SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Earliest Event Reported): November 20, 1997
Exact name of Registrant
as specified in its charter: Coyote Network Systems, Inc.
State or Other Jurisdiction of Incorporation: Delaware
Commission File Number: 1-5486
I.R.S. Employer Identification Number: 36-2448698
Address of Principal Executive Office: 26025 Mureau Road
Calabasas, CA 91302
Registrant's Telephone Number, Including Area Code: (818) 878-7711
Registrant's Former Name: The Diana Corporation
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS
On November 20, 1997, the Company completed the sale of its
telecommunications distributor subsidiary, C&L Communications, Inc.
("C&L"), to the current management of C&L, including Michael
Sonaco, James Olson and William Cain. Prior to the sale, $539,000
of non-operating assets were dividended by C&L to the Company, and
under the terms of the agreement, the Company received $2,750,000
in cash, a $1,000,000 secured promissory note due in monthly
installments and maturing on January 1, 2001 and non-voting,
subordinated preferred stock with a liquidation preference of
$2,000,000. The note receivable was recorded at face value of
$1,000,000 and the preferred stock was recorded at a value of
$842,000.
As was previously reported in the Company's latest Form 10-K,
as a result of the sale of APC's assets on February 3, 1997, the
Company's Board of Directors terminated the original restructuring
plan for a spin-off of the non-Sattel businesses. The Company
adopted a revised restructuring plan to sell C&L and Valley. The
revised restructuring plan was approved by the Board of Directors.
The Company anticipated the sale of these businesses would be
completed within one year.
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ITEM 5. CHANGE OF NAME
At the Annual Meeting held on November 20, 1997, the
Registrant's shareholders adopted and ratified a change of the
Registrant's name to Coyote Network Systems, Inc. and on November
21, 1997 the Registrant filed a certificate of amendment with the
State of Delaware.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
(b) Pro Forma Financial Information:
The following unaudited pro forma condensed consolidated
financial information is filed with this report:
Pro Forma Condensed Consolidated Balance Sheet at
September 30, 1997
Pro Forma Condensed Consolidated Statements of Operations
for the 52 Weeks Ended March 31, 1997 and the 6 Months
Ended September 30, 1997
(c) Exhibits
10.1 Merger Agreement dated November 19, 1997 by and among
The Diana Corporation, Soncainol, Inc., and Michael N.
Sonaco, James G. Olson and William H. Cain
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
COYOTE NETWORK SYSTEMS, INC.
(Registrant)
Date: December 5, 1997 /s/ Brian A. Robson
Vice President and Controller
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PRO FORMA FINANCIAL INFORMATION
COYOTE NETWORK SYSTEMS, INC.
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET AT SEPTEMBER 30, 1997
UNAUDITED
(DOLLARS IN THOUSANDS)
Pro Forma Pro
Historical Adjustments Forma
---------- ----------- -----
ASSETS
Current assets
Cash and cash equivalents $ 3,327 $ 2,750 $ 6,077
Marketable securities 1,211 0 1,211
Receivables, net 471 0 471
Inventories 3,504 0 3,504
Net assets of discontinued operations 585 (2,549) (1,964)
Other current assets 486 490 976
------ ------ ------
Total current assets 9,584 691 10,275
Property and equipment 1,776 0 1,776
Intangible assets 3,648 0 3,648
Net assets of discontinued operations 6,658 (2,043) 4,615
Other assets 0 1,352 1,352
------ ------ ------
$21,666 $ 0 $21,666
====== ====== ======
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Accounts payable $ 1,881 $ 1,881
Accrued liabilities 1,413 1,413
Accrued common stock conversion
expense 5,522 5,522
Accrued common stock warrant expense 366 366
Current portion of long-term debt 141 141
------ ------ ------
Total current liabilities 9,323 9,323
11.25% subordinated debentures,
due 2002 1,746 1,746
8.0% convertible notes, due 2000 1,683 1,683
Other liabilities 519 519
Commitments and contingencies
Shareholders' equity
Preferred stock - $.01 par value --- ---
Common stock - $1 par value 8,047 8,047
Additional paid-in capital 82,006 82,006
Accumulated deficit (75,996) (75,996)
Unrealized gain on marketable
securities 95 95
Treasury stock (5,757) (5,757)
------ ------ ------
Total shareholders' equity 8,395 8,395
------ ------
$21,666 $ 0 $21,666
====== ====== ======
See accompanying notes to pro forma condensed consolidated financial
information.
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PRO FORMA FINANCIAL INFORMATION
COYOTE NETWORK SYSTEMS, INC.
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE 52 WEEKS ENDED MARCH 31, 1997
UNAUDITED
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Pro Forma Pro
Historical Adjustments Forma
---------- ----------- -----
Net sales $ 7,154 $ 0 $ 7,154
Cost of goods sold 3,132 0 3,132
------- ---- -------
Gross profit 4,022 0 4,022
Selling and administrative expenses 12,112 0 12,112
Engineering, research and
development 4,060 0 4,060
------- ---- ------
Total operating expenses 16,172 0 16,172
------- ---- ------
Operating loss (12,150) 0 (12,150)
Interest expense (52) 0 (52)
Non-operating income (expense) (1,337) 0 (1,337)
Minority interest 368 0 368
Income tax credit 836 0 836
------- ---- -------
Loss from continuing operations $(12,335) $ 0 $(12,335)
======= ==== =======
Earnings (loss) per common share:
Continuing operations $ (2.34) $ 0 $ (2.34)
======= ==== =======
Weighted average number of
common shares outstanding 5,271 5,271
======= =======
See accompanying notes to pro forma condensed consolidated financial
information.
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PRO FORMA FINANCIAL INFORMATION
COYOTE NETWORK SYSTEMS, INC.
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE 6 MONTHS ENDED SEPTEMBER 30, 1997
UNAUDITED
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Pro Forma Pro
Historical Adjustments Forma
---------- ----------- -----
Net sales $ 1,050 $ 0 $ 1,050
Cost of goods sold 442 0 442
------- ---- -------
Gross profit 608 0 608
Selling and administrative expenses 6,126 0 6,126
Engineering, research and
development 1,297 0 1,297
------- ---- ------
Total operating expenses 7,423 0 7,423
------- ---- ------
Operating loss (6,815) 0 (6,815)
Interest expense (123) 0 (123)
Non-operating income 4 0 4
Non-operating expense (5,522) (5,522)
------- ---- -------
Loss from continuing operations $(12,456) $ 0 $(12,456)
======= ==== =======
Earnings (loss) per common share:
Continuing operations $ (2.04) $ 0 $ (2.04)
======= ==== =======
Weighted average number of
common shares outstanding 6,102 6,102
======= =======
See accompanying notes to pro forma condensed consolidated financial
information.
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COYOTE NETWORK SYSTEMS, INC.
NOTES TO PRO FORMA CONDENSED
CONSOLIDATED FINANCIAL INFORMATION
(Unaudited)
Pro Forma Condensed Consolidated Balance Sheet:
The pro forma adjustment reflects the sale of the stock of C&L in exchange
for cash of $2,750,000, a note with a face value of $1,000,000 and preferred
stock with a liquidation preference of $2,000,000 which has been recorded at
a value of $842,000 based on a management estimate of the fair market value.
Pro Forma Statement of Operations:
The pro forma statement of operations for the 52 weeks ended March 31, 1997
reflects no pro forma adjustments as the reclassification of the results of
operations of APC, C&L and Valley to discontinued operations occurred in the
previous fiscal year. The remaining operations consist of Diana's corporate
office and Sattel.
The statement of operations for the six months ended September 30, 1997
reflects the results of C&L and Valley as discontinued operations. No
further pro forma adjustment are required with respect to the sale of C&L.
MERGER AGREEMENT
THIS AGREEMENT is made as of the 19th day of November,
1997 by and among THE DIANA CORPORATION ("Seller"), SONCAINOL,
INC. ("Buyer"), and Michael N. Sonaco, James G. Olson and William
H. Cain (collectively, "Buyer Shareholders").
RECITALS
A. Seller is the record and beneficial owner of 950
shares of the no par value common stock (the "Shares") of C&L
Communications, Inc. (the "Company").
B. Buyer Shareholders desire to acquire all of the
Common Stock of the Company through a merger between Buyer and
the Company, with the Company surviving such merger pursuant to
the terms and conditions of this Merger Agreement.
AGREEMENTS
In consideration of the recitals and the mutual
covenants hereinafter set forth, the parties agree as follows:
1. Basic Transaction.
1.01 Consideration. Buyer will merge into the
Company pursuant to the Plan of Merger in substantially the form
of Exhibit A attached hereto. In connection with the merger, the
parties shall receive the following consideration:
(a) Buyer Shareholders shall receive all of
the issued and outstanding Common Stock of the Company in amounts
set forth on Schedule 1.01 attached hereto, and as reflected in
the Plan of Merger.
(b) Seller shall receive the following:
(i) cash at Closing in the amount
of $2.75 million;
(ii) At Closing, Seller shall
receive the Secured Subordinated Promissory Note of the Company
in the principal amount of $ 1,000,000 in the form of Exhibit B
attached hereto (the "Subordinated Note"), The Subordinated Note
shall be subordinated to Sanwa Business Credit Corporation
("Sanwa"), plus any and all successor institutional lenders of
the Company.
(iii) At Closing, Seller shall be
issued 5,000 shares of nonvoting, 8% cumulative Preferred Stock
of the Company. The Preferred
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Stock shall have the rights, preferences, terms and conditions as
set forth on Exhibit D attached hereto.
(c) At Seller's option, Seller shall either
(i) at Closing, cancel Buyer Shareholders' outstanding options to
acquire 44,000 shares of common stock of Seller (the "Option
Stock") pursuant to The Diana Corporation 1986 Nonqualified Stock
Option Plan; or (ii) require Buyer Shareholders to exercise all
of such options within 60 days of Closing and deliver the
exercise price plus the net proceeds from the sale of the Option
Stock (proceeds less exercise price) less an amount equal to the
Buyer Shareholders' estimated federal income tax liability
resulting from such sale, to Seller.
(d) On or before Closing, C&L Acquisition
Corporation ("Acquisition") shall repay to the Company the
Promissory Note of Acquisition to the Company in the original
principal amount of $3.4 million plus accrued interest. Buyer
Shareholders shall cause C&L at Closing to pay to Diana, as
additional consideration in connection with the merger, in cash,
all of such proceeds received from repayment of the Note from
Acquisition to C&L.
(e) The parties acknowledge that the
Company prepaid management fees for the 1998 fiscal year to
Seller in April, 1997 in the aggregate amount of $180,000.
Seller shall be entitled to retain any and all management fees
prepaid to Seller, notwithstanding the termination of the
obligation of Seller to provide management services to Buyer.
The parties acknowledge that the value of such retained prepaid
payments is approximately $67,500.
1.02 Time and Place of Closing. The closing of
the transactions contemplated by this Agreement shall take place
at the offices of Seller at 10:00 a.m., on November 20, 1997, or
at such other time and place as the parties may agree. The date
on which the Closing occurs is referred to in this Agreement as
the "Closing" or the "Closing Date." In the event the
transaction does not close for any reason on or before November
30, 1997, this Agreement shall terminate without liability to any
party, excepting only liability for breach hereof.
1.03 Pre-Closing Transaction. Prior to the
Closing, the Company shall dividend to Seller all of the issued
and outstanding capital stock owned by the Company in Acquisition
(the "Acquisition Dividend"). The Acquisition Dividend shall be
undertaken pursuant to the joint consent resolutions of the
Company as sole shareholder of Acquisition and by the Board of
Directors of the Company, which resolutions shall be in the form
of Exhibit E attached hereto. Immediately following the
Acquisition Dividend, Acquisition shall be the wholly-owned
subsidiary of Seller, and the Company shall have no further
ownership interest in Acquisition thereafter. Notwithstanding
the foregoing, Buyer shall pay to Sanwa, Sanwa's fee in
connection with the Acquisition Dividend and the repayment of
Acquisition Note described in section 1.01 above. In addition,
prior to closing certain tax investments, the Apollo
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Receivable, Mesatel UPS Receivable, and the DSS 1000 switch shall
be dividended to Seller.
2. Conditions to Obligations of Seller. Seller's
obligations to close the transactions are contingent on the
following occurring before or at Closing (unless waived in
writing by Seller):
2.01 Performance. Buyer shall have performed its
obligations under this Agreement.
2.02 Deliveries By Buyer At or Prior to Closing.
Buyer shall deliver or cause to be delivered the following to
Seller at Closing:
(a) Cash in the amount of $2,750,000 by
wire transfer.
(b) The Subordinated Note.
(c) Certificates for shares of Preferred
Stock with a liquidation value of $2 million.
(d) The legal opinion of counsel for Buyer
in the form of Exhibit F.
(e) The Plan of Merger.
(f) Certificates of Existence of Buyer and
the Company issued by the Secretary of State of Texas.
(g) Certified Resolutions of the Board of
Directors of Buyer in the form of Exhibit G.
(h) Certified Articles of Incorporation and
By-Laws of Buyer.
(i) The Security Agreement in the form of
Exhibit H, and applicable UCC Financing Statements providing
Seller with a second priority security interest in accounts
receivable and inventory of the Company (up to a maximum of
$500,000), and a first priority security interest in the Sattel
Switch, and certain other assets identified therein, subject,
however, to the Subordination Agreement.
(j) Evidence satisfactory to Seller that
the Acquisition Dividend has occurred.
(k) The Solvency Certificate in the form
attached hereto as Exhibit I.
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(1) The Mutual Release in the form attached
hereto as Exhibit J.
(m) All other instruments and documents
required by this Agreement to be delivered by Buyer or the
Company to, or on behalf of, Seller.
3. Conditions to Obligations of Buyer. Buyer's
obligation to close the transactions shall be contingent on the
following occurring before or at Closing (unless waived in
writing by Buyer):
3.01 Performance. Seller shall have performed its
obligations under this Agreement.
3.02 Consents. Except as set forth on Schedule
3.02, Seller shall have received all consents from third parties
required to consummate the transactions or necessary to avoid a
breach of any agreement to which the Company or the Seller is a
party.
3.03 Deliveries By Seller At or Prior to Closing.
Seller shall deliver or cause to be delivered to Buyer the
following at Closing:
(a) The certificates representing the
shares of Common Stock of C&L owned by Seller, duly endorsed for
transfer.
(b) The legal opinion of counsel for Seller
in the form of Exhibit K.
(c) Amended and Restated Articles of
Incorporation of the Company embodying the Preferred Stock Terms.
(d) The resignations of Jack Donnelly as a
director of the Company effective as of Closing.
(e) The certified Resolutions of the Board
of Directors of Seller approving the transactions contemplated
hereby in the form of Exhibit L.
(f) The Subordination Agreement to be
negotiated in good faith by Seller and Sanwa in a form reasonably
acceptable to the parties.
(g) The Indemnification Agreement in the
form attached hereto as Exhibit M.
(h) The Mutual Release
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(i) All other instruments and documents
required by this Agreement to be delivered by Seller to Buyer.
3.04 Representations and Warranties True. The
representations and warranties of Sellers contained herein shall
be true and correct as of the date of Closing.
4. Representations and Warranties of Seller. Sellers
represents to the Buyer that the statements contained in this
Section 4 are now and, as of the Closing Date, will be correct
and complete, as though made then. Whenever a representation or
warranty herein refers to matters within Seller's "knowledge,"
"known to Seller," or of which Seller "knows," such reference is
limited to facts within the actual knowledge of James Fiedler,
Daniel Latham or Brian Robson, without any investigation.
4.01 Corporate Organization: Authorization. The
Company is duly organized, validly existing and in good standing
under the laws of the State of Texas. The Company has full power
and corporate authority to carry on its business as it is now
being conducted and to own and lease the properties and assets it
now owns and leases. The Company has full power and authority to
enter into this Agreement and all related agreements, and to
carry out the transactions contemplated thereby. True, correct
and complete copies of the Company's Articles of Incorporation
and By-Laws are attached hereto as Schedule 4.01. The execution
and delivery of this Agreement and all related agreements, and
the consummation of the transactions contemplated thereby have
been duly authorized by the Board of Directors of the Company.
4.02 Capitalization of the Company. Prior to the
amendment of the Articles of Incorporation of the Company and the
issuance at Closing of the Preferred Stock, the authorized
capital stock of the Company consists of 1,000 shares of common
stock, no par value. Of such shares, 950 shares of Stock of the
Company are issued and outstanding (the "Shares"). The Shares
represent all of the issued and outstanding equity of the
Company. The Shares are duly authorized, validly issued and
outstanding, fully paid and nonassessable. The Shares are owned
of record and beneficially by Seller and are free and clear of
any security interest, pledge, restriction, option, voting trust
or agreement, proxy, encumbrance, claim or charge or any rights
of any third party of any kind ("Third Party Rights"). There are
no options, warrants, conversion privileges or any other rights
or agreements with respect to any of the Shares. The Company has
not granted to any party any options, warrants, conversion
privileges or any other rights or interests in its capital stock.
4.03 Binding Obligation. Neither the execution
and delivery of this Agreement and all related agreements nor the
consummation of the transactions contemplated thereby will:
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(a) conflict with or violate any provision
of the Articles of Incorporation or the By-Laws of either the
Company or of Seller, or, to the knowledge of Seller, any law or
any court or other order binding upon the Company or Seller; or
(b) to the knowledge of Seller, result in
any breach of or default under any mortgage, contract, agreement,
indenture, trust or other instrument which is either binding upon
or enforceable against the Company or the assets and properties
of the Company.
4.04 Consents and Approvals. Except as set forth
on Schedule 4.04, to the knowledge of Seller, no consent of any
entity, agency or person is required in connection with this
Agreement or the transactions contemplated by this Agreement,
including, without limitation, consents from Shareholders of
Seller, parties to loans, contracts, leases or other agreements
to which the Seller or the Company is a party which would result
in a material adverse effect on the Company.
4.05 Financial Statements. The Company has
delivered to Buyer copies of the following financial statements
prepared by the Company and reviewed or audited by Price
Waterhouse, all of which have been prepared from the internal
books and records of the Company and fairly present in all
material respects the financial condition of the Company as of
their respective dates and the results of its operations for the
periods covered thereby:
(a) audited special-purpose balance sheets
of the Company as of March 31, 1997 and special-purpose
statements of income, (loss) and retained earnings and cash flows
of the Company for such year then ended; and
(b) an unaudited balance sheet of the
Company as of September 30, 1997 (the "Interim Balance Sheet")
for the six-month period ending September 30, 1997 (the "Balance
Sheet Date").
In addition, to the knowledge of Seller, the
Company's books of account have been maintained in accordance
with sound business practices, including the maintenance of an
adequate system of internal controls, and the Company's minute
books and stock records are complete and correct.
4.06 Absence of Undisclosed Liabilities. To
Seller's knowledge, there are no liabilities or obligations,
direct or indirect, absolute or contingent, or any outstanding
evidence of indebtedness arising out of or relating to the
Company that under GAAP are required to be set forth as a
liability on a balance sheet, except (i) as fully reflected or as
specifically reserved against on the Audited Balance Sheet or
Unaudited Balance Sheet (the "Balance Sheets"), and (ii) changes
in amounts of such liabilities in the ordinary course of
business.
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4.07 Changes. Except as set forth in Schedule
4.07, Seller has not caused:
(a) any sale, lease or other disposition of
any assets used in the Company's business except for dispositions
in the ordinary course of business and such dispositions
contemplated by this Agreement;
(b) the Company to incur any indebtedness
not reflected on the Balance Sheets (other than changes in
amounts of indebtedness in the ordinary course of business);
(c) any creation of any Third Party Rights
in the Company's assets;
(d) any change or modification of the
Company's accounting methods or practices; or
(e) any payment of dividends or other
distributions to it upon or in respect of any of its shares of
capital stock (other than the Acquisition Dividend contemplated
by this Agreement), and the Company has not redeemed or obligated
itself to redeem any of its shares of capital stock or other
securities.
4.08 Title to Assets. Except as disclosed on
Schedule 4.08, to Seller's knowledge, the Company has good and
marketable title to all assets used or usable in the operation of
the Company's business (the "Assets"), free and clear of all
Third Party Rights.
4.09 Contracts and Commitments. Since January 1,
1997, Seller has not caused the Company to enter into any
contracts or commitments outside the ordinary course of business.
To Seller's knowledge, the Company is not in any way obligated
under any contract or other obligation granting to anyone an
absolute or contingent right to purchase, obtain or acquire any
right, title or interest in or to any of the Assets, other than
the sale of inventory in the ordinary course of business.
4.10 Litigation and Proceedings. To Seller's
knowledge, except as set forth on Schedule 4.10, there is no
suit, action or legal, administrative, arbitrative investigations
or other proceeding (collectively, "Proceedings") pending or, to
Seller's knowledge, threatened against the Company with respect
to its business or affecting the Assets. To Seller's knowledge,
Schedule 4.10 is a complete list and summary of all Proceedings
involving the Company, pending or threatened as of the Closing
Date.
4.11 Taxes.
(a) For all tax periods ending on or before
the Closing Date, Seller has caused the Company to properly and
timely file in correct form all
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federal income tax returns and reports required to be filed by it
with the Internal Revenue Service (collectively, the "Returns").
The Company has timely paid all taxes, governmental charges,
penalties, assessments, interest and fines due or claimed to be
due to the Internal Revenue Service with respect to the income of
the Company.
(b) The Returns reflect all taxes due and
payable by the Company with respect to the periods covered
thereby and the Company has no tax liabilities, deficiencies,
interest or penalties payable or asserted with respect to such
periods.
4.12 Employee Benefit Plans. Neither Seller nor
the Company has never been obligated to contribute to any
multiemployer plan within the meaning of ERISA section 3(37). For
purposes of this section, the "Company" shall include the Company
and all members of any controlled group of corporations (within
the meaning of Code section 414(b), relevant Treasury Regulations
and Pension Benefit Guaranty Corporation regulations issued
pursuant to ERISA section 4001), any group of trades or
businesses under common control (within the meaning of Code
section 414(c)), relevant Treasury Regulations and Pension
Benefit Guaranty Corporation regulations issued pursuant to ERISA
section 4001) and any affiliated service group (within the
meaning of Code section 414(m) and relevant Treasury Regulations
and proposed Treasury Regulations) of which the Company is a
member.
4.13 Subsidiaries. Except for Acquisition, the
Company has no subsidiaries nor any interest, direct or indirect,
in any other corporation, partnership, joint venture or other
business enterprise or entity.
4.14 Transactions with Certain Persons. Except as
set forth on Schedule 4.14, during the past three years, to
Seller's knowledge, the Company has not, directly or indirectly,
purchased or leased any property or obtained any services from
(a) Seller, or (b) any person or entity which, directly or
indirectly, alone or together with others, controls or is
controlled by or is under common control with the Company or
Seller.
4.15 Disclosure. To Seller's knowledge, there
exists no fact, condition or threatened development of any nature
not otherwise disclosed in this Agreement or on the schedules to
this Agreement that would be adverse to the operation of the
Company's business. No warranty or representation by Seller
contained in this Agreement or in any writing to be furnished
pursuant hereto contains or will contain any untrue statement of
fact or omits or will omit to state any fact required to make the
statements therein contained not misleading.
5. Representations and Warranties of Buyer. Buyer
represents and warrants to Seller as follows:
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5.01 Corporate Organization: Authorization. Buyer
is a corporation duly organized and validly existing under the
laws of the State of Texas. Buyer has full power and authority
to carry on its business as it is now being conducted and to own
and lease the properties and assets it now owns and leases and to
enter into this Agreement and all related agreements, and to
carry out the transactions contemplated thereby. The execution
and deliver of this Agreement and all related agreements, and the
consummation of the transactions contemplated thereby have been
duly authorized by the Board of Directors of Buyer. This
Agreement and all related agreements constitute valid and binding
agreements of Buyer enforceable against Buyer in accordance with
their terms.
5.02 Consents and Approvals. Except as set forth
on Schedule 5.02 to this Agreement, no consent of any entity,
agency or person is required in connection with the execution or
delivery by Buyer of this Agreement or the consummation by Buyer
of any of the transactions contemplated hereby, including,
without limitation, consents from parties to loans, contracts,
leases or other agreements to which Buyer is a party.
5.03 Full Disclosure. No representation or
warranty by Buyer in this Agreement contains any untrue statement
of a material fact or omits to state any material fact necessary
to make the statements therein not misleading.
5.04 Accuracy of Seller's Representations. To
Buyer Shareholders' knowledge, the representations and warranties
of Seller contained herein are true and correct (without regard
to any limitations as to Seller's knowledge).
6. Covenants and Agreements of Seller. Seller hereby
covenants and agrees that until Closing:
(a) Seller will give and cause the Company to
give Buyer and its representatives full access during normal
business hours after reasonable prior notice to the premises,
properties, books, contracts, tax returns, documents and records
of the Company.
(b) Seller shall not cause the Company to conduct
its business outside the ordinary and usual course.
(c) Seller shall not cause the Company to
undertake any action which will have a material, adverse effect
on the Company's business and relationships with its suppliers,
customers and other business contacts.
(d) Except as otherwise required by law, all
parties will hold their negotiations with other parties in all
matters in connection therewith in strictest
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confidence and will require all their advisors and others with
whom they work in connection with this matter to maintain the
strictest confidence.
7. Survival of Representations and Warranties;
Indemnification.
7.01 Survival of Representations and Warranties.
All of the representations and warranties made by the parties in
this Agreement, or in any exhibit, certificate or other document
delivered pursuant hereto, shall survive the Closing and shall
continue until December 31, 1999, except for those contained in
section 4.11 (taxes), which shall continue until expiration of
the applicable statute of limitations (including extensions
thereof), and except for those contained in sections 4.01
(corporate organization and authorization), 4.02
(capitalization), and 5.04 (accuracy of Seller's
representations), which shall continue indefinitely.
7.02 General Indemnification. From and after the
Closing, each party shall indemnify the other party as provided
in section 7.
7.03 Indemnification by Seller. Notwithstanding
Closing, Seller hereby agrees to jointly and severally indemnify,
defend and hold Buyer harmless from and against any damage,
liability, loss, cost or deficiency, including, but not limited
to, reasonable attorneys' fees and other costs and expenses
incident to proceedings or investigations or the defense or
settlement of any claim (collectively "Damages"), arising out of,
resulting from or relating to:
(a) any inaccuracy in or breach of a
representation or warranty of the Company or Seller hereunder,
including schedules and documents delivered pursuant hereto;
(b) any liability of the Company for
federal income taxes for periods preceding the Closing Date;
(c) any failure of Seller to duly
perform or observe any term, provision, covenant or agreement to
be performed or observed by the Company or Seller pursuant to
this Agreement or any agreements contemplated hereby or executed
in connection herewith; or
(d) any breach by Seller of any covenants
contained in this Agreement.
7.04 Indemnification by Buyer. Notwithstanding
Closing and regardless of any investigation made at any time by
or on behalf of Seller or any information it may have, Buyer
hereby agrees to indemnify, defend and hold Seller harmless from
and against any Damages arising out of, resulting from or
relating to:
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(a) Any inaccuracy in or breach of a
representation or warranty of Buyer hereunder, including
schedules and documents delivered pursuant hereto; or
(b) Any failure of Buyer to duly perform or
observe any term, provision, covenant or agreement to be
performed or observed by Buyer pursuant to this Agreement or any
agreements contemplated hereby or executed in connection
herewith.
7.05 Limits on Indemnification. Neither the
Seller nor the Buyer will be liable for any Damages described in
section 7.03 or 7.04 above unless and until the aggregate amount
of Damages from such claims exceeds $ 150,000 (the "Basket")
after which point the indemnifying party will be obligated to
indemnify the indemnified party for all such amounts incurred
(including the first $ 150,000). Neither the Seller nor the
Buyer will be liable for any Damages in excess of the aggregate
sum of cash consideration received by Seller from Buyer hereunder
(including payments pursuant to the Subordinated Note and
proceeds from the redemption of preferred stock but excluding the
proceeds of the Note referred to in Section 1.01(c)) (the "Cap");
provided, however, a breach of any covenant shall not be subject
to the Basket or the Cap. No claim by Buyer against Seller under
Section 7.03 (b) with respect to federal income tax liabilities
or a breach of a representation in sections 4.01, 4.02, and 4.11
shall subject to the Cap.
7.06 Effect of Indemnification. Except as
provided in the immediately preceding subsection, any Damages
suffered by the Company shall be deemed to have been suffered by
Buyer for purposes of this indemnification. Both the Company and
Buyer shall have the right to assert a claim for indemnification
hereunder, but there shall be a single right to recover.
7.07 Indemnification Procedure. The party
asserting a claim under this Articles 7 (the "Claimant") shall
give the other party (the "Nonclaimant") prompt notice of any
written claim, demand, assessment, action, suit or proceeding to
which the indemnity set forth in this section applies (a
"Claim"). If the document evidencing such claim or demand is a
court pleading, such notice shall be given within seven days of
receipt of such pleading; otherwise, such notice shall be given
within fifteen days of the date written notice of such claim is
received. With respect to claims brought by third parties, the
Nonclaimant shall have the opportunity to defend against such
Claim as set forth herein and the Claimant shall have the right
to participate in the defense of the Claim. The Nonclaimant shall
have the right to employ counsel reasonably acceptable to the
Claimant to defend such Claim at the Nonclaimant's expense. The
Claimant shall have the right to employ its own counsel in any
such Claim, but the fees and expenses of such counsel shall be at
the expense of the Claimant unless (i) the employment of such
counsel at the Nonclaimant's expense shall have been authorized
in writing by the Nonclaimant or its representative in connection
with the defense of such Claim; or (ii) the Nonclaimant or its
representative shall decide not to defend against such Claim.
Whichever party shall direct the defense of such Claim as
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aforesaid shall [a] keep the other fully informed of such claim
at all stages thereof whether or not represented; [b] promptly
submit to the other copies of all pleadings, responsive
pleadings, motions and other similar legal documents and papers
received in connection with such Claim; [c] permit the other and
its counsel, to the extent practicable, to confer on the conduct
of the defense of such Claim; and [d] to the extent practicable,
permit the other and its counsel an opportunity to review all
legal papers to be submitted prior to such submission. Each party
shall make available to the other and its counsel and accountants
all of its books and records relating to such Claim and each
party shall render to the other such assistance as may be
reasonably required in order to ensure the proper and adequate
defense of any such Claim. The Nonclaimant shall not make any
settlement of any Claim without the written consent of the
Claimant, which consent shall not be unreasonably delayed or
withheld, unless the settlement includes as a term the complete
release of Claimant.
7.08 Right of Setoff. Buyer shall have the right
to offset any Damages payable to Buyer hereunder against any
amounts payable to Seller pursuant to the Subordinated Note, if
permitted under the terms of the Subordination Agreement.
8. Miscellaneous Provisions.
8.01 Amendment and Modification. This Agreement
and any exhibit attached hereto may be amended or modified and
supplemented only in a writing signed by the parties hereto.
8.02 Waiver of Compliance. Any failure of one
party to comply with any obligation, covenant, agreement or
condition herein may be expressly waived in writing by the party
or parties benefiting from such obligation, covenant, agreement
or condition, but such waiver or failure to insist upon strict
compliance with such obligation, covenant, agreement or condition
shall not operate as a waiver of, or estoppel with respect to,
any subsequent or other failure.
8.03 Expenses, Transfer Taxes, Etc. Whether or
not the transactions contemplated by this Agreement are
consummated, all fees and expenses incurred by each party in
connection with this Agreement shall be borne by such party.
8.04 Notices. All notices, requests, demands and
other communications required or permitted hereunder shall be in
writing and shall be deemed to have been duly given when
delivered by hand or when sent by U.S. certified or registered
mail, postage prepaid:
If to Seller:
The Diana Corporation
26025 Mureau Road
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Calabasas, CA 91302
Attn: James Fiedler, Chairman
With a copy to:
Godfrey & Kahn, S.C.
780 North Water Street
Milwaukee, WI 53202
Attn: Larry D. Lieberman, Esq.
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If to the Buyer or the Company:
C&L Communications, Inc.
12000 Network Boulevard
San Antonio, TX 78006
Attn: Michael Sonaco, President
With a copy to:
Reinhart, Boerner, Van Deuren,
Norris & Rieselbach, s.c.
1000 North Water Street,
Suite 2100
Milwaukee, WI 53202-3186
Attn: Lawrence J. Burnett, Esq.
or to such other address as a party may provide by written notice
in conformance with this section.
8.05 Assignment. This Agreement and all of the
provisions hereof shall be binding upon and inure to the benefit
of the parties hereto and their respective heirs, executors,
successors and permitted assigns, but neither this Agreement nor
any of the rights, interests or obligations hereunder shall be
assigned by any of the parties hereto without the prior written
consent of the other parties, whether by operation of law or
otherwise.
8.06 Governing Law. This Agreement and the legal
relations among the parties hereto shall be governed by, subject
to and construed in accordance with the internal laws of the
State of Texas.
8.07 Counterparts. This Agreement may be executed
in counterparts, each of which shall be deemed an original, but
all of which together shall constitute one and the same
instrument.
8.08 Headings. The headings and captions of the
sections and articles of this Agreement are inserted for
convenience only and shall not constitute a part hereof or affect
in any way the meaning or interpretation of this Agreement.
8.09 Entire Agreement. This Agreement, including
the schedules and exhibits hereto (which constitute a part of
this Agreement as if set forth in full herein), and the other
documents and certificates delivered pursuant to the terms hereof
set forth the entire agreement and understanding of the parties
hereto in respect of the subject matter contained herein, and
supersede all prior agreements, promises, covenants,
arrangements, communications, representations or warranties,
whether oral or
14
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written, by any officer, employee or representative of any party
hereto, except confidentiality agreements. The terms of this
Agreement have been negotiated by the respective representatives
of Buyer (on the one hand) and the Company and Seller (on the
other hand).
8.10 Specific Performance. The parties agree that
it is impossible to measure in money the damages which will
accrue to any of them by reason of a failure of any of them to
perform any of their obligations under this Agreement. If any
party shall institute any action or proceeding to enforce the
provisions hereof, the party against whom such action or
proceeding is brought hereby waives the claim or defense that the
party asserting the action has an adequate remedy at law, and
such person shall not assert in any action or proceeding the
claim or defense that such remedy at law exists. This Agreement
and the rights and obligations hereunder may be enforced by a
court of equity by a decree of specific performance. Such remedy
shall be cumulative and nonexclusive.
8.11 Third Parties. Except as specifically set
forth or referred to herein, nothing herein expressed or implied
is intended or shall be construed to confer upon or give to any
person or corporation other than the parties hereto and their
successors or permitted assigns, any rights or remedies under or
by reason of this Agreement.
8.12 Severability. The invalidity of any
provision of this Agreement or portion of a provision shall not
affect the validity of any other provision of this Agreement or
the remaining portion of the applicable provision.
Rest of this Page Intentionally Left Blank
15
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8.13 Further Assurances. Upon reasonable request,
from time to time, each party agrees that it shall execute and
deliver all documents, make all rightful oaths, testify in any
proceedings and do all other acts which may be necessary or
desirable in the opinion of the other party to protect or record
the rights of the other party arising under this Agreement, or to
aid in the prosecution or defense of any rights arising
therefrom, all without further consideration.
8.14 Confidentiality. Notwithstanding anything to
the contrary, Buyer shall not disclose to any Company employee or
third party the terms of this sale transaction or information
relating to prior years compensation of Seller. This covenant
shall indefinitely survive the Closing.
8.15 Broker. Seller shall pay all fees and
commissions owing to any broker employed or engaged by Seller or,
to the knowledge of Seller, by the Company, in connection with
the transactions contemplated hereby.
8.16 Access. After the Closing, Buyer shall
provide Seller and its representatives and outside accountants
with reasonable administrative support (including preparation of
reports) and reasonable access to the Company's books and records
sufficient to enable Seller (a) to prepare, file and make all
necessary tax filings, and (b) to prepare Seller's consolidated
financial statements which include periods prior to the Closing
Date.
The parties hereto have duly executed this Agreement as
of the day and year first above written.
THE DIANA CORPORATION
BY: /s/ James J. Fiedler
Its Chairman and CEO
C&L COMMUNICATIONS, INC.
BY: /s/ Michael N. Sonaco
Its President
SONCAINOL, INC.
BY: /s/ Michael N. Soncao
Its President
16
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BUYER SHAREHOLDERS:
/s/ Michael N. Sonaco
/s/ James G. Olson
/s/ William H. Cain
17
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EXHIBIT A
PLAN OF MERGER OF
SONCAINOL, INC.
WITH AND INTO
C & L COMMUNICATIONS, INC.
This Plan of Merger, dated this 20th day of November, 1997,
is made and entered into by and among Soncainol, Inc., a Texas
corporation ("Acquired"), and C & L Communications, Inc., a Texas
corporation ("Survivor"), jointly referred to hereinafter as the
"Merging Corporations."
1. At the effective date of the merger, as defined in
paragraph 4 below, Acquired will be merged with and into Survivor
in accordance with Articles 5.01 of the Texas Business
Corporation Act. After such merger, Survivor will be the sole
surviving corporation and the separate existence and identity of
Acquired will cease to exist.
2. At the effective date of the merger:
(a) Each share of the $.01 par value voting common
stock of Acquired issued and outstanding shall be converted into
and shall thereafter represent one share of $.00 1 par value
voting common stock of Survivor;
(b) Each outstanding share of the $.001 par value
common stock of Survivor shall be cancelled and the sole
shareholder of Survivor shall be issued 5,000 shares of the
Preferred Stock of Survivor in addition to $2,750,000 cash, a
Subordinated Promissory Note in the principal amount of
$1,000,000 and other property and consideration.
3. At the effective date of the merger:
(a) Survivor shall possess all rights privileges,
immunities and franchises, of a public nature as well as of a
private nature, of each of the merging corporations;
(b) All property, real, personal and mixed and all
debts due on whatever account, including subscriptions to shares
and all other choses in action, and every interest, of or
belonging to or due to each of the merging corporations, shall be
taken and deemed to be transferred to and vested in Survivor
without further act or deed;
(c) Title to any real estate or any interest therein,
vested in each of the merging corporations shall not revert or be
in any way impaired by reason of the merger;
<PAGE>
d) Survivor shall be responsible and liable for all
the liabilities and obligations of the merging corporations
including without limitation, payment of the fair value of any
shares held by a shareholder of any domestic corporation that is
a party to the merger who has complied with the requirements of
Article 5.12 of the Texas Business Corporation Act, for the
recovery of the fair value of his or her shares.
(e) Any claim existing or action or proceeding pending
by or against either of the merging corporations may be
prosecuted to judgment as if the merger had not taken place, or
Survivor may be substituted as the party in interest; and
(f) Neither the rights of creditors nor any liens upon
the property of the merging corporations shall be impaired by the
merger.
4. The "Effective Date" of the merger shall be the close
of business on November 20, 1997.
5. Attached hereto is a true and correct copy of the
Amended and Restated Articles of Incorporation of Survivor.
IN WITNESS WHEREOF, the parties hereto have caused this Plan
of Merger to be executed as of the 20th day of November, 1997.
SONCAINOL, INC.:
BY /s/ Michael N. Sonaco, President
Attest:
/s/ James G. Olson, Jr., Secretary
C & L COMMUNICATIONS, INC.
BY /s/ Michael N. Sonaco, President
Attest:
/s/ James G. Olson, Jr., Secretary
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EXHIBIT B
PAYMENT OF THE INDEBTEDNESS EVIDENCED BY THIS NOTE AND THE RIGHTS
OF HOLDER HEREOF ARE SUBORDINATED AND SUBJECT TO THE RIGHTS OF
SANWA BUSINESS CREDIT CORPORATION TO THE EXTENT PROVIDED IN A
SUBORDINATION AND INTERCREDITOR AGREEMENT DATED NOVEMBER 20,
1997, BY AND AMONG C & L COMMUNICATIONS, INC., SANWA BUSINESS
CREDIT CORPORATION AND THE DIANA CORPORATION.
SUBORDINATED SECURED PROMISSORY NOTE
$1,000,000.00 San Antonio, Texas
November 20, 1997
FOR VALUE RECEIVED, C & L COMMUNICATIONS, INC., a Texas
corporation ("Maker"), hereby unconditionally promises to pay to
the order of THE DIANA CORPORATION, a Delaware corporation
("Payee") in immediately available funds at 26025 Mureau Road,
Calabasas, California, or such other address as the Payee may
from time to time direct, without any abatement, setoff,
reduction, defense or counterclaim except as set forth herein,
the principal sum of One Million Dollars ($1,000,000.00) as
follows:
(a) Commencing on December 1, 1997, and continuing on
the first Business Day of each month thereafter until December 1,
2000, thirty-seven (37) consecutive payments of principal of
Twenty Thousand Dollars ($20,000) each; and
(b) On July 1, 1998, a payment of principal in the
amount of Two Hundred Fifty Thousand Dollars ($250,000) minus the
aggregate amount of Mandatory Prepayments (as hereinafter
defined), if any, received by the Payee prior to such date; and
(c) On January 1, 2001, a payment in an amount equal
to the entire outstanding principal balance and accrued and
unpaid interest due hereunder.
Maker also unconditionally promises to pay interest in the
same manner on the unpaid principal amount from time to time
outstanding on the same dates as principal is paid hereunder.
The unpaid principal shall bear interest before maturity from the
date hereof until paid, computed on the basis of the actual
number of days elapsed over a three hundred sixty (360) day year,
at an annual rate equal to the Prime Rate in effect as of the
first Business Day of each month during the term hereof plus one
percent (1%). The unpaid balance and accrued interest shall bear
interest after default or maturity at the Prime Rate in effect as
of the first Business Day of each
<PAGE>
month during the term hereof plus three percent (3%). The term
"Prime Rate" shall mean the prime rate as such rate is published
from time to time in the "Money Rates" section of the Midwest
Edition of The Wall Street Journal. The applicable interest rate
for each month shall be based on the Prime Rate published in The
Wall Street Journal on the first Business Day of such month.
This Note may be prepaid in whole or in part at any time
without premium or penalty. This Note must be prepaid to the
extent of and no later than one (1) Business Day following
Maker's receipt of, the proceeds of the sale or transfer of or
distributions received on account of, the Primary Collateral (as
defined in that certain Security Agreement dated as of the date
hereof between Maker and Payee (the "Security Agreement"). The
foregoing prepayments are referred to herein as the "Mandatory
Prepayments."
For purposes hereof, the term "Business Day" shall mean any
day except Saturday, Sunday or any other day on which commercial
banks are authorized by law to close in the State of Wisconsin.
This Note is secured pursuant to the terms of the Security
Agreement. This Note may be declared due prior to its expressed
maturity date, all in the events, on the terms and in the manner
provided for in the Security Agreement. In addition, the unpaid
balance shall mature and immediately become due and payable in
the event any of the following defaults shall occur:
(i) Maker defaults in the payment of any interest or
principal hereunder, including the Mandatory Prepayments, when
due;
(ii) Maker makes a general assignment for the benefit
of creditors, or becomes the subject of an "order for relief"
within the meaning of the United States Bankruptcy Code, or
voluntarily files a petition in bankruptcy or for reorganization
or effects a formal or informal plan or other arrangement with
creditors, or otherwise becomes or is rendered insolvent;
(iii) Maker sells, exchanges or otherwise disposes of
all or substantially all of its assets, directly or indirectly
through subsidiaries or otherwise, whether in any single
transaction or a series of related transactions;
(iv) Maker shall consolidate or merge with or into
any corporation or other person or entity in a transaction that
requires shareholder approval under the Texas Business
Corporation Act; or Maker shall effect any share exchange,
reorganization, recapitalization, reclassification or similar
transaction;
(v) Maker shall liquidate, dissolve or wind-up its
affairs or adopt any plan or arrangement in furtherance of the
foregoing;
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(vi) Michael N. Sonaco shall cease to be the chief
executive officer of Maker; or
(vii) any default or event of default shall have
occurred under any indebtedness of Maker (including capitalized
lease obligations) that gives the holder thereof the right to
accelerate such indebtedness and such indebtedness is in fact
accelerated by the holder.
Maker hereby waives presentment, protest, demand, and notice
of any kind.
Without affecting the liability of Maker, the holder of this
Note may without notice, renew or extend the time for payment,
accept partial payments, release or impair collateral security
for the payment of this Note or agree not to sue any party liable
on it.
The remedies of the Payee may be pursued singly,
successively, or together, at the sole discretion of the Payee
and may be exercised as often as Payee chooses in its discretion.
No action of the Payee or failure to act by the Payee, including
any failure to exercise any right, remedy or recourse, shall be
effective as a waiver of any right of the Payee hereunder, unless
set forth in a written document executed by the Payee, and then
only to the extent specifically recited therein.
Maker has certain set-off rights as set forth in a certain
Merger Agreement dated November 19, 1997 by and among Maker,
Payee and certain other parties and certain agreements executed
in connection therewith.
The Maker agrees to pay all costs of collection, including
reasonable attorneys' fees, of Payee. This Note shall be
construed and enforced in accordance with the internal laws of
the State of Wisconsin.
C & L COMMUNICATIONS, INC.
By: /s/ Michael N. Sonaco
Title: President and CEO
<PAGE>
EXHIBIT D
TERMS OF PREFERRED STOCK
1. Designation. The Corporation shall have a class
of shares of Preferred Stock consisting of 5,000 shares, par
value $.OOl per share, designated as "Preferred Stock." The
Preferred Stock shall have the rights and preferences hereinafter
set forth.
2. Cumulative Dividend Provisions.
(a) Whenever funds are legally available and upon
declaration of the Board of Directors, the Corporation shall pay
to holders of shares of the Preferred Stock preferential
dividends as set forth in this section. Dividends on each share
of Preferred Stock will accrue on a daily basis beginning
November 1, 1997 at the rate of 8% per year of the Liquidation
Value as defined hereunder through the earlier of the date of
repurchase of such share of Preferred Stock or the liquidation of
this Corporation and shall be paid in full before any dividends
shall be payable on any other class of stock and before any sums
shall be set aside for the redemption or purchase for the
retirement of all or any part of the Preferred Stock. Such
dividends shall accrue whether or not they have been declared and
whether or not there are funds legally available to the
Corporation for the payment of dividends.
(b) The Corporation shall not be required to pay
any dividend if and to the extent, such payment would constitute
a default under any agreements between the Corporation and its
institutional lenders (the "Lenders"); provided, however, that,
in such event, the dividends shall continue to accrue. To the
extent not paid on the first day of February, May, August and
November of each year beginning on the first day of February,
1998 (each, a "Dividend Reference Date"), all dividends which
have accrued on each share of Preferred Stock outstanding during
the three-month period ending upon the day immediately preceding
each such Dividend Reference Date, will accumulate and be added
to the Liquidation Value of such share of Preferred Stock and
will remain a part thereof until such dividends are paid.
Notwithstanding anything herein to the contrary, the Corporation
shall declare and pay all dividends which have accrued during the
period ending on the day immediately preceding each Dividend
Reference Date to the extent permitted by law and the agreements
between the Corporation and the Lender(s).
(c) If at any time the Corporation pays less than
the total amount of dividend than accrued with respect to any of
the Preferred Stock, such payment will be distributed ratably
among the holders of the Preferred Stock based upon the aggregate
accrued but unpaid dividends on the shares of Preferred Stock
held by each holder.
<PAGE>
(d) So long as any shares of the Preferred Stock
shall remain outstanding, no dividends shall be paid or declared,
or other distributions made (upon dissolution or otherwise),
whether in cash or property or in obligations or shares of the
Corporation (other than dividends payable solely in shares of
Common Stock), on any class of stock (other than the Preferred
Stock) nor shall any shares of capital stock (other than the
Preferred Stock) be purchased, redeemed, retired or otherwise
acquired by the Corporation or any corporation or other person or
entity controlling, controlled by or under common control with
the Corporation for any consideration of any kind (or any payment
made to or available for a sinking fund for the redemption of any
such securities), and neither the Corporation nor any corporation
or other person or entity controlling, controlled by or under
common control with the Corporation shall incur any obligation
for any of the foregoing. Notwithstanding the above, the
Corporation shall be entitled to redeem the stock of James Olson
and William Cain pursuant to Section 5(a) of the Buy-Sell
Agreement dated effective as of November 11, 1997 by and among
the Corporation, Mike Sonaco, James Olson and William Cain
without such redemption constituting a breach of this covenant or
giving rise to any remedies or rights of the holders of the
Preferred Stock; provided, however, that (i) the maximum amount
payable on account of such redemption shall be 50% of the
proceeds of the life insurance policy (if any) maintained by the
Corporation for such individual; and (ii) the remaining 50% of
the proceeds of the life insurance policy shall be paid to the
holders of the Preferred Stock in a partial redemption pursuant
to the terms set forth in paragraph 5 below.
3. Liquidation Preference.
(a) In the event of any liquidation, dissolution
or winding up of this Corporation, either voluntary or
involuntary, each holder of shares of Preferred Stock shall be
entitled to receive, and in preference to any distribution of any
of the assets of this Corporation or the holders of the common
stock by reason of their ownership thereof, the aggregate
Liquidation Value of the shares of Preferred Stock held by such
holder. The Corporation shall give holders of the Preferred
Stock 60 days' advance written notice of any intent to liquidate,
dissolve or wind up the affairs of the Corporation.
(b) If, upon any such liquidation, dissolution or
winding up of this Corporation, the Corporation's assets to be
distributed among the holders of the Preferred Stock are
insufficient to permit payment to such holders of the aggregate
amount which they are entitled to be paid, then the entire assets
to be distributed will be distributed ratably among such holders
based upon the aggregate Liquidation Value of the Preferred Stock
held by each such holders. The "Liquidation Value," as of any
particular date, shall be equal to the greater of (i) the Put
Price, as defined hereunder, or (ii) $400 per share for each
share of Preferred Stock then held by such holder (the "Original
Preferred Stock Price"), plus an amount equal to all accrued or
declared but unpaid dividends on the Preferred Stock held by
them.
(c) If assets remain in this Corporation after
the distributions provided for in subparagraph (a) of this
section 3 have been fully made, the holders of
2
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any other class of stock shall be entitled to receive any other
of the surplus funds or assets of the Corporation.
4. Put.
(a) At any time after October 31, 2000 and prior
to October 31, 2002, or at any time Mike Sonaco shall cease to be
the chief executive officer of the Corporation, any holder of
Preferred Stock may, upon 30 days' prior written notice to the
Corporation, demand that the Corporation purchase and the
Corporation shall purchase all of such holders' Preferred Stock
(or such portion thereof as such holder indicates in its written
notice) at the price set forth in section 4(b) and upon the terms
set forth in section 4(c). If funds of the Corporation legally
available for such purchase under Article 2.38 of the Texas
Business Corporation Act are insufficient to purchase the total
number of shares being put to the Corporation, those funds
legally available will be used to purchase the maximum possible
number of shares and, thereafter when additional funds become
legally available, such funds shall immediately be used to
purchase the balance of the shares. The Corporation shall take
all action necessary to legally make available funds to purchase
the Preferred Stock under this Section 4.
(b) The price per share of Preferred Stock for
the purposes of this section 4 shall be equal to the greater of
(i) their Liquidation Value plus accrued but unpaid dividends on
the Preferred Stock to the date of purchase, or (ii) the
Preferred Stock Net Book Value multiplied by 115%, as determined
by, and subject to adjustment for subsequent issuances of capital
stock as set forth below. For purposes this paragraph (b),
"Preferred Stock Net Book Value" shall mean (A) 19.9% of the
difference between (i) Shareholders' Equity of the Corporation,
as shown on the Corporation's balance sheet as of the end of the
month immediately preceding the purchase, determined in
accordance with general accepted accounting principles of the
Corporation consistently applied, and (ii) any proceeds received
by the Corporation in excess of $2,100,000 for the issuance of
capital stock of the Corporation or for the exercise of any
options to acquire capital stock of the Corporation (B) divided
by the number of shares of Preferred Stock that are outstanding
on the date of such determination.
(c) In case of a put under this section 4, the
purchase price as determined according to section 4(b) above,
shall be paid in cash within 90 days after the date specified in
the Notice referred to in section 4(a) above.
5. Redemption. At any time, the Corporation may,
upon 30 days' written notice to the holders of the Preferred
Stock, redeem and repurchase each share of Preferred Stock then
issued and outstanding on the date 30 days after the notice is
issued or any other sooner date as the Corporation may choose
(the "Redemption Date"). The Corporation may redeem and
repurchase each share of Preferred Stock then issued and
outstanding for cash, at a price per share (the "Redemption
Price") equal to the greater of the Liquidation Value plus
accrued but unpaid dividends on the Preferred Stock to the date
of purchase (to the extent not included in the Liquidation Value)
or the Put Price. As
3
<PAGE>
among the holders of Preferred Stock, the redemption of Preferred
Stock shall be proportional based upon the Liquidation Value of
shares of Preferred Stock held by each holder. For each share of
Preferred Stock which is to be redeemed, the Corporation will be
obligated on the Redemption Date to pay to the holder thereof
(upon surrender by such holder at the Corporation's principal
office of the certificate representing such share) an amount in
immediately available funds equal to the Redemption Price
thereof. If the funds of the Corporation legally available for
redemption of shares on any Redemption Date under Article 2.38 of
the Texas Business Corporation Act are insufficient to redeem the
total number of shares of Preferred Stock to be redeemed on such
date, those funds which are legally available will be used to
redeem the maximum possible number of share of Preferred Stock
ratably among the holders of the shares to be redeemed based upon
the aggregate Liquidation Value of such shares held by each such
holder. At any time thereafter when additional funds of the
Corporation are legally available for the redemption of such
shares, such funds will immediately be used to redeem the balance
of the shares which the Corporation has become obligated to
redeem on the Redemption Date but which it has not redeemed.
6. Voting Rights. Except as set forth in paragraph
(b) below, the holder of each share of Preferred Stock shall have
no right to vote except to the extent voting rights cannot be
denied under the Texas Business Corporation Act.
(b) So long as any shares of Preferred Stock
shall be outstanding, the Corporation shall not, without the
affirmative vote of the holders of at least a majority of the
shares of Preferred Stock outstanding at the time, or as of a
record date fixed by the Board of Directors, voting as a class:
(i) amend the Restated and Amended Articles
of Incorporation of the Corporation to change the amount of
authorized shares of the Corporation or create a new class of
Preferred Stock of the Corporation;
(ii) amend the Restated and Amended Articles
of Incorporation of the Corporation so as adversely to affect any
of the powers, preferences or rights of the holders of Preferred
Stock;
(iii) sell, lease or otherwise dispose of
all or substantially all of its assets directly or indirectly
through subsidiaries or otherwise, whether in one or in several
of transactions;
(iv) Consolidate or merge with or into any
corporation or other person or entity, or effectuate any share
exchange, reorganization, recapitalization, reclassification or
similar transaction;
(v) Liquidate, dissolve or wind-up its
affairs or adopt any plan or arrangement in furtherance of the
foregoing; or
4
<PAGE>
(vi) enter into any transaction with any affiliate
of the Corporation (except for normal and reasonable employment
arrangement and benefit programs).
7. Status of Reacquired Preferred Stock. In case any
shares of Preferred Stock shall be repurchased by the Corporation
pursuant to section 4 or section 5 hereof the shares so
repurchased shall not be reissued by the Corporation and, upon
such acquisition of shares, the number of authorized shares of
Preferred Stock shall be reduced by the number of shares so
repurchased.
8. Reporting. The Corporation shall provide to the
holders of Preferred Stock (a) within 90 days after the date of
each fiscal year, annual financial statements prepared in
accordance with generally accepted accounting principles
consistently applied, (b) within twenty days after each
accounting month, financial statements for such month and the
fiscal year to date period (subject to normal year-end
adjustments).
5
<PAGE>
EXHIBIT E
JOINT RECORD OF ACTION
TAKEN BY CONSENT OF THE
BOARD OF DIRECTORS AND SOLE SHAREHOLDER OF
C & L COMMUNICATIONS, INC.
The undersigned, who are all of the directors and the sole
shareholder of C & L COMMUNICATIONS, INC., a Texas corporation
(the "Corporation"), consent to the adoption of the following
recitals and resolutions taken without a meeting in accordance
with Section 9.10 of the Texas Business Corporation Act.
RECITALS
A. The directors and the sole shareholder of the
Corporation deem it to be in the best interests of the
Corporation that the Corporation enter into a merger with
Soncainol, Inc., a Texas corporation ("Soncainol"), pursuant to
which Soncainol shall merge with and into the Corporation (the
"Merger").
B. The directors and sole shareholder of the Corporation
deem it to be in the best interests of the Corporation to
effectuate the Merger of Soncainol with and into the Corporation
as contemplated by the Agreement and Plan of Merger in
substantially the form reviewed by the undersigned as of the date
hereof (the "Merger Agreement") and all exhibits, schedules and
ancillary documents and agreements contemplated thereby
(collectively with the Merger Agreement, the "Merger Documents").
C. The directors and sole shareholder of the Corporation
deem it to be in the best interests of the Corporation to approve
and adopt the Merger Documents and to authorize the proper
officer or officers of the Corporation to execute and deliver the
Merger Documents, for, on behalf and in the name of the
Corporation and to take all other actions necessary or desirable
to effectuate the Merger.
D. The directors and sole shareholder of the Corporation
deem it to be in the best interests of the Corporation to enter
into an Amended and Restated Loan and Security Agreement by and
between Sanwa Business Credit Corporation, a Delaware corporation
("Lender") and the Corporation ("Borrower") dated as of November
20th, 1997, in substantially the form reviewed by the undersigned
as of the date hereto (the "Amended and Restated Loan Agreement")
and all exhibits, schedules and ancillary documents and
agreements contemplated thereby (collectively with the Amended
and Restated Loan Agreement, the "Loan Documents").
<PAGE>
E. The directors and sole shareholder of the Corporation
deem it to be in the best interests of the Corporation to approve
and adopt the Loan Documents and to authorize the proper officer
or officers of the Corporation to execute and deliver the Loan
Documents for, on behalf and in the name of the Corporation and
to take all other actions necessary or desirable to effectuate
the intent of the Loan Documents.
F. The directors and sole shareholder of the Corporation
desire to ratify and approve in all respects all prior actions
taken by the directors and officers of the Corporation which have
not previously been authorized and approved.
RESOLUTIONS
1. Each of the Merger documents is adopted and approved by
the Corporation in substantially the form reviewed by the
undersigned as of the date hereof and the President of the
Corporation, alone or together with the Secretary of the
Corporation, is authorized and directed to execute and deliver
each of the Merger Documents for, on behalf and in the name of
the Corporation, with each of the Merger Documents to be in such
final form and to contain such final provisions as the officer or
officers executing the same shall approve and his or their
signatures appearing thereon shall be conclusive evidence of his
or their approval thereof.
2. Each of the officers of the Corporation hereby are
authorized and directed to take any and all actions and execute
and file any and all documents for, on behalf and in the name of
the Corporation, as such officer or officers deem necessary or
appropriate to effectuate the Merger, including, but not limited
to, executing and filing, with the Texas Secretary of State,
Articles of Merger, containing a Plan of Merger, both to be in
substantially the form attached hereto as Exhibit A.
3. Each of the Loan Documents are adopted and approved by
the Corporation in substantially the form reviewed by the
undersigned as of the date hereof and the President of the
Corporation, alone or together with the Secretary of the
Corporation, is authorized and directed to execute and deliver
the Loan Documents for, on behalf and in the name of the
Corporation, with each of the Documents to be in such final form
and to contain such final provisions as the officer or officers
executing the same shall approve and his or their signatures
appearing thereon shall be conclusive evidence of his or their
approval thereof.
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<PAGE>
4. The undersigned sole shareholder of the Corporation
hereby ratifies, confirms and approves in all respects all prior
actions taken by the directors of the Corporation which have not
been specifically authorized and approved prior to the date
hereof.
5. The undersigned directors of the Corporation hereby
ratify, confirm and approve in all respects all prior actions
taken by the officers of the Corporation which have not been
specifically authorized and approved prior to the date hereof.
6. The undersigned sole shareholder of the Corporation
acknowledges that each of Michael N. Sonaco and Jack E. Donnelly
are the current directors of the Corporation.
7. The undersigned directors of the Corporation
acknowledge that each of the following individuals are the
current officers of the Corporation, holding the office or
offices set forth opposite their name:
Michael N. Sonaco President and Chief Executive Officer
William H. Cain Senior Vice President-Marketing
James G. Olson, Jr. Chief Financial Officer, Secretary and
Treasurer
Daniel W. Latham Vice President
Brian A. Robson Assistant Secretary
8. The proper officer or officers of the Corporation are
authorized and directed for, on behalf and in the name of the
Corporation, to take any and all further actions and execute and
deliver any and all other documents which such officer of
officers deem necessary or proper to effectuate the intent of the
foregoing resolutions.
Dated as of November 20, 1997.
SOLE SHAREHOLDER: DIRECTORS:
THE DIANA CORPORATION, /s/ Michael N. Sonaco
a Delaware corporation
/s/ Jack E. Donnelly
BY /s/ James J. Fiedler
Chairman and CEO
<PAGE>
EXHIBIT F
November 20, 1997
Sanwa Business Credit Corporation
One South Wacker Drive
Chicago, IL 60606
The Diana Corporation
26025 Mureau Road
Calabasas, CA 91302
Gentlemen: Re: Purchase of Stock of C&L
Communications, Inc.
We have acted as counsel to Soncainol, Inc., a Texas
corporation ("Buyer") and Michael N. Sonaco, William H. Cain, and
James U. Olson (each a "Buyer Shareholder" and collectively
"Buyer Shareholders") in connection with the execution and
delivery of the Merger Agreement dated as of November 20, 1997
(the "Merger Agreement") by and among Buyer, Buyer Shareholders
and The Diana Corporation, a Delaware corporation ("Seller") and
the documents and agreements contemplated therein (collectively
the "Acquisition Documents"). We have also acted as special
counsel to C&L Communications, Inc., a Texas corporation ("C&L"),
with respect to its obligations pursuant to the Merger Agreement
in its capacity as the surviving entity in the merger between C&L
and Buyer. Capitalized terms not otherwise defined herein shall
have the meanings assigned to them in the Merger Agreement and
the Acquisition Documents.
This opinion is being rendered to you in connection with the
above transactions pursuant to Section 2.02(d) of the Merger
Agreement. In this connection, we have examined and are familiar
with originals or copies, certified or otherwise identified to
our satisfaction, of (i) the Merger Agreement; (ii) the
Subordinated Promissory Note (iii) the Security Agreement (iv)
the Articles of Incorporation and Bylaws of Buyer and the record
of proceedings of Buyer related to this transaction; (v) the
Amended and Restated Articles of Incorporation of C&L and (vi)
such other records, agreements and other instruments,
certificates of officers of Buyer and C&L, and other documents as
we have deemed necessary or appropriate as a basis for the
opinions set forth below.
We have examined originals or copies, certified or otherwise
identified to our satisfaction, of all such records of Buyer and
C&L, agreements and other instruments, certificates of officers
and representatives of the Buyer and certificates of Buyer,
<PAGE>
The Diana Corporation
November 20, 1997
Page 2
certificates of public officials and other documents which we
have deemed necessary as a basis for the opinions hereinafter
expressed. For matters pertaining to Texas law, we have, with
your permission, relied solely on the opinion of Soules &
Wallace, dated November 20, 1997, a copy of which is attached
hereto. As to various questions of fact material to our opinion,
we have relied upon certificates of officers of Buyer and C&L. In
rendering this opinion, we have assumed the genuineness of all
signatures, the authenticity of all documents submitted to us as
originals and the conformity to original documents of all
documents submitted to us as copies or drafts of documents to be
executed, the due execution of the Merger Agreement by, and the
enforceability of the Merger Agreement against, the parties
thereto other than the Buyer. We are admitted to the Bar of the
State of Wisconsin and we express no opinion as to the laws of
any jurisdiction other than the laws of Wisconsin, the federal
laws and regulations of the United States of America. On the
basis of such examination, we are of the opinion that:
1. Buyer is a corporation and, based solely on a
certificate of existence issued by the Texas Secretary of State
and a certificate of account status issued by the Texas
Comptroller of Public Accounts, the Buyer is existing in good
standing under the laws of Texas. Buyer has the full corporate
power and authority to own, lease, and operate its properties and
assets.
2. Buyer has the corporate power and corporate authority
to execute, deliver and perform its obligations under the Merger
Agreement and the Acquisition Documents.
3. The Merger Agreement and the Acquisition Documents have
been duly executed and delivered by Buyer, and each such
agreement is a valid and binding obligation of Buyer, enforceable
in accordance with their respective terms; (a) except as such
enforcement may be limited by bankruptcy, insolvency,
reorganization, moratorium and other similar laws now or
hereinafter in effect relating to creditors' rights, including
without limitation, applicable fraudulent transfer laws; (b)
subject to general principles of equity (regardless of whether
such enforceability is considered in a proceeding in equity or at
law); and (c) subject to the qualification that certain
provisions of such documents may be unenforceable in whole or in
part under the laws of the State of Texas, but the inclusion of
such provisions does not affect the validity of any such
documents as a whole and each of such documents contains legally
adequate provisions for the realization of the principal legal
rights and benefits and any security interest or lien afforded by
it.
<PAGE>
The Diana Corporation
November 20, 1997
Page 3
4. Assuming due authorization of the Plan of Merger by the
directors and shareholders of C&L and the execution of the
Articles of Merger by the President or a Vice President and the
Secretary or an Assistant Secretary of C&L, the' Articles of
Merger shall be effective upon filing with the Secretary of State
of Texas to cause the merger of C&L with and into Buyer.
5. The Subordinated Note and Security Agreement have been
duly executed and delivered by C&L, and each such agreement is a
valid and binding obligation of C&L, enforceable in accordance
with their respective terms; (a) except as such enforcement may
be limited by bankruptcy, insolvency, reorganization, moratorium
and other similar laws now or hereinafter in effect relating to
creditors' rights, including without limitation, applicable
fraudulent transfer laws; and (b) subject to general principles
of equity (regardless of whether such enforceability is
considered in a proceeding in equity or at law); and (c) subject
to the qualification that certain provisions of such documents
may be unenforceable in whole or in part under the laws of the
State of Texas, but the inclusion of such provisions does not
affect the validity of any such documents as a whole and each of
such documents contains legally adequate provisions for the
realization of the principal legal rights and benefits and any
security interest or lien afforded by it.
6. The execution, delivery and performance by Buyer of the
Merger Agreement and the Acquisition Documents do not and shall
not result in any violation of any term or provision of the
Articles of Incorporation or the bylaws of Buyer, and, to the
best of our knowledge, will not conflict with or result in a
breach, violation or acceleration of any of the terms of, or
constitute a default under, any material agreement or instrument
to which Buyer is subject.
7. No approval, authorization, consent, registration with
or notice to any United States governmental or regulatory agency
or body is required for the execution, delivery and performance
by Buyer of the Merger Agreement or the Acquisition Documents,
except for consents, approvals, authorizations, registrations and
notices as have been obtained prior to the closing.
8. C&L's authorized capital stock consists of 10,000
shares of common stock, .01 par value, 3,000 of which are
currently issued and outstanding and 5,000 shares of preferred
stock, all of which are currently issued and outstanding. The
outstanding
<PAGE>
The Diana Corporation
November 20, 1997
Page 4
preferred stock issued to Seller has been duly authorized and
validly issued and is fully paid and nonassessable..
9. To the best of our knowledge, there are no actions,
proceedings or investigations pending or threatened before any
court, administrative agency or other tribunal to which Buyer or
any Buyer Shareholder is a party or is threatened to be made a
party (a) asserting the invalidity of the Merger Agreement or the
Acquisition Documents, (b) seeking to prevent the consummation of
any of the transactions contemplated by the Merger Agreement, or
(c) which might materially and adversely affect the performance
by Buyer of its obligations under, or the validity or
enforceability of, the Merger Agreement.
10. The Security Agreement creates a valid security
interest in favor of Seller in Inventory, Accounts, and the
Primary Collateral and Secondary Collateral (collectively, the
"Collateral") described therein to the extent that C&L has rights
in the Collateral, as security for the obligations of the C&L to
the Seller under the Subordinated Note and Security Agreement,
but our opinion is limited to Collateral in which a security
interest may be created pursuant to the UCC. Upon proper filing
of the financing statements with the Secretary of State of Texas,
all filings will have been made which are necessary to perfect
such security interest in Collateral in which a security interest
may be perfected by filing in Texas under the Texas Business and
Commerce Code. We have assumed, with your permission, that the
collateral described in the Security Agreement does not include
equipment used in farming operations, farm products, accounts or
general intangibles arising from or relating to the sale of farm
products by a farmer, consumer goods, timber to be cut, minerals
or the like or accounts resulting from the sale thereof, or crops
growing or to be grown for which local filing would be required.
We do not express any opinion as to (a) any security
interest which is terminated or released; (b) perfection of any
security interest in fixtures; (c) whether the collateral secures
future advances (other than advances pursuant to the Subordinated
Note); (d) the continued perfection of the Seller's security
interest; (e) the effects on the Seller's security interest in
after-acquired property of sections 547 and 552 of the United
States Bankruptcy Code; (f) the validity of the Seller's security
interest in the Collateral purchased by a buyer in the ordinary
course of business; and (g) the effect on the Seller's security
interest of the laws of fraudulent conveyances.
<PAGE>
The Diana Corporation
November 20, 1997
Page 5
The opinions herein are limited to the laws of Wisconsin and
the federal laws of the United States. Insofar as the opinions
herein relate to the laws of Texas, we have, with your
permission, relied solely upon the opinion of Texas counsel,
Soules & Wallace. With respect to the opinion set forth in
numbered paragraph 8 regarding the valid issuance, full payment,
and nonassessibility of the preferred stock, we have reviewed and
examined only Corporations Statutes, Volume 8 (Prentice Hall Law
and Business) under the tab "Texas" without regard to any rules
or regulations promulgated under the Texas Business Corporation
Act ("TBCA") or any judicial or other opinions relating to the
TBCA, and our opinion is expressly limited by such limited
review.
This opinion is rendered solely for your information and
assistance in connection with the transaction described above and
may not be relied upon by any other person or for any other
purpose without our prior written consent.
Yours very truly,
REINHART, BOERNER, VAN DEUREN,
NORRIS & RIESELBACH, s.c.
BY /s/ Lawrence J. Burnett
<PAGE>
EXHIBIT G
JOINT RECORD OF ACTION
TAKEN BY CONSENT OF THE
BOARD OF DIRECTORS AND SHAREHOLDERS OF
SONCAINOL, INC.
The undersigned, who are all of the directors and
shareholders of SONCAINOL, INC., a Texas corporation (the
"Corporation"), consent to the adoption of the following recitals
and resolutions taken without a meeting in accordance with
Section 9.10 of the Texas Business Corporation Act.
RECITALS
A. The directors and shareholders of the Corporation deem
it to be in the best interests of the Corporation that the
Corporation enter into a merger with C & L Communications, Inc.,
a Texas corporation ("C & L"), pursuant to which the Corporation
shall merge with and into C & L.
B. The directors and shareholders of the Corporation deem
it to be in the best interests of the Corporation to effectuate
the Merger of the Corporation with and into C & L as contemplated
by the Agreement and Plan of Merger in substantially the form
reviewed by the undersigned as of the date hereof (the "Merger
Agreement") and all exhibits, schedules and ancillary documents
and agreements contemplated thereby (collectively with the Merger
Agreement, the "Merger Documents").
C. The directors and shareholders of the Corporation deem
it to be in the best interests of the Corporation to approve and
adopt the Merger Documents and to authorize the proper officer or
officers of the Corporation to execute and deliver the Merger
Documents, for, on behalf and in the name of the Corporation and
to take all other actions necessary or desirable to effectuate
the Merger.
D. The directors and shareholders of the Corporation
desire to ratify and approve in all respects all prior actions
taken by the directors and officers of the Corporation which have
not previously been authorized and approved.
RESOLUTIONS
<PAGE>
1. Each of the Merger Documents is adopted and approved by
the Corporation in substantially the form reviewed by the
undersigned as of the date hereof and any President or Vice
President of the Corporation, alone or together with the
Secretary of the Corporation, is authorized and directed to
execute and deliver each of the Merger Documents for, on behalf
and in the name of the Corporation, with each of the Merger
Documents to be in such final form and to contain such final
provisions as the officer or officers executing the same shall
approve and his or their signatures appearing thereon shall be
conclusive evidence of his or their approval thereof.
2. Each of the officers of the Corporation hereby are
authorized and directed to take any and all actions and execute
and file any and all documents for, on behalf and in the name of
the Corporation, as such officer or officers deem necessary or
appropriate to effectuate the Merger, including, but not limited
to, executing and filing, with the Texas Secretary of State,
Articles of Merger, containing a Plan of Merger, both to be in
substantially the form attached hereto as Exhibit A.
3. The undersigned shareholders of the Corporation hereby
ratify, confirm and approve in all respects all prior actions
taken by the directors of the Corporation which have not been
specifically authorized and approved prior to the date hereof.
4. The undersigned directors of the Corporation hereby
ratify, confirm and approve in all respects all prior actions
taken by the officers of the Corporation which have not been
specifically authorized and approved prior to the date hereof.
5. The undersigned shareholders of the Corporation
acknowledge that each of Michael N. Sonaco, James G. Olson, Jr.
and William H. Cain are the current directors of the Corporation.
6. The undersigned directors of the Corporation
acknowledge that each of the following individuals are the
current officers of the Corporation, holding the office or
offices set forth opposite their name:
Michael N. Sonaco President and Chief Executive Officer
William H. Cain Vice President-Marketing
James G. Olson, Jr. Vice President, Secretary and Treasurer
2
<PAGE>
7. The proper officer or officers of the Corporation are
authorized and directed for, on behalf and in the name of the
Corporation, to take any and all further actions and execute and
deliver any and all other documents which such officer of
officers deem necessary or proper to effectuate the intent of the
foregoing resolutions.
Dated as of November 20, 1997.
SHAREHOLDERS AND DIRECTORS:
/s/ Michael N. Sonaco
/s/ William H. Cain
/s/ James G. Olson, Jr.
3
<PAGE>
EXHIBIT H
SECURITY AGREEMENT
THIS SECURITY AGREEMENT, dated as of November 20, 1997, is
entered into between C & L COMMUNICATIONS, INC., a Texas
corporation ("Debtor") and THE DIANA CORPORATION, a Delaware
corporation ("Secured Party").
WHEREAS, the Debtor is indebted to the Secured Party as
evidenced by a Subordinated Secured Promissory Note of Debtor
payable to Secured Party dated as of the date hereof (the
"Note"), which Note is to be secured by a security interest in
certain personal property of the Debtor; and
WHEREAS, the Debtor is also indebted to Sanwa Business
Credit Corporation ("Sanwa") pursuant to the terms of a Loan and
Security Agreement between Sanwa and the Debtor dated
____________________, 1997, (the "Sanwa Loan Agreement") which
indebtedness is secured by a security interest in Debtor's
personal property.
WHEREAS, the Debtor, Sanwa and the Secured Party have
entered into that certain Subordination and Intercreditor
Agreement dated as of the date hereof pursuant to which the
rights of the Secured Party hereunder may be subject to certain
prior rights of Sanwa.
NOW, THEREFORE, in consideration of the promises and mutual
agreements, one dollar and other good and valuable consideration,
the receipt and sufficiency of which is hereby acknowledged, the
Debtor and the Secured Party agree as follows:
1. DEFINITIONS
"Account" shall have the meaning assigned to such term
in the UCC and shall additionally include all books and
records, data processing disks, tapes, tabulating runs,
programs and similar material evidencing, securing or
relating thereto and in each case whether now owned or
hereafter acquired and wherever located.
"Event of Default" shall mean any one of the events of
default described in Section 7 hereof.
"Inventory" shall have the meaning assigned thereto by
the UCC and shall include, but not be limited to, all Goods
(wherever located, whether in the possession of Debtor or of
a bailee or other person for sale, storage, transit,
processing, use or otherwise, and whether consisting of
whole goods, spare parts, components, supplies or
materials), which are held for sale or lease or
demonstration or to be furnished (or which have been
furnished) under any contract of service, or which are Goods
leased to others, trade-ins and repossessions, raw
materials, work in process or supplies, and all materials
<PAGE>
used or consumed in Debtor's business, and shall include
such property the sale or other disposition of which has
given rise to Accounts and which has been returned to or
repossessed or repurchased or stopped in transit by Debtor.
"Primary Collateral" shall mean the DSS 10,000 Tandem
Switch, ID #190044 and related equipment, all of which is
identified on Schedule 1.1 attached hereto, together with
all additions and accessions to all spare and repair parts,
special tools, equipment and replacements for the foregoing,
and all Proceeds and products of any of the foregoing
property, wherever located.
"Proceeds" shall have the meaning assigned to that term
under the UCC and, in any event, shall include, but not be
limited to, (i) any and all proceeds of any insurance,
indemnity, warranty or guaranty payable to Debtor from time
to time with respect to any of the Collateral, including,
but not limited to any and all proceeds of business
disruption insurance, (ii) any and all payments (in any form
whatsoever) made or due and payable to Debtor from time to
time in connection with any of the Collateral including, but
not limited to, any rents, lease payments, or profits
derived therefrom.
"Secondary Collateral" shall mean all Collateral other
than the Primary Collateral.
"UCC" shall mean the Uniform Commercial Code as the
same may from time to time be in effect in the State of
Texas.
The terms "Account Debtor," "Documents," "Goods," and
"Instruments" shall have the definitions ascribed thereto by the
UCC. All capitalized terms used herein and not otherwise
expressly defined herein shall have the meanings ascribed thereto
in the Note.
2. SECURITY INTEREST
To secure payment of the Obligations defined below, Debtor
hereby grants Secured Party a security interest in all of
Debtor's Inventory, Accounts, and the Primary Collateral, whether
now owned or hereafter acquired by Debtor, and all additions and
accessions to, all spare and repair parts, special tools,
equipment and replacements for, all returned or repossessed goods
the sale of which gave rise to, and all Proceeds and products of
any of the foregoing property ("Collateral") wherever located.
Notwithstanding the foregoing, the security interest in Debtor's
Inventory and Accounts shall secure only $500,000 of the
Obligations at any time outstanding.
The term "Obligations" is used herein in its most
comprehensive sense and includes any and all debts, obligations
and liabilities of Debtor to Secured Party arising out of the
Note or this Agreement, including without limitation, principal
of, interest on and costs of collection of the Note.
It is the true, clear, and express intention of the Debtor
that the continuing grant of the security interests provided for
herein remain as security for payment and performance of the
Obligations, whether or not existing or hereinafter incurred by
future advances or otherwise; and
2
<PAGE>
whether or not such Obligations are related to the transactions
described herein, or in the Note, by class or kind, or whether or
not contemplated by the parties at the time of the granting of
this security interest. The notice of the continuing grant of
this security interest therefore shall not be required to be
stated on the face of any document representing any such
Obligation, nor otherwise identify it as being secured hereby.
3. DEBTOR'S WARRANTIES
Debtor warrants that while any of the Obligations are
unpaid:
(a) Ownership. Debtor is the owner of the Collateral
free of all encumbrances and security interests except for the
Secured Party's lien, Sanwa's lien and the permitted liens
enumerated on Exhibit 3(a) hereto (the "Permitted Liens").
Debtor, acting alone, may grant a security interest in the
Collateral.
(b) Other Financing. No financing statement is on
file covering the Collateral or its products or Proceeds, except
financing statements relating to the Secured Party's security
interest, Sanwa's security interest and the Permitted Liens.
There has been no default as of this date according to the terms
of any Collateral and no step has been taken to foreclose the
security interest it evidences or otherwise enforce its payment.
(c) Documents. If Inventory is represented or covered
by Documents of title, Debtor is the owner of the Documents, free
of all encumbrances and security interests other than Secured
Party's security interest, Sanwa's security interest and the
Permitted Liens.
(d) Condition. The Inventory is in good condition
and, in the case of Goods held for sale (other than trade-ins or
repossessed Goods), is new and unused. All Goods and Inventory
have been, and will continue to be, produced or manufactured in
compliance with the Fair Labor Standards Act.
(e) Sale of Goods or Services Rendered. Each Account
constituting Collateral arose from the performance of services by
Debtor or from a bona fide sale or lease of Goods, which have
been delivered or shipped to the Account Debtor and for which
Debtor has genuine invoices, shipping documents or receipts.
(f) Enforceability. Each Account constituting
Collateral, is, to the knowledge of Debtor, genuine and
enforceable against the respective obligors according to their
respective terms, subject to applicable bankruptcy, insolvency or
similar laws of general application affecting creditors' rights.
To the knowledge of Debtor, each of them and the transactions out
of which they arose comply with all applicable laws and
regulations. To the knowledge of Debtor the amount represented
by Debtor to Secured Party as owing by each Account Debtor is the
amount actually owing and is not as of the date hereof subject to
setoff, credit, allowance or adjustment, except discount for
prompt payment, nor has any Account Debtor returned the
underlying Goods or disputed his liability. Debtor has
3
<PAGE>
no notice or knowledge of anything which might impair the credit
standing of any Account Debtor.
(g) Authority to Contract. The execution and delivery
of this Security Agreement and any instruments evidencing
Obligations will not violate or constitute a breach of Debtor's
Articles of Incorporation, By-Laws or any agreement or
restriction to which Debtor is a party or is subject. Debtor is
not in default under any agreement for the payment of money.
(h) Accuracy of Information. All information,
certificates or statements given to Secured Party pursuant to
this Security Agreement shall be true and complete when given.
(i) Names and Addresses. Debtor is duly organized,
validly existing and in good standing under the laws of its state
of incorporation. The name appearing in the first paragraph
hereof is the correct name of Debtor, and Debtor does not do
business under any other name. Debtor shall advise Secured Party
of a change of name, identity, or structure thirty (30) days
prior to any such change. The address appearing below Debtor's
signature is Debtor's chief executive office. All other places
of business of Debtor are set forth in Exhibit 3(i) hereto. The
addresses where the Collateral will be kept is that appearing
below the Debtor's signature and those appearing in Exhibit 3(i)
hereto. No location shall be changed without the prior written
consent of Secured Party, but the parties intend that the
Collateral, wherever located, is covered by this Security
Agreement.
In making any advances to Debtor, Secured Party shall be
acting in reliance upon each of these warranties.
4. SALE AND COLLECTIONS
(a) Proceeds of Collateral. So long as no Event of
Default exists, Debtor may sell or lease Inventory in the
ordinary course of its businesses. All Proceeds of the Primary
Collateral received by Debtor, including those received on
account of the provisions of Section 5(a), below, shall be held
by Debtor upon an express trust for Secured Party and shall not
be commingled with any other funds or property of Debtor.
Following the occurrence of an Event of Default and subject to
the prior rights of Sanwa in the Secondary Collateral, all
Proceeds of the Secondary Collateral received by Debtor shall be
held by Debtor upon an express trust for Secured Party and shall
not be commingled with any other funds or property of Debtor.
All Proceeds so held in trust, whether of Primary Collateral or
Secondary Collateral, shall be turned over to Secured Party not
later than the business day following the day of their receipt.
All Proceeds received by Secured Party shall be applied against
the Obligations in such order and at such times as Secured Party
shall determine.
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(b) Verification and Notification. Secured Party may
verify Accounts in any reasonable manner, and Debtor shall assist
Secured Party in so doing. Subject to the prior rights of Sanwa
in the Secondary Collateral, Secured Party may at any time after
the occurrence of an Event of Default and Debtor shall, upon
request of Secured Party, notify the Account Debtors to make
payment directly to Secured Party and Secured Party may enforce
collection of, settle, compromise, extend or renew the
indebtedness of such Account Debtors. Subject to the prior
rights of Sanwa in the Secondary Collateral, until Account
Debtors are otherwise notified, Debtor, as agent of Sanwa and
Secured Party, shall make collections on the Collateral. Secured
Party may at any time notify the bailee of any Inventory of its
security interest.
5. DEBTOR'S COVENANTS
Debtor agrees:
(a) Maintenance of Collateral. Debtor shall: maintain the
Collateral in good condition and repair, ordinary wear and tear
excepted, and not permit its value to be materially impaired;
keep it free from all liens, encumbrances and security interests
(other than Secured Party's lien, Sanwa's lien and Permitted
Liens); defend it against all claims and legal proceedings by
persons other than Secured Party and Sanwa; pay and discharge
when due all taxes, license fees, levies and other charges upon
it; not sell, lease or otherwise dispose of it or permit it to
become a fixture or an accession to other goods, except for sales
or leases of Inventory authorized as provided in this Agreement;
not permit it to be manufactured, produced, or used in violation
of any applicable law, regulation or policy of insurance.
Notwithstanding the foregoing, Debtor agrees to use its best
efforts to sell the Primarary Collateral at its current market
value and on commercially reasonable terms. Loss of or damage to
the Collateral shall not release Debtor from any of the
Obligations.
(b) Insurance. Debtor shall keep the Collateral and
Secured Party's interest in such Collateral insured under
policies with such provisions, for such amounts and by such
insurers as shall be satisfactory to Secured Party from time to
time, including, but not limited to, provisions requiring that,
subject to Sanwa's prior interest in the Secondary Collateral,
losses be payable to the Debtor and the Secured Party as their
respective interests may appear under a standard non-contributory
"lender loss payee" clause, providing that the Secured Party's
interest under the policy will not be invalidated by any act or
omission of, or any breach of warranty by, the insured, or by any
change in the title, ownership or possession of the insured
property, or by the use of the property for purposes more
hazardous than is permitted by the policy, providing that no
cancellation, reduction in amount or material change in coverage
thereof shall be effective until at least thirty (30) days after
receipt by Secured Party of written notice thereof, and shall
furnish evidence of such insurance satisfactory to Secured Party.
Debtor assigns, subject to Sanwa's prior rights in the Secondary
Collateral (and upon the occurrence of an Event of Default,
directs any insurer to pay) to Secured Party the proceeds of all
such insurance including business disruption insurance and any
premium refund, and authorizes Secured
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Party upon the occurrence and continuance of an Event of Default,
to endorse in the name of Debtor any instrument for such proceeds
or refunds and, at the option of Secured Party, to apply such
proceeds and refunds to any unpaid balance of the Obligations,
whether or not due, and/or to restoration of the Collateral,
returning any excess to Debtor. Upon the occurrence of an Event
of Default, subject to Sanwa's prior rights in the Secondary
Collateral, Secured Party is authorized, in the name of Debtor or
otherwise, to make, adjust and settle claims under any insurance
on the Collateral.
(c) Maintenance of Security Interest. Debtor shall pay all
expenses and, upon request, take any action reasonably deemed
advisable by Secured Party to preserve the Collateral or to
establish, determine priority of, perfect, continue to perfect,
terminate and/or enforce Secured Party's interest in the
Collateral or the Secured Party's rights under this Security
Agreement.
(d) Collateral Records and Statements. Debtor shall keep
accurate and complete records respecting the Collateral in such
form as Secured Party may approve. At such times as Secured
Party may require, Debtor shall furnish to Secured Party a
statement certified by Debtor and in such form and containing
such information as may be prescribed by Secured Party, showing
the current status, location and value of the Collateral.
(e) Inspection of Collateral. At reasonable times, Secured
Party may examine the Collateral and Debtor's records pertaining
to it, wherever located, and make copies thereof. Debtor shall
assist Secured Party in so doing. Debtor shall pay Secured
Party's charges for any servicing and auditing in connection with
this Security Agreement.
(f) Modifications. Without the prior written consent of
Secured Party, Debtor shall not alter or modify any Primary
Collateral.
(g) Chattel Paper. No sale or lease of the Debtor's
Inventory shall be evidenced by chattel paper.
6. RIGHTS OF SECURED PARTY
(a) Authority to Perform for Debtor. If Debtor fails to
act as required by this Security Agreement or the Obligations,
Secured Party is authorized, in Debtor's name or otherwise, to
take any such action including, without limitation, signing
Debtor's name or paying any amount so required, and the cost
shall be one of the Obligations secured hereby and shall be
payable by Debtor upon demand with interest from the date of
payment by Secured Party at the default rate provided in the
Note.
(b) Charging Debtor's Credit Balance. Debtor grants
Secured Party, as further security for the Obligations, a
security interest and lien in any credit balance and other money
now or hereafter owed Debtor by Secured Party and, in addition,
agrees that
6
<PAGE>
Secured Party may, without prior notice or demand, charge against
any such credit balance or other money any amount owing upon the
Obligations, whether due or not.
(c) Nonliability of Secured Party. Secured Party has no
duty to determine the validity of any invoice or compliance with
any order of Debtor. Secured Party has no duty to protect,
insure, collect or realize upon the Collateral or preserve rights
in it against prior parties. Debtor releases Secured Party from
any liability for any act or omission relating to the
Obligations, the Collateral or this Security Agreement, except to
the extent arising out of Secured Party's gross negligence or
willful misconduct.
(d) Power of Attorney. Subject to Sanwa's prior rights in
the Secondary Collateral, Debtor irrevocably appoints any officer
of Secured Party as Debtor's attorney, with power, upon the
occurrence and continuance of an Event of Default, to receive,
open and dispose of all mail addressed to Debtor; to notify the
Post Office authorities to change the address for delivery of all
mail addressed to Debtor to such address as Secured Party may
designate; and to endorse the name of Debtor upon any Instruments
which may come into Secured Party's possession. This power of
attorney is coupled with an interest and is not revocable by the
Debtor. All acts of such attorney are ratified and approved and
he/she is not liable for any act or omission or for any error of
judgment or mistake of fact or law, except for gross negligence
or willful misconduct.
7. DEFAULT
Upon the occurrence of one or more of the following Events of
Default,
Event of Default Under the Loan Agreement. A default as
described in the Note, which would cause the unpaid balance
thereof to mature and become immediately payable, occurs;
Nonperformance. Debtor fails to pay when due any of the
Obligations or to perform, or rectify the breach of, any warranty
or other undertaking by Debtor in this Security Agreement or the
Obligations;
Inability to Perform. Debtor or a surety or guarantor for
any of the Obligations, if any, ceases to exist, becomes
insolvent or the subject of an order for relief or its equivalent
in any bankruptcy or insolvency proceedings;
Misrepresentation. Any representation made to induce
Secured Party to extend credit to Debtor is false in any material
respect when made;
Amendment of Sanwa Loan Agreement. Debtor amends the Sanwa
Loan Agreement without the written consent of Secured Party to
(i) increase the borrowing base advance ratios, (ii) increase the
interest rate or the fees or other amounts payable with respect
thereto, or (iii) change the scheduled commitment reduction dates
or the final maturity date of the indebtedness thereunder;
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Incurrence of Other Debt. Debtor incurs or maintains any
indebtedness for borrowed money other than as permitted pursuant
to the Sanwa Loan Agreement;
all of the Obligations shall, at the option of Secured Party and
without notice or demand, become immediately payable provided,
however, that those Obligations incurred pursuant to the Note
shall become payable in accordance with the terms of the Note,
and Secured Party shall have all rights and remedies for default
provided by the Uniform Commercial Code, as well as any other
applicable law and the Obligations. With respect to such rights
and remedies, and subject to Sanwa's prior rights in the
Secondary Collateral:
(a) Repossession. Secured Party may enter into
premises where any Collateral may be located, and may take
possession of Collateral, all without notice or hearing.
(b) Assembling Collateral. Secured Party may require
Debtor to assemble the Collateral and to make it available
to Secured Party at any convenient place designated by
Secured Party. It is agreed that Secured Party will not
have an adequate remedy at law if this obligation is
breached, and accordingly that Debtor's obligation to
assemble Collateral shall be specifically enforceable.
(c) Notice of Disposition. Written notice, when
required by law, sent to the address of Debtor on the
signature page of this Security Agreement at least ten (10)
calendar days (counting the day of sending) before the date
of a proposed disposition of Collateral is reasonable
notice.
(d) Expenses and Application of Proceeds. Debtor
shall reimburse Secured Party for any reasonable expense
incurred by Secured Party in protecting or enforcing its
rights under this Agreement including, without limitation,
reasonable fees of attorneys, legal assistants or
paralegals; all expenses of taking possession, holding,
preparing for disposition and disposing of the Collateral;
and all expenses and costs (including, without limitation,
fees of attorneys, legal assistants and paralegals) in
connection with any proceeding instituted pursuant to 11
U.S.C. Section 101 et. seq. After deduction of
suchexpenses, Secured Party may apply the proceeds of
disposition to the Obligations in such order and amounts as
it elects.
(e) Waiver. Secured Party may permit Debtor to remedy
any default without waiving the default so remedied, and
Secured Party may waive any default without waiving any
other subsequent or prior default.
8. PERSONS BOUND
This Security Agreement benefits Secured Party, its
successors and assigns, and binds the Debtor and its successors
and assigns.
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9. INTERPRETATION
The validity, construction and enforcement of this Security
Agreement are determined and governed by the internal law (as
opposed to conflicts of law provisions) of the State of Texas.
Invalidity of any provision of this Security Agreement shall not
affect the validity of any other provision.
10. COUNTERPARTS
This Security Agreement may be executed in counterparts,
each of which shall be deemed to be an original, all of which
together shall constitute one instrument.
Executed as of the 20th day of November, 1997.
C & L COMMUNICATIONS, INC.
By: /s/ Michael N. Sonaco
Title: President and CEO
Address: 26254 IH, West
Boerne, Texas 78006
THE DIANA CORPORATION
By: /s/ James J. Fiedler
Title: Chairman and CEO
Address: 26025 Mureau Road
Calabasas, California
91302
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<PAGE>
EXHIBIT I
C&L COMMUNICATIONS
CERTIFICATE OF CHIEF FINANCIAL OFFICER
I, James G. Olson, in my capacity as Chief Financial Office
of C&L Communications, Inc., a Texas corporation (the
"Corporation"), am providing this Certificate pursuant to Section
2.02(k) the Merger Agreement dated as of November 20, 1997 by and
among the Corporation, The Diana Corporation ("Diana"), and
Michael N. Sonaco, William H. Cain and James G. Olson (the
"Agreement"). All capitalized terms used herein shall have the
meanings assigned to them in the Agreement.
Solely in my capacity as Chief Financial Officer of the
Corporation, I hereby certify on behalf of the Corporation that:
1. I am familiar with the historical and current financial
condition of the Corporation.
2. For purposes of this Certificate, I have reviewed the
financial information previously provided to Diana, including (i)
the historical financial statements relating to the Corporation
and (ii) the projections (the "Projections") giving effect to the
transactions contemplated by the Agreement and the Amended and
Restated Loan and Security Agreement by and between the
Corporation and Sanwa Business Credit Corporation (the "Loan
Agreement").
3. In addition to such review, I am familiar with and have
considered information as to the fair market value of the assets
of the Corporation and the liabilities of the Corporation, in
each case after giving effect to the transaction contemplated by
the Agreement and the Loan Agreement.
Based upon the foregoing and solely in my capacity as Chief
Financial Officer of the Corporation, and based upon facts
reasonably available to me on the date hereof, I certify on
behalf of the Corporation that, to the best of my knowledge,
after due inquiry, as of the date hereof and upon giving effect
to the transactions contemplated by the Agreement and the Loan
Agreement:
1. The Projections are based upon assumptions and
expectations that are reasonable in light of all facts and
circumstances concerning the Corporation existing as of the date
hereof.
2. Immediately after giving effect to the transactions
contemplated by the Agreement and the Loan Agreement, the fair
saleable value of the assets of the Corporation will be greater
than the total amount of its liabilities.
3. The Corporation shall be able to pay its debts and
obligations in the ordinary course of business as they become
due.
<PAGE>
4. The Corporation will, immediately after giving effect
to the transactions contemplated by the Agreement and the Loan
Agreement, have adequate capital to carry on its business as
presently conducted.
This Certificate is being furnished only to The Diana
Corporation in connection with the Agreement and is solely for
its benefit and is not to be used or relied upon for any other
purpose or by any other person. Nothing in this certificate
shall be construed as a personal guaranty of any of the
statements set forth herein.
Dated this 20th day of November, 1997.
/s/ James G. Olson
Chief Financial Officer of
C&L Communications, Inc.
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EXHIBIT I
MUTUAL RELEASE OF CLAIMS
This Mutual Release of Claims is entered into as of this
20th day of November, 1997 (the "Effective Date"), by and among
The Diana Corporation, a Delaware corporation ("Diana"), C&L
Communications, Inc., a Texas corporation ("C&L"), and Mike
Sonaco, James Olson and William Cain (individually, "Shareholder"
and collectively, "Shareholders"). Unless otherwise defined
herein, all defined terms shall have the meaning ascribed to them
in the Merger Agreement dated as of November 19, 1997 (the
"Agreement") to which this Mutual Release is an exhibit.
1. Except as specifically described in the Agreement and
the exhibits and schedules thereto, including without limitation
the Subordinated Note and Security Agreement and the Preferred
Stock issued pursuant thereto, Diana on behalf of itself, its
successors and assigns, hereby waives, releases and forever
discharges C&L and the Shareholders and their respective heirs,
personal representatives, predecessors, successors, assigns,
agents, and attorneys from any and all claims, counterclaims,
crossclaims and causes of action, of any and every nature,
whether at law or in equity.
2. Except as specifically described in the Agreement and
the exhibits and schedules there, including without limitation
the Indemnification Agreement, C&L and the Shareholders on behalf
of themselves, their successors, assigns, heirs, personal
representatives, agents and attorneys, hereby waive, release and
forever discharge Diana and its predecessors, successors,
assigns, agents, affiliates, subsidiaries, and attorneys from any
and all claims, counterclaims, crossclaims and causes of action
of any and every nature, whether at law or in equity.
3. The waivers and releases described in this Mutual
Release of Claims shall be construed in the broadest possible
manner so as to effectuate the broadest possible release between
the parties. The only obligations between the parties which are
not included within this Mutual Release of Claims are the
separate obligations of the Parties set forth in the Agreement
and the exhibits and schedules thereto, and those described in
paragraph 4 of this Mutual Release of Claims.
4. Claims and causes of action arising hereafter under
this Mutual Release of Claims and under the Agreement are
specifically excluded from the operation of the mutual waivers
and releases described in paragraphs 1 and 2 above, and any of
the parties to the Agreement and to this Mutual Release of Claims
may enforce their respective provisions or seek relief for their
breach notwithstanding the execution of this document.
5. Neither the negotiation nor the execution of this
Mutual Release of Claims shall constitute or be construed as an
admission as to the correctness of any position
<PAGE>
asserted by any of the parties with respect to any of the claims
settled hereunder or an admission of any liability or wrongdoing
whatsoever by any of the parties.
6. This Mutual Release of Claims shall be construed and
its performance governed by the laws of the State of Texas.
7. Each of the parties represents and warrants that it is
signing this Mutual Release of Claims with full authority to do
so. This Mutual Release of Claims shall be effective when it has
been executed by each of the Parties and may be executed in
counterparts, separately executed, each of which shall be an
original. A signed original shall be exchanged with the other
parties so that each party has a fully-executed original.
The parties have executed this Mutual Release of Claims as
of the date first set forth above.
THE DIANA CORPORATION,
a Delaware corporation
By: /s/ James J. Fiedler
Its: Chairman and CEO
C&L COMMUNICATIONS, INC.,
a Texas corporation
By: /s/ Michael N. Sonaco
Its: President
SHAREHOLDERS:
/s/ Mike Sonaco, individually
/s/ William Cain, individually
/s/ James Olson, individually
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EXHIBIT K
Godfrey & Kahn, S.C.
780 North Water Street
Milwaukee, Wisconsin 53202-3590
Telephone: (414) 273-3500
November 20, 1997
C&L Communications, Inc.
26254 IH, West
Boerne, Texas 78006
Sanwa Business Credit Corporation
One South Wacker Drive
Chicago, Illinois 60606
RE: Merger of C&L Communications, Inc.
Ladies and Gentlemen:
We have acted as counsel to The Diana Corporation, a
Delaware corporation ("Diana"), in connection with the execution
and delivery of the Merger Agreement dated as of November 20,
1997 (the "Merger Agreement") by and among Diana, Soncainol,
Inc., a Texas corporation, and Michael N. Sonaco, William H. Cain
and James G. Olson, and the documents and agreements contemplated
therein (collectively, the "Acquisition Documents").
This opinion is being rendered to you in connection with the
above transactions pursuant to Section 3.03(b) of the Merger
Agreement. In this connection, we have examined and are familiar
with originals or copies, certified or otherwise identified to
our satisfaction, of (i) the Merger Agreement; (ii) the Articles
of Incorporation and Bylaws of Diana and the record of
proceedings of Diana related to this transaction; and (iii) such
other records, agreements and other instruments, certificates of
officers of Diana, and other documents as we have deemed
necessary or appropriate as a basis for the opinions set forth
below.
We have examined originals or copies, certified or otherwise
identified to our satisfaction, of all such records of Diana,
agreements and other instruments, certificates of officers and
representatives Diana, certificates of public officials and other
documents which we have deemed necessary as a basis for the
opinions hereinafter expressed. In rendering this opinion, we
have assumed the genuineness of all signatures, the authenticity
of all documents submitted to us as originals and the conformity
to original documents of all documents submitted to us as copies
or drafts of documents to be executed, and the due execution of
the Merger Agreement by, and the enforceability of the Merger
Agreement against, the parties thereto other than Diana. We are
admitted to the Bar of the State of Wisconsin and we express no
opinion as to the laws of any jurisdiction other than the laws of
the State of Wisconsin, the
<PAGE>
C&L Communications, Inc.
Sanwa Business Credit Corporation
November 20, 1997
Page 2
General Corporation Law of the State of Delaware and federal laws
and regulations of the United States of America.
Subject to the foregoing, we are of the opinion that:
1. Diana is a corporation validly existing under the laws
of Delaware. Diana has the full corporate power and authority to
own, lease, and operate its properties and assets and to carry on
its business in the manner in which such business is now being
conducted.
2. Diana has the corporate power and corporate authority to
execute, deliver and perform its obligations under the Merger
Agreement and the Acquisition Documents, and the Merger Agreement
and the Acquisition Documents have been duly authorized, executed
and delivered by Diana. For purposes hereof, we assume, with
your permission, that the sale of C&L Communications, Inc. by
Diana does not constitute a sale of all, or substantially all, of
the assets of Diana.
3. The execution, delivery and performance by Diana of the
Merger Agreement and the Acquisition Documents do not result in
any violation of any term or provision of the Articles of
Incorporation or the bylaws of Diana.
4. No approval, authorization, consent, registration with
or notice to any United States governmental or regulatory agency
or body is required for the execution, delivery and performance
by Diana of the Merger Agreement or the Acquisition Documents,
except for filings required under the Securities Exchange Act of
1934, as amended, and the filing of Articles of Merger with the
Texas Secretary of State.
5. The execution, delivery and performance by Diana of the
Merger Agreement and the Acquisition Agreements do not contravene
any law, statute, or regulation applicable to Diana.
The opinions herein are limited to the laws of Wisconsin,
the federal laws of the United States, and the Delaware General
Corporation Law. This opinion is rendered solely for your
information and assistance in connection with the transaction
described above and may not be relied upon by any other person or
for any other purpose without our prior written consent.
Yours very truly,
/s/ Godfrey & Kahn, S.C.
<PAGE>
EXHIBIT L
THE DIANA CORPORATION
SECRETARY'S CERTIFICATE
I, Brian A. Robson, Secretary of The Diana Corporation, (the
"Company") certify that (a) attached hereto as Exhibit A is a
true and complete copy of the resolution adopted by the Board of
Directors of the Company on November 10, 1997, and such
resolution has not been in any way amended, annulled, rescinded
or revoked and is in full force and effect on the date hereof and
such resolution is the only resolution pertaining to the subject
matter thereof, and (b) attached hereto as Exhibit B is a true
and complete copy of the Bylaws of the Company and such Bylaws
have not been amended, annotated, rescinded or restricted and are
in full force and effect on the date hereof.
Dated: November 18, 1997 /s/ Brian A. Robson, Secretary
<PAGE>
EXHIBIT M
INDEMNIFICATION AGREEMENT
This Agreement is entered into as of November 20, 1997 by
and among The Diana Corporation, a Delaware corporation
("Diana",) and C&L Communications, Inc., a Texas corporation (the
"Corporation"), and Mike Sonaco, James Olson and William Cain
(the "Shareholders"), and pursuant to Section 7 of that certain
Merger Agreement, dated November 19, 1997.
RECITALS
A. Diana and the Shareholders are parties to that certain
Merger Agreement dated as of November 19, 1997 whereby the
Shareholders have acquired all of the outstanding capital stock
of the Corporation.
B. As set forth in Section 7 of that Agreement, and as a
condition to consummating the transactions contemplated by the
Merger Agreement, Diana has agreed to indemnify the Corporation
and the Shareholders for certain liabilities of the Corporation.
C. As a condition to consummating the transactions
contemplated by the Merger Agreement, the Corporation has agreed
to indemnify Diana for certain liabilities as set forth and
subject to the terms, conditions and limitations herein.
Now, therefore, in consideration of the Recitals, the mutual
agreements which follow and other good and valuable
consideration, the receipt of which is hereby acknowledged, the
undersigned hereby agree as follows:
1. Indemnification by Diana. Diana hereby agrees to
indemnify and hold harmless the Corporation and the Shareholders
from and against any and all losses, claims, damages,
liabilities, costs and expenses (including reasonable attorney's
fees and settlement amounts) to which the Corporation and the
Shareholders may become subject or incur insofar as such losses,
claims, damages, liabilities, costs and expenses (or actions or
proceedings in respect thereof) arise out of, in connection with,
or are based upon the shareholder, investor or ownership
relationship between Charles Chandler and Diana, or any
subsidiaries or affiliates of Diana, specifically including, but
not limited to, the claims stated in connection with Charles
Chandler v. C&L Communications Diana Corporation Mellon Financial
Services Corporation and Lisa Chandler, Case No. 97-CI-10290,
District Court, Bexar County, Texas.
2. Setoff. The Corporation shall be entitled, to the
extent permitted by the Subordination and Intercreditor Agreement
between Diana and Sanwa Business Credit Corporation, to setoff
any undisputed amounts due and payable by Diana to the
Corporation hereunder by reducing the outstanding principal
balance of the Subordinated Note payable to Diana.
<PAGE>
3. Attorneys' Fees. In the event of litigation arising
out of this Agreement, the prevailing party shall be entitled to
court costs and reasonable attorneys' fees from the unsuccessful
party.
4. Applicable Law. This Agreement shall be interpreted
under the internal laws of Texas.
5. Counterparts. This Agreement may be executed in
several counterparts and each executed counterpart shall be
considered an original of this Agreement.
THE DIANA CORPORATION,
a Delaware corporation
By: /s/ James J. Fiedler
Its: Chairman and CEO
C&L COMMUNICATIONS, INC.,
a Texas corporation
By: /s/ Michael N. Sonaco
Its: President
