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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------
SCHEDULE 13D
(RULE 13D-101)
UNDER THE SECURITIES EXCHANGE ACT OF 1934
IPL SYSTEMS, INC.
- --------------------------------------------------------------------------------
(NAME OF THE ISSUER)
CLASS A COMMON STOCK, $.01 PAR VALUE PER SHARE
- --------------------------------------------------------------------------------
(TITLE OF CLASS OF SECURITIES)
0004498131
- --------------------------------------------------------------------------------
(CUSIP NUMBER)
ANDATACO
10140 MESA RIM ROAD
SAN DIEGO, CA 92121
ATTENTION: RICHARD HUDZIK
(619) 453-9191
- --------------------------------------------------------------------------------
(NAME, ADDRESS AND TELEPHONE NUMBER OF PERSON
AUTHORIZED TO RECEIVE NOTICES AND COMMUNICATIONS)
FEBRUARY 28, 1996
- --------------------------------------------------------------------------------
(DATE OF EVENT WHICH REQUIRES FILING OF THIS STATEMENT)
If the filing person has previously filed a statement on Schedule 13G
to report the acquisition which is the subject of this Schedule 13D, and is
filing this schedule because of Rule 13d-1(b)(3) or (4), check the following box
[ ].
Note: Six copies of this statement, including all exhibits, should be
filed with the Commission. See Rule 13d-1(a) for other parties to whom
copies are to be sent.
The remainder of this cover page shall be filled out for a reporting
person's initial filing on this form with respect to the subject class of
securities, and for any subsequent amendment containing information which would
alter disclosures provided in a prior cover page.
The information required on the remainder of this cover page shall not
be deemed to be "filed" for the purpose of Section 18 of the Securities Exchange
Act of 1934 ("Act") or otherwise subject to the liabilities of that section of
the Act but shall be subject to all other provisions of the Act (however, see
the Notes).
(Continued on following pages)
(Page 1 of 7 Pages)
1.
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CUSIP No. 0004498131 13D Page 2 of 7 Pages
- --------------------------------------------------------------------------------
1 NAME OF REPORTING PERSONS
S.S. OR I.R.S. IDENTIFICATION NOS. OF ABOVE PERSONS
ANDATACO, A CALIFORNIA CORPORATION
- --------------------------------------------------------------------------------
2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP
(a) [ ]
N/A (b) [ ]
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3 SEC USE ONLY
- --------------------------------------------------------------------------------
4 SOURCE OF FUNDS
OO*
- --------------------------------------------------------------------------------
5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDING IS REQUIRED PURSUANT
TO ITEMS 2(d) or 2(e) N/A [ ]
- --------------------------------------------------------------------------------
6 CITIZENSHIP OR PLACE OF ORGANIZATION
CALIFORNIA
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7 SOLE VOTING POWER
1,030,412**
NUMBER OF ----------------------------------------------------------
SHARES 8 SHARED VOTING POWER
BENEFICIALLY -0-
OWNED BY ----------------------------------------------------------
EACH 9 SOLE DISPOSITIVE POWER
REPORTING 1,030,412**
PERSON ----------------------------------------------------------
WITH 10 SHARED DISPOSITIVE POWER
-0-
- --------------------------------------------------------------------------------
11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
1,030,412**
- --------------------------------------------------------------------------------
12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES [ ]
N/A
- --------------------------------------------------------------------------------
13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
17.9%***
- --------------------------------------------------------------------------------
14 TYPE OF REPORTING PERSON
CO
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--------------
*The securities of the Issuer are subject to irrevocable proxies
granted to the Reporting Entity. See Item 3 herein.
**Includes 139,000 shares of Class A Common Stock issuable pursuant to
options exercisable prior to May 29, 1997, the date of the annual meeting of the
Issuer's stockholders at which the proxies will be voted.
***Calculated pursuant to Rule 13d-3 of the Securities Exchange Act of
1934, as amended.
2.
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ITEM 1. SECURITY AND THE ISSUER
(a) Title of Security:
Class A Common Stock, $.01 par value per share.
(b) Name of the Issuer:
IPL SYSTEMS, INC., a Massachusetts corporation.
(c) The Issuer's principal executive office:
124 Acton Street
Maynard, MA 01754
ITEM 2. IDENTITY AND BACKGROUND
(a) Name of the Reporting Entity:
ANDATACO, a California corporation.
(b) Address of principal business and principal office:
10140 Mesa Rim Road
San Diego, CA 92121
(c) Description of principal business:
Computer hardware and software systems integration.
(d) Convictions in criminal proceedings since March 7, 1992:
N/A.
(e) Judgments for violations of Securities Laws since March 7,
1992:
None.
ITEM 3. SOURCE AND AMOUNT OF FUNDS OR OTHER CONSIDERATION
The Reporting Entity has received from certain directors,
executive officers and shareholders of the Issuer irrevocable
proxies (the "Irrevocable Proxies") to vote all shares of
voting stock held by such persons in favor of the approval
of that certain Agreement and Plan of Merger and
Reorganization dated as of February 28, 1997 (the "Merger
Agreement"), by and among the Issuer, IPL Acquisition Corp.,
a Delaware corporation and a wholly-owned subsidiary of the
Issuer ("Merger Sub"), the Reporting Entity and W. David
Sykes, a shareholder of the Reporting Entity.
3.
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The only consideration for the receipt of the Irrevocable
Proxies was the Issuer and Reporting Entity entering into the
Merger Agreement. Pursuant to the Merger Agreement, Merger
Sub will be merged with and into the Reporting Entity (the
"Merger") whereby, upon consummation of the Merger, Merger
Sub will cease to exist and the Reporting Entity will be a
wholly-owned subsidiary of the Issuer.
ITEM 4. PURPOSE OF THE TRANSACTION
The purpose for the acquisition by the Reporting Entity of
irrevocable proxies to vote the securities of the Issuer is to
approve the Merger Agreement, the Merger and the transactions
contemplated thereby.
ITEM 5. INTEREST IN SECURITIES OF THE ISSUER
(a) Beneficial Ownership: 1,030,412*
Percentage Ownership: 17.9%**
(b) Sole Voting Power: 1,030,412*
Shared Voting Power: -0-
Sole Dispositive Power: 1,030,412*
Shared Dispositive Power: -0-
(c) Recent Transactions: None.
(d) Right to Receive Dividends: Not applicable.
(e) Ownership below 5%: Not applicable.
- ----------
* Includes 139,000 shares of Class A Common Stock issuable pursuant to
options exercisable prior to May 29, 1997, the date of the annual meeting of the
Issuer's stockholders at which the proxies will be voted.
** Calculated pursuant to Rule 13d-3 of the Securities Exchange Act of
1934, as amended.
4.
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ITEM 6. CONTRACTS, ARRANGEMENTS, UNDERSTANDINGS OR RELATIONSHIPS WITH
RESPECT TO SECURITIES OF THE ISSUER
The Irrevocable Proxies and the Merger Agreement as defined
in Item 3 above.
ITEM 7. MATERIAL TO BE FILED AS EXHIBITS
(2) Agreement and Plan of Merger and Reorganization dated as of
February 28, 1997, by and among the Issuer, Merger Sub, the
Reporting Entity and W. David Sykes.
Form of Irrevocable Proxy
5.
<PAGE> 6
SIGNATURE
After reasonable inquiry and to the best of my knowledge and belief, I
certify that the information set forth in this statement is true, complete and
correct.
March 10, 1997
---------------------------------
(Date)
ANDATACO, a California corporation
By: /s/ RICHARD HUDZIK
------------------------------
Richard Hudzik
Chief Financial Officer
6.
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EXHIBIT INDEX
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EXHIBIT DESCRIPTION OF DOCUMENT PAGE
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2.1 Agreement and Plan of Merger and Reorganization dated as of February
28, 1997, by and among IPL SYSTEMS, INC., a Massachusetts corporation,
IPL Acquisition Corp., a Delaware corporation and a wholly-owned
subsidiary of IPL Systems, Inc., ANDATACO, a California corporation,
and W. David Sykes, a shareholder of ANDATACO.
2.2 Form of Irrevocable Proxy.
</TABLE>
7.
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EXHIBIT 2.1
===============================================================================
AGREEMENT AND PLAN OF MERGER AND REORGANIZATION
among:
IPL SYSTEMS, INC.,
a Massachusetts corporation;
IPL ACQUISITION CORP.,
a Delaware corporation;
ANDATACO,
a California corporation; and
W. DAVID SYKES,
a shareholder of ANDATACO
______________________________
Dated as of February 28, 1997
______________________________
===============================================================================
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TABLE OF CONTENTS
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SECTION 1. DESCRIPTION OF TRANSACTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.1 Merger of Merger Sub into the Company . . . . . . . . . . . . . . . . . . . . . . 1
1.2 Effect of the Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.3 Closing; Effective Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.4 Articles of Incorporation and Bylaws; Directors and Officers . . . . . . . . . . . 2
1.5 Conversion of Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.6 Closing of the Company's Transfer Books . . . . . . . . . . . . . . . . . . . . . 4
1.7 Exchange of Certificates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
1.8 Indemnity Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
1.9 Tax Consequences . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
1.10 Further Action . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
SECTION 2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND THE SHAREHOLDER . . . . . . . . . . . 6
2.1 Due Organization; No Subsidiaries; Etc. . . . . . . . . . . . . . . . . . . . . . 6
2.2 Articles of Incorporation and Bylaws; Records . . . . . . . . . . . . . . . . . . 7
2.3 Capitalization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
2.4 Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
2.5 Absence of Changes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
2.6 Title to Assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
2.7 Accounts Receivable; Loans and Advances. . . . . . . . . . . . . . . . . . . . . . 10
2.8 Equipment; Leasehold. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
2.9 Proprietary Assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
2.10 Contracts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
2.11 No Undisclosed Liabilities. . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
2.12 Compliance with Legal Requirements. . . . . . . . . . . . . . . . . . . . . . . . 13
2.13 Governmental Authorizations. . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
2.14 Tax Matters. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
2.15 Employee and Labor Matters; Benefit Plans. . . . . . . . . . . . . . . . . . . . . 15
2.16 Environmental Matters. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
2.17 Insurance. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
2.18 Related Party Transactions. . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
2.19 Legal Proceedings; Orders. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
2.20 Authority; Binding Nature of Agreement. . . . . . . . . . . . . . . . . . . . . . 18
2.21 Non-Contravention; Consents and Notices. . . . . . . . . . . . . . . . . . . . . . 19
2.22 Full Disclosure. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
2.23 Finder's Fee. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
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SECTION 3. REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUB . . . . . . . . . . . . . . . . 20
3.1 Due Organization, Etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
3.2 Capitalization, Etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
3.3 SEC Filings; Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . 21
3.4 Disclosure. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
3.5 Absence of Changes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
3.6 Title to Assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
3.7 Bank Accounts; Accounts Receivable; Loans and Advances. . . . . . . . . . . . . . 24
3.8 Equipment; Leasehold. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
3.9 Proprietary Assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
3.10 Contracts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
3.11 No Undisclosed Liabilities. . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
3.12 Compliance with Legal Requirements. . . . . . . . . . . . . . . . . . . . . . . . 28
3.13 Governmental Authorizations. . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
3.14 Tax Matters. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
3.15 Employee and Labor Matters; Benefit Plans. . . . . . . . . . . . . . . . . . . . . 29
3.16 Environmental Matters. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
3.17 Insurance. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
3.18 Related Party Transactions. . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
3.19 Legal Proceedings; Orders. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
3.20 Authority; Binding Nature of Agreement. . . . . . . . . . . . . . . . . . . . . . 32
3.21 Non-Contravention; Consents and Notices. . . . . . . . . . . . . . . . . . . . . . 32
3.22 Vote Required. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
3.23 Company Action. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
3.24 Fairness Opinion. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
3.25 Finder's Fee. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
3.26 Full Disclosure. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
SECTION 4. CERTAIN COVENANTS OF THE COMPANY . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
4.1 Access and Investigation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
4.2 Operation of the Company's Business. . . . . . . . . . . . . . . . . . . . . . . . 35
4.3 Notification; Updates to Company Disclosure Schedule. . . . . . . . . . . . . . . 36
4.4 No Solicitation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
4.5 Tax Representation Letter. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
4.6 Independent Directors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
SECTION 5. CERTAIN COVENANTS OF PARENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
5.1 Access and Investigation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
5.2 Operation of Parent's Business. . . . . . . . . . . . . . . . . . . . . . . . . . 38
5.3 Notification; Updates to Parent Disclosure Schedule. . . . . . . . . . . . . . . . 40
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5.4 No Solicitation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
5.5 Proxy Statement. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
5.6 Parent Shareholders' Meeting. . . . . . . . . . . . . . . . . . . . . . . . . . . 42
5.7 Tax Representation Letters. . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
5.8 Tax Distribution to Company Shareholders. . . . . . . . . . . . . . . . . . . . . 43
SECTION 6. ADDITIONAL COVENANTS OF THE PARTIES . . . . . . . . . . . . . . . . . . . . . . . . . . 44
6.1 Filings and Consents. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
6.2 Public Announcements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
6.3 Best Efforts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
6.4 Regulatory Approvals. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
SECTION 7. CONDITIONS PRECEDENT TO OBLIGATIONS OF PARENT AND MERGER SUB . . . . . . . . . . . . . 45
7.1 Accuracy of Representations. . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
7.2 Performance of Covenants. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
7.3 No Material Adverse Effect. . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
7.4 Compliance Certificate. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
7.5 Shareholder Approval. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
7.6 Consents. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
7.7 Tax Representation Letter; Continuity of Interest Certificates. . . . . . . . . . 46
7.8 Legal Opinion. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
7.9 Tax Opinion. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
7.10 Stock Representation Letter. . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
7.11 Imperial Bank Credit Line Amendment. . . . . . . . . . . . . . . . . . . . . . . . 46
7.12 No Restraints. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
7.13 No Governmental Litigation. . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
7.14 No Other Litigation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
7.15 HSR Act. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
7.16 Lock-Up Agreement. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
7.17 Escrow Agreement. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
7.18 Noncompetition Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
7.19 Nasdaq NMS Listing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
SECTION 8. CONDITIONS PRECEDENT TO OBLIGATIONS OF THE COMPANY . . . . . . . . . . . . . . . . . . 48
8.1 Accuracy of Representations. . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
8.2 Performance of Covenants. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
8.3 No Material Adverse Effect. . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
8.4 Compliance Certificate. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
8.5 Shareholder Approval. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
8.6 Consents. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
8.7 Legal Opinion. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
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8.9 Tax Opinion. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
8.10 Employment Agreement. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
8.11 No Restraints. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
8.12 No Governmental Litigation. . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
8.13 No Other Litigation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
8.14 HSR Act. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
8.15 Tax Distribution to Company Shareholders. . . . . . . . . . . . . . . . . . . . . 49
8.16 Noncompetition Agreement. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
8.17 Nasdaq NMS Listing. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
SECTION 9. TERMINATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
9.1 Termination. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
9.2 Effect of Termination. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
9.3 Fees and Expenses; Termination Fees. . . . . . . . . . . . . . . . . . . . . . . . 51
SECTION 10. SURVIVAL OF REPRESENTATIONS AND WARRANTIES; INDEMNIFICATION. . . . . . . . . . . . . . 51
10.1 Survival of Company Representations and Warranties. . . . . . . . . . . . . . . . 51
10.2 Survival of Parent and Merger Sub Representations and Warranties. . . . . . . . . 52
10.3 Indemnification by Company Shareholders. . . . . . . . . . . . . . . . . . . . . . 52
10.4 Indemnification by Parent and Merger Sub. . . . . . . . . . . . . . . . . . . . . 53
10.5 Valuation of Indemnity Shares. . . . . . . . . . . . . . . . . . . . . . . . . . . 53
10.6 Notice; Defense of Claim . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
10.7 Further Limitations on Indemnification . . . . . . . . . . . . . . . . . . . . . . 54
10.8 Issuance of Parent Indemnity Shares to Satisfy Claims for Damages. . . . . . . . . 55
SECTION 11. REGISTRATION OF THE MERGER SHARES; COMPLIANCE WITH THE SECURITIES ACT . . . . . . . . 56
11.1 Registration Procedures and Expenses. . . . . . . . . . . . . . . . . . . . . . . 56
11.2 Transfer of Securities After Registration. . . . . . . . . . . . . . . . . . . . . 58
11.3 Indemnification. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58
11.4 Contribution. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
11.5 Information Available. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
11.6 Successors and Assigns. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
SECTION 12. MISCELLANEOUS PROVISIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
12.1 Further Assurances. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
12.2 Attorneys' Fees. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61
12.3 Notices. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61
12.4 Time of the Essence. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62
</TABLE>
<PAGE> 6
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C> <C>
12.5 Governing Law; Venue. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62
12.6 Successors and Assigns. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62
12.7 Remedies Cumulative; Specific Performance. . . . . . . . . . . . . . . . . . . . . 62
12.8 Waiver. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63
12.9 Amendments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63
12.10 Severability. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63
12.11 Disclosure Schedules. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63
12.12 Entire Agreement. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63
12.13 Construction. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64
12.14 Headings. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64
12.15 Counterparts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64
</TABLE>
<PAGE> 7
SCHEDULES
List of IPL shareholders, directors and executive officers delivering proxies
EXHIBITS
Exhibit A - Certain Definitions
Exhibit B - Form of Amended and Restated Articles of
Incorporation of Surviving Corporation
Exhibit C - Directors and Officers of Surviving Corporation
Exhibit D - Form of Escrow Agreement
Exhibit E - Form of Shareholder Employment Agreement
Exhibit F - Form of Harris Ravine Employment Agreement
Exhibit G - Form of Legal Opinion of Cooley Godward LLP
Exhibit H - Stock Representation Letter
Exhibit I - Form of Lock-Up Agreement
Exhibit J - Form of Noncompetition Agreement
Exhibit K - Form of Legal Opinion of Palmer & Dodge LLP
<PAGE> 8
AGREEMENT AND PLAN
OF MERGER AND REORGANIZATION
THIS AGREEMENT AND PLAN OF MERGER AND REORGANIZATION (the "Agreement")
is made and entered into as of February 28, 1997, by and among IPL SYSTEMS,
INC., a Massachusetts corporation ("Parent"), IPL ACQUISITION CORP., a Delaware
corporation and a wholly owned subsidiary of Parent ("Merger Sub"), ANDATACO, a
California corporation (the "Company"), and W. DAVID SYKES, a shareholder of the
Company (the "Shareholder"). Certain capitalized terms used in this Agreement
are defined in Exhibit A.
RECITALS
A. Parent, Merger Sub and the Company intend to effect a merger
of Merger Sub into the Company (the "Merger") in accordance with this Agreement,
the Delaware General Corporation Law (the "DGCL") and the California General
Corporation Law (the "CGCL"). Upon consummation of the Merger, Merger Sub will
cease to exist, and the Company will become a wholly owned subsidiary of Parent.
B. It is intended that the Merger qualify as a tax-free
reorganization within the meaning of Section 368(a) of the Internal Revenue Code
of 1986, as amended (the "Code").
C. This Agreement has been adopted and approved by the
respective boards of directors of Parent, Merger Sub and the Company, and by the
Company Shareholders.
D. The directors, executive officers and shareholders of Parent
listed on Schedule A have concurrently herewith executed and delivered to the
Company irrevocable proxies to vote all shares of voting stock held by such
persons in favor of the approval of this Agreement, the Merger and the
transactions contemplated thereby. Such irrevocable proxies have not been
modified or revoked and are in full force and effect.
AGREEMENT
The parties to this Agreement, intending to be legally bound, agree as
follows:
SECTION 1. DESCRIPTION OF TRANSACTION
1.1 MERGER OF MERGER SUB INTO THE COMPANY. Upon the terms and
subject to the conditions set forth in this Agreement, on the Effective Date
(as defined in Section 1.3), Merger Sub shall be merged with and into the
Company, and the separate existence of Merger Sub shall cease. The Company
will continue as the surviving corporation in the Merger (the "Surviving
Corporation").
1.2 EFFECT OF THE MERGER. The Merger shall have the effects set
forth in this Agreement and in the applicable provisions of the CGCL and the
DGCL.
1.
<PAGE> 9
1.3 CLOSING; EFFECTIVE DATE. The consummation of the transactions
contemplated by this Agreement (the "Closing") shall take place at the offices
of Cooley Godward LLP, 4365 Executive Drive, Suite 1100, San Diego, California
92121 at 10:00 a.m. (PST) on July 31, 1997, or at such other place, time and
date as the parties may designate, but in any event shall be no later than the
second business day after the date that all of the conditions set forth in
Sections 7 and 8 have been satisfied or waived (the "Closing Date").
Contemporaneously with the Closing, a properly executed agreement of merger
conforming to the requirements of the CGCL and the DGCL (the "Agreement of
Merger") shall be filed with the Secretary of State of the State of California
and a copy of such Agreement of Merger shall be filed with the Secretary of
State of the State of Delaware. The Merger shall take effect at the time the
Agreement of Merger is filed with and accepted by the Secretary of State of the
State of California and the Secretary of State of the State of Delaware (the
"Effective Date").
1.4 ARTICLES OF INCORPORATION AND BYLAWS; DIRECTORS AND OFFICERS.
Unless otherwise agreed to in writing by the Company and Parent prior to the
Effective Date:
(a) the Articles of Incorporation of the Surviving
Corporation shall be amended and restated as of the Effective Date to
conform to Exhibit B;
(b) the Bylaws of the Surviving Corporation shall be
amended and restated as of the Effective Date to conform to the Bylaws
of the Company as in effect immediately prior to the Effective Date;
and
(c) the directors and officers of the Surviving
Corporation immediately after the Effective Date shall be the
individuals identified on Exhibit C.
1.5 CONVERSION OF SHARES.
(a) Subject to Section 1.7(b), on the Effective Date, by
virtue of the Merger and without any further action on the part of Parent,
Merger Sub, the Company or the Company Shareholders:
(i) subject to Section 1.5(c), each share of
Company Common Stock deemed outstanding immediately prior to
the Effective Date shall be converted into the right to
receive that number of shares of Parent Common Stock that is
equal to the "Exchange Ratio" (as defined in Section
1.5(b)(ii)); and
(ii) each share of Common Stock, $.01 par value
per share, of Merger Sub outstanding immediately prior to the
Effective Date shall be converted into one share of Common
Stock of the Surviving Corporation.
2.
<PAGE> 10
(b) For purposes of this Agreement:
(i) the term "Merger Shares" shall mean shares of
Parent Common Stock to be issued to the Company Shareholders
in the Merger and shall be determined in accordance with the
following formula:
MERGER SHARES = X X
-----
0.252
where "X" is equal to (1) the aggregate number of
shares of Parent Common Stock outstanding immediately prior to
the Effective Date, plus (2) the total number of shares of
Parent Common Stock subject to outstanding options, warrants
or other rights to acquire capital stock of Parent or issuable
pursuant to securities or instruments convertible into or
exchangeable for shares of capital stock of Parent outstanding
immediately prior to the Effective Date; and
(ii) the term "Exchange Ratio" shall mean the
number of shares of Parent Common Stock into which each share
of Company Common Stock is converted in the Merger and shall
be equal to (1) the total number of Merger Shares divided by
(2) the total number of shares of Company Common Stock deemed
outstanding immediately prior to the Effective Date. For the
purposes of this Section 1.5(b)(ii), all options, warrants or
other rights to acquire capital stock of the Company or
issuable pursuant to securities or instruments convertible
into or exchangeable for shares of capital stock of the
Company outstanding immediately prior to the Effective Date
shall be deemed outstanding Common Stock of the Company;
provided, however, that twenty-five percent (25%) of the up to
one hundred (100) shares of Common Stock of the Company
issuable upon exercise of those certain warrants of the
Company issued to Imperial Bank shall not be deemed
outstanding Common Stock of the Company to the extent such
warrants are outstanding on the Effective Date.
(c) If, between the date of this Agreement and the
Effective Date, the shares of Company Common Stock or Parent Common Stock
deemed outstanding are changed into a different number or class of shares by
reason of any stock dividend, subdivision, reclassification, reorganization,
stock split, combination or similar transaction, the total number of Merger
Shares shall be appropriately adjusted, provided that any such adjustment shall
in all events result in the Company Shareholders immediately prior to the
Effective Date receiving no less than the pro rata percentage of Merger Shares
that would have been received by such shareholders prior to any such
adjustment.
(d) On the Effective Date, all rights with respect to
Company Common Stock under Company Options and Company Warrants that are then
outstanding shall be converted into and become rights with respect to Parent
Common Stock, and Parent shall assume each Company Option and Company Warrant
in accordance with the terms (as in effect as of the date hereof) of the stock
option plan or other agreement, as the case may be, under which it was issued
and the stock option agreement or warrant agreement, as the case may be, by
which it is
3.
<PAGE> 11
evidenced. From and after the Effective Date, (i) each Company Option and
Company Warrant assumed by Parent may be exercised solely for shares of Parent
Common Stock, (ii) the number of shares of Parent Common Stock subject to each
Company Option and Company Warrant shall be equal to the number of shares of
Company Common Stock subject to such Company Option and Company Warrant
immediately prior to the Effective Date multiplied by the Exchange Ratio,
rounding down to the nearest whole share (with cash, less the applicable
exercise price, being payable for any fraction of a share), (iii) the per share
exercise price under each such Company Option and Company Warrant shall be
adjusted by dividing the per share exercise price under each such Company
Option and Company Warrant by the Exchange Ratio and rounding up to the nearest
cent and (iv) any restriction on the exercise of any Company Option or Company
Warrant shall continue in full force and effect and the term, exercisability,
vesting schedule and other provisions of such Company Option and Company
Warrant shall otherwise remain unchanged; provided, however, that each such
Company Option and Company Warrant shall, in accordance with its terms, be
subject to further adjustment as appropriate to reflect any stock split, stock
dividend, subdivision, reclassification, reorganization, stock split,
combination or similar transaction subsequent to the Effective Date. The
Company shall take all actions that may be necessary (under the benefits plan
or other agreements pursuant to which Company Options and Company Warrants are
outstanding) to effectuate the provisions of this Section 1.5(d) and to ensure
that, from and after the Effective Date, holders of Company Options and Company
Warrants have no rights with respect thereto other than those specifically
provided herein.
1.6 CLOSING OF THE COMPANY'S TRANSFER BOOKS. On the Effective
Date, (a) all certificates representing shares of Company Common Stock
outstanding immediately prior to the Effective Date shall automatically be
canceled and retired and shall cease to exist, and all holders of certificates
representing shares of Company Common Stock that were outstanding immediately
prior to the Effective Date shall cease to have any rights as shareholders of
the Company, and (b) the stock transfer books of the Company shall be closed
with respect to all shares of such Company Common Stock outstanding immediately
prior to the Effective Date. No further transfer of any such shares of Company
Common Stock shall be made on such stock transfer books after the Effective
Date. If, after the Effective Date, a valid certificate previously
representing any of such shares of Company Common Stock (a "Company Stock
Certificate") is presented to the Surviving Corporation or Parent, such Company
Stock Certificate shall be canceled and shall be exchanged as provided in
Section 1.7.
1.7 EXCHANGE OF CERTIFICATES.
(a) EXCHANGE PROCEDURES. On or as soon as practicable
after the Effective Date, Parent will send or cause to be sent to the holders
of Company Stock Certificates (i) a letter of transmittal in customary form and
containing such provisions as Parent may reasonably specify, and (ii)
instructions for use in effecting the surrender of Company Stock Certificates
in exchange for certificates representing Parent Common Stock. Subject to
Section 1.7(b), upon surrender of a Company Stock Certificate for exchange,
together with a duly executed letter of transmittal and such other documents as
may be reasonably required by Parent, (1) the holder of such Company Stock
Certificate shall be entitled to receive in exchange therefor a certificate
4.
<PAGE> 12
representing the number of shares of Parent Common Stock that such holder has
the right to receive pursuant to Section 1.5(a)(i), and (2) the Company Stock
Certificate so surrendered shall be canceled. Until surrendered as
contemplated by this Section 1.7(a), each Company Stock Certificate shall be
deemed, from and after the Effective Date, to represent only the right to
receive shares of Parent Common Stock (and cash in lieu of any fractional share
of Parent Common Stock as contemplated by Section 1.7(b)). If any Company
Stock Certificate shall have been lost, stolen or destroyed, Parent may, in its
discretion and as a condition precedent to the issuance of any certificate
representing Parent Common Stock, require the owner of such lost, stolen or
destroyed Company Stock Certificate to provide an appropriate affidavit of loss
and indemnity agreement against any claim that may be made against Parent or
the Surviving Corporation with respect to such Company Stock Certificate.
(b) FRACTIONAL SHARES. No fractional shares of Parent
Common Stock shall be issued in connection with the Merger, and no certificates
for any such fractional shares shall be issued. In lieu of such fractional
shares, any holder of Company Common Stock who would otherwise be entitled to
receive a fraction of a share of Parent Common Stock (after aggregating all
fractional shares of Parent Common Stock issuable to such holder) shall, upon
surrender of such holder's Company Stock Certificate(s), be paid in cash the
dollar amount (rounded to the nearest whole cent), without interest, determined
by multiplying such fraction by the closing sales price of a share of Parent
Common Stock as reported on the Nasdaq National Market on the day of Closing
(and if such day is not a trading day, then the last trading day immediately
preceding the Closing Date).
(c) LEGENDS. The shares of Parent Common Stock to be
issued in the Merger shall be characterized as "restricted securities" for
purposes of Rule 144 under the Securities Act, and each certificate
representing any of such shares shall bear a legend identical or similar in
effect to the following legend (together with any other legend or legends
required by applicable state securities laws or otherwise):
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), AND
MAY NOT BE OFFERED, SOLD OR OTHERWISE TRANSFERRED, ASSIGNED,
PLEDGED OR HYPOTHECATED UNLESS AND UNTIL REGISTERED UNDER THE
ACT OR IN COMPLIANCE WITH AN EXEMPTION FROM SUCH REGISTRATION
REQUIREMENTS.
(d) NO LIABILITY. Neither Parent nor the Surviving
Corporation shall be liable to any holder or former holder of Company Common
Stock for any shares of Parent Common Stock (or dividends or distributions with
respect thereto), or for any cash amounts, delivered to any public official
pursuant to any applicable abandoned property, escheat or similar law.
1.8 INDEMNITY SHARES.
(a) SHAREHOLDERS INDEMNITY SHARES. Upon the Effective
Date, Parent shall withhold ten percent (10%) of that number of Merger Shares
(the "Shareholders Indemnity
5.
<PAGE> 13
Shares") to be issued to the Company Shareholders pursuant to Section 1.5(a)
(rounded down to the nearest whole share to be issued to the Company
Shareholders). The Shareholders Indemnity Shares shall be delivered to the
Escrow Agent as collateral for the Company's and Company Shareholders'
indemnification obligations set forth in Section 10.3. The Shareholders
Indemnitee Shares will be represented by a certificate or certificates issued
in the names of the Company Shareholders pro rata for each Company Shareholder
and, except as set forth in Section 10, shall be held in escrow by the Escrow
Agent to satisfy any claims made on or before the first anniversary of the
Effective Date (the "Escrow Period"). The administration by the Escrow Agent
of the Shareholders Indemnity Shares during the Escrow Period shall be
conducted pursuant to the terms of an escrow agreement in the form of Exhibit D
among Parent, the Company Shareholders, Escrow Agent and W. David Sykes as
representative for the Company Shareholders (the "Shareholders'
Representative").
(b) PARENT INDEMNITY SHARES. On or prior to the
Effective Time, Parent shall have reserved, and, except as set forth in Section
10, shall at all times maintain in reserve during the Escrow Period, that
number of authorized but unissued shares of Parent Common Stock equal to the
number of Shareholders Indemnity Shares withheld pursuant to Section 1.8(a)
(the "Parent Indemnity Shares"). The Parent Indemnity Shares shall be held to
satisfy the Parent's and Merger Sub's indemnification obligations set forth in
Section 10.4.
1.9 TAX CONSEQUENCES. For federal income tax purposes, the Merger
is intended to constitute a reorganization within the meaning of Section 368(a)
of the Code. The parties to this Agreement hereby adopt this Agreement as a
"plan of reorganization" within the meaning of Sections 1.368-2(g) and
1.368-3(a) of the United States Treasury Regulations.
1.10 FURTHER ACTION. If, at any time after the Effective Date, any
further action is determined by Parent to be necessary to carry out the
purposes of this Agreement or to vest the Surviving Corporation or Parent with
full right, title and possession of and to all rights and property of Merger
Sub and the Company, the officers and directors of the Surviving Corporation
and Parent shall be fully authorized (in the name of Merger Sub, in the name of
the Company and otherwise) to take such action.
SECTION 2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND THE
SHAREHOLDER
The Company and the Shareholder, jointly and severally,
represent and warrant to Parent and Merger Sub that, except as set forth in the
disclosure schedule prepared by the Company in accordance with the requirements
of Section 12.11 and delivered by the Company to Parent on the date of this
Agreement (the "Company Disclosure Schedule"):
2.1 DUE ORGANIZATION; NO SUBSIDIARIES; ETC.
(a) The Company is a corporation duly organized, validly
existing and in good standing under the laws of the State of California with
full corporate power and authority to (i) conduct its business in the manner in
which it is now being conducted, (ii) own and use its assets in the manner in
which its assets are now being owned and used and (iii) perform its
6.
<PAGE> 14
obligations under all Material Company Contracts by which it is bound. The
Company has no subsidiaries. Other than changes in the conduct of the
Company's business proposed to be made by the Company in connection with the
Merger, the Company does not have any plans to change, in any material respect,
a line of its business.
(b) The Company is qualified to do business as a foreign
corporation, and is in good standing, under the laws of the jurisdictions set
forth in Part 2.1(b) of the Company Disclosure Schedule, which are all the
jurisdictions where the nature of its business requires such qualification and
where the failure to be so qualified would have a Material Adverse Effect on
the Company.
2.2 ARTICLES OF INCORPORATION AND BYLAWS; RECORDS. The Company
has delivered to Parent accurate and complete copies of: (1) the Company's
articles of incorporation and bylaws as currently in effect, including all
amendments thereto; (2) the stock records of the Company; and (3) the minutes
and other records of the meetings and other proceedings (including any actions
taken by written consent or otherwise without a meeting) of the shareholders of
the Company, the Board of Directors of the Company and all committees of the
Board of Directors of the Company. The Company is not in violation of any of
the provisions of its articles of incorporation or bylaws. The books of
account, stock records, minute books and other records of the Company are
accurate and complete in all material respects, and have been maintained in
accordance with prudent business practices.
2.3 CAPITALIZATION. The authorized capital stock of the Company
consists of: (i) 25,000 shares of Company Common Stock, no par value, of which
10,000 shares have been issued and are outstanding. Part 2.3 of the Company
Disclosure Schedule sets forth the names of the Company Shareholders and the
number of shares and certificate numbers of Company Common Stock owned of
record by each of such shareholders. All of the outstanding shares of Company
Common Stock have been duly authorized and validly issued, and are fully paid
and nonassessable, and none of such shares is subject to any repurchase option
or restriction on transfer other than restrictions imposed by federal or state
securities laws. There are no outstanding subscriptions, options, calls,
warrants or other rights (whether or not currently exercisable) to acquire any
shares of the capital stock or other securities of the Company. All
outstanding shares of Company Common Stock have been issued in compliance with
all applicable securities laws and other applicable Legal Requirements and all
requirements set forth in applicable Company Contracts. The Company has never
repurchased, redeemed or otherwise reacquired any shares of capital stock or
other securities.
2.4 FINANCIAL STATEMENTS.
(a) The Company has delivered to Parent the following
financial statements and notes (collectively, the "Company Financial
Statements"):
(i) the audited balance sheets of the Company as
of October 31, 1996 and 1995, and the related audited statements of
income, statements of shareholders' equity and statements of cash
flows of the Company for the years then ended, together
7.
<PAGE> 15
with the notes thereto and the unqualified report and opinion of Price
Waterhouse LLP relating thereto; and
(ii) The unaudited balance sheet of the Company as
of January 31, 1997 (the "Unaudited Interim Balance Sheet"), and the
related unaudited statement of income of the Company for the two-month
period then ended.
(b) The Company Financial Statements present fairly the
financial position of the Company as of the respective dates thereof and the
results of operations and cash flows of the Company for the periods covered
thereby. The Company Financial Statements have been prepared in accordance
with generally accepted accounting principles applied on a consistent basis
throughout the periods covered (except that the financial statements referred
to in Section 2.4(a)(ii) do not contain footnotes and are subject to normal and
recurring year-end audit adjustments, which will not, individually or in the
aggregate, be material in magnitude).
2.5 ABSENCE OF CHANGES. Since October 31, 1996:
(a) there has not been any material adverse change in the
Company's business, condition, assets, liabilities, operations or financial
performance, and, to the best knowledge of the Company, no event has occurred
that will, or could reasonably be expected to, have a Material Adverse Effect
on the Company;
(b) there has not been any material loss, damage or
destruction to any of the Company's assets (whether or not covered by
insurance);
(c) the Company has not declared, accrued, set aside or
paid any dividend or made any other distribution in respect of any shares of
capital stock and has not repurchased, redeemed or otherwise reacquired any
shares of capital stock or other securities;
(d) the Company has not sold, issued or authorized the
issuance of (i) any capital stock or other security (except for Company Common
Stock issued upon the exercise of outstanding Company Options or Company
Warrants), (ii) any option, call, warrant or right to acquire, or otherwise
relating to, any capital stock or any other security (except for Company
Options and Company Warrants described in Part 2.3 of the Company Disclosure
Schedule), or (iii) any instrument convertible into or exchangeable for any
capital stock or other security;
(e) there has been no amendment to the Company's articles
of incorporation or bylaws, and the Company has not effected or been a party to
any Company Acquisition Transaction, recapitalization, reclassification of
shares, stock split, reverse stock split or similar transaction;
(f) the Company has not amended or waived any of its
rights under, or permitted the acceleration of vesting under (i) any provision
of any agreement evidencing any outstanding Company Option or Company Warrant,
or (ii) any restricted stock purchase agreement;
8.
<PAGE> 16
(g) the Company has not formed any subsidiary or acquired
any equity interest or other interest in any other Entity;
(h) the Company has not made any capital expenditure
which, when added to all other capital expenditures made by the Company since
October 31, 1996, exceeds $100,000 in the aggregate;
(i) the Company has not (i) entered into any Material
Company Contract (as defined in Section 2.10(a)), or (ii) amended or
prematurely terminated, or waived any material right or remedy under, any
Material Company Contract to which it is or was a party or under which it has
or had any material rights or obligations;
(j) the Company has not (i) acquired, leased or licensed
any right or other asset from any other Person, (ii) sold or otherwise disposed
of, or leased or licensed, any right or other asset to any other Person, or
(iii) waived or relinquished any right, except for immaterial rights or other
immaterial assets acquired, leased, licensed or disposed of in the ordinary
course of business and consistent with the Company's past practices;
(k) the Company has not written off as uncollectible, or
established any reserve with respect to, any account receivable or other
indebtedness in excess of $100,000 individually or in the aggregate;
(l) the Company has not made any pledge of any of its
assets or otherwise permitted any of its assets to become subject to any
Encumbrance, except for pledges of assets valued at $100,000 or less,
individually or in the aggregate, made in the ordinary course of business and
consistent with the Company's past practices;
(m) the Company has not (i) lent money to any Person, or
(ii) incurred or guaranteed any indebtedness for borrowed money in excess of
$100,000 individually or in the aggregate;
(n) the Company has not (i) established, adopted or
amended any Employee Benefit Plan, (ii) paid any bonus or made any
profit-sharing or similar payment to, or increased the amount of the wages,
salary, commissions, fringe benefits or other compensation or remuneration
payable to, any of its directors, officers or employees, or (iii) hired any new
employee except in the ordinary course of business and consistent with past
practices;
(o) the Company has not changed any of its methods of
accounting or accounting practices in any respect;
(p) the Company has not made any Tax election;
(q) the Company has not commenced or settled any Legal
Proceeding;
9.
<PAGE> 17
(r) the Company has not entered into any material
transaction or taken any other material action outside the ordinary course of
business or inconsistent with its past practices; and
(s) the Company has not agreed or committed to take any
of the actions referred to in clauses "(c)" through "(r)" above.
2.6 TITLE TO ASSETS.
(a) The Company owns, and has good and valid title to,
all assets purported to be owned by it, including all of the assets reflected
in the Company Financial Statements and all other assets reflected in the
Company's books and records as being owned by the Company. All of said assets
are owned by the Company free and clear of any liens or other Encumbrances,
except for (i) any lien for current taxes not yet due and payable, and (ii)
minor liens that have arisen in the ordinary course of business and that do not
(in any case or in the aggregate) materially detract from the value of the
assets subject thereto or materially impair the operations of the Company.
(b) Part 2.6(b) of the Company Disclosure Schedule
identifies all assets that are being leased or licensed to the Company that
involve obligations of the Company in excess of $100,000 on an individual
basis.
2.7 ACCOUNTS RECEIVABLE; LOANS AND ADVANCES.
(a) All accounts receivable of the Company that are
reflected in the Unaudited Interim Balance Sheet or in the accounting records
of the Company as of the Closing Date (collectively, the "Company Accounts
Receivable") represent or will represent valid obligations arising from sales
actually made or services actually performed in the ordinary course of
business. Unless paid prior to the Closing Date, the Company Accounts
Receivable are or will be, as of the Closing Date, current and collectible net
of any respective reserves shown in the Unaudited Interim Balance Sheet (which
reserves are adequate and calculated consistent with past practice). There is
no contest, claim, or right of set-off, other than returns in the ordinary
course of business, under any Contract with any obligor of any Company Accounts
Receivable relating to the amount or validity of such Company Accounts
Receivable.
(b) Part 2.7(b) of the Company Disclosure Schedule
contains an accurate and complete list as of the date of this Agreement of all
loans and advances made by the Company to all employees, directors, consultants
or independent contractors of the Company, other than routine travel advances
made to employees in the ordinary course of business.
2.8 EQUIPMENT; LEASEHOLD.
(a) The assets of the Company are adequate for the uses
to which they are being put, are in good condition and repair (ordinary wear
and tear excepted) and are adequate for the conduct of the Company's business
in the manner in which such business is now being conducted.
10.
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(b) The Company does not own any real property or any
interest in real property.
2.9 PROPRIETARY ASSETS.
(a) The Company has good and valid title to all Company
Proprietary Assets free and clear of all liens and other Encumbrances, and has
a valid right to use all Proprietary Assets. The Company is not obligated to
make any payment to any Person for the use of any Company Proprietary Asset.
To the best knowledge of the Company, the Company is free to use, modify, copy,
distribute, sell, license or otherwise exploit each of the Company Proprietary
Assets on an exclusive basis.
(b) The Company has taken reasonable measures and
precautions necessary to protect and maintain the confidentiality and secrecy
of all Company Proprietary Assets (except Company Proprietary Assets whose
value would be unimpaired by public disclosure) and otherwise to maintain and
protect the value of all Company Proprietary Assets. The Company has not
disclosed or delivered or permitted to be disclosed or delivered to any Person,
and no Person (other than the Company) has access to or has any rights with
respect to, any Company Proprietary Asset.
(c) To the best knowledge of the Company, none of the
Company Proprietary Assets infringes or conflicts with any Proprietary Asset
owned or used by any other Person. The Company is not misappropriating or
making any unlawful use of, and the Company has not at any time misappropriated
or made any unlawful use of, or received any notice or other communication of
any actual, alleged, possible or potential infringement, misappropriation or
unlawful use of, any Proprietary Asset owned or used by any other Person. To
the best knowledge of the Company, no other Person is infringing,
misappropriating or making any unlawful use of, and no Proprietary Asset owned
or used by any other Person infringes or conflicts with, any Company
Proprietary Asset.
(d) The Company Proprietary Assets constitute all the
Proprietary Assets necessary to enable the Company to conduct its business in
the manner in which such business has been conducted and in the manner in which
such business is proposed to be conducted after the Closing. The Company has
not licensed any of the Company Proprietary Assets to any Person on an
exclusive basis and the Company has not entered into any covenant not to
compete or Contract limiting its ability to exploit fully any of its
Proprietary Assets or to transact business in any market or geographical area
or with any Person.
2.10 CONTRACTS.
(a) Part 2.10(a) of the Company Disclosure Schedule
identifies each Company Contract that constitutes a "Material Company
Contract." For purposes of this Agreement, a "Material Company Contract" shall
be deemed to be any Contract:
11.
<PAGE> 19
(i) relating to the employment or engagement of,
or the performance of services by, any employee, consultant or
independent contractor which involves a potential commitment of the
Company in excess of $60,000 per year;
(ii) relating to the acquisition, transfer, use,
development, sharing or license of any technology or any Company
Proprietary Asset (except for any Company Proprietary Asset that is
licensed to the Company under any third party software license
agreement generally available to the public at a cost of less than
$10,000);
(iii) imposing any restriction on the Company's
right or ability (A) to compete with any other Person, (B) to acquire
any product or other asset or any services from any other Person, to
sell any product or other asset to or perform any services for any
other Person or to transact business or deal in any other manner with
any other Person, or (C) to develop or distribute any technology;
(iv) creating or involving any agency
relationship, distribution arrangement or franchise relationship
involving payments or obligations in excess of $100,000 per year;
(v) relating to the acquisition, issuance or
transfer of any securities;
(vi) creating or relating to the creation of any
Encumbrance with respect to any asset owned or used by the Company
having a value in excess of $100,000;
(vii) involving or incorporating any guaranty, any
pledge, any performance or completion bond, any indemnity (other than
customary intellectual property indemnitees for hardware and software
sold by the Company), any right of contribution or any surety
arrangement, any of which obligations involve a Company obligation in
excess of $100,000 per year;
(viii) creating or relating to any partnership or
joint venture or any sharing of revenues, profits, losses, costs or
liabilities;
(ix) relating to the purchase or sale of any
product or other asset by or to, or the performance of any services by
or for, any Company Related Party (as defined in Section 2.18);
(x) entered into outside the ordinary course of
business;
(xi) that may not be terminated by the Company
(without penalty) within 60 days after the delivery of a termination
notice by the Company; and
(xii) contemplating or involving (A) the payment or
delivery of cash or other consideration in an amount or having a value
in excess of $100,000 in the aggregate, or (B) the performance of
services having a value in excess of $100,000 in the aggregate.)
12.
<PAGE> 20
(b) The Company has delivered to Parent accurate and
complete copies of all Material Company Contracts identified in Part 2.10(a) of
the Company Disclosure Schedule, including all amendments thereto. Each
Contract identified in Part 2.10(a) of the Company Disclosure Schedule is valid
and in full force and effect, and is enforceable by the Company in accordance
with its terms, subject to (i) laws of general application relating to
bankruptcy, insolvency and the relief of debtors, and (ii) rules of law
governing specific performance, injunctive relief and other equitable remedies.
(c) The Company:
(i) has not violated or breached, or committed
any material default under, any Material Company Contract in any
material respect;
(ii) represents that, to the best of its
knowledge, no event has occurred, and no circumstance or condition
exists, that (with or without notice or lapse of time) will, or could
reasonably be expected to, (A) result in a violation or breach of any
of the provisions of any Material Company Contract, (B) give any
Person the right to declare a default or exercise any remedy under any
Material Company Contract, (C) give any Person the right to accelerate
the maturity or performance of any Material Company Contract, or (D)
give any Person the right to cancel, terminate or modify any Material
Company Contract;
(iii) has not, since October 31, 1996, received any
notice or other communication regarding (i) any actual or possible
violation or breach of, or default under, any Material Company
Contract, or (ii) any actual or possible termination of any Material
Company Contract; and
(iv) has not waived any of its material rights
under any Material Company Contract.
2.11 NO UNDISCLOSED LIABILITIES. Except as set forth in the
Company Financial Statements and except for current liabilities incurred in the
ordinary course of business since the date of the Company Financial Statements,
the Company has no accrued, contingent or other liabilities of any nature,
either matured or unmatured.
2.12 COMPLIANCE WITH LEGAL REQUIREMENTS. The Company is, and has
at all times since December 31, 1995 been, in compliance with all applicable
Legal Requirements, except where the failure to comply with such Legal
Requirements has not had and will not have a Material Adverse Effect on the
Company. Since December 31, 1995, the Company has not received any notice or
other communication from any Governmental Body regarding any actual or possible
violation of, or failure to comply with, any Legal Requirement.
2.13 GOVERNMENTAL AUTHORIZATIONS. The Company has all Governmental
Authorizations necessary to enable the Company to conduct its business in the
manner in which its business is currently being conducted. The Company is, and
at all times since December 31, 1995 has been, in compliance with the material
terms and requirements of such Governmental
13.
<PAGE> 21
Authorizations. Since December 31, 1995, the Company has not received any
notice or other communication from any Governmental Body regarding (a) any
actual or possible violation of or failure to comply with any term or
requirement of any Governmental Authorization, or (b) any actual or possible
revocation, withdrawal, suspension, cancellation, termination or modification
of any Governmental Authorization.
2.14 TAX MATTERS.
(a) All Tax Returns required to be filed by or on behalf
of the Company with any Governmental Body on or before the Closing Date (the
"Company Returns") (i) have been or will be filed when due, and (ii) have been,
or will be when filed, accurately prepared in all material respects. The
Company has, within the time (including any extensions of applicable due dates)
and in the manner prescribed by law, paid all Taxes that are due and payable,
except Taxes that, individually and in the aggregate, are not material. The
Company Financial Statements fully accrue all actual and contingent liabilities
for Taxes with respect to all periods through the dates thereof in accordance
with generally accepted accounting principles.
(b) No claim or Legal Proceeding is pending or has been
threatened against or with respect to the Company in respect of any Tax. There
are no unsatisfied liabilities for Taxes (including liabilities for interest,
additions to tax and penalties thereon and related expenses) with respect to
any notice of deficiency or similar document received by the Company. There
are no liens for Taxes upon any of the assets of the Company, except liens for
current Taxes not yet due and payable.
(c) At all times since the date of its incorporation, the
Company has been an S corporation within the meaning of Section 1631(a)(1) of
the Code and has used the calendar year as its taxable year. The Company does
not conduct any business in any state or political subdivision in which the
disposition of any of its assets including goodwill in a transaction in which
gain or income would be realized would result in the imposition by that state
or political subdivision of a corporate level tax, except that the Company is
subject to taxation under the California state franchise tax laws. The Company
does not conduct any business which is a historic business of, a continuation
of, or successor to any business which was previously conducted by another
corporation or any other entity which was subject to a United States corporate
level tax on its gain or income including a tax imposed by reason of the
provisions of Section 1374 and 1375 of the Code, or any predecessor provisions
thereto. The Company has never acquired any asset, including goodwill, the
basis of which was determined in whole or in part by reference to the basis of
the asset in the hands of a C corporation within the meaning of Section
1361(a)(2) of the Code or S corporation subject to the provisions of Section
1374 of the Code or predecessor provisions thereto. The Company has never had
any Subchapter C earnings and profits within the meaning of Section
1362(d)(3)(B) of the Code. The Company and its shareholders have not taken any
action which will result in (i) the termination or revocation prior to the
consummation of the Merger of the Company's status as an S corporation within
the meaning of Section 1361(a)(1) of the Code or (ii) the imposition of a tax
on the Company under the provisions of Section 1374 of the Code. The Company
is not a party to any agreement or
14.
<PAGE> 22
arrangement with its shareholders to make distributions to its shareholders to
pay any tax imposed on the shareholders, except as provided in Section 5.8.
2.15 EMPLOYEE AND LABOR MATTERS; BENEFIT PLANS.
(a) Part 2.15(a) of the Company Disclosure Schedule
contains a list of all salaried employees of the Company as of the date of this
Agreement whose annual salaries are greater than $60,000, and correctly
reflects their salaries, any other compensation payable to them (including
compensation payable pursuant to bonus, deferred compensation or commission
arrangements), their dates of employment and their positions. The Company is
not a party to any collective bargaining contract or other Contract with a
labor union involving any of its employees.
(b) Part 2.15(b) of the Company Disclosure Schedule
identifies each salary, bonus, deferred compensation, incentive compensation,
stock purchase, stock option, severance pay, termination pay, hospitalization,
medical, insurance, supplemental unemployment benefits, profit-sharing, pension
or retirement plan, program or agreement (individually referred to as a
"Company Plan" and collectively referred to as the "Company Plans") sponsored,
maintained, contributed to or required to be contributed to by the Company for
the benefit of any current or former employee of the Company.
(c) The Company does not maintain, sponsor or contribute
to, and, to the best of the knowledge of the Company, the Company has not at
any time in the past maintained, sponsored or contributed to, any employee
pension benefit plan (as defined in Section 3(2) of ERISA, whether or not
excluded from coverage under specific Titles or Merger Subtitles of ERISA) for
the benefit of employees or former employees of the Company (a "Company Pension
Plan").
(d) The Company does not maintain, sponsor or contribute
to any employee welfare benefit plan (as defined in Section 3(1) of ERISA,
whether or not excluded from coverage under specific Titles or Merger Subtitles
of ERISA) for the benefit of employees or former employees of the Company (a
"Company Welfare Plan") except for those Company Welfare Plans described in
Part 2.15(d) of the Company Disclosure Schedule, none of which is a
multiemployer plan (within the meaning of Section 3(37) of ERISA).
(e) With respect to each Company Plan, the Company has
delivered to Parent:
(i) an accurate and complete copy of such Company
Plan (including all amendments thereto);
(ii) an accurate and complete copy of the annual
report (if required under ERISA) with respect to such Company Plan for
each of 1994 and 1995;
(iii) an accurate and complete copy of (A) the most
recent summary plan description, together with each Summary of
Material Modifications (if required
15.
<PAGE> 23
under ERISA) with respect to such Company Plan, and (B) each material
employee communication relating to such Company Plan;
(iv) if such Company Plan is funded through a
trust or any third party funding vehicle, an accurate and complete
copy of the trust or other funding agreement (including all amendments
thereto) and accurate and complete copies the most recent financial
statements thereof;
(v) accurate and complete copies of all Contracts
relating to such Company Plan, including service provider agreements,
insurance contracts, minimum premium contracts, stop-loss agreements,
investment management agreements, subscription and participation
agreements and recordkeeping agreements; and
(vi) an accurate and complete copy of the most
recent determination letter received from the Internal Revenue Service
with respect to such Plan (if such Plan is intended to be qualified
under Section 401(a) of the Code).
(f) The Company is not required to be, and, to the best
of the knowledge of the Company, the Company has never been required to be,
treated as a single employer with any other Person under Section 4001(b)(1) of
ERISA or Section 414(b), (c), (m) or (o) of the Code. The Company has never
been a member of an "affiliated service group" within the meaning of Section
414(m) of the Code. To the best of the knowledge of the Company, the Company
has never made a complete or partial withdrawal from a "multiemployer plan" (as
defined in Section 3(37) of ERISA) resulting in "withdrawal liability" (as
defined in Section 4201 of ERISA), without regard to subsequent reduction or
waiver of such liability under either Section 4207 or 4208 of ERISA.
(g) The Company does not have any plan or commitment to
create any additional Company Welfare Plan or any Company Pension Plan, or to
modify or change any existing Company Welfare Plan or Company Pension Plan
(other than to comply with applicable law).
(h) No Company Welfare Plan provides death, medical or
health benefits (whether or not insured) with respect to any current or former
employee of the Company after any such employee's termination of service (other
than (i) benefit coverage mandated by applicable law, including coverage
provided pursuant to Section 4980B of the Code, (ii) deferred compensation
benefits accrued as liabilities on the Unaudited Interim Balance Sheet, and
(iii) benefits the full cost of which are borne by current or former employees
of the Company (or their beneficiaries)).
(i) With respect to each of the Company Welfare Plans
constituting a group health plan within the meaning of Section 4980B(g)(2) of
the Code, the provisions of Section 4980B of the Code ("COBRA") have been
complied with in all material respects.
16.
<PAGE> 24
(j) Each of the Company Plans has been operated and
administered in all material respects in accordance with applicable Legal
Requirements, including ERISA and the Code.
(k) Each of the Company Plans intended to be qualified
under Section 401(a) of the Code has received a favorable determination from
the Internal Revenue Service, and the Company is not aware of any reason why
any such determination letter should be revoked.
(l) Neither the execution, delivery or performance of
this Agreement, nor the consummation of the Merger or any of the other
transactions contemplated by this Agreement, will result in any bonus payment,
golden parachute payment, severance payment or other payment to any current or
former employee or director of the Company (whether or not under any Company
Plan), or materially increase the benefits payable under any Company Plan, or
result in any acceleration of the time of payment or vesting of any such
benefits.
(m) The Company is in compliance in all material respects
with all applicable Legal Requirements and Contracts relating to employment,
employment practices, employee compensation, wages, bonuses and terms and
conditions of employment.
2.16 ENVIRONMENTAL MATTERS. The Company is and has at all times
been in compliance, in all material respects, with all applicable Environmental
Laws. The Company possesses all permits and other Governmental Authorizations
required under applicable Environmental Laws, and the Company is and has at all
times been in compliance with the terms and requirements of all such
Governmental Authorizations. The Company has not received any notice or other
communication (whether from a Governmental Body, citizens group, employee or
otherwise) that alleges that the Company is not in compliance with any
Environmental Law, and, to the best knowledge of the Company, there are no
circumstances that could reasonably be expected to prevent or interfere with
the Company's compliance with any Environmental Law in the future. To the best
knowledge of the Company, no current or prior owner of any property leased or
controlled by the Company has received any notice or other communication
(whether from a Governmental Body, citizens group, employee or otherwise) that
alleges that such current or prior owner or the Company is not or was not in
compliance with any Environmental Law. (For purposes of this Section 2.16 and
Section 3.16: (i) "Environmental Law" means any federal, state, local or
foreign Legal Requirement relating to pollution or protection of human health
or the environment (including ambient air, surface water, ground water, land
surface or subsurface strata), including any law or regulation relating to
emissions, discharges, releases or threatened releases of Materials of
Environmental Concern, or otherwise relating to the manufacture, processing,
distribution, use, treatment, storage, disposal, transport or handling of
Materials of Environmental Concern; and (ii) "Materials of Environmental
Concern" include chemicals, pollutants, contaminants, wastes, toxic substances,
petroleum and petroleum products and any other substance that is now or in the
future regulated by any Environmental Law or that is otherwise a danger to
health, reproduction or the environment.)
2.17 INSURANCE. The business and properties of the Company are
insured for the benefit of the Company in amounts deemed adequate by the
Company's management against
17.
<PAGE> 25
risks usually insured against by persons operating businesses similar to those
of the Company in the localities where such properties are located.
2.18 RELATED PARTY TRANSACTIONS. Except as set forth in the
Company Financial Statements: (a) no Company Related Party has, and no Company
Related Party has at any time since December 31, 1995 had, any direct or
indirect interest in any material asset used in or otherwise relating to the
business of the Company; (b) no Company Related Party is, or has at any time
since December 31, 1995 been, indebted to the Company; (c) since December 31,
1995, no Company Related Party has entered into, or has had any direct or
indirect financial interest in, any Material Company Contract, transaction or
business dealing involving the Company; (d) no Company Related Party is
competing, or has at any time since December 31, 1995 competed, directly or
indirectly, with the Company; and (e) no Company Related Party has any claim or
right against the Company (other than rights to receive compensation for
services performed as an employee of the Company). (For purposes of this
Section 2.18, each of the following shall be deemed to be a "Company Related
Party": (i) each individual who is, or who has at any time since December 31,
1995 been, an officer or director of the Company; (ii) each individual who is,
or who at any time since December 31, 1995 has been, a member of the immediate
family of any of the individuals referred to in clause "(i)" above; and (iii)
any trust or other Entity (other than the Company) in which any one of the
individuals referred to in clauses "(i)" and "(ii)" above holds (or in which
more than one of such individuals collectively hold), beneficially or
otherwise, a material voting, proprietary or equity interest.)
2.19 LEGAL PROCEEDINGS; ORDERS. There is no pending Legal
Proceeding, and, to the best knowledge of the Company, no Person has threatened
to commence any Legal Proceeding that: (i) may have a Material Adverse Effect
on the Company or its business; or (ii) challenges, or that may have the effect
of preventing, delaying, making illegal or otherwise interfering with, the
Merger or any of the other transactions contemplated by this Agreement. To the
best knowledge of the Company, no event has occurred, and no claim, dispute or
other condition or circumstance exists, that will, or that could reasonably be
expected to, give rise to or serve as a basis for the commencement of any such
Legal Proceeding. There is no order, writ, injunction, judgment or decree to
which the Company, or any of the assets owned or used by the Company, is
subject. To the best knowledge of the Company, no officer or other employee of
the Company is subject to any order, writ, injunction, judgment or decree that
prohibits such officer or other employee from engaging in or continuing any
conduct, activity or practice relating to the Company's business. There is no
action, suit, proceeding or investigation by the Company currently pending or
which the Company intends to initiate.
2.20 AUTHORITY; BINDING NATURE OF AGREEMENT. The Company has full
corporate power and authority to enter into and to perform its obligations
under this Agreement and the execution, delivery and performance by the Company
of this Agreement and the other agreements and transactions contemplated hereby
have been duly authorized by all necessary action on the part of the Company,
its Board of Directors and its shareholders. This Agreement constitutes the
legal, valid and binding obligation of the Company, enforceable against the
Company in accordance with its terms, except as enforcement thereof may be
limited by (i) laws of general application relating to bankruptcy, insolvency,
moratorium, reorganization or other
18.
<PAGE> 26
similar laws, both state and federal, affecting the enforcement of creditors'
rights or remedies in general, and (ii) rules of law governing specific
performance, injunctive relief and other equitable remedies.
2.21 NON-CONTRAVENTION; CONSENTS AND NOTICES. Neither (1) the
execution, delivery or performance of this Agreement or any of the other
agreements referred to in this Agreement, nor (2) the consummation of the
Merger or any of the other transactions contemplated by this Agreement, will
directly or indirectly (with or without notice or lapse of time):
(a) contravene, conflict with or result in a violation of
any of the provisions of the Company's articles of incorporation or bylaws;
(b) with respect to the Company, contravene, conflict
with or result in a violation of, or give any Governmental Body or other Person
the right to challenge any of the transactions contemplated by this Agreement
or to exercise any remedy or obtain any relief under, any Legal Requirement or
any order, writ, injunction, judgment or decree to which the Company, or any of
the assets owned or used by the Company, is subject;
(c) with respect to the Company, contravene, conflict
with or result in a violation of any of the terms or requirements of, or give
any Governmental Body the right to revoke, withdraw, suspend, cancel, terminate
or modify, any Governmental Authorization that is held by the Company or that
otherwise relates to the Company's business or to any of the assets owned or
used by the Company;
(d) contravene, conflict with or result in a violation or
breach of, or result in a default under, any provision of any Material Company
Contract, or give any Person the right to (i) declare a default or exercise any
remedy under any Material Company Contract, (ii) accelerate the maturity or
performance of any Material Company Contract, or (iii) cancel, terminate or
modify any Material Company Contract; or
(e) result in the imposition or creation of any lien or
other Encumbrance upon or with respect to any asset owned or used by the
Company (except for minor liens that will not, in any case or in the aggregate,
materially detract from the value of the assets subject thereto or materially
impair the operations of the Company).
Except as may be required by the HSR Act, the DGCL, the CGCL and state
securities or blue sky laws, the Company is not and will not be required to
make any filing with or give any notice to, or to obtain any Consent from, any
Person in connection with (x) the execution, delivery or performance of this
Agreement or any of the other agreements referred to in this Agreement, or (y)
the consummation of the Merger or any of the other transactions contemplated by
this Agreement.
2.22 FULL DISCLOSURE.
(a) This Agreement (including the Company Disclosure
Schedule) does not, (i) contain any representation, warranty or information
that is false or misleading with respect to
19.
<PAGE> 27
any material fact, or (ii) omit to state any material fact necessary in order
to make the representations, warranties and information contained and to be
contained herein and therein not false or misleading.
(b) The information supplied by the Company for inclusion
in the Proxy Statement (as defined in Section 5.5(a)) will not, as of the date
of the Proxy Statement or as of the date of the Parent Shareholders' Meeting
(as defined in Section 5.6), contain any statement that is inaccurate or
misleading with respect to any material fact, or (ii) omit to state any
material fact necessary in order to make such information not false or
misleading.
2.23 FINDER'S FEE. No broker, finder or investment banker is
entitled to any brokerage, finder's or other fee or commission in connection
with the Merger or any of the other transactions contemplated thereby based
upon arrangements made by or on behalf of the Company.
SECTION 3. REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUB
Parent and Merger Sub represent and warrant to the Company
that, except as set forth in the Parent SEC Documents (as defined in Section
3.3(a)) or in the disclosure schedule prepared by Parent in accordance with the
requirements of Section 12.11 and that has been delivered by Parent to the
Company on the date of this Agreement (the "Parent Disclosure Schedule") (the
Parent SEC Documents and the Parent Disclosure Schedule are collectively
referred to herein as the "Parent Disclosure Documents"):
3.1 DUE ORGANIZATION, ETC.
(a) Each of Parent, Merger Sub and each other subsidiary
of Parent are corporations duly organized, validly existing and in good
standing under the laws of their respective jurisdictions of incorporation, and
each of them have full corporate power and authority: (i) to conduct its
business in the manner in which its business is currently being conducted; (ii)
to own and use its assets in the manner in which its assets are currently owned
and used; and (iii) to perform its obligations under all Material Parent
Contracts by which it is bound. Each of Parent, Merger Sub and each other
subsidiary of Parent is duly qualified to do business and is in good standing
in each jurisdiction in which the failure to be so qualified would have a
Material Adverse Effect on Parent and its subsidiaries taken as a whole or on
the ability of Parent or Merger Sub to consummate the transactions contemplated
hereby. Parent has no subsidiaries other than the Subsidiaries disclosed on
Exhibit 21 to its Annual Report on Form 10-K for the year ended December 31,
1995 (the "Parent Subsidiaries"). Other than in connection with any change in
the conduct of Parent's business proposed to be made by the Company or in
connection with the Merger, Parent does not have any plans to change, in any
material respect, a line of its business.
3.2 CAPITALIZATION, ETC. The authorized capital stock of Parent
consists of: (i) 20,000,000 shares of Class A Common Stock, $.01 par value per
share, 5,633,819 shares of which have been issued and are outstanding as of the
date hereof; and (ii) 2,250,000 shares of Class C Common Stock, $0.01 par value
per share, none of which are issued or outstanding. All
20.
<PAGE> 28
of the outstanding shares of Parent, Merger Sub and each Parent Subsidiary
capital stock have been duly authorized and validly issued, and are fully paid
and nonassessable, and none of such shares is subject to any repurchase option
or restriction on transfer other than restrictions imposed by federal or state
securities laws. All outstanding shares of Parent, Merger Sub and Parent
Subsidiaries capital stock have been issued in compliance with all applicable
securities laws and other applicable Legal Requirements, and all requirements
set forth in applicable Parent Contracts. All of the outstanding shares of
capital stock of Merger Sub and each Parent Subsidiary are owned beneficially
and of record by Parent, free and clear of any Encumbrances. There are no
outstanding subscriptions, options, calls, warrants or other rights (whether or
not currently exercisable) to acquire any shares of the capital stock or other
securities of Parent. The Merger Shares, when issued by Parent to the
Company's shareholders in accordance with the terms of this Agreement, will be
duly authorized, validly issued, fully paid and nonassessable, will be issued
in compliance with applicable federal and state securities laws and will be
free and clear of any Encumbrances created or imposed, directly or indirectly,
by Parent. There are no preemptive or similar rights with respect to the
Parent's capital stock.
3.3 SEC FILINGS; FINANCIAL STATEMENTS
(a) Parent has delivered to the Company accurate and
complete copies (including copies of all exhibits) of each report, schedule,
registration statement and definitive proxy statement filed by Parent with the
SEC since January 1, 1994 (the "Parent SEC Documents"), which are all the
reports and documents required to be filed by Parent with the SEC since January
1, 1994. Each of the Parent SEC Documents was timely filed by Parent in
accordance with the rules and regulations of the SEC and the NASD. As of the
time it was filed with the SEC (or, if amended or superseded by a filing prior
to the date of this Agreement, then on the date of such filing): (i) each of
the Parent SEC Documents complied in all material respects with the applicable
requirements of the Securities Act or the Exchange Act (as the case may be);
and (ii) none of the Parent SEC Documents contained any untrue statement of a
material fact or omitted to state a material fact required to be stated therein
or necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading.
(b) Parent is eligible to file a registration statement
on Form S-3 with the SEC covering the registration of the Merger Shares for
resale and meets all of the requirements for the use of Form S-3 for resales,
including all requirements set forth in Form S-3 and the rules and regulations
promulgated under the Securities Act.
(c) As of the time they were filed with the SEC, the
consolidated financial statements (including, in each case, any notes related
thereto) contained in the Parent SEC Documents: (i) complied as to form in all
material respects with the published rules and regulations of the SEC
applicable thereto; (ii) were prepared in accordance with generally accepted
accounting principles applied on a consistent basis throughout the periods
covered (except as may be indicated in the notes to such financial statements
and, in the case of unaudited statements, as permitted by Form 10-Q of the SEC,
and except that unaudited financial statements may not contain footnotes and
are subject to year-end audit adjustments); and
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(iii) fairly present the consolidated financial position of Parent and its
subsidiaries as of the respective dates thereof and the consolidated results of
operations of Parent and its subsidiaries for the periods covered thereby.
There are no amendments to the Parent consolidated financial statements dated
September 30, 1996 (as filed with the SEC) necessary in order to make such
statements comply with clauses (i), (ii) and (iii) above.
(d) Parent has furnished to the Company a complete and
accurate copy of any amendments, supplements or modifications that have not yet
been filed with the SEC to agreements, documents or other instruments that have
been previously filed by Parent with the SEC pursuant to the Securities Act or
the Exchange Act.
3.4 DISCLOSURE. None of the information relating to Parent or
Parent Subsidiaries or Parent's officers and directors to be contained in the
Proxy Statement will, at the time the Proxy Statement is mailed to the
shareholders of Parent or at the time of the Parent Shareholders' Meeting,
contain any untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary in order to make the statements
therein, in the light of the circumstances under which they are made, not
misleading.
3.5 ABSENCE OF CHANGES. Since December 31, 1996:
(a) there has not been any material adverse change in the
business, condition, assets, liabilities, operations or financial performance
of Parent or any of the Parent Subsidiaries, and, to the best knowledge of
Parent, no event has occurred that will, or could reasonably be expected to,
have a Material Adverse Effect on Parent and its subsidiaries taken as a whole;
(b) there has not been any material loss, damage or
destruction to any of the assets of Parent or any of the Parent Subsidiaries
(whether or not covered by insurance);
(c) neither Parent nor any Parent Subsidiary has
declared, accrued, set aside or paid any dividend or made any other
distribution in respect of any shares of capital stock nor has repurchased,
redeemed or otherwise reacquired any shares of capital stock or other
securities;
(d) neither Parent nor any Parent Subsidiary has sold,
issued or authorized the issuance of (i) any capital stock or other security
(except for Parent Common Stock issued upon the exercise of outstanding Parent
Options or Parent Warrants described in the Parent Disclosure Documents), (ii)
any option, call, warrant or right to acquire, or otherwise relating to, any
capital stock or any other security (except for Parent Options and Parent
Warrants described in the Parent Disclosure Documents), or (iii) any instrument
convertible into or exchangeable for any capital stock or other security;
(e) there has been no amendment to the articles of
organization or bylaws of Parent or any Parent Subsidiary, and neither Parent
nor any Parent Subsidiary has effected or been a party to any Parent
Acquisition Transaction, recapitalization, reclassification of shares, stock
split, reverse stock split or similar transaction;
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(f) neither Parent nor any Parent Subsidiary has amended
or waived any of its rights under, or permitted the acceleration of vesting
under (i) any provision of any agreement evidencing any outstanding Parent
Option or Parent Warrant, or (ii) any restricted stock purchase agreement;
(g) neither Parent nor any Parent Subsidiary has formed
any subsidiary or acquired any equity interest or other interest in any other
Entity other than Merger Sub;
(h) neither Parent nor any Parent Subsidiary has made any
capital expenditure which, when added to all other capital expenditures made
exceeds $100,000 in the aggregate;
(i) neither Parent nor any Parent Subsidiary has (i)
entered into any Material Parent Contract (as defined in Section 3.10(a)), or
(ii) amended or prematurely terminated, or waived any material right or remedy
under, any Material Parent Contract to which it is or was a party or under
which it has or had any material rights or obligations;
(j) neither Parent nor any Parent Subsidiary has (i)
acquired, leased or licensed any right or other asset from any other Person,
(ii) sold or otherwise disposed of, or leased or licensed, any right or other
asset to any other Person, or (iii) waived or relinquished any right, except
for immaterial rights or other immaterial assets acquired, leased, licensed or
disposed of in the ordinary course of business and consistent with past
practices;
(k) neither Parent nor any Parent Subsidiary has written
off as uncollectible, or established any reserve with respect to, any account
receivable or other indebtedness in excess of $100,000 individually or in the
aggregate;
(l) neither Parent nor any Parent Subsidiary has made any
pledge of any of its assets or otherwise permitted any of its assets to become
subject to any Encumbrance, except for pledges of assets valued at $100,000 or
less, individually or in the aggregate, made in the ordinary course of business
and consistent with past practices;
(m) neither Parent nor any Parent Subsidiary has (i) lent
money to any Person, or (ii) incurred or guaranteed any indebtedness for
borrowed money in excess of $100,000 individually or in the aggregate;
(n) neither Parent nor any Parent Subsidiary has (i)
established, adopted or amended any Employee Benefit Plan, (ii) paid any bonus
or made any profit-sharing or similar payment to, or increased the amount of
the wages, salary, commissions, fringe benefits or other compensation or
remuneration payable to, any of its directors, officers or employees, or (iii)
hired any new employee except in the ordinary course of business and consistent
with past practices;
(o) neither Parent nor any Parent Subsidiary has changed
any of its methods of accounting or accounting practices in any respect;
(p) neither Parent nor any Parent Subsidiary has made any
Tax election;
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(q) neither Parent nor any Parent Subsidiary has
commenced or settled any Legal Proceeding;
(r) neither Parent nor any Parent Subsidiary has entered
into any material transaction or taken any other material action outside the
ordinary course of business or inconsistent with its past practices; and
(s) neither Parent nor any Parent Subsidiary has agreed
or committed to take any of the actions referred to in clauses "(c)" through
"(r)" above.
3.6 TITLE TO ASSETS.
(a) Parent and each Parent Subsidiary owns, and has good
and valid title to, all assets purported to be owned by it, including the
assets reflected in the Parent consolidated financial statements dated as of
December 31, 1996 (as of the respective dates of such statements) and all other
assets reflected in such entity's books and records as being owned by it. All
of said assets are owned by Parent or such Parent Subsidiary, as the case may
be, free and clear of any Encumbrances, except for (i) any lien for current
taxes not yet due and payable and (ii) minor liens that have arisen in the
ordinary course of business and that do not (in any case or in the aggregate)
materially detract from the value of the assets subject thereto or materially
impair the operations of Parent and its subsidiaries taken as a whole.
(b) Part 3.6(b) of the Parent Disclosure Schedule
identifies all assets that are being leased or licensed to Parent and each
Parent Subsidiary that involve obligations in excess of $100,000 on an
individual basis, and that are not otherwise disclosed in the Parent SEC
Documents.
3.7 BANK ACCOUNTS; ACCOUNTS RECEIVABLE; LOANS AND ADVANCES.
(a) Part 3.7(a) of the Parent Disclosure Schedule
provides a list of each account maintained by or for the benefit of Parent and
each Parent Subsidiary at any bank or other financial institution.
(b) All accounts receivable of Parent and each Parent
Subsidiary that are reflected in the Parent consolidated financial statements
dated as of December 31, 1996 (collectively, the "Parent Accounts Receivable")
represent or will represent valid obligations arising from sales actually made
or services actually performed in the ordinary course of business. Unless paid
prior to the Closing Date, the Parent Accounts Receivable are or will be, as of
the Closing Date, current and collectible net of any respective reserves shown
in the Parent consolidated financial statements dated as of December 31, 1996
(which reserves are adequate and calculated consistent with past practice).
There is no contest, claim, or right of set-off, other than returns in the
ordinary course of business, under any Contract with any obligor of any Parent
Accounts Receivable relating to the amount or validity of such Parent Accounts
Receivable.
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(c) Part 3.7(c) of Parent Disclosure Schedule contains an
accurate and complete list as of the date of this Agreement of all loans and
advances made by Parent or any Parent Subsidiary to any employee, director,
consultant or independent contractor of Parent or any Parent Subsidiary, other
than routine travel advances made to employees in the ordinary course of
business.
3.8 EQUIPMENT; LEASEHOLD.
(a) The assets of Parent and each Parent Subsidiary are
adequate for the uses to which they are being put, are in good condition and
repair (ordinary wear and tear excepted) and are adequate for the conduct of
such entity's business in the manner in which such business is now being
conducted.
(b) Neither Parent nor any Parent Subsidiary owns any
real property or any interest in real property, except as described in the
Parent SEC Documents.
3.9 PROPRIETARY ASSETS.
(a) Parent has good and valid title to all Parent
Proprietary Assets free and clear of all Encumbrances, and has a valid right to
use all Parent Proprietary Assets. No Parent Subsidiary has any title to any
Parent Proprietary Asset. Neither Parent nor any Parent Subsidiary is
obligated to make any payment to any Person for the use of any Parent
Proprietary Asset. To the best knowledge of Parent, Parent is free to use,
modify, copy, distribute, sell, license or otherwise exploit each of the Parent
Proprietary Assets on an exclusive basis.
(b) Parent and each Parent Subsidiary has taken
reasonable measures and precautions necessary to protect and maintain the
confidentiality and secrecy of all Parent Proprietary Assets (except Parent
Proprietary Assets whose value would be unimpaired by public disclosure) and
otherwise to maintain and protect the value of all Parent Proprietary Assets.
Neither Parent nor any Parent Subsidiary has disclosed or delivered or
permitted to be disclosed or delivered to any Person, and no Person (other than
Parent or a Parent Subsidiary) has access to or has any rights with respect to
any Parent Proprietary Asset.
(c) To the best knowledge of Parent, none of the Parent
Proprietary Assets infringes or conflicts with any Proprietary Asset owned or
used by any other Person. Neither Parent nor any Parent Subsidiary is
misappropriating or making any unlawful use of, and neither Parent nor any
Parent Subsidiary has at any time misappropriated or made any unlawful use of,
or received any notice or other communication of any actual, alleged, possible
or potential infringement, misappropriation or unlawful use of, any Proprietary
Asset owned or used by any other Person. To the best knowledge of Parent, no
other Person is infringing, misappropriating or making any unlawful use of, and
no Proprietary Asset owned or used by any other Person infringes or conflicts
with, any Parent Proprietary Asset.
(d) Parent Proprietary Assets constitute all the
Proprietary Assets necessary to enable Parent and each Parent Subsidiary to
conduct its business in the manner in which such business has been conducted.
Neither Parent nor any Parent Subsidiary has licensed any of the
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<PAGE> 33
Parent Proprietary Assets to any Person on an exclusive basis and neither
Parent nor any Parent Subsidiary has entered into any covenant not to compete
or Contract limiting its ability to exploit fully any of its Proprietary Assets
or to transact business in any market or geographical area or with any Person.
3.10 CONTRACTS.
(a) Part 3.10(a) of the Parent Disclosure Schedule
identifies each Parent Contract that constitutes a "Material Parent Contract."
For purposes of this Agreement, a "Material Parent Contract" shall be deemed to
be any Contract:
(i) relating to the employment or engagement of,
or the performance of services by, any employee, consultant or
independent contractor which involves a potential commitment of Parent
in excess of $60,000 per year;
(ii) relating to the acquisition, transfer, use,
development, sharing or license of any technology or any Parent
Proprietary Asset (except for any Parent Proprietary Asset that is
licensed to the Parent or any Parent Subsidiary under any third party
software license agreement generally available to the public at a cost
of less than $10,000);
(iii) imposing any restriction on Parent's or any
Parent Subsidiary's right or ability (A) to compete with any other
Person, (B) to acquire any product or other asset or any services from
any other Person, to sell any product or other asset to or perform any
services for any other Person or to transact business or deal in any
other manner with any other Person, or (C) to develop or distribute
any technology;
(iv) creating or involving any agency
relationship, distribution arrangement or franchise relationship
involving payments or obligations in excess of $100,000 per year;
(v) relating to the acquisition, issuance or
transfer of any securities other than stock options granted to
employees, directors or consultants pursuant to a Parent Plan;
(vi) creating or relating to the creation of any
Encumbrance with respect to any asset owned or used by Parent or any
Parent Subsidiary having a value in excess of $100,000;
(vii) involving or incorporating any guaranty, any
pledge, any performance or completion bond, any indemnity (other than
customary intellectual property indemnities for hardware and software
sold by Parent), any right of contribution or any surety arrangement,
any of which obligations involve a Parent obligation in excess of
$100,000 per year;
26.
<PAGE> 34
(viii) creating or relating to any partnership or
joint venture or any sharing of revenues, profits, losses, costs or
liabilities;
(ix) relating to the purchase or sale of any
product or other asset by or to, or the performance of any services by
or for, any Parent Related Party (as defined in Section 3.18);
(x) entered into outside the ordinary course of
business;
(xi) that may not be terminated by Parent or such
Parent Subsidiary (without penalty) within 60 days after the delivery
of a termination notice by Parent or such Parent Subsidiary; and
(xii) contemplating or involving (A) the payment or
delivery of cash or other consideration in an amount or having a value
in excess of $100,000 in the aggregate, or (B) the performance of
services having a value in excess of $100,000 in the aggregate.)
(b) Parent has delivered to the Company accurate and
complete copies of all Material Parent Contracts identified in Part 3.10(a) of
the Parent Disclosure Schedule, including all amendments thereto. Each
Material Parent Contract identified in Part 3.10(a) of the Parent Disclosure
Schedule is valid and in full force and effect, and is enforceable by Parent or
such Parent Subsidiary in accordance with its terms, subject to (i) laws of
general application relating to bankruptcy, insolvency and the relief of
debtors, and (ii) rules of law governing specific performance, injunctive
relief and other equitable remedies.
(c) Parent and each Parent Subsidiary:
(i) have not violated or breached, or committed
any material default under, any Material Parent Contract in any
material respect;
(ii) represent that, to the best of their
knowledge, no event has occurred, and no circumstance or condition
exists, that (with or without notice or lapse of time) will, or could
reasonably be expected to, (A) result in a violation or breach of any
of the provisions of any Material Parent Contract, (B) give any Person
the right to declare a default or exercise any remedy under any
Material Parent Contract, (C) give any Person the right to accelerate
the maturity or performance of any Material Parent Contract, or (D)
give any Person the right to cancel, terminate or modify any Material
Parent Contract;
(iii) have not, since September 30, 1996, received
any notice or other communication regarding (i) any actual or possible
violation or breach of, or default under, any Material Parent
Contract, or (ii) any actual or possible termination of any Material
Parent Contract; and
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<PAGE> 35
(iv) have not waived any of their material rights
under any Material Parent Contract.
3.11 NO UNDISCLOSED LIABILITIES. Except as set forth in the Parent
SEC Documents and except for current liabilities incurred in the ordinary
course of business since September 30, 1996, neither Parent nor any Parent
Subsidiary has accrued, contingent or other liabilities of any nature, either
matured or unmatured.
3.12 COMPLIANCE WITH LEGAL REQUIREMENTS. Parent and each Parent
Subsidiary is, and has at all times since December 31, 1995 been, in compliance
with all applicable Legal Requirements, except where the failure to comply with
such Legal Requirements has not had and will not have a Material Adverse Effect
on Parent and the Parent Subsidiaries taken as a whole. Since December 31,
1995, neither Parent nor any Parent Subsidiary has received any notice or other
communication from any Governmental Body regarding any actual or possible
violation of, or failure to comply with, any Legal Requirement.
3.13 GOVERNMENTAL AUTHORIZATIONS. Parent and each Parent
Subsidiary has all Governmental Authorizations necessary to enable Parent and
such Parent Subsidiary to conduct its business in the manner in which its
business is currently being conducted. Parent and each Parent Subsidiary is,
and at all times since December 31, 1995 has been, in compliance with the
material terms and requirements of such Governmental Authorizations. Since
December 31, 1995, neither Parent nor any Parent Subsidiary has received any
notice or other communication from any Governmental Body regarding (a) any
actual or possible violation of or failure to comply with any term or
requirement of any Governmental Authorization, or (b) any actual or possible
revocation, withdrawal, suspension, cancellation, termination or modification
of any Governmental Authorization.
3.14 TAX MATTERS.
(a) All Tax Returns required to be filed by or on behalf
of Parent with any Governmental Body on or before the Closing Date (the "Parent
Returns") (i) have been or will be filed when due, and (ii) have been, or will
be when filed, accurately prepared in all material respects. Parent and each
Parent Subsidiary has, within the time (including any extensions of applicable
due dates) and in the manner prescribed by law, paid all Taxes that are due and
payable, except Taxes that, individually and in the aggregate, are not
material. The consolidated financial statements of Parent contained in the
Parent SEC Documents fully accrue all actual and contingent liabilities for
Taxes with respect to all periods through the dates thereof in accordance with
generally accepted accounting principles.
(b) No claim or Legal Proceeding is pending or has been
threatened against or with respect to Parent or any Parent Subsidiary in
respect of any Tax. There are no unsatisfied liabilities for Taxes (including
liabilities for interest, additions to tax and penalties thereon and related
expenses) with respect to any notice of deficiency or similar document received
by Parent or any Parent Subsidiary. There are no liens for Taxes upon any of
the assets of Parent or any Parent Subsidiary, except liens for current Taxes
not yet due and payable.
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3.15 EMPLOYEE AND LABOR MATTERS; BENEFIT PLANS.
(a) Part 3.15(a) of the Parent Disclosure Schedule
contains a list of all salaried employees of Parent and each Parent Subsidiary
as of the date of this Agreement whose annual salaries are greater than
$60,000, and correctly reflects their salaries, any other compensation payable
to them (including compensation payable pursuant to bonus, deferred
compensation or commission arrangements), their dates of employment and their
positions. Neither Parent nor any Parent Subsidiary is a party to any
collective bargaining contract or other Contract with a labor union involving
any of its employees.
(b) Part 3.15(b) of the Parent Disclosure Documents
identifies each salary, bonus, deferred compensation, incentive compensation,
stock purchase, stock option, severance pay, termination pay, hospitalization,
medical, insurance, supplemental unemployment benefits, profit-sharing, pension
or retirement plan, program or agreement (individually referred to as a "Parent
Plan" and collectively referred to as the "Parent Plans") sponsored,
maintained, contributed to or required to be contributed to by Parent or any
Parent Subsidiary for the benefit of any current or former employee of Parent
or any Parent Subsidiary.
(c) Neither Parent nor any Parent Subsidiary maintains,
sponsors or contributes to, and, to the best of the knowledge of Parent,
neither Parent nor any Parent Subsidiary has at any time in the past
maintained, sponsored or contributed to, any employee pension benefit plan (as
defined in Section 3(2) of ERISA), whether or not excluded from coverage under
specific Titles or Merger Subtitles of ERISA) for the benefit of employees or
former employees of Parent (a "Parent Pension Plan").
(d) Neither Parent nor any Parent Subsidiary maintains,
sponsors or contributes to any employee welfare benefit plan (as defined in
Section 3(1) of ERISA, whether or not excluded from coverage under specific
Titles or Merger Subtitles of ERISA) for the benefit of employees or former
employees of Parent or any Parent Subsidiary (a "Parent Welfare Plan") except
for those Parent Welfare Plans described in Part 3.15(d) of the Parent
Disclosure Schedule or in the Parent SEC Documents, none of which is a
multiemployer plan (within the meaning of Section 3(37) of ERISA).
(e) With respect to each Parent Plan, Parent has
delivered to the Company:
(i) an accurate and complete copy of such Parent
Plan (including all amendments thereto);
(ii) an accurate and complete copy of the annual
report (if required under ERISA) with respect to such Parent Plan for
each of 1994 and 1995;
(iii) an accurate and complete copy of (A) the most
recent summary plan description, together with each Summary of
Material Modifications (if required under ERISA) with respect to such
Parent Plan, and (B) each material employee communication relating to
such Parent Plan;
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(iv) if such Parent Plan is funded through a trust
or any third party funding vehicle, an accurate and complete copy of
the trust or other funding agreement (including all amendments
thereto) and accurate and complete copies the most recent financial
statements thereof;
(v) accurate and complete copies of all Contracts
relating to such Parent Plan, including service provider agreements,
insurance contracts, minimum premium contracts, stop-loss agreements,
investment management agreements, subscription and participation
agreements and recordkeeping agreements; and
(vi) an accurate and complete copy of the most
recent determination letter received from the Internal Revenue Service
with respect to such Plan (if such Plan is intended to be qualified
under Section 401(a) of the Code).
(f) Neither Parent nor any Parent Subsidiary is required
to be, and, to the best of the knowledge of Parent, neither Parent nor any
Parent Subsidiary has ever been required to be, treated as a single employer
with any other Person under Section 4001(b)(1) of ERISA or Section 414(b), (c),
(m) or (o) of the Code. Neither Parent nor any Parent Subsidiary has ever been
a member of an "affiliated service group" within the meaning of Section 414(m)
of the Code. To the best knowledge of Parent, neither Parent nor any Parent
Subsidiary has ever made a complete or partial withdrawal from a "multiemployer
plan" (as defined in Section 3(37) of ERISA) resulting in "withdrawal
liability" (as defined in Section 4201 of ERISA), without regard to subsequent
reduction or waiver of such liability under either Section 4207 or 4208 of
ERISA.
(g) Neither Parent nor any Parent Subsidiary has any plan
or commitment to create any additional Parent Welfare Plan or any Parent
Pension Plan, or to modify or change any existing Parent Welfare Plan or Parent
Pension Plan (other than to comply with applicable law).
(h) No Parent Welfare Plan provides death, medical or
health benefits (whether or not insured) with respect to any current or former
employee of Parent or any Parent Subsidiary after any such employee's
termination of service (other than (i) benefit coverage mandated by applicable
law, including coverage provided pursuant to Section 4980B of the Code, (ii)
deferred compensation benefits accrued as liabilities on the consolidated
financial statements included in the Parent SEC Documents, and (iii) benefits
the full cost of which are borne by current or former employees of Parent or
any Parent Subsidiary (or their beneficiaries)).
(i) With respect to each of Parent Welfare Plans
constituting a group health plan within the meaning of Section 4980B(g)(2) of
the Code, the provisions of Section 4980B of the Code ("COBRA") have been
complied with in all material respects.
(j) Each of the Parent Plans has been operated and
administered in all material respects in accordance with applicable Legal
Requirements, including ERISA and the Code.
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(k) Each of the Parent Plans intended to be qualified
under Section 401(a) of the Code has received a favorable determination from
the Internal Revenue Service, and Parent is not aware of any reason why any
such determination letter should be revoked.
(l) Neither the execution, delivery or performance of
this Agreement, nor the consummation of the Merger or any of the other
transactions contemplated by this Agreement, will result in any bonus payment,
golden parachute payment, severance payment or other payment to any current or
former employee or director of Parent or any Parent Subsidiary (whether or not
under any Parent Plan), or materially increase the benefits payable under any
Parent Plan, or result in any acceleration of the time of payment or vesting of
any such benefits.
(m) Parent and each Parent Subsidiary is in compliance in
all material respects with all applicable Legal Requirements and Contracts
relating to employment, employment practices, employee compensation, wages,
bonuses and terms and conditions of employment.
3.16 ENVIRONMENTAL MATTERS. Parent and each Parent Subsidiary is
and has at all times been in compliance, in all material respects, with all
applicable Environmental Laws. Parent and each Parent Subsidiary possesses all
permits and other Governmental Authorizations required under applicable
Environmental Laws, and Parent and each Parent Subsidiary is and has at all
times been in compliance with the terms and requirements of all such
Governmental Authorizations. Neither Parent nor any Parent Subsidiary has
received any notice or other communication (whether from a Governmental Body,
citizens group, employee or otherwise) that alleges that Parent or any Parent
Subsidiary is not in compliance with any Environmental Law, and, to the best
knowledge of Parent, there are no circumstances that could reasonably be
expected to prevent or interfere with Parent's or any Parent Subsidiary's
compliance with any Environmental Law in the future. To the best knowledge of
Parent, no current or prior owner of any property leased or controlled by
Parent and/or such Parent Subsidiary has received any notice or other
communication (whether from a Governmental Body, citizens group, employee or
otherwise) that alleges that such current or prior owner or Parent and/or such
Parent Subsidiary is not or was not in compliance with any Environmental Law.
3.17 INSURANCE. The business and properties of Parent and each
Parent Subsidiary are insured for the benefit of Parent and/or such Parent
Subsidiary in amounts deemed adequate by Parent's management against risks
usually insured against by persons operating businesses similar to those of
Parent or such Parent Subsidiary in the localities where such properties are
located.
3.18 RELATED PARTY TRANSACTIONS. Except as set forth in the Parent
SEC Documents: (a) no Parent Related Party has, and no Parent Related Party
has at any time since December 31, 1995 had, any direct or indirect interest in
any material asset used in or otherwise relating to the business of Parent or
any Parent Subsidiary; (b) no Parent Related Party is, or has at any time since
December 31, 1995 been, indebted to Parent or any Parent Subsidiary; (c) since
December 31, 1995, no Parent Related Party has entered into, or has had any
direct or indirect financial interest in, any Material Parent Contract,
transaction or business dealing involving Parent or any Parent Subsidiary; (d)
no Parent Related Party is competing, or has at any time
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since December 31, 1995 competed, directly or indirectly, with Parent or any
Parent Subsidiary; and (e) no Parent Related Party has any claim or right
against Parent or any Parent Subsidiary (other than rights to receive
compensation for services performed as an employee of Parent or any Parent
Subsidiary). (For purposes of this Section 3.18, each of the following shall
be deemed to be a "Parent Related Party": (i) each individual who is, or who
has at any time since December 31, 1995 been, an officer or director of Parent
or any Parent Subsidiary; (ii) each individual who is, or who at any time since
December 31, 1995 has been, a member of the immediate family of any of the
individuals referred to in clause "(i)" above; and (iii) any trust or other
Entity (other than Parent or a Parent Subsidiary) in which any one of the
individuals referred to in clauses "(i)" and "(ii)" above holds (or in which
more than one of such individuals collectively hold), beneficially or
otherwise, a material voting, proprietary or equity interest.)
3.19 LEGAL PROCEEDINGS; ORDERS. There is no pending Legal
Proceeding, and, to the best knowledge of Parent, no Person has threatened to
commence any Legal Proceeding that: (i) may have a Material Adverse Effect on
Parent, any Parent Subsidiary or their businesses taken as a whole; or (ii)
challenges, or that may have the effect of preventing, delaying, making illegal
or otherwise interfering with, the Merger or any of the other transactions
contemplated by this Agreement. To the best knowledge of Parent, no event has
occurred, and no claim, dispute or other condition or circumstance exists, that
will, or that could reasonably be expected to, give rise to or serve as a basis
for the commencement of any such Legal Proceeding. There is no order, writ,
injunction, judgment or decree to which Parent or any Parent Subsidiary, or any
of the assets owned or used by Parent or any Parent Subsidiary, is subject. To
the best knowledge of Parent, no officer or other employee of Parent or any
Parent Subsidiary is subject to any order, writ, injunction, judgment or decree
that prohibits such officer or other employee from engaging in or continuing
any conduct, activity or practice relating to Parent's or such Parent
Subsidiary's business. There is no action, suit, proceeding or investigation
by Parent or any Parent Subsidiary currently pending or which Parent or any
Parent Subsidiary intends to initiate.
3.20 AUTHORITY; BINDING NATURE OF AGREEMENT. Except for the
approval of the Merger by the shareholders of Parent as contemplated by Section
5.6, Parent and Merger Sub have the full corporate power and authority to
perform their obligations under this Agreement; the execution, delivery and
performance by Parent and Merger Sub of this Agreement have been duly
authorized by all necessary action on the part of Parent and Merger Sub and
their respective Boards of Directors, and the execution, delivery and
performance of this Agreement by Merger Sub have been duly authorized by all
necessary action on the part of Parent, as the sole shareholder of Merger Sub.
This Agreement consitutes the legal, valid and binding obligation of Parent and
Merger Sub, enforceable against them in accordance with its terms, except as
enforcement thereof may be limited by (i) laws of general application relating
to bankruptcy, insolvency moratorium, reorganization or other similar laws,
both state and federal, affecting the enforcement of creditors' rights or
remedies in general, and (ii) rules of law governing specific performance,
injunctive relief and other equitable remedies.
3.21 NON-CONTRAVENTION; CONSENTS AND NOTICES. Neither (1) the
execution, delivery or performance of this Agreement or any of the other
agreements referred to in this Agreement,
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nor (2) the consummation of the Merger or any of the other transactions
contemplated by this Agreement, will directly or indirectly (with or without
notice or lapse of time):
(a) contravene, conflict with or result in a violation of
any of the provisions of Parent's or any Parent Subsidiary's articles of
organization, articles of incorporation or bylaws;
(b) with respect to Parent or any Parent Subsidiary,
contravene, conflict with or result in a violation of, or give any Governmental
Body or other Person the right to challenge any of the transactions
contemplated by this Agreement or to exercise any remedy or obtain any relief
under, any Legal Requirement or any order, writ, injunction, judgment or decree
to which Parent or any Parent Subsidiary, or any of the assets owned or used by
Parent or any Parent Subsidiary, is subject;
(c) with respect to Parent or any Parent Subsidiary,
contravene, conflict with or result in a violation of any of the terms or
requirements of, or give any Governmental Body the right to revoke, withdraw,
any Governmental Authorization that is held by Parent or any Parent Subsidiary
or that otherwise relates to Parent's or any Parent Subsidiary's business or to
any of the assets owned or used by Parent or any Parent Subsidiary;
(d) contravene, conflict with or result in a violation of
breach of, or result in a default under, any provision of any Material Parent
Contract, or give any Person the right to (i) declare a default or exercise any
remedy under any Material Parent Contract, (ii) accelerate the maturity or
performance of any Material Parent Contract, or (iii) cancel, terminate or
modify any Material Parent Contract; or
(e) result in the imposition or creation of any lien or
other Encumbrance upon or with respect to any asset owned or used by Parent or
any Parent Subsidiary (except for minor liens that will not, in any case or in
the aggregate, materially detract from the value of the assets subject thereto
or materially impair the operations of Parent and its subsidiaries taken as a
whole).
Except as may be required by the Securities Act, the Exchange Act,
state securities or "blue sky" laws, the Massachusetts Business Corporation
Law, the HSR Act and the rules of the NASD, neither Parent nor any Parent
Subsidiary is nor will be required to make any filing with or give any notice
to, or to obtain any Consent from, any Person in connection with the execution
and delivery of this Agreement or the consummation of the Merger.
3.22 VOTE REQUIRED. The affirmative vote of the holders of a
majority of the outstanding shares of Class A Common Stock of Parent (the
"Requisite Vote") is the only vote of the holders of any class or series of
Parent's capital stock necessary to adopt and approve this Agreement, the
Merger and the transactions contemplated thereby.
3.23 COMPANY ACTION. The Board of Directors of Parent (at a
meeting duly called and held) has (a) unanimously determined that the Merger is
advisable and fair and in the best interests of Parent and its shareholders,
(b) unanimously approved this Agreement and the Merger in accordance with the
applicable provisions of the Massachusetts Business Corporation
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Law, (c) unanimously recommended the adoption and approval of this Agreement
and the Merger by the holders of Parent Common Stock and directed that this
Agreement and the Merger be submitted for consideration by the Parent's
shareholders at the Parent Shareholders' Meeting, and (d) adopted a resolution
having the effect of causing Parent not to be subject, to the extent permitted
by applicable law, to any state takeover law that may purport to be applicable
to the Merger and the transactions contemplated thereby.
3.24 FAIRNESS OPINION. Parent has received the written opinion of
Needham & Company, Inc., financial advisor to Parent, to the effect that the
consideration to be paid by Parent to the Company Shareholders in the Merger is
fair to the shareholders of Parent from a financial point of view.
3.25 FINDER'S FEE. Except for Needham & Company, Inc., no broker,
finder or investment banker is entitled to any brokerage, finder's or other fee
or commission in connection with the Merger or any of the other transactions
contemplated thereby based upon arrangements made by or on behalf of Parent or
any of its subsidiaries. The fees and commissions (other than reimbursement of
expenses) payable to Needham & Company, Inc. as contemplated by this Section
3.12 will not exceed $250,000. A copy of Parent's agreement with Needham &
Company, Inc. has been delivered to the Company.
3.26 FULL DISCLOSURE.
(a) This Agreement (including the Parent Disclosure
Schedule) does not, (i) contain any representation, warranty or information
that is false or misleading with respect to any material fact, or (ii) omit to
state any material fact necessary in order to make the representations,
warranties and information contained and to be contained herein and therein not
false or misleading.
(b) The information supplied by Parent for inclusion in
the Proxy Statement (as defined in Section 5.5(a)) will not, as of the date of
the Proxy Statement or as of the date of the Parent Shareholders' Meeting (as
defined in Section 5.6), contain any statement that is inaccurate or misleading
with respect to any material fact, or (ii) omit to state any material fact
necessary in order to make such information not false or misleading.
SECTION 4. CERTAIN COVENANTS OF THE COMPANY
4.1 ACCESS AND INVESTIGATION. During the period from the date of
this Agreement through the Effective Date (the "Pre-Closing Period"), the
Company shall, and shall cause its Representatives to: (a) provide Parent and
Parent's Representatives with reasonable access to the Company's
Representatives, personnel and assets and to all existing books, records, Tax
Returns, work papers and other documents and information relating to the
Company and (b) provide Parent and Parent's Representatives with such copies of
the existing books, records, Tax Returns, work papers and other documents and
information relating to the Company, and with such additional financial,
operating and other data and information regarding the Company, as Parent or
its Representatives may reasonably request.
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4.2 OPERATION OF THE COMPANY'S BUSINESS. During the Pre-Closing
Period, except as contemplated by this Agreement or consented to by Parent in
writing, the Company shall:
(a) conduct its business and operations in the ordinary
course and in substantially the same manner as such business and operations
have been conducted prior to the date of this Agreement;
(b) use reasonable efforts to preserve intact its current
business organization, keep available the services of its current officers and
employees and maintain its relations and goodwill with all suppliers,
customers, landlords, creditors, employees and other Persons having business
relationships with the Company in each case, in all material respects;
(c) use reasonable efforts to keep in full force all
insurance policies in effect as of the date of this Agreement;
(d) cause its chief executive officer to report regularly
(but in no event less frequently than weekly) to Parent concerning the status
of the Company's business;
(e) not declare, accrue, set aside or pay any dividend or
make any other distribution in respect of any shares of capital stock, and
shall not repurchase, redeem or otherwise reacquire any shares of capital stock
or other securities;
(f) not sell, issue or authorize the issuance of (i) any
capital stock or other security, (ii) any option, call, warrant or right to
acquire, or relating to, any capital stock or other security, or (iii) any
instrument convertible into or exchangeable for any capital stock or other
security (except that the Company shall be permitted to issue Company Common
Stock upon the exercise of outstanding Company Options or Company Warrants);
(g) not amend or waive any of its rights under, or
authorize the acceleration of vesting under (i) any provision of its Company
Stock Plans, (ii) any provision of any agreement evidencing any outstanding
Company Option or Company Warrant or (iii) any provision of any restricted
stock purchase agreement;
(h) not amend or permit the adoption of any amendment to
the Company's articles of incorporation or bylaws, or effect or permit the
Company to become a party to any Company Acquisition Transaction,
recapitalization, reclassification of shares, stock split, reverse stock split
or similar transaction;
(i) not form any subsidiary or acquire any equity
interest or other interest in any other Entity;
(j) not make any capital expenditure, except for capital
expenditures that, when added to all other capital expenditures made on behalf
of the Company during the Pre-Closing Period, do not exceed $100,000 in the
aggregate;
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(k) not (i) enter into or become bound by, or permit any
of the assets owned or used by it to become bound by, any Material Company
Contract, or (ii) amend or prematurely terminate, or waive any material right
or remedy under, any Material Company Contract;
(l) not (i) acquire, lease or license any material right
or other material asset from any other Person, (ii) sell or otherwise dispose
of, or lease or license, any material right or other material asset to any
other Person except that the Company may sell inventory in the ordinary course
of business, or (iii) waive or relinquish any right, except for immaterial
assets acquired, leased, licensed or disposed of by the Company pursuant to
Contracts that are not Material Company Contracts;
(m) not (i) lend money to any Person (other than ordinary
advances for travel and entertainment), or (ii) incur or guarantee any
indebtedness in excess of $100,000, except that the Company may make routine
borrowings in the ordinary course of business under its line of credit with
Imperial Bank or any other lines of credit disclosed in the Company Disclosure
Schedule;
(n) not (i) establish, adopt or amend any Employee
Benefit Plan, (ii) pay any bonus or make any profit-sharing or similar payment
to, or increase the amount of the wages, salary, commissions, fringe benefits
or other compensation or remuneration payable to, any of its directors,
officers or employees except pursuant to agreements in effect on the date
hereof, or (iii) hire any new employee whose aggregate annual compensation is
expected to exceed $60,000, except that the Company may enter into employment
agreements with (i) Shareholder in the form attached hereto as Exhibit E and
(ii) Mr. Harris Ravine in the form attached hereto as Exhibit F.
(o) not change any of its methods of accounting or
accounting practices in any respect (except as otherwise required by generally
accepted accounting principles or any change therein);
(p) not make any Tax election;
(q) not commence or settle any Legal Proceeding;
(r) not make any prepayment of principal or interest, or
otherwise discharge amounts payable with respect to the Shareholder Debt;
(s) except as contemplated by this Agreement, not enter
into any material transaction or take any other material action outside the
ordinary course of business or inconsistent with its past practices; and
(t) not agree or commit to take any of the actions
described in clauses "(e)" through "(s)" of this Section 4.2.
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4.3 NOTIFICATION; UPDATES TO COMPANY DISCLOSURE SCHEDULE.
(a) During the Pre-Closing Period, the Company shall
promptly notify Parent in writing of:
(i) the discovery by the Company of any event,
condition, fact or circumstance that occurred or existed on or prior
to the date of this Agreement and that caused or constitutes an
inaccuracy in or breach of any representation or warranty made by the
Company in this Agreement;
(ii) any event, condition, fact or circumstance
that occurs, arises or exists after the date of this Agreement and
that would cause or constitute an inaccuracy in or breach of any
representation or warranty made by the Company in this Agreement if
(A) such representation or warranty had been made as of the time of
the occurrence, existence or discovery of such event, condition, fact
or circumstance, or (B) such event, condition, fact or circumstance
had occurred, arisen or existed on or prior to the date of this
Agreement;
(iii) any breach of any covenant or obligation of
the Company; and
(iv) any event, condition, fact or circumstance
that would make the timely satisfaction of any of the conditions set
forth in Section 7 or Section 8 impossible or unlikely.
(b) If any event, condition, fact or circumstance that is
required to be disclosed pursuant to Section 4.3(a) requires any change in the
Company Disclosure Schedule, or if any such event, condition, fact or
circumstance would require such a change assuming the Company Disclosure
Schedule were dated as of the date of the occurrence, existence or discovery of
such event, condition, fact or circumstance, then the Company shall promptly
deliver to Parent an update to the Company Disclosure Schedule specifying such
change. No such update shall be deemed to supplement or amend the Company
Disclosure Schedule for the purpose of (i) determining the accuracy of any of
the representations and warranties made by the Company in this Agreement, or
(ii) determining whether any of the conditions set forth in Section 7 has been
satisfied.
4.4 NO SOLICITATION.
The Company shall not directly or indirectly, and shall not
authorize or permit any Representative of the Company directly or indirectly
to, (i) solicit, initiate, encourage or induce the making, submission or
announcement of any Acquisition Proposal or take any action that could
reasonably be expected to lead to an Acquisition Proposal, (ii) furnish any
information regarding the Company to any Person in connection with or in
response to an Acquisition Proposal, (iii) continue or engage in discussions
with any Person with respect to any Acquisition Proposal, (iv) approve, endorse
or recommend any Acquisition Proposal or (v) enter into any letter of intent or
similar document or Contract contemplating or otherwise relating to any Company
Acquisition Transaction.
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4.5 TAX REPRESENTATION LETTER. As soon as practicable after the
execution of this Agreement, the Company shall deliver to Cooley Godward LLP
and Palmer & Dodge LLP, tax representation letters in customary form (which
will be used and relied upon in connection with the legal opinions contemplated
by Section 7.9 and Section 8.9) and the Company shall use its best efforts to
obtain and deliver to Parent, Continuity of Interest Certificates signed by
each shareholder of the Company, each of which shall be in such customary form
as is reasonably required by each of Cooley Godward LLP and Palmer & Dodge LLP.
4.6 INDEPENDENT DIRECTORS. During the Escrow Period, Shareholder
agrees to vote his shares in favor of, and take other action appropriate to
cause, the election of at least two (2) "independent directors" (as such term
is defined in Rule 4460(c) of the Marketplace Rules of The Nasdaq Stock Market)
to the Board of Directors of the Company.
SECTION 5. CERTAIN COVENANTS OF PARENT
5.1 ACCESS AND INVESTIGATION. During the Pre-Closing Period,
Parent shall, and shall cause its Representatives to: (a) provide the Company
and the Company's Representatives with reasonable access to Parent's
Representatives, personnel and assets and to all existing books, records, Tax
Returns, work papers and other documents and information relating to Parent and
each Parent Subsidiary; and (b) provide the Company and the Company's
Representatives with such copies of the existing books, records, Tax Returns,
work papers and other documents and information relating to Parent and each
Parent Subsidiary, and with such additional financial, operating and other data
and information regarding Parent and each Parent Subsidiary, as the Company or
its Representatives may reasonably request.
5.2 OPERATION OF PARENT'S BUSINESS. During the Pre-Closing
Period, except as contemplated by this Agreement or consented to by the Company
in writing, Parent shall, and shall cause each Parent Subsidiary to:
(a) conduct its business and operations in the ordinary
course and in substantially the same manner as such business and operations
have been conducted prior to the date of this Agreement;
(b) use reasonable efforts to preserve intact its current
business organization, keep available the services of its current officers and
employees and maintain its relations and goodwill with all suppliers,
customers, landlords, creditors, employees and other Persons having business
relationships with Parent or any Parent Subsidiary in each case, in all
material respects;
(c) use reasonable efforts to keep in full force all
insurance policies in place as of the date of this Agreement;
(d) cause its chief executive officer to report regularly
(but in no event less frequently than weekly) to the Company concerning the
status of Parent's business;
(e) not declare, accrue, set aside or pay any dividend or
make any other distribution in respect of any shares of capital stock, and
shall not repurchase, redeem or
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otherwise reacquire any shares of capital stock or other securities (other than
the surrender of options in connection with terminations of employment);
(f) not sell, issue or authorize the issuance of (i) any
capital stock or other security, (ii) any option, call, warrant or right to
acquire, or relating to, any capital stock or other security, or (iii) any
instrument convertible into or exchangeable for any capital stock or other
security (except that Parent shall be permitted to issue Parent Common Stock
upon the exercise of outstanding Parent Options or Parent Warrants);
(g) not amend or waive any of its rights under, or
authorize the acceleration of vesting under, (i) any provision of its Stock
Plans, (ii) any provision of any agreement evidencing any outstanding Parent
Option or Parent Warrant, or (iii) any provision of any restricted stock
purchase agreement;
(h) except for the amendment necessary to authorize the
additional shares of Class A Common Stock to be issued as Merger Shares
pursuant to Section 1.5(a) of this Agreement, not amend or permit the adoption
of any amendment to its articles of organization or bylaws, or effect or permit
Parent or any Parent Subsidiary to become a party to any Parent Acquisition
Transaction, recapitalization, reclassification of shares, stock split, reverse
stock split or similar transaction;
(i) not form any subsidiary or acquire any equity
interest or other interest in any other Entity;
(j) not make any capital expenditure, except for capital
expenditures that, when added to all other capital expenditures made on behalf
of Parent or any Parent Subsidiary during the Pre-Closing Period, do not exceed
$100,000 in the aggregate;
(k) not (i) enter into or become bound by, or permit any
of the assets owned or used by it to become bound by, any Material Parent
Contract, or (ii) amend or prematurely terminate, or waive any material right
or remedy under, any Material Parent Contract;
(l) not (i) acquire, lease or license any material right
or other material asset from any other Person, (ii) sell or otherwise dispose
of, or lease or license, any material right or other material asset to any
other Person, except that Parent may dispose or attempt to dispose of the
AS/400 Assets and sell inventory to the Company or otherwise in the ordinary
course of business, or (iii) waive or relinquish any right, except for
immaterial assets acquired, leased, licensed or disposed of by Parent pursuant
to Contracts that are not Material Parent Contracts;
(m) not (i) lend money to any Person (other than ordinary
advances for travel and entertainment), or (ii) incur or guarantee any
indebtedness in excess of $100,000, except that Parent and each Parent
Subsidiary may make routine borrowings in the ordinary course of business under
its existing lines of credit disclosed in the Parent SEC Documents;
(n) not (i) establish, adopt or amend any Employee
Benefit Plan, (ii) pay any bonus or make any profit-sharing or similar payment
to, or increase the amount of the wages,
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salary, commissions, fringe benefits or other compensation or remuneration
payable to, any of its directors, officers or employees except pursuant to
agreements in effect on the date hereof, or (iii) hire any new employee whose
aggregate annual compensation is expected to exceed $60,000;
(o) not change any of its methods of accounting or
accounting practices in any respect (except as otherwise required by generally
accepted accounting principles or any change therein);
(p) not make any Tax election;
(q) not commence or settle any Legal Proceeding;
(r) except as contemplated by this Agreement, not enter
into any material transaction or take any other material action outside the
ordinary course of business or inconsistent with its past practices; and
(s) not agree or commit to take any of the actions
described in clauses "(e)" through "(r)" of this Section 5.2.
5.3 NOTIFICATION; UPDATES TO PARENT DISCLOSURE SCHEDULE.
(a) During the Pre-Closing Period, Parent shall promptly
notify the Company in writing of:
(i) the discovery by Parent of any event,
condition, fact or circumstance that occurred or existed on or prior
to the date of this Agreement and that caused or constitutes an
inaccuracy in or breach of any representation or warranty made by
Parent in this Agreement or an inaccuracy in the Parent SEC Documents;
(ii) any event, condition, fact or circumstance
that occurs, arises or exists after the date of this Agreement and
that would cause or constitute an inaccuracy in or breach of any
representation or warranty made by Parent in this Agreement; if (A)
such representation or warranty had been made as of the time of the
occurrence, existence or discovery of such event, condition, fact or
circumstance, or (B) such event, condition, fact or circumstance had
occurred, arisen or existed on or prior to the date of this Agreement;
(iii) any breach of any covenant or obligation of
Parent; and
(iv) any event, condition, fact or circumstance
that would make the timely satisfaction of any of the conditions set
forth in Section 7 or Section 8 impossible or unlikely.
(b) If any event, condition, fact or circumstance that is
required to be disclosed pursuant to Section 5.3(a) requires any change in the
Parent Disclosure Schedule, or if any such event, condition, fact or
circumstance would require such a change assuming the Parent Disclosure
Schedule were dated as of the date of the occurrence, existence or discovery of
such
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event, condition, fact or circumstance, then Parent shall promptly deliver to
the Company an update to the Parent Disclosure Schedule specifying such change.
No such update shall be deemed to supplement or amend the Parent Disclosure
Schedule for the purpose of (i) determining the accuracy of any of the
representations and warranties made by Parent in this Agreement, or (ii)
determining whether any of the conditions set forth in Section 8 has been
satisfied.
5.4 NO SOLICITATION. During the Pre-Closing Period:
(a) Parent shall not directly or indirectly, and shall
not authorize or permit any Parent Subsidiary or any Representative of Parent
directly or indirectly to, (i) solicit, initiate, encourage or induce the
making, submission or announcement of any Acquisition Proposal or take any
action that could reasonably be expected to lead to an Acquisition Proposal,
(ii) furnish any information regarding Parent or any Parent Subsidiary to any
Person in connection with or in response to an Acquisition Proposal, (iii)
continue or engage in discussions with any Person with respect to any
Acquisition Proposal, (iv) approve, endorse or recommend any Acquisition
Proposal or (v) enter into any letter of intent or similar document or any
Contract contemplating or otherwise relating to any Parent Acquisition
Transaction; provided, however, that this Section 5.4(a) shall not prohibit
Parent from furnishing information regarding Parent or any Parent Subsidiary
to, or entering into discussions with, any Person in response to an unsolicited
bona fide written proposed Acquisition Proposal submitted by such Person if (1)
the Board of Directors of Parent concludes in good faith, based upon the
written advice of its financial advisor, that such Acquisition Proposal could
reasonably be expected to result in a transaction that is more favorable to
Parent's shareholders than the Merger (any such more favorable unsolicited bona
fide written Acquisition Proposal being referred to in this Agreement as a
"Superior Proposal"), (2) the Board of Directors of Parent concludes in good
faith, based upon the written advice of its outside legal counsel, that such
action is required in order for the Board of Directors of Parent to comply with
its fiduciary obligations to Parent's shareholders under applicable law, (3)
prior to furnishing any such information to, or entering into discussions with,
such Person, Parent gives the Company written notice of the identity of such
Person and of Parent's intention to furnish information to, or enter into
discussions with, such Person, and Parent receives from such Person an executed
confidentiality agreement containing customary limitations on the use and
disclosure of all written and oral information furnished to such Person by or
on behalf of Parent, and (4) prior to furnishing any such information to such
Person, Parent furnishes such information to the Company (to the extent such
information has not been previously furnished by Parent to the Company).
Without limiting the generality of the foregoing, Parent acknowledges and
agrees that any violation of any of the restrictions set forth in the preceding
sentence by any Representative of Parent, whether or not such Representative is
purporting to act on behalf of Parent, shall be deemed to constitute a breach
of this Section 5.4 by Parent.
(b) Parent shall promptly advise the Company orally and
in writing of any Acquisition Proposal (including the identity of the Person
making or submitting such Acquisition Proposal and the term thereof) that is
made or submitted by any Person during the Pre-Closing Period.
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(c) Parent shall immediately cease and cause to be
terminated any discussions existing as of the date of this Agreement with any
Person that relate to any Acquisition Proposal.
5.5 PROXY STATEMENT.
(a) As promptly as practicable after the date of this
Agreement, Parent shall prepare and cause to be filed with the SEC a
preliminary proxy statement together with a form of proxy (collectively, the
"Proxy Statement") and any other documents required by the Securities Act or
the Exchange Act in connection with the Merger with respect to the Parent
Shareholders' Meeting at which the shareholders of Parent will be asked to vote
upon and approve this Agreement, the Merger and an amendment to Parent's
Articles of Organization increasing the authorized shares of Parent Common
Stock. Parent shall cause the Proxy Statement to comply with the rules and
regulations promulgated by the SEC, respond promptly to any comments of the SEC
or its staff and use all commercially reasonable efforts to have the Proxy
Statement cleared by the SEC under the Exchange Act as promptly as practicable
after such filing and promptly thereafter file the definitive Proxy Statement
with the SEC and mail the definitive Proxy Statement to the shareholders of
Parent. The Company shall promptly furnish to Parent all information
concerning the Company and its shareholders as may be required or reasonably
requested in connection with the preparation of the Proxy Statement. Parent
shall (i) notify the Company promptly of the receipt of any comments from the
SEC or its staff and of any request by the SEC or its staff for amendments or
supplements to the Proxy Statement or for additional information and (ii) shall
promptly supply the Company with copies of all written correspondence with the
SEC or its staff with respect to the Proxy Statement. Parent shall not file
any amendment or supplement to the Proxy Statement to which the Company shall
have reasonably objected. Whenever any event occurs that should be set forth
in an amendment or supplement to the Proxy Statement, Parent or the Company, as
the case may be, shall promptly inform the other of such occurrence and shall
cooperate in filing with the SEC or its staff, and, if appropriate, mailing to
stockholders of Parent, such amendment or supplement.
(b) Prior to the Effective Date, Parent shall make all
required filings with state regulatory authorities and the NASD, and shall
ensure that the Merger Shares will be qualified under the securities or "blue
sky" law of every jurisdiction of the United States in which any registered
shareholder of the Company has an address of record on the record date for
determining the shareholders entitled to notice of and to vote on the Merger.
5.6 PARENT SHAREHOLDERS' MEETING.
(a) Parent shall take all action necessary in accordance
with its articles of organization, bylaws and applicable law to call, give
notice of, convene and hold a special meeting of the holders of Parent Common
Stock (the "Parent Shareholders' Meeting") to consider, act and vote upon the
adoption and approval of this Agreement and the Merger and an amendment to
Parent's Articles of Organization increasing the authorized shares of Parent
Common Stock. The Parent Shareholders' Meeting will be held as promptly as
practicable and in any event within 45 days after the Proxy Statement has been
cleared by the SEC or, if the SEC has not taken formal action to clear the
Proxy Statement, within 45 days of filing the definitive
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Proxy Statement with the SEC. The Company shall ensure that the Parent
Shareholders' Meeting is called, convened, held and conducted, and that all
proxies solicited in connection with the Parent Shareholders' Meeting are
solicited in all material respects in compliance with all applicable Legal
Requirements. The Parent's obligation to call, give notice of, convene and
hold the Parent Stockholders' Meeting in accordance with this Section 5.6(a)
shall not be limited or otherwise affected by the commencement, disclosure,
announcement or submission to Parent of any Acquisition Proposal, or by an
withdrawal, amendment or modification of the recommendation of the Board of
Directors of Parent with respect to this Agreement or the Merger.
(b) The Board of Directors of Parent has unanimously
recommended (and the Proxy Statement shall include a statement to the effect
that the Board of Directors of Parent has unanimously recommended) that the
holders of Parent Common Stock vote in favor and adopt and approve this
Agreement, the Merger and the amendment to Parent's Articles of Organization at
the Parent Shareholders' Meeting, which unanimous recommendation shall not be
withdrawn, amended or modified in a manner adverse to the Company. For
purposes of this Agreement, it shall constitute a modification adverse to the
Company if such recommendation shall no longer be unanimous.
(c) Notwithstanding the foregoing, nothing in Section 5.5
or in this Section 5.6 shall prevent the Board of Directors of Parent from
withdrawing, amending or modifying its unanimous recommendation in favor of
this Agreement and the Merger and approval and adoption of this Agreement and
the amendment to Parent's Articles of Organization (and the Proxy Statement may
reflect such withdrawal, amendment or modification) if (i) a Superior Proposal
is made to Parent and is not withdrawn, (ii) the Board of Directors of Parent
shall conclude in good faith, based upon the written advice of its outside
legal counsel, that such withdrawal, amendment or modification is required in
order for the Board of Directors of the Company to act in a manner that is
consistent with its fiduciary obligations to Parent's shareholders under
applicable law, and (iii) neither Parent nor any of its Representatives shall
have violated any of the restrictions set forth in Section 5.4(a). Nothing
contained in this Section 5.6(c) shall limit Parent's obligation to convene the
Parent Shareholders' Meeting (regardless of whether the unanimous
recommendation of the Board of Directors of Parent shall have been withdrawn,
amended or modified).
5.7 TAX REPRESENTATION LETTERS. As soon as practicable after the
execution of this Agreement, Parent and Merger Sub shall deliver to Cooley
Godward LLP and Palmer & Dodge LLP, tax representation letters in customary
form (which will be used and relied upon in connection with the legal opinions
contemplated by Section 7.10 and Section 8.10).
5.8 TAX DISTRIBUTION TO COMPANY SHAREHOLDERS. Parent acknowledges
and agrees that the Company shall be entitled to make a distribution to its
shareholders immediately prior to the Closing Date in an amount equal to the
amount of any federal, state, local and foreign taxes payable by such
shareholders with respect to the earnings and profits of the Company for the
short S Corporation taxable year ending as of the Closing Date as estimated by
the Company and subject to the approval of Parent and Parent's accountants,
which approval shall not be
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unreasonably withheld. The Company shall deliver to Parent and its accountants
not less than five (5) days before the Closing Date the Company's good faith
estimate of the amount of such distribution and the financial statement
information on which it is based, and the Company and Shareholder acknowledge
that failure to provide such information can be reason for Parent withholding
its approval.
5.9 PARENT CONSULTANT. Parent may, in its discretion, retain
Harris Ravine to provide consulting services to Parent during the Pre-Closing
Period at a rate of up to $25,000 per month. The Company acknowledges that any
services to be provided by Mr. Ravine to Parent during this period to prepare
for the closing and the combination of the operations of the Company and Parent
after the Closing shall ultimately inure to the benefit of all of the parties.
The Company agrees to pay to Parent an amount equal to seventy-five percent
(75%) of any compensation payable by Parent to Harris Ravine for such services,
which payment shall be due and payable within three (3) business days of notice
from Parent of any payment due for such services; provided that any such amount
payable by the Company shall not exceed $18,750 per month and shall not be
refundable if the Merger and the transactions contemplated hereby are not
completed for any reason.
SECTION 6. ADDITIONAL COVENANTS OF THE PARTIES
6.1 FILINGS AND CONSENTS. As promptly as practicable after the
execution of this Agreement, each party to this Agreement (a) shall make all
filings (if any) and give all notices (if any) required to be made and given by
such party in connection with the Merger and the other transactions
contemplated by this Agreement, and (b) shall use his or its commercially
reasonable efforts to obtain each Consent (if any) required to be obtained
(pursuant to any applicable Legal Requirement or Contract, or otherwise) by
such party in connection with the Merger or any of the other transactions
contemplated by this Agreement. Each party shall promptly deliver to the other
party a copy of each such filing made, each such notice given and each such
Consent obtained by such parties during the Pre-Closing Period.
6.2 PUBLIC ANNOUNCEMENTS. The parties shall consult with each
other before issuing any press release or otherwise making any public
statements with respect to the Merger and the transactions contemplated
thereby. Without limiting the generality of the foregoing, neither party shall
(and neither party shall permit any of its Representatives to) issue any press
release or make any public statement regarding this Agreement or the Merger, or
regarding any of the other transactions contemplated by this Agreement, without
the other party's prior consent, except that either party shall be permitted,
without the consent of the other party, to make such disclosures as are
required to be made under applicable law.
6.3 BEST EFFORTS. During the Pre-Closing Period, (a) the Company
shall use its best efforts to cause the conditions set forth in Section 7 to be
satisfied on a timely basis, and (b) Parent and Merger Sub shall use their best
efforts to cause the conditions set forth in Section 8 to be satisfied on a
timely basis.
6.4 REGULATORY APPROVALS. The Company and Parent shall use all
reasonable efforts to file, as soon as practicable after the date of this
Agreement, all notices, reports and other
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documents required to be filed with any Governmental Body with respect to the
Merger and the other transactions contemplated by this Agreement, and to submit
promptly any additional information requested by any such Governmental Body.
Without limiting the generality of the foregoing, the Company and Parent shall,
promptly after the date of this Agreement, prepare and file the notifications,
if any, required under the HSR Act in connection with the Merger. The Company
and Parent shall respond as promptly as practicable to (i) any inquiries or
requests received from the Federal Trade Commission or the Department of
Justice for additional information or documentation and (ii) any inquiries or
requests received from any state attorney general or other Governmental Body in
connection with antitrust or related matters. Each of the Company and Parent
shall (1) give the other party prompt notice of the commencement of any Legal
Proceeding by or before any Governmental Body with respect to the Merger or any
of the other transactions contemplated by this Agreement, (2) keep the other
party informed as to the status of any Legal Proceeding, and (3) promptly
inform the other party of any communication to or from the Federal Trade
Commission, the Department of Justice or any other Governmental Body regarding
the Merger. The Company and Parent will consult and cooperate with one
another, and will consider in good faith the views of one another, in
connection with any analysis, appearance, presentation, memorandum, brief,
argument, opinion or proposal made or submitted in connection with any Legal
Proceeding under or relating to the HSR Act or any other federal or state
antitrust or fair trade law. In addition, except as may be prohibited by any
Governmental Body or by any Legal Requirement, in connection with any Legal
Proceeding under or relating to the HSR Act or any other federal or state
antitrust or fair trade law or any other similar Legal Proceeding, each of the
Company and Parent agrees to permit authorized Representatives of the other
party to be present at each meeting or conference relating to any such Legal
Proceeding and to have access to and be consulted in connection with any
document, opinion or proposal made or submitted to any Governmental Body in
connection with any such Legal Proceeding.
SECTION 7. CONDITIONS PRECEDENT TO OBLIGATIONS OF PARENT AND MERGER SUB
The obligations of Parent and Merger Sub to effect the Merger and
otherwise consummate the transactions contemplated by this Agreement are
subject to the satisfaction, at or prior to the Closing, of each of the
following conditions:
7.1 ACCURACY OF REPRESENTATIONS. The representations and
warranties made by the Company in this Agreement and in each of the other
agreements and instruments delivered to Parent in connection with the
transactions contemplated by this Agreement shall have been accurate in all
material respects as of the date of this Agreement (without giving double
effect to any "Material Adverse Effect" or other materiality qualifications
contained in such representations and warranties), and shall be accurate in all
material respects as of the Closing Date as if made at the Closing Date
(without giving effect to any update to the Company Disclosure Schedule except
as to matters previously approved by Parent in writing and without giving
double effect to any "Material Adverse Effect" or other materiality
qualifications contained in such representations and warranties).
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7.2 PERFORMANCE OF COVENANTS. Each covenant or obligation that
the Company is required to comply with or to perform at or prior to the Closing
shall have been complied with and performed in all respects.
7.3 NO MATERIAL ADVERSE EFFECT. Since the date of this Agreement,
there shall have been no Material Adverse Effect on the Company and there shall
not have occurred any change or development, or any combination of changes or
developments, that would reasonably be expected to have a Material Adverse
Effect on the Company.
7.4 COMPLIANCE CERTIFICATE. The Company shall have delivered to
Parent a certificate of the Chief Executive Officer of the Company evidencing
compliance with the conditions set forth in Sections 7.1, 7.2 and 7.3.
7.5 SHAREHOLDER APPROVAL. The terms of the Merger and this
Agreement shall have been adopted and approved by the Requisite Vote of
Parent's shareholders.
7.6 CONSENTS. All Consents required to be obtained in connection
with the Merger and the other transactions contemplated by this Agreement
(including the Consents identified in Part 2.21 of the Company Disclosure
Schedule and Part 3.21 of the Parent Disclosure Schedule) shall have been
obtained and shall be in full force and effect.
7.7 TAX REPRESENTATION LETTER; CONTINUITY OF INTEREST
CERTIFICATES. Parent shall have received from the Company a tax representation
letter and from each of the shareholders of the Company Continuity of Interest
Certificates as contemplated by Section 4.5;
7.8 LEGAL OPINION. Parent shall have received a legal opinion of
Cooley Godward LLP, in the form of Exhibit G, dated as of the Closing Date;
7.9 TAX OPINION. Parent shall have received a legal opinion of
Palmer & Dodge LLP, counsel to Parent, addressed to the Parent, dated as of the
Closing Date, to the effect that the Merger will constitute a reorganization
within the meaning of Section 368(a) of the Code and no gain or loss will be
recognized by Parent or the Company as a result of the issuance of Parent
Common Stock pursuant to this Agreement (it being understood that, in rendering
such opinion, Palmer & Dodge, LLP may rely upon the tax representation letters
and continuity of interest certificates referred to in Section 4.5 and Section
5.7);
7.10 STOCK REPRESENTATION LETTER. Parent shall have received from
each shareholder of the Company entitled to receive shares of Parent Common
Stock pursuant to Section 1.5 an executed stock representation letter in the
form of Exhibit H in connection with compliance with the exemption from
registration under Section 5 of the Securities Act contained in Section 4(2) of
the Securities Act and/or Regulation D promulgated thereunder.
7.11 IMPERIAL BANK CREDIT LINE AMENDMENT. The Company shall have
obtained all consents to the Merger from Imperial Bank as are reasonably
required to permit the Company to maintain its line of credit with Imperial
Bank substantially in the form in which it is currently
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maintained with such amendment as Parent may reasonably request in light of the
fact that the status of the Company after the Closing will be that of a C
corporation .
7.12 NO RESTRAINTS. No temporary restraining order, preliminary or
permanent injunction or other order preventing the consummation of the Merger
shall have been issued by any court of competent jurisdiction and remain in
effect, and there shall not be any Legal Requirement enacted or deemed
applicable to the Merger that makes consummation of the Merger illegal.
7.13 NO GOVERNMENTAL LITIGATION. There shall not be pending or
threatened any Proceeding in which a Governmental Authority is or is threatened
to become a party: (a) challenging or seeking to restrain or prohibit the
consummation of the Merger or any of the transactions contemplated thereby; (b)
relating to the Merger and seeking to obtain from Parent or the Company or any
of their respective subsidiaries any damages that may be material to Parent and
the Parent Subsidiaries taken as a whole or the Company; (c) seeking to
prohibit or limit in any material respect Parent's ability to vote, receive
dividends with respect to or otherwise exercise ownership rights with respect
to the stock of the Surviving Corporation; or (d) which would materially and
adversely affect the right of Parent, the Surviving Corporation or any
subsidiary of Parent to own the assets or operate the business of the Company.
7.14 NO OTHER LITIGATION. There shall not be pending any
Proceeding in which there is a reasonable possibility of an outcome that would
have a Material Adverse Effect on Parent and the Parent Subsidiaries taken as a
whole or the Company: (a) challenging or seeking to restrain or prohibit the
consummation of the Merger or any of the transactions contemplated thereby; (b)
relating to the Merger and seeking to obtain from Parent or the Company or any
of their respective subsidiaries any damages that may be material to Parent and
the Parent Subsidiaries taken as a whole or the Company; (c) seeking to
prohibit or limit in any material respect Parent's ability to vote, receive
dividends with respect to or otherwise exercise ownership rights with respect
to the stock of the Surviving Corporation; or (d) which would affect adversely
the right of Parent, the Surviving Corporation or any subsidiary of Parent to
own the assets or operate the business of the Company.
7.15 HSR ACT. If applicable, the waiting period applicable to the
consummation of the Merger under the HSR Act shall have expired or been
terminated.
7.16 LOCK-UP AGREEMENT. Shareholder shall have executed and
delivered to Parent a lock-up agreement in the form of Exhibit I.
7.17 ESCROW AGREEMENT. Parent, the Company Shareholders, the
Shareholders Representative and the Escrow Agent shall have entered into an
escrow agreement in the form of Exhibit D.
7.18 NONCOMPETITION AGREEMENT. Shareholder shall have executed and
delivered to Parent a noncompetition agreement in the form of Exhibit J.
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7.19 LISTING. After giving effect to the Merger, the Parent Common
Stock shall be listed or quoted on The Nasdaq National Market, The Nasdaq
SmallCap Market or a national exchange.
SECTION 8. CONDITIONS PRECEDENT TO OBLIGATIONS OF THE COMPANY
The obligations of the Company to effect the Merger and otherwise
consummate the transactions contemplated by this Agreement are subject to the
satisfaction, at or prior to the Closing, of each of the following conditions:
8.1 ACCURACY OF REPRESENTATIONS. The representations and
warranties made by Parent and Merger Sub in this Agreement and in each of the
other agreements and instruments delivered to the Company in connection with
the transactions contemplated by this Agreement shall have been accurate in all
material respects as of the date of this Agreement (without giving double
effect to any "Material Adverse Effect" or other materiality qualifications
contained in such representations and warranties), and shall be accurate in all
material respects as of the Closing Date as if made at the Closing Date
(without giving effect to any update to the Parent Disclosure Schedule except
as to matters previously approved by the Company in writing and without giving
double effect to any "Material Adverse Effect" or other materiality
qualifications contained in such representations and warranties).
8.2 PERFORMANCE OF COVENANTS. Each covenant or obligation that
Parent and/or Merger Sub is required to comply with or to perform at or prior
to the Closing shall have been complied with and performed in all respects.
8.3 NO MATERIAL ADVERSE EFFECT. Since the date of this Agreement,
there shall have been no Material Adverse Effect on Parent and the Parent
Subsidiaries taken as a whole and there shall not have occurred any change or
development, or any combination of changes or developments, that would
reasonably be expected to have a Material Adverse Effect on Parent and the
Parent Subsidiaries taken as a whole.
8.4 COMPLIANCE CERTIFICATE. Parent shall have delivered to the
Company a certificate of the Chief Executive Officer of Parent evidencing
compliance with the conditions set forth in Sections 8.1, 8.2 and 8.3.
8.5 SHAREHOLDER APPROVAL. The terms of the Merger and this
Agreement shall have been adopted and approved by the Requisite Vote of
Parent's shareholders.
8.6 CONSENTS. All Consents required to be obtained in connection
with the Merger and the other transactions contemplated by this Agreement
(including the Consents identified in Part 2.21 of the Company Disclosure
Schedule and Part 3.21 of the Parent Disclosure Schedule) shall have been
obtained and shall be in full force and effect.
8.7 LEGAL OPINION. The Company shall have received a legal
opinion of Palmer & Dodge LLP, dated as of the Closing Date, in the form of
Exhibit K;
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8.8 TAX REPRESENTATION LETTER. The Company shall have received
from Parent and Merger Sub a tax representation letter as contemplated by
Section 5.7.
8.9 TAX OPINION. The Company shall have received a legal opinion
of Cooley Godward LLP, dated as of the Closing Date, addressed to the Company,
to the effect that the Merger will constitute a reorganization within the
meaning of Section 368(a) of the Code and no gain or loss will be recognized by
the Company or its shareholders as a result of the transactions contemplated by
this Agreement (it being understood that, in rendering such opinion, Cooley
Godward LLP may rely upon the tax representation letters and Continuity of
Interest Certificates referred to in Section 4.5 and Section 5.7);
8.10 EMPLOYMENT AGREEMENT. Mr. Harris Ravine shall have executed
and delivered to the Company an employment agreement in the form of Exhibit F.
8.11 NO RESTRAINTS. No temporary restraining order, preliminary or
permanent injunction or other order preventing the consummation of the Merger
shall have been issued by any court of competent jurisdiction and remain in
effect, and there shall not be any Legal Requirement enacted or deemed
applicable to the Merger that makes consummation of the Merger illegal.
8.12 NO GOVERNMENTAL LITIGATION. There shall not be pending or
threatened any Proceeding in which a Governmental Authority is or is threatened
to become a party: (a) challenging or seeking to restrain or prohibit the
consummation of the Merger or any of the transactions contemplated thereby; (b)
relating to the Merger and seeking to obtain from Parent or the Company or any
of their respective subsidiaries any damages that may be material to Parent and
the Parent Subsidiaries taken as a whole or the Company; (c) seeking to
prohibit or limit in any material respect Parent's ability to vote, receive
dividends with respect to or otherwise exercise ownership rights with respect
to the stock of the Surviving Corporation; or (d) which would materially and
adversely affect the right of Parent, the Surviving Corporation or any
subsidiary of Parent to own the assets or operate the business of the Company.
8.13 NO OTHER LITIGATION. There shall not be pending any
Proceeding in which there is a reasonable possibility of an outcome that would
have a Material Adverse Effect on Parent and the Parent Subsidiaries taken as a
whole or the Company: (a) challenging or seeking to restrain or prohibit the
consummation of the Merger or any of the transactions contemplated thereby; (b)
relating to the Merger and seeking to obtain from Parent or the Company or any
of their respective subsidiaries any damages that may be material to Parent and
the Parent Subsidiaries taken as a whole or the Company; (c) seeking to
prohibit or limit in any material respect Parent's ability to vote, receive
dividends with respect to or otherwise exercise ownership rights with respect
to the stock of the Surviving Corporation; or (d) which would affect adversely
the right of Parent, the Surviving Corporation or any subsidiary of Parent to
own the assets or operate the business of the Company.
8.14 HSR ACT. If applicable, the waiting period applicable to the
consummation of the Merger under the HSR Act shall have expired or been
terminated.
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8.15 TAX DISTRIBUTION TO COMPANY SHAREHOLDERS. The Company shall
have paid to the shareholders of the Company the amounts equal to the amount of
taxes contemplated by Section 5.9.
8.16 NONCOMPETITION AGREEMENT. Parent shall have executed and
delivered to Shareholder a noncompetition agreement in the form of Exhibit J.
8.17 LISTING. After giving effect to the Merger, the Parent
Common Stock shall be listed or quoted on The Nasdaq National Market, The
Nasdaq SmallCap Market or a national exchange.
SECTION 9. TERMINATION
9.1 TERMINATION. This Agreement may be terminated prior to the
Effective Date:
(a) by mutual written consent of Parent and the Company;
(b) by either Parent or the Company if the Merger shall
not have been consummated by July 31, 1997 (unless the failure to consummate
the Merger is attributable to a failure on the part of the party seeking to
terminate this Agreement to perform any material obligation required to be
performed by such party at or prior to the Effective Date);
(c) by either Parent or the Company if a court of
competent jurisdiction or other Governmental Body shall have issued a final and
nonappealable order, decree or ruling, or shall have taken any other action,
having the effect of permanently restraining, enjoining or otherwise
prohibiting the Merger;
(d) by either Parent or the Company if the Parent
Shareholders' Meeting shall have been held and this Agreement and the Merger
shall not have been adopted and approved at such meeting by the Requisite Vote;
(e) by the Company (at any time prior to the adoption and
approval of this Agreement and the Merger by the Requisite Vote) if a
Triggering Event shall have occurred; or
(f) by Parent if the Board of Directors of Parent shall
withdraw its recommendation in favor of this Agreement pursuant to Section
5.6(c); provided, however, that Parent shall not be permitted to terminate this
Agreement pursuant to this Section 9.1(f) unless Parent shall have paid the fee
referred to in Section 9.3(b).
(g) by either party if any of the other party's
representations and warranties contained in this Agreement shall be or shall
have become materially inaccurate, or if any of the other party's covenants
contained in this Agreement shall have been breached in any material respect;
provided, however, that if an inaccuracy in a party's representations and
warranties or a breach of a covenant by a party is curable by such party and
such party is continuing to exercise all reasonable efforts to cure such
inaccuracy or breach, then the breaching party shall have thirty (30) days from
the time of receipt of written notice from the nonbreaching party of such
breach
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or inaccuracy to cure such breach and if it is not cured within such thirty
(30) day period, the nonbreaching party may terminate this Agreement under this
Section 9.1(g) on account of such inaccuracy or breach.
9.2 EFFECT OF TERMINATION. In the event of the termination of
this Agreement as provided in Section 9.1, this Agreement shall be of no
further force or effect; provided, however, that (i) this Section 9.2, Section
9.3, Section 6.2 and Section 12 shall survive the termination of this Agreement
and shall remain in full force and effect, and (ii) the termination of this
Agreement shall not relieve any party from any liability for any breach of this
Agreement.
9.3 FEES AND EXPENSES; TERMINATION FEES.
(a) Except as set forth in this Section 9.3, each party
to this Agreement shall bear and pay all fees, costs and expenses (including
legal fees and accounting fees) that have been incurred or that are incurred in
the future by such party in connection with the transactions contemplated by
this Agreement, including all fees, costs and expenses incurred by such party
in connection with or by virtue of (a) the investigation and review conducted
by such party (or its Representatives) with respect to the other party's
business (and the furnishing of information to the other party and its
Representatives in connection with such investigation and review), (b) the
negotiation, preparation and review of this Agreement and all agreements,
certificates, opinions and other instruments and documents delivered or to be
delivered in connection with the transactions contemplated by this Agreement,
(c) the preparation and submission of any filing or notice required to be made
or given in connection with any of the transactions contemplated by this
Agreement, and the obtaining of all Consents and Governmental Authorizations
required to be obtained in connection with any of such transactions, and (d)
the consummation of the Merger.
(b) If this Agreement is terminated by the Company
pursuant to Section 9.1(e) or by Parent pursuant to Section 9.1(f), Parent
shall pay to the Company, in cash (at the time specified in Section 9.3(c)), a
nonrefundable fee in the amount of $550,000.
(c) In the case of termination of this Agreement by
Parent pursuant to Section 9.1(f), the fee referred to in Section 9.3(b) shall
be paid by Parent prior to such termination, and in the case of termination of
this Agreement by the Company pursuant to Section 9.1(e), the fee referred to
in Section 9.3(b) shall be paid by Parent to the Company within three (3)
business days after such termination.
SECTION 10. SURVIVAL OF REPRESENTATIONS AND WARRANTIES; INDEMNIFICATION.
10.1 SURVIVAL OF COMPANY REPRESENTATIONS AND WARRANTIES. The
representations and warranties made by the Company herein (including the
representations and warranties set forth in Section 2 or contained in any
certificate delivered by an officer of the Company) shall survive the Closing
and shall expire on the first anniversary of the Closing Date (the "Expiration
Date"); provided, however, that if, at any date prior to the Expiration Date,
Parent (acting in good faith) delivers to the Company a written notice alleging
the existence of an inaccuracy in or a breach of any of the representations or
warranties made by the Company (and setting forth in
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reasonable detail the basis for Parent's belief that such an inaccuracy or
breach may exist) and asserting a claim for recovery under Section 10.3 based
on such alleged inaccuracy or breach, then the claim asserted in such notice
shall survive the Expiration Date until such date as such claim is fully and
finally resolved. The representations, warranties, covenants and obligations
of the Company and the rights and remedies that may be exercised by Parent
shall not be limited or otherwise affected by or as a result of any information
furnished to, or any investigation made by or knowledge of, the Parent;
provided, however, that there shall be no liability for any matter disclosed to
Parent pursuant to Section 4.3 and which Parent expressly waives in writing as
a condition to closing. For purposes of this Agreement, each statement or
other item of information set forth in the Company Disclosure Schedule or in
any update to the Company Disclosure Schedule shall be deemed to be a
representation and warranty made by the Company in this Agreement.
10.2 SURVIVAL OF PARENT AND MERGER SUB REPRESENTATIONS AND
WARRANTIES. The representations and warranties made by Parent and Merger Sub
herein (including the representations and warranties set forth in Section 3 or
contained in any certificate delivered by an officer of Parent) shall survive
the Closing and shall expire on the Expiration Date; provided however, that if,
at any date prior to the Expiration Date, any Company Shareholder (acting in
good faith) delivers to Parent a written notice alleging the existence of an
inaccuracy in or a breach of any of the representations or warranties made by
Parent or Merger Sub (and setting forth in reasonable detail the basis for such
Company Shareholder's belief that such an inaccuracy or breach may exist) and
asserting a claim for recovery under Section 10.4 based on such alleged
inaccuracy or breach, then the claim asserted in such notice shall survive the
Expiration Date until such date as such claim is fully and finally resolved.
The representations, warranties, covenants and obligations of the Parent and
Merger Sub and the rights and remedies that may be exercised by the Company
Shareholders, shall not be limited or otherwise affected by or as a result of
any information furnished to, or any investigation made by or knowledge of, the
Company Shareholders; provided, however, that there shall be no liability for
any matter disclosed to the Company pursuant to Section 5.3 and which the
Company expressly waives in writing as a condition to closing. For purposes of
this Agreement, each statement or other item of information set forth in the
Parent Disclosure Schedule or in any update to the Parent Disclosure Schedule
shall be deemed to be a representation and warranty made by Parent and Merger
Sub in this Agreement.
10.3 INDEMNIFICATION BY COMPANY SHAREHOLDERS. Subject to the
limitations contained in Section 10.1, this Section 10.3 and Section 10.7, from
and after the Effective Date, the Company Shareholders shall hold harmless and
indemnify Parent from and against, and shall compensate and reimburse Parent
for, any Damages which are directly or indirectly suffered or incurred by
Parent or to which Parent may otherwise become subject (regardless of whether
or not such Damages relate to any third-party claim) and which arise from or as
a result of, or are directly or indirectly connected with any inaccuracy in or
breach of any representation or warranty made by the Company or the Shareholder
in Section 2. Notwithstanding the foregoing, Parent's sole recourse for any
Damages with respect to which indemnification is sought under this Section 10
(other than Damages determined by a court of competent jurisdiction in a
proceeding from which no further appeal is permitted to be taken to have been
primarily caused
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by fraud or intentional misrepresentation) shall be to the Shareholders
Indemnity Shares. In no event shall a Company Shareholder's liability for any
Damages with respect to which indemnification is sought be in excess of such
Company Shareholder's pro rata amount of the Shareholders Indemnity Shares and
no Company Shareholder shall have any personal liability for any Damages except
with respect to Damages determined by a court of competent jurisdiction in a
proceeding from which no further appeal is permitted to be taken to have been
primarily caused by fraud or intentional misrepresentation or intentional
breach by such Company Shareholder.
10.4 INDEMNIFICATION BY PARENT AND MERGER SUB. Subject to the
limitations contained in Sections 10.2, this Section 10.4 and Section 10.7,
from and after the Effective Date, Parent shall hold harmless and indemnify
each of the Company Shareholders from and against, and shall compensate and
reimburse each of the Company Shareholders for, any Damages which are directly
or indirectly suffered or incurred by any of the Company Shareholders or to
which any of the Company Shareholders may otherwise become subject (regardless
of whether or not such Damages relate to any third-party claim) and which arise
from or as a result of, or are directly or indirectly connected with any
inaccuracy in or breach of any representation or warranty made by Parent or
Merger Sub in Section 3. Notwithstanding the foregoing, a Company
Shareholder's sole recourse for any Damages with respect to which
indemnification is sought under this Section 10 (other than Damages determined
by a court in a proceeding from which no further appeal is permitted to be
taken to have been primarily caused by fraud or intentional misrepresentation)
shall be to the Parent Indemnity Shares.
10.5 VALUATION OF INDEMNITY SHARES. The value of the Shareholders
Indemnity Shares or the Parent Indemnity Shares, as the case may be, on any
specific date (the "Determination Date") shall be equal to (i) the number of
Shareholders Indemnity Shares or Parent Indemnity Shares, as the case may be,
multiplied by (ii) the average of the closing sales prices of the Parent Common
Stock as quoted on the Nasdaq Stock Market (the "Nasdaq Market") or any other
market on which such shares are then traded for the ten (10) trading day period
commencing five (5) trading days immediately prior to and including the
Effective Date and ending five (5) trading days immediately following the
Effective Date.
10.6 NOTICE; DEFENSE OF CLAIM.
(a) If any party entitled to indemnification under
Section 10.3 or Section 10.4 (which for purposes of this Section 10.6 shall
include the Surviving Corporation and Parent) (the "Indemnified Party") shall
receive notice or otherwise learn of the assertion by any other Person of any
claim or of the commencement by any such Person of any action (a "Third Party
Claim") with respect to which a party may be obligated to provide
indemnification pursuant to Section 10.3 or Section 10.4 (the "Indemnifying
Party"), such Indemnified Party shall give written notice thereof to the
Indemnifying Party within ten (10) business days after becoming aware of such
Third Party Claim; provided, however, that the failure of any Indemnified Party
to give notice as provided in this Section 10.6 shall not relieve the
Indemnifying Party of its obligations under Section 10.3 or Section 10.4, as
the case may be, except to the extent that the Indemnifying Party actually is
prejudiced by such failure to give notice. Such notice shall describe the
Third Party Claim in reasonable detail, and shall indicate the amount
(estimated if necessary) of the Damages
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that has been or may be sustained by such Indemnified Party. Thereafter, such
Indemnified Party shall deliver to the Indemnifying Party within 5 business
days after the Indemnified Party's receipt thereof, copies of all notices and
documents received by the Indemnified Party relating to the Third Party Claim
(including court papers).
(b) If, promptly after receipt by the Indemnifying Party
of notice of any Third Party Claim as provided in Section 10.6(a), the
Indemnifying Party shall give written notice to the Indemnified Party stating
that it intends to assume the defense thereof, at its own cost, then the
defense of such Third Party Claim, including selection of counsel reasonably
satisfactory to the Indemnified Party, shall be by the Indemnifying Party and
the Indemnified Party shall make no payment on such Third Party Claim as long
as the Indemnifying Party is conducting a good faith and diligent defense. The
Indemnified Party shall make available all information and assistance that the
Indemnifying Party may reasonably request and shall cooperate with the
Indemnifying party in such defense. Notwithstanding the foregoing, the
Indemnified Party shall at all times have the right to fully participate in
such defense at its own expense directly or through counsel. If no such notice
to assume the defense against a Third Party Claim is received by the
Indemnified Party from the Indemnifying Party, the Indemnified Party shall, at
the expense of the Indemnifying Party, undertake the defense of such Third
Party Claim, with counsel selected by the Indemnified Party, and shall have the
right to compromise or settle the same exercising reasonable judgment.
(c) If the Company Shareholders choose to defend or to
seek to compromise or settle any Third Party Claim, Parent shall make available
to the Company Shareholders any personnel or any books, records or other
documents within its control or which it otherwise has the ability to make
available that are necessary or appropriate for such defense, settlement or
compromise, and shall otherwise cooperate in the defense, settlement or
compromise of such Third Party Claim.
(d) No Third Party Claim made against any Indemnified
Party shall be settled without the prior written consent of the Indemnifying
Party. Notwithstanding anything else in this Section 10.6 to the contrary,
neither any Company Shareholder nor Parent shall settle or compromise any Third
Party Claim unless such settlement or compromise contemplates as an
unconditional term thereof of the giving by such claimant or plaintiff to each
related Company Shareholder or Parent, as the case may be, a written release
from all liability with respect to such Third Party Claim.
10.7 FURTHER LIMITATIONS ON INDEMNIFICATION. Notwithstanding the
foregoing, the right to indemnication under this Section 10 shall be subject to
the following:
(a) No Indemnifying Party shall have liability under
Section 10.3 or Section 10.4 except to the extent that the Damages exceed
$50,000 in the aggregate, in which event the Indemnifying Party shall be liable
for all Damages, subject to the provisions of this Section 10.
(b) No indemnification shall be payable pursuant to
Sections 10.3 or 10.4, as the case may be, after the Expiration Date, except
(i) for claims for Damages made prior to the
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Expiration Date but not then resolved, (ii) for claims for Damages made with
respect to an inaccuracy or breach of any representation or warranty contained
in Sections 2.14 or 3.14, which representations and warranties shall survive
until the expiration of the applicable statute of limitations, or Sections 2.3,
2.20, 3.2, and 3.20, which representations and warranties shall survive
indefinitely.
(c) All indemnification claims made under Section 10.3
shall be satisfied in full by the cancellation of that number of Shareholders
Indemnity Shares having a value determined in accordance with Section 10.5
equal to the amount of Damages for which such Indemnified Party is entitled to
indemnification under this Section 10 and all indemnification claims made under
Section 10.4 shall be satisfied in full by the issuance by Parent of that
number of Parent Indemnity Shares having a value determined in accordance with
Section 10.5 equal to the amount of Damages for which such Indemnified Party is
entitled to indemnification under this Section 10 pro rata to the holders of
Company Common Stock immediately prior to the Effective Date.
(d) The limitations of Sections 10.7(a), 10.7(b) and
10.7(c) shall not apply to any claim for Damages that are determined by a court
of competent jurisdiction in a proceeding from which no further appeal is
permitted to be taken to have been primarily caused by fraud or intentional
misrepresentation or intentional breach of any party.
(e) In determining the amount of any indemnity under
Section 10.3 or 10.4, the Damages shall be reduced (including, without
limitation, retroactively) by any insurance proceeds, tax benefit or other
similar recovery or offset realized, directly or indirectly, by the Indemnified
Party actually recovered by or on behalf of such Indemnified Party in reduction
of the loss giving rise to the claim for Damages.
(f) Parent shall not be obligated to issue any of the
Parent Indemnity Shares pursuant to this Section 10 until Parent has received
from each of the Company Shareholders to which such Parent Indemnity Shares are
to be issued an executed stock representation letter substantially in the form
of Exhibit H, and Parent has placed on all certificates representing such
shares all appropriate legends.
10.8 ISSUANCE OF PARENT INDEMNITY SHARES TO SATISFY CLAIMS FOR
DAMAGES.
(a) If a Company Shareholder has incurred or suffered
Damages for which it is entitled to indemnification under this Section 10, such
Company Shareholder, shall, on or prior to the Expiration Date, give written
notice of such claim (a "Claim Notice") to Parent. Each Claim Notice shall
state the amount of claimed Damages (the "Claimed Amount") and the basis for
such claim. No Company Shareholder shall make any claim for Damages after the
Expiration Date.
(b) Within ten (10) days of receipt of a Claim Notice,
Parent shall provide to the Company Shareholder, a written response (the
"Response Notice") in which Parent shall (i) agree that the full Claimed Amount
is valid, (ii) agree that part, but not all, of the Claimed Amount (the "Agreed
Amount") is valid, or (iii) contest that any of the Claimed Amount is valid.
55.
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Parent may contest a Claimed Amount only based upon a good faith belief that
all or such portion of the Claimed Amount does not constitute Damages for which
the Company Shareholder is entitled to indemnification under this Section 10.
If no response notice is delivered by Parent within such ten (10) day period,
Parent shall be deemed to have agreed that the Claimed Amount is valid and that
the Company Shareholder is entitled to indemnification under this Section 10.
(c) If Parent in the Response notice agrees or is deemed
to have agreed that the Claimed Amount is valid, Parent shall promptly
following the required delivery date for the Response Notice issue to the
Company Shareholders who have incurred such Damages, that number of Parent
Indemnity Shares sufficient to satisfy the Claimed Amount, as determined
pursuant to Section 10.5.
(d) If Parent in the Response Notice agrees that part,
but not all, of the Claimed Amount is valid, Parent shall promptly following
the required delivery date for the Response Notice issue to the Company
Shareholders who have incurred such Damages, that number of Parent Indemnity
Shares sufficient to satisfy the Agreed Amount, as determined pursuant to
Section 10.5.
(e) If Parent in the Response notice contests the release
of all or a part of the Claimed Amount (the "Contested Amount"), Parent shall
continue to maintain in reserve that number of Parent Indemnity Shares
necessary to satisfy the Contested Amount, as determined pursuant to Section
10.5, notwithstanding the occurrence of the Expiration Date, until (i) such
time as the Company Shareholders shall agree in writing as to the number of
Parent Indemnity Shares to be issued to the Company Shareholders, if any, or
(ii) receipt by Parent of a copy of a court order setting forth instructions to
Parent as to the number of Parent Indemnity Shares to be issued to the Company
Shareholders, if any.
SECTION 11. REGISTRATION OF THE MERGER SHARES; COMPLIANCE WITH THE
SECURITIES ACT
11.1 REGISTRATION PROCEDURES AND EXPENSES. Parent shall:
(a) as soon as practicable (but in any event within three
hundred (300) days following the issuance of the Merger Shares pursuant to
Section 1.5(a) (the "Issuance"), prepare and file with the SEC a registration
statement on Form S-3 or, in the event Parent is not eligible to use Form S-3,
on Form S-1 or any other form then available for the registration of the Merger
Shares (the "Registration Statement"), in order to register with the SEC the
resale of the Merger Shares by the Company Shareholders from time to time
through underwriters, agents or otherwise, in negotiated or market transactions
or through the automated quotation system of the Nasdaq or the facilities of
any national securities exchange on which Parent's Common Stock is then traded
or in privately negotiated transactions; provided, however, that the number of
Merger Shares that may be resold shall be subject to the Lock-Up Agreement;
(b) use reasonable efforts, subject to the receipt of
necessary information from the Company Shareholders, to cause the Registration
Statement to become effective promptly
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after such Registration Statement is filed by Parent with the SEC; provided,
however, that Parent shall cause the effectiveness of the Registration
Statement to be delayed until such date that is six (6) months from the date of
the Closing;
(c) use reasonable efforts to prepare and file with the
SEC such amendments and supplements to each Registration Statement and each
prospectus used in connection therewith as may be necessary to keep the
Registration Statement effective for a period of five (5) years following the
Issuance (the "Registration Period") or, if earlier, until all of the Merger
Shares have been sold pursuant thereto; provided, however, that Parent shall
not be deemed to have used reasonable efforts to keep the Registration
Statement effective if it voluntarily takes any action that would result in the
Company Shareholders not being able to sell any of their respective Merger
Shares pursuant to the Registration Statement unless (i) such action is
required under applicable law or taken by Parent in good faith and for valid
business reasons, including without limitation the acquisition or divestiture
of assets and (ii) Parent promptly (but in any event within 30 days) files such
amendments and supplements with the SEC; provided, further, however, that
Parent may not exercise its rights under this Section 11.1(c) more frequently
than one time in any twelve-month period;
(d) furnish to the Company Shareholders with respect to
the Merger Shares registered under the Registration Statement such number of
copies of the Registration Statement (and exhibits thereto), prospectuses and
preliminary prospectuses in conformity with the requirements of the Securities
Act, in order to facilitate the public sale or other disposition of all or any
of the Merger Shares by the Company Shareholders; provided, however, that the
obligation of Parent to deliver copies of prospectuses or preliminary
prospectuses to the Company Shareholders shall be subject to the receipt by
Parent of reasonable assurances from the Company Shareholders that the Company
Shareholders will comply with the applicable provisions of the Securities Act
and of such other securities or blue sky laws as may be applicable in
connection with any use of such prospectuses or preliminary prospectuses;
(e) file documents required of Parent for normal blue sky
clearance in states reasonably specified in writing by any Company Shareholder;
provided, however, that Parent shall not be required to qualify to do business
or consent to service of process in any jurisdiction in which it is not now so
qualified or has not so consented;
(f) file with the Nasdaq Stock Market, Inc. a
Notification Form for Listing of Additional Shares, if applicable, with respect
to the Merger Shares and pay all fees and expenses incurred in connection
therewith;
(g) bear all expenses in connection with the procedures
of this Section 11.1 and the registration of the Securities pursuant to the
Registration Statement; and
(h) file the reports required to be filed by it under the
Securities Act and the Exchange Act and the rules and regulations adopted by
the SEC thereunder (or, if Parent is not required to file such reports, it
will, during the Registration Period upon the request of any Company
Shareholder, timely make publicly available other information so long as
necessary to permit sales pursuant to Rule 144 and/or Rule 145 under the
Securities Act) and it will take such
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further action as any Company Shareholder may reasonably request, all to the
extent required from time to time to enable the Company Shareholders to sell
their respective Merger Shares without registration under the Securities Act
within the limitation of the exemptions provided by (a) Rule 144 and/or Rule
145 under the Securities Act, as such rules may be amended from time to time,
or (b) any similar rule or regulation hereafter adopted by the SEC. Upon the
request of a Company Shareholder, Parent shall deliver to such Company
Shareholder a written statement as to whether it has complied with such
requirements.
11.2 TRANSFER OF SECURITIES AFTER REGISTRATION. The Company
Shareholders agree that they will not effect any disposition of the Merger
Shares that would constitute a sale within the meaning of the Securities Act in
violation of the Securities Act and that they will promptly notify Parent of
any changes in the information set forth in the Registration Statement
regarding the Company Shareholders as provided by the Company Shareholders in
writing to Parent or their plan of distribution.
11.3 INDEMNIFICATION.
(a) For the purposes of this Section 11.3, the term
"Selling Shareholders" shall mean the Company Shareholders who received Merger
Shares pursuant to the terms of this Agreement, and such Company Shareholders'
trustees, and each person who controls the Company Shareholders within the
meaning of the Securities Act;
(b) the term "Registration Statement" shall include any
final prospectus, exhibit, supplement or amendment included in or relating to
the Registration Statement referred to in Section 11.1; and
(c) the term "untrue statement" shall mean any untrue
statement or alleged untrue statement of a material fact contained in the
Registration Statement, or any omission or alleged omission to state in the
Registration Statement of a material fact required to be stated therein or
necessary to make the statements therein.
Parent agrees to indemnify and hold harmless, to the extent permitted by law,
each Selling Shareholder and each person, if any, who controls such Selling
Shareholders within the meaning of Section 15 of the Securities Act, from and
against any losses, claims, damages or liabilities to which such Selling
Shareholders may become subject (under the Securities Act or otherwise) insofar
as such losses, claims, damages or liabilities (including reasonable legal fees
and other expenses incurred in the investigation and defense thereof) arise out
of, or are based upon, any untrue statement or arise out of any failure by
Parent to fulfill any undertaking included in the Registration Statement or any
violation by Parent of any rule or regulation promulgated under the Securities
Act or any state securities laws applicable to Parent, and Parent will
reimburse such Selling Shareholder or controlling person for any reasonable
legal or other expenses reasonably incurred in investigating, defending or
preparing to defend any such action, proceeding or claim; provided, however,
that Parent shall not be liable in any such case to the extent that such loss,
claim, damage or liability arises out of, or is based upon, an untrue statement
made in such Registration Statement based upon written information furnished to
Parent by or on behalf of such Selling Shareholder or the Company, or the
failure of such Selling
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Shareholder to comply with the covenants and agreements contained in Section
10.2 hereof respecting sale of the Merger Shares or any statement or omission
in any prospectus that is corrected in any subsequent prospectus that was
delivered to the Selling Shareholder prior to the written confirmation of the
pertinent sale or sales by the Selling Shareholder.
The Selling Shareholders agree to indemnify and hold harmless, to the extent
permitted by law, Parent (and each person, if any, who controls Parent within
the meaning of Section 15 of the Securities Act, each officer of Parent who
signs the Registration Statement and each director of Parent) from and against
any losses, claims, damages or liabilities to which Parent (or any such
officer, director or controlling person) may become subject (under the
Securities Act or otherwise), insofar as such losses, claims, damages or
liabilities (or actions or proceedings in respect thereof) arise out of, or are
based upon, any failure to comply with the covenants and agreements contained
in Section 11.2 hereof respecting sale of the Merger Shares, or any untrue
statement contained in a Registration Statement if such untrue statement was
made based upon written information furnished by or on behalf of the Selling
Shareholder, and the Selling Shareholder will reimburse Parent (or such
officer, director or controlling person), as the case may be, for any
reasonable legal or other expenses reasonably incurred in investigating,
defending or preparing to defend any such action, proceeding or claim. In no
event shall the liability of the Selling Shareholder hereunder be greater in
amount than the dollar amount of the proceeds received by the Selling
Shareholder upon the sale of Merger Shares giving rise to such indemnification
obligation.
Promptly after receipt by any indemnified person of a notice of a claim or the
beginning of any action in respect of which indemnity is to be sought against
an indemnifying person pursuant to this Section 11.3, such indemnified person
shall notify the indemnifying person in writing of such claim or of the
commencement of such action, and, subject to the provisions hereinafter stated,
in case any such action shall be brought against an indemnified person and such
indemnifying person shall have been notified thereof, such indemnifying person
shall be entitled to participate therein, and, to the extent it shall wish, to
assume the defense thereof, with counsel reasonably satisfactory to such
indemnified person. After notice from the indemnifying person to such
indemnified person of its election to assume the defense thereof, such
indemnifying person shall not be liable to such indemnified person for any
legal expenses subsequently incurred by such indemnified person in connection
with the defense thereof; provided, however, that if there exists or shall
exist a conflict of interest that would make it inappropriate under applicable
standards of professional conduct, in the written opinion of counsel to the
indemnified person, for the same counsel to represent both the indemnified
person and such indemnifying person, the indemnified person shall be entitled
to retain its own counsel at the expense of such indemnifying person; provided,
however, that no indemnifying person shall be responsible for the fees and
expenses of more than one separate counsel for all indemnified parties. The
failure of any indemnified party to notify an indemnifying party of any claim
against such indemnified party in respect of which indemnity may be sought
hereunder shall not relieve the indemnifying party from any liability unless
(and only to the extent) the indemnifying party was prejudiced by such failure,
and in no event shall such failure relieve the indemnifying party from any
other liability which it may have to such indemnified party.
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11.4 CONTRIBUTION. If the indemnification provided for in this
Section 11 is unavailable to the indemnified parties in respect of any losses,
claims, damages, liabilities or judgments referred to herein, then each
indemnifying party, in lieu of indemnifying such indemnified party, shall
contribute to the amount paid or payable by such indemnified party as a result
of such losses, claims, damages, liabilities and judgments in such
proproportion as to reflect the relative fault of Parent on the one hand and
each Selling Shareholder on the other in connection with the statements,
omissions or acts which resulted in such losses, claims, damages, liabilities
or judgments, as well as any other relevant equitable considerations. The
relative fault of Parent on the one hand and of each Selling Shareholder on the
other shall be determined by reference to, among other things, the acts of
Parent and of each Selling Shareholder that gave rise to the losses, claims,
damages, liabilities or judgments referred to herein, whether the untrue or
alleged untrue statement of a material fact or the omission or alleged omission
to state a material fact relates to information supplied by such party, and the
party's relative intent, knowledge, access to information and opportunity to
correct of fraudulent misrepresentation (within the meaning of subsection 11(f)
of the Securities Act) shall be entitled to contribution from any person who
was not guilty of such fraudulent misrepresentation.
11.5 INFORMATION AVAILABLE. So long as the Registration Statement
is effective covering the resale of Merger Shares owned by the Selling
Shareholders, Parent will furnish to the Selling Shareholders who at such time
own in excess of 10% of Parent Common Stock outstanding:
(a) as soon as practicable after available (but, in the
case of Parent's Annual Report to Shareholders, within 120 days after the end
of each fiscal year of Parent), one copy of (i) its Annual Report to
Shareholders (which Annual Report shall contain financial statements audited in
accordance with generally accepted accounting principles by a national firm of
certified public accountants), (ii) its Annual Report on Form 10-K, (iii) its
quarterly reports on Form 10-Q, and (iv) a full copy of the particular
Registration Statement covering the Merger Shares (the foregoing, in each case,
excluding exhibits);
(b) upon the reasonable request of any Selling
Shareholder, all exhibits excluded by parenthetical to paragraph (a) of this
Section 11.5; and
(c) upon the reasonable request of any Selling
Shareholder, an adequate number of copies of the prospectuses to supply to any
other party requiring such prospectuses.
11.6 SUCCESSORS AND ASSIGNS. The provisions of this Section 11
shall inure to the benefit of, and be binding upon, any and all transferees of
the Merger Shares by any Selling Shareholder.
SECTION 12. MISCELLANEOUS PROVISIONS
12.1 FURTHER ASSURANCES. Each party hereto shall execute and cause
to be delivered to each other party hereto such instruments and other
documents, and shall take such other actions, as such other party may
reasonably request (prior to, at or after the Closing) for the purpose of
carrying out or evidencing any of the transactions contemplated by this
Agreement.
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12.2 ATTORNEYS' FEES. Subject to Section 9.3(a), if any action at
law or suit in equity to enforce this Agreement or the rights of any of the
parties hereunder is brought against any party hereto, the prevailing party
shall be entitled to recover reasonable attorneys' fees, costs and
disbursements (in addition to any other relief to which the prevailing party
may be entitled).
12.3 NOTICES. Any notice or other communication required or
permitted to be delivered to any party under this Agreement shall be in writing
to the address or facsimile telephone number set forth beneath the name of such
party below (or to such other address or facsimile telephone number as such
party shall have specified in a written notice given to the other parties
hereto):
if to Parent or Merger Sub:
IPL Systems, Inc.
124 Acton Street
Maynard, MA 01754
Attention: Chief Executive Officer
Facsimile: (508) 461-1321
with a copy to (which shall not constitute notice):
Palmer & Dodge LLP
One Beacon Street
Boston MA 02108-3190
Attention: Nathaniel S. Gardiner, Esq.
Facsimile: (617) 227-4420
if to the Company:
ANDATACO
10140 Mesa Rim Road
San Diego, CA 92121
Attention: W. David Sykes
Facsimile: (619) 453-2676
with a copy to (which shall not constitute notice):
Cooley Godward LLP
4365 Executive Drive, Suite 1100
San Diego, CA 92121
Attention: Jeremy D. Glaser, Esq.
Facsimile: (619) 453-3555
All such notices and other communications shall be deemed to have been received
(a) in the case of personal delivery, on the date of such delivery, (b) in the
case of a telecopy, when the party
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receiving such telecopy shall have confirmed receipt of the communication, (c)
in the case of delivery by nationally-recognized, overnight courier, on the
business day following dispatch and (d) in the case of mailing, on the fifth
business day following such mailing.
12.4 TIME OF THE ESSENCE. Time is of the essence of this
Agreement.
12.5 GOVERNING LAW; VENUE.
(a) This Agreement shall be construed in accordance with,
and governed in all respects by, the internal laws of the State of California
(without giving effect to principles of conflicts of laws).
(b) Any legal action or other legal proceeding relating
to this Agreement or the enforcement of any provision of this Agreement may be
brought or otherwise commenced in any state or federal court located in San
Diego, California. Each party to this Agreement:
(i) expressly and irrevocably consents and
submits to the jurisdiction of each state and federal court located in
San Diego, California (and each appellate court located in the State
of California) in connection with any such legal proceeding;
(ii) agrees that each state and federal court
located in California shall be deemed to be a convenient forum; and
(iii) agrees not to assert (by way of motion, as a
defense or otherwise), in any such legal proceeding commenced in any
state or federal court located in California, any claim that such
party is not subject personally to the jurisdiction of such court,
that such legal proceeding has been brought in an inconvenient forum,
that the venue of such proceeding is improper or that this Agreement
or the subject matter of this Agreement may not be enforced in or by
such court.
(c) Nothing contained in Section 12.5(b) shall be deemed
to limit or otherwise affect the right of any Person entitled to
indemnification hereunder to commence any legal proceeding or otherwise proceed
against the indemnifying party in any other forum or jurisdiction.
12.6 SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon
and shall be enforceable by and inure solely to the benefit of, the parties
hereto and their successors and assigns; provided, however, that this Agreement
may not be assigned by any party without the written consent of the other
parties, and any attempted assignment without such consent shall be void and of
no effect. None of the provisions of this Agreement are intended to provide
any rights or remedies to any Person other than the parties hereto and their
respective successors and assigns (if any).
12.7 REMEDIES CUMULATIVE; SPECIFIC PERFORMANCE. The rights and
remedies of the parties hereto shall be cumulative (and not alternative). The
parties to this Agreement agree that, in the event of any breach or threatened
breach by any party to this Agreement of any covenant,
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obligation or other provision set forth in this Agreement for the benefit of
any other party to this Agreement, such other party shall be entitled (in
addition to any other remedy that may be available to it) to (a) a decree or
order of specific performance or mandamus to enforce the observance and
performance of such covenant, obligation or other provision, and (b) an
injunction restraining such breach or threatened breach.
12.8 WAIVER.
(a) No failure on the part of any Person to exercise any
power, right, privilege or remedy under this Agreement, and no delay on the
part of any Person in exercising any power, right, privilege or remedy under
this Agreement, shall operate as a waiver of such power, right, privilege or
remedy; and no single or partial exercise of any such power, right, privilege
or remedy shall preclude any other or further exercise thereof or of any other
power, right, privilege or remedy.
(b) No Person shall be deemed to have waived any claim
arising out of this Agreement, or any power, right, privilege or remedy under
this Agreement, unless the waiver of such claim, power, right, privilege or
remedy is expressly set forth in a written instrument duly executed and
delivered on behalf of such Person; and any such waiver shall not be applicable
or have any effect except in the specific instance in which it is given.
12.9 AMENDMENTS. This Agreement may not be amended, modified,
altered or supplemented other than by means of a written instrument duly
executed and delivered on behalf of all of the parties hereto.
12.10 SEVERABILITY. In the event that any provision of this
Agreement, or the application of any such provision to any Person or set of
circumstances, shall be determined to be invalid, unlawful, void or
unenforceable to any extent, the remainder of this Agreement, and the
application of such provision to Persons or circumstances other than those as
to which it is determined to be invalid, unlawful, void or unenforceable, shall
not be impaired or otherwise affected and shall continue to be valid and
enforceable to the fullest extent permitted by law.
12.11 DISCLOSURE SCHEDULES. The disclosure schedules shall be
arranged in separate parts corresponding to the numbered and lettered sections
contained in Section 2 or in Section 3, as the case may be, and the information
disclosed in any numbered or lettered part shall be deemed to relate to and to
qualify only the particular representation and warranty set forth in the
corresponding numbered or lettered section in Section 2 or in Section 3, as the
case may be, and shall not be deemed to relate to or to qualify any other
representation or warranty.
12.12 ENTIRE AGREEMENT. This Agreement and the other agreements
referred to herein set forth the entire understanding of the parties hereto
relating to the subject matter hereof and, except for the Confidential
Disclosure Agreement dated as of October 8, 1996 between Parent and the Company
(which shall continue in full force and effect), supersede all prior and
contemporaneous agreements and understandings among or between any of the
parties relating to the subject matter hereof, including without limitation the
LOI.
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12.13 CONSTRUCTION.
(a) For purposes of this Agreement, whenever the context
requires: the singular number shall include the plural, and vice versa; the
masculine gender shall include the feminine and neuter genders; the feminine
gender shall include the masculine and neuter genders; and the neuter gender
shall include the masculine and feminine genders.
(b) The parties hereto agree that any rule of
construction to the effect that ambiguities are to be resolved against the
drafting party shall not be applied in the construction or interpretation of
this Agreement.
(c) As used in this Agreement, the words "include" and
"including," and variations thereof, shall not be deemed to be terms of
limitation, but rather shall be deemed to be followed by the words "without
limitation."
(d) Except as otherwise indicated, all references in this
Agreement to "Sections" and "Exhibits" are intended to refer to Sections of
this Agreement and Exhibits to this Agreement.
12.14 HEADINGS. The bold-faced section headings contained in this
Agreement are for convenience of reference only, shall not be deemed to be a
part of this Agreement and shall not be referred to in connection with the
construction or interpretation of this Agreement.
12.15 COUNTERPARTS. This Agreement may be executed in several
counterparts, each of which shall constitute an original and all of which, when
taken together, shall constitute one and the same instrument.
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The parties hereto have caused this Agreement to be executed and delivered as
of February 28, 1997.
IPL SYSTEMS, INC.,
a Massachusetts corporation
By: ____________________________________
Name:_______________________________
Title:_______________________________
IPL ACQUISITION CORP.,
a Delaware corporation
By: ____________________________________
Name:_______________________________
Title:______________________________
ANDATACO,
a California corporation
By: ____________________________________
Name:_______________________________
Title:______________________________
________________________________________
W. DAVID SYKES
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SCHEDULE A
The following is a list of directors, executive officers and shareholders of
Parent who have executed and delivered to the Company irrevocable proxies to
vote all shares of voting stock held by such persons in favor of the approval of
this Agreement, the Merger and the transactions contemplated thereby. Such
irrevocable proxies have not been modified or revoked and are in full force and
effect:
Anita D. Buchanan
Ronald Gellert
William R. Hauptli
Stephen J. Ippolito
Cornelius P. McMullan
Harris Ravine
Eugene F. Tallone
<PAGE> 74
COMPANY DISCLOSURE SCHEDULE
This Company Disclosure Schedule is made and given with respect to
Section 2 of the Agreement and Plan of Merger and Reorganization (the
"Agreement") dated as of February __, 1997, by and among IPL Systems, Inc., a
Massachusetts corporation ("Parent"), IPL Acquisition Corp., a Delaware
corporation and a wholly owned subsidiary of Parent, ANDATACO, a California
corporation (the "Company") and W. David Sykes, a shareholder of the Company.
Unless the context otherwise requires, all capitalized terms shall have the
same meaning as given to such terms in the Agreement.
1.
<PAGE> 75
2.3 CAPITALIZATION.
As of the Closing Date, the Company has issued an aggregate of 10,000
shares of Common Stock to the following shareholders:
<TABLE>
<CAPTION>
Shareholder Name Certificate No. Number of Shares
- ---------------- --------------- ----------------
<S> <C> <C>
W. David Sykes 6 9,428
Sykes Children's Trust 7 572(1)
------
10,000
</TABLE>
____________
(1) The beneficiaries of the Sykes Children's Trust are Monica Sykes and
Jessica Sykes, the children of W. David Sykes.
The Company has entered into an employment agreement with Richard
Hudzik, the Company's Chief Financial Officer. Pursuant to the employment
agreement, the Company is obligated to issue 50 shares of Common Stock of the
Company to Mr. Hudzik. Such shares are subject to adjustment to prevent
against certain dilutive issuances by the Company. The shares will vest at a
rate of 25% every six months over a period of two years. In the event that 10%
or more of the Company's Common Stock is sold, the shares granted will vest
immediately. The Merger transaction contemplated by the Agreement will cause
the shares which the Company is obligated to issue to Mr. Hudzik to vest upon
the closing of the transaction. Reference is made to Mr. Hudzik's employment
agreement.
The Company has granted to Imperial Bank a warrant to purchase 100
shares of Common Stock of the Company. Such warrant agreement has been
previously provided to Parent.
2.
<PAGE> 76
2.5 ABSENCE OF CHANGES
2.5(D) See Part 2.3 regarding the issuance to Richard Hudzik of a
restricted stock award.
2.5(F) See Part 2.3 regarding the acceleration of vesting of Richard
Hudzik's restricted stock award.
2.5(I)
1. Employment Agreement between the Company and Otto
Bauer, dated as of December 20, 1996;
2. Employment Agreement between the Company and Jim
Hench, dated as of December 20, 1996;
3. Employment Agreement between the Company and Dough
Lenhan dated as of January 6, 1997;
4. Employment Agreement between the Company and Peter
Bille, dated as of December 20, 1996;
5. Employment Agreement between the Company and Bill
Miller, dated as of December 20, 1996;
6. Employment Agreement between the Company and Ray
LeBlond dated as of November 18, 1996;
7. Employment Agreement between the Company and Kevin
Rice dated as of December 20, 1996;
8. Employment Agreement between the Company and Ben
Tran dates as of December 18, 1996;
9. Employment Agreement between the Company and Susan
White dated as of December 20, 1996;
10. Employment Agreement between the Company and Mandi
Wood dated as of December 20, 1996;
11. Employment Agreement between the Company and Jeff
Welsh, dated as of January 6, 1997;
12. Employment Agreement between the Company and Judy
McCormack, dated as of January 16, 1997;
13. Employment Agreement between the Company and Wayne
Poynter, dated as of December 20, 1996.
3.
<PAGE> 77
14. Employment Agreement between the Company and Ron
Schnieber, dated as of December 20, 1996.
15. Employment Agreement between the Company and Kent
Valentine, dated as of January 16, 1997.
16. Employment Agreement between the Company and Dolly
Peck, dated as of December 20, 1996.
17. Employment Agreement between the Company and Tom
Ruetman, dated as of December 20, 1996.
2.5(L) The Company has pledged its assets to secure a line of credit
with Imperial Bank. See Part 2.6(a).
2.5(M) Subordinated Promissory Note dated February 10, 1997 made by
the Company in the original principal amount of $5,195,548.87 payable to the
order of W. David Sykes.
2.5(N) Subsequent to October 31, 1996, the Company paid bonuses to
its employees based on sales. A schedule detailing bonuses paid to employees
earning in excess of $60,000 is attached hereto as Annex 1.
4.
<PAGE> 78
2.6. TITLE TO ASSETS
2.6(A) The Company has entered into a Securities and Loan Agreement
with Imperial Bank dated January 7, 1997 (the "Agreement"). Pursuant to the
terms of the Agreement, the loan shall be secured by the Company's tangible
personal property, including inventory and equipment.
2.6(B) Lease between the Company and Syko Properties dated January
1, 1993, for property located at 10140 Mesa Rim Road, San Diego, California
92121
5.
<PAGE> 79
2.8(B). EQUIPMENT/LEASEHOLDS
The Company has leasehold interests in certain real property under the
following real property leases:
1. Lease between the Company and Syko Properties dated
January 1, 1993, for property located at 10140 Mesa Rim
Road, San Diego, California 92121;
2. Lease between the Company and Doug Collier CPA dated
September 16, 1996, for property located at 5800 Soundview
Drive, #E104, Gig Harbor, Washington, 98335;
3. Lease between the Company and Business Service Center of
Bellevue dated February 13, 1996, for property located at
Plaza Center Building, Ste Nos. 930, 931, 932, Bellevue,
Washington;
4. Lease between the Company and McCandless dated July 14,
1995, for property located at 1001 Elwell Court, Palo
Alto, California;
5. Lease between the Company and Hillside Business Center
dated February 23, 1993, for property located at 940
Enchanted Way, Unit 104, Simi Valley, California 93065;
6. Lease between the Company and Grubb & Ellis dated July 7,
1994, for property located at 8625 SW Cascade Blvd.,
Beaverton, Oregon;
7. Lease between the Company and 25 Mall Road Trust dated
December 8, 1995, for property located at 25 Burlington
Mall Road, Burlington, Massachusetts 01083;
8. Lease between the Company and Provident Life and Accident
Insurance dated September 31, 1993, for property located
at 8521 Leesburg Pike, Vienna, Virginia 22182;
9. Lease between the Company and Kilroy Long Beach Associates
dated March 7, 1996, for property located at Kilroy
Airport Center, 3780 Kilroy Airport Way, Bldg 4, Long
Beach, California 90806; and
10. Month to month Lease between the Company and HMB Partners,
Inc., dated May 28, 1992, for property located at 3333
East Camelback Road, Arizona; and
11. Month to month Lease between the Company and Northwestern
National Life Insurance Company dated March 31, 1995, for
property located at 5251 DTC Parkway, Englewood, Colorado.
6.
<PAGE> 80
2.10 MATERIAL CONTRACTS
2.10(A)(I) The Company has entered into the following employment
agreements:
1. Employment Agreement between the Company and Jim Ard
dated as of October 28, 1996;
2. Employment Agreement between the Company and Richard
Hudzik, dated as of September 20, 1996;
3. Employment Agreement between the Company and Wendell
Keivens, dated as of January 23, 1996;
4. Employment Agreement between the Company and Otto
Bauer, dated as of December 20, 1996;
5. Employment Agreement between the Company and Steve
Kirkpatrick, dated as of February 6, 1995;
6. Employment Agreement between the Company and Joe
Dang, dated as of December 1, 1994;
7. Employment Agreement between the Company and Rob
Latimer, dated as of September 15, 1995;
8. Employment Agreement between the Company and Tom
Lambrose, dated as of November 3, 1995;
9. Employment Agreement between the Company and Jack
Corrao, dated as of July 1, 1993;
10. Employment Agreement between the Company and Craig
Jack, dated as of February 26, 1996;
11. Employment Agreement between the Company and Dave
McMillen, dated as of September 20, 1993;
12. Employment Agreement between the Company and Jim
Hench, dated as of December 20, 1996;
13. Employment Agreement between the Company and Matt
Westover dated as of September 1, 1993;
14. Employment Agreement between the Company and Dough
Lenhan dated as of January 6, 1997;
15. Employment Agreement between the Company and Ray
Imblum, dated as of November 2, 1995;
16. Employment Agreement between the Company and John
Forguson, dated as of March 22, 1996;
7.
<PAGE> 81
17. Employment Agreement between the Company and Peter
Bille, dated as of December 20, 1996;
18. Employment Agreement between the Company and Bill
Miller, dated as of December 20, 1996;
19. Employment Agreement between the Company and Amos
Dealon dated as of October 11, 1996;
20. Employment Agreement between the Company and Ray
LeBlond dated as of November 18, 1996;
21. Employment Agreement between the Company and Kevin
Rice dated as of December 20, 1996;
22. Employment Agreement between the Company and Ben
Tran dates as of December 18, 1996;
23. Employment Agreement between the Company and Margaret
C. Vaughn dated as of September 30, 1996;
24. Employment Agreement between the Company and Susan
White dated as of December 20, 1996;
25. Employment Agreement between the Company and Mandi
Wood dated as of December 20, 1996;
26. Consultant Agreement between the Company and Robert
Villalobos, dated as of October 25, 1996;
27. Consulting Agreement between the Company and J.
Curtis Arbiso dated as of October 15, 1996;
28. Employment Agreement between the Company and Jeff
Welsh, dated as of January 6, 1997;
29. Employment Agreement between the Company and Brian
Gildea, dated as of November 1, 1995;
30. Employment Agreement between the Company and Sam
Kmety, dated as of November 28, 1995;
31. Employment Agreement between the Company and Judy
McCormack, dated as of January 16, 1997;
32. Employment Agreement between the Company and Corey
Preville, dated as of June 1, 1996.
33. Employment Agreement between the Company and Wayne
Poynter, dated as of December 20, 1996.
8.
<PAGE> 82
34. Employment Agreement between the Company and Ron
Schnieber, dated as of December 20, 1996.
35. Employment Agreement between the Company and Kent
Valentine, dated as of January 16, 1997.
36. Employment Agreement between the Company and Dolly
Peck, dated as of December 20, 1996.
37. Employment Agreement between the Company and Tom
Ruetman, dated as of December 20, 1996.
38. Employment Agreement between the Company and Spencer
Spicker, dated as of November 24, 1995.
39. Employment Agreement between the Company and Tony
Cerqueira, dated as of November 15, 1995.
40. Employment Agreement between the Company and Dale
Sykes, dated as of November 24, 1995.
2.10(A)(II) The Company has entered into the following licensing
agreements:
1. Development and Licensing Agreement between the
Company, TriTeal Corporation and John Uhley, dated as of December 6, 1994; and
2. Purchase and License Agreement between the Company
and Mylex Corporation dated as of April 14, 1995.
2.10(A)(IV) The Company has entered into the following
distribution arrangements involving payments or obligations in excess of
$100,000 per year:
1. Distribution Agreement between the Company and
Dataram Corporation dated as of February 21, 1992; and
2. Distribution Agreement between the Company and
Hewlett-Packard Company, dated as of July 29, 1996.
2.10(A)(V) The Company is obligated to issue to Richard Hudzik
certain shares of Common Stock of the Company. See discussion of Richard
Hudzik's employment agreement, Part 2.3
9.
<PAGE> 83
2.10(A)(VII) Security and Loan Agreement dated January 7, 1997
between the Company and Imperial Bank
2.10(A)(IX) The following agreements have been entered into with
Company Related Parties since December 31, 1995:
Employment Agreement dated as of September 20, 1996, between the
Company and Richard Hudzik.
Draft of Employment Agreement to be entered into between the Company
and W. David Sykes.
2.10(A)(XII) The Company has entered into the following agreements
contemplating or involving the payment of cash or other consideration in excess
of $100,000:
1. Purchase Letter of Agreement between the Company and
Wyle Electronics dated as of October 17, 1996;
2. Manufacturer Product Pricing Agreement between the
Company and Sylvest Management Systems Corporation dated October 1, 1996;
3. Purchase Agreement between the Company and Legato
dated as of November 5, 1992;
4. Turnkey Purchasing Agreement between the Company and
Pioneer-Standard Electronics, Inc. dated as of October 21, 1996;
5. OEM Purchase Agreement between the Company and Data
General Corporation dated as of January 3, 1996;
6. OEM Agreement between the Company and Trimm
Industries Inc. dated as of January 29, 1996;
7. Systems Integrator Agreement between the Company and
Seagate Technology, Inc. (undated);
8. Sales Letter of Agreement between the Company and
Kingston Technology Corporation dated as of November 14, 1994;
9. Authorized Reseller Agreement between the Company and
Dataram dated as of June 28, 1995;
10. Purchase Agreement between the Company and Micropolis
Corporation dated as of May 26, 1992;
10.
<PAGE> 84
11. Value Added Reseller Agreement between the Company
and ATL Products, Inc., for Automated Tape Libraries dated as of January 12,
1996;
12. U.S. Maintenance Agreement between the Company and
ATL Products dated as of January 12, 1996; and
13. Master Reseller Agreement between the Company and Axi
Workstations, a division of Hyundai Electronics of America dated as of
September 16, 1993.
11.
<PAGE> 85
2.15(A) EMPLOYEE AND LABOR MATTERS
A schedule identifying employee salaries and bonuses for employees
earning in excess of $60,000 is attached hereto as Annex 2.
12.
<PAGE> 86
2.15(B) EMPLOYEE AND LABOR MATTERS
The Company's medical insurance plan is with Pacific Care. The
Company has the following insurance in place: Life/Accidental Death and Death
Benefits; Long Term Disability Benefits; and Dental Benefits. The Company has
a Qualified 401(k) Standardized Profit Sharing Plan.
13.
<PAGE> 87
215(L) EMPLOYEE AND LABOR MATTERS
The Merger transaction will trigger the vesting of certain restricted
stock awards granted to Richard Hudzik. See Part 2.3.
14.
<PAGE> 88
2.18 RELATED PARTY TRANSACTIONS
The Company has entered into a 5 year Lease with Syko Properties, Inc.
dated January 1, 1993, for office space located at 10140 Mesa Rim Road, San
Diego, CA 92121. W. David Sykes is the sole shareholder of Syko Properties.
Pursuant to a Promissory Note dated February 10, 1997, the Company is
indebted to W. David Sykes in the amount of $5,195,548.87
The Company will enter into an Employment Agreement with W. David
Sykes.
The Company has entered into that certain Employment Agreement dated
as of September 20, 1996 with Richard Hudzik. See discussion in Part 2.3.
15.
<PAGE> 89
2.19 LEGAL PROCEEDING
A sexual harassment claim against the Company is pending. Although a
settlement agreement has not yet been executed, the parties have preliminarily
settled the claim for $10,000 and Andataco has issued a check in that amount.
16.
<PAGE> 90
2.21 NON-CONTRAVENTION; CONSENTS AND NOTICES
2.21(D) The Company has entered into the following agreements
requiring written notice and/or consent to the consummation of the merger:
1. Security and Loan Agreement between the Company and Imperial
Bank dated January 7, 1997;
2. Lease between the Company and Grubb & Ellis dated July 8, 1994
for property located at 8625 SW Cascade Boulevard, Beaverton, Oregon;
3. Lease between the Company and Providence Life and Accident
Insurance dated September 31, 1993 for property located at 8521 Leesburg Pike,
Vienna, Virginia; and
4 Lease between the Company and 25 Mall Road Trust dated
December 8, 1995 for property located at 25 Burlington Mall Road, Burlington,
Massachusetts.
17.
<PAGE> 91
EXHIBIT A
CERTAIN DEFINITIONS
For purposes of the Agreement (including this Exhibit A):
ACQUISITION PROPOSAL. "Acquisition Proposal" shall mean any offer or
proposal (other than an offer or proposal by Parent or the Company, as the case
may be) contemplating or otherwise relating to any Company Acquisition
Transaction or Parent Acquisition Transaction, as the case may be.
AFFILIATES. "Affiliates" shall mean any Person that directly, or
indirectly through one or more intermediaries, controls or is controlled by or
is under common control with, a specified Person.
AGREEMENT. "Agreement" shall mean the Agreement and Plan of Merger
and Reorganization to which this Exhibit A is attached (including the
Disclosure Schedules), as it may be amended from time to time.
AGREEMENT OF MERGER. "Agreement of Merger" shall have the meaning set
forth in Section 1.3.
AS/400 ASSETS. AS/400 Assets shall mean proprietary microcode
technology, customer end-user maintenance agreements and RAID tower inventory
for sale, which relate to International Business Machines AS/400 model computer
systems.
CGCL. "CGCL" shall mean the California General Corporation Law.
CLOSING. "Closing" shall have the meaning set forth in Section 1.3.
CLOSING DATE. "Closing Date" shall have the meaning set forth in
Section 1.3.
CODE. "Code" shall mean the Internal Revenue Code of 1968, as
amended.
COMPANY. "Company" shall mean ANDATACO, a California corporation.
COMPANY ACCOUNTS RECEIVABLE. "Company Accounts Receivable" shall have
the meaning set forth in Section 2.7.
COMPANY ACQUISITION TRANSACTION. "Company Acquisition Transaction"
shall mean any transaction not contemplated by this Agreement involving:
(a) any sale, lease, exchange, transfer or other
disposition of the assets of the Company constituting more than 50% of
the assets of the Company or accounting for
A-1.
<PAGE> 92
more than 50% of the revenues of the Company in any one transaction or
in a series of related transactions;
(b) any offer to purchase, tender offer, exchange offer
or any similar transaction or series of related transactions made by
any Person involving more than 50% of the outstanding shares of the
capital stock of the Company; or
(c) any merger, consolidation, business combination,
share exchange, reorganization or similar transaction or series of
related transactions involving the Company.
COMPANY COMMON STOCK. "Company Common Stock" shall mean all classes
of Company capital stock.
COMPANY CONTRACT. "Company Contract" shall mean any Contract: (a) to
which the Company is a party; (b) by which the Company or any of its assets is
or may become bound or under which the Company has, or may become subject to,
any obligation; or (c) under which the Company has or may acquire any right or
interest.
COMPANY DISCLOSURE SCHEDULE. "Company Disclosure Schedule" shall have
the meaning set forth in the Preamble to Section 2.
COMPANY FINANCIAL STATEMENTS. "Company Financial Statements" shall
mean those financial statements of the Company (including the footnotes
thereto) set forth in clauses (i) and (ii) of Section 2.4(a).
COMPANY OPTION. "Company Option" shall mean any option to purchase
capital stock of the Company held by any director, officer or employee of, or
consultant to, the Company.
COMPANY PENSION PLAN. "Company Pension Plan" shall have the meaning
set forth in Section 2.15(c).
COMPANY PLANS. "Company Plans" shall have the meaning set forth in
Section 2.15(b).
COMPANY PROPRIETARY ASSETS. "Company Proprietary Assets" shall mean
any Proprietary Asset owned by or licensed to the Company or otherwise used by
the Company.
COMPANY RELATED PARTY. "Company Related Party" shall have the meaning
set forth in Section 2.18.
COMPANY RETURNS. "Company Returns" shall have the meaning set forth
in Section 2.14.
COMPANY SHAREHOLDERS. "Company Shareholders" shall mean those holders
of Company Common Stock entitled to receive shares of Parent Common Stock
pursuant to Section 1.5.
A-2.
<PAGE> 93
COMPANY STOCK CERTIFICATE. "Company Stock Certificate" shall have the
meaning set forth in Section 1.6.
COMPANY WARRANT. "Company Warrant" shall mean any warrant option or
other right (excluding Company Options) granted by the Company to any Person to
purchase capital stock of the Company.
COMPANY WELFARE PLAN. "Company Welfare Plan" shall have the meaning
set forth in Section 2.15(d).
CONSENT. "Consent" shall mean any approval, consent, ratification,
permission, waiver or authorization (including any Governmental Authorization).
CONTRACT. "Contract" shall mean any written, oral or other agreement,
contract, subcontract, lease, understanding, instrument, note, warranty,
insurance policy, benefit plan, or legally binding commitment or undertaking of
any nature.
DAMAGES. "Damages" shall include any loss, damage, injury, liability,
claim, demand, settlement, judgment, award, fine, penalty, Tax, fee (including
reasonable attorneys' fees), charge, cost (including costs of investigation) or
expense of any nature. Damages shall not include lost profits, lost savings,
or other indirect, special, incidental or consequential damages whether such
damages are based on tort, contract, or any other legal theory, and even if the
Indemnitee has been advised of the possibility of such damages.
DGCL. "DGCL" shall mean the Delaware General Corporation Law.
EFFECTIVE DATE. "Effective Date" shall have the meaning set forth in
Section 1.3.
EMPLOYEE BENEFIT PLAN. "Employee Benefit Plan" shall have the meaning
specified in Section 3(3) of ERISA.
ENCUMBRANCE. "Encumbrance" shall mean any lien, pledge,
hypothecation, charge, mortgage, security interest, encumbrance, claim,
infringement, interference, option, right of first refusal, preemptive right,
community property interest or restriction of any nature (including any
restriction on the voting of any security, any restriction on the transfer of
any security or other asset, any restriction on the receipt of any income
derived from any asset, any restriction on the use of any asset and any
restriction on the possession, exercise or transfer of any other attribute of
ownership of any asset).
ENTITY. "Entity" shall mean any corporation (including any non-profit
corporation), general partnership, limited partnership, limited liability
partnership, joint venture, estate, trust, company, limited liability company,
joint stock company, firm or other enterprise, association, organization or
entity.
ENVIRONMENTAL LAW. "Environmental Law" shall have the meaning set
forth in Section 2.16.
A-3.
<PAGE> 94
ERISA. "ERISA" shall mean the Employee Retirement Income Security Act
of 1974, as amended.
ESCROW AGENT. "Escrow Agent" shall be that person or entity appointed
to act as escrow agent for the Shareholder's Indemnity Shares pursuant to the
Escrow Agreement.
ESCROW PERIOD. "Escrow Period" shall have the meaning set forth in
Section 1.8(a).
EXCHANGE ACT. "Exchange Act" shall mean the Securities Exchange Act
of 1934, as amended.
EXCHANGE RATIO. "Exchange Ratio" shall have the meaning set forth in
Section 1.5(b)(ii).
EXPIRATION DATE. "Expiration Date" shall have the meaning set forth
in Section 10.1.
GOVERNMENTAL AUTHORIZATION. "Governmental Authorization" shall mean
any: (a) permit, license, certificate, franchise, permission, clearance,
registration, qualification or authorization issued, granted, given or
otherwise made available by or under the authority of any Governmental Body or
pursuant to any Legal Requirement; or (b) right under any Contract with any
Governmental Body.
GOVERNMENTAL BODY. "Governmental Body" shall mean any: (a) nation,
state, commonwealth, province, territory, county, municipality, district or
other jurisdiction of any nature; (b) federal, state, local, municipal, foreign
or other government; or (c) governmental or quasi-governmental authority of any
nature (including any governmental division, department, agency, commission,
instrumentality, official, organization, unit, body or Entity and any court or
other tribunal).
HSR ACT. "HSR Act" shall mean the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended.
INDEMNIFIED PARTY. "Indemnified Party" shall have the meaning set
forth in Section 10.6.
INDEMNIFYING PARTY. "Indemnifying Party" shall have the meaning set
forth in Section 10.6.
ISSUANCE. "Issuance" shall have the meaning set forth in Section
11.1(a).
LEGAL PROCEEDING. "Legal Proceeding" shall mean any action, suit,
litigation, arbitration, proceeding (including any civil, criminal,
administrative, investigative or appellate proceeding), hearing, inquiry,
audit, examination or investigation commenced, brought, conducted or heard by
or before, or otherwise involving, any court or other Governmental Body or any
arbitrator or arbitration panel.
A-4.
<PAGE> 95
LEGAL REQUIREMENT. "Legal Requirement" shall mean any federal, state,
local, municipal, foreign or other law, statute, constitution, principle of
common law, resolution, ordinance, code, edict, decree, rule, regulation,
ruling or requirement issued, enacted, adopted, promulgated, implemented or
otherwise put into effect by or under the authority of any Governmental Body.
LOI. "LOI" shall mean that certain Letter of Intent dated February
10, 1997 by and among Parent, the Company and Shareholder.
MATERIAL ADVERSE EFFECT. A violation of a representation or warranty
or any other matter will be deemed to have a "Material Adverse Effect" on the
Company or Parent, as the case may be, if such violation or other matter
(considered together with all other matters that would constitute exceptions to
such representations and warranties set forth in the Agreement but for the
presence of "Material Adverse Effect" or other materiality qualifications, or
any similar qualifications, in such representations and warranties) would have
a material adverse effect on the Company's or, taken as a whole, Parent's and
Parent's Subsidiaries, as the case may be, business, condition, assets,
liabilities, operations, financial performance or prospects.
MATERIAL COMPANY CONTRACT. "Material Company Contract" shall have the
meaning set forth in Section 2.10(a).
MATERIAL PARENT CONTRACT. "Material Parent Contract" shall have the
meaning set forth in Section 3.10.
MATERIALS OF ENVIRONMENTAL CONCERN. "Materials of Environmental
Concern" shall have the meaning set forth in Section 2.16.
MERGER SHARES. "Merger Shares" shall have the meaning set forth in
Section 1.5(b).
MERGER SUB. "Merger Sub" shall mean IPL Acquisition Corp., a Delaware
corporation.
PARENT. "Parent" shall mean IPL Systems, Inc., a Massachusetts
corporation.
PARENT ACCOUNTS RECEIVABLE. "Parent Accounts Receivable" shall have
the meaning set forth in Section 3.7.
PARENT ACQUISITION TRANSACTION. "Parent Acquisition Transaction"
shall mean any transaction not contemplated by this Agreement involving:
(a) any sale, lease exchange, transfer or other
disposition of the assets of Parent or any subsidiary of Parent
constituting more than 50% of the consolidated assets of Parent or
accounting for more than 50% of the consolidated revenues of Parent in
any one transaction or in a series of related transactions.
(b) any offer to purchase, tender offer, exchange offer
or any similar transaction or series of related transactions made by
any Person involving more than 50%
A-5.
<PAGE> 96
of the outstanding shares of the capital stock of Parent or the filing
of any Statement on Schedule 14D-1 with the SEC in connection
therewith.
(c) any merger, consolidation, business combination,
share exchange, reorganization or other similar transaction or series
of related transactions involving Parent.
PARENT COMMON STOCK. "Parent Common Stock" shall mean Parent's Class
A Common Stock, $0.01 par value per share.
PARENT DISCLOSURE SCHEDULE. "Parent Disclosure Schedule" shall have
the meaning set forth in the Preamble to Section 3.
PARENT INDEMNITY SHARES. "Parent Indemnity Shares" shall have the
meaning set forth in Section 1.8(b).
PARENT PENSION PLAN. "Parent Pension Plan" shall have the meaning set
forth in Section 3.15(d).
PARENT PLANS. "Parent Plans" shall have the meaning set forth in
Section 3.15(b).
PARENT PROPRIETARY ASSETS. "Parent Proprietary Assets" shall mean any
Proprietary Assets owned by or licensed to, or otherwise used by, Parent or a
Parent Subsidiary.
PARENT RELATED PARTY. "Parent Related Party" shall have the meaning
set forth in Section 3.18.
PARENT RETURNS. "Parent Returns" shall have the meaning set forth in
Section 3.14.
PARENT SEC DOCUMENTS. "Parent SEC Documents" shall have the meaning
set forth in Section 3.3.
PARENT SHAREHOLDERS' MEETING. "Parent Shareholders' Meeting" shall
have the meaning set forth in Section 5.6(a).
PARENT SUBSIDIARIES. "Parent Subsidiaries" shall have the meaning set
forth in Section 3.1.
PARENT WELFARE PLAN. "Parent Welfare Plan" shall have the meaning set
forth in Section 3.15(d).
PERSON. "Person" shall mean any individual, Entity or Governmental
Body.
PRE-CLOSING PERIOD. "Pre-Closing Period" shall have the meaning set
forth in Section 4.1.
A-6.
<PAGE> 97
PROPRIETARY ASSET. "Proprietary Asset" shall mean any: (a) patent,
patent application, trademark (whether registered or unregistered), trademark
application, trade name, fictitious business name, service mark (whether
registered or unregistered), service mark application, copyright (whether
registered or unregistered), copyright application, maskwork, maskwork
application, trade secret, know-how, customer list, franchise, system, computer
software, source code, computer program, invention, design, blueprint,
engineering drawing, proprietary product, technology, proprietary right or
other intellectual property right or intangible asset; or (b) right to use or
exploit any of the foregoing.
REGISTRATION PERIOD. "Registration Period" shall have the meaning set
forth in Section 11.1(c).
REGISTRATION STATEMENT. "Registration Statement" shall have the
meaning set forth in Section 11.1(a).
REPRESENTATIVES. "Representatives" shall mean officers, directors,
employees, agents, attorneys, accountants, advisors and representatives.
REQUISITE VOTE.
SEC. "SEC" shall mean the United States Securities and Exchange
Commission.
SECURITIES ACT. "Securities Act" shall mean the Securities Act of
1933, as amended.
SELLING SHAREHOLDERS. "Selling Shareholders" shall have the meaning
set forth in Section 11.3(a).
SHAREHOLDER DEBT. "Shareholder Debt" shall mean all outstanding
indebtedness of the Company owed to W. David Sykes including that certain
Promissory Note dated February 10, 1997 in the original principal amount of
$5,195,548.87.
SHAREHOLDERS' REPRESENTATIVE. "Shareholders' Representative" shall
have the meaning set forth in Section 1.8(a).
SUPERIOR PROPOSAL. "Superior Proposal" shall have the meaning set
forth in Section 5.3(a).
SURVIVING CORPORATION. "Surviving Corporation" shall have the meaning
set forth in Section 1.1.
TAXES. "Taxes" shall mean any tax (including any income tax,
franchise tax, capital gains tax, gross receipts tax, value-added tax, surtax,
excise tax, ad valorem tax, transfer tax, stamp tax, sales tax, use tax,
property tax, business tax, withholding tax or payroll tax), levy, assessment,
tariff, duty (including any customs duty), deficiency or fee, and any related
charge or amount (including any fine, penalty or interest), imposed, assessed
or collected by or under the authority of any Governmental Body.
A-7.
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TAX RETURN. "Tax Return" shall mean any return (including any
information return), report, statement, declaration, estimate, schedule,
notice, notification, form, election, certificate or other document or
information filed with or submitted to, or required to be filed with or
submitted to, any Governmental Body in connection with the determination,
assessment, collection or payment of any Tax or in connection with the
administration, implementation or enforcement of or compliance with any Legal
Requirement relating to any Tax.
THIRD PARTY CLAIM. "Third Party Claim" shall have the meaning set
forth in Section 10.6.
TRIGGERING EVENT. A "Triggering Event" shall be deemed to have
occurred if: (i) the Board of Directors of Parent shall have failed to
recommend, or shall for any reason have withdrawn or shall have amended or
modified in a manner adverse to the Company its unanimous recommendation in
favor of, the Merger or approval or adoption of this Agreement; (ii) Parent
shall have failed to include in the Proxy Statement the unanimous
recommendation of the Board of Directors of Parent in favor of approval and
adoption of this Agreement and the Merger; (iii) the Board of Directors of
Parent shall have approved, endorsed or recommended any Acquisition Proposal;
(iv) Parent shall have entered into any letter of intent or similar document or
any Contract relating to any Acquisition Proposal; (v) Parent shall have failed
to hold the Parent Shareholders' Meeting as promptly as practicable and in any
event within 45 days after the definitive Proxy Statement was filed with the
SEC; (vi) a tender or exchange offer relating to securities of Parent shall
have been commenced and Parent shall not have published, sent or given to its
securityholders, within ten (10) business days after the commencement of such
tender or exchange offer, a statement disclosing that Parent recommends
rejection of such tender or exchange offer; or (vii) an Acquisition Proposal is
publicly announced, and Parent (A) fails to issue a press release announcing
its opposition to such Acquisition Proposal within ten (10) business days after
such Acquisition Proposal is announced or (B) otherwise fails to actively
oppose such Acquisition Proposal.
UNAUDITED INTERIM BALANCE SHEET. "Unaudited Interim Balance Sheet"
shall have the meaning set forth in Section 2.4(a)(ii).
A-8.
<PAGE> 99
EXHIBIT B
FORM OF AMENDED AND RESTATED ARTICLES OF INCORPORATION OF SURVIVING CORPORATION
B-1.
<PAGE> 100
EXHIBIT C
DIRECTORS AND OFFICERS OF THE SURVIVING CORPORATION
W. David Sykes President and Vice Chariman of the Board
Harris Ravine Chief Executive Officer and Chairman of the
Board
Richard Hudzik Chief Financial Officer
(other directors and officers of the Surviving Corporation shall be
determined by the parties prior to closing.
C-1.
<PAGE> 101
EXHIBIT D
FORM OF ESCROW AGREEMENT
THIS ESCROW AGREEMENT dated as of ________, 1997 (the "Agreement") is
made and entered into by and among IPL Systems, Inc., a Massachusetts
corporation ("Parent"), ___________, a [commercial bank or trust company
selected by Parent] (the "Escrow Agent"), the undersigned shareholders (the
"Shareholders") of ANDATACO, a California corporation (the "Company") and W.
David Sykes, as representative of the shareholders of the Company (the
"Shareholders Representative").
RECITALS
WHEREAS, the Company, Parent, IPL Acquisition Corp., a Delaware
corporation and wholly owned subsidiary of Parent ("Merger Sub") and W. David
Sykes, a shareholder of the Company are parties to that certain Agreement and
Plan of Merger and Reorganization dated February 28, 1997 (the "Merger
Agreement"), whereby Merger Sub will be merged with and into the Company (the
"Merger") and the Company will be the surviving corporation and become a wholly
owned subsidiary of Parent;
WHEREAS, pursuant to the Merger Agreement, an aggregate of ________
shares of Common Stock of Parent are to be issued in the Merger to the
Shareholders (the "Merger Shares");
WHEREAS, the Merger Agreement provides that ten percent (10%) of the
Merger Shares to be issued to the Shareholders in the Merger (the "Shareholders
Indemnity Shares") be placed in an escrow account as collateral to secure
certain indemnification obligations of the Shareholders under the Merger
Agreement on the terms and conditions set forth herein; and
WHEREAS, the parties hereto desire to establish the terms and
conditions pursuant to which such escrow account will be established and
maintained.
AGREEMENT
NOW, THEREFORE, the parties hereby agree as follows:
1. DEFINED TERMS. Capitalized terms used in this Agreement and
not otherwise defined shall have the meanings given them in the Merger
Agreement.
2. ESCROW AND INDEMNIFICATION.
(A) ESCROW ACCOUNT. On the Effective Date, Parent shall
or shall cause its transfer agent to deposit with the Escrow Agent the
Shareholders Indemnity Shares, such deposit to constitute an escrow account
(the "Escrow Account"). The Shareholders Indemnity Shares allocable to a
Shareholder shall be delivered by Parent or Parent's transfer agent to the
Escrow
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<PAGE> 102
Agent in the form of duly authorized stock certificates issued in the
respective names of each Shareholder thereof together with endorsed stock
powers. The Shareholders Indemnity Shares shall be held as a trust fund and
shall not be subject to any lien, attachment, trustee process or any other
judicial process of any creditor of any party hereto. The Escrow Agent agrees
to accept delivery of the Shareholders Indemnity Shares and to hold such in the
Escrow Account subject to the terms and conditions of this Agreement.
(B) SHAREHOLDER INDEMNIFICATION. Pursuant to Section
10.3 of the Merger Agreement, the Shareholders shall hold harmless and
indemnify Parent from and against certain Damages that may be suffered by
Parent. The Shareholders Indemnity Shares shall be security for such indemnity
obligation, subject to the limitations, and in the manner provided, in the
Merger Agreement and this Agreement.
(C) LIMITATION ON LIABILITY. In no event shall a
Shareholder's liability for any Damages with respect to which indemnification
is sought be in excess of such Shareholder's pro rata amount of the
Shareholders Indemnity Shares and no Shareholder shall have any personal
liability for any Damages except with respect to Damages determined by a court
of competent jurisdiction in a proceeding from which no further appeal is
permitted to be taken to have been primarily caused by fraud or intentional
misrepresentation.
(D) DIVIDENDS, VOTING AND RIGHTS OF OWNERSHIP. Any cash
dividends paid out of current earnings and profits in respect of the
Shareholders Indemnity Shares shall be distributed currently by Parent (or
Parent's transfer agent) to the Shareholders and will not be available to
satisfy the indemnification obligations of the Shareholders. The Shareholders
will have the right to vote the Shareholders Indemnity Shares so long as such
Shareholders Indemnity Shares are held in escrow and Parent will take all
reasonable steps necessary to allow the exercise of such rights. While the
Shareholders Indemnity Shares remain in the Escrow Agent's possession pursuant
to this Agreement, the Shareholders will retain and will be able to exercise
all incidents of ownership of such shares that are not inconsistent with the
terms of this Agreement.
(E) NO TRANSFER BY SHAREHOLDERS. The Shareholders may
not, without the prior written consent of Parent, sell, assign, pledge or
otherwise transfer any of the Shareholders Indemnity Shares or any beneficial
interest therein prior to the delivery of such shares to the Shareholders.
(F) ESCROW AGENT'S POWER TO TRANSFER. The Escrow Agent
is hereby granted the power to effect any transfer of the Shareholders
Indemnity Shares contemplated by this Agreement. Parent shall cooperate with
the Escrow Agent in promptly issuing (or causing Parent's transfer agent to
issue) stock certificates to effect such transfer.
3. RELEASE OF INDEMNITY SHARES TO SATISFY CLAIMS FOR DAMAGES.
(A) DELIVERY OF CLAIM NOTICE. If Parent has incurred or
suffered Damages for which it is entitled to indemnification under Section 10.3
of the Merger Agreement, Parent shall, on or prior to the Expiration Date, give
written notice of such claim (a "Claim Notice") to the
D-2.
<PAGE> 103
Shareholders Representative, with a copy being provided to the Escrow Agent.
Each Claim Notice shall state the amount of claimed Damages (the "Claimed
Amount") and the basis for such claim. Parent shall not make any claim for
Damages after the Expiration Date.
(B) RESPONSE NOTICE; UNCONTESTED CLAIMS. Within ten (10)
days of receipt of a Claim Notice, the Shareholders Representative shall
provide to Parent, with a copy being provided to the Escrow Agent, a written
response (the "Response Notice") in which the Shareholders Representative shall
(i) agree that the full Claimed Amount is valid, (ii) agree that part, but not
all, of the Claimed Amount (the "Agreed Amount") is valid, or (iii) contest
that any of the Claimed Amount is valid. The Shareholders Representative may
contest all or a portion of a Claimed Amount only based upon a good faith
belief that all or such portion of the Claimed Amount does not constitute
Damages for which Parent is entitled to indemnification under Section 10.3 of
the Merger Agreement. If no response notice is delivered by the Shareholders
Representative within such ten (10) day period, the Shareholders Representative
shall be deemed to have agreed that the Claimed Amount is valid and that Parent
is entitled to indemnification.
(C) UNCONTESTED CLAIMS. If the Shareholders
Representative in the Response Notice agrees or is deemed to have agreed that
the Claimed Amount is valid, the Escrow Agent shall promptly following the
required delivery date for the Response Notice release to Parent that number of
Shareholders Indemnity Shares sufficient to satisfy the Claimed Amount, as
determined pursuant to Section 10.5 of the Merger Agreement.
(D) PARTIALLY CONTESTED CLAIMS. If the Shareholders
Representative in the Response Notice agrees that part, but not all, of the
Claimed Amount is valid, the Escrow Agent shall promptly following the required
delivery date for the Response Notice release to Parent that number of
Shareholders Indemnity Shares sufficient to satisfy the Agreed Amount, as
determined pursuant to Section 10.5 of the Merger Agreement.
(E) FULLY CONTESTED CLAIMS. If the Shareholders
Representative in the Response Notice contests the release of all or a part of
the Claimed Amount (the "Contested Amount"), the Escrow Agent shall continue to
hold that number of Shareholders Indemnity Shares necessary to satisfy the
Contested Amount, as determined pursuant to Section 10.5 of the Merger
Agreement, notwithstanding the occurrence of the Expiration Date, until (i)
delivery of a copy of a settlement agreement executed by the Shareholders
Representative and Parent setting forth instructions to the Escrow Agent as to
the number of Shareholders Indemnity Shares to be released to Parent, if any,
or (ii) delivery of a copy of a court order setting forth instructions to the
Escrow Agent as to the number of Shareholders Indemnity Shares to be released
to Parent, if any.
4. RELEASE OF SHAREHOLDERS INDEMNITY SHARES. Within five (5)
business days after the Expiration Date, the Escrow Agent shall distribute to
the Shareholders on a pro rata basis, all of the Shareholders Indemnity Shares
then being held by the Escrow Agent. Notwithstanding the foregoing, if Parent
shall assert a claim for indemnification prior to the Expiration Date and such
claim has not yet been resolved, the Escrow Agent shall retain in escrow that
number of
D-3.
<PAGE> 104
Shareholders Indemnity Shares reasonably deemed necessary to satisfy the
Claimed Amount of Damages.
5. FEES AND EXPENSES. Upon execution of this Agreement and
initial deposit of the Shareholders Indemnity Shares with the Escrow Agent, an
acceptance fee of $___________ will be payable to the Escrow Agent. This
acceptance fee will cover the Escrow Period. In the event the Escrow Agent is
required to administer the Escrow Account after the Expiration Period, an
administrative fee will be payable to the Escrow Agent in accordance with the
Escrow Agent's fee schedules in effect from time to time. The Escrow Agent
will also be entitled to reimbursement for extraordinary expenses incurred in
performance of its duties hereunder. Parent shall pay the fees and expenses of
the Escrow Agent for the services to be rendered by the Escrow Agent hereunder.
6. LIMITATION OF ESCROW AGENT'S LIABILITY.
(A) The Escrow Agent shall incur no liability with
respect to any action taken or suffered by it in reliance upon any notice,
direction, instruction, consent, statement or other documents believed by it to
be genuine and duly authorized, nor for other action or inaction except its own
willful misconduct or negligence. The Escrow Agent shall have no duty to
inquire into or investigate the validity, accuracy or content of any document
delivered to it nor shall the Escrow Agent be responsible for the validity or
sufficiency of this Agreement. In all questions arising under this Agreement,
the Escrow Agent may rely on the advice of counsel, and for anything done,
omitted or suffered in good faith by the Escrow Agent based on such advice the
Escrow Agent shall not be liable to anyone. The Escrow Agent shall not be
required to take any action hereunder involving any expense unless the payment
of such expense is made or provided for in a manner reasonably satisfactory to
it.
(B) In the event conflicting demands are made or
conflicting notices are served upon the Escrow Agent with respect to the
Shareholders Indemnity Shares, the Escrow Agent will have the absolute right,
at the Escrow Agent's election, to do either or both of the following: (i)
resign so a successor can be appointed pursuant to Section 9 hereof, or (ii)
file a suit in interpleader and obtain an order from a court of competent
jurisdiction requiring the parties to interplead and litigate in such court
their several claims and rights among themselves. In the event such
interpleader suit is brought, the Escrow Agent will thereby be fully released
and discharged from all further obligations imposed upon it under this
Agreement, and Parent will pay the Escrow Agent all costs, expenses and
reasonable attorneys' fees expended or incurred by the Escrow Agent pursuant to
the exercise of the Escrow Agent's rights under this Section 6(b) (such costs,
fees and expenses will be treated as extraordinary fees and expenses for the
purposes of Section 5 hereof).
(C) Parent and Shareholders, jointly and severally,
hereby agree to indemnify the Escrow Agent for, and hold it harmless against,
any loss, damage, liability or expense incurred without negligence or willful
misconduct on the part of Escrow Agent, arising out of or in connection with
its carrying out of its duties hereunder. As among themselves, each of Parent
and Shareholders shall be liable for one- half (1/2) of such amounts and Parent
shall be entitled to
D-4.
<PAGE> 105
reimbursement from the Shareholders Indemnity Shares of the Shareholders' share
of any such loss, liability or expense.
7. TERMINATION. This Agreement shall terminate upon the later of
the Expiration Date or the release by the Escrow Agent of all of the
Shareholders Indemnity Shares in accordance with this Agreement.
8. NOTICES. All notices, instruction and other communications
given hereunder or in connection herewith shall be in writing. Any such
notice, instruction or communication shall be sent either (i) by registered or
certified mail, return receipt requested, postage prepaid, or (ii) via a
reputable nationwide overnight courier service, in each case to the address set
forth below. Any such notice, instruction or communication shall be deemed to
have been delivered three business days after it is sent prepaid, or one (1)
business day after it is sent via a reputable nationwide overnight courier
service.
If to Parent: IPL Systems, Inc.
----------------------------------
----------------------------------
Attn: President
If to the Shareholders: W. David Sykes
----------------------------------
----------------------------------
If to the Escrow Agent:
----------------------------------
----------------------------------
----------------------------------
Any party may give any notice, instruction or communication in
connection with this Agreement using any other means (including personal
delivery, telecopy or ordinary mail), but no such notice, instruction or
communication shall be deemed to have been delivered unless and until it is
actually received by the party to whom it was sent. Any party may change the
address to which notices, instructions or communications are to be delivered by
giving the other parties to this Agreement notice thereof in the manner set
forth in this Section 8.
9. SUCCESSOR ESCROW AGENT. In the event the Escrow Agent becomes
unavailable or unwilling to continue in its capacity herewith, the Escrow Agent
may resign and be discharged from its duties or obligations hereunder by giving
resignation to the parties to this Agreement, specifying not less than 60 days'
prior written notice of the date when such resignation shall take effect.
Parent may appoint a successor Escrow Agent without the consent of the
Shareholders Representative so long as such successor is a bank with assets of
at least $500 million, and may appoint any other successor Escrow Agent with
the consent of the Shareholders Representative, which shall not be unreasonably
withheld. If, within such notice period, Parent provides to the
D-5.
<PAGE> 106
Escrow Agent written instructions with respect to the appointment of a
successor Escrow Agent and directions for the transfer of the Shareholders
Indemnity Shares then held by the Escrow Agent to such successor, the Escrow
Agent shall act in accordance with such instructions and promptly transfer the
Shareholders Indemnity Shares to such designated successor.
10. SHAREHOLDERS REPRESENTATIVE. For purposes of this Agreement,
the Shareholders hereby consent to the appointment of W. David Sykes, as the
Shareholders Representative and as attorney-in-fact for and on behalf of the
each Shareholder, and the taking by the Shareholders Representative of any and
all actions and the making of any decisions required or permitted to be taken
by him under this Agreement, including without limitation, the exercise of the
power to (i) authorize delivery to Parent of the Shareholders Indemnity Shares,
or any portion thereof, in satisfaction of Claims, (ii) agree to negotiate,
enter into settlements and compromises with respect to such Claims, (iii)
resolve any Claims, and (iv) take all actions necessary in the judgment of the
Shareholders Representative for the accomplishment of the foregoing and all of
the other terms, conditions and limitations contained in this Agreement.
11. GENERAL.
(A) GOVERNING LAW; FORUM. This Agreement shall be
construed in accordance with, and governed in all respects by, the internal
laws of the State of California (without giving effect to principles of
conflicts of laws). Any legal action or other legal proceeding relating to
this Agreement or the enforcement of any provision of this Agreement may be
brought or otherwise commenced in any state or federal court located in San
Diego, California. Each party to this Agreement:
(I) expressly and irrevocably consents and
submits to the jurisdiction of each state and federal court located in San
Diego, California (and each appellate court located in the State of California)
in connection with any such legal proceeding;
(II) agrees that each state and federal court
located in California shall be deemed to be a convenient forum; and
(III) agrees not to assert (by way of motion, as a
defense or otherwise), in any such legal proceeding commenced in any state or
federal court located in California, any claim that such party is not subject
personally to the jurisdiction of such court, that such legal proceeding has
been brought in an inconvenient forum, that the venue of such proceeding is
improper or that this Agreement or the subject matter of this Agreement may not
be enforced in or by such court.
(B) COUNTERPARTS. This Agreement may be executed in two
or more counterparts, each of which shall be decreed an original, but all of
which together shall constitute one and the same instrument.
(C) ENTIRE AGREEMENT. Except as set forth in the Merger
Agreement, this Agreement constitutes the entire understanding and agreement of
the parties with respect to
D-6.
<PAGE> 107
the subject matter of this Agreement and supersedes all prior agreements or
understandings, written or oral, between the parties with respect to the
subject matter hereof.
(D) WAIVERS. No waiver by any party hereto of any
condition or of any breach of any provision of this Agreement shall be
effective unless in writing. No waiver by any party of any such condition or
breach, in any one instance, shall be deemed to be a further or continuing
waiver of any such condition or breach or a waiver of any other condition or
breach of any other provision contained herein.
(E) AMENDMENT. This Agreement may be amended only with
the written consent of Parent, the Escrow Agent and the Shareholders
Representative (or their duly designated successors).
D-7.
<PAGE> 108
IN WITNESS WHEREOF,the parties hereto have duly executed this
Agreement as of the day and year first above written.
IPL SYSTEMS, INC.
By:
--------------------------
Name:
------------------------
Title:
-----------------------
[ESCROW AGENT]
By:
--------------------------
Name:
------------------------
Title:
-----------------------
SHAREHOLDERS REPRESENTATIVE:
-----------------------------
W. David Sykes
SHAREHOLDERS:
-----------------------------
W. DAVID SYKES,
as shareholder
SYKES CHILDREN'S TRUST
By:
-------------------------
James Harlan, Trustee
D-8.
<PAGE> 109
EXHIBIT E
FORM OF SHAREHOLDER EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (the "Agreement") is made and
entered into as of February __, 1997, by and between ANDATACO, a California
corporation (the "Company"), and W. David Sykes ("Employee"). Capitalized
terms used herein and not otherwise defined shall have the meaning given to
such terms in that certain Agreement and Plan of Merger and Reorganization
dated as of February 28, 1997 by and among IPL Systems, Inc., IPL Acquisition
Corp., the Company and Employee.
1. GENERAL DUTIES. The Company hereby employs Employee, and
Employee hereby agrees to serve, as the President and Vice Chairman of the
Board of Directors of the Company during the Term (as defined in Section 2)
hereof. Employee shall have such duties and powers as are normally accorded to
a President of a corporation and shall loyally, conscientiously and in good
faith perform such duties as may be assigned to him from time to time by the
Board of Directors of the Company.
2. TERM AND TERMINATION.
(A) TERM OF AGREEMENT.
(I) ORIGINAL TERM. Unless earlier terminated as
provided in this Agreement, the term of Employee's employment shall commence on
the Closing Date and shall continue until June 30, 2002 (the "Original Term").
(II) ONE-YEAR RENEWALS. Unless (A) the Company or
Employee delivers written notice of its or his intention not to extend the term
of this Agreement on or prior to the date that, with respect to the Original
Term, is six (6) months prior to the expiration of the Original Term or, with
respect to any Annual Renewal Period (as defined below), is three (3) months
prior to the expiration of the then applicable Annual Renewal Period, if any,
or (B) this Agreement is otherwise terminated prior to the expiration of the
Original Term or the then applicable Annual Renewal Period as provided in this
Agreement, this Agreement shall be automatically renewed for an unlimited
number of additional one (1) year periods (each an "Annual Renewal Period").
The Original Term and any Annual Renewal Periods are hereinafter collectively
referred to as the "Term."
(B) TERMINATION BY COMPANY FOR CAUSE. Notwithstanding
anything in this Agreement to the contrary, express or implied, or Section 2924
of the California Labor Code or any similar provision, this Agreement (and
Employee's employment) may be terminated immediately and without notice by the
Company for "Cause." For the purposes of this Agreement, "Cause" shall be
defined as Employee's:
(I) engaging or participating in any activity
which is directly competitive with or intentionally injurious to the Company;
E-1.
<PAGE> 110
(II) commission of any fraud against the Company
or use or appropriation for his personal use and benefit of any funds, assets
or properties of the Company not authorized by the Company to be so used or
appropriated; or
(III) knowing violation of law, conviction for
commission of a felony or conviction for a crime involving dishonesty or moral
turpitude.
Upon termination of this Agreement by the Company pursuant to
this Section 2(b), the Base Salary (as defined in Section 4) payable to
Employee shall be prorated to the date of termination, and the Company shall
have no further obligations to Employee under this Agreement.
(C) TERMINATION BY COMPANY WITHOUT CAUSE.
Notwithstanding anything in this Agreement to the contrary, express or implied,
or Section 2924 of the California Labor Code or any similar provision, this
Agreement (and Employee's employment) may be terminated at the will of the
Company without Cause upon delivery of written notice to Employee; provided,
however, that Employee shall nonetheless be entitled to receive his Base Salary
for the number of years (or part thereof for any partial year) remaining on the
Original Term or if less than one (1) year remains on the Original Term or the
Original Term shall have expired, then for a period of one (1) year from the
date of termination. If the Company elects to terminate this Agreement
pursuant to this subparagraph (c), the Company shall have no further
obligations to Employee under this Agreement other than the payment of the Base
Salary referenced in the preceding sentence. Notwithstanding the foregoing, in
the event Employee is terminated by the Company under this Section 2(c) and
Employee thereafter engages or participates in any activity described in
Section 2(b)(i), the Company shall have no further obligations to pay Employee
as set forth in this Section 2(c).
(D) VOLUNTARY TERMINATION BY EMPLOYEE. Employee may
voluntarily terminate his employment with the Company by giving the Company
fourteen (14) days advance written notice. In the event Employee voluntarily
terminates his employment with the Company, the Company shall pay Employee his
Base Salary through the date of termination and the Company shall thereafter
have no further obligations to Employee under this Agreement.
(E) AUTOMATIC TERMINATION. This Agreement (and
Employee's employment) shall terminate immediately and without the necessity of
any notice or any other action by any party hereto upon the first to occur of
any of the following:
(I) The death of Employee;
(II) The loss of Employee's legal capacity to
contract;
(III) The inability of Employee to perform his
duties or responsibilities hereunder, as a result of mental or physical ailment
or incapacity, for an aggregate of ninety (90) calendar days during any
calendar year (whether or not consecutive) unless waived in writing by Company;
or
E-2.
<PAGE> 111
(IV) the expiration of the Term of this Agreement,
provided that timely notice has been given as required by Section 2(a)(ii).
Upon termination of this Agreement pursuant to this
subparagraph (e), the Base Salary payable to Employee shall be prorated to the
date of termination, and the Company shall have no further obligations to
Employee under this Agreement.
3. EXCLUSIVITY OF EMPLOYMENT.
(A) LOYAL AND CONSCIENTIOUS SERVICE. During the Term of
this Agreement, Employee shall devote his full business time, interest,
abilities and energies to the Company and use his best efforts, skills and
abilities to promote the general welfare and interest of the Company and to
preserve, maintain and enhance its business and business relationships with its
customers and employees.
(B) NONCOMPETITION. During Employee's employment with
the Company, Employee shall not, directly or indirectly, render services of a
business, professional or commercial nature to any other person or entity that
competes with the Company's business or welfare, whether for compensation or
otherwise, or engage in any business activities competitive with the Company's
business or welfare, whether alone, as an employee, as a partner, or as a
shareholder, officer or director of any other corporation or other business
entity, or as a trustee, fiduciary or in any other similar representative
capacity of any other entity. Notwithstanding the foregoing, the expenditure
of reasonable amounts of time for educational, charitable or professional
activities shall not be deemed a breach of this Agreement if those activities
do not materially interfere with the services required under this Agreement.
The noncompetition provisions of this Section 3(b) shall terminate on June 30,
2002; provided, however, that in the event Employee is terminated by the
Company pursuant to Section 2(c) prior to the expiration of the Original Term,
Employee's obligations under this Section 3(b) to not compete with the Company
shall be contingent upon the Company continuing to pay Employee his Base Salary
pursuant to Section 2(c).
4. COMPENSATION.
(A) BASE SALARY.
(I) Beginning on the date hereof, and continuing
throughout the entire Term of this Agreement, the Company shall pay Employee a
fixed annual salary in an amount equal to Two Hundred Fifty Thousand Dollars
($250,000) or such greater amount as may be determined by the Board of
Directors from time to time (the "Base Salary").
(II) The Base Salary shall be paid in equal
installments (subject to proration for a period of employment of greater or
less than a year or any applicable payroll period therein) on the Company's
regular payroll dates. Employee authorizes the Company to make such deductions
and withholdings from his Base Salary and any other earnings of Employee from
Company as are required by law, which deductions shall include, without
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<PAGE> 112
limitation, withholding for federal and state income tax and Social Security
and Medicare withholdings.
(B) DISCRETIONARY BONUS. For each fiscal year of the
Company during the Term of this Agreement, Employee shall be eligible to
receive a discretionary bonus (the "Bonus") based upon Employee's and Company's
performance for such fiscal year, as determined in the sole and absolute
discretion of the Board of Directors of the Company. The amount and the terms
of payment of any Bonus awarded shall be determined in the sole and absolute
discretion of the Board of Directors of the Company.
(C) ADDITIONAL COMPENSATION AND BENEFITS. During the
Term of this Agreement:
(I) Employee shall be entitled to five (5) weeks
paid vacation in each twelve-month period during Employee's employment
hereunder;
(II) the Company shall pay or reimburse Employee
for all reasonable and necessary travel and other business expenses incurred or
paid by Employee in connection with the performance of his services under this
Agreement upon approval of the Company and presentation of expense statements,
vouchers, logs and such other supporting information as the Company may
reasonably request from time to time.
(III) the Company shall pay or reimburse Employee
for the annual cost of premiums for a term life insurance policy insuring the
life of Employee and providing for death benefits in the amount of One Million
Dollars ($1,000,000). If Employee's employment is terminated in accordance
with this Agreement, Employee shall immediately assume sole financial
responsibility for the payment of the premiums with respect to such life
insurance policy.
(IV) Employee shall be entitled to participate in
any other policies, programs and benefits which the Company may, in its sole
and absolute discretion, make generally available to its other senior
executives from time to time including, but not limited to, disability
insurance, pension and retirement plans, health or medical insurance and
similar programs.
5. NONDISCLOSURE AND ASSIGNMENT OF PROPRIETARY AND CONFIDENTIAL
INFORMATION. In consideration and recognition of the fact that Employee has
had, or during the course of his employment with the Company may have, access
to Confidential Information (as hereinafter defined) of the Company or other
information and data of a secret or proprietary nature of the Company which the
Company desires to keep confidential, and that the Company has furnished, or
during the course of Employee's employment will furnish, such Confidential
Information to Employee, Employee agrees and acknowledges as follows:
(A) CONFIDENTIAL INFORMATION. As used herein, the term
"Confidential Information" shall mean and include, without limitation, any and
all marketing and sales data, plans and strategies, financial projections,
customer lists, prospective customer lists, promotional
E-4.
<PAGE> 113
ideas, data concerning the Company's services, designs, methods, inventions,
improvements, discoveries or designs, whether or not patentable, "know-how,"
training and sales techniques, and any other information of a similar nature
disclosed to Employee or otherwise made known to him as a consequence of or
through his employment with the Company (including information originated by
Employee) during Employee's employment; provided, however, that the term
Confidential Information shall not include any information that (i) at the time
of the disclosure or thereafter is or becomes generally available to and known
by the public, other than as a result of a disclosure by Employee or any agent
or representative of Employee in violation of this Agreement, or (ii) was
available to Employee on a non-confidential basis from a source other than the
Company, or any of its officers, directors, employees, agents or other
representatives.
(B) EXCLUSIVE RIGHTS; ASSIGNMENT TO COMPANY. The Company
has exclusive property rights to all Confidential Information, and Employee
hereby assigns to Company all rights he might otherwise possess in any
Confidential Information. Except as required in the performance of his duties
to the Company, Employee will not at any time during or after his employment,
directly or indirectly use, communicate, disclose, disseminate, lecture upon,
publish articles or otherwise disclose or put in the public domain, any
Confidential Information relating to the Company, or its services, products or
business. Employee agrees to deliver to the Company any and all copies of
Confidential Information in the possession or control of Employee upon the
expiration or termination of this Agreement, or at any other time upon request.
This Section 5 shall survive the termination of this Agreement and the
termination of Employee's employment with the Company.
6. SOLICITATION OF EMPLOYEES. In consideration and recognition
of the fact that Employee's position with the Company is an executive position
involving fiduciary responsibility to the Company and access to the Company's
Confidential Information, Employee agrees that he will not solicit or take away
any employees of the Company for employment by any enterprise that competes
with, or is engaged in a substantially similar business to, the business of,
the Company. This Section 6 shall survive for a period of two (2) years from
the date of termination of this Agreement.
7. REPRESENTATION BY EMPLOYEE. Employee represents and warrants
that he is under no restriction or disability by reason of any prior contract
or otherwise which would prevent him from entering into and performing his
duties and obligations under this Agreement.
8. NOTICES. All notices, requests, demands and other
communications under this Agreement must be in writing and shall be deemed to
have been duly given on the date of service if served personally on the party
to whom notice is to be given, or on the date indicated on the return receipt
as the date of receipt or refusal if mailed to the party to whom notice is to
be given by first class mail, registered or certified, postage prepaid, return
receipt requested, and properly addressed as follows:
to the Company: ANDATACO
10140 Mesa Rim Road
San Diego, CA 92121
E-5.
<PAGE> 114
Attn: President
Fax: (619) 453-9294
to the Employee: W. DAVID SYKES
2016 Oceanfront
Del Mar, CA 92014
Fax: (619) 755-3030
Any party may change its address for the purpose of this
Section 8 by giving the other party written notice of the new address in the
manner set forth above.
9. ENTIRE AGREEMENT. This Agreement constitutes the entire
agreement and understanding of the parties with respect to the transactions
contemplated hereby, and supersedes all prior agreements, arrangements and
understandings relating to the subject matter hereof, written or otherwise.
10. AMENDMENT. This Agreement may be amended, modified,
superseded or canceled, and any of the terms, covenants or conditions hereof
may be amended, only by a written instrument executed by Employee and by an
authorized representative of the Company which expressly states the intention
of the parties to modify the terms of this Agreement.
11. WAIVER. Any failure to exercise or delay in exercising any
right, power or privilege herein contained, or any failure or delay at any time
to require the other party's performance of any obligation under this
Agreement, shall not affect the right to subsequently exercise that right,
power or privilege, or to require performance of that obligation. A waiver of
any of the provisions of this Agreement shall not be deemed, nor shall
constitute, a waiver of any other provision, whether or not similar, nor shall
any waiver constitute a continuing waiver. A waiver shall not be binding
unless executed in writing by the party making the waiver.
12. ASSIGNMENT; BINDING EFFECT. This Agreement shall inure to the
benefit of, and be enforceable by, the Company and its successors and assigns;
however, this Agreement is personal to Employee and may not be assigned by
Employee in whole or in part.
13. SEVERABILITY. Whenever possible, each provision of this
Agreement shall be interpreted in such manner as to be valid and effective
under applicable law. If any provision of this Agreement shall be unlawful,
void or for any reason unenforceable, it shall be deemed separable from, and
shall in no way affect the validity or enforceability of, the remaining
provisions of this Agreement, and the rights and obligations of the parties
shall be enforced to the fullest extent possible.
14. ATTORNEYS' FEES. In any judicial action or proceeding or any
arbitration proceeding between the parties to enforce any of the provisions of
this Agreement, to seek damages on account of the breach hereof, to seek
injunctive relief to prevent the breach hereof, to seek a judicial
determination of the rights or obligations of any party hereto, or in any
judicial action or proceeding or any arbitration proceeding between the parties
in which this Agreement is raised as a defense, regardless of whether the
action or proceeding is prosecuted to judgment,
E-6.
<PAGE> 115
and in addition to any other remedy, the unsuccessful party shall pay the
successful party all costs and expenses, including reasonable attorneys' fees,
incurred by the successful party.
15. GOVERNING LAW. This Agreement shall be construed in
accordance with, and governed by, the laws of the State of California,
excluding any choice of law principles which direct the application of the laws
of another jurisdiction.
16. EFFECT OF HEADINGS. The subject headings of this Agreement
are included for convenience only, and shall not affect the construction or
interpretation of any of its provisions.
17. COUNTERPARTS. This Agreement may be executed simultaneously
in one or more counterparts, each of which shall be deemed an original, but all
of which together shall constitute one and the same instrument.
E-7.
<PAGE> 116
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the date first above written.
"Company" ANDATACO,
a California corporation
By:
-------------------------
Name:
--------------------
Title:
-------------------
"Employee"
---------------------------
W. DAVID SYKES
E-8.
<PAGE> 117
EXHIBIT F
FORM OF SHAREHOLDER EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (the "Agreement") is made and
entered into as of February __, 1997, by and between ANDATACO, a California
corporation (the "Company"), and Harris Ravine ("Employee"). Capitalized terms
used herein and not otherwise defined shall have the meaning given to such
terms in that certain Agreement and Plan of Merger and Reorganization dated as
of February 28, 1997 by and among IPL Systems, Inc., IPL Acquisition Corp., W.
David Sykes and the Company.
1. DUTIES.
(A) GENERAL. The Company hereby employs Employee, and
Employee hereby agrees to serve, as the Chief Executive Officer and Chairman of
the Board of Directors of the Company during the Term (as defined in Section 2)
hereof. Employee shall have such duties and powers as are normally accorded to
a Chief Executive Officer of a corporation and shall loyally, conscientiously
and in good faith perform such duties as may be assigned to him from time to
time by the Board of Directors of the Company.
(B) BUSINESS PLAN COMMITTEE. Prior to the beginning of
each fiscal year of the Company, Employee, the President of the Company and the
Company's Board of Directors (the "Business Plan Committee") shall work
together to establish performance goals for the Company for the coming fiscal
year. The performance goals shall be mutually agreeable to the parties and
shall be set forth in a formal Business Plan to be adopted by the Board of
Directors of the Company. The Business Plan shall set forth the performance
goals of the Company in a manner that permits a quantitative determination that
such performance goals have been satisfied. Performance goals subject to
quantitative analysis may include, for example, target total sales, target net
income, target earnings per share, or any other number or financial ratio that
the Business Plan Committee shall adopt. For the purposes of this Agreement,
the term "100% of Plan" be understood to mean that the Company shall have
satisfied each performance goal set forth in the Business Plan for a given
fiscal year. The performance goals set forth in the Business Plan may be
amended or modified only by written consent of each member of the Business Plan
Committee.
2. TERM AND TERMINATION.
(A) TERM OF AGREEMENT.
(I) ORIGINAL TERM. Unless earlier terminated as
provided in this Agreement, the term of Employee's employment shall commence on
the Closing Date and shall continue until June 30, 2002 (the "Original Term").
(II) ONE-YEAR RENEWALS. Unless (A) the Company or
Employee delivers written notice of its or his intention not to extend the term
of this Agreement on or prior to the date that, with respect to the Original
Term, is six (6) months prior to the expiration of the Original Term or, with
respect to any Annual Renewal Period (as defined below), is three (3) months
prior to the expiration of the then applicable Annual Renewal Period, if any,
or (B) this
F-1.
<PAGE> 118
Agreement is otherwise terminated prior to the expiration of the Original Term
or the then applicable Annual Renewal Period as provided in this Agreement,
this Agreement shall be automatically renewed for an unlimited number of
additional one (1) year periods (each an "Annual Renewal Period"). The
Original Term and any Annual Renewal Periods are hereinafter collectively
referred to as the "Term."
(B) TERMINATION BY COMPANY FOR CAUSE. Notwithstanding
anything in this Agreement to the contrary, express or implied, or Section 2924
of the California Labor Code or any similar provision, this Agreement (and
Employee's employment) may be terminated immediately and without notice by the
Company for "Cause." For the purposes of this Agreement, "Cause" shall be
defined as Employee's:
(I) material failure to perform his duties and
obligations hereunder following notice from the Board of Directors specifying
such failures in detail and Employee fails to cure or diligently commence
curing such failures within thirty (30) days of receipt of such notice;
(II) engaging or participating in any activity
which is directly competitive with or intentionally injurious to the Company;
(III) commission of any fraud against the Company
or use or appropriation for his personal use and benefit of any funds, assets
or properties of the Company not authorized by the Company to be so used or
appropriated; or
(IV) knowing violation of law, conviction for
commission of a felony or conviction for a crime involving dishonesty or moral
turpitude.
Upon termination of this Agreement by the Company pursuant to
this Section 2(b), the Base Salary (as defined in Section 4) payable to
Employee shall be prorated to the date of termination, and the Company shall
have no further obligations to Employee under this Agreement. In the event of
any termination of this Agreement under this Section 2(b), Employee shall not
be entitled to any Bonus Amounts otherwise due under Section 4.
(C) TERMINATION BY COMPANY WITHOUT CAUSE.
Notwithstanding anything in this Agreement to the contrary, express or implied,
or Section 2924 of the California Labor Code or any similar provision, this
Agreement (and Employee's employment) may be terminated at the will of the
Company without Cause upon delivery of written notice to Employee; provided,
however, that Employee shall nonetheless be entitled to receive as severance
pay his Base Salary for the period of time that is the lesser of (i) the
remaining part of the Term, or (ii) twelve (12) months. Such amount shall be
payable in twelve (12) equal monthly installments commencing on the date of
termination.
(D) VOLUNTARY TERMINATION BY EMPLOYEE. Employee may
voluntarily terminate his employment with the Company by giving the Company
fourteen (14) days advance written notice. In the event Employee voluntarily
terminates his employment with the Company, the Company shall pay Employee his
Base Salary through the date of termination and the
F-2.
<PAGE> 119
Company shall thereafter have no further obligations to Employee under this
Agreement. In the event of any termination of Employee's employment with the
Company pursuant to this Section 2(d), Employee shall not be entitled to any
Bonus Amounts otherwise due under Section 4.
(E) AUTOMATIC TERMINATION. This Agreement (and
Employee's employment) shall terminate immediately and without the necessity of
any notice or any other action by any party hereto upon the first to occur of
any of the following:
(I) The death of Employee;
(II) The loss of Employee's legal capacity to
contract;
(III) The inability of Employee to perform his
duties or responsibilities hereunder, as a result of mental or physical ailment
or incapacity, for an aggregate of ninety (90) calendar days during any
calendar year (whether or not consecutive) unless waived in writing by Company;
or
(IV) the expiration of the Term of this Agreement,
provided that timely notice has been given as required by Section 2(a)(ii).
Upon termination of this Agreement pursuant to any of clauses
(i), (ii) or (iii) of this Section 2(e), the Company shall pay to Employee or
Employee's estate, as the case may be, (i) Employee's Base Salary owing to him
pro rated through the date of termination, plus (ii) an amount equal to
Employee's annual Base Salary, then in effect. Such amount shall be payable in
twelve (12) equal monthly installments commencing on the date of termination.
Upon payment of such amount, the Company shall have no further obligations to
Employee or Employee's estate, as the case may be, under this Agreement.
3. EXCLUSIVITY OF EMPLOYMENT.
(A) LOYAL AND CONSCIENTIOUS SERVICE. During the Term of
this Agreement, Employee shall devote his full business time, interest,
abilities and energies to the Company and use his best efforts, skills and
abilities to promote the general welfare and interest of the Company and to
preserve, maintain and enhance its business and business relationships with its
customers and employees.
(B) NONCOMPETITION. During Employee's employment with
the Company, Employee shall not, directly or indirectly, render services of a
business, professional or commercial nature to any other person or entity that
competes with the Company's business or welfare, whether for compensation or
otherwise, or engage in any business activities competitive with the Company's
business or welfare, whether alone, as an employee, as a partner, or as a
shareholder, officer or director of any other corporation or other business
entity, or as a trustee, fiduciary or in any other similar representative
capacity of any other entity. Notwithstanding the foregoing, the expenditure
of reasonable amounts of time for educational, charitable or professional
activities shall not be deemed a breach of this Agreement if those activities
do not
F-3.
<PAGE> 120
materially interfere with the services required under this Agreement. The
noncompetition provisions of this Section 3(b) shall terminate on June 30,
2002.
4. COMPENSATION.
(A) BASE SALARY.
(I) Beginning on the date hereof, and continuing
throughout the entire Term of this Agreement, the Company shall pay Employee a
fixed annual salary in an amount equal to Three Hundred Thousand Dollars
($300,000) or such greater amount as may be determined by the Board of
Directors from time to time (the "Base Salary").
(II) The Base Salary shall be paid in equal
installments (subject to proration for a period of employment of greater or
less than a year or any applicable payroll period therein) on the Company's
regular payroll dates. Employee authorizes the Company to make such deductions
and withholdings from his Base Salary and any other earnings of Employee from
Company as are required by law, which deductions shall include, without
limitation, withholding for federal and state income tax and Social Security
and Medicare withholdings.
(B) DISCRETIONARY BONUS.
(I) Subject to Section 4(b)(ii) below, for each
fiscal year of the Company during the Term of this Agreement, Employee shall be
eligible to receive a cash bonus (the "Bonus") in an amount equal to fifty
percent (50%) of (A) Employee's Base Salary in effect during the last fiscal
year, or (B) in the event Employee's Base Salary increases or decreases during
the last fiscal year, the average annual Base Salary during the last fiscal
year.
(II) Payment of the Bonus by Company to Employee
for any fiscal year shall be contingent upon the Company meeting 100% of Plan
(as defined in Section 1(b)) for such fiscal year. No Bonus shall be payable
to Employee for any fiscal year in which the Company fails to meet 100% of Plan
for such fiscal year.
(C) STOCK OPTIONS.
(I) GENERAL TERMS. As soon as practicable after
the Closing Date, the Company agrees to use its best efforts to cause to be
granted to Employee an option to purchase up to seven hundred thousand
(700,000) shares of Common Stock of IPL Systems, Inc., a Massachusetts
corporation ("IPL"), at an exercise price equal to the fair market value of the
Common Stock of IPL on the date of grant (the "Option"). The Option shall be a
nonstatutory stock option and is not intended to qualify as an "incentive stock
option" within the meaning of Section 422 of the Internal Revenue Code of 1986,
as amended. The shares of Common Stock underlying the Option shall have been
registered pursuant to the Securities Act of 1933, as amended, such that the
shares when issued shall be shall be freely tradable (subject to any
restrictions that may be imposed on "control shares" and restrictions generally
placed on officers, directors or 5% or greater shareholders of a company).
F-4.
<PAGE> 121
(II) VESTING. The shares of Common Stock
underlying the Option shall vest and the Option shall become exercisable as
follows:
(1) 100,000 shares shall vest on the
date of this Agreement;
(2) 150,000 shares shall vest on the
first anniversary date of the date of this Agreement (the "Second Vesting
Date");
(3) 200,000 shares shall vest at the
rate of 50,000 shares per year at the end of the year for the four year period
following the Second Vesting Date (each year during the four-year period being
referred to herein as a "Subsequent Vesting Date");
(4) an additional 50,000 shares shall
vest on the Second Vesting Date and on each Subsequent Vesting Date; provided,
that, the Company meets 100% of Plan for the fiscal year in which such vesting
date occurs. If the Company fails to meet 100% of Plan during any fiscal year,
that portion of the Option that would otherwise vest and become exercisable
under this Section 4(c)(iv) shall expire and no longer be exercisable. In no
event shall the shares subject to any portion of the Option that expires under
this clause (iv) be carried forward to any subsequent fiscal year.
(III) LOCK-UP PERIOD. Employee acknowledges that
the shares of Common Stock of IPL underlying the Option shall be subject to
certain restrictions on disposition and in that regard Employee shall execute
the form of Lock-Up Agreement attached hereto as Exhibit A.
(D) ADDITIONAL COMPENSATION AND BENEFITS. During the
term of this Agreement:
(I) Employee shall be entitled to five (5) weeks
paid vacation in each twelve-month period during Employee's employment
hereunder;
(II) the Company shall pay or reimburse Employee
for all reasonable and necessary travel and other business expenses incurred or
paid by Employee in connection with the performance of his services under this
Agreement upon approval of the Company and presentation of expense statements,
vouchers, logs and such other supporting information as the Company may
reasonably request from time to time;
(III) the Company shall pay or reimburse Employee
for the annual cost of premiums for a term life insurance policy insuring the
life of Employee and providing for death benefits in the amount of One Million
Dollars ($1,000,000). If Employee's employment is terminated in accordance
with this Agreement, Employee shall immediately assume sole financial
responsibility for the payment of the premiums with respect to such life
insurance policy;
F-5.
<PAGE> 122
(IV) the Company shall provide a car allowance
(including the cost of leasing, maintaining and operating the car) in such
amount that is consistent with the Company's policies regarding car allowances;
(V) the Company shall reimburse Employee for
reasonable costs and expenses of one professional organization membership upon
prior written approval of the Company of such expenses;
(VI) Employee shall be entitled to participate in
any other policies, programs and benefits which the Company may, in its sole
and absolute discretion, make generally available to its other senior
executives from time to time including, but not limited to, disability
insurance, pension and retirement plans, health or medical insurance and
similar programs.
5. NONDISCLOSURE AND ASSIGNMENT OF PROPRIETARY AND CONFIDENTIAL
INFORMATION. In consideration and recognition of the fact that Employee has
had, or during the course of his employment with the Company may have, access
to Confidential Information (as hereinafter defined) of the Company or other
information and data of a secret or proprietary nature of the Company which the
Company desires to keep confidential, and that the Company has furnished, or
during the course of Employee's employment will furnish, such Confidential
Information to Employee, Employee agrees and acknowledges as follows:
(A) CONFIDENTIAL INFORMATION. As used herein, the term
"Confidential Information" shall mean and include, without limitation, any and
all marketing and sales data, plans and strategies, financial projections,
customer lists, prospective customer lists, promotional ideas, data concerning
the Company's services, designs, methods, inventions, improvements, discoveries
or designs, whether or not patentable, "know-how," training and sales
techniques, and any other information of a similar nature disclosed to Employee
or otherwise made known to him as a consequence of or through his employment
with the Company (including information originated by Employee) during
Employee's employment; provided, however, that the term Confidential
Information shall not include any information that (i) at the time of the
disclosure or thereafter is or becomes generally available to and known by the
public, other than as a result of a disclosure by Employee or any agent or
representative of Employee in violation of this Agreement, or (ii) was
available to Employee on a non-confidential basis from a source other than the
Company, or any of its officers, directors, employees, agents or other
representatives.
(B) EXCLUSIVE RIGHTS; ASSIGNMENT TO COMPANY. The Company
has exclusive property rights to all Confidential Information, and Employee
hereby assigns to Company all rights he might otherwise possess in any
Confidential Information. Except as required in the performance of his duties
to the Company, Employee will not at any time during or after his employment,
directly or indirectly use, communicate, disclose, disseminate, lecture upon,
publish articles or otherwise disclose or put in the public domain, any
Confidential Information relating to the Company, or its services, products or
business. Employee agrees to deliver to the Company any and all copies of
Confidential Information in the possession or control of Employee upon the
expiration or termination of this Agreement, or at any other time
F-6.
<PAGE> 123
upon request. This Section 5 shall survive the termination of this Agreement
and the termination of Employee's employment with the Company.
6. SOLICITATION OF EMPLOYEES. In consideration and recognition
of the fact that Employee's position with the Company is an executive position
involving fiduciary responsibility to the Company and access to the Company's
Confidential Information, Employee agrees that he will not solicit or take away
any employees of the Company for employment by any enterprise that competes
with, or is engaged in a substantially similar business to, the business of,
the Company. This Section 6 shall survive for a period of two (2) years from
the date of termination of this Agreement.
7. REPRESENTATION BY EMPLOYEE. Employee represents and warrants
that he is under no restriction or disability by reason of any prior contract
or otherwise which would prevent him from entering into and performing his
duties and obligations under this Agreement.
8. NOTICES. All notices, requests, demands and other
communications under this Agreement must be in writing and shall be deemed to
have been duly given on the date of service if served personally on the party
to whom notice is to be given, or on the date indicated on the return receipt
as the date of receipt or refusal if mailed to the party to whom notice is to
be given by first class mail, registered or certified, postage prepaid, return
receipt requested, and properly addressed as follows:
to the Company: ANDATACO
10140 Mesa Rim Road
San Diego, CA 92121
Attn: President
Fax: (619) 453-9294
to the Employee: HARRIS RAVINE
8475 Greenwood Drive
Niwot, CO 80503
Fax: (303) 652-0424
Any party may change its address for the purpose of this
Section 8 by giving the other party written notice of the new address in the
manner set forth above.
9. ENTIRE AGREEMENT. This Agreement constitutes the entire
agreement and understanding of the parties with respect to the transactions
contemplated hereby, and supersedes all prior agreements, arrangements and
understandings relating to the subject matter hereof, written or otherwise.
10. AMENDMENT. This Agreement may be amended, modified,
superseded or canceled, and any of the terms, covenants or conditions hereof
may be amended, only by a written instrument executed by Employee and by an
authorized representative of the Company which expressly states the intention
of the parties to modify the terms of this Agreement.
F-7.
<PAGE> 124
11. WAIVER. Any failure to exercise or delay in exercising any
right, power or privilege herein contained, or any failure or delay at any time
to require the other party's performance of any obligation under this
Agreement, shall not affect the right to subsequently exercise that right,
power or privilege, or to require performance of that obligation. A waiver of
any of the provisions of this Agreement shall not be deemed, nor shall
constitute, a waiver of any other provision, whether or not similar, nor shall
any waiver constitute a continuing waiver. A waiver shall not be binding
unless executed in writing by the party making the waiver.
12. ASSIGNMENT; BINDING EFFECT. This Agreement shall inure to the
benefit of, and be enforceable by, the Company and its successors and assigns;
however, this Agreement is personal to Employee and may not be assigned by
Employee in whole or in part.
13. SEVERABILITY. Whenever possible, each provision of this
Agreement shall be interpreted in such manner as to be valid and effective
under applicable law. If any provision of this Agreement shall be unlawful,
void or for any reason unenforceable, it shall be deemed separable from, and
shall in no way affect the validity or enforceability of, the remaining
provisions of this Agreement, and the rights and obligations of the parties
shall be enforced to the fullest extent possible.
14. ATTORNEYS' FEES. In any judicial action or proceeding or any
arbitration proceeding between the parties to enforce any of the provisions of
this Agreement, to seek damages on account of the breach hereof, to seek
injunctive relief to prevent the breach hereof, to seek a judicial
determination of the rights or obligations of any party hereto, or in any
judicial action or proceeding or any arbitration proceeding between the parties
in which this Agreement is raised as a defense, regardless of whether the
action or proceeding is prosecuted to judgment, and in addition to any other
remedy, the unsuccessful party shall pay the successful party all costs and
expenses, including reasonable attorneys' fees, incurred by the successful
party.
15. GOVERNING LAW. This Agreement shall be construed in
accordance with, and governed by, the laws of the State of California,
excluding any choice of law principles which direct the application of the laws
of another jurisdiction.
16. EFFECT OF HEADINGS. The subject headings of this Agreement
are included for convenience only, and shall not affect the construction or
interpretation of any of its provisions.
17. COUNTERPARTS. This Agreement may be executed simultaneously
in one or more counterparts, each of which shall be deemed an original, but all
of which together shall constitute one and the same instrument.
F-8.
<PAGE> 125
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the date first above written.
"Company" ANDATACO,
a California corporation
By:
-------------------------
Name:
--------------------
Title:
-------------------
"Employee"
---------------------------
HARRIS RAVINE
F-9.
<PAGE> 126
EXHIBIT G
FORM OF LEGAL OPINION
OF COOLEY GODWARD LLP
1. The Company has been duly incorporated and is validly existing as a
corporation in good standing under the laws of the State of California.
2. The Company has the requisite corporate power to own, operate and
lease its property and assets and to conduct its business as it is currently
being conducted. To the best of counsel's knowledge, the Company is qualified
as a foreign corporation to do business and is in good standing in each
jurisdiction in the United States in which the ownership of its property or the
conduct of its business requires such qualification and where any statutory
fines or penalties or any corporate disability imposed for the failure to so
qualify would have a material adverse effect on the assets, financial condition
or operations of the Company.
3. All corporate action on the part of the Company, its Board of
Directors and its shareholders necessary for the authorization, execution and
delivery of the Merger Agreement by the Company and the Shareholder and the
performance of the Company's obligations under the Merger Agreement has been
taken. The Merger Agreement has been duly and validly authorized, executed and
delivered by the Company and the Shareholder and constitutes a valid and
binding agreement of the Company and the Shareholder enforceable against the
Company and the Shareholder in accordance with its terms, except as indemnity
obligations under Section[s] ___ of the Merger Agreement may be limited by
applicable laws and except as enforcement may be limited by applicable
bankruptcy, insolvency, reorganization, arrangement, moratorium or other
similar laws affecting creditors' rights, and subject to general equity
principles and to limitations on availability of equitable relief, including
specific performance. The Escrow Agreement has been duly and validly executed
and delivered by the Company Shareholders and W. David Sykes and constitutes a
valid and binding agreement of each, enforceable against each in accordance
with its terms, except as enforcement may be limited by applicable bankruptcy,
insolvency, reorganization, arrangement, moratorium or other similar laws
affecting creditors' rights, and subject to general equity principles and to
limitations on availability of equitable relief, including specific
performance. The NonCompetition Agreement has been duly and validly executed
and delivered by W. David Sykes and constitutes a valid and binding agreement
of his, enforceable against him in accordance with its terms, except as
enforcement may be limited by applicable bankruptcy, insolvency,
reorganization, arrangement, moratorium or other similar laws affecting
creditors' rights, and subject to general equity principles and to limitations
on availability of equitable relief, including specific performance.
4. The authorized capital stock of the Company consists of 25,000 shares
of Common Stock, no par value, of which 10,000 shares have been issued and are
outstanding as of the date hereof and are held of record by the Company
Shareholders in the amounts set forth in
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Section 2.2 of the Company Disclosure Schedule. To the best of counsel's
knowledge, except as expressly set forth in the Merger Agreement (including the
Company's Disclosure Schedule), there are no options, warrants, conversion
privileges, preemptive rights or other rights presently outstanding to purchase
any authorized but unissued capital stock of the Company. There are no voting
agreements, co-sale rights, rights of first refusal or other similar rights
applicable to any of the Company's outstanding capital stock under the
Company's Articles of Incorporation, Bylaws or any Company Material Contract
disclosed in Part 2.10(a) of the Company Disclosure Schedule.
5. The execution, delivery and performance by the Company and the
Shareholder of the Merger Agreement and the consummation by the Company and the
Shareholder of the Merger as provided therein will not violate any provision of
the Company's Articles of Incorporation or Bylaws, and do not constitute a
material default (or give rise to any right of termination, cancellation or
acceleration) under any Material Company Contract disclosed in Part 2.10(a) of
the Company Disclosure Schedule and, to the best of counsel's knowledge do not
violate or contravene (A) any governmental statute, rule or regulation
applicable to the Company or the Shareholder or (B) any order, writ, judgment,
injunction, decree, determination or award which has been entered against the
Company or the Shareholder and of which we are aware, the violation or
contravention of which would have a material adverse effect on the assets,
financial condition or the operations of the Company.
6. To the best of counsel's knowledge, there is no action, proceeding or
investigation pending or overtly threatened against the Company or the
Shareholder before any court or administrative agency that questions the
validity of the Merger Agreement or might result in a material adverse change
in the assets, financial condition or operations of the Company.
7. All consents, approvals, authorizations, or orders of, and filings,
registrations, and qualifications with any regulatory authority or governmental
body in the United States required in connection with the Company's execution,
delivery and performance of the Merger Agreement and the consummation by the
Company and the Shareholder of the Merger as contemplated therein have been
made or obtained, other than the filing of the Agreement of Merger with the
Secretary of State of the State of California as contemplated by Section 1.3 of
the Merger Agreement.
8. The Agreement of Merger has been duly authorized by the Company's
Board of Directors and its shareholders and, assuming appropriate approval by
the Boards of Directors and shareholders of Parent and Merger Sub,
respectively, and compliance by Parent and Merger Sub with all requirements of
applicable law and the Merger Agreement necessary to effect the Merger, upon
its filing with and acceptance by the Secretary of State of the State of
California and the Secretary of State of the State of Delaware, the Merger will
be effective.
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EXHIBIT H
STOCK REPRESENTATION LETTER
[Date]
IPL Systems, Inc.
[address]
Ladies and Gentlemen:
In connection with the acquisition of ANDATACO, a California corporation (the
"Company") by IPL Systems, Inc., a Massachusetts corporation ("Parent")
pursuant to that certain Agreement and Plan of Merger and Reorganization dated
February 28, 1997 by and among the Company, Parent, IPL Acquisition Corp., A
Delaware corporation and wholly owned subsidiary of Parent and W. David Sykes,
a shareholder of the Company, the undersigned will receive shares of Common
Stock of Parent (the "Merger Shares"). The undersigned hereby makes the
following certifications and representations with respect to the Merger Shares
being acquired by the undersigned.
The undersigned represents and warrants that he is acquiring the Merger Shares
solely for his account for investment and not with a view to or for sale or
distribution of the Merger Shares or any part thereof. The undersigned also
represents that the entire legal and beneficial interests of the Merger Shares
the undersigned is acquiring is being acquired or and will be held for, his
account only.
The undersigned understands that the Merger Shares have not been registered
under the Securities Act of 1933, as amended (the "Act"), on the basis that no
distribution or public offering of the Merger Shares is to be effected. The
undersigned realizes that the basis for the exemption may not be present if,
notwithstanding his representations, he has in mind merely acquiring the Merger
Shares for a fixed or determinable period in the future, or for a market rise,
or for sale if the market does not rise. The undersigned has no such
intention.
The undersigned recognizes that the Merger Shares being acquired by him must be
held indefinitely unless they are subsequently registered under the Act or an
exemption from such registration is available. The undersigned recognizes that
Parent no obligation to register the Merger Shares or to comply with any
exemption from registration.
The undersigned is aware that the Merger Shares may not be sold pursuant to
Rule 144 adopted under the Act unless certain conditions are met and until the
undersigned has held the Merger Shares for at least one year.
The undersigned further agrees not to make any disposition of all or any part
of the Shares being acquired in any event unless and until:
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(1) Parent shall have received a letter secured by the undersigned
from the Securities and Exchange Commission (the "Commission") stating that no
action will be recommended to the Commission with respect to the proposed
distribution; or
(2) There is then in effect a registration statement under the Act
covering such proposed disposition and such disposition is made in accordance
with said registration statement; or
(3) (i) the undersigned shall have notified Parent of the proposed
disposition and shall have furnished Parent with ya detailed statement of the
circumstances surrounding the proposed disposition, and (ii) the undersigned
shall have furnished Parent with any opinion of counsel for the undersigned to
the effect that such disposition will not require registration of such Merger
Shares under the Act.
The undersigned understands and agrees that all certificates evidencing the
Merger Shares to be issued to the undersigned may bear a legend substantially
as follows:
"THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED. THEY MAY NOT BE SOLD,
OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF AN
EFFECTIVE REGISTRATION STATEMENT AS TO THE SECURITIES UNDER
SAID ACT OR AN OPINION OF COUNSEL SATISFACTORY TO THE ISSUER
OF THE SECURITIES THAT SUCH REGISTRATION IS NOT REQUIRED."
Very truly yours,
________________________
[Acquiror]
H-2.
<PAGE> 130
EXHIBIT I
FORM OF LOCK-UP AGREEMENT
THIS LOCK-UP AGREEMENT dated as of February ___, 1997 (the
"Agreement") is entered into by and between W. David Sykes ("Shareholder") and
IPL Systems, Inc., a Massachusetts corporation ("Parent"). Capitalized terms
used and not otherwise defined herein shall have the meanings given to such
terms in the Merger Agreement.
RECITALS
WHEREAS, reference is made to that certain Agreement and Plan of
Merger and Reorganization dated February 28, 1997 (the "Merger Agreement")
among Parent, IPL Acquisition Corp., a Delaware corporation and wholly-owned
subsidiary of Parent ("Merger Sub") and ANDATACO, a California corporation (the
"Company");
WHEREAS, the Merger Agreement provides for, among other things, the
merger of Merger Sub with and into the Company (the "Merger") and the filing of
a registration statement under the Securities Act of 1933, as amended, covering
the resale of the Merger Shares; and
WHEREAS, Shareholder agrees that the Merger Shares will be subject to
certain restrictions on Disposition (as defined herein) as more fully set forth
herein.
AGREEMENT
NOW, THEREFORE, in consideration of the mutual covenants and promises
contained herein, the parties hereto agree as follows:
1. RESTRICTIONS ON DISPOSITION. As an inducement to and in
consideration of Parent's agreement to enter into the Merger Agreement and
proceed with the Merger, and for other good and valuable consideration, receipt
of which is hereby acknowledged, Shareholder hereby agrees, except as permitted
by Section 2 and Section 3 below, not to, directly or indirectly, offer to
sell, contract to sell, transfer, assign, cause to be redeemed or otherwise
sell or dispose of any of the Merger Shares (collectively, a "Disposition")
received by Shareholder in the Merger pursuant to the terms of the Merger
Agreement. Shareholder hereby agrees and consents to the entry of stop
transfer instructions with Parent's transfer agent against the transfer of the
Merger Shares except in compliance with this Agreement. Shareholder may
pledge, hypothecate or otherwise grant a security interest in all or a portion
of the Merger Shares during the term of this Agreement; provided, however, that
any person or entity receiving such shares in pledge or hypothecation or
granted a security interest in such shares, shall be subject to all of the
restrictions on Disposition of such shares imposed by this Agreement to the
same extent as Shareholder.
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<PAGE> 131
2. EXPIRATION OF LOCK-UP PERIODS
(A) During the period beginning on the Closing Date and
ending on the first anniversary of the Closing Date (the "Initial Lock-Up
Period"), Shareholder shall not make any Disposition of any of the Merger
Shares.
(B) During the period beginning the day following the end
of the Initial Lock-Up Period and ending on the day that is four (4) years
thereafter (the "Second Lock-Up Period"), during each three-month period
occurring during the Second Lock-Up Period, the restrictions on Disposition of
the Merger Shares imposed hereunder shall not apply to that number of Merger
Shares that is equal to the greater of (i) one percent (1%) of the outstanding
shares of Parent Common Stock as shown by the most recent report or statement
published by Parent, and (ii) the average weekly reported volume of trading in
Parent Common Stock on the Nasdaq National Market (or any such other exchange
or automated quotation system of a registered securities association on which
the Parent Common Stock is listed, reported or quoted).
(C) On the day immediately following the end of the
Second Lock-Up Period, all restrictions on Disposition imposed hereunder shall
expire and shall not apply to any of the Merger Shares.
3. PERMITTED DISPOSITIONS. None of the restrictions on
Disposition contained herein shall apply to a bona fide gift or gifts, or to
transfers to family members of Shareholder, provided the donee, donees or
transferees thereof agree to be bound by the restrictions on Disposition
contained in this Agreement.
4. MISCELLANEOUS.
(A) EXPIRATION OF AGREEMENT. This Agreement shall expire
and be of no further force or effect on the day that is five (5) years from the
Closing Date.
(B) GOVERNING LAW. This Agreement shall be construed in
accordance with, and governed in all respects by, the laws of the State of
California, without giving effect to principles of conflicts of laws.
(C) AMENDMENTS. This Agreement may not be amended,
modified, altered or supplemented other than by means of a written instrument
duly executed and delivered on behalf of the parties hereto.
I-2.
<PAGE> 132
IN WITNESS WHEREOF,the parties hereto have executed and delivered this
Agreement in the day first set forth above.
________________________
W. DAVID SYKES
IPL SYSTEMS, INC.
By:
------------------------------------------------
Name:
----------------------------------------------
Title:
---------------------------------------------
I-3.
<PAGE> 133
EXHIBIT J
FORM OF NONCOMPETITION AGREEMENT
THIS NONCOMPETITION AGREEMENT ("Agreement") is made and entered into by
and between W. DAVID SYKES ("Shareholder") and IPL SYSTEMS, INC., a
Massachusetts corporation ("Parent") as of this ___ day of ____________, 1997.
RECITALS
WHEREAS, this Agreement is entered into in connection with that certain
Agreement and Plan of Merger and Reorganization dated February 28, 1997 (the
"Merger Agreement") by and among Shareholder, ANDATACO, a California
corporation ("Andataco"), Parent and IPL Acquisition Corp., a Delaware
corporation and wholly owned subsidiary of Parent ("Merger Sub"), whereby
Merger Sub will be merged with and into Andataco and Andataco will be the
surviving corporation and become a wholly owned subsidiary of Parent (the
"Merger");
WHEREAS, Shareholder is a key employee and the principal shareholder
of Andataco;
WHEREAS, pursuant to the Merger Agreement, Parent will acquire from
Shareholder and certain trusts affiliated with Shareholder all of the
outstanding capital stock of Andataco;
WHEREAS, to protect the value of the business of Andataco being
purchased, including the goodwill attendant thereto, by Parent, and in
consideration of Parent completing the Merger and making payments to
Shareholder in accordance with the terms of this Agreement, Parent desires that
Shareholder enter into, and Shareholder is willing to enter into, this
Agreement upon the term and conditions set forth herein; and
WHEREAS, but for Shareholder entering into this Agreement, Parent
would not have consummated the acquisition of all of the capital stock of
Andataco as contemplated by the Merger Agreement.
AGREEMENT
NOW, THEREFORE, as a material inducement to Parent to purchase all of
the outstanding shares of capital stock of Andataco from Shareholder pursuant
to the Merger Agreement, and for other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, Parent and
Shareholder, intending to be legally bound, hereby agree as follows:
1. TERM. The term of this Agreement shall be five years from the
date of the consummation of the Merger ( the "Term").
2. CONSIDERATION. In consideration of Shareholder entering into
this Agreement and agreeing to be bound by the terms hereof, Parent shall pay
Shareholder a total consideration of one million and twenty dollars
($1,000,020) payable in equal monthly installments of sixteen thousand six
hundred sixty-seven dollars ($16,667) per month commencing on the last business
day of each month following the date of the consummation of the Merger and
ending on the date
J-1.
<PAGE> 134
of expiration of the Term. No interest shall accrue or be payable upon any
amounts due under this Agreement.
3. COVENANT NOT TO COMPETE. Until the earlier of (a) the
expiration of the Term, (b) Parent ceasing to make the payments to Shareholder
as provided in Section 2 above, or (c) Parent or Andataco ceasing to make the
salary or severance payments to Shareholder as required under the terms of that
certain Employment Agreement between Shareholder and Andataco dated as of
February __, 1997 (the "Employment Agreement") or an employment agreement
replacing or amending such Employment Agreement, Shareholder will not, directly
or indirectly, own, operate or control, or be a director, officer, employee,
shareholder or partner of any business, firm, entity or organization that is
similar to, or directly or indirectly competes with, the business of Andataco.
Notwithstanding the foregoing, Shareholder shall not be deemed to be engaged,
directly or indirectly, in any business solely as a passive investor holding
debt or equity securities of such business or if Shareholder is employed by a
business enterprise that is not engaged in the same business as Andataco and
Shareholder does not apply his expertise at such business or enterprise that is
or could be competitive with the business of Andataco.
4. NO SOLICITATION OF CUSTOMERS OR EMPLOYEES. During the Term of
this Agreement, Shareholder will not interfere with the business of Andataco or
any of its affiliates by soliciting or attempting to divert, take away or call
on, directly or indirectly, for himself or for any other person or entity, any
customers of Andataco or any of its affiliates, nor directly or indirectly,
induce or influence any employee, customer, supplier, reseller or distributor
of Andataco or any of its affiliates to terminate his or her relationship with
Andataco or any of its affiliates.
5. NON-DISCLOSURE OF PROPRIETARY INFORMATION. Shareholder will
maintain in confidence and will not disclose to any person, firm, corporation
or other entity any confidential or proprietary information or trade secrets of
or relating to Andataco or any of its affiliates, including, without
limitation, information with respect to its operations, inventories, products,
business practices, finances, principals, vendors, suppliers, customers or
potential customers, marketing methods, costs, prices, compensation paid to
employees and other terms of employment. The parties hereby stipulate and
agree that as between them the foregoing matters are important, material and
confidential proprietary information and trade secrets and affect the
successful conduct of the business of Andataco.
6. BOOKS AND RECORDS. All books, records, conversations,
correspondence, files, lists, data and other information or documents
pertaining to or concerning the business of Andataco or any of its affiliates
are confidential information which may not be disclosed under the provisions of
Paragraph 5 hereof and shall be and remain the sole and exclusive property of
Andataco or such affiliate. Shareholder hereby acknowledges and agrees that he
does not have, and shall not assert, any interest in or property right to any
such information or documents.
7. GEOGRAPHICAL AREA OF RESTRICTIONS. The restrictions contained
in this Agreement shall apply in the United States of America which Shareholder
hereby acknowledges and agrees is where Andataco has carried on substantial
business and in which Andataco
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<PAGE> 135
presently conducts or, after the consummation of the Merger as contemplated by
the Merger Agreement, will conduct, or its affiliates will conduct, a similar
business.
8. SEVERABILITY OF PROVISIONS. Parent and Shareholder agree that
the duration, scope and geographical area for which this Agreement is to be
effective have been specifically negotiated by sophisticated, commercial
parties and specifically agree that such duration, scope and geographical area
are reasonable. If any provision of this Agreement is determined by any court
of competent jurisdiction to be invalid or unenforceable by reason of such
provision extending the covenants and agreements contained herein for too great
a period of time or over too great a geographical area, or by reason of its
being too extensive in any other respect, such agreement or covenant shall be
interpreted to extend only over the maximum period of time and geographical
area, and to the maximum extent in all other respects, as to which it is valid
and enforceable, all as determined by such court in such action. In no event
shall the consideration required to be paid pursuant to Paragraph 2 hereof be
reduced on account of any reduction in the duration, scope or geographical area
of the covenant contained herein. Any determination that any provision hereof
is invalid or unenforceable, in whole or in part, shall have no effect on the
validity or enforceability of any remaining provision hereof.
9. INJUNCTIVE RELIEF. Shareholder acknowledges that any breach
by him of any of the covenants and agreements contained in Sections 3, 4 and 5
herein will cause irreparable damage to Parent and Andataco, the exact amount
of which will be difficult or impossible to ascertain, and that the remedies at
law for any such breach will be inadequate. Accordingly, Shareholder agrees
that Parent and Andataco shall be entitled to equitable relief in the form of a
temporary restraining order and preliminary or permanent injunctive relief
ordering Shareholder's specific performance of this Agreement and of the
covenants and agreements contained in Sections 3, 4, and 5.
10. NOTICES. Any notice or other communication required or
permitted to be delivered to any party under this Agreement shall be in writing
to the address or facsimile telephone number set forth beneath the name of such
party below (or to such other address or facsimile telephone number as such
party shall have specified in a written notice given to the other parties
hereto):
if to Parent or Andataco:
IPL Systems, Inc.
124 Acton Street
Maynard, MA 01754
Attention: Chief Executive Officer
Facsimile: (508) 461-1321
J-3.
<PAGE> 136
if to Shareholder:
W. David Sykes
2016 Ocean Front
Del Mar, CA 92014
Facsimile: (619) 755-3030
with a copy to (which shall not constitute notice):
Cooley Godward LLP
4365 Executive Drive, Suite 1100
San Diego, CA 92121
Attention: Jeremy D. Glaser, Esq.
Facsimile: (619) 453-3555
All such notices and other communications shall be deemed to have been received
(a) in the case of personal delivery, on the date of such delivery, (b) in the
case of a telecopy, when the party receiving such telecopy shall have confirmed
receipt of the communication, (c) in the case of delivery by
nationally-recognized, overnight courier, on the business day following
dispatch and (d) in the case of mailing, on the fifth business day following
such mailing.
11. MODIFICATION. This Agreement may be amended, modified,
superseded or canceled and any of the terms, covenants or provisions hereof may
be amended only by a written instrument executed by both Shareholder and
Parent.
12. WAIVER. No waiver of any of the provisions of this Agreement
shall be deemed, or shall constitute, a waiver of any other provision, whether
or not similar, nor shall any waiver constitute a continuing waiver. No waiver
shall be binding unless executed in writing by the party making the waiver.
13. SUCCESSORS AND ASSIGNS. This Agreement may not be assigned by
Parent (by operation of law, by merger or otherwise) without Shareholder's
prior written consent. Except for the payment provisions set forth in Section
2 above, the obligations and rights under this Agreement may not be assigned by
Shareholder but shall inure to the benefit of his executors and heirs. This
Agreement shall be binding upon, and inure to the benefit of, Parent and its
successors and permitted assigns.
14. ATTORNEYS' FEES. In any judicial action or proceeding or
arbitration proceeding between Shareholder and Parent to enforce any of the
provisions of this Agreement, to seek damages on account of the breach hereof,
to seek injunctive relief to prevent the breach or continued breach hereof, to
seek a determination of the rights and obligations of the parties hereunder,
regardless of whether the action or proceeding is prosecuted to judgment and in
addition to any other remedy, the unsuccessful party shall pay the successful
party all costs and expenses, including reasonable attorneys' fees, incurred
therein by the by the successful party.
J-4.
<PAGE> 137
15. GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the laws of the State of California as such laws
are applied to contracts entered into and performed entirely within the State
of California by California residents.
IN WITNESS WHEREOF, the parties hereto have executed and delivered this
Agreement as of the date first above written.
IPL SYSTEMS, INC.
By:
-------------------------------
Name:
------------------------------
Title:
-----------------------------
------------------------------------
W. DAVID SYKES
J-5.
<PAGE> 138
EXHIBIT K
FORM OF LEGAL OPINION
OF PALMER & DODGE LLP
1. Each of Parent and Merger Sub have been duly incorporated and are
validly existing corporations in good standing under the laws of the
jurisdiction of their respective incorporations.
2. Parent has the requisite corporate power to own, operate and lease its
property and assets and to conduct its business as it is currently being
conducted. To the best of counsel's knowledge, Parent is qualified as a
foreign corporation to do business and is in good standing in each jurisdiction
in the United States in which the ownership of its property or the conduct of
its business requires such qualification and where any statutory fines or
penalties or any corporate disability imposed for the failure to so qualify
would have a material and adverse effect on the assets, financial condition or
operations of Parent.
3. All corporate action on the part of Parent and Merger Sub and their
respective Board of Directors and, with respect to Merger Sub, its sole
stockholder, necessary for the authorization, execution and delivery of the
Merger Agreement by Parent and Merger Sub and the performance of Parent's and
Merger Sub's obligations under the Merger Agreement has been taken. The Merger
Agreement has been duly and validly authorized, executed and delivered by
Parent and Merger Sub and constitutes a valid and binding agreement of Parent
and Merger Sub enforceable against each of Parent and Merger Sub in accordance
with its terms, except as indemnity obligations under Section[s] __ of the
Merger Agreement may be limited by applicable laws and except as enforcement
may be limited by applicable bankruptcy, insolvency, reorganization,
arrangement, moratorium or other similar laws affecting creditors' rights, and
subject to general equity principles and to limitations on availability of
equitable relief, including specific performance.
4. The authorized capital stock of Parent consists of (i) [____________]
shares of Common Stock, [$.01] par value, of which ________ shares have been
issued and are outstanding as of the date hereof, and (ii) [_____________]
shares of Preferred Stock, [$.01] par value, none of which are issued and
outstanding as of the date hereof. The shares of Common Stock of Parent to be
issued to the shareholders of the Company in connection with the Merger, when
issued pursuant to the terms of the Merger Agreement, will be validly issued,
fully paid and nonassessable. To the best of counsel's knowledge, except as
expressly set forth in the Merger Agreement (including the Parent Disclosure
Documents), there are no options, warrants, conversion privileges, preemptive
rights, or other rights presently outstanding to purchase any authorized but
unissued capital stock of Parent. There are no voting agreements, co-sale
rights, rights of first refusal or other similar rights applicable to any of
Parent's outstanding capital stock under Parent's Articles of Organization,
Bylaws or any Parent Material Contract disclosed in Part 3.10(a) of the Parent
Disclosure Schedule.
K-1.
<PAGE> 139
5. The execution, delivery and performance by Parent of the Merger
Agreement and the consummation by Parent of the Merger as provided therein will
not violate any provision of Parent's Articles of Organization or Bylaws, and
do not constitute a material default (or give rise to any right of termination,
cancellation or acceleration) under any Parent Material Contract disclosed in
Part 3.10(a) of the Parent Disclosure Schedule, and, to the best of counsel's
knowledge, do not violate or contravene (A) any governmental statute, rule or
regulation applicable to Parent or (B) any order, writ, judgment, injunction,
decree, determination or award which has been entered against Parent and of
which we are aware, the violation or contravention of which would have a
material adverse effect on the assets, financial condition or the operations of
Parent.
6. To the best of counsel's knowledge, there is no action, proceeding or
investigation pending or overtly threatened against Parent before any court or
administrative agency that questions the validity of the Merger Agreement or
might result in any material adverse change in the assets, financial condition
or operations of Parent.
7. All consents, approvals, authorizations, or orders of, and filings,
registrations, and qualifications with any regulatory authority or governmental
body in the United States required in connection with Parent's execution,
delivery and performance of the Merger Agreement and the consummation by Parent
of the Merger as provided therein have been made or obtained, other than the
filing of the Merger Agreement with the Secretary of State of the State of
California and the Secretary of State of the State of Delaware as contemplated
by Section 1.3 of the Merger Agreement.
8. The Agreement of Merger has been duly approved by Parent's and Merger
Sub's respective Boards of Directors and stockholders and, assuming appropriate
approval by the Board of Directors and shareholders of Andataco and compliance
by Andataco with all requirements of applicable law and the Merger Agreement
necessary to effect the Merger, upon its filing with and acceptance by the
Secretary of State of the State of California and the Secretary of State of the
State of Delaware, the Merger will be effective.
K-2.
<PAGE> 1
EXHIBIT 2.2
IRREVOCABLE PROXY
IRREVOCABLE PROXY, dated as of February ___, 1997 by and between
ANDATACO, a California corporation ("Andataco"), and __________________ (the
"Shareholder").
WHEREAS, concurrently with the execution and delivery of this
Agreement, Andataco, a California corporation, W. David Sykes, the principal
shareholder of Andataco ("Sykes"), IPL Systems, Inc., a Massachusetts
corporation ("Parent"), IPL Acquisition Sub, Inc., a Delaware corporation and
wholly owned subsidiary of Parent ("Merger Sub") are entering into an Agreement
and Plan of Merger and Reorganization (the "Agreement"), providing, among other
things, for the merger (the "Merger") of Merger Sub with and into Andataco; and
WHEREAS, as of the date hereof, the Shareholder is beneficial owner of
that number of shares of the Class A Common Stock, $.01 par value, of Parent
(collectively the "Shares") set forth on the signature page hereof; and
WHEREAS, as a condition to its willingness to enter into the Agreement,
Andataco has requested that the Shareholder agree, and the Shareholder has
agreed, to grant Andataco an irrevocable proxy (the "Proxy") with respect to
the Shares, upon the terms and subject to the conditions hereof;
NOW, THEREFORE, to induce Andataco to enter into the Agreement and in
consideration of the foregoing and the mutual representations, warranties,
covenants and agreements set forth herein and in the Agreement, the parties
hereto agree as follows:
1. The Shareholder hereby constitutes and appoints Andataco,
during the term of this Irrevocable Proxy, as the Shareholder's true and lawful
proxy and attorney-in-fact, with full power of substitution, to vote all of the
Shares plus any additional shares which Shareholder may own or hold as of the
date of any such vote (and any all securities issued or issuable in respect
thereof) which Shareholder is entitled to vote (collectively, the "Proxy
Shares"), for and in the name, place and stead of the Shareholder, at any
annual, special or other meeting of the shareholders of Parent, and at any
adjournment or postponement thereof, or pursuant to any consent in lieu of a
meeting or otherwise, in favor of any proposal to approve and adopt the
Agreement, the Merger and any transactions contemplated thereby and, in
addition, to vote against (but not in favor of) any other proposal for any
merger, consolidation, sale or purchase of any assets, reorganization,
recapitalization, liquidation or winding up of or by Parent. All power and
authority hereby conferred is coupled with an interest and is irrevocable. In
the event that Andataco is unable to exercise such power and authority for any
reason, the Shareholder
1.
<PAGE> 2
agrees that the Shareholder will vote all the Proxy Shares in favor of approval
and adoption of the Agreement, the Merger and the transactions contemplated
thereby, at any such meeting or adjournment or postponement, thereof, or
provide Shareholder's written consent thereto.
2. The Shareholder hereby covenants and agrees that until this
Irrevocable Proxy is terminated in accordance with the terms of Section 6
hereof, the Shareholder will not, and will not agree to, directly or
indirectly, sell, transfer, assign, pledge, hypothecate, grant a security
interest with respect to, cause to be redeemed or otherwise dispose of any of
the Proxy Shares or grant or attempt to grant any proxy or interest in, or with
respect to, such Proxy Shares or deposit such Proxy Shares into a voting trust
or enter into a voting agreement or arrangement with respect to such Proxy
Shares; provided, however, that if the Shareholder is an employee of Parent and
his or her employment is terminated during the effectiveness of this
Irrevocable Proxy, such Shareholder may, subsequent to the record date for the
Parent Shareholders' Meeting, sell or otherwise dispose of any shares received
upon exercise of options which would terminate if not exercised prior to the
termination of this Irrevocable Proxy. The Shareholder further covenants and
agrees that until this Proxy is terminated in accordance with the terms of
Section 6 hereof, the Shareholder will not directly or indirectly solicit,
initiate, encourage or induce the making, submission or announcement of an
offer or proposal from, or furnish any information to, any prospective buyer,
commence or engage in any negotiations with any other party or enter into any
agreement with any other party concerning an Acquisition Proposal (as defined
in the Agreement).
3. This Irrevocable Proxy is intended solely to apply to the
exercise by Shareholder, in his individual capacity, of rights attaching to
ownership of the Proxy Shares, and nothing herein shall be deemed to apply to,
or to limit in any manner, the discretion of Shareholder with respect to any
action which may be taken or omitted by him acting in his fiduciary capacity as
a director or officer of Parent.
4. The Shareholder represents and warrants to Andataco that (a)
the Shares constitute all of the securities of Parent owned beneficially by the
Shareholder on the date hereof, (b) the Shareholder owns the Shares free and
clear of all liens, charges, claims, encumbrances and security interests of any
nature whatsoever, (c) except as provided herein, the Shareholder has not
granted any proxy with respect to the Shares, deposited such Shares into a
voting trust or entered into any voting agreement or other arrangement with
respect to such Shares, (d) Shareholder has full right, power, and authority to
enter into and perform this Irrevocable Proxy, and (e) nothing in this
Irrevocable Proxy will violate the terms of any other agreement affecting the
Proxy Shares.
2.
<PAGE> 3
5. This Irrevocable Proxy shall be governed by and construed in
accordance with the laws of the State of Massachusetts without giving effect to
the provisions thereof relating to conflicts of law.
6. This Irrevocable Proxy shall terminate at the earlier of (i)
the closing of the transactions contemplated by the Agreement, or (ii) the
termination of the Agreement in accordance with its .terms, or (iii) upon
notice of termination given by Andataco to the Shareholder.
7. This Irrevocable Proxy is granted in consideration of the
execution and delivery of the Agreement by Andataco and Sykes. The Shareholder
represents and agrees that such Irrevocable Proxy is coupled with an interest
sufficient in law to support an irrevocable power and shall not be terminated
by any act of the Shareholder, by death or disability of the Shareholder, by
lack of appropriate power or authority or by the occurrence of any other event
or events other than as provided in Section 6 hereof.
8. The parties acknowledge and agree that performance of their
respective obligations hereunder will confer a unique benefit on the other and
that a failure of performance will not be compensable by money damages. The
parties therefore agree that this Irrevocable Proxy shall be specifically
enforceable and that specific enforcement and injunctive relief shall be
available to Andataco and the Shareholder for any breach of any agreement,
covenant or representation hereunder. This Irrevocable Proxy shall revoke all
prior proxies given by the Shareholder at any time with respect to the Proxy
Shares.
9. The Shareholder will, upon request, execute and deliver any
additional documents and take such actions as may reasonably be deemed by
Andataco to be necessary or desirable to complete the Irrevocable Proxy granted
herein or to carry out the provisions hereof.
10. If any term, provision, covenant, or restriction of this
Irrevocable Proxy is held by a court of competent jurisdiction to be invalid,
void or unenforceable, the remainder of the terms, provisions, covenants and
restrictions of this Irrevocable Proxy shall remain in full force and effect
and shall not in any way be affected, impaired or invalidated.
11. This Proxy may be executed in one or more counterparts, each
of which shall be deemed to be an original but all of which together shall
constitute one and the same document.
12. All notices under this Proxy shall be in writing and may be
given by personal delivery, telecopier, overnight express mail, or by
registered mail. Notice by personal delivery shall be deemed given upon actual
receipt. Notice by telecopier or
3.
<PAGE> 4
overnight express mail shall be deemed given on the date of actual receipt.
Notice given by registered mail shall be deemed given on the third business day
following the date when the notice material is deposited in the United States
Mail, return receipt requested, addressed to Shareholder at his address shown
below.
13. This Irrevocable Proxy constitutes the entire agreement
between Shareholder and Andataco with respect to the subject matter hereof.
All prior oral or written understandings and agreements regarding the subject
matter hereof between them are merged herein and are extinguished hereby.
14. This Irrevocable Proxy may not be amended except by a writing
executed by both Shareholder and Andataco.
15. This Irrevocable Proxy and the rights of Andataco under this
Irrevocable Proxy may not be assigned, except that Andataco may act pursuant to
this Irrevocable Proxy, in voting the Proxy Shares or otherwise, through any
officer, employee or designated agent of Andataco. This Irrevocable Proxy
shall be binding upon and inure to the benefit of Shareholder and Andataco and
their respective heirs, devises, legatees, personal representatives, agents and
permitted assigns.
IN WITNESS WHEREOF, Andataco and the Shareholder have caused this
Irrevocable Proxy to be duly executed on the date first above written.
SHAREHOLDER
________________________
Print Name:
-------------
Address:
-------------
Telecopy No.
-------------
Number of Shares of Class A Common
Stock of Parent beneficially owned by
Shareholder: ____________________
ANDATACO,
a California corporation
By:
-----------------------
Name:
----------------------
Title:
---------------------
4.
