certificate so
surrendered shall be properly endorsed, with signature
-5-
<PAGE>
guaranteed, or otherwise in proper form for transfer and that the person
requesting such exchange shall pay to the Surviving Corporation or the Paying
Agent any transfer or other taxes required by reason of the payment of cash to a
person other than the registered holder of the certificate surrendered, or
establish to the satisfaction of the Surviving Corporation or the Paying Agent
that such tax has been paid or is not applicable. Until surrendered as
contemplated by this Section 2.2(b), each certificate for shares of Company
Common Stock (other than shares referred to in Section 2.1(a) and Dissenting
Shares) shall be deemed from the Effective Time to represent only the right to
receive upon such surrender the Merger Consideration as contemplated by Section
2.1 and any dividends or other distributions as described in Section 2.2(c). No
interest shall be paid or shall accrue on any cash payable as Merger
Consideration.
(c) No Further Ownership Rights in Company Common Stock. All cash paid
upon the surrender of certificates representing shares of Company Common Stock
in accordance with the terms of this Article II shall be deemed to have been
paid in full satisfaction of all rights pertaining to the shares of Company
Common Stock previously represented by such certificates, subject, however, to
the Surviving Corporation's obligation, with respect to shares of Company Common
Stock outstanding immediately before the Effective Time, to pay any dividends or
make any other distributions with a record date prior to the Effective Time
which may have been declared or made by the Company on such shares of Company
Common Stock consistently with the terms of this Agreement or prior to the date
of this Agreement and which remain unpaid at the Effective Time.
(d) Termination of Exchange Fund. Any portion of the Exchange Fund
which, on the 270th calendar day from and excluding the Closing Date, remains
undistributed to the holders of the certificates representing shares of Company
Common Stock converted into the right to receive the Merger Consideration in the
Merger shall be delivered to the Surviving Corporation, upon demand, and any
such holders who have not previously complied with this Section 2.2 shall
thereafter look only to the Surviving Corporation and only as general creditors
thereof for payment of their claim for cash.
(e) No Liability. None of Purchaser, the Company, the Surviving
Corporation or the Paying Agent shall be liable to any person in respect of any
cash from the Exchange Fund delivered to a public official pursuant to any
applicable abandoned property, escheat or similar law. If any certificates
representing shares of Company Common Stock have not been surrendered before the
latest date on which any cash in respect of such certificate would otherwise
escheat to or become the property of any Governmental Entity, as defined in
Section 3.1(e), any such cash shall, to the extent permitted by applicable law,
become the property of the Surviving Corporation, free and clear of all claims
or interest of any person previously entitled thereto.
-6-
<PAGE>
(f) Investment of Exchange Fund. The Paying Agent shall invest any cash
included in the Exchange Fund in accordance with the Paying Agent Agreement. Any
interest and other income resulting from such investments shall be paid to the
Surviving Corporation.
SECTION 2.3 Treatment of Stock Options.
(a) Payment for Options. At the Effective Time, except as set forth on
a schedule to be provided to the Company by Purchaser prior to the Effective
Time (with the consent of each Option holder identified thereon, the "Rollover
Option Schedule"), all the then outstanding stock options previously granted to
employees, non-employee directors and consultants (the "Options") under the
Company's stock option plans (the "Stock Option Plans"), whether or not then
vested or exercisable, shall terminate and shall no longer be exercisable. Those
Options set forth on the Rollover Option Schedule shall by virtue of the Merger
be assumed by the Surviving Corporation. Each Option so assumed by the Surviving
Corporation will continue to have, and be subject to, the same terms and
conditions of such Options immediately prior to the Effective Time except that
each such Option will be exercisable (or will become exercisable in accordance
with its terms) for the common stock of the Surviving Corporation. With respect
to each terminated Option, the Surviving Corporation shall make a cash payment
to the former holder thereof at the Effective Time in an amount equal to
(subject to any applicable withholding taxes, the "Cash Payment") the product of
(x) the total number of shares of Company Common Stock subject to such Option
(i.e., to the extent such Option has not theretofore been exercised), whether or
not then vested or exercisable, and (y) the excess, if any, of the Merger
Consideration over the exercise price per share of Company Common Stock subject
to such Option (i.e., to the extent such Option has not theretofore been
exercised), each such Cash Payment to be paid to each holder of an outstanding
Option on the Closing Date; provided, however, that the Surviving Corporation
shall have the right to condition the making of the Cash Payment on its receipt
of a release or waiver satisfactory to the Surviving Corporation in its
reasonable discretion. All Cash Payments shall be funded by the Surviving
Corporation.
(b) Termination of Stock Option Plans and Phantom Stock Appreciation
Right Plan. Prior to the Effective Time, the Board of Directors of the Company
(or any duly authorized committee thereof) shall adopt appropriate resolutions,
and take all other actions necessary, to provide for the termination, as of the
Effective Time, of all of the Stock Option Plans and the 1997 Phantom Stock
Appreciation Right Plan for the Wireless Products Group of the Company. The
Company represents and warrants to the Purchaser that no other Company Plans (as
defined in Section 3.1(n)) provide for the issuance, transfer or grant of any
capital stock of the Company or any interest in respect of any capital stock of
the Company (other than in respect of cash payments through the Merger), and the
Company shall ensure that, following the Effective Time, no holder of
-7-
<PAGE>
an Option shall have any right to acquire any capital stock of Purchaser or the
Surviving Corporation by reason of such Option.
SECTION 2.4 Series A Preferred Stock. A reasonable time prior to the
Effective Time, the Company shall file with the Secretary of State of the State
of California a certificate of designation (the "Certificate of Designation")
with respect to its Series A Convertible Participating Preferred Stock,
substantially in the form attached hereto as Exhibit 2.4(a) (the "Series A
Preferred Stock"). Immediately prior to the Effective Time, the Company shall
issue shares of Series A Preferred Stock to the Additional Investors pursuant to
and as set forth in the Recapitalization Agreements.
SECTION 2.5 Asset Drop-Down. The Company agrees that, in the reasonable
discretion of Purchaser in order to secure the Financing (as defined in Section
3.2(g)) or pursuant to the terms of the commitment letter with respect thereto,
it will (if so requested by Purchaser) use commercially reasonable efforts to
transfer all or substantially all of its Wireless Products Groups assets and
liabilities (other than with respect to its rights and obligations under this
Agreement, and other than assets and liabilities requested to be excluded from
the drop-down by Purchaser) to a wholly-owned subsidiary of the Company
immediately prior to the Effective Time, pursuant to one or more instruments of
conveyance satisfactory to Purchaser in its reasonable discretion.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
SECTION 3.1 Representations and Warranties of the Company. Except to
the extent that the Company's Disclosure Schedule delivered to Purchaser at the
same time as the execution of this Agreement and accepted by Purchaser under
this Agreement (the "Company Disclosure Schedules") specifically qualifies any
of the following representations and warranties (in which case, the specified
representation and warranty shall be deemed made with such qualification), the
Company hereby represents and warrants to Purchaser as follows:
(a) Organization and Qualification; Subsidiaries. Each of the Company
and its subsidiaries is (i) set forth on Schedule 3.1(a) of the Company
Disclosure Schedules and (ii) a corporation duly organized, validly existing and
in good standing under the laws of the jurisdiction of its incorporation and has
the requisite corporate power and authority and any necessary governmental
approvals to own, lease and operate its properties and to carry on its business
as it is now being conducted, except where the failure to be so organized,
existing and in good standing or to have such power, authority and governmental
approvals could not, individually or in the aggregate, reasonably be expected to
have a Company Material Adverse Effect (as defined below in this Section
-8-
<PAGE>
3.1(a)). The Company and each of its subsidiaries is duly qualified or licensed
as a foreign corporation to do business, and is in good standing, in each
jurisdiction where the character of the properties owned, leased or operated by
it or the nature of its activities makes such qualification or licensing
necessary, except for such failures to be so duly qualified or licensed and in
good standing which could not, individually or in the aggregate, reasonably be
expected to have a Company Material Adverse Effect. The term "Company Material
Adverse Effect" means any material adverse change in or effect on (i) the
business, results of operations or condition (financial or other) of (1) the
Company (or, following the Effective Time, the Surviving Corporation) and its
subsidiaries taken as a whole or (2) the Company's Wireless Products Group
("WPG"), in each case excluding any change or effect that is directly
attributable to conditions generally affecting the United States, California or
Maryland economy or any of the industries in which the Company or its
subsidiaries operates unless such conditions adversely affect the Company in a
materially disproportionate manner, or (ii) the ability of the Company to
consummate the Merger on or before the Terminal Date (as defined in Section
6.1(e)).
(b) Articles of Incorporation and Bylaws. The Company has furnished to
Purchaser a complete and correct copy of the Articles of Incorporation and the
Bylaws of the Company and the equivalent organizational documents of each
subsidiary of the Company as currently in effect. Neither the Company nor any
subsidiary of the Company is in violation of any of the provisions of its
Articles of Incorporation or Bylaws (or equivalent organizational documents).
(c) Capitalization. The authorized capital stock of the Company
consists of 45,000,000 shares of Company Common Stock and 500,000 shares of
preferred stock, $1.00 par value ("Company Preferred Stock"). As of the date
hereof: (i) 6,659,799 shares of Company Common Stock were issued and
outstanding, all of which are validly issued, fully paid and nonassessable and
not subject to preemptive rights; (ii) 1,279,446 shares of Company Common Stock
were issuable pursuant to all outstanding Options; and (iii) no more than
1,117,213 shares were available for issuance under the Stock Option Plans, none
of which (other than shares issuable pursuant to Options outstanding as of the
date of this Agreement) are or will be subject to issuance or issued. All
outstanding Options were issued pursuant to the Stock Option Plans. The number
of Options, by exercise price, outstanding as of the date hereof, is set forth
in Schedule 3.1(c) of the Company Disclosure Schedules. No shares of Company
Preferred Stock are issued and outstanding (excepting from the foregoing, as of
the time immediately prior to the Effective Time, the Series A Preferred Stock
to be issued pursuant to Section 2.4 hereof). The authorized capital stock and
issued and outstanding stock of each subsidiary is set forth in Schedule 3.1(c)
of the Company Disclosure Schedules. Except as set forth in this Section 3.1(c)
or Schedule 3.1(c) of the Company Disclosure Schedules, there are no (i)
options, warrants or other rights, agreements, arrangements or commitments of
any character obligating the Company or any subsidiary of the Company to issue
or sell any
-9-
<PAGE>
shares of capital stock of, or other equity interests in, the Company or any
subsidiary of the Company and no shares of Company Common Stock or Company
Preferred Stock are reserved for issuance or (ii) outstanding contractual
obligations of the Company or any subsidiary to repurchase, redeem or otherwise
acquire any shares of Company Common Stock or any capital stock of, or any
equity interest in, any subsidiary. Each outstanding share of capital stock of,
or other equity interest in, each subsidiary of the Company is duly authorized,
validly issued, fully paid and nonassessable.
(d) Authority Relative to Agreement. The Company has all necessary
corporate power and authority to execute and deliver this Agreement, to perform
its obligations under this Agreement and to consummate the Merger. The
execution, delivery and performance of this Agreement by the Company and the
consummation by the Company of the Merger have been duly and validly authorized
by all necessary corporate action and no other corporate proceedings on the part
of the Company are necessary to authorize this Agreement or to consummate the
Merger, other than the approval and adoption of this Agreement (including any
actions described in Section 3.1(u) and Section 3.1(v)) and the Merger by the
holders of a majority of the outstanding shares of Company Common Stock. This
Agreement has been duly executed and delivered by the Company and, assuming the
due authorization, execution and delivery by Purchaser, constitutes a legal,
valid and binding obligation of the Company enforceable against the Company in
accordance with its terms, subject to bankruptcy, insolvency and similar laws
affecting creditors' rights and to the discretionary nature of equitable
remedies. The Company shall have received, prior to the Effective Time, the
approval and adoption of the Telecom Agreement and the Telecom Sale Transaction
(each such term as defined in Section 4.1 hereof) by the holders of a majority
of the outstanding shares of Company Common Stock. The only vote of the holders
of any class or series of outstanding securities of the Company required for
approval of (A) this Agreement and the Merger and the transactions contemplated
hereby is the affirmative vote of the holders of a majority of (x) the
outstanding shares of Company Common Stock and (y) the Series A Preferred Stock
and (B) the Telecom Agreement and the Telecom Sale Transaction is the
affirmative vote of the holders of a majority of the outstanding shares of
Company Common Stock.
(e) No Conflict; Required Filings and Consents. Other than in
connection with or in compliance with the specific provisions of (A) the
California Code relating to the filing and recordation of the Certificate of
Merger and other appropriate merger documents, if any, and the approval of the
Merger by the Company's shareholders, (B) the provisions of the Securities
Exchange Act of 1934, as amended, and the rules and regulations adopted under
such Act (collectively, the "Exchange Act"), relating to (1) the filing with,
and clearance by the Securities and Exchange Commission (the "SEC") of, a proxy
statement relating to the Shareholders Meeting referred to in Section 4.2 (such
proxy statement, as amended or supplemented from time to time, being referred to
as the "Proxy Statement," the Parties acknowledge that they intend that the
Proxy Statement
-10-
<PAGE>
will be included in the form of a supplement and amendment to the Company's
proxy statement relating to the Telecom Sale Transaction if the latter proxy
statement shall have been previously filed) and (2) the filing of any other
reports and documents with the SEC relating to this Agreement or any of the
transactions contemplated hereby, (C) the "blue sky" laws of the various states,
(D) the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the
"Hart-Scott Act") relating to the filing of notification regarding the Merger
with the Antitrust Division of the Department of Justice and the Federal Trade
Commission (collectively, the "Antitrust Authorities") and the expiration of the
applicable waiting period under the Hart-Scott Act, and (E) applicable local
permit laws, rules and regulations pertaining to the operation of the business
of the Company and its subsidiaries, the execution and delivery of this
Agreement by the Company, the performance of the obligations of the Company
hereunder and the consummation of the Merger by the Company do not and will not:
(1) violate any provision of the Articles of Incorporation or By-Laws (or other
organizational documents) of the Company or any of its subsidiaries; (2) violate
any statute, ordinance, writ, judgment, injunction, rule, regulation, order or
decree of any court or of any governmental or regulatory body, agency or
authority, federal, state, local or foreign (a "Governmental Entity"),
applicable to the Company or any of its subsidiaries or by which any of their
respective properties or assets may be bound; (3) require any filing with, or
permit, consent or approval of, or the giving of any notice to, any Governmental
Entity; or (4) result in a violation or breach of, conflict with, constitute
(with or without due notice or lapse of time or both) a default under, result in
the creation of any lien, security interest, charge or encumbrance on any of the
properties or assets of the Company or any of its subsidiaries under, or give
rise to any right of payment, termination or modification of any of the terms,
conditions or provisions of any note, bond, mortgage, indenture, contract,
lease, license, permit, franchise or other instrument or obligation, including
without limitation the Company Plans, to which the Company or any of its
subsidiaries is a party, or by which any of the properties or assets of the
Company or any of its subsidiaries is bound or affected, except (x) in the case
of clauses (2) and (3) above, where the failure to obtain or make any such
filing, permit, consent, or approval or the failure to give such notice or (y)
in the case of clause (4) above, where such violation, breach or conflict, could
not, individually or in the aggregate, reasonably be expected to have a Company
Material Adverse Effect.
(f) Compliance with Laws. The Company and its subsidiaries are in
compliance with all applicable laws, regulations, orders, judgments,
injunctions, writs and decrees except where the failure to so comply could not,
individually or in the aggregate, reasonably be expected to have a Company
Material Adverse Effect. Schedule 3.1(f) of the Company Disclosure Schedules
sets forth all orders, judgments, injunctions, writs and decrees applicable to
the Company and/or any of its subsidiaries. There is no claim, action,
proceeding or investigation pending or, to the knowledge of the Company,
threatened against the Company or any subsidiary of the Company by, on behalf of
or before any court, arbitrator or Governmental Entity which, individually or in
the
-11-
<PAGE>
aggregate, could reasonably be expected to have a Company Material Adverse
Effect. No investigation by any Governmental Entity with respect to the Company
or any of its subsidiaries is pending or, to the knowledge of the Company,
threatened, other than, in each case, those (i) set forth on Schedule 3.1(g) of
the Company Disclosure Schedules and (ii) the outcome of which, individually or
in the aggregate, could not reasonably be expected to have a Company Material
Adverse Effect.
(g) Company SEC Filings and Financial Statements.
(i) Since December 31, 1995, the Company has filed all forms,
reports and documents with the SEC required to be filed by it pursuant to the
federal securities laws and the SEC rules and regulations thereunder, in each
case as in effect at the time of such filings, and each form, report and
document filed with the SEC by the Company since December 31, 1995 (the "Company
SEC Filings") has complied in all material respects with all applicable
requirements of the federal securities laws and the SEC rules and regulations
adopted under those laws as of the date of such filing. As of their respective
dates, each of the Company SEC Filings did not contain any 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 light of the circumstances under
which they were made, not misleading.
(ii) Each of the consolidated financial statements included in
the Company SEC Filings was prepared in accordance with United States generally
accepted accounting principles as in effect from time to time ("GAAP") applied
on a consistent basis (except as may be indicated therein or in the notes or
schedules thereto), and fairly presented in all material respects the
consolidated financial position of the Company and its consolidated subsidiaries
as of the date of such consolidated financial statements and the results of
their operations and their cash flows for the periods then ended (subject, in
the case of any unaudited financial statements, to normal year end audit
adjustments).
(iii) The Company will deliver to Purchaser as soon as they
become available true and complete copies of any report or statement mailed by
the Company to its shareholders generally or filed by the Company with the SEC
subsequent to the date of this Agreement and prior to the Effective Time. As of
their respective dates, each of such reports and statements (excluding any
information therein provided in writing by or on behalf of Purchaser
specifically for inclusion therein, as to which the Company makes no
representation) will not contain any 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 light of the circumstances under which they are made, not
misleading and will comply in all material respects with all applicable
requirements of the federal securities laws and the SEC rules and regulations
thereunder as in effect on the date of such filing. The consolidated financial
statements of the Company to be included in each of such reports
-12-
<PAGE>
and statements (excluding any information therein provided in writing by
Purchaser specifically for inclusion therein, as to which the Company makes no
representation) will be prepared in accordance with GAAP applied on a consistent
basis (except as may be indicated therein or in the notes or schedules thereto),
and will fairly present in all material respects the consolidated financial
position of the Company and its consolidated subsidiaries as of the respective
dates of such consolidated financial statements and the results of their
operations and their cash flows for the respective periods then ended (subject,
in the case of any unaudited financial statements, to normal year-end audit
adjustments).
(h) Information Supplied. None of the information included in the Proxy
Statement (other than information supplied in writing by or on behalf of
Purchaser specifically for inclusion in the Proxy Statement, as to which the
Company makes no representation) will contain, at the date it is first mailed to
the Company's shareholders or at the time of the Shareholders Meeting, any
statement which, in the light of the circumstances under which such statement is
made, is false or misleading with respect to any material fact, or omit to state
any material fact necessary in order to make the statements therein not false or
misleading or necessary to correct any statement in any earlier communication
with respect to the solicitation of any proxy for the Shareholders Meeting or
any amendment or supplement thereto. The Proxy Statement will comply as to form
in all material respects with the requirements of the Exchange Act except that
the Company makes no representation with respect to any statements made based on
information supplied in writing by or on behalf of Purchaser specifically for
inclusion in the Proxy Statement.
(i) Absence of Certain Changes or Events. Except as disclosed in any
Company SEC Filing made prior to the date hereof, since December 31, 1998 there
has not been (i) any change, event or development in or affecting the Company
that, individually or in the aggregate, constituted or could reasonably be
expected to have a Company Material Adverse Effect, (ii) any change by the
Company in its accounting methods, principles or practices, except as required
by changes in GAAP, (iii) any declaration, setting aside or payment of any
dividends or distributions in respect of any series of capital stock of the
Company, (iv) any increase in or establishment of any bonus, insurance,
severance, deferred compensation, pension, retirement, profit sharing, stock
option (including, without limitation, the granting of stock options, stock
appreciation rights, performance awards, or restricted stock awards), stock
purchase or other employee benefit plan or agreement or arrangement, or any
other increase in the compensation payable or to become payable to any present
or former directors, officers at or above the rank of Vice President of the
Company or any of its subsidiaries, or (v) any event, circumstance, action or
omission to act that would have constituted a breach of Section 4.1 hereof were
the same to have been applicable to the Company and its subsidiaries as of such
date.
-13-
<PAGE>
(j) Absence of Litigation. There are no suits, claims, actions,
proceedings or investigations pending or, to the knowledge of the Company,
threatened against the Company or any of its subsidiaries, or any properties of
the Company or any of its subsidiaries, before any court, arbitrator or other
Governmental Entity, that, individually or in the aggregate, could reasonably be
expected to have a Company Material Adverse Effect. Neither the Company nor any
of its subsidiaries, nor any of their respective properties or assets, is
subject to any order, writ, judgment, injunction, decree, determination or award
having, or which could reasonably be expected, individually or in the aggregate
to have, a Company Material Adverse Effect.
(k) Liabilities. Other than regular quarterly cash dividends on Company
Common Stock not in excess of $0.12 per share per quarter and except as set
forth in the Company SEC Filings made prior to the date hereof or disclosed on
Schedule 3.1(k) of the Company Disclosure Schedules, there is no claim,
liability or obligation (including without limitation obligations to
shareholders with respect to dividends or distributions of any sort) of any
nature, whether absolute, accrued, known or unknown, contingent or otherwise,
affecting the Company, WPG or any of their subsidiaries which (i) is or results
from indebtedness for borrowed money, (ii) would be required to be disclosed in
the Company's consolidated financial statements prepared in accordance with GAAP
or (iii) could, individually or in the aggregate, reasonably be expected to have
a Company Material Adverse Effect.
(l) Labor Matters.
(i) The Company, its subsidiaries and all of its former
subsidiaries (while the same were subsidiaries of the Company, the "Former
Subsidiaries") have complied in all respects with all laws, rules and
regulations pertaining to employment practices including, without limitation,
the Worker Adjustment Retraining Notification Act, the wage hour laws, the
Americans with Disabilities Act, and the discrimination laws, and no fact or
event exists that could give rise to liability under such acts, laws, rules or
regulations, except for such occurrences, non-compliances and liabilities as
could not, individually or in the aggregate, reasonably be expected to have a
Company Material Adverse Effect. Neither the Company nor any of its subsidiaries
is a party to any collective bargaining agreement and there is no unfair labor
practice or labor arbitration proceeding pending with respect to the Company or
any of its subsidiaries or, to the knowledge of the Company, threatened, and
there are no facts or circumstances known to the Company that could reasonably
be expected to give rise to such a complaint or claim. Neither the Company nor
any of its subsidiaries has, since December 31, 1995, (i) had any employees
strikes, work stoppages, slowdowns or lockouts, (ii) received any requests for
certifications of bargaining units or any other requests for collective
bargaining, or (iii) become aware or had knowledge of any efforts to organize
employees of the
-14-
<PAGE>
Company or any of its subsidiaries or any employees performing work for the
Company but provided by an outside employment agency into a collective
bargaining unit.
(ii) Except as described in Schedule 3.1(1) of the Company
Disclosure Schedules, the completion of the transactions contemplated by this
Agreement will not result in any payment or increased payment or other benefit
becoming due from the Company or any of its subsidiaries to any officer,
director, or employee of, or consultant to, the Company or any of its
subsidiaries or any Former Subsidiary, and to the knowledge of the Company as of
the date hereof (but not later), no employee of the Company or any of its
subsidiaries has made any threat, or otherwise revealed an intent, to terminate
said employee's relationship with Company or any of its subsidiaries, for any
reason, including the consummation of the transactions contemplated by this
Agreement. Neither the Company nor any of its subsidiaries is a party to any
agreement for the provision of labor pursuant to employee "loan-outs" or with an
agency providing temporary labor services except as set forth in Schedule 3.1(1)
of the Company Disclosure Schedules. To the knowledge of the Company, except as
set forth in Schedule 3.1(1) of the Company Disclosure Schedules, during the
preceding three years, there have been no claims by employees of such outside
agencies, if any, assigned to work for Company or any of its subsidiaries or any
Former Subsidiary, no claims by any governmental agency with regard to such
employees and no attempts by any labor organization to organize the employees
assigned by any outside agency to work for, at or on behalf of the Company or
any of its subsidiaries or any Former Subsidiary.
(iii) Within the three-year period preceding the date hereof,
there have been no federal or state claims based on the sex, sexual or other
harassment, age, disability, race or other discrimination or common law claims,
including claims of wrongful termination, by any employees of Company or any of
its subsidiaries or any Former Subsidiary or by any of the employees performing
work for the Company or any of its subsidiaries or any Former Subsidiary but
provided by an outside employment agency, and there are no facts or
circumstances known to the Company that could reasonably be expected to give
rise to such complaint or claim. The Company and its subsidiaries and Former
Subsidiaries have complied with all laws related to the employment of employees
except for such occurrences where non-compliance and resulting liabilities could
not, individually or in the aggregate, reasonably be expected to have a Company
Material Adverse Effect. Except as set forth on Schedule 3.1(1) of the Company
Disclosure Schedules, neither the Company nor any of its subsidiaries nor any
Former Subsidiary has received any notice of any claim during the preceding
three years that it has not complied in any material respect with any laws
relating to the employment of employees, including without limitation any
provisions thereof relating to wages, hours, collective bargaining, the payment
of Social Security and similar taxes, equal employment opportunity, employment
discrimination, the WARN Act, employee safety,
-15-
<PAGE>
or that it is liable for any arrearages of wages or any taxes or penalties for
failure to comply with any of the foregoing.
(iv) Neither the Company nor any of its subsidiaries has any
written policies and/or employee handbooks or manuals except as set forth in
Schedule 3.1(1) of the Company Disclosure Schedules.
(m) Environmental Matters.
(i) For purposes of this Agreement, the following terms shall
have the following meanings: (A) "Hazardous Substances" means (1) those
substances defined in or regulated under the following federal statutes and
their state counterparts, as each may be amended from time to time, and all
regulations thereunder: the Hazardous Materials Transportation Act, 49 U.S.C.
5110 et seq., the Resource Conservation and Recovery Act, 42 U.S.C. 6901 et
seq., the Comprehensive Environmental Response, Compensation and Liability Act,
42 U.S.C. 9601 et seq., the Clean Water Act, 33 U.S.C. 1251 et seq., the Safe
Drinking Water Act, 42 U.S.C. 300f et seq., the Atomic Energy Act, 42 U.S.C.
2014 et seq., the Federal Insecticide, Fungicide, and Rodenticide Act, 7 U.S.C.
136 et seq., the Toxic Substances Control Act, 15 U.S.C. 2601 et seq., and the
Clean Air Act, 42 U.S.C. 7401 et seq., and their state counterparts, as each may
be amended from time to time, and all regulations adopted under all of the
foregoing federal and state laws; (2) petroleum and petroleum products,
byproducts and breakdown products including crude oil and any fractions thereof;
(3) methane, natural gas, synthetic gas, and any mixtures thereof; (4)
polychlorinated biphenyls; (5) any other chemicals, materials or substances
defined or regulated as toxic or hazardous or as a pollutant or contaminant or
as a waste under any applicable Environmental Law; and (6) any substance with
respect to which a federal, state or local agency requires environmental
investigation, monitoring, reporting or remediation; provided, however, that
Hazardous Substances shall not include office and janitorial supplies used in a
manner and in amounts consistent with current normal business practices; and (B)
"Environmental Laws" means any federal, state, foreign, or local law, rule or
regulation, now in effect and as amended, and any judicial or administrative
interpretation thereof, including any judicial or administrative order, consent,
decree or judgment, relating to pollution or protection of the environment,
health, safety or natural resources, including without limitation, those
relating to (1) releases or threatened releases of Hazardous Substances or
materials containing Hazardous Substances or (2) the presence, manufacture,
handling, transport, use, treatment, storage or disposal of Hazardous Substances
or materials containing Hazardous Substances.
(ii) (A) The Company and each of its subsidiaries is and has
been in material compliance with all applicable Environmental Laws; (B) the
Company and each of its subsidiaries has obtained all permits, approvals,
identification numbers, licenses or
-16-
<PAGE>
other authorizations required under any applicable Environmental Laws (the
"Environmental Permits") and is and has been in material compliance with their
requirements; (C) the Surviving Corporation will continue to have the benefit of
the Environmental Permits pursuant to the Merger without the consent of any
Governmental Entity; (D) there are no underground or aboveground storage tanks
or any surface impoundments, septic tanks, injection wells, pits, sumps or
lagoons or other devices or conduits to the environment in which Hazardous
Substances are being or have been treated, stored or disposed of on or at any
property currently owned, leased, used or occupied by the Company or any of its
subsidiaries; (E) there is no asbestos or asbestos-containing material on any
owned or leased real property in violation of Environmental Laws or in a
condition in which good management practices would require its abatement; (F) no
Hazardous Substances are present or have been released, discharged or disposed
of, at or on any real property currently or formerly owned, occupied, used or
leased by the Company or any of its subsidiaries or Former Subsidiaries (but,
with respect to Former Subsidiaries, only on or before the date of divestiture
by the Company of each such Former Subsidiary) or their respective predecessors,
and none of such property is contaminated with any Hazardous Substances, in a
manner or amount that, if made known to any Governmental Entity with
jurisdiction thereover or any interested third party, reasonably could be
expected to give rise to material liability for investigation or clean-up under
or pursuant to any Environmental Law; (G) neither the Company nor any of its
subsidiaries or Former Subsidiaries (but, with respect to Former Subsidiaries,
only with respect to liability arising from activities or conditions occurring
on or before the date of divestiture by the Company of each such Former
Subsidiary) is undertaking or has completed any investigation or clean-up
relating to the presence, release, discharge or disposal of or contamination
with Hazardous Substances at any site, location or operation; and (H) there are
no past, pending or threatened actions, suits, demands, demand letters, claims,
liens, notices of non-compliance or violation, notices of liability or potential
liability, investigations, proceedings, consent orders or consent agreements
relating to Environmental Laws, any Environmental Permits or any Hazardous
Substances (each, an "Environmental Claim") against the Company or any of its
subsidiaries or Former Subsidiaries or with respect to any currently or formerly
owned, occupied, leased or used real properties or assets of the Company or any
of its subsidiaries or Former Subsidiaries (but, with respect to Former
Subsidiaries, only with respect to liability arising from activities or
conditions occurring on or before the date of divestiture by the Company of each
such Former Subsidiary) and there are no facts, events, conditions or
circumstances that could reasonably be expected to form the basis of any
material Environmental Claim against the Company, including without limitation
with respect to personal injury or "toxic tort" suits or any off-site disposal
location presently or formerly used by the Company or any of its subsidiaries or
Former Subsidiaries.
(iii) The Company and its subsidiaries have made available to
Purchaser copies of all environmental reports, studies or analyses in its
possession or under its
-17-
<PAGE>
control relating to owned, leased, occupied or used real property or the
operations of the Company or the subsidiaries or Former Subsidiaries.
(iv) Schedule 3.1(m) of the Company Disclosure Schedules sets
forth (A) a list of all real property currently or formerly owned, leased, used
or occupied by the Company, any of the subsidiaries or any of the Former
Subsidiaries, with the exception of such real property comprising less than
3,000 square feet used for commercial sales purposes and not used for
manufacturing, assembly, research and development, warehousing, maintenance or
any other non-sales use; (B) a description of the status of any "Superfund" or
other litigation under any Environmental Laws to which the Company, any
subsidiary or any Former Subsidiary is or has been a party; and (C) a list of
all off-site disposal locations used by the Company or any of its subsidiaries
or Former Subsidiaries and a description of the nature and amount of any
Hazardous Substances transported to such locations by such entities.
(v) Schedule 3.1(m) of the Company Disclosure Schedules sets
forth complete, true and correct copies of all environmental remediation
insurance purchased and similar and other arrangements entered into with third
parties relating to the remediation of releases of Hazardous Substances and
other issues that have arisen or may arise under applicable Environmental Laws.
All such insurance and other arrangements are in full force and effect and are
binding and enforceable obligations of the counterparties thereto, and neither
the Company nor its subsidiaries or Former Subsidiaries has breached or is in
breach or default in any material respect thereunder. None of such third parties
has denied any claim made by or coverage afforded the Company under such
insurance or arrangements or has indicated that it will deny any such claim or
coverage. The insurance and remediation contracts listed in Section 3.1(m) of
the Company Disclosure Schedules are adequate to provide for the satisfaction of
all known environmental liabilities with respect to the Palo Alto and Scott's
Valley facilities, excluding applicable deductible or self-insured retention
amounts stated therein.
(n) Employee Benefits.
(i) Schedule 3.1(n) of the Company Disclosure Schedules lists
(A) all employee benefit plans, programs and arrangements maintained for the
benefit of any current or former employee, officer or director of the Company or
any of its subsidiaries, including, but not limited to, all "employee benefit
plans" (as such term is defined in Section 3(3) of the Employee Retirement
Income Security Act of 1974, as amended ("ERISA")), but excluding the Stock
Option Plans (the "Company Plans") and (B) all written agreements relating to
employment or severance with any of the directors, officers or employees of the
Company or any of its subsidiaries (the "Company Employment Contracts").
Schedule 3.1(n) of the Company Disclosure Schedules sets forth the name of each
current officer or employee of the Company or any subsidiary with an annual
-18-
<PAGE>
base salary (including the most recent year-end bonus) greater than $125,000 and
the annual base salary and most recent year-end bonus applicable to each such
officer or employee. The Company has made available to Purchaser a copy of each
Company Plan, each material document prepared in connection with each Company
Plan (including, without limitation, all Forms 5500 and all schedules and
exhibits thereto, Plan and trust documents and insurance policies, summary plan
descriptions, and all correspondence with the Internal Revenue Service and the
Department of Labor) and each Company Employment Contract. Neither the Company
nor any member of the same controlled group of businesses as the Company within
the meaning of Section 4001(a)(14) of ERISA (an "ERISA Affiliate") has within
the seven year period ending on the Effective Time sponsored or been obligated
to contribute to any "multi-employer plan" within the meaning of Section 3(37)
of ERISA or any plan subject to Title IV of ERISA or Section 412 of the Tax
Code. Except as set forth in Schedule 3.1(n) and except as required by
applicable law, none of the Company Plans or Company Employment Contracts
promises or provides medical or life insurance benefits to any person or the
beneficiaries of any person for any period beyond the termination of such
person's employment with the Company and any of its subsidiaries (the
"Post-Employment Obligations"). Assuming that all personnel employed in the
Company's WPG division remain so employed but that all other employees of the
Company and its subsidiaries cease to be employed, Section 3.1(n) of the Company
Disclosure Schedules contains information accurately setting forth the
annualized cost, in any particular year, to the Company of all Post-Employment
Obligations (whether or not identified in Schedule 3.1(n), but excluding COBRA
medical insurance coverage to the extent paid for by the beneficiaries of such
insurance). Each Company Plan intended to be qualified under Section 401(a) of
the Internal Revenue Code of 1986, as amended (the "Tax Code"), is so qualified.
Each Company Plan has been operated in all material respects in accordance with
its terms and the requirements of ERISA and all other applicable laws. Each
Company Plan which is required to comply with the provisions of Sections 4980B
and 4980C of the Tax Code, or with the requirements referred to in Section
4980D(a) of the Tax Code, has complied in all material respects. The Company has
not incurred any direct or indirect material liability under, arising out of or
by operation of Title IV of ERISA or any other provision of ERISA in connection
with the termination of, or withdrawal from, any Company Plan or other
retirement plan or arrangement by the Company or any ERISA Affiliate, and no
fact exists or event has occurred that could reasonably be expected to give rise
to any such liability. With respect to any insurance policy which provides, or
has provided, funding for benefits under any Company Plan, there is and will be
no liability of the Company or any subsidiary in the nature of a retroactive or
retrospective rate adjustment, loss sharing arrangement, or actual or contingent
liability as of the Effective Time, nor would there be any such liability or
termination fee if such insurance policy were terminated as of the Effective
Time.
-19-
<PAGE>
(ii) Other than routine claims for benefits under the Company
Plans, (A) there are no proceedings, claims, lawsuits, disputes, actions, or
controversies for which a complaint or other pleading has been served upon, or
for which a written demand has been received by, the Company Plans, or the
fiduciaries, administrators, or trustees of any of the Company Plans or the
Company or any of its subsidiaries or any of their respective ERISA Affiliates
as the employer or sponsor under any Company Plan, with any of the Internal
Revenue Service, the Department of Labor, the Pension Benefit Guaranty
Corporation, any participant or beneficiary of any Company Plan or any other
person whomsoever, (B) no written notice or written communication has been
received by the Company Plans, or the fiduciaries, administrators, or trustees
of any of the Company Plans or the Company or any of its subsidiaries or any of
their respective ERISA Affiliates as the employer or sponsor under any Company
Plan, from the Internal Revenue Service, the Department of Labor, or any other
governmental entity regarding any pending or threatened audit or investigation
of any Company Plan, and (C) there are no pending or, to the knowledge of the
Company, threatened other material investigations, proceedings, claims,
lawsuits, disputes, actions, audits or controversies involving the Company
Plans, or the fiduciaries, administrators, or trustees of any of the Company
Plans or the Company or any of its subsidiaries or any of their respective ERISA
Affiliates as the employer or sponsor under any Company Plan, with any of the
Internal Revenue Service, the Department of Labor, the Pension Benefit Guaranty
Corporation, any participant or beneficiary of any Company Plan or any other
person whomsoever. The Company has no knowledge of any reasonable basis for any
such claim, lawsuit, dispute, action or controversy.
(iii) The Company and its subsidiaries will be able to
terminate each of the Company Plans at the Effective Time without violating the
provisions of ERISA or of such Company Plans and without incurring any charge,
fee, or expense (other than administrative costs which are not material in
amount) by reason of such termination. Except as set forth in Section 2.3(a),
the termination of the Stock Option Plans by the Company prior to the Effective
Time and the cancellation of all outstanding Options pursuant to this Agreement
shall not result in any liability whatsoever.
(o) Tax Matters.
(i) For purposes of this Agreement: (A) "Income Taxes" means
any federal, state, local, or foreign income or franchise Tax and, in each
instance, any interest, penalties or additions to Tax attributable to such Tax;
(B) "Tax" and, collectively, "Taxes," means: (1) any and all federal, state,
local and foreign taxes, assessments and other governmental charges, duties,
impositions and liabilities, including taxes based upon or measured by gross
receipts, capital, net worth, income, profits, sales, use and occupation, and
value added, ad valorem, transfer, franchise, withholding, payroll, recapture,
employment, excise and property taxes, together with all interest, penalties and
-20-
<PAGE>
additions imposed with respect to such amounts; (2) any liability for the
payment of any amounts of the type described in clause (1) as a result of being
a member of an affiliated, consolidated, combined or unitary group for any
period; and (3) any liability for the payment of any amounts of the type
described in clause (1) or (2) as a result of any express or implied obligation
to indemnify any other person or as a result of any obligations under any
agreements or arrangements with any other person with respect to such amounts
and including any liability for Taxes of a predecessor entity; and (C) "Return"
means all federal, state, local and foreign tax returns, estimates, information
statements and reports relating to any and all Taxes concerning or attributable
to the Company.
(ii) Except as set forth in Schedule 3.1(o) of the Company
Disclosure Schedules, each of the Company and its subsidiaries has (A) timely
filed in accordance with all applicable laws, all Returns required to be filed
by them (taking into account extensions) and such Returns are complete and
correct in all material respects, (B) paid all Taxes shown as due on such
Returns, and (C) paid all Taxes other than those not yet due and other than
those being contested in good faith and for which appropriate reserves (in
accordance with GAAP) have been made on the Company's latest balance sheet, all
of which contested Taxes are disclosed in Schedule 3.1(o) of the Company
Disclosure Schedules, for which a notice of, or assessment or demand for,
payment has been received or which are otherwise due and payable. Except as set
forth in Schedule 3.1(o) of the Company Disclosure Schedules, complete copies of
(A) consolidated federal Income Tax Returns for the Company and its subsidiaries
and (B) state and local Income Tax and other Returns of the Company and its
subsidiaries for each of the years ended December 31, 1996, 1997 and 1998 have
heretofore been delivered or made available to Purchaser.
(iii) Except as set forth in Schedule 3.1(o) of the Company
Disclosure Schedules: (A) there is no action, suit, proceeding, audit, claim or
assessment pending or, to the knowledge of the Company, proposed with respect to
any liability for Tax that relates to the Company or any of its subsidiaries for
which a material amount of Tax is at issue, (B) all material amounts required to
be collected or withheld by the Company and each of its subsidiaries with
respect to Taxes have been duly collected or withheld and any such amounts that
are required to be remitted to any taxing authority have been duly remitted, (C)
no extension of time within which to file any material Return that relates to
the Company or any of its subsidiaries has been requested which Return has not
since been filed, (D) there are no waivers or extensions of any applicable
statute of limitations for the assessment or collection of Taxes with respect to
any material Return that relates to the Company or any of its subsidiaries which
remain in effect, (E) there are no tax rulings, requests for filings, closing
agreements or changes of accounting method relating to the Company or any of its
subsidiaries which could materially affect their liability for Taxes for any
period after the Effective Time and (F) no power of attorney has been
-21-
<PAGE>
granted by the Company or any of its subsidiaries with respect to any matter
relating to Taxes of the Company and its subsidiaries which is currently in
force. Except as set forth in Schedule 3.1(o) of the Company Disclosure
Schedules, immediately prior to the Effective Time, (A) neither the Company nor
any subsidiary has filed a consent under Section 341(f) of the Tax Code or any
comparable provision of state revenue statutes, (B) no property of the Company
or its subsidiaries is "tax-exempt use property" within the meaning of Section
168(h) of the Tax Code; (C) neither the Company nor any of its subsidiaries is a
party to any lease made pursuant to Section 168(f) of the Tax Code, (D) no
portion of the cost of any asset of the Company or any of its subsidiaries has
been financed directly or indirectly from the proceeds of any tax-exempt state
or local government obligation described in Tax Code Section 103, (E) beginning
in 1995 the Company and its subsidiaries have documented their transfer pricing
methodology annually and have supplied copies of such studies to Purchaser, and
(F) any amount or other entitlement that could be received (whether in cash or
property or the vesting of property) as a result of or in connection (in whole
or in part) with the Merger by any employee, officer or director of the Company
or any of its subsidiaries who is a "disqualified individual" (as that term is
defined in proposed Treasury Regulation Section 1.280G-1) under any Company
Plans or other compensation arrangement entered into or in effect prior to the
Closing would not be characterized as an "excess parachute payment" (as such
terms are defined in Section 280G(b)(1) of the Tax Code).
(iv) Neither the Company nor any subsidiary of the Company is
a party to any joint venture, partnership or other arrangement or contract which
is treated as a partnership for federal tax purposes.
(v) There are no Tax sharing agreements or similar
arrangements with respect to or involving the Company or any of its
subsidiaries.
(vi) Neither the Company nor any subsidiary of the Company was
included or includable in any consolidated or unitary Tax Return or report,
other than Tax Returns or reports in which the Company was the common parent of
the consolidated or unitary group.
(p) Tangible Property.
(i) The Company and its subsidiaries have good and marketable
title to all their tangible properties and assets, which tangible properties and
assets are sufficient to enable each of the Company and WPG to conduct its
business as the same is currently conducted. All of the tangible properties and
assets of the Company and its subsidiaries have been maintained and repaired for
their continued operation and are in good operating condition, reasonable wear
and tear excepted, and usable in the ordinary course of business.
-22-
<PAGE>
(ii) All of the tangible properties and assets of the Company and its
subsidiaries are free and clear of all liens, except (A) liens for taxes not yet
due and payable, (B) liens of landlords, vendors, warehousemen and mechanics,
and (C) such imperfections of title, easements and encumbrances, if any, as are
not material in character, amount or expense, or do not materially detract from
the value or interfere with the present use of the property subject thereto or
affected thereby. To the knowledge of the Company, all properties used in the
Company's business (whether owned or leased) are in compliance in all material
respects with all applicable laws, statutes, rules and regulations (including,
without limitation, building, zoning and environmental laws) and all covenants,
conditions, restrictions or easements affecting the property or its use or
occupancy, and, to the knowledge of the Company, no notices of any material
violations thereof have been received.
(iii) Each of the leases (the "Company Leases") under which
any of the material properties of the Company or any of its subsidiaries is
leased is unmodified, valid and subsisting and in full force and effect in the
form made available to Purchaser prior to the date hereof, and, to the knowledge
of the Company, there are no other agreements, written or oral, between the
Company or any of its subsidiaries and any third parties claiming an interest in
the interest of the Company or any of its subsidiaries in, or otherwise
affecting the use and occupancy of, the property leased under each Company
Lease. Neither the Company nor any of its subsidiaries is in default under the
Company Leases in any material respect and no material defaults (whether or not
subsequently cured) by the Company or any of its subsidiaries have been alleged
thereunder. To the knowledge of the Company, no lessor named in any of the
Company Leases is in default thereunder in any material respect, and no material
defaults (whether or not subsequently cured) by such lessor have been alleged
thereunder.
(q) Certain Contracts and Agreements.
(i) Schedule 3.1(q)(i) of the Company Disclosure Schedules
lists each contract which is required by its terms or is currently expected to
result in the payment or receipt by the Company or any subsidiary of more than
$200,000 and which is not terminable by the Company or any of its subsidiaries
without the payment of any penalty or fine on not more than three months'
notice, other than the Company Plans (a "Material Contract"). To the knowledge
of the Company, each Material Contract is in full force and effect and is
enforceable against the parties thereto (other than the Company) in accordance
with its terms and no condition or state of facts exists that, with notice or
the passage of time, or both, would constitute a material default by the Company
or any third party under such Material Contracts. The Company or the applicable
subsidiary of the Company has duly complied in all material respects with the
provisions of each Material Contract to which it is a party.
-23-
<PAGE>
(ii) Schedule 3.1(q)(ii) of the Company Disclosure Schedules
lists: (1) all material agreements relating to joint ventures, partnerships and
equity or debt investments involving the Company or any of its subsidiaries; (2)
all noncompete agreements with the Company or the subsidiaries (whether as
beneficiary or obligor); (3) all agreements, notes, bonds, indentures or other
instruments governing indebtedness for borrowed money of the Company or any of
its subsidiaries, and any guarantee thereof or the pledge of any assets or other
security therefor; (4) each agreement affording registration rights as to any
securities of the Company under the Securities Act of 1933, as amended (the
"Securities Act"), (5) each Company Lease providing for annual lease payments by
the Company or any of its subsidiaries in an amount in excess of $200,000; (6)
each agreement to which the Company or a subsidiary is a party restricting or
otherwise affecting voting or other rights with respect to any securities of the
Company or subsidiaries, including voting trusts, voting agreements, irrevocable
proxies, preemptive rights, shareholders' agreements, redemption agreements and
buy sell agreements; (7) each material agreement between the Company or any of
its subsidiaries and any hospital, hospital management company, health
maintenance organization or other managed care payor; (8) each agreement between
or among the Company or any subsidiary; (9) each management contract and
contract with independent contractors or consultants (or similar arrangements)
including exclusive rights or requiring payments in excess of $200,000
individually or $500,000 in the aggregate to which the Company or any subsidiary
is a party, which are not cancelable without penalty or further payment upon 30
days' or less notice; and (10) each other material agreement of the Company or
any of the subsidiaries not made in the ordinary course of business that is to
be performed on or after the date of this Agreement, except for any agreement
which is required by any other provision of this Section 3.1 to be included on a
Company Disclosure Schedule delivered under that provision. To the knowledge of
the Company, each such agreement, note, bond, indenture, other instrument or
contract (including those required by any other provision of this Section 3.1 to
be included on a Company Disclosure Schedule delivered under that provision, the
"Scheduled Agreements") is in full force and effect and is enforceable against
the parties thereto (other than the Company) in accordance with its terms and no
condition or state of facts exists that, with notice of the passage of time, or
both, would constitute a default in any material respect by the Company or any
third party under any of such Scheduled Agreements. The Company or the
applicable subsidiary of the Company has duly complied in all material respects
with the provisions of each of the Scheduled Agreements to which it is a party.
(r) Insurance. The Company and subsidiaries have in full force and
effect the policies of fire, liability, title, errors and omissions and other
forms of insurance listed on Schedule 3.1(r) of the Company Disclosure
Schedules. None of the Company or any of its subsidiaries is in default under
any such policies which default could reasonably be expected to have a Company
Material Adverse Effect and there is no material inaccuracy in any application
for such policies. Each of the Company's and its subsidiaries'
-24-
<PAGE>
activities and operations have been conducted in a manner so as to conform in
all material respects to the applicable provisions of such policies. None of the
Company and subsidiaries has received a notice of cancellation or non-renewal
with respect to any such policy. Schedule 3.1(r) of the Company's Disclosure
Schedules lists all pending claims under any of such policies in excess of
$10,000 and timely notice has been given of all such claims. None of such
insurers has rejected or, to the knowledge of the Company, plans to reject any
of such claims.
(s) Transactions with Affiliates. Except as disclosed in any of the
Company SEC Filings made prior to the date hereof and excluding the Company
Employment Contracts, there are no contracts, agreements, arrangements or
understandings of any kind involving any monetary payment or other obligation or
commitment (excluding non-monetary obligations or commitments of a de minimis
nature) between any affiliate (as defined in Section 7.3(a), it being understood
that for the purposes of this Section 3.1(s) such definition shall include,
without limitation, the officers and directors of the Company and WPG) of the
Company, on the one hand, and the Company or any subsidiary of the Company, on
the other hand.
(t) Opinion of Financial Advisor. CIBC World Markets Corp., the
Company's financial advisor, has delivered an opinion to the board of directors
of the Company to the effect that, as of the date of such opinion, the Merger
Consideration is fair, from a financial point of view, to the holders of Company
Common Stock (other than the holder of Rollover Shares), a copy of which opinion
will be delivered to Purchaser.
(u) Rights Agreement. The Company has taken all action necessary to
prevent the Rights Agreement from becoming applicable, or the Rights becoming
exercisable, as a result of the execution of this Agreement by the Parties or of
the consummation of the Merger.
(v) Takeover Laws. The Company has taken all action required to be
taken by it in order to exempt this Agreement, the Merger and the transactions
contemplated hereby from any applicable "moratorium", "control share", "fair
price" or other antitakeover laws and regulations of any state.
(w) Intellectual Property.
(i) The Company (which term, for all purposes of this Section
3.1(w), includes the subsidiaries of the Company) is entitled to use all of the
following which are used with or necessary for the conduct of the business of
the Company (including, without limitation, WPG) as currently conducted, namely
(1) trademarks, service marks, trade names, internet domain names, designs,
slogans, and general intangibles of like nature, together with all goodwill
related to the foregoing (collectively, the
-25-
<PAGE>
"Trademarks"), (2) patents and patent applications, (3) copyrights (including
any registrations, renewals and applications for any of the foregoing), (4)
software, (5) technology, and (6) trade secrets and other confidential
information, know-how, proprietary processes, formulae, algorithms, models, and
methodologies (collectively, the "Trade Secrets," and, together with the items
referred to in clauses (1) through (4) above, the "Intellectual Property"). The
Intellectual Property together with the rights granted in the User Agreements
and the License Agreements (each as defined in clause (ii) below) is sufficient
to enable each of the Company and WPG to conduct its business as the same is
currently conducted.
(ii) Schedule 3.1(w) of the Company Disclosure Schedules sets
forth, for the Intellectual Property owned by the Company, a complete and
accurate list of all U.S. and foreign (1) patents and patent applications, (2)
registrations of Trademarks (including internet domain registrations) and
applications; and (3) copyright registrations and applications (collectively,
the "Registered Intellectual Property"). Schedule 3.1(w) of the Company
Disclosure Schedules sets forth a complete and accurate list of all license
agreements (except for end user license and support/maintenance agreements
entered into in the ordinary course of business (the "User Agreements"))
granting any right to use or practice any Intellectual Property, whether the
Company is the licensee or licensor thereunder, and any written settlements
relating to any Intellectual Property to which the Company is a party or
otherwise bound (collectively, the "License Agreements"), indicating for each
the title, the parties, and the date executed.
(iii) Except for the User Agreements and License Agreements,
to the Company's knowledge, the Company has the right to use the Intellectual
Property free and clear of all liens and without any obligation or liability to
any third persons.
(iv) The Registered Intellectual Property is valid and
subsisting, and has not been canceled, expired, or abandoned. There is no
pending, or to the Company's knowledge, threatened opposition, interference or
cancellation proceeding before any court or registration authority in any
jurisdiction against the Registered Intellectual Property.
(v) To the Company's knowledge, the conduct of the Company's
business as currently conducted, including the use of the Intellectual Property,
does not infringe upon any intellectual property rights owned or controlled by
any third party. There are no claims or suits pending or to the Company's
knowledge, threatened, and the Company has not received any notice of a third
party claim or suit (A) alleging that its activities or the conduct of its
businesses infringes upon, violates, or constitutes the unauthorized use of the
intellectual property rights of any third party, or (B) challenging the
ownership, use, validity or enforceability of any Intellectual Property.
-26-
<PAGE>
(vi) There are no settlements, forbearances to sue, consents,
judgments, orders, writs or injunctions to which the Company is a party which
(A) restrict the Company's rights to use any Intellectual Property, (B) restrict
the Company's businesses in order to accommodate a third party's intellectual
property rights, or (C) permit third parties to use any Intellectual Property
used by the Company. The Company has not licensed or sublicensed its rights in
any material Intellectual Property other than pursuant to the User Agreements
and/or the License Agreements, and no royalties, honoraria or other fees are
payable by the Company for its use of or right to use any Intellectual Property,
except pursuant to the License Agreements. To the Company's knowledge, the
License Agreements are valid and binding obligations of all parties thereto,
enforceable in accordance with their terms, subject to bankruptcy, insolvency
and similar laws affecting creditors' rights and to the discretionary nature of
equitable remedies, and, to the Company's knowledge, there exists no event or
condition which will result in a violation or breach of, or constitute (with or
without due notice or lapse of time or both) a default by any party under, any
such License Agreement which violation, breach or default could, individually or
in the aggregate, reasonably be expected to have a Company Material Adverse
Effect.
(vii) The Company takes all reasonable and customary measures
to protect the confidentiality of the Trade Secrets. To the Company's knowledge,
no party to any non-disclosure agreement with the Company relating to any Trade
Secrets is in breach or default thereof.
(viii) To the knowledge of the Company, no third party is
misappropriating, infringing, diluting, or violating any Intellectual Property
used by the Company, and no such claims have been brought against any third
party by the Company. No person has a right to receive a royalty or similar
payment in respect of the Registered Intellectual Property or in respect of any
Intellectual Property of the Company pursuant to any User Agreements, License
Agreements or any other contractual arrangement entered into by the Company or
any of its subsidiaries. No former or present employees, officers or directors
of the Company hold any right, title or interest, directly or indirectly, in
whole or in part, in or to any Intellectual Property.
(ix) The consummation of the Merger will not (A) result in the
loss or impairment of the Company's right to use any Intellectual Property, or
(B) require the consent of any Governmental Entity or third party in respect of
any such Intellectual Property.
(x) To the extent used in accordance with their intended
purpose as set forth in any manuals or materials (as amended or supplemented)
delivered in connection therewith, all of the products, as upgraded to be Year
2000 Compliant (as defined below in this clause (x)), of the Company (including
products currently under development)
-27-
<PAGE>
will, after the Closing, accurately record, store, process, calculate and
present calendar dates falling on and after (and if applicable, spans of time
including) January 1, 2000, and will accurately calculate any information
dependent on or relating to such dates in the same manner, and with the same
functionality, data integrity and performance, as such products record, store,
process, calculate and present calendar dates on or before December 31, 1999, or
calculate any information dependent on or relating to such dated (collectively,
"Year 2000 Compliant"). All of the products of the Company, after the Closing,
except as could not, individually or in the aggregate, reasonably be expected to
have a Company Material Adverse Effect, (A) will lose no functionality with
respect to the introduction of records containing dates falling on or after
January 1, 2000 and (B) will be operable without error with other products used
and distributed by the Company that may deliver records to the products of the
Company or receive records from the products of the Company, or interact with
the products, including but not limited to back up and archived data, provided
that such other products are also Year 2000 Compliant. Set forth on Schedule
3.1(x) of the Company Disclosure Schedules is a true and correct statement of
the extent to which the internal computer and technology products and systems of
the Company are Year 2000 Compliant. The Company has taken all actions
represented in such statement to have been taken by it. To the knowledge of the
Company, the software and computer systems of and products supplied to the
Company by all third persons, and the software and computer systems of the
Company's customers, in each case with respect to whom the Company has a
material business relationship, are Year 2000 Compliant.
(x) Information in Financing Documents. None of the information
supplied or to be supplied by the Company in writing specifically for inclusion
or incorporation by reference in any syndication and other materials to be
delivered to potential financing sources in connection with the Financing (as
defined in Section 3.2(g)) will, at the date delivered, contain any untrue
statement of material fact or omit to state a material fact required to be
stated therein or necessary in order to make the statements therein, in light of
the circumstances in which they were made, not misleading.
(y) Company Cash. As of the date hereof, the Company and its
subsidiaries have at least $159,800,000 in cash and short-term liquid
investments.
(z) Closing of Asset Dispositions. The Company has closed (i) the sale
of the Company's San Jose property in accordance with the terms and conditions
of the Purchase and Sale Agreement between the Company and Lincoln Property
Company Commercial, Inc. dated August 21, 1999, and (ii) the sale of the
Company's interest in its Palo Alto property (Buildings 3, 4 and 5) to Stanford
University in accordance with the terms and conditions of the Agreement for
Assignment of Leasehold Interest, Sublease of Property, Leaseback of Real
Property and Joint Escrow Instructions between the
-28-
<PAGE>
Company and the Board of Trustees of the Leland Stanford Junior University dated
as of September 30, 1999.
SECTION 3.2 Representations and Warranties of Purchaser. Purchaser
hereby represents and warrants to the Company as follows:
(a) Corporate Organization. Purchaser is a corporation duty organized,
validly existing and in good standing under the laws of the State of California,
and Purchaser has the requisite corporate power and authority and any necessary
governmental approvals to own, operate or lease its properties and to carry on
its business as it is now being conducted, except where the failure to be so
organized, existing and in good standing or to have such power, authority and
governmental approvals could not, individually or in the aggregate, reasonably
be expected to have a Purchaser Material Adverse Effect (as defined below). As
of the date hereof, Purchaser has not engaged in any business other than in
connection with the execution, delivery and performance of this Agreement and
the consummation of the Merger. The term "Purchaser Material Adverse Effect"
means any material adverse change in or effect on (i) the business, results of
operations or condition (financial or other) of Purchaser and its subsidiaries
taken as a whole or (ii) the ability of Purchaser to consummate the Merger on or
before the Terminal Date (a Purchaser Material Adverse Effect of the kind
included in this clause (ii) being referred to as a "Purchaser Material Adverse
Consummation Effect").
(b) Charters and Bylaws. Purchaser has furnished to the Company a
complete and correct copy of the Articles of Incorporation and Bylaws of
Purchaser as currently in effect. Purchaser is not in violation of any of the
provisions of its respective Articles of Incorporation or Bylaws.
(c) Authority Relative to Agreement. Purchaser has all necessary
corporate power and authority to enter into this Agreement, to perform its
obligations under this Agreement and to consummate the Merger. The execution,
delivery and performance of this Agreement by Purchaser and the consummation by
Purchaser of the Merger have been duly and validly authorized by all necessary
corporate action on the part of Purchaser, and no other corporate proceedings on
the part of Purchaser are necessary to authorize this Agreement or to consummate
the Merger. This Agreement has been duly executed and delivered by Purchaser
and, assuming due authorization, execution and delivery by the Company,
constitutes a legal, valid and binding obligation of Purchaser enforceable
against them in accordance with its terms, subject to bankruptcy, insolvency and
similar laws affecting creditors' rights and to the discretionary nature of
equitable remedies.
-29-
<PAGE>
(d) No Conflict, Required Filings and Consents.
(i) The execution, delivery and performance of this Agreement
by Purchaser and the consummation of the Merger by them do not and will not: (A)
conflict with or violate the Articles of Incorporation or Bylaws of Purchaser;
(B) assuming that all consents, approvals and authorizations contemplated by
Section 3.2(d)(ii) have been obtained, all filings described in such Section
have been made and all notification periods referred to in such Section have
expired, conflict with or violate any law, rule, regulation, order, judgment or
decree applicable to Purchaser or by which it or its properties are bound or
affected; or (C) result in any breach or violation of or constitute a default
(or an event which with notice or lapse of time or both could become a default)
or result in the loss of a material benefit under, or give rise to any right of
termination, amendment, acceleration or cancellation of, or result in the
creation of any lien, security interest, change or encumbrance on any of the
properties or assets of Purchaser pursuant to, any note, bond, mortgage,
indenture, contract, lease, license, permit, franchise or other instrument or
obligation to which Purchaser is a party or by which Purchaser or any of the
properties or assets of Purchaser is bound or affected, except, in the case of
clauses (B) and (C), for any such conflicts, violations, breaches, defaults or
other occurrences which could not, individually or in the aggregate, reasonably
be expected to result in a Purchaser Material Adverse Effect.
(ii) The execution, delivery and performance of this Agreement
by Purchaser and the consummation of the Merger by Purchaser do not and will not
require any consent, approval, authorization or permit of, action by, filing
with or notification to, any Governmental Entity, except for: (A) the filing and
recordation of the Certificate of Merger as required by California law; (B)
applicable filings under the Hart-Scott Act and the termination or expiration of
the waiting period under that Act; and (C) such other consents, approvals,
authorizations, actions, filings and notifications as shall have been specified
by Purchaser to the Company in writing prior to the date of this Agreement.
(e) Information Supplied. None of the information supplied or to be
supplied by or on behalf of Purchaser in writing specifically for inclusion in
the Proxy Statement will contain, at the date the Proxy Statement is first
mailed to the Company's shareholders or at the time of the Shareholders Meeting,
any statement which, in the light of the circumstances under which such
statement is made, is false or misleading with respect to any material fact, or
omit to state any material fact necessary in order to make the statements
therein not false or misleading or necessary to correct any statement in any
earlier communication with respect to the solicitation of any proxy for the
Shareholders Meeting or any amendment or supplement thereto.
(f) Absence of Litigation. There are no suits, claims, actions,
proceedings or investigations pending or, to the knowledge of Purchaser,
threatened against Purchaser, or
-30-
<PAGE>
any properties of Purchaser, before any court, arbitrator or Governmental Entity
that, individually or in the aggregate, could reasonably be expected to have a
Purchaser Material Adverse Effect. Neither Purchaser nor any of its properties
or assets is or are subject to any order, writ, judgment, injunction, decree,
determination or award having, or which could reasonably be expected to have, a
Purchaser Material Adverse Consummation Effect.
(g) Financing.
(i) At the Effective Time and subject to satisfaction of the
conditions set forth in Article V, Purchaser will have cash funds from the
issuance of equity (pursuant to the equity commitment letter provided to
Purchaser by Fox Paine Capital Fund, L.P. (the "Sponsor") attached hereto as
Exhibit 3.2(g)) of not less than $50 million (such amount including the amount
to be utilized by Sponsor to purchase the Purchased Shares). Purchaser has been
informed by Sponsor that Sponsor has the necessary power and authority to call
the funds necessary to make the aforementioned equity commitment, without the
need for any consent or approval of any other person or entity and without the
requirement that any other condition be satisfied (excluding customary
conditions that have been previously disclosed to the Company).
(ii) Purchaser has received a commitment letter from a
financial institution, a true and correct copy of which has been provided to the
Company, pursuant to which such financial institution has committed, subject to
the terms and conditions thereof, to arrange or fund on behalf of Purchaser $55
million of debt financing (the "Financing") to be utilized in connection with
the Merger and the other transactions contemplated by this Agreement and to
provide working capital to the Surviving Corporation.
(iii) Purchaser represents that the terms and conditions of
the commitment letters are acceptable in form and substance to Purchaser.
(h) No Foreign Ownership. Purchaser is not, and is not owned or
controlled by, a foreign interest or foreign person under the Exon-Florio Act,
as implemented in 31 C.F.R. Part 800, the International Trafficking in Arms
Regulations, 22 C.F.R. Parts 120130 or the National Industrial Security Program
Operating Manual, DOD 5220-22.M (January 1985).
-31-
<PAGE>
ARTICLE IV
CONDUCT OF BUSINESS PENDING THE MERGER; OTHER COVENANTS
SECTION 4.1 Conduct of Business of the Company Pending the Merger.
Except as otherwise required by the terms of this Agreement or unless Purchaser
shall otherwise agree in writing: (i) the businesses of the Company and its
subsidiaries shall be conducted only in, and the Company and its subsidiaries
shall not take any action except in, the ordinary course of business and in a
manner consistent with past practice and in compliance with applicable laws (it
being understood that the ordinary course of business of the Company does not
include the disposition (by any means) of material assets (individually or in
the aggregate), subsidiaries, divisions or other identifiable groups within or
subsets of the Company); (ii) each of the Company and its subsidiaries shall use
its reasonable commercial efforts to preserve intact the business organization
of the Company and its subsidiaries, to keep available the services of the
present officers, employees and consultants of the Company and its subsidiaries
and to preserve the present relationships of the Company and its subsidiaries
with their customers, suppliers and other persons with whom the Company or any
of its subsidiaries has significant business relations; and (iii) by way of
amplification and not limitation of the foregoing, neither the Company nor any
of its subsidiaries shall directly or indirectly do, or propose or commit to do,
any of the following:
(a) Either: (i) declare, set aside or pay any dividends on, or make any
other distributions in respect of, any of its capital stock, other than regular
quarterly cash dividends on Company Common Stock declared and paid on dates
consistent with past practice in an amount not to exceed $0.12 per share per
quarter; or (ii) split, combine or reclassify any of its capital stock or issue
or authorize the issuance of any other securities in respect of, in lieu of or
in substitution for, shares of its capital stock; or (iii) purchase, redeem or
otherwise acquire or agree to acquire any shares of capital stock of the Company
or any of its subsidiaries or any other securities convertible into shares of
capital stock or any rights, warrants or options to acquire any such shares or
convertible securities;
(b) Authorize for issuance, issue, deliver, sell or agree or commit to
issue, sell or deliver (whether through the issuance or granting of options,
warrants, commitments, subscriptions, rights to purchase or otherwise), pledge
or otherwise encumber any shares of its capital stock or the capital stock of
any of its subsidiaries, any other voting securities or any securities
convertible into, or any rights, warrants or options to acquire, any such
shares, voting securities or convertible securities or any other securities or
equity equivalents (including without limitation stock appreciation rights),
other than (i) sales of capital stock of any subsidiary of the Company to the
Company or another
-32-
<PAGE>
subsidiary of the Company, (ii) the issuance of shares of Company Common Stock
upon exercise of Options that were issued and outstanding prior to the date of
this Agreement or in compliance with other obligations that were in existence on
the date of this Agreement and disclosed in any Company Disclosure Schedules,
and (iii) the issuance of shares of Series A Preferred Stock as set forth in
Section 2.4 of this Agreement;
(c) Except to the extent required under the Stock Option Plans, the
Company Plans or the Company Employment Contracts: (i) increase the compensation
or fringe benefits of any of its directors, officers or employees, except for
increases in compensation of non-managerial personnel of the Company or its
subsidiaries in the ordinary course of business in accordance with past
practice; or (ii) grant any severance or termination pay, or (iii) establish,
adopt, enter into or amend or terminate any Company Plan or other plan,
agreement, trust, fund, policy or arrangement for the benefit of any directors,
officers or employees except as required by law or as provided in Section 2.3 of
this Agreement; provided, however, that this Section 4.1(c) shall not prohibit
the Company or any of its subsidiaries, to the extent consistent with past
practice, from hiring non-managerial or non-officer personnel from time to time
in the ordinary course of its business and providing such personnel with
benefits deemed appropriate by the Company;
(d) Amend its Articles of Incorporation, Bylaws or other comparable
charter or organizational documents or alter, through merger, liquidation,
reorganization, restructuring or in any other fashion, its corporate structure;
(e) Acquire or agree to acquire (i) by merging or consolidating with,
or by purchasing a substantial portion of the stock or assets of, or by any
other manner, any business or any corporation, partnership, joint venture,
association or other business organization or division thereof, or (ii) any
assets (not otherwise subject to paragraph (h) below) other than in the ordinary
course of business consistent with past practice or in an aggregate amount not
to exceed $500,000, or in accordance with the cash management practices of the
Company set forth on Schedule 4.1(e) of the Company Disclosure Schedules;
(f) Sell, lease, license, mortgage or otherwise encumber or subject to
any lien or otherwise transfer or dispose of any of its properties or assets
other than inventory or obsolete equipment in the ordinary course of business in
commercial transactions consistent with past practice and in amounts that could
not, individually or in the aggregate, reasonably be expected to have a Company
Material Adverse Effect;
(g) Either: (A) incur any indebtedness for borrowed money or guarantee
any such indebtedness of another person (other than guarantees by the Company in
favor of any of its wholly owned subsidiaries or by any of its subsidiaries in
favor of the
-33-
<PAGE>
Company) or enter into any other financing obligation that would be required to
be presented as indebtedness on a balance sheet prepared in accordance with
GAAP, or enter into any "off balance sheet" financing arrangement or
transaction; or (B) make any loans, advances or capital contributions to, or
investments in (excluding investments made in accordance with cash management
practices set forth on Schedule 4.1(e) of the Company Disclosure Schedules), any
other person, other than (1) to any direct or indirect wholly owned subsidiary
of the Company, or (2) to an employee described in Schedule 4.1(g) of the
Company Disclosure Schedules and (3) to other employees of the Company and its
subsidiaries, provided that the loans contemplated by this clause (g)(B)(3) will
not exceed $100,000 in the aggregate;
(h) Except for current capital expenditure plans set forth on Schedule
4.1(h) of the Company Disclosure Schedules, expend, or commit to expend, funds
for capital expenditures;
(i) Adopt a plan of complete or partial liquidation or resolutions
providing for or authorizing such a liquidation;
(j) Recognize any labor union (unless legally required to do so) or
enter into any collective bargaining agreement;
(k) Except as may be required as a result of a change in GAAP or as
recommended by the Company's independent accountants and consented to in writing
by Purchaser prior to such change, change any of the accounting methods,
practices or principles used by the Company or any of its subsidiaries;
(l) Enter into any new line of business or open any new facilities;
(m) Amend or otherwise modify, or waive any rights or obligations of
any other party to the Telecom Agreement (as hereinafter defined), other than
such amendments, modifications or waivers as (v) are immaterial, individually or
in the aggregate, (x) in no manner affect the proceeds payable to the Company
pursuant to the Telecom Agreement or the financial value to the Company of the
Telecom Sale Transaction, (y) to which the Company has previously disclosed to
Purchaser in writing and (z) is otherwise permissible pursuant to this Section
4.1 (without giving effect to the parenthetical statement set forth in subclause
(i) within the body of the introductory paragraph of this Section 4.1); or
(n) Authorize any of, or commit or agree to take any of, the foregoing
actions or any action which would make any of the representations or warranties
of the Company contained in this Agreement untrue as of the date when made if
such action had then been taken.
-34-
<PAGE>
Nothing in this Section 4.1, in Section 4.6 or elsewhere in this
Agreement (other than Section 4.12), shall limit the Company's right or ability
to complete the sale (the "Telecom Sale Transaction") of the Company's telecom
business strictly in accordance with the terms and conditions of the Amended and
Restated Purchase Agreement between the Company, Tracor, Inc. and Marconi
Aerospace Electronic Systems Inc. (as assignee of Tracor, Inc.'s rights and
obligations thereunder) dated as of August 18, 1999 (the "Telecom Agreement"),
as such Telecom Agreement may be further amended, modified or waived as
permitted in Section 4.1(m) above.
SECTION 4.2 Shareholders Meeting. The Company shall take all action
necessary, in accordance with and subject to the California Code and its
Articles of Incorporation and Bylaws, to convene a meeting of its shareholders
(the "Shareholders Meeting") as soon as reasonably practicable after the date of
this Agreement to consider and vote upon the adoption and approval of this
Agreement and the Merger. Subject to the next sentence, the Company, through its
Board of Directors, shall recommend to its shareholders approval of the
foregoing matters and such recommendation shall be included in the Proxy
Statement. The Board of Directors of the Company may fail to make such
recommendation, or withdraw, modify or change such recommendation, if and only
if (i) an Acquisition Proposal (as defined below) which constitutes a Superior
Proposal (as defined below) is made to the Company and is not withdrawn, (ii)
neither the Company nor any of its representatives shall have violated any of
the restrictions set forth in Section 4.6, (iii) the Board of Directors of the
Company concludes in good faith, after consultation with its outside counsel,
that, in light of such Acquisition Proposal, the failure to make or withdrawal,
modification or change of such recommendation is required in order for the Board
of Directors of the Company to comply with its fiduciary obligations to the
Company's shareholders under California law, and (iv) such failure, withdrawal,
modification or change occurs or is made prior to the Shareholders Meeting.
Nothing in this Section 4.2 shall limit the Company's obligation to hold and
convene the Shareholders Meeting. For the purposes of this Section 4.2, a
"Superior Proposal" means a bona fide Acquisition Proposal which a majority of
the disinterested members of the Board of Directors of the Company determines in
their reasonable good faith judgment to be more favorable to the Company's
shareholders than the Merger (after receiving the written opinion, with only
customary qualifications, of the Company's independent financial advisor that
the financial value of the consideration provided for in such Acquisition
Proposal exceeds the financial value of the Merger Consideration) and for which
financing, to the extent required, is then committed by a third party.
SECTION 4.3 Preparation of the Proxy Statement. As soon as reasonably
practicable following the date of this Agreement, the Company shall prepare the
Proxy Statement and, following approval by Purchaser (which approval shall not
be unreasonably withheld), shall file the Proxy Statement with the SEC. The
Company shall use its reasonable commercial efforts to have the Proxy Statement
cleared by the SEC as
-35-
<PAGE>
promptly as practicable after such filing, subject to the Company's rights with
respect to an Alternative Transaction (as defined below). The Company shall use
its reasonable commercial efforts to cause the Proxy Statement to be mailed to
the Company's shareholders as promptly as practicable after the Proxy Statement
is cleared by the SEC. The Company and Purchaser shall each correct any
information provided by it for use in the Proxy Statement which shall have
become false or misleading. In the event that the SEC comments upon or otherwise
reviews the Proxy Statement, the Company shall promptly inform Purchaser of such
comments and/or review, shall consult with Purchaser in connection with
responding to any such comments (including without limitation the revision of
the Proxy Statement). The Company shall not file the Proxy Statement or any
amendment thereto or revision thereof without Purchaser's prior approval, which
approval will not be unreasonably withheld.
SECTION 4.4 Hart-Scott Act Filings. Promptly following the date of this
Agreement, the Company and Purchaser shall prepare and file with the Antitrust
Authorities all documents and forms required under the Hart-Scott Act. Each of
the Company and Purchaser shall use its reasonable commercial efforts to obtain
the timely termination or expiration of the waiting period applicable to the
Merger under the Hart-Scott Act.
SECTION 4.5 Access to Information; Confidentiality.
(a) Access to Information.
(i) The Company: (A) shall, and shall cause its subsidiaries,
auditors and other agents to, afford the officers, auditors and other agents and
representatives of Purchaser and persons or entities (and representatives
thereof) committed or proposing to provide Purchaser or the Company with the
Financing reasonable access at all reasonable times (during normal business
hours so as not to unduly or unreasonably interfere with the business of the
Company and its subsidiaries) to its employees (it being understood that access
to the Company's employees, other than its senior officers, shall be with the
prior consultation of a senior officer of the Company), agents, properties,
customers, contractors, suppliers and others, offices and other facilities and
(subject to restrictions imposed by applicable law or by contract) to all books
and records, and shall furnish Purchaser and such other persons with all
financial, operating and other data and information as Purchaser, through its
officers, may from time to time reasonably request; and (B) shall make available
its senior officers, upon reasonable prior notice and during normal business
hours, to confer on a regular basis with the appropriate officers of Purchaser
regarding the ongoing operations of the Company and its subsidiaries, the
implementation of the Merger and other matters reasonably related hereto. No
investigation pursuant to this Section 4.5(a) shall affect any representations
or warranties
-36-
<PAGE>
of the Parties made in this Agreement or the conditions to the obligations of
the Parties under this Agreement.
(ii) Prior to the Effective Time, the Company and its
accountants, agents and other representatives shall cooperate with Purchaser by
providing information about the Company which is necessary for Purchaser and its
accountants, agents, counsel and other representatives to participate in and to
assist the Company in preparing the Financing documents and securing the
Financing and in response to other reasonable requests with respect to such
Financing documents. Notwithstanding anything in this Agreement to the contrary,
to the extent reasonably appropriate to assist the success of the Financing,
Purchaser may disclose, or cause its representatives to disclose, and, at the
request of Purchaser, the Company shall disclose (in each case, to the extent
requested by Purchaser, subject to the Company receiving reasonable assurances
as to the maintenance of the confidentiality of confidential information),
information concerning the Company and its subsidiaries and their respective
businesses, assets and properties and any transaction involving the Company
occurring outside the ordinary course of business or with respect to any
material portion of the Company's (including its subsidiaries') businesses,
assets or properties prior to the Effective Time.
(b) Confidentiality. Purchaser shall hold information it receives
pursuant to Section 4.5(a)(i) which is nonpublic in confidence and, other than
as provided in Section 4.5(a)(ii), will not disclose such information to any
third party, and will instruct its Representatives (as such term is defined in
the Confidentiality Agreement) not to disclose such information to any third
party, without the written consent of the Company. Such information shall be
subject to the Confidentiality Agreement dated May 7, 1999 between the Company
and Fox Paine & Company, LLC (the "Confidentiality Agreement").
SECTION 4.6 No Solicitation. The Company, its subsidiaries and
affiliates and their respective officers, directors, employees, representatives
and agents shall immediately cease any existing discussions or negotiations, if
any, with any parties conducted heretofore with respect to any acquisitions or
exchange of all or any material portion of the assets of, or any equity interest
in, the Company or any of its subsidiaries or any business combination with the
Company or any of its subsidiaries other than the Telecom Sale Transaction.
Subject to the last paragraph of Section 4.1, the Company shall not, directly or
indirectly, through any officer, director, agent or otherwise, solicit, initiate
or encourage the submission of any proposal or offer from any person relating to
any acquisition or purchase of all or any material portion of the assets of, or
any equity interest in, the Company (or any subsidiary or division thereof) or
any merger, consolidation, share exchange, business combination or other similar
transaction with the Company (or any subsidiary or division thereof) or solicit,
participate in or initiate any negotiations or discussions regarding, or furnish
to any other person any information with
-37-
<PAGE>
respect to, or otherwise cooperate in any way with, or assist or participate in,
facilitate or encourage, any effort or attempt by any other person to do or seek
to do any of the foregoing, and all efforts being conducted by or on behalf of
the Company on the date of this Agreement to solicit purchasers of the Company
as an entirety or for its component businesses shall be discontinued forthwith;
provided, however, that nothing in this Section 4.6 shall prohibit the Company
from furnishing information to, or entering into discussions or negotiations
with, any person in connection with an unsolicited written bona fide proposal
made to the Company by or on behalf of such person after the date of this
Agreement and prior to the adjournment of the Shareholders Meeting (an
"Acquisition Proposal") to acquire all of the equity or all or substantially all
of the assets of the Company and its subsidiaries (viewed as a whole), pursuant
to a merger, consolidation, share exchange, business combination, tender or
exchange offer, recapitalization, asset acquisition or other comparable
transaction (an "Alternative Transaction") if, and only to the extent that, (a)
the Board of Directors of the Company determines in good faith, having been
advised by counsel, that its failure to authorize any such action on the
Company's part would constitute a breach of the Board's fiduciary duties to the
Company's shareholders under California law, (b) upon receipt of such
Acquisition Proposal, the Company gives Purchaser prior written notice (which
shall include a summary of the material terms of such person's Acquisition
Proposal and the identity of such person) of the Company's intention to furnish
such information or begin such discussions, (c) prior to furnishing such
information or beginning such discussions with such person, the Company shall
have determined, in good faith, after consultation with the Company's financial
advisor, that the financial value of the consideration provided for in such
Acquisition Proposal exceeds the financial value of the Merger Consideration,
and (d) prior to furnishing such information or beginning such discussions, the
financing for such Acquisition Proposal, to the extent required, is then
committed by a third party (which commitment may, in part, be made in reliance
upon the firm written commitments of third-party lenders). The Company shall not
release any third party from or waive any provision of, any confidentiality or
standstill agreement to which the Company is a party. Notwithstanding anything
to the contrary in this Section 4.6, the Company shall not provide any
non-public information concerning the Company to a third party unless (i) the
Company provides such non-public information under a non-disclosure agreement
with terms regarding the protection of confidential information at least as
restrictive as such terms in the Confidentiality Agreement, and (ii) such
non-public information has been previously delivered to Purchaser.
SECTION 4.7 Directors' and Officers' Indemnification and Insurance.
(a) No Change in Organizational Documents. Notwithstanding anything to
the contrary in Section 1.5, the Articles of Incorporation and the Bylaws of the
Surviving Corporation shall contain provisions no less beneficial to directors,
officers, employees or agents of the Company with respect to indemnification and
exculpation from liability as
-38-
<PAGE>
those set forth in the Company's Articles of Incorporation and Bylaws on the
date of this Agreement, which provisions shall not be amended, repealed or
otherwise modified for a period of six years from the Effective Time in any
manner that would adversely affect the rights thereunder of individuals who on
or prior to the Effective Time were directors, officers, employees or agents of
the Company, unless such modification is required by law.
(b) Directors' and Officers' Insurance. The Surviving Corporation
shall, for a period of six years commencing on the Closing Date, maintain in
effect the Company's current directors' and officers' liability insurance
policies (which may be customary "tail" policies) covering those persons who are
currently covered on the date of this Agreement by such policies (copies of
which policies have been delivered to Purchaser) and by Indemnification
Agreements with the Company as set forth on Schedule 4.7(b) of the Company
Disclosure Schedules (the "Indemnified Parties"); provided, however, that in no
event shall Purchaser be required to expend in any one year an amount in excess
of 150% of the annual premiums currently paid by the Company for such insurance;
and, provided, further, that if the annual premiums of such insurance coverage
exceed such amount, the Surviving Corporation shall be obligated to obtain a
policy with the greatest coverage available for a cost not exceeding such
amount; provided, further, that the Surviving Corporation may substitute, for
the policies in existence at the Effective Time, policies (which may be
customary "tail policies") with at least the coverage required by this Section
4.7(b) provided such substitute policies contain terms and conditions which are
no less advantageous and that such substitution does not result in any gaps or
lapses in coverage with respect to matters occurring prior to the Effective
Time.
(c) Indemnification Obligations. As of and following the Effective
Time, the Surviving Corporation shall indemnify all Indemnified Parties to the
fullest extent permitted by applicable law with respect to all acts and
omissions arising out of such individuals' services as officers, directors,
employees or agents of the Company or any of its subsidiaries, or as trustees or
fiduciaries of any plan for the benefit of employees of the Company or any of
its subsidiaries, occurring prior to the Effective Time including, without
limitation, the transactions contemplated by this Agreement. Without limiting
the foregoing, if any such Indemnified Party is or becomes involved in any
capacity in any action, proceeding or investigation in connection with any
matter, including without limitation, the transactions contemplated by this
Agreement, occurring prior to, and including, the Effective Time, the Surviving
Corporation, from the Effective Time, will pay as incurred such Indemnified
Party's reasonable legal and other expenses (including the cost of any
investigation and preparation) incurred in connection therewith upon receipt by
the Surviving Corporation of a customary undertaking in a form to be provided by
the Surviving Corporation, with such Indemnified Party being entitled to
representation by counsel not representing any other Indemnified Party to the
extent that a conflict of interest precludes the effective representation of
more than one Indemnified
-39-
<PAGE>
Party with respect to the applicable action, proceeding and investigation.
Subject to Section 4.7(d), the Surviving Corporation shall pay all reasonable
expenses, including attorneys' fees, that may be incurred by any Indemnified
Party in enforcing this Section 4.7 or any action involving an Indemnified Party
resulting from the transactions contemplated by this Agreement. If the indemnity
provided for in this Section 4.7 is not available with respect to any
Indemnified Party, then the Surviving Corporation and the Indemnified Party
shall contribute to the amount payable in such proportion as is appropriate to
reflect relative faults and benefits.
(d) Procedures Concerning Indemnification. Any Indemnified Party
wishing to claim indemnification under Sections 4.7(a), (b) or (c), upon
learning of any such claim, action, suit, proceeding or investigation, shall
promptly notify the Surviving Corporation thereof, provided, however, that
failure to give, or delay in giving, such notice shall not impair the applicable
Indemnified Party's rights under this Section 4.7 except to the extent (if any)
to which the Surviving Corporation is materially prejudiced by such failure or
delay. In the event of any such claim, action, suit, proceeding or investigation
(whether arising before or after the Effective Time): (i) the Surviving
Corporation shall have the right, from the Effective Time, to assume the defense
thereof (with counsel engaged by the Surviving Corporation to be reasonably
acceptable to the relevant Indemnified Party), the relevant Indemnified Party
shall cooperate in the defense of such matter and the Surviving Corporation
shall not be liable to such Indemnified Parties for any legal expenses of other
counsel or any other expenses subsequently incurred by such Indemnified Parties
in connection with the defense thereof, and (ii) the Surviving Corporation shall
not be liable for any settlement effected without its or Purchaser's prior
written consent. The Surviving Corporation shall not have any obligation under
Section 4.8(c) to any Indemnified Party when and if a court of competent
jurisdiction shall ultimately determine, and such determination shall have
become final, that the indemnification of such Indemnified Party in the manner
contemplated hereby is prohibited by applicable law.
SECTION 4.8 Further Action; Reasonable Commercial Efforts. Upon the
terms and subject to the conditions of this Agreement, each Party shall use its
reasonable commercial efforts to take, or cause to be taken, all appropriate
action, and to do or cause to be done, all things necessary, proper or advisable
under applicable laws and regulations to consummate and make effective the
Merger, including but not limited to (i) cooperating in the preparation and
filing of the Proxy Statement, and any amendments to any thereof, and (ii) using
its reasonable commercial efforts to make all required regulatory filings and
applications and to obtain all licenses, permits, consents, approvals,
authorizations, qualifications and orders of Governmental Entities and third
parties to contracts with the Company and its subsidiaries as are necessary for
the consummation of the Merger, and to fulfill the conditions to the Merger. To
the extent practicable in the circumstances and subject to applicable laws, each
Party shall provide the others with the
-40-
<PAGE>
opportunity to review any information relating to such Party, or any of its
subsidiaries, which appears in any filing made with, or written materials
submitted to, any Governmental Entity in connection with obtaining the necessary
regulatory or non- governmental approvals for the consummation of the Merger. In
case at any time after the Effective Time any further action is necessary or
desirable to carry out the purposes of this Agreement, the proper officers and
directors of each Party shall use their reasonable commercial efforts to take
all such necessary action.
SECTION 4.9 Notification of Certain Matters. The Company shall give
prompt notice to Purchaser, and Purchaser shall give prompt notice to the
Company, of (i) the occurrence or non-occurrence of any event the occurrence or
non-occurrence of which would be likely to cause any representation or warranty
contained in this Agreement to be untrue or inaccurate in any material respect,
and (ii) any failure of the Company or Purchaser, as the case may be, to comply
with or satisfy in any material respect any condition or agreement to be
complied with or satisfied by it hereunder; provided, however, that the delivery
of any notice pursuant to this Section 4.9 shall not limit or otherwise affect
the remedies available hereunder to the Party receiving such notice.
SECTION 4.10 Public Announcements. Each Party shall consult with the
other before issuing any press release or otherwise making any public statements
with respect to this Agreement and shall not issue any such press release or
make any such public statement prior to such consultation, except (where
circumstances make such prior consultation impracticable) as may be required by
law or any listing agreement with its securities exchange or quotation system.
SECTION 4.11 Certain Obligations to Employees. The Surviving
Corporation shall honor all employee benefit obligations to current and former
employees that have been incurred prior to the Effective Time under the Company
Plans and the Company Employment Contracts; provided, however, that nothing
shall prevent the Surviving Corporation from taking, or refraining from taking,
any action with respect to any of the Company Plans and the Company Employment
Contracts to the extent not precluded by the terms thereof.
ARTICLE V
CONDITIONS OF MERGER
SECTION 5.1 Conditions to Obligation of Each Party to Effect the
Merger. The respective obligations of each Party to effect the Merger shall be
subject to the satisfaction or (to the extent permitted by applicable law)
waiver, at or prior to the Closing, of the following conditions:
-41-
<PAGE>
(a) This Agreement and the Merger shall have been approved and adopted
by the affirmative vote of the holders of a majority of the outstanding shares
of Company Common Stock entitled to vote thereon.
(b) No temporary restraining order, preliminary or permanent injunction
or other order issued by any court of competent jurisdiction or other legal
restraint or prohibition making the consummation of the Merger unlawful shall be
in effect, nor shall any proceeding by any Governmental Entity seeking any of
the foregoing be pending.
(c) There shall not be any action taken, or any statute, rule,
regulation or order enacted, entered, enforced or deemed applicable to the
Merger, which makes the consummation of the Merger illegal, or, as a result of
the consummation of the Merger, will give rise to a Company Material Adverse
Effect with respect to the Surviving Corporation.
(d) Each of the Company and Purchaser shall have received an opinion
(in each case addressed to the Board of Directors of the same) concerning the
solvency of Purchaser, the Company and their respective affiliates giving effect
to the Merger and the related transactions, prepared by an independent firm
expert in providing such opinions which is reasonably acceptable to each of the
Company and Purchaser. The solvency opinion shall be in such form that is
reasonably acceptable to each of the Company and Purchaser.
SECTION 5.2 Conditions to Obligations of Purchaser. The obligations of
Purchaser to effect the Merger are subject to the satisfaction of the following
conditions unless waived by Purchaser:
(a) The representations and warranties of the Company set forth in this
Agreement (i) shall be true and correct in all respects as of the date of this
Agreement and (ii) except for those representations and warranties made only as
of a specified date, shall be true and correct on and as of the Closing Date as
though made on and as of the Closing Date, except, in the case of each of
clauses (i) and (ii), for inaccuracies that do not, individually or in the
aggregate, constitute a Company Material Adverse Effect, provided, however, for
purposes of this Section 5.2(a), (A) the immediately preceding Company Material
Adverse Effect qualifier shall be inapplicable with respect to representations
and warranties of the Company contained in Section 3.1(c) and Section 3.1(y),
and (B) any Company Material Adverse Effect or knowledge qualifiers in the body
of and applicable to any particular representation or warranty of the Company
shall be disregarded. Purchaser shall have received a certificate signed on
behalf of the Company by its Chief Executive Officer and by its Chief Financial
Officer to such effect.
(b) The Company shall have performed all obligations required to be
performed by it under this Agreement at or prior to the Closing Date with such
exceptions as, either
-42-
<PAGE>
individually or in the aggregate, have not constituted, and do not constitute a
Company Material Adverse Effect, and Purchaser shall have received a certificate
signed on behalf of the Company by its Chief Executive Officer and by its Chief
Financial Officer to such effect.
(c) The number of issued and outstanding shares of Company Common Stock
with respect to which the holders have properly taken those actions which the
California Code requires be taken prior to the Effective Time to permit such
holders to become Dissenting Shareholders shall not exceed 5% of the total
number of issued and outstanding shares of Company Common Stock.
(d) Other than the filing contemplated by Section 1.3, all consents,
approvals, authorizations or permits of, actions by, or filings with or
notifications to, and all terminations or expirations of waiting periods imposed
by, any Governmental Entity which are necessary for the consummation of the
Merger (including, without limitation, under the Hart-Scott Act and the Exchange
Act), other than those (not including those under the Hart-Scott Act, which
shall be required without reference to this clause) the absence of which could
not, individually or in the aggregate, reasonably be expected to have a Company
Material Adverse Effect, shall have been obtained or made or shall have occurred
without the requirement of any payment or any material condition (all such
consents, approvals, authorizations, permits, actions and filings, and the
termination or expiration of all such waiting periods, being referred to as the
"Requisite Governmental Approvals"); all conditions, if any, to the Requisite
Governmental Approvals shall have been satisfied; and all Requisite Governmental
Approvals shall be in full force and effect.
(e) All consents, approvals, authorizations or permits of, actions by,
notifications to, or waiting periods imposed by, any contract, agreement or
arrangement between either the Company or Purchaser, on the one hand, and any
other person (except a Governmental Entity), on the other hand, which are
necessary for the consummation of the Merger, other than those the absence of
which could not, individually or in the aggregate, reasonably be expected to
have a Company Material Adverse Effect, shall have been obtained or made or
shall have occurred without cost or condition (all such consents, approvals,
authorizations, permits, actions and notifications and the expiration of all
such waiting periods, being referred to as the "Requisite Non-Governmental
Approvals"); all conditions, if any, to the Requisite Non-Governmental Approvals
shall have been satisfied; and all of the Requisite Non-Governmental Approvals
shall be in full force and effect.
(f) The Company shall have closed the Telecom Sale Transaction in
accordance with the terms and conditions of the Telecom Agreement as in effect
on the date hereof (other than with such amendments, modifications or waivers as
are permitted the Company under Section 4.1(m)).
-43-
<PAGE>
(g) Purchaser shall have received the Financing on terms and conditions
that, in Purchaser's reasonable judgment, are not less favorable, in the
aggregate, to Purchaser than those set forth in the commitment letter described
in Section 3.2(g)(ii) hereof.
(h) After the execution date of this Agreement, there shall not have
occurred or been enacted or promulgated a change in GAAP (as in effect on the
date of such letter) or a decision, statement, policy statement, pronouncement,
speech, statute, ordinance, writ, judgment, injunction, rule, regulation
(formal, informal or otherwise), order or decree of any Governmental Entity or
authoritative accounting standards board or body (including without limitation
the SEC and/or the Financial Accounting Standards Board) (any of the foregoing
matters being referred to as a "Subsequent Ruling"), if the effect of such
Subsequent Ruling is to prevent the Merger from being accounted for as a
recapitalization (as a result of the structure and/or capitalization of the
Surviving Corporation as contemplated by this Agreement) in the reasonable
judgment of Purchaser following consultation with Purchaser's accounting
advisors.
SECTION 5.3 Conditions to Obligations of the Company. The obligation of
the Company to effect the Merger is subject to the satisfaction of the following
unless waived by the Company:
(a) The representations and warranties of Purchaser set forth in this
Agreement (i) shall be true and correct in all respects as of the date of this
Agreement and (ii) except for those representations and warranties made only as
of a specified date, shall be true and correct on and as of the Closing Date as
though made on and as of the Closing Date except, in the case of each of clauses
(i) and (ii), for inaccuracies that do not, individually, or in the aggregate,
constitute a Purchaser Material Adverse Effect, provided, however, for purposes
of this Section 5.3(a), (A) the immediately preceding Purchaser Material Adverse
Effect qualifier shall be inapplicable with respect to representations and
warranties of the Purchaser contained in Section 3.2(c) and (B) any Purchaser
Material Adverse Effect or knowledge qualifiers in the body of and applicable to
any particular representation or warranty of Purchaser shall be disregarded. The
Company shall have received a certificate signed on behalf of Purchaser by the
Chief Executive Officer of Purchaser and by the Chief Financial Officer of
Purchaser to such effect.
(b) Purchaser shall have performed all obligations required to be
performed by them under this Agreement at or prior to the Closing Date, with
such exceptions as, either individually or in the aggregate, have not
constituted, and do not constitute a Purchaser Material Adverse Effect, and the
Company shall have received a certificate signed on behalf of Purchaser by its
Chief Executive Officer and by its Chief Financial Officer to such effect.
-44-
<PAGE>
ARTICLE VI
TERMINATION, AMENDMENT AND WAIVER
SECTION 6.1 Termination. This Agreement may be terminated and the
Merger contemplated hereby may be abandoned at any time prior to the Effective
Time, either before or after approval thereof by the shareholders of the
Company:
(a) by mutual written consent of Purchaser and the Company; or
(b) by Purchaser, upon any breach of any representation, warranty,
covenant or agreement of the Company set forth in this Agreement that, either
individually or in the aggregate, would prevent the satisfaction of the
conditions set forth in Section 5.2(a) or (b), if either (i) such breach cannot
be cured prior to the Terminal Date, or (ii) has not been cured within 30 days
after the date on which written notice of such breach is given by Purchaser to
the Company, specifying in reasonable detail the nature of such breach;
(c) by the Company, upon breach of any representation, warranty or
agreement f Purchaser set forth in this Agreement that, either individually or
in the aggregate, would prevent the satisfaction of the condition set forth in
Section 5.3(a) or (b), if either (i) such breach cannot be cured prior to the
Terminal Date, or (ii) has not been cured within 30 days after the date on which
written notice of such breach is given by the Company to Purchaser specifying in
reasonable detail the nature of such breach;
(d) by either Purchaser or the Company, if any permanent injunction or
action by any Governmental Entity preventing the consummation of the Merger
shall have become final and nonappealable; provided, however, that such right of
termination shall not be available to any Party if such Party shall have failed
to make reasonable efforts to prevent or contest the imposition of such
injunction or action and such failure materially contributed to such imposition;
(e) by either Purchaser or the Company, if (other than due to the
willful failure of the Party seeking to terminate this Agreement to perform its
obligations hereunder which are required to be performed at or prior to the
Effective Time) the Merger shall not have been consummated on or prior to
January 31, 2000, unless extended in writing by Purchaser and the Company (such
date, or any date to which it is so extended, being referred to as the "Terminal
Date");
(f) by Purchaser or the Company, if the vote of the shareholders of the
Company on a motion to adopt and approve this Agreement and the Merger has been
taken at the Shareholders Meeting or any adjournment thereof and the vote in
favor of such adoption and approval was not sufficient, under the California
Code and the Articles
-45-
<PAGE>
of Incorporation of the Company, to cause such motion to pass; provided,
however, that the right to terminate this Agreement under this Section 6.1(f)
shall not be available to Company if (A) the failure to obtain Company
shareholder approval shall have been caused by the action or failure to act of
the Company and such action or the failure to act constitutes a breach by the
Company of this Agreement or (B) Purchaser is entitled to terminate the
Agreement under Section 6.1(g);
(g) by Purchaser, if (i) a majority of the Board of Directors of the
Company shall have withdrawn, modified or changed its approval or recommendation
of this Agreement or the Merger in any manner which is adverse to Purchaser, or
shall have adopted a resolution to do the foregoing, whether or not the reason
for such action by the Board of Directors of the Company would entitle the
Company to terminate this Agreement under Section 6.2(h), or (ii) a tender offer
or exchange offer for 25% or more of the outstanding shares of the Company
Common Stock is commenced (other than by Purchaser or any of its subsidiaries or
affiliates), and the Board of Directors of the Company fails to recommend that
such shareholders reject such tender offer or exchange offer in the Company's
Solicitation/Recommendation Statement on Schedule 14D-9 filed in response
thereto;
(h) by the Company prior to the closing of the polls at the
Shareholders Meeting, if the Board of Directors of the Company shall decide not
to make or shall withdraw, modify or change its affirmative recommendation of
this Agreement or the Merger, in each instance to the extent permitted pursuant
to Section 4.2 hereof;
(i) by the Company, if Sponsor notifies the Company in writing that
Sponsor has determined that it will not, or if it otherwise becomes manifestly
obvious that Sponsor has become unable to, fund Purchaser as set forth in and
pursuant to the equity commitment letter attached hereto as Exhibit 3.2(g).
SECTION 6.2 Fees and Expenses.
(a) The Company shall pay Purchaser a termination fee of $13,250,000
plus all costs and expenses incurred by Purchaser in connection with the
investigation, negotiation, financing and performance of this Agreement and the
Merger (collectively, to avoid duplication, net of any payments made to
Purchaser pursuant to Section 6.2(b), the "Termination Fee"), as a result of the
termination of this Agreement (i) by Purchaser pursuant to Section 6.1(g) or the
Company pursuant to Section 6.1(h), (ii) by Purchaser or the Company pursuant to
Section 6.1(f), or (iii) by Purchaser pursuant to Section 6.1(b) (provided, in
the cases of clauses (ii) and (iii), within twelve (12) months of the date of
such termination of this Agreement the Company either enters into a definitive
agreement for or otherwise consummates an Alternative Transaction). The
Termination Fee shall be payable, in the case of clause (i) above, on the next
business day following the
-46-
<PAGE>
termination of this Agreement, or, in the case of clause (ii) or clause (iii)
above, on the next business day following the execution of the definitive
agreement for or the consummation of the Alternative Transaction. In the
circumstances in which it is payable, the payment of the Termination Fee shall
be Purchaser's sole remedy and entitlement hereunder for any breach or default
by the Company hereunder.
(b) In the event of a termination of this Agreement by Purchaser
pursuant to Section 6.1(b) or the Company pursuant to Section 6.1(c), all costs
and expenses of the non-breaching Party incurred in connection with this
Agreement and the Merger shall be paid by the breaching Party.
(c) Except as set forth in Sections 6.2(a) and 6.2(b), all costs and
expenses incurred in connection with this Agreement and the Merger shall be paid
by the Party incurring such costs and expenses, whether or not the Merger is
consummated.
SECTION 6.3 Effect of Termination. In the event of the termination of
this Agreement pursuant to Section 6.1, this Agreement shall forthwith become
void and there shall be no liability on the part of any Party except that the
provisions of Section 4.5(b), Section 6.2 and all of Article VII except Section
7.1 shall survive such termination indefinitely (or to such earlier date as may
be specified by the terms of such provision); and provided, however, that
nothing herein shall relieve any Party from liability for any willful and
material breach hereof, provided further, that any action that the Board of
Directors of the Company takes under Section 4.2, Section 4.6 or Section 6.1(h),
having been advised by counsel, on the basis of its good faith determination
that its failure to take such action could be deemed to constitute a breach of
its fiduciary duties to the Company's shareholders under California law shall
not constitute a willful and material breach of this Agreement by the Company.
SECTION 6.4 Amendment. This Agreement may be amended by the Parties by
action taken by the respective Boards of Directors of Purchaser and the Company
at any time prior to the Effective Time; provided, however, that, after approval
of this Agreement and the Merger by the shareholders of the Company, no
amendment may be made which would require the approval of the shareholders of
the Company without being subject to further shareholder approval. This
Agreement may not be amended except by an instrument in writing signed by the
Parties.
SECTION 6.5 Waiver. At any time prior to the Effective Time, any Party
may (a) extend the time for the performance of any of the obligations or other
acts of the other Party, (b) waive any inaccuracies in the representations and
warranties contained herein or in any document delivered pursuant hereto and (c)
waive compliance with any of the agreements or conditions contained herein. Any
such extension or waiver shall be valid if set forth in an instrument in writing
signed by the Party or Parties to be bound thereby.
-47-
<PAGE>
ARTICLE VII
GENERAL PROVISIONS
SECTION 7.1 Non Survival of Representations, Warranties and Agreements
After the Effective Time. The representations, warranties, and agreements in
this Agreement shall terminate at the Effective Time, except that those set
forth in Section 4.7 and Section 4.11 and this Article VII shall survive such
termination indefinitely (or to such earlier date as shall be specified by the
terms of such provisions).
SECTION 7.2 Notices. All notices, requests, claims, demands and other
communications hereunder shall be in writing and shall be given (and shall be
deemed to have been duly given upon receipt or, in the case of notice by
registered or certified mail, three business days after deposit with the United
States Postal Service) by delivery in person, by cable, facsimile, telecopy
transmission or telegram or by registered or certified mail (postage prepaid,
return receipt requested) to the respective Party at the following addresses (or
at such other address for a Party as shall be specified by like notice):
if to Purchaser:
FP-WJ Acquisition Corp.
c/o Fox Paine & Company, LLC
950 Tower Lane, Suite 1950
Foster City, California 94404
Attention: W. Dexter Paine III
Facsimile: (650) 525-1396
with a copy to:
Wachtell, Lipton, Rosen & Katz
51 West 52nd Street
New York, New York 10019
Attention: Mitchell S. Presser
Facsimile: (212) 403-2000
with a copy to:
Irell & Manella LLP
333 South Hope Street, Suite 3300
Los Angeles, California 90071
Attention: Anthony T. Iler
Facsimile: (213) 229-0515
-48-
<PAGE>
if to the Company:
Watkins-Johnson Company
3333 Hillview Avenue
Palo Alto, California 94304-1223
Attention: Chief Executive Officer
Facsimile: (650) 813-2502
with a copy to:
Heller Ehrman White & McAuliffe
333 Bush Street
San Francisco, California 94104
Attention: Daniel E. Titelbaum, Esq.
Facsimile: (415) 772-6268
SECTION 7.3 Certain Definitions. For purposes of this Agreement, the
following terms have the meanings indicated:
(a) "affiliate" of a person means a person that directly or indirectly,
through one or more intermediaries, controls, is controlled by, or is under
common control with, the first mentioned person;
(b) "business day" means any day other than a Saturday, Sunday or other
day on which commercial banks in Palo Alto, California are required or permitted
to be closed;
(c) "control" (including the terms "controlled by" and "under common
control with") means the possession, directly or indirectly or as trustee or
executor, of the power to direct or cause the direction of the management
policies of a person, whether through the ownership of stock, as trustee or
executor, by contract or credit arrangement or otherwise;
(d) "knowledge" means the actual subjective knowledge, without
independent inquiry or verification, of (i) in the case of the Company, any of
(x) the Company's executive officers named in the Company's proxy statement
relating to its 1999 Annual Meeting of Shareholders (which is one of the SEC
Filings) and (y) any of Malcolm Caraballo, John Galli, Skip Hoover, Tom Kreitzer
and Rainer Growitz; and (ii) in the case of Purchaser, any Executive Vice
President or more senior officer of Purchaser.
(e) "person" means an individual, corporation, partnership,
association, trust, unincorporated organization, other entity or group (as
defined in Section 13(d)(3) of the Exchange Act); and
-49-
<PAGE>
(f) "subsidiary" or "subsidiaries" of any Party or other person means
any corporation, partnership, joint venture or other legal entity of which the
Company, the Surviving Corporation, Purchaser or such other person, as the case
may be (either alone or through or together with any other subsidiary), owns,
directly or indirectly, 50% or more of the stock or other equity interests the
holder of which is generally entitled to vote for the election of the board of
directors or other governing body of such corporation or other legal entity.
SECTION 7.4 Severability. If any term or other provision of this
Agreement is invalid, illegal or incapable of being enforced by any rule of law,
or public policy, all other conditions and provisions of this Agreement shall
nevertheless remain in full force and effect so long as the economic or legal
substance of the transactions contemplated hereby is not affected in any manner
adverse to any Party. Upon such determination that any term or other provision
is invalid, illegal or incapable of being enforced, the Parties hereto shall
negotiate in good faith to modify this Agreement so as to effect the original
intent of the Parties as closely as possible in an acceptable manner to the end
that the transactions contemplated hereby are fulfilled to the fullest extent
possible.
SECTION 7.5 Entire Agreement; Assignment. This Agreement constitutes
the entire agreement among the Parties with respect to the subject matter hereof
and supersedes all prior agreements and undertakings, both written and oral,
among the Parties, or any of them, with respect to the subject matter hereof,
except the Confidentiality Agreement, which shall continue in effect in
accordance with its terms. This Agreement shall not be assigned by operation of
law or otherwise, except that Purchaser may assign all or any of their
respective rights and obligations hereunder to any other direct subsidiary or
subsidiaries of Purchaser but no such assignment shall relieve the assigning
Party of its obligations hereunder.
SECTION 7.6 Parties in Interest. This Agreement shall be binding upon
and inure solely to the benefit of each Party. Nothing in this Agreement,
express or implied, is intended to or shall confer upon any other person any
rights, benefits or remedies of any nature whatsoever under or by reason of this
Agreement; provided, however, that each Indemnified Party is intended to be a
third party beneficiary of, and have the individual right to seek compliance
with, Section 4.7.
SECTION 7.7 Applicable Law; Jurisdiction. This Agreement and the legal
relations among the Parties hereto shall be governed by and construed in
accordance with the laws of the State of California, without regard to the
conflict-of- laws rules thereof. ALL ACTIONS AND PROCEEDINGS ARISING OUT OF OR
RELATING TO THIS AGREEMENT SHALL BE HEARD AND DETERMINED IN ANY FEDERAL OR STATE
COURT WHICH SITS IN EITHER THE CITY OF SAN FRANCISCO OR SAN
-50-
<PAGE>
JOSE, CALIFORNIA AND HAS JURISDICTION OVER THE PARTIES AND THE SUBJECT MATTER.
SECTION 7.8 Headings. The descriptive headings contained in this
Agreement are included for convenience of reference only and shall not affect in
any way the meaning or interpretation of this Agreement.
SECTION 7.9 Counterparts. This Agreement may be executed in one or more
counterparts, and by the different Parties in separate counterparts, each of
which when executed shall be deemed to be an original but all of which taken
together shall constitute one and the same agreement.
[REST OF PAGE INTENTIONALLY LEFT BLANK]
-51-
<PAGE>
IN WITNESS WHEREOF, Purchaser and the Company have caused this
Agreement to be executed by their respective officers thereunto duly authorized,
all as of the date written above.
FP - WJ ACQUISITION CORP.
By: /s/ W. Dexter Paine, III
-----------------------------------
Name: W. Dexter Paine, III
Title: Chief Executive Officer
WATKINS-JOHNSON COMPANY
By: /s/ W. Keith Kennedy, Jr.
-----------------------------------
Name: W. Keith Kennedy, Jr.
Title: Chief Executive Officer
-52-
<TABLE>
For Further Information:
<CAPTION>
<S> <C> <C> <C>
Watkins-Johnson
Media: Judy Brennan (Sard Verbinnen & Co) 212-687-8080
Andrew Cole
Investor Contact: Frank Emery (Watkins-Johnson) 650-813-2752
Fox Paine
Media: Andrew Brimmer (Abernathy MacGregor Frank) 212-371-5999
Loren Iati
</TABLE>
For Release at 7:30 a.m. EASTERN TIME October 26, 1999
FOX PAINE TO ACQUIRE WATKINS-JOHNSON FOR $41.125 PER SHARE IN CASH
IN A RECAPITALIZATION MERGER
PALO ALTO and FOSTER CITY, CALIF., October 26, 1999 -- Watkins-Johnson Company
(NYSE:WJ), a high technology company specializing in components and
subassemblies for communications, announced today that it has entered into a
definitive merger agreement with FP-WJ Acquisition Corp., a new company formed
by certain investment funds managed by Fox Paine & Company, LLC (Fox Paine),
under which WJ would be acquired in a recapitalization merger transaction.
Under the terms of the merger agreement, the outstanding shares of
Watkins-Johnson would be converted into the right to receive $41.125 per share
in cash. This represents a premium of 30% over Watkins-Johnson's closing price
of $31.625 on October 25. The transaction is expected to be completed in early
2000.
The Fox Paine transaction -- together with the pending sale of WJ's
Telecommunications Group to a subsidiary of Marconi North America and the July
sale of WJ's Semiconductor Equipment Group to Silicon Valley Group, Inc. --
would complete the previously announced strategy of the Watkins-Johnson Board to
maximize shareowner value through the sale of the company.
"WJ's Board of Directors is very pleased to be able to announce this
transaction," said W. Keith Kennedy, Jr., president and chief executive officer
of Watkins-Johnson. "The transaction provides WJ's shareowners with a
significant cash premium. We believe the price fairly reflects the value of the
other transactions we have approved in connection with our sale process, and it
will deliver that value directly to our shareowners."
-more-
<PAGE>
Watkins-Johnson Company, page 2
After the recapitalization, Watkins-Johnson's primary operations will consist of
its Wireless Products Group (WPG), a key global supplier of radio-frequency
components and subsystems for wireless and wire line communications equipment,
with fiscal year 1998 revenues of $63.6 million. WPG is focused on wireless
communications, high-speed fiber (SONET) and broad band cable applications.
"This transaction continues our focus of investing in the communications
industry," said Dexter Paine, president of Fox Paine. "Watkins-Johnson's WPG is
widely recognized for its development and production of innovative, high-quality
components and subassemblies for wireless communications, high-speed fiber
infrastructure and broad band cable applications. We look forward to working
with Malcolm Caraballo and his team to continue building this business."
WPG's president, Malcolm Caraballo, 43, will become the president and CEO of the
company and WPG's existing management team is expected to remain in place. WJ's
chairman and co-founder, Dr. Dean A. Watkins, will retain an equity investment
as part of the financing for the transaction. This investment has been designed
to satisfy Fox Paine's requirement that the merger qualify for recapitalization
accounting.
The proposed transaction is subject to certain conditions, including approval by
a majority of the shareholders of Watkins-Johnson, the closing of the pending
sale of WJ's Telecommunications Group, regulatory approvals, the receipt of
funding under financing commitments and other customary closing conditions.
CIBC World Markets Corp. acted as financial advisor and Heller Ehrman White &
McAuliffe served as outside legal counsel to Watkins-Johnson. A separate
advisory team from CIBC World Markets is working with Fox Paine to provide the
financing for the transaction. Dr. Watkins recused himself from the Board's
deliberations and vote. The other Board members approved the transaction
unanimously.
Fox Paine manages investment funds in excess of $500 million providing equity
capital to growth-oriented, management-led buyouts and company expansion
programs, and has sponsored pending and completed acquisitions totaling
approximately $2 billion over the last twelve months. Fox Paine engages
exclusively in friendly transactions developed in cooperation with a company's
management, shareholders and board of directors. The Fox Paine funds'
participants include the long-term equity arms of leading domestic and
international public and corporate pension funds, endowments and financial
institutions.
On March 1, 1999, WJ announced that its Board of Directors concluded that the
best course of action for shareowners was to pursue the sale of the company.
Prior to today's announcement, WJ has announced the following steps in the sale
process:
o On March 31, WJ announced that it had sold the Semiconductor Equipment
Group's high-density plasma chemical vapor deposition intellectual
property assets and associated hardware to Applied Materials.
o On July 7, WJ announced the sale of the remainder of the Semiconductor
Equipment Group to Silicon Valley Group, Inc.
- more -
<PAGE>
Watkins-Johnson Company, page 3
o On August 18, WJ announced a definitive agreement to sell
substantially all the assets of its Telecommunications Group to a unit
of Marconi North America, a subsidiary of The General Electric Company
plc of the United Kingdom.
o On September 16, WJ announced the sale of its unused real estate in
San Jose.
o On October 1, WJ announced the sale of a portion of its leasehold
interest in Palo Alto.
Watkins-Johnson Company designs and manufactures components, subassemblies and
equipment for fixed and mobile networks worldwide. For more information, visit
http://www.wj.com.
This news release, other than the historical financial information, consists of
forward-looking statements that involve risks and uncertainties in consummating
the sale of the WJ Telecommunications Group and the completion of the merger of
the company with FP-WJ Acquisition Group, and the other risks detailed from time
to time in the company's SEC reports, including the report on Form 10-K for the
year ended Dec. 31, 1998. Actual results may vary materially.
# # #
