SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
- ----- EXCHANGE ACT OF 1934
For the quarterly period ended April 30, 1999
--------------
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
- ----- EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 0-13284
V BAND CORPORATION
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(Exact name of registrant as specified in its charter)
New York 13-2990015
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(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
3 Westchester Plaza, Elmsford, New York 10523
---------------------------------------------
(Address and zip code of principal executive office)
(914) 789-5000
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(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
------ ------
The number of shares of Common Stock outstanding, as of April 30, 1999, was
5,428,621 shares.
<PAGE>
V BAND CORPORATION
FORM 10-Q QUARTERLY REPORT
FOR THE THREE AND SIX MONTHS ENDED APRIL 30,1999
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
PART I. Financial Information
-----------------------------
<S> <C> <C>
Item 1. Financial Statements
Consolidated balance sheets at April 30, 1999 (unaudited) and October 31, 1998
...................................................................................... 1
Consolidated statements of operations for the three and six months ended April
30, 1999 and 1998 (unaudited)......................................................... 2
Consolidated statements of cash flows for the six months ended April 30, 1999
and 1998 (unaudited).................................................................. 3
Notes to consolidated financial statements (unaudited)....................................
Item 2. Management's Discussion and Analysis of Financial Condition and Results of
Operations ........................................................................... 6
Item 3. Quantitative and Qualitative Disclosures About Market Risk................................ 7
PART II. Other Information
Item 5. Other Information ........................................................................ 7
Item 6. Exhibits and Reports on Form 8-K ......................................................... 7
SIGNATURES 8
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</TABLE>
<PAGE>
<TABLE>
<CAPTION>
V BAND CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
APRIL 30, 1999 AND OCTOBER 31, 1998
(in 000's except share data)
April 30, October 31,
1999 1998
------------------ ------------------
ASSETS (unaudited)
<S> <C> <C>
Current Assets:
Cash $ 794 $ 915
Accounts receivable, less allowance for doubtful
accounts of $367 in 1999 and $289 in 1998 1,775 2,813
Inventories, net 3,594 4,241
Prepaid expenses and other current assets 262 313
------------------ ------------------
Total current assets 6,425 8,282
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Fixed Assets:
Furniture, fixtures, equipment and leasehold improvements 7,866 7,811
Less: Accumulated depreciation and amortization (7,580) (7,444)
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Total fixed assets 286 367
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Other Assets 128 158
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TOTAL ASSETS $ 6,839 $ 8,807
================== ==================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Short-term debt $ 707 $ 1,425
Accounts payable 2,371 2,434
Accrued wages 1,010 842
Customer deposits 1,711 1,389
Other accrued expenses 567 797
------------------ ------------------
Total current liabilities 6,366 6,887
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Commitments and Contingencies (see notes)
Shareholders' Equity:
Common stock, $.01 par value; authorized 20,000,000 shares;
issued 7,147,943 shares 71 71
Capital in excess of par value 20,016 20,016
Deficit (8,036) (6,639)
Cumulative translation adjustment 190 240
------------------ ------------------
12,241 13,688
Less - Treasury stock, at cost; 1,719,322 shares (11,768) (11,768)
------------------ ------------------
Total shareholders' equity 473 1,920
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TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 6,839 $ 8,807
================== ==================
</TABLE>
1
<PAGE>
V BAND CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE AND SIX MONTHS ENDED APRIL 30, 1999 AND 1998 (unaudited)
(in 000's, except per share data)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
April 30, April 30,
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Sales
Equipment $ 1,166 $ 3,453 $ 3,259 $ 6,681
Service 1,722 1,366 3,405 2,862
------- ------- ------- -------
Total sales 2,888 4,819 6,664 9,543
------- ------- ------- -------
Cost of Sales
Equipment 755 2,577 2,394 5,000
Service 1,215 1,001 2,281 1,987
------- ------- ------- -------
Total cost of sales 1,970 3,578 4,675 6,987
------- ------- ------- -------
Gross profit 918 1,241 1,989 2,556
------- ------- ------- -------
Operating Expenses
Selling, general and administrative 1,542 1,890 2,967 4,854
Research and development 165 589 354 1,191
------- ------- ------- -------
Total operating expenses 1,707 2,479 3,321 6,045
------- ------- ------- -------
Operating loss (789) (1,238) (1,332) (3,489)
Interest Expense (27) (44) (62) (94)
Other Income (Expense) (13) 29 (3) 8
------- ------- ------- -------
Net loss $ (829) $ (1,253) $ (1,397) $ (3,575)
======= ======= ======== ========
Net loss per basic and diluted common share $ (.15) $ (.23) $(.26) $(.66)
======= ======= ======== ========
Weighted average number of basic and diluted
shares outstanding 5,429 5,427 5,429 5,420
======= ======= ======== ========
</TABLE>
See notes to consolidated financial statements
2
<PAGE>
V BAND CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED APRIL 30, 1999 AND 1998 (unaudited)
(in 000's)
<TABLE>
<CAPTION>
1999 1998
--------------- ---------------
<S> <C> <C>
Cash Flows from Operating Activities
Net loss $ (1,397) $ (3,575)
Adjustments to reconcile net loss to net
cash provided by operating activities:
Depreciation 136 246
Amortization of other assets 17 17
Provision for doubtful accounts 81 6
Waiver of Chief Executive Officer's compensation - 100
Changes in assets and liabilities:
Accounts receivable 957 4,626
Inventories 647 (705)
Prepaid expenses and other current assets 51 (98)
Other assets 13 -
Accounts payable and other current liabilities 197 1,625
Foreign currency translation adjustment (50) 23
--------------- ---------------
Net cash provided by operating activities 652 2,265
--------------- ---------------
Cash Flows from Investing Activities
Capital expenditures (55) (64)
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Net cash used in investing activities (55) (64)
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Cash Flows from Financing Activities
Proceeds from short-term debt 5,390 10,794
Payments of short-tem debt (6,108) (11,764)
Proceeds from issuance of common stock - 9
--------------- ---------------
Net cash used in financing activities (718) (961)
--------------- ---------------
Net increase (decrease) in cash (121) 1,240
Cash at beginning of period 915 336
--------------- ---------------
Cash at end of period $ 794 $ 1,576
=============== ===============
Supplementary Disclosures
Income taxes paid $ - $ 16
=============== ===============
Interest paid $ 62 $ 94
=============== ===============
</TABLE>
See notes to consolidated financial statements
3
<PAGE>
V BAND CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in 000's)
Note A -- Basis of Presentation
The accompanying consolidated financial statements include the accounts of V
Band Corporation and its wholly-owned subsidiaries (the "Company"). All
significant intercompany balances and transactions have been eliminated. Certain
information and footnote disclosures normally included in financial statements
prepared in accordance with generally accepted accounting principles have been
condensed or omitted. These consolidated financial statements should be read in
conjunction with the Company's audited financial statements for the fiscal year
ended October 31, 1998 as set forth in the Company's annual report on Form 10-K.
In the opinion of management, all adjustments (which include only normal
recurring adjustments) necessary to present fairly the financial position,
results of operations and cash flows at April 30, 1999 and all periods presented
have been made.
The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. The Company's ability to
continue as a going concern is uncertain based on the matters discussed below.
The consolidated financial statements do not include any adjustments relating to
the recoverability and classification of assets or the amounts of liabilities
that might be necessary should the Company be unable to continue as a going
concern. The Company's continuation as a going concern is dependent upon the
Company's ability to return to profitability and to maintain compliance with its
amended bank covenants.
The Company has incurred recurring losses from operations. As a result of the
Company's results of operations, the bank amended the financial covenants of the
Credit Agreement (see Note D). However, the Company did not satisfy all of the
amended financial covenants for the second quarter of 1999. The Company's
operations are dependent upon the continued availability of funding under the
Credit Agreement. The continued availability of funding under the Credit
Agreement is dependent, in turn, upon the Company's ability to satisfy the
amended financial covenants set forth in the Credit Agreement and upon the
ability of the Company to generate sufficient revenue and results from
operations to support such funding. The Company is presently seeking additional
sales orders in order to improve the results of its operations. There is no
assurance that the Company will be able to improve the results of its operations
to satisfy the amended financial covenants.
Note B -- Significant accounting policies
Revenue recognition - Equipment revenue, for new system installations and
modifications to existing systems at customer locations, is recognized as the
product is shipped. For long-term contracts, equipment revenue is recognized
under the percentage of completion method. Service revenue, which includes
maintenance contract revenue and repairs, is recognized when the service has
been completed.
Note C -- Inventories
Inventories are summarized as follows:
<TABLE>
<CAPTION>
1999 1998
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<S> <C> <C>
Finished goods $ 3,278 $ 3,812
Parts and components 2,824 3,339
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6,102 7,151
Less: Inventory reserves (2,508) (2,910)
============= =============
$ 3,594 $ 4,241
============= =============
</TABLE>
4
<PAGE>
Note D - Short-term Debt
In May 1997, the Company entered into a Credit Agreement with National Bank of
Canada, (the "Credit Agreement") which expires in May 2000. The Credit Agreement
provided a revolving loan and letter of credit facility of up to $4 million. The
Company's obligations under the Credit Agreement are secured by a security
interest in all of the assets of V Band Corporation and its domestic
subsidiaries. Under the terms of the Credit Agreement, the Company is restricted
from paying dividends if an event of default has occurred and is continuing
thereunder. Due to the Company's results of operations for 1997, the Company
failed to satisfy the financial covenants set forth in the Credit Facility. On
February 9, 1998, National Bank of Canada waived the Company's failure to
satisfy those covenants at October 31, 1997 and amended the covenants for fiscal
year 1998. In addition, the interest rate on the outstanding borrowings was
modified to prime plus 2 percent effective February 1, 1998. The amended
financial covenants were not satisfied for the three-month period ended April
30, 1998. On June 4, 1998, National Bank of Canada waived the Company's failure
to satisfy those covenants at April 30, 1998 and amended the covenants for the
remainder of fiscal year 1998. The Company satisfied the amended financial
covenants for the three-month periods ended July 31, 1998, October 31, 1998 and
January 31, 1999, but was in violation of a non-financial covenant as of October
31, 1998. On February 18, 1999, National Bank of Canada waived the non-financial
covenant default, amended the financial covenants for all periods through
expiration, and reduced the revolving loan and credit facility to $2 million.
The amended financial covenants require, among other things, a return to
profitability in the third fiscal quarter of 1999. The Company did not satisfy
all of the amended financial covenants for the three-month period ended April
30, 1999. The prime rate was 7.75% at April 30, 1999.
Note E - Agreement and Plan of Merger
On April 14, 1999, the Company entered into an Agreement and Plan of Merger (the
"Merger Agreement") among IPC Information Systems, Inc. ("IPC"), IPC Merger Sub,
Inc., a wholly-owned subsidiary of IPC ("Merger Sub"), and the Company. Under
the Merger Agreement, and subject to the approval of shareholders representing
two-thirds of the outstanding shares of Common Stock and the satisfaction of
certain other conditions, a merger (the "Merger") will occur between the Company
and Merger Sub. Upon consummation of the Merger, the Company will merge with and
into Merger Sub, the separate existence of the Company will cease, and all
shareholders of the Company, with the exception of the shareholders who properly
exercise their dissenter's rights, will receive $0.27 for each share owned,
without interest. Shareholders who properly exercise their dissenter's rights
will receive payment in accordance with Sections 623 and 910 of the New York
Business Corporation Law.
5
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations (in 000's except per share data)
Results of Operations
- ---------------------
Sales for the second quarter of 1999, ended April 30, 1999, of $2,888 were
$1,931, or 40%, lower than the $4,819 reported in the second quarter of 1998.
Equipment sales of $1,166 in the second quarter of 1999 decreased by $2,287, or
66%, from the equipment sales of $3,453 in the second quarter of 1998. This
decrease was primarily due to decreased demand for the Company's products. Sales
from the Company's service business increased to $1,722, or 26%, for the second
quarter of 1999 from $1,366 for the second quarter of 1998. This increase was
primarily due to new maintenance contracts entered into after the expiration of
warranty periods for installations of the Company's eXchange phone in previous
fiscal years and an increase in other customers serviced by the Company.
Gross profit margin for the three and six months ended April 30, 1999 was 32%
and 30% respectively as compared to 26% and 27% for the three and six month
periods in 1998. Equipment gross profit margin for the three and six months
ended April 30, 1999 was 35% and 27% respectively as compared to 25% for both
periods in 1998. This increase was primarily attributable to modifications to
existing systems representing a higher percentage of total equipment sales. In
general, modifications to existing systems generate higher gross profit margins
than new installations. The gross profit margin for service sales was 29% for
the second quarter and 33% for the six months ended April 30, 1999 as compared
to 27% and 31% respectively for the comparable 1998 periods. The increase was
attributable to the increase in maintenance sales.
Operating expenses for the second quarter of 1999 were $1,706 or $773 lower than
the $2,479 reported for the second quarter of 1998. The decrease was primarily
attributable to reductions in the number of employees and in research and
development expenditures.
The net loss reported in the second quarter ended April 30, 1999 was $829, or
$.15 per share, compared to a net loss of $1,253, or $.23 per share, for the
second quarter of 1998. The smaller loss was primarily attributable to
reductions in the number of employees and in research and development
expenditures. The average shares outstanding for the quarter ended April 30,
1999 increased to 5,429 versus 5,427 for the same period in 1998.
Financial Condition
- -------------------
The Company's cash was $794 at April 30, 1999, a decrease of $121 from the
October 31, 1998 balance of $915. Accounts receivable decreased $1,038 primarily
due to the decrease in sales for the six months ended April 30, 1999 as compared
to the same period in 1998. Short-term debt decreased $718 as a result of
payments made during the six-month period. Inventory decreased $647 as the
Company substantially reduced new purchases and also rescheduled deliveries of
goods previously ordered from its subcontractors and suppliers.
<PAGE>
The Company's losses for 1997, 1998 and the first six months of 1999 have had a
substantial impact on its working capital and liquidity. On May 28, 1997 the
Company entered into a Credit Agreement (the "Credit Agreement") with National
Bank of Canada, New York Branch (the "Bank"). The Credit Agreement provides a $2
million credit facility to the Company secured by substantially all of the
assets of the Company and its domestic subsidiaries. As a result of the
Company's results of operations, the Bank amended the financial covenants of the
Credit Agreement. The Company's operations are dependent upon the continued
availability of funding under the Credit Agreement. The continued availability
of funding under the Credit Agreement is dependent, in turn, upon the Company's
ability to satisfy the amended financial covenants set forth in the Credit
Agreement. The amended financial covenants require, among other things, a return
to profitability in the third fiscal quarter of 1999. The Company did not
satisfy all of the amended financial covenants for the three-month period ended
April 30, 1999.
6
<PAGE>
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Although the Company currently invoices its customers in US dollars or UK
pounds, exchange rates for these and other local currencies in countries where
the Company may operate in the future may fluctuate in relation to the US
dollar. Such fluctuations may have an adverse effect on the Company's earnings
or assets when local currencies are exchanged for US dollars. Any weakening of
the value of such local currency against the US dollar could result in lower
revenues and earnings for the Company. To date, gains and losses related to
foreign currency transactions and foreign currency translation have not been
material for the Company. Included in the Company's consolidated balance sheet
at October 31, 1998 are net assets of the Company's United Kingdom subsidiary of
$816,000. There has been no material change in this information during the first
six months of 1999.
Item 5. Other Information
At a special meeting of the Company's shareholders held on June 14, 1999, the
Company's shareholders approved and adopted the Agreement and Plan of Merger
dated April 14, 1999 (the "Merger Agreement") among IPC Information Systems,
Inc. ("IPC"), IPC Merger Sub, Inc., a wholly-owned subsidiary of IPC ("Merger
Sub"), and the Company and the merger of the Company with and into Merger Sub
(the "Merger"). Shareholders holding 3,701,328 shares of the Company's
outstanding Common Stock voted for, and shareholders holding 229,919 shares of
the Company's Common Stock voted against, the approval and adoption of the
Merger Agreement and the Merger. There were 5,251 shares which constituted
abstentions and broker non-votes.
The completion of the Merger is subject to the satisfaction of the conditions
set forth in the Merger Agreement.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
10.21 Amendment #3 to Credit Agreement dated as of January
19, 1999 between V Band Corporation and National Bank
of Canada, New York Branch.
10.22 Amendment #4 to Credit Agreement dated as of February
18, 1999 between V Band Corporation and National Bank
of Canada, New York Branch.
10.23 Agreement and Plan of Merger by and among IPC
Information Systems, Inc., IPC Merger Sub, Inc. and V
Band Corporation dated April 14, 1999.
7
<PAGE>
V BAND CORPORATION
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.
V BAND CORPORATION
------------------
(Registrant)
Date: June 14, 1999
/s/ Thomas E. Feil
------------------
Thomas E. Feil
Chief Executive Officer
(Duly Authorized Officer)
Date: June 14, 1999
/s/ Robert O. Riiska
--------------------
Robert O. Riiska
Chief Financial Officer
(Principal Accounting Officer)
AMENDMENT #3
to
CREDIT AGREEMENT
THIS AMENDMENT #3 TO CREDIT AGREEMENT (this "Amendment") dated
as of January 19, 1999, between V BAND CORPORATION (the "Borrower") and NATIONAL
BANK OF CANADA, NEW YORK BRANCH (the "Bank").
RECITALS
--------
A. The Borrower and the Bank are parties to the Credit
Agreement dated as of May 28, 1997, as amended by Amendment and Waiver dated as
of February 10, 1998 and Amendment and Waiver dated as of June 4, 1998 (as the
same may have been, is hereby or may hereafter be further amended, the "Credit
Agreement"), pursuant to which the Bank agreed to extend credit to the Borrower
in the form of revolving loans and letters of credit upon the terms and subject
to the conditions set forth in the Credit Agreement.
B. The Borrower has requested that the Bank permit it to
borrow under the Credit Agreement overadvances of up to $153,000 in the
aggregate and allow such overadvances to remain outstanding until January 29,
1999, in consideration of, inter alia, the agreement of the Borrower to comply
with the requirements imposed hereby.
C. The Bank is willing to permit such overadvances, subject to
the terms and conditions set forth below.
NOW THEREFORE, in consideration of the premises and for other
good and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto agree as follows:
1. Definitions. All capitalized terms used but not
defined herein shall have the meanings ascribed to them in the Credit Agreement.
<PAGE>
2. Amendment to Credit Agreement.
(a) The definition of the term "Permitted
Overadvance Amount" set forth within the definition of "Borrowing Base" in
Section 1.1 of the Credit Agreement (Defined Terms) is hereby amended to read as
follows:
"Permitted Overadvance Amount" means (x) during the
period commencing on January 19, 1999 and ending on
January 29, 1999, One Hundred Fifty-Three Thousand
Dollars ($153,000), and (y) thereafter, $0.00.
(b) All references in the Credit Agreement to
"this Agreement" or such words as "hereof", "herein", or "hereunder" shall be
deemed to be references to the "Credit Agreement," as defined in this Amendment.
3. Reaffirmation of Obligations. The Borrower hereby
acknowledges and confirms to the Bank (a) that the amendments and modifications
to the Credit Agreement made pursuant to this Amendment shall not affect or
impair in any way the validity, binding effect or enforceability of any Loan
Document to which the Borrower is a party or of any liens or security interests
granted to the Bank thereunder, or the Borrower's obligations or the Bank's
rights and remedies thereunder, and (b) that the Loan Documents to which the
Borrower is a party, any liens and security interests granted to the Bank
thereunder, and the Borrower's obligations and the Bank's rights and remedies
thereunder shall continue in full force and effect, notwithstanding such
amendments and modifications.
4. Effectiveness. The provisions of this Amendment to
the contrary notwithstanding, the foregoing amendment shall be effective only
through the earliest of (a) noncompliance by the Borrower with any of the
limitations or requirements contained herein, or (b) the occurrence of an Event
of Default under the Credit Agreement.
5. Amendment Fee. As consideration for the amendment to
the Credit Agreement provided herein, the Borrower shall pay to the Bank upon
the execution hereof a fee in the amount of $500 (the "Amendment Fee"), which
fee is nonrefundable and is deemed earned by the Bank when paid.
6. Representations and Warranties. The Borrower hereby
represents and warrants to the Bank that (a) it has full power and authority to
execute and deliver this Amendment, (b) this Amendment, and the Credit Agreement
as amended hereby, constitute the legal, valid and binding obligations of the
Borrower, enforceable against the Borrower in accordance with their respective
terms, (c) the Borrower's execution and delivery of this Amendment, and its
performance of this Amendment and of
2
<PAGE>
the Credit Agreement, have been duly authorized by all requisite action of the
Borrower and do not require the approval of its shareholders, (d) the execution
and delivery by the Borrower of this Amendment and the performance by the
Borrower of the Credit Agreement do not and will not (i) violate the Borrower's
Certificate of Incorporation or By-Laws or any law or regulation applicable to
the Borrower, (ii) violate or constitute (with due notice or lapse of time or
both) a default under any indenture, agreement, license or other instrument to
which the Borrower is a party or by which the Borrower or any of its properties
may be bound or affected, (iii) violate any order of any court, tribunal or
governmental agency binding upon the Borrower or its properties, (iv) result in
the creation or imposition of any Lien of any nature whatsoever upon any
properties or assets of the Borrower, or (v) require any license, consent or
approval of any governmental agency or regulatory authority or any other third
party.
7. Conditions Precedent. This Amendment shall be deemed
effective as of January 19, 1999, upon satisfaction or waiver of each of the
following conditions precedent:
(a) the Borrower and the Bank shall have executed and
delivered counterpart originals or facsimiles hereof;
(b) the Consent attached hereto as Exhibit A shall have
been duly executed by all of the Borrower's Domestic Subsidiaries and delivered
to the Bank;
(c) the Bank shall have received payment in full of the
Amendment Fee; and
(d) all legal, documentary and other matters in
connection with this Amendment and the transactions contemplated hereby shall be
satisfactory to the Bank and its counsel.
8. Default. Any default by the Borrower in the
observance or performance of any term, condition, covenant, representation or
warranty set forth in this Amendment shall constitute an Event of Default under
the Credit Agreement.
9. Miscellaneous.
(a) THIS AMENDMENT SHALL BE GOVERNED BY AND CONSTRUED AND
INTERPRETED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, WITHOUT GIVING
EFFECT TO ITS CONFLICT OF LAWS RULES (OTHER THAN SECTION 5-1401 OF THE GENERAL
OBLIGATIONS LAW).
(b) Except as expressly amended hereby, all terms and
conditions of the Credit Agreement and the other Loan Documents, and all rights
of the Bank and obligations of the Borrower thereunder and under all related
documents, shall remain in full force and effect. Without limiting the
generality of the foregoing, nothing herein contained shall be deemed to
increase
3
<PAGE>
the Commitment.
(c) The Borrower hereby agrees to pay on demand all costs
and expenses (including without limitation the reasonable fees and expenses of
outside counsel to the Bank) incurred by the Bank in connection with the
negotiation, preparation, execution and delivery of this Amendment and all
related documents, whether or not the transactions contemplated hereby are
consummated.
(d) This Amendment may be executed by one or more of the
parties hereto on any number of separate counterparts, and all of said
counterparts taken together shall be deemed to constitute one and the same
instrument. Delivery of an executed signature page to this Amendment by
facsimile transmission shall be as effective as delivery of a manually signed
counterpart hereof.
(e) This Amendment constitutes the entire agreement and
understanding of the parties hereto with respect to the subject matter hereof
and any prior oral agreements or understandings are merged herein.
IN WITNESS WHEREOF, the parties hereto have caused this
Amendment to be duly executed by their duly authorized officers as of the day
and year first above written.
V BAND CORPORATION
By:___________________________
Name:
Title:
NATIONAL BANK OF CANADA, NEW YORK BRANCH
By:___________________________
Name:
Title:
By:___________________________
Name:
Title:
4
<PAGE>
Exhibit A
---------
CONSENT OF GUARANTORS
Each of the undersigned consents and agrees to the execution and
delivery by the Borrower of the Amendment #3 to Credit Agreement dated as of
January 19, 1999 (the "Amendment") between V Band Corporation and National Bank
of Canada, New York Branch (the "Bank") and to all of the transactions
contemplated by the Amendment. Each of the undersigned acknowledge and agree
that each of the documents which they have executed in connection with the
Credit Agreement are ratified, confirmed and reaffirmed, including, without
limitation, their respective Subsidiary Guarantee, and any other Loan Documents
to which they are party and that such documents are in full force and effect in
accordance with their terms and there are no defenses, counterclaims or rights
of set-off as to any of their respective obligations thereunder. Each of the
undersigned further acknowledges and agrees that the Amendment is supported by
good and valuable consideration by the Bank including, without limitation, the
Bank's agreement to execute the Amendment.
LICOM Incorporated
By:___________________________
Name:
Title:
V Band NE, Inc.
By:___________________________
Name:
Title:
V Band Services, Inc.
By:___________________________
Name:
Title:
5
AMENDMENT #4
to
CREDIT AGREEMENT
THIS AMENDMENT #4 TO CREDIT AGREEMENT (this "Amendment") dated
as of February 18, 1999, between V BAND CORPORATION (the "Borrower") and
NATIONAL BANK OF CANADA, NEW YORK BRANCH (the "Bank").
RECITALS
A. The Borrower and the Bank are parties to the Credit
Agreement dated as of May 28, 1997, as amended by Amendment and Waiver dated as
of February 10, 1998, Amendment and Waiver dated as of June 4, 1998, and the
Amendment #3 to Credit Agreement dated as of January 19, 1999 (as the same may
have been, is hereby or may hereafter be further amended, the "Credit
Agreement"), pursuant to which the Bank agreed to extend credit to the Borrower
in the form of revolving loans and letters of credit upon the terms and subject
to the conditions set forth in the Credit Agreement.
B. The Borrower has requested that the Bank permit it to
borrow under the Credit Agreement overadvances of up to $100,000 in the
aggregate and allow such overadvances to remain outstanding until March 1, 1999,
in consideration of, inter alia, the agreement of the Borrower to comply with
the requirements imposed hereby.
C. The Bank is willing to permit such overadvances,
subject to the terms and conditions set forth below.
NOW THEREFORE, in consideration of the premises and for other
good and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto agree as follows:
1. Definitions. All capitalized terms used but not
defined herein shall have the meanings ascribed to them in the Credit Agreement.
<PAGE>
2. Amendment to Credit Agreement.
(a) The definition of the term "Commitment" set forth in
Section 1.1 of the Credit Agreement (Defined Terms) is hereby amended in its
entirety to read as follows:
"Commitment": the commitment of the Bank to make
Loans pursuant to Section 2.1, and to issue Letters
of Credit pursuant to Section 2.10, in the maximum
aggregate principal amount of Two Million Dollars
($2,000,000.00), as the Commitment may be terminated
or reduced from time to time in accordance with the
provisions of this Agreement.
(b) The definition of the term "Permitted Overadvance
Amount" set forth within the definition of "Borrowing Base" in Section 1.1 of
the Credit Agreement (Defined Terms) is hereby amended to read as follows:
"Permitted Overadvance Amount" means (x) during the
period commencing on February 18, 1999 and ending on
March 1, 1999, One Hundred Thousand Dollars
($100,000), and (y) thereafter, $0.00.
(c) The last sentence of Section 2.11(f) of the Credit
Agreement is hereby amended to read as follows:
For purposes of this Section, the term "Applicable
Percentage" means (i) 3% with respect to any optional
reduction, refinancing or termination which becomes
effective before May 28, 1998, (ii) 2% with respect
to any optional reduction, refinancing or termination
which becomes effective on or after May 28, 1998 but
before August 28, 1999, (iii) 2.25% with respect to
any optional reduction, refinancing or termination
which becomes effective on or after August 28, 1999
but before November 28, 1999, (iv) 2.5% with respect
to any optional reduction, refinancing or termination
which becomes effective on or after November 28, 1999
but before February 28, 2000, (v) 2.75% with respect
to any optional reduction, refinancing or termination
which becomes effective on or after February 28, 2000
but before May 28, 2000, and (vi) 3% with respect to
any optional reduction, refinancing or termination
2
<PAGE>
which becomes effective on or after May 28, 2000.
(b) Section 7.1 (Financial Covenants) of the Credit
Agreement is hereby amended in its entirety to read as follows:
7.1 Financial Covenants. The Borrower hereby
covenants and agrees that so long as the Commitment remains in
effect or any Letter of Credit remains outstanding and until
the payment in full of the Obligations and the complete
performance of all of the Borrower's other obligations
hereunder and under the other Loan Documents, unless the Bank
shall otherwise consent in writing, the Borrower shall not:
(a) Permit its Consolidated EBITDA for any
fiscal quarter specified below to be less than the amount set
forth below for such fiscal quarter:
================================================================================
|Fiscal Year | First | Second | Third | Fourth |
| Ending | Quarter | Quarter | Quarter | Quarter |
|------------|---------------|----------------|----------------|---------------|
|October 31, | ($500,000) | ($200,000) | $100,000 | $250,000 |
| 1999 | | | | |
|------------|---------------|----------------|----------------|---------------|
|October 31, | $50,000 | $50,000 | Not | Not |
| 2000 | | | Applicable | Applicable |
================================================================================
(b) Permit its Leverage Ratio for any fiscal quarter specified
below to exceed the ratio below for such fiscal quarter:
================================================================================
|Fiscal Year | First | Second | Third | Fourth |
| Ending | Quarter | Quarter | Quarter | Quarter |
|------------|---------------|----------------|----------------|---------------|
|October 31, | 5.00:1.00 | 5.00:1.00 | 5.00:1.00 | 5.00:1.00 |
| 1999 | | | | |
|------------|---------------|----------------|----------------|---------------|
|October 31, | 4.00:1.00 | 4.00:1.00 | Not | Not |
| 2000 | | | Applicable | Applicable |
================================================================================
(c) Permit its Consolidated Tangible Net Worth
as at the end of any fiscal quarter specified below to be less
than the amount set forth below for such fiscal quarter:
<PAGE>
================================================================================
|Fiscal Year | First | Second | Third | Fourth |
| Ending | Quarter | Quarter | Quarter | Quarter |
|------------|---------------|----------------|----------------|---------------|
|October 31, | $1,300,000 | $1,200,000 | $1,300,000 | $1,500,000 |
| 1999 | | | | |
|------------|---------------|----------------|----------------|---------------|
|October 31, | $1,600,000 | $1,800,000 | Not | Not |
| 2000 | | | Applicable | Applicable |
================================================================================
(d) Permit its Interest Coverage Ratio to be
less than 1.00 to 1.00 for any fiscal quarter beginning with
and including the third fiscal quarter of its fiscal year
ending October 31, 1999 through and including the second
fiscal quarter of its fiscal year ending October 31, 2000, or
for the Calculation Period ending at the end of the second
fiscal quarter of its fiscal year ending October 31, 2000.
(e) Permit its Current Ratio to be less than
1.00 to 1.00 as at the end of any fiscal quarter of its fiscal
year ending October 31, 1999 or as at the end of either of the
first or second fiscal quarter of its fiscal year ending
October 31, 2000.
(d) All references in the Credit Agreement to "this
agreement" or such words as "hereof", "herein", or "hereunder" shall be deemed
to be references to the "Credit Agreement," as defined in this Agreement.
3. Reaffirmation of Obligations. The Borrower hereby
acknowledges and confirms to the Bank (a) that the amendments and modifications
to the Credit Agreement made pursuant to this Amendment shall not affect or
impair in any way the validity, binding effect or enforceability of any Loan
Document to which the Borrower is a party or of any liens or security interests
granted to the Bank thereunder, or the Borrower's obligations or the Bank's
rights and remedies thereunder, and (b) that the Loan Documents to which the
Borrower is a party, any liens and security interests granted to the Bank
thereunder, and the Borrower's obligations and the Bank's rights and remedies
thereunder shall continue in full force and effect, notwithstanding such
amendments and modifications.
4. Effectiveness. The provisions of this Amendment to
the contrary notwithstanding, the foregoing amendment shall be effective only
through the earliest of (a) noncompliance by the Borrower with any of the
limitations or requirements contained herein, or (b) the occurrence of an Event
of Default under the
4
<PAGE>
Credit Agreement.
5. Amendment Fee. As consideration for the amendment to
the Credit Agreement provided in this Amendment, the Borrower shall pay to the
Bank on or before the Amendment Date a fee in the amount of $15,500.00 (the
"Amendment Fee"), which fee is nonrefundable and is deemed earned by the Bank
when paid.
6. Representations and Warranties. The Borrower hereby
represents and warrants to the Bank that (a) it has full power and authority to
execute and deliver this Amendment, (b) this Amendment, and the Credit Agreement
as amended hereby, constitute the legal, valid and binding obligations of the
Borrower, enforceable against the Borrower in accordance with their respective
terms, (c) the Borrower's execution and delivery of this Amendment, and its
performance of this Amendment and of the Credit Agreement, have been duly
authorized by all requisite action of the Borrower and do not require the
approval of its shareholders, (d) the execution and delivery by the Borrower of
this Amendment and the performance by the Borrower of the Credit Agreement do
not and will not (i) violate the Borrower's Certificate of Incorporation or
By-Laws or any law or regulation applicable to the Borrower, (ii) violate or
constitute (with due notice or lapse of time or both) a default under any
indenture, agreement, license or other instrument to which the Borrower is a
party or by which the Borrower or any of its properties may be bound or
affected, (iii) violate any order of any court, tribunal or governmental agency
binding upon the Borrower or its properties, (iv) result in the creation or
imposition of any Lien of any nature whatsoever upon any properties or assets of
the Borrower, or (v) require any license, consent or approval of any
governmental agency or regulatory authority or any other third party, and (e)
the total of the outstanding principal balance of all Loans and the LC Exposure
as of the date hereof is $1,271,186.08.
7. Conditions Precedent. This Amendment shall become
effective on the date (the "Amendment Date") on which each of the following
conditions precedent shall have been satisfied or waived:
(a) the Borrower and the Bank shall have executed and
delivered counterpart originals or facsimiles hereof;
(b) the Borrower shall have executed and delivered to the
Bank UCC financing statements in form, substance and number sufficient for
filing in all offices specified by the Bank;
(c) the Consent attached hereto as Exhibit A shall have
been duly executed by all of the Borrower's Domestic Subsidiaries and delivered
to the Bank;
(d) the Bank shall have received payment in full of the
<PAGE>
Amendment Fee; and
5
(e) all legal, documentary and other matters in
connection with this Amendment and the transactions contemplated hereby shall be
satisfactory to the Bank and its counsel.
The amendment to the Credit Agreement set forth in Section 2
hereof shall become effective automatically on the Amendment Date, without the
need for any further action by any party hereto.
8. Covenants. The Borrower agrees that it shall use its
best efforts to promptly cause the execution by such parties as the Bank shall
request of all such landlord, warehouseman, processor or similar waivers as the
Bank shall request regarding (a) any locations at which the Borrower or any
Guarantor has an office or place of business or at which any Collateral is
located, or (b) any party that holds, sells, stores, modifies, manufactures or
installs any Inventory. The Borrower shall deliver to the Bank on or before
February 26, 1999 true and correct copies of all leases, including any
amendments, riders and schedules thereto, regarding the premises described in
(a) hereof, and any agreements or contracts between the Borrower or any
Guarantor and any party described in (b) hereof.
9. Default. Any default by the Borrower in the
observance or performance of any term, condition, covenant, representation or
warranty set forth in this Amendment shall constitute an Event of Default under
the Credit Agreement.
10. Waiver and Release. AS A MATERIAL INDUCEMENT FOR, AND
IN CONSIDERATION OF, THE BANK'S AGREEMENTS HEREIN, THE BORROWER (FOR ITSELF AND
ITS SUCCESSORS, ASSIGNS, EXECUTORS AND ADMINISTRATORS) HEREBY WAIVES, RELEASES,
REMISES AND FOREVER DISCHARGES THE BANK, ITS SHAREHOLDERS, DIRECTORS, EMPLOYEES,
AGENTS, SUCCESSORS, ASSIGNS, HEIRS, EXECUTORS AND ADMINISTRATORS OF AND FROM ANY
AND ALL MANNER OF ACTIONS, CAUSES OF ACTION, SUITS, CROSSCLAIMS, COUNTERCLAIMS,
DEBTS, DUES, SUMS OF MONEY, ACCOUNTS, BILLS, COVENANTS, CONTRACTS,
CONTROVERSIES, AGREEMENTS, PROMISES, VARIANCES, DAMAGES, JUDGMENTS, CLAIMS AND
DEMANDS WHATSOEVER, IN LAW OR IN EQUITY, WHICH AGAINST THE BANK, THE BORROWER
EVER HAD, NOW HAS, OR THE BORROWER, OR ITS SUCCESSORS, ASSIGNS, EXECUTORS, OR
ADMINISTRATORS CAN, SHALL OR MAY HAVE FOR, UPON OR BY REASON OF ANY MATTER,
CAUSE OR THING WHATSOEVER FROM THE BEGINNING OF THE WORLD TO THE DAY OF THE DATE
OF THIS AGREEMENT. BORROWER CONFIRMS THAT THE FOREGOING WAIVER AND RELEASE IS AN
INFORMED WAIVER AND RELEASE AND IS FREELY GIVEN.
11. Miscellaneous.
(a) THIS AMENDMENT SHALL BE GOVERNED BY AND CONSTRUED AND
INTERPRETED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, WITHOUT GIVING
EFFECT TO ITS CONFLICT OF LAWS RULES (OTHER
6
<PAGE>
THAN SECTION 5-1401 OF THE GENERAL OBLIGATIONS LAW).
(b) Except as expressly amended hereby, all terms and
conditions of the Credit Agreement and the other Loan Documents, and all rights
of the Bank and obligations of the Borrower thereunder and under all related
documents, shall remain in full force and effect. Without limiting the
generality of the foregoing, nothing herein contained shall be deemed to
increase the Commitment.
(c) The Borrower hereby agrees to pay on demand all costs
and expenses (including without limitation the reasonable fees and expenses of
outside counsel to the Bank) incurred by the Bank in connection with the
negotiation, preparation, execution and delivery of this Amendment and all
related documents, whether or not the transactions contemplated hereby are
consummated.
(d) This Amendment may be executed by one or more of the
parties hereto on any number of separate counterparts, and all of said
counterparts taken together shall be deemed to constitute one and the same
instrument. Delivery of an executed signature page to this Amendment by
facsimile transmission shall be as effective as delivery of a manually signed
counterpart hereof.
(e) This Amendment constitutes the entire agreement and
understanding of the parties hereto with respect to the subject matter hereof
and any prior oral agreements or understandings are merged herein.
[REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK;
SIGNATURE PAGE FOLLOWS]
7
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this
Amendment to be duly executed by their duly authorized officers as of the day
and year first above written.
V BAND CORPORATION
By:
-------------------------------------
Name:
Title:
NATIONAL BANK OF CANADA, NEW YORK BRANCH
By:
-------------------------------------
Name:
Title:
By:
-------------------------------------
Name:
Title:
<PAGE>
EXHIBIT A
CONSENT OF GUARANTORS
Each of the undersigned (each, a "Guarantor") consents and agrees to
the execution and delivery by the Borrower of the Amendment #4 to Credit
Agreement dated as of February 18, 1999 (the "Amendment") between V Band
Corporation and National Bank of Canada, New York Branch (the "Bank") and to all
of the transactions contemplated by the Amendment. Each Guarantor acknowledges
and agrees that each of the documents which it has executed in connection with
the Credit Agreement is ratified, confirmed and reaffirmed, including, without
limitation, its Subsidiary Guarantee, and any other Loan Documents to which it
is a party and that such documents are in full force and effect in accordance
with their terms and there are no defenses, counterclaims or rights of set-off
as to any of such Guarantor's obligations thereunder. Each Guarantor further
acknowledges and agrees that the Amendment is supported by good and valuable
consideration by the Bank including, without limitation, the Bank's agreement to
execute the Amendment.
AS A MATERIAL INDUCEMENT FOR, AND IN CONSIDERATION OF, THE BANK'S
AGREEMENTS IN THE AMENDMENT, EACH GUARANTOR (FOR ITSELF AND ITS SUCCESSORS,
ASSIGNS, EXECUTORS AND ADMINISTRATORS) HEREBY WAIVES, RELEASES, REMISES AND
FOREVER DISCHARGES THE BANK, ITS SHAREHOLDERS, DIRECTORS, EMPLOYEES, AGENTS,
SUCCESSORS, ASSIGNS, HEIRS, EXECUTORS AND ADMINISTRATORS OF AND FROM ANY AND ALL
MANNER OF ACTIONS, CAUSES OF ACTION, SUITS, CROSSCLAIMS, COUNTERCLAIMS, DEBTS,
DUES, SUMS OF MONEY, ACCOUNTS, BILLS, COVENANTS, CONTRACTS, CONTROVERSIES,
AGREEMENTS, PROMISES, VARIANCES, DAMAGES, JUDGMENTS, CLAIMS AND DEMANDS
WHATSOEVER, IN LAW OR IN EQUITY, WHICH AGAINST THE BANK, EACH GUARANTOR HAD, NOW
HAS, OR EACH GUARANTOR, OR ITS SUCCESSORS, ASSIGNS, EXECUTORS, OR ADMINISTRATORS
CAN, SHALL OR MAY HAVE FOR, UPON OR BY REASON OF ANY MATTER, CAUSE OR THING
WHATSOEVER FROM THE BEGINNING OF THE WORLD TO THE DAY OF THE DATE OF THIS
AGREEMENT. EACH GUARANTOR CONFIRMS THAT THE FOREGOING WAIVER AND RELEASE IS AN
INFORMED WAIVER AND RELEASE AND IS FREELY GIVEN.
LICOM Incorporated
By:
------------------------
Name:
Title:
V Band NE, Inc.
By:
------------------------
Name:
Title:
9
AGREEMENT AND PLAN OF MERGER
BY AND AMONG
IPC INFORMATION SYSTEMS, INC.,
IPC MERGER SUB, INC.
AND
V BAND CORPORATION
APRIL 14, 1999
<PAGE>
TABLE OF CONTENTS
1. Definitions 1
2. Basic Transaction 5
-----------------
(a) The Merger 5
(b) The Closing 6
(c) Actions at the Closing 6
(d) Effect of Merger 6
(e) Procedure for Payment 7
(f) Closing of Transfer Records 7
3. Representations and Warranties of the Target 7
(a) Organization, Qualification, and Corporate Power 8
(b) Capitalization 8
(c) Authorization of Transaction 8
(d) Noncontravention 8
(e) Filings with the SEC 9
(f) Title to Assets 9
(g) Subsidiaries 9
(h) Financial Statements 10
(i) Events Subsequent to Most Recent Fiscal Quarter End 10
(j) Undisclosed Liabilities 10
(k) Brokers' Fees 10
(l) Legal Compliance 10
(m) Tax Matters 11
(n) Real Property 12
(o) Intellectual Property 13
(p) Tangible Assets 14
(q) Inventory 14
(r) Contracts 14
(s) Notes and Accounts Receivable 15
(t) Powers of Attorney 16
(u) Insurance 16
(v) Litigation 16
(w) Product Warranty 16
(x) Product Liability17
(y) Employees 17
(z) Employee Benefits17
(aa) Environmental, Health, and Safety Matters 19
(bb) Disclosure 19
4. Representations and Warranties of the Buyer and Merger Sub 19
<PAGE>
(a) Organization 19
(b) Authorization of Transaction 19
(c) Noncontravention 19
(d) Brokers' Fees 20
(e) Disclosure 20
(f) Merger Sub. 20
5. Covenants 20
(a) General 20
(b) Notices and Consents 20
(c) Regulatory Matters and Approvals 20
(d) Operation of Business 21
(e) Full Access 22
(f) Notice of Developments 22
(g) Exclusivity 22
(h) Insurance and Indemnification 23
(i) Stock Options 23
(j) National Bank of Canada 24
(k) Form 10-Q 24
6. Conditions to Obligation to Close 24
(a) Conditions to Obligation of the Buyer and Merger Sub 24
(b) Conditions to Obligation of the Target 26
7. Termination 27
(a) Termination of Agreement 27
(b) Effect of Termination 27
(c) Termination Fee 28
8. Miscellaneous 28
(a) Survival 28
(b) Press Releases and Public Announcements 28
(c) No Third-Party Beneficiaries 28
(d) Entire Agreement 28
(e) Succession and Assignment 28
(f) Counterparts 28
(g) Headings 28
(h) Notices 29
(i) Governing Law 30
(j) Jurisdiction; Service of Process 30
(l) Severability 31
(m) Expenses 31
(n) Construction 31
(o) Incorporation of Exhibits and Schedules 31
<PAGE>
Exhibit A--Delaware Certificate of Merger
Exhibit B--New York Certificate of Merger
Exhibit C--Form of Opinion of Counsel to the Target
Exhibit D--Form of Opinion of Counsel to the Buyer and Merger Sub
Disclosure Schedule--Exceptions to Representations and Warranties
<PAGE>
AGREEMENT AND PLAN OF MERGER
Agreement entered into as of April 14, 1999, by and among IPC
Information Systems, Inc., a Delaware corporation (the "Buyer"), IPC Merger Sub,
Inc., a Delaware corporation and a wholly-owned Subsidiary of the Buyer ("Merger
Sub"), and V Band Corporation, a New York corporation (the "Target"). The Buyer,
the Merger Sub, and the Target are referred to collectively herein as the
"Parties."
This Agreement contemplates a transaction in which the Buyer will
acquire all of the assets of the Target for cash through a merger of the Target
with and into Merger Sub.
Concurrently with the execution and delivery of this Agreement, and as
a condition and inducement to the Buyer's willingness to enter into this
Agreement, Thomas E. Feil ("Mr. Feil") and the Buyer have entered into a
Stockholder's Agreement (the "Stockholder's Agreement") pursuant to which Mr.
Feil has agreed to vote all shares of Target common stock beneficially owned by
him (not less than 1,430,472 shares) in favor of the Merger.
Now, therefore, in consideration of the premises and the mutual
promises herein made, and in consideration of the representations, warranties,
and covenants herein contained, the Parties agree as follows:
1. Definitions.
"Acquisition Proposal" has the meaning set forth in ss.5(q) below.
"Acquisition Transaction" has the meaning set forth in ss.5(q) below.
"Affiliate" has the meaning set forth in Rule 12b-2 of the regulations
promulgated under the Securities Exchange Act.
"Affiliated Group" means any affiliated group within the meaning of
Code ss.1504(a) or any similar group defined under a similar provision of state,
local or foreign law.
"Business Plan" means the documents designated as such by separate
agreement of the Parties.
"Buyer" has the meaning set forth in the preface above.
"Buyer-owned Share" means any Target Share that the Buyer or Merger Sub
owns beneficially.
"Closing" has the meaning set forth in ss.2(b) below.
<PAGE>
"Closing Date" has the meaning set forth in ss.2(b) below. "COBRA"
means the requirements of Part 6 of Subtitle B of Title I of ERISA and Code
ss.4980B.
"Code" means the Internal Revenue Code of 1986, as amended.
"Confidentiality Agreement" means the agreement between the Target and
the Buyer dated September 11, 1998.
"Confidential Information" means any information concerning the
businesses and affairs of the Target and its Subsidiaries other than information
that (i) was or becomes generally available to the public or (ii) was or becomes
generally available to the Buyer or Merger Sub on a non-confidential basis prior
to its disclosure to the Buyer, Merger Sub or their representatives.
"Controlled Group" has the meaning set forth in Code ss.1563.
"Credit Facility" means the revolving loan and letter of credit
facility of the Target made pursuant to the credit agreement between the
National Bank of Canada, New York Branch and the Target, dated May 28, 1997, as
amended and the Loan Documents referred to therein.
"Definitive Proxy Materials" means the definitive proxy materials
relating to the Special Meeting.
"Delaware Certificate of Merger" has the meaning set forth in ss.2(c)
below.
"Delaware General Corporation Law" means the General Corporation Law of
the State of Delaware, as amended.
"Disclosure Schedule" has the meaning set forth in ss.3 below.
"Dissenting Share" means any Target Share held of record by any
stockholder who or which has exercised his or its appraisal rights under the New
York Business Corporation Law.
"Effective Time" has the meaning set forth in ss.2(d)(i) below.
"Employee Benefit Plan" means any (a) nonqualified deferred
compensation or retirement plan or arrangement, (b) qualified defined
contribution retirement plan or arrangement which is an Employee Pension Benefit
Plan, (c) qualified defined benefit retirement plan or arrangement which is an
Employee Pension Benefit Plan (including any Multiemployer Plan), or (d)
Employee Welfare Benefit Plan or material fringe benefit or other retirement,
bonus, or incentive plan or program.
"Employee Pension Benefit Plan" has the meaning set forth in ERISA
ss.3(2).
"Employee Welfare Benefit Plan" has the meaning set forth in ERISA
ss.3(1).
<PAGE>
"Environmental, Health, and Safety Requirements" shall mean all
federal, state, local and foreign statutes, regulations, ordinances and other
provisions having the force or effect of law, all judicial and administrative
orders and determinations, all contractual obligations and all common law
concerning public health and safety, worker health and safety, and pollution or
protection of the environment, including without limitation all those relating
to the presence, use, production, generation, handling, transportation,
treatment, storage, disposal, distribution, labeling, testing, processing,
discharge, release, threatened release, control, or cleanup of any hazardous
materials, substances or wastes, chemical substances or mixtures, pesticides,
pollutants, contaminants, toxic chemicals, petroleum products or byproducts,
asbestos, polychlorinated biphenyls, noise or radiation, each as amended and as
now or hereafter in effect.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"Excess Loss Account" has the meaning set forth in Reg. ss.1.1502-19.
"GAAP" means United States generally accepted accounting principles as
in effect from time to ---- time.
"Intellectual Property" means (a) all inventions (whether patentable or
unpatentable and whether or not reduced to practice), all improvements thereto,
and all patents, patent applications, and patent disclosures, together with all
reissuances, continuations, continuations-in-part, revisions, extensions, and
reexaminations thereof, (b) all trademarks, service marks, trade dress, logos,
trade names, and corporate names, together with all translations, adaptations,
derivations, and combinations thereof and including all goodwill associated
therewith, and all applications, registrations, and renewals in connection
therewith, (c) all copyrightable works, all copyrights, and all applications,
registrations, and renewals in connection therewith, (d) all mask works and all
applications, registrations, and renewals in connection therewith, (e) all trade
secrets and confidential business information (including ideas, research and
development, know-how, formulas, compositions, manufacturing and production
processes and techniques, technical data, designs, drawings, specifications,
customer and supplier lists, pricing and cost information, and business and
marketing plans and proposals), (f) all computer software (including data and
related documentation), (g) all other proprietary rights, and (h) all copies and
tangible embodiments thereof (in whatever form or medium).
"Knowledge" means actual knowledge after reasonable investigation.
"Liability" means any liability (whether known or unknown, whether
asserted or unasserted, whether absolute or contingent, whether accrued or
unaccrued, whether liquidated or unliquidated, and whether due or to become
due), including any liability for Taxes.
"Merger" has the meaning set forth in ss.2(a) below.
"Merger Consideration" has the meaning set forth in ss.2(d)(v) below.
"Merger Sub" has the meaning set forth in the preface above.
<PAGE>
"Most Recent Balance Sheet" means the balance sheet contained within
financial statements for the Most Recent Fiscal Quarter End. "Most Recent Fiscal
Quarter End" has the meaning set forth in ss.3(h) below.
"Most Recent Fiscal Year End" has the meaning set forth in ss.3(h)
below.
"Mr. Feil" has the meaning set forth in the preface above.
"Multiemployer Plan" has the meaning set forth in ERISA ss.3(37).
"New York Business Corporation Law" means the Business
Corporation Law of the State of New York, as amended.
"New York Certificate of Merger" has the meaning set forth in ss.2(c)
below.
"Ordinary Course of Business" means the ordinary course of business
consistent with past custom and practice (including with respect to quantity and
frequency) which, in the case of the Target, it is understood has resulted in
operating losses.
"Party" has the meaning set forth in the preface above.
"Paying Agent" has the meaning set forth in ss.2(e)(i) below.
"Payment Fund" has the meaning set forth in ss.2(e)(i) below.
"Person" means an individual, a partnership, a corporation, an
association, a joint stock company, a trust, a joint venture, an unincorporated
organization, `or a governmental entity (or any department, agency, or political
subdivision thereof).
"PBGC" means the Pension Benefit Guaranty Corporation.
"Prohibited Transaction" has the meaning set forth in ERISA ss.406 and
Code ss.4975.
"Public Report" has the meaning set forth in ss.3(e) below.
"Reportable Event" has the meaning set forth in ERISA ss.4043.
"Requisite Stockholder Approval" means the affirmative vote of the
holders of two thirds of the Target Shares in favor of this Agreement and the
Merger.
"SEC" means the Securities and Exchange Commission.
"Securities Act" means the Securities Act of 1933, as amended.
"Securities Exchange Act" means the Securities Exchange Act of 1934, as
amended.
<PAGE>
"Security Interest" means any mortgage, pledge, lien, encumbrance,
charge, or other security interest, other than (a) mechanic's, materialman's,
and similar liens, (b) liens for taxes not yet due and payable or for taxes that
the taxpayer is contesting in good faith through appropriate proceedings, (c)
purchase money liens and liens securing rental payments under capital lease
arrangements, and (d) other liens arising in the Ordinary Course of Business and
not incurred in connection with the borrowing of money.
"Special Meeting" has the meaning set forth in ss.5(c)(ii) below.
"Stockholder's Agreement" has the meaning set forth in the preface
above.
"Subsidiary" means any corporation with respect to which a specified
Person (or a Subsidiary thereof) owns a majority of the common stock or has the
power to vote or direct the voting of sufficient securities to elect a majority
of the directors.
"Superior Acquisition Proposal" has the meaning set forth in
ss.7(a)(iv) below.
"Surviving Corporation" has the meaning set forth in ss.2(a) below.
"Target" has the meaning set forth in the preface above.
"Target Share" means any share of the Common Stock, $.01 par value per
share, of the Target which is the only class of capital stock of the Target that
is outstanding and has voting rights..
"Target Stockholder" means any Person who or which holds any Target
Shares.
"Tax" means any federal, state, local, or foreign income, gross
receipts, license, payroll, employment, excise, severance, stamp, occupation,
premium, windfall profits, environmental (including taxes under Code ss.59A),
customs duties, capital stock, franchise, profits, withholding, social security
(or similar), unemployment, disability, real property, personal property, sales,
use, transfer, registration, value added, alternative or add-on minimum,
estimated, or other tax of any kind whatsoever, including any interest, penalty,
or addition thereto, whether disputed or not.
"Tax Return" means any return, declaration, report, claim for refund,
or information return or statement relating to Taxes, including any schedule or
attachment thereto, and including any amendment thereof.
"Third Party" means any "group" as described in Rule 13d-5(b)
promulgated under the Securities Exchange Act, or Person, other than the Target,
the Buyer, Merger Sub or any of their Affiliates.
2. Basic Transaction.
<PAGE>
(a) The Merger. On and subject to the terms and conditions of this
Agreement, the Target will merge with and into Merger Sub (the "Merger") at the
Effective Time and Merger Sub shall be the corporation surviving the Merger (the
"Surviving Corporation").
(b) The Closing. The closing of the transactions contemplated by
this Agreement (the "Closing") shall take place at the offices of Thacher
Proffitt & Wood, Two World Trade Center, New York, New York commencing at 9:00
a.m. local time on the second business day following the satisfaction or waiver
of all conditions to the obligations of the Parties to consummate the
transactions contemplated hereby (other than conditions with respect to actions
the respective Parties will take at the Closing itself) or such other date as
the Parties may mutually determine (the "Closing Date").
(c) Actions at the Closing. At the Closing, (i) the Target will
deliver to the Buyer and Merger Sub the various certificates, instruments, and
documents referred to in ss.6(a) below, (ii) the Buyer and Merger Sub will
deliver to the Target the various certificates, instruments, and documents
referred to in ss.6(b) below, (iii) the Target and Merger Sub will file with the
Secretary of State of the State of Delaware a certificate of merger
substantially in the form attached hereto as Exhibit A (the "Delaware
Certificate of Merger"), (iv) the Target and Merger Sub will file with the
Department of State of the State of New York a certificate of merger
substantially in the form attached hereto as Exhibit B (the "New York
Certificate of Merger"), and (v) the Buyer will cause the Surviving Corporation
to deliver the Payment Fund to the Paying Agent in the manner provided below in
this ss.2.
(d) Effect of Merger.
(i) General. The Merger shall become effective at the time
(the "Effective Time") the Target and Merger Sub file the Delaware
Certificate of Merger with the Secretary of State of the State of
Delaware. The Merger shall have the effect set forth in the Delaware
General Corporation Law. The Surviving Corporation may, at any time
after the Effective Time, take any action (including executing and
delivering any document) in the name and on behalf of either the Target
or Merger Sub in order to carry out and effectuate the transactions
contemplated by this Agreement.
(ii) Certificate of Incorporation. The Certificate of
Incorporation of the Surviving Corporation shall be the Certificate of
Incorporation of Merger Sub immediately prior to the Effective Time.
(iii) Bylaws. The Bylaws of the Surviving Corporation shall be
the Bylaws of Merger Sub immediately prior to the Effective Time.
(iv) Directors and Officers. The directors and officers of
Merger Sub shall become the directors and officers of the Surviving
Corporation at and as of the Effective Time (retaining their respective
positions and terms of office).
(v) Conversion of Target Shares. At and as of the Effective
Time, (A) each Target Share (other than any Dissenting Share or
Buyer-owned Share) shall be converted
<PAGE>
into the right to receive an amount (the "Merger Consideration") equal
to $0.27 in cash (without interest), (B) each Dissenting Share shall be
converted into the right to receive payment from the Surviving
Corporation with respect thereto in accordance with the provisions of
the New York Business Corporation Law, and (C) each Buyer-owned Share
shall be canceled; provided, however, that the Merger Consideration
shall be subject to equitable adjustment in the event of any stock
split, stock dividend, reverse stock split, or other change in the
number of Target Shares outstanding. No Target Share shall be deemed to
be outstanding or to have any rights other than those set forth above
in this ss.2(d)(v) after the Effective Time.
(e) Procedure for Payment.
(i) Immediately after the Effective Time, (A) the
Buyer will cause the Surviving Corporation to furnish to
ChaseMellon Shareholders Services, L.L.C. (the "Paying Agent")
a corpus (the "Payment Fund") consisting of cash (registered
in the name of the Paying Agent or its nominee) sufficient in
the aggregate for the Paying Agent to make full payment of the
Merger Consideration to the holders of all of the outstanding
Target Shares (other than any Dissenting Shares and
Buyer-owned Shares) and (B) the Buyer will cause the Paying
Agent to mail a letter of transmittal (with instructions for
its use) to each record holder of outstanding Target Shares
for the holder to use in surrendering the certificates which
represented his or its Target Shares against payment of the
Merger Consideration. No interest will accrue or be paid to
the holder of any outstanding Target Shares.
(ii) The Buyer may cause the Paying Agent to invest
the cash included in the Payment Fund in one or more
investments as the Buyer may direct from time to time;
provided, however, that the terms and conditions of the
investments shall be such as to permit the Paying Agent to
make prompt payment of the Merger Consideration as necessary.
The Buyer may cause the Paying Agent to pay over to the
Surviving Corporation any net earnings with respect to the
investments, and the Buyer will cause the Surviving
Corporation to replace promptly any portion of the Payment
Fund which the Paying Agent loses through investments.
(iii) The Buyer may cause the Paying Agent to pay over to the
Surviving Corporation any portion of the Payment Fund
(including any earnings thereon) remaining 60 days after the
Effective Time, and thereafter all former stockholders shall
be entitled to look to the Surviving Corporation (subject to
abandoned property, escheat, and other similar laws) as
general creditors thereof with respect to the cash payable
upon surrender of their certificates.
(iv) The Buyer shall cause the Surviving Corporation
to pay all charges and expenses of the Paying Agent.
<PAGE>
(f) Closing of Transfer Records. After the Effective Time,
transfers of Target Shares outstanding prior to the Effective Time shall not be
made on the stock transfer books of the Surviving Corporation.
3. Representations and Warranties of the Target. The Target represents
and warrants to the Buyer and Merger Sub that the statements contained in this
ss.3 are correct and complete as of the date of this Agreement, and that the
statements contained in ss.ss.3(a), (b), (c), (d), (e), (f), (k) and (bb), and
will be correct and complete as of the Closing Date (as though made then and as
though the Closing Date were substituted for the date of this Agreement
throughout the aforesaid subsections of this ss.3), except as set forth in the
disclosure schedule accompanying this Agreement and initialed by the Parties
(the "Disclosure Schedule"). The Disclosure Schedule will be arranged in
paragraphs corresponding to the lettered and numbered paragraphs contained in
this ss.3.
(a) Organization, Qualification, and Corporate Power. Each of the
Target and its Subsidiaries is a corporation duly organized, validly existing,
and in good standing under the laws of the jurisdiction of its incorporation, as
set forth in the Disclosure Schedule. Each of the Target and its Subsidiaries is
duly authorized to conduct business and is in good standing under the laws of
each jurisdiction in which the failure to be so qualified would have a material
adverse effect upon the business, financial condition, operations, results of
operations or future prospects of the Target and its Subsidiaries taken as a
whole. Each of the Target and its Subsidiaries has full corporate power and
authority and all licenses, permits, and authorizations necessary to carry on
the businesses in which it is engaged and to own and use the properties owned
and used by it except for such licenses, permits and authorizations, the absence
of which would not have a material adverse effect upon the business, financial
condition, operations, results of operations or future prospects of the Target
and its Subsidiaries taken as a whole. ss.3(a) of the Disclosure Schedule lists
the directors and officers of each of the Target and its Subsidiaries. The
Target has delivered to the Buyer and Merger Sub correct and complete copies of
the certificate of incorporation and bylaws of each of the Target and its
Subsidiaries (as amended to date). The minute books (containing the records of
meetings of the stockholders, the board of directors, and any committees of the
board of directors), the stock certificate books, and the stock record books of
each of the Target and its Subsidiaries are correct and complete. None of the
Target and its Subsidiaries is in default under or in violation of any provision
of its certificate of incorporation or bylaws.
(b) Capitalization. The entire authorized capital stock of the
Target consists of 20,000,000 Target Shares, of which 5,428,621 Target Shares
are issued and outstanding and 1,719,322 Target Shares are held in treasury. All
of the issued and outstanding Target Shares have been duly authorized and are
validly issued, fully paid, and nonassessable. There are no outstanding or
authorized options, warrants, purchase rights, subscription rights, conversion
rights, exchange rights, or other contracts or commitments that could require
the Target to issue, sell, or otherwise cause to become outstanding any of its
capital stock. There are no outstanding or authorized stock appreciation,
phantom stock, profit participation, or similar rights with respect to the
Target. There are no voting trusts, proxies, or other agreements or
understandings with respect to the voting of the capital stock of the Target.
<PAGE>
(c) Authorization of Transaction. The board of directors of the
Target has adopted this Agreement (including the plan of merger incorporated
herein) in accordance with Section 902 of the New York Business Corporation Law.
The Target has full power and authority (including full corporate power and
authority) to execute and deliver this Agreement and to perform its obligations
hereunder; provided, however, that the Target cannot consummate the Merger
unless and until it receives the Requisite Stockholder Approval. This Agreement
constitutes the valid and legally binding obligation of the Target, enforceable
in accordance with its terms and conditions.
(d) Noncontravention. Neither the execution and the delivery of
this Agreement, nor the consummation of the transactions contemplated hereby,
will (i) violate any constitution, statute, regulation, rule, injunction,
judgment, order, decree, ruling, charge, or other restriction of any government,
governmental agency, or court to which any of the Target and its Subsidiaries is
subject or any provision of the certificate of incorporation or bylaws of any of
the Target and its Subsidiaries or (ii) conflict with, result in a breach of,
constitute a default under, result in the acceleration of, create in any party
the right to accelerate, terminate, modify, or cancel, or require any notice,
consent or approval under any material agreement, contract, lease, license,
instrument, or other arrangement to which any of the Target and its Subsidiaries
is a party or by which it is bound or to which any of its assets is subject (or
result in the imposition of any Security Interest upon any of its assets). Other
than in connection with the provisions of the New York Business Corporation Law,
the Securities Exchange Act, and applicable state securities laws, none of the
Target and its Subsidiaries needs to give any notice to, make any filing with,
or obtain any authorization, consent, or approval of any government or
governmental agency in order for the Parties to consummate the transactions
contemplated by this Agreement, except for such authorizations, consents or
approvals which, if not obtained, would not have a material adverse effect upon
the business, financial condition, operations, results of operations or future
prospects of the Target and its Subsidiaries taken as a whole.
(e) Filings with the SEC. The Target has made all filings with the
SEC that it has been required to make under the Securities Act and the
Securities Exchange Act (collectively the "Public Reports"). Each of the Public
Reports has complied with the Securities Act and the Securities Exchange Act in
all material respects. None of the Public Reports, as of their respective dates,
contained any untrue statement of a material fact or omitted to state a material
fact necessary in order to make the statements made therein, in light of the
circumstances under which they were made, not misleading. The Target has
provided the Buyer with access to a correct and complete copy of each Public
Report (together with all exhibits and schedules thereto and as amended to date)
filed by the Target since January 1, 1994.
(f) Title to Assets. The Target and its Subsidiaries have good and
marketable title to, or a valid leasehold interest in, the properties and assets
used by them, located on their premises, or shown on the Most Recent Balance
Sheet or acquired after the date thereof, free and clear of all Security
Interests, except for properties and assets disposed of in the Ordinary Course
of Business since the date of the Most Recent Balance Sheet.
(g) Subsidiaries. ss.3(g) of the Disclosure Schedule sets forth
for each Subsidiary of the Target (i) its name and jurisdiction of
incorporation, (ii) the number of shares of authorized
<PAGE>
capital stock of each class of its capital stock, (iii) the number of issued and
outstanding shares of each class of its capital stock, the names of the holders
thereof, and the number of shares held by each such holder, and (iv) the number
of shares of its capital stock held in treasury. All of the issued and
outstanding shares of capital stock of each Subsidiary of the Target have been
duly authorized and are validly issued, fully paid, and nonassessable. One of
the Target and its Subsidiaries holds of record and owns beneficially all of the
outstanding shares of each Subsidiary of the Target, free and clear of any
restrictions on transfer (other than restrictions under the Securities Act and
state securities laws or in the case of V Band plc, foreign law), Taxes,
Security Interests, options, warrants, purchase rights, contracts, commitments,
equities, claims, and demands. There are no outstanding or authorized options,
warrants, purchase rights, subscription rights, conversion rights, exchange
rights, or other contracts or commitments that could require any of the Target
and its Subsidiaries to sell, transfer, or otherwise dispose of any capital
stock of any of its Subsidiaries or that could require any Subsidiary of the
Target to issue, sell, or otherwise cause to become outstanding any of its own
capital stock. There are no outstanding stock appreciation, phantom stock,
profit participation, or similar rights with respect to any Subsidiary of the
Target. There are no voting trusts, proxies, or other agreements or
understandings with respect to the voting of any capital stock of any Subsidiary
of the Target. None of the Target and its Subsidiaries controls directly or
indirectly or has any direct or indirect equity participation in any
corporation, partnership, trust, or other business association which is not a
Subsidiary of the Target.
(h) Financial Statements. The Target has filed a Quarterly Report
on Form 10-Q for the fiscal quarter ended January 31, 1999 (the "Most Recent
Fiscal Quarter End") and an Annual Report on Form 10-K for the fiscal year ended
October 31, 1998 (the "Most Recent Fiscal Year End"). The financial statements
included in or incorporated by reference into these Public Reports (including
the related notes and schedules) have been prepared in accordance with GAAP
applied on a consistent basis throughout the periods covered thereby, present
fairly the financial condition of the Target and its Subsidiaries as of the
indicated dates and the results of operations of the Target and its Subsidiaries
for the indicated periods, are correct and complete in all respects, and are
consistent with the books and records of the Target and its Subsidiaries;
provided, however, that the interim statements are subject to normal year-end
adjustments.
(i) Events Subsequent to Most Recent Fiscal Quarter End. From the
Most Recent Fiscal Quarter End to the date of this Agreement, there has not been
any material adverse change in the business, financial condition, operations,
results of operations, or future prospects of the Target and its Subsidiaries
taken as a whole.
(j) Undisclosed Liabilities. None of the Target and its
Subsidiaries has any Liability, including any Liability for Taxes, except for
(i) Liabilities set forth on the face of, or in the notes to, the Most Recent
Balance Sheet or in the notes to the balance sheet dated as of the Most Recent
Fiscal Year End, (ii) Liabilities which have arisen after the Most Recent Fiscal
Quarter End in the Ordinary Course of Business and (iii) Liabilities that
individually or in the aggregate do not have a material adverse effect upon the
business, financial condition, operations, results of operations, or future
prospects of the Target and its Subsidiaries taken as a whole.
<PAGE>
(k) Brokers' Fees. None of the Target and its Subsidiaries has any
liability or obligation to pay any fees or commissions to any broker, finder, or
agent with respect to the transactions contemplated by this Agreement.
(l) Legal Compliance. Each of the Target, its Subsidiaries, and their
respective predecessors and Affiliates has complied with all applicable laws
(including rules, regulations, codes, plans, injunctions, judgments, orders,
decrees, rulings, and charges thereunder) of federal, state, local, and foreign
governments (and all agencies thereof) the failure of which to comply with would
have a material adverse effect on the business, financial condition, operations,
results of operations or future prospects of the Target and its Subsidiaries
taken as a whole, and no action, suit, proceeding, hearing, investigation,
charge, complaint, claim, demand, or notice has been filed or commenced against
any of them alleging any failure so to comply.
(m) Tax Matters.
(i) Each of the Target and its Subsidiaries has filed all Tax
Returns that it was required to file. All such Tax Returns were correct
and complete in all material respects. All Taxes owed by any of the
Target and its Subsidiaries (whether or not shown on any Tax Return)
have been paid. None of the Target and its Subsidiaries currently is
the beneficiary of any extension of time within which to file any Tax
Return. No claim has ever been made by an authority in a jurisdiction
where any of the Target and its Subsidiaries does not file Tax Returns
that it is or may be subject to taxation by that jurisdiction. There
are no Security Interests on any of the assets of any of the Target and
its Subsidiaries that arose in connection with any failure (or alleged
failure) to pay any Tax.
(ii) Each of the Target and its Subsidiaries has withheld and
paid all Taxes required to have been withheld and paid in connection
with amounts paid or owing to any employee, independent contractor,
creditor, stockholder, or other Third Party.
(iii) Neither the Target nor its Subsidiaries expects any
authority to assess any additional Taxes for any period for which Tax
Returns have been filed. There is no dispute or claim concerning any
Tax Liability of any of the Target and its Subsidiaries either (A)
claimed or raised by any authority in writing or (B) as to which the
Target and its Subsidiaries has Knowledge based upon personal contact
with any agent of such authority. ss.3(m)(iii) of the Disclosure
Schedule lists all federal, state, local, and foreign income Tax
Returns filed with respect to any of the Target and its Subsidiaries
for taxable periods ended on or after October 31, 1994, indicates those
Tax Returns that have been audited, and indicates those Tax Returns
that currently are the subject of audit. The Target has provided the
Buyer with access to correct and complete copies of all federal income
Tax Returns, examination reports, and statements of deficiencies
assessed against or agreed to by any of the Target and its Subsidiaries
since October 31, 1994.
(iv) None of the Target and its Subsidiaries has waived any
statute of limitations in respect of Taxes or agreed to any extension
of time with respect to a Tax assessment or deficiency.
<PAGE>
(v) None of the Target and its Subsidiaries has filed a
consent under Code ss.341(f) concerning collapsible corporations. None
of the Target and its Subsidiaries has made any payments, is obligated
to make any payments, or is a party to any agreement that under certain
circumstances could obligate it to make any payments that will not be
deductible under Code ss.280G. None of the Target and its Subsidiaries
has been a United States real property holding corporation within the
meaning of Code ss.897(c)(2) during the applicable period specified in
Code ss.897(c)(1)(A)(ii). None of the Target and its Subsidiaries has
issued or assumed (A) any obligation described in Section 279(b) of the
Code, (B) any applicable high yield discount obligation, as defined in
Section 163(i) of the Code, or (C) any registration-required
obligations, within the meaning of Section 163(f)(2) of the Code, that
is not in registered form. Each of the Target and its Subsidiaries has
disclosed on its federal income Tax Returns all positions taken therein
that could give rise to a substantial understatement of federal income
Tax within the meaning of Code ss.6662. None of the Target and its
Subsidiaries is a party to any Tax allocation or sharing agreement.
None of the Target and its Subsidiaries (A) has been a member of an
Affiliated Group filing a consolidated federal income Tax Return (other
than a group the common parent of which was the Target) or (B) has any
Liability for the Taxes of any Person (other than any of the Target and
its Subsidiaries) under Reg. ss.1.1502-6 (or any similar provision of
state, local, or foreign law), as a transferee or successor, by
contract, or otherwise.
(vi) ss.3(m)(vi) of the Disclosure Schedule sets forth the
following information with respect to each of the Target and its
Subsidiaries (or, in the case of clause (B) below, with respect to each
of the Subsidiaries) as of the most recent practicable date (as well as
on an estimated pro forma basis as of the Closing giving effect to the
consummation of the transactions contemplated hereby): (A) the basis of
the Target or each Subsidiary in its assets; (B) [intentionally
omitted] (C) the amount of any net operating loss, net capital loss,
unused investment or other credit, unused foreign tax, or excess
charitable contribution allocable to the Target or any Subsidiary; and
(D) the amount of any deferred gain or loss allocable to the Target or
any Subsidiary arising out of any Deferred Intercompany Transaction.
(vii) The unpaid Taxes of the Target and its Subsidiaries (A)
did not, as of the Most Recent Fiscal Quarter End, exceed the reserve
for Tax Liability (rather than any reserve for deferred Taxes
established to reflect timing differences between book and Tax income)
set forth on the face of the Most Recent Balance Sheet (rather than in
any notes thereto) and (B) do not exceed that reserve as adjusted for
the passage of time through the Closing Date in accordance with the
past custom and practice of the Target and its Subsidiaries in filing
their Tax Returns.
(n) Real Property.
(i) Neither the Target nor its Subsidiaries owns any real
property.
<PAGE>
(ii) ss.3(n)(ii) of the Disclosure Schedule lists and
describes briefly all real property leased or subleased to or by any of
the Target and its Subsidiaries. The Target has provided the Buyer with
access to correct and complete copies of the leases and subleases
listed in ss.3(n)(ii) of the Disclosure Schedule (as amended to date).
With respect to each lease and sublease listed in ss.3(n)(ii) of the
Disclosure Schedule:
(A) the lease or sublease is legal, valid, binding,
enforceable, and in full force and effect;
(B) the lease or sublease will continue to be legal,
valid, binding, enforceable, and in full force and effect on
identical terms following the consummation of the transactions
contemplated hereby;
(C) no party to any lease or sublease that is
material to the business, financial condition, operations,
results of operations or future prospects of the Target and
its Subsidiaries taken as a whole is in breach or default, and
no event has occurred which, with notice or lapse of time,
would constitute a breach or default or permit termination,
modification, or acceleration thereunder;
(D) no party to the lease or sublease has repudiated
any provision thereof;
(E) there are no disputes, oral agreements, or
forbearance programs in effect as to the lease or sublease;
(F) with respect to each sublease, the
representations and warranties set forth in subsections (A)
through (E) above are true and correct with respect to the
underlying lease;
(G) none of the Target and its Subsidiaries has
assigned, transferred, conveyed, mortgaged, deeded in trust,
or encumbered any interest in the leasehold or subleasehold;
(H) each facility leased or subleased that is
material to the business, financial condition, operations,
results of operations or future prospects of the Target and
its Subsidiaries taken as a whole thereunder have received all
approvals of governmental authorities (including licenses and
permits) required to be obtained by the Target or its
Subsidiaries in connection with the operation thereof and have
been operated and maintained, to the extent the Target and its
Subsidiaries are required to do so, in all material respects
in accordance with applicable laws, rules, and regulations;
and
(I) all facilities leased or subleased thereunder are
supplied with utilities and other services necessary for the
operation of said facilities.
<PAGE>
(o) Intellectual Property.
(i) The Target and its Subsidiaries own or have the right to
use pursuant to license, sublicense, agreement, or permission all
Intellectual Property necessary for the operation of the businesses of
the Target and its Subsidiaries as presently conducted. Each item of
Intellectual Property owned or used by any of the Target and its
Subsidiaries immediately prior to the Closing hereunder will be owned
or available for use by the Target or the Subsidiary on identical terms
and conditions immediately subsequent to the Closing hereunder. Each of
the Target and its Subsidiaries has taken all action necessary to
maintain and protect each item of Intellectual Property that it owns or
uses which is material to the business of the Target and its
Subsidiaries as presently conducted.
(ii) None of the Target and its Subsidiaries has interfered
with, infringed upon, misappropriated, or otherwise come into conflict
with any Intellectual Property rights of third parties, and none of the
Target and its Subsidiaries has received any charge, complaint, claim,
demand, or notice alleging any such interference, infringement,
misappropriation, or violation (including any claim that any of the
Target and its Subsidiaries must license or refrain from using any
Intellectual Property rights of any Third Party, in each case which is
pending on the date of this Agreement).
(iii) ss.3(o)(iii) of the Disclosure Schedule identifies each
patent or registration which has been issued to any of the Target and
its Subsidiaries with respect to any of its Intellectual Property,
identifies each pending patent application or application for
registration which any of the Target and its Subsidiaries has made with
respect to any of its Intellectual Property, and identifies each
license, agreement, or other permission which any of the Target and its
Subsidiaries has granted to any Third Party with respect to any of its
Intellectual Property (together with any exceptions).
(iv) ss.3(o)(iv) of the Disclosure Schedule identifies each
item of Intellectual Property that any Third Party owns and that any of
the Target and its Subsidiaries uses pursuant to license, sublicense,
agreement, or permission.
(p) Tangible Assets. The Target and its Subsidiaries own or lease
all buildings, machinery, equipment, and other tangible assets necessary for the
conduct of their businesses as presently conducted and as presently proposed to
be conducted.
(q) Inventory. All inventory of the Target and its Subsidiaries,
whether or not reflected in the Most Recent Balance Sheet, consists of a quality
and quantity usable and salable in the Ordinary Course of Business of the Target
and its Subsidiaries, except for items of obsolete materials and materials of
below standard quality, all of which have been written down in the Most Recent
Balance Sheet to realizable market value, or for which adequate reserves have
been provided in the Most Recent Balance Sheet. The present quantity of all
inventory of the Target and its Subsidiaries is reasonable and warranted in the
present circumstances of the business of the Target and its Subsidiaries.
<PAGE>
(r) Contracts. ss.3(r) of the Disclosure Schedule lists the
following contracts and other agreements to which any of the Target and its
Subsidiaries is a party on the date of this Agreement:
(i) any agreement (or group of related agreements) for the
lease of personal property to or from any Person providing for lease
payments in excess of $50,000 per annum;
(ii) any agreement (or group of related agreements) for the
purchase or sale of raw materials, commodities, supplies, products, or
other personal property, or for the furnishing or receipt of services
(including maintenance), the performance of which will extend over a
period of more than one year or involve consideration in excess of
$10,000 per annum;
(iii) any agreement concerning a partnership or joint venture;
(iv) any agreement (or group of related agreements) under
which it has created, incurred, assumed, or guaranteed any indebtedness
for borrowed money, or any capitalized lease obligation, in excess of
$50,000 or under which it has imposed a Security Interest on any of its
assets, tangible or intangible or any agreement under which it is a
guarantor or otherwise is liable for any Liability or obligation
(including indebtedness) of any other Person;
(v) any agreement concerning noncompetition;
(vi) any profit sharing, stock option, stock purchase, stock
appreciation, deferred compensation, severance, or other plan or
arrangement for the benefit of its current or former directors,
officers, and employees;
(vii) any collective bargaining agreement;
(viii) any agreement for the employment of any individual on a
full-time, part-time, consulting, or other basis providing annual
compensation in excess of $75,000 or providing severance or change of
control benefits;
(ix) any agreement under which it has advanced or loaned any
amount to any of its directors, officers, and employees outside the
Ordinary Course of Business;
(x) any agreement under which the consequences of a default or
termination could have a material adverse effect on the business,
financial condition, operations, results of operations, or future
prospects of any of the Target and its Subsidiaries taken as a whole;
or
(xi) any other agreement (or group of related agreements) the
performance of which involves consideration in excess of $100,000.
<PAGE>
Target has provided the Buyer with access to a correct and complete copy of each
written agreement listed in ss.3(r) of the Disclosure Schedule (as amended to
date) and a written summary setting forth the terms and conditions of each oral
agreement referred to in ss.3(r) of the Disclosure Schedule. With respect to any
such agreement which is material to the business, financial condition,
operations, results of operations or future prospects of the Target and its
Subsidiaries taken as a whole: (A) the agreement is legal, valid, binding,
enforceable, and in full force and effect; (B) the agreement will continue to be
legal, valid, binding, enforceable, and in full force and effect on identical
terms following the consummation of the transactions contemplated hereby; (C) no
party is in breach or default, and no event has occurred which with notice or
lapse of time would constitute a breach or default, or permit termination,
modification, or acceleration, under the agreement; and (D) no party has
repudiated any provision of the agreement.
(s) Notes and Accounts Receivable. All notes and accounts
receivable of the Target and its Subsidiaries are reflected properly on their
books and records, are valid receivables subject to no setoffs or counterclaims,
are current and collectible, and will be collected in accordance with their
terms at their recorded amounts, subject only to the reserve for bad debts set
forth on the face of the Most Recent Balance Sheet (rather than in any notes
thereto) as adjusted for the passage of time through the Closing Date in
accordance with the past custom and practice of the Target and its Subsidiaries.
(t) Powers of Attorney. There are no outstanding powers of
attorney executed on behalf of any of the Target and its Subsidiaries.
(u) Insurance. ss.3(u) of the Disclosure Schedule sets forth the
following information with respect to each insurance policy (including policies
providing property, casualty, liability, and workers' compensation coverage and
bond and surety arrangements) to which any of the Target and its Subsidiaries
has been a party, a named insured, or otherwise the beneficiary of coverage at
any time within the past six (6) years:
(i) the name, address, and telephone number of the agent;
(ii) the name of the insurer, the name of the policyholder,
and the name of each covered insured;
(iii) the policy number and the period of coverage;
(iv) the scope (including an indication of whether the
coverage was on a claims made, occurrence, or other basis) and amount
(including a description of how deductibles and ceilings are calculated
and operate) of coverage;
(v) a description of any retroactive premium adjustments or
other loss-sharing arrangements; and
(vi) a list of losses incurred that were covered in
whole or in part by such policies.
<PAGE>
(v) Litigation. ss.3(v) of the Disclosure Schedule sets forth each
instance in which any of the Target and its Subsidiaries (i) is subject to any
outstanding injunction, judgment, order, decree, ruling, or charge or (ii) is a
party or, to the Knowledge of the Target and its Subsidiaries, has been
threatened to be made a party to any action, suit, proceeding, hearing, or
investigation of, in, or before any court or quasi-judicial or administrative
agency of any federal, state, local, or foreign jurisdiction or before any
arbitrator. Neither the Target nor its Subsidiaries has any reason to believe
that any other such action, suit, proceeding, hearing, or investigation may be
brought or threatened against any of the Target and its Subsidiaries.
(w) Product Warranty. Each product manufactured, assembled, sold,
leased, or delivered by any of the Target and its Subsidiaries has been in
conformity, in all material respects, with all applicable contractual
commitments and all express and implied warranties, and none of the Target and
its Subsidiaries has any Liability (and there is no Basis for any present or
future action, suit, proceeding, hearing, investigation, charge, complaint,
claim, or demand against any of them giving rise to any Liability) for
replacement or repair thereof or other damages in connection therewith, subject
only to the reserve for product warranty claims set forth on the face of the
Most Recent Balance Sheet (rather than in any notes thereto) as adjusted for the
passage of time through the Closing Date in accordance with the past custom and
practice of the Target and its Subsidiaries. No product manufactured, sold,
leased, or delivered by any of the Target and its Subsidiaries is subject to any
guaranty, warranty, or other indemnity beyond the applicable standard terms and
conditions of sale or lease. ss.3(w) of the Disclosure Schedule includes copies
of the standard terms and conditions of sale or lease for each of the Target and
its Subsidiaries (containing applicable guaranty, warranty, and indemnity
provisions).
(x) Product Liability. None of the Target and its Subsidiaries has
any Liability (and there is no basis for any present or future action, suit,
proceeding, hearing, investigation, charge, complaint, claim, or demand against
any of them giving rise to any Liability) arising out of any injury to
individuals or property as a result of the ownership, possession, or use of any
product manufactured, assembled, sold, leased, or delivered by any of the Target
and its Subsidiaries, which Liability would have a material adverse effect on
the business, financial condition, operations, results of operations or future
prospects of the Target and its Subsidiaries taken as a whole.
(y) Employees. To the Knowledge of the Target and its
Subsidiaries, no executive, key employee, or group of employees has any plans to
terminate employment with any of the Target and its Subsidiaries. None of its
Subsidiaries is a party to or bound by any collective bargaining agreement, nor
has any of them experienced any strikes, grievances, claims of unfair labor
practices, or other collective bargaining disputes. None of the Target and its
Subsidiaries has committed any unfair labor practice. Neither the Target nor its
Subsidiaries has any Knowledge of any organizational effort presently being made
or threatened by or on behalf of any labor union with respect to employees of
any of the Target and its Subsidiaries.
(z) Employee Benefits.
<PAGE>
(i) ss.3(z) of the Disclosure Schedule lists each Employee
Benefit Plan that any of the Target and its Subsidiaries maintains or
to which any of the Target and its Subsidiaries contributes or has any
obligation to contribute.
(A) Each such Employee Benefit Plan (and each related
trust, insurance contract, or fund) complies in form and in
operation in all respects with the applicable requirements of
ERISA, the Code, and other applicable laws.
(B) All required reports and descriptions (including
Form 5500 Annual Reports, summary annual reports, PBGC-1's,
and summary plan descriptions) have been timely filed and
distributed appropriately with respect to each such Employee
Benefit Plan. The requirements of COBRA have been met with
respect to each such Employee Benefit Plan which is an
Employee Welfare Benefit Plan.
(C) All contributions (including all employer
contributions and employee salary reduction contributions)
which are due have been paid to each such Employee Benefit
Plan which is an Employee Pension Benefit Plan and all
contributions for any period ending on or before the Closing
Date which are not yet due have been paid to each such
Employee Pension Benefit Plan or accrued in accordance with
the past custom and practice of the Target and its
Subsidiaries. All premiums or other payments for all periods
ending on or before the Closing Date have been paid with
respect to each such Employee Benefit Plan which is an
Employee Welfare Benefit Plan.
(D) Each such Employee Benefit Plan which is an
Employee Pension Benefit Plan meets the requirements of a
"qualified plan" under Code ss.401(a), has received, within
the last two years, a favorable determination letter from the
Internal Revenue Service that it is a "qualified plan," and
Seller is not aware of any facts or circumstances that could
result in the revocation of such determination letter.
(E) The market value of assets under each such
Employee Benefit Plan which is an Employee Pension Benefit
Plan (other than any Multiemployer Plan) equals or exceeds the
present value of all vested and nonvested Liabilities
thereunder determined in accordance with PBGC methods,
factors, and assumptions applicable to an Employee Pension
Benefit Plan terminating on the date for determination.
(F) The Target has provided Buyer with access to
correct and complete copies of the plan documents and summary
plan descriptions, the most recent determination letter
received from the Internal Revenue Service, the most recent
Form 5500 Annual Report, and all related trust agreements,
insurance contracts, and other funding agreements which
implement each such Employee Benefit Plan.
<PAGE>
(ii) With respect to each Employee Benefit Plan that any of
the Target, its Subsidiaries, and any ERISA Affiliate maintains or ever
has maintained or to which any of them contributes, ever has
contributed, or ever has been required to contribute:
(A) No such Employee Benefit Plan which is an
Employee Pension Benefit Plan (other than any Multiemployer
Plan) has been completely or partially terminated or been the
subject of a Reportable Event as to which notices would be
required to be filed with the PBGC. No proceeding by the PBGC
to terminate any such Employee Pension Benefit Plan (other
than any Multiemployer Plan) has been instituted or, to the
Knowledge of the Target and its Subsidiaries, threatened.
(B) There have been no Prohibited Transactions with
respect to any such Employee Benefit Plan. No Fiduciary has
any Liability for breach of fiduciary duty or any other
failure to act or comply in connection with the administration
or investment of the assets of any such Employee Benefit Plan.
No action, suit, proceeding, hearing, or investigation with
respect to the administration or the investment of the assets
of any such Employee Benefit Plan (other than routine claims
for benefits) is pending or, to the Knowledge of the Target
and its Subsidiaries, threatened. Neither the Target nor its
Subsidiaries has any Knowledge of any basis for any such
action, suit, proceeding, hearing, or investigation.
(C) Neither the Target nor its Subsidiaries has
incurred or has any reason to expect that any of the Target
and its Subsidiaries will incur, any Liability to the PBGC
(other than PBGC premium payments) or otherwise under Title IV
of ERISA (including any withdrawal liability as defined in
ERISA ss.4201) or under the Code with respect to any such
Employee Benefit Plan which is an Employee Pension Benefit
Plan.
(iii) None of the Target, its Subsidiaries, and the other
members of the Controlled Group that includes the Target and its
Subsidiaries contributes to, ever has contributed to, or ever has been
required to contribute to any Multiemployer Plan or has any Liability
(including withdrawal liability as defined in ERISA ss.4201) under any
Multiemployer Plan.
(iv) None of the Target and its Subsidiaries maintains or ever
has maintained or contributes, ever has contributed, or ever has been
required to contribute to any Employee Welfare Benefit Plan providing
medical, health, or life insurance or other welfare-type benefits for
current or future retired or terminated employees, their spouses, or
their dependents (other than in accordance with COBRA).
(aa) Environmental, Health, and Safety Matters. Each of the Target, its
Subsidiaries, and their respective predecessors and Affiliates has complied and
is in compliance with all Environmental, Health, and Safety Requirements, the
failure to comply with which would have a material adverse effect on the
business, financial condition, operations, results of operations or future
prospects of the Target and its Subsidiaries taken as a whole.
<PAGE>
(bb) Disclosure. The Definitive Proxy Materials will comply with the
Securities Exchange Act in all material respects. The Definitive Proxy Materials
will not contain any untrue statement of a material fact or omit to state a
material fact necessary in order to make the statements made therein, in the
light of the circumstances under which they will be made, not misleading;
provided, however, that the Target makes no representation or warranty with
respect to any information that the Buyer and Merger Sub will supply
specifically for use in the Definitive Proxy Materials.
4. Representations and Warranties of the Buyer and Merger Sub. Each of
the Buyer and Merger Sub represents and warrants to the Target that the
statements contained in this ss.4 are correct and complete as of the date of
this Agreement and will be correct and complete as of the Closing Date (as
though made then and as though the Closing Date were substituted for the date of
this Agreement throughout this ss.4), except as set forth in the Disclosure
Schedule. The Disclosure Schedule will be arranged in paragraphs corresponding
to the numbered and lettered paragraphs contained in this ss.4.
(a) Organization. Each of the Buyer and Merger Sub is a
corporation duly organized, validly existing, and in good standing under the
laws of the jurisdiction of its incorporation.
(b) Authorization of Transaction. Each of the Buyer and Merger Sub
has full power and authority (including full corporate power and authority) to
execute and deliver this Agreement and to perform its obligations hereunder.
This Agreement constitutes the valid and legally binding obligation of each of
the Buyer and Merger Sub, enforceable in accordance with its terms and
conditions.
(c) Noncontravention. Neither the execution and the delivery of
this Agreement, nor the consummation of the transactions contemplated hereby,
will (i) violate any constitution, statute, regulation, rule, injunction,
judgment, order, decree, ruling, charge, or other restriction of any government,
governmental agency, or court to which either the Buyer or Merger Sub is subject
or any provision of the certificate of incorporation or bylaws of either the
Buyer or Merger Sub or (ii) conflict with, result in a breach of, constitute a
default under, result in the acceleration of, create in any party the right to
accelerate, terminate, modify, or cancel, or require any notice under any
material agreement, contract, lease, license, instrument, or other arrangement
to which either the Buyer or Merger Sub is a party or by which it is bound or to
which any of its assets is subject. Other than in connection with the provisions
of the Delaware General Corporation Law, the Securities Exchange Act, the
Securities Act, and applicable state securities laws, neither the Buyer nor
Merger Sub needs to give any notice to, make any filing with, or obtain any
authorization, consent, or approval of any government or governmental agency in
order for the Parties to consummate the transactions contemplated by this
Agreement, except for such authorizations, consents or approvals which, if not
obtained, would have a material adverse effect on the business, financial
condition, operations, results of operations, or future prospects of the Buyer
and its Subsidiaries taken as a whole.
(d) Brokers' Fees. Neither the Buyer nor Merger Sub has any
liability or obligation to pay any fees or commissions to any broker, finder, or
agent with respect to the transactions contemplated by this Agreement for which
any of the Target and its Subsidiaries could become liable or obligated.
<PAGE>
(e) Disclosure. None of the information that the Buyer and Merger
Sub will supply specifically for use in the Definitive Proxy Materials will
contain any untrue statement of a material fact or omit to state a material fact
necessary in order to make the statements made therein, in the light of the
circumstances under which they will be made, not misleading.
(f) Merger Sub. Merger Sub has not heretofore conducted any
business and has no material assets or liabilities other than those associated
with this Agreement.
5. Covenants. The Parties agree as follows with respect to the period
from and after the execution of this Agreement.
(a) General. Each of the Parties will use its best efforts to take
all action and to do all things necessary, proper, or advisable in order to
consummate and make effective the transactions contemplated by this Agreement
(including satisfaction, but not waiver, of the closing conditions set forth in
ss.6 below).
(b) Notices and Consents. The Target will give any notices (and
will cause each of its Subsidiaries to give any notices) to third parties, and
will use its best efforts to obtain (and will cause each of its Subsidiaries to
use its best efforts to obtain) any Third Party consents, that the Buyer may
request in connection with the matters referred to in ss.3(d) above.
(c) Regulatory Matters and Approvals. Each of the Parties will (and the
Target will cause each of its Subsidiaries to) give any notices to, make any
filings with, and use its best efforts to obtain any authorizations, consents,
and approvals of governments and governmental agencies in connection with the
matters referred to in ss.3(d) and ss.4(c) above. Without limiting the
generality of the foregoing:
(i) Securities Exchange Act and State Securities Laws. The
Target will prepare and file with the SEC preliminary proxy materials
under the Securities Exchange Act relating to the Special Meeting. The
Target will use its best efforts to respond to the comments of the SEC
thereon and will make any further filings (including amendments and
supplements) in connection therewith that may be necessary, proper, or
advisable. The Buyer will provide the Target with whatever information
and assistance in connection with the foregoing filing that the Target
reasonably may request.
(ii) New York Business Corporation Law. The Target will call a
special meeting of its stockholders (the "Special Meeting") as soon as
practicable in order that the stockholders may consider and vote upon
the adoption of this Agreement and the approval of the Merger in
accordance with the New York Business Corporation Law. The Target will
mail the Definitive Proxy Materials to its stockholders as soon as
reasonably practicable. The Definitive Proxy Materials will contain the
affirmative recommendation of the board of directors of the Target in
favor of the adoption of this Agreement and the approval of the Merger;
provided, however, that neither the board of directors nor any
<PAGE>
director or officer of the Target shall be required to violate any
fiduciary duty or other requirement imposed by law in connection
therewith.
(d) Operation of Business. The Target will not (and will not cause
\or permit any of its Subsidiaries to) engage in any practice, take any action,
or enter into any transaction outside the Ordinary Course of Business. Without
limiting the generality of the foregoing:
(i) none of the Target and its Subsidiaries will
authorize or effect any change in its certificate of incorporation or
bylaws;
(ii) none of the Target and its Subsidiaries will grant any
options, warrants, or other rights to purchase or obtain any of its
capital stock or issue, sell, or otherwise dispose of any of its
capital stock (except upon the conversion or exercise of options,
warrants, and other rights currently outstanding);
(iii) none of the Target and its Subsidiaries will declare,
set aside, or pay any dividend or distribution with respect to its
capital stock (whether in cash or in kind), or redeem, repurchase, or
otherwise acquire any of its capital stock;
(iv) none of the Target and its Subsidiaries will issue any
note, bond, or other debt security or create, incur, assume, or
guarantee any indebtedness for borrowed money or capitalized lease
obligation outside the Ordinary Course of Business (including in such
Ordinary Course of Business, transactions under the Target's Credit
Facility with National Bank of Canada and its successors and assigns);
(v) none of the Target and its Subsidiaries will impose or
allow any Security Interest upon any of its assets outside the Ordinary
Course of Business; (including in such Ordinary Course of Business,
transactions under the Target's Credit Facility with National Bank of
Canada and its successors and assigns);
(vi) none of the Target and its Subsidiaries will make any
capital investment in, make any loan to, or acquire the securities or
assets of any other Person outside the Ordinary Course of Business;
(vii) none of the Target and its Subsidiaries will make any
change in employment terms for any of its directors, officers, and
employees outside the Ordinary Course of Business; and
(viii) none of the Target and its Subsidiaries will commit to
any of the foregoing.
<PAGE>
(e) Full Access. The Target will (and will cause each of its
Subsidiaries to) permit representatives of the Buyer to have full access during
normal business hours to all premises, properties, personnel, books, records
(including tax records), contracts, and documents of or pertaining to each of
the Target and its Subsidiaries. Each of the Buyer and Merger Sub will treat and
hold and use as such any Confidential Information it receives from any of the
Target and its
<PAGE>
Subsidiaries in the course of the reviews contemplated by this ss.5(e), solely
in accordance with the terms of the Confidentiality Agreement, and, if this
Agreement is terminated for any reason whatsoever, agrees to return to the
Target all tangible embodiments (and all copies) thereof which are in its
possession.
(f) Notice of Developments. Each Party will give prompt written
notice to the others of any development (i) causing a breach of any of its own
representations and warranties in ss.3 and ss.4 above and (ii) any development
which would cause a breach of such representations and warranties if such
representations and warranties were required to be correct and complete on each
day from the date of this Agreement to the Closing Date. No disclosure by any
Party pursuant to this ss.5(f), however, shall be deemed to amend or supplement
the Disclosure Schedule or to prevent or cure any misrepresentation, breach of
warranty, or breach of covenant.
(g) Exclusivity.
(i) the Target shall not, and shall not permit any of its
Subsidiaries to (whether directly or indirectly through advisors,
agents or other intermediaries) and,
(ii) the Target shall not, and shall not permit any of its
Subsidiaries to, authorize or knowingly permit any of its or their
officers, directors, agents, representatives, advisors or Subsidiaries
to,
solicit, initiate or knowingly encourage the submission of inquiries, proposals
or offers from any Third Party relating to (A) any acquisition of 10% or more of
the consolidated assets of the Target and its Subsidiaries or of over 10% of any
class of equity securities of the Target or any of its Subsidiaries, (B) any
tender offer (including a self tender offer) or exchange offer that if
consummated would result in any Third Party beneficially owning 10% or more of
any class of equity securities of the Target or any of its Subsidiaries, (C) any
merger, consolidation, business combination, recapitalization, liquidation,
dissolution or similar transaction involving the Target or any of its
Subsidiaries whose assets, individually or in the aggregate, constitute more
than 10% of the consolidated assets of the Target, other than the transaction
contemplated by this Agreement or (D) any other transaction the consummation of
which would, or could reasonably be expected to impede, interfere with, prevent
or materially delay the Merger or which would, or could reasonably be expected
to, materially dilute the benefits to the Buyer of the transaction contemplated
hereby (collectively, the "Acquisition Proposals" and which, if consummated,
will be an "Acquisition Transaction") or enter into or participate in any
discussions (except as may be necessary to inform a Third Party of the
provisions of this ss.5(g), or negotiations regarding any of the foregoing, or
furnish to any Third Party any information with respect to the business,
properties or assets of the Target in connection with the foregoing, or
otherwise cooperate in any way with, or knowingly assist or participate in,
facilitate or encourage, any effort or attempt by any Third Party to do or seek
any of the foregoing; provided, however, that the provisions of this ss.5(g)
shall not limit or prohibit the Target or its board of directors from (i)
engaging in discussions or negotiations with such a Third Party who has made a
Superior Acquisition Proposal but only if the board of directors of the Target,
after consultation with and advice from its outside counsel determines in good
faith that, in the exercise of its fiduciary responsibilities, such discussions
or negotiations should be commenced or such information should be furnished
<PAGE>
or such facilitation undertaken; (ii) furnishing information pursuant to an
appropriate and customary confidentiality letter concerning the Target and its
businesses, properties or assets to a Third Party who has made a Superior
Acquisition Proposal as to which a prior determination of the board of directors
of the Target as contemplated under clause (i) above as been made; provided,
further that (A) the board directors of the Target shall not, and shall not
authorize any officers or representatives to, take any of the foregoing actions
until notice to the Buyer of the Target's intent to take such action shall have
been given; and (B) if the board of directors of the Target receives a Superior
Acquisition Proposal, to the extent it may do so without breaching its fiduciary
duties as determined in good faith after consultation with its outside counsel,
and without violating any of the conditions of such Superior Acquisition
Proposal, then the Target shall promptly inform the Buyer of the material terms
and conditions of such proposal and the identity of the Third Party making it;
or (iii) taking a position on a tender offer by a Third Party, as required by
Rule 14e-2 under the Securities Exchange Act (provided no such position shall
constitute a recommendation of such transaction if it does not constitute a
Superior Acquisition Proposal), or complying with its duties of disclosure under
applicable state law. As of the date hereof, the Target shall immediately cease
and cause each of its Subsidiaries and its and their advisors, agents and other
intermediaries to cease, any and all existing activities, discussions or
negotiations with any Third Party conducted heretofore with respect to any of
the foregoing.
(h) Insurance and Indemnification. The Buyer will not take any
action to alter or impair any exculpatory or indemnification provisions now
existing in the certificate of incorporation or bylaws of the Target for the
benefit of any individual who served as a director or officer of the Target at
any time prior to the Effective Time. For six years after the Closing Date,
Buyer will provide, pursuant to a policy maintained by Buyer or will cause the
Surviving Corporation to provide officers' and directors' liability insurance in
respect of acts or omissions occurring prior to the Closing Date covering each
such Person currently covered by the Target's officers' and directors' liability
insurance on terms with respect to coverage and amount no less favorable than
those of such policy in effect on the date hereof.
(i) Stock Options. At the Effective Time, each option to purchase
Target Shares granted by the Target to an employee or director under any
employee or director stock option plan or other compensation plan or arrangement
of the Target, which is outstanding and unexercised immediately prior to the
Effective Time (whether or not such options are then vested or exercisable),
shall be adjusted so as to entitle the option holder to receive, in lieu of each
Target Share that would otherwise have been issuable upon the exercise of such
option, an amount, in cash, computed by multiplying (i) the positive difference,
if any, between (x) $0.27 per Target Share and (y) the exercise price per Target
Share applicable to the option by (ii) the number of Target Shares subject to
such option. Prior to the Effective Time, the Target agrees to take, or cause to
be taken, all actions necessary under such options to provide for their
adjustment and final settlement in accordance with this ss.5(i). At the
Effective Time, the Surviving Corporation will make the cash payment, if any,
required to be made to each option holder at which time each such option shall
be canceled and declared null and void. Notwithstanding any other provision of
this ss.5(i), the Surviving Corporation shall have the right to withhold payment
in respect of any option to purchase Target Shares that is outstanding and
unexercised at the Effective Time and otherwise eligible for final settlement
hereunder, until such time as it receives satisfactory written documentation of
the adjustments required
<PAGE>
to be made to such option under this ss.5(i) and evidence of the option holder's
consent to such adjustment and settlement.
(j) National Bank of Canada. The Target will use its best efforts
to take all steps necessary (i) to enable the entire indebtedness under the
Credit Facility and otherwise to the National Bank of Canada to be paid by the
Surviving Corporation in full immediately after the Closing and (ii) to obtain
from the National Bank of Canada immediately after the Closing, in return, a
full and complete release, including the return of all collateral physically
possessed, the reassignment of any collateral and the execution of UCC-3's, as
the case may be, of all Security Interests related thereto, including those
granted under the General Security Agreement, as amended, the Security Agreement
- - Patents, Trademarks and Copyright, as amended, the May 28, 1997 Pledge
Agreement, as amended, and the March 5, 1999 Pledge Agreement.
(k) Form 10-Q. The Target will make all filings with the SEC that
it is hereinafter required to make under the Securities Exchange Act including
the quarterly report on Form 10-Q for the quarter ended April 30, 1999.
6. Conditions to Obligation to Close.
(a) Conditions to Obligation of the Buyer and Merger Sub. The
obligation of each of the Buyer and Merger Sub to consummate the transactions to
be performed by it in connection with the Closing is subject to satisfaction or
waiver by the Buyer and Merger Sub of the following conditions:
(i) this Agreement and the Merger shall have received the
Requisite Stockholder Approval;
(ii) the representations and warranties set forth in ss.3
above shall be true and correct in all material respects at and as of
the Closing Date except (A) for those expressly stated to be made as of
the date of this Agreement, (B) where the failure of such
representations and warranties (taken together without regard to any
materiality or Knowledge qualification set forth therein) to be true
and correct has not had, or could not be reasonably expected to have, a
material adverse effect on the business, financial condition,
operations, results of operations or future prospects of the Target and
its Subsidiaries taken as a whole or (C) where the failure of such
representations and warranties to be true is contemplated by the
Business Plan;
(iii) the representations and warranties set forth in
ss.ss.3(a), (b), (c), (d), (e), (f), (k) and (bb) above shall be true
and correct at and as of the Closing Date;
(iv) the Target shall have performed and complied with all of
its covenants hereunder in all material respects through the Closing;
(v) since the Most Recent Fiscal Quarter End, there shall have
been no material adverse change in the business, financial condition,
operations, results of
<PAGE>
operations or future prospects of the Target and its Subsidiaries taken
as a whole, except as contemplated by the Business Plan;
(vi) no action, suit, or proceeding shall be pending or
threatened before any court or quasi-judicial or administrative agency
of any federal, state, local, or foreign jurisdiction or before any
arbitrator wherein an unfavorable injunction, judgment, order, decree,
ruling, or charge would (A) prevent consummation of any of the
transactions contemplated by this Agreement, (B) cause any of the
transactions contemplated by this Agreement to be rescinded following
consummation, (C) affect adversely the right of the Buyer to own the
capital stock of the Surviving Corporation and to control the Surviving
Corporation and its Subsidiaries after giving effect to the
transactions contemplated by this Agreement, or (D) affect adversely
the right, before or following the Closing, of any of the Surviving
Corporation and its Subsidiaries to own its assets and to operate its
businesses (and no such injunction, judgment, order, decree, ruling, or
charge shall be in effect);
(vii) the Target shall have delivered to the Buyer and Merger
Sub a certificate to the effect that each of the conditions specified
above in ss.6(a)(i)-(vi) is satisfied in all respects;
(viii) the holders of not more than 10% of the outstanding
Target Shares shall have demanded appraisal of such shares in
accordance with New York Business Corporation Law;
(ix) the Parties shall have received all authorizations,
consents, and approvals of governments and governmental agencies
referred to in ss.3(d) and ss.4(c) above (and not subject to the
exception set forth in the last sentence therein);
(x) the Buyer and Merger Sub shall have received from counsel
to the Target an opinion substantially in form and substance as set
forth in Exhibit C attached hereto, addressed to the Buyer and Merger
Sub, and dated as of the Closing Date;
(xi) the Buyer and Merger Sub shall have received the
resignations, effective as of the Closing, of each director and officer
of the Target and its Subsidiaries other than those whom the Buyer
shall have specified in writing at least five business days prior to
the Closing;
(xii) the Target and its Subsidiaries shall have operated in
all material respects consistent with the Business Plan which has been
agreed to among the parties hereto; and
(xiii) all actions to be taken by the Target in connection
with consummation of the transactions contemplated hereby and all
certificates, opinions, instruments, and other documents required to
effect the transactions contemplated hereby will be satisfactory in
form and substance to the Buyer and Merger Sub.
<PAGE>
(b) Conditions to Obligation of the Target. The obligation of the
Target to consummate the transactions to be performed by it in connection with
the Closing is subject to satisfaction or waiver by Target of the following
conditions:
(i) the representations and warranties set forth in ss.4 above
shall be true and correct in all material respects at and as of the
Closing Date except for those expressly stated to be made as of the
date of this Agreement;
(ii) each of the Buyer and Merger Sub shall have performed and
complied with all of its covenants hereunder in all material respects
through the Closing;
(iii) no action, suit, or proceeding shall be pending or
threatened before any court or quasi-judicial or administrative agency
of any federal, state, local, or foreign jurisdiction or before any
arbitrator wherein an unfavorable injunction, judgment, order, decree,
ruling, or charge would (A) prevent consummation of any of the
transactions contemplated by this Agreement or (B) cause any of the
transactions contemplated by this Agreement to be rescinded following
consummation;
(iv) each of the Buyer and Merger Sub shall have delivered to
the Target a certificate to the effect that each of the conditions
specified above in ss.6(b)(i)-(iii) is satisfied in all respects;
(v) this Agreement and the Merger shall have received the
Requisite Stockholder Approval;
(vi) the Parties shall have received all authorizations,
consents, and approvals of governments and governmental agencies
referred to in ss.3(d) and ss.4(c) above (and not subject to the
exception set forth in the last sentence therein);
(vii) the Target shall have received from counsel to the Buyer
and Merger Sub an opinion substantially in form and substance as set
forth in Exhibit D attached hereto, addressed to the Target, and dated
as of the Closing Date; and
(viii) all actions to be taken by the Buyer and Merger Sub in
connection with consummation of the transactions contemplated hereby
and all certificates, opinions, instruments, and other documents
required to effect the transactions contemplated hereby will be
satisfactory in form and substance to the Target.
7. Termination.
(a) Termination of Agreement. Any of the Parties may terminate this
Agreement with the prior authorization of its board of directors (whether before
or after stockholder approval) as provided below:
(i) the Parties may terminate this Agreement by mutual
written consent at any time prior to the Effective Time;
<PAGE>
(ii) the Buyer and Merger Sub may terminate this Agreement by
giving written notice to the Target at any time prior to the Effective
Time (A) in the event the Target has breached any material
representation, warranty, or covenant contained in this Agreement in
any material respect, the Buyer or Merger Sub has notified the Target
of the breach, and the breach has continued without cure for a period
of 10 days after the notice of breach or (B) if the Closing shall not
have occurred on or before July 31, 1999, by reason of the failure of
any condition precedent under ss.6(a) hereof (unless the failure
results primarily from the Buyer or Merger Sub breaching any
representation, warranty, or covenant contained in this Agreement);
(iii) the Target may terminate this Agreement by giving
written notice to the Buyer and Merger Sub at any time prior to the
Effective Time (A) in the event the Buyer or Merger Sub has breached
any material representation, warranty, or covenant contained in this
Agreement in any material respect, the Target has notified the Buyer
and Merger Sub of the breach, and the breach has continued without cure
for a period of 10 days after the notice of breach or (B) if the
Closing shall not have occurred on or before July 31, 1999, by reason
of the failure of any condition precedent under ss.6(b) hereof (unless
the failure results primarily from the Target breaching any
representation, warranty, or covenant contained in this Agreement);
(iv) The Target may terminate this Agreement by giving written
notice to the Buyer at any time prior to the Effective Time, in the
event that a Person has made an Acquisition Proposal that the board of
directors of the Target determines, in good faith is reasonably likely
to be subject to completion and would, if consummated, result in a
transaction more favorable, from a financial point of view, to the
Target Stockholders than this Agreement and the Merger (a "Superior
Acquisition Proposal"); or
(v) any Party may terminate this Agreement by giving written
notice to the other Parties at any time after the Special Meeting in
the event this Agreement and the Merger fail to receive the Requisite
Stockholder Approval.
(b) Effect of Termination. Other than as set forth in ss.7(c) below, if
any Party terminates this Agreement pursuant to ss.7(a) above, all rights and
obligations of the Parties hereunder shall terminate without any liability of
any Party to any other Party (except for any liability of any Party then in
breach); provided, however, that the confidentiality provisions contained in
ss.5(e) above shall survive any such termination.
(c) Termination Fee. In the event of termination by the Target pursuant
to (i) 7(iv) above or (ii) if Requisite Stockholder Approval is not obtained and
the Target and/or any of its Subsidiaries, on or before December 31,1999, has
entered into an agreement providing for an Acquisition Transaction (which, for
purposes of this subsection (c), shall substitute 33 % for 10% each time 10%
appears in ss.5(g) hereof), Target shall pay to Buyer a termination fee of two
hundred thousand dollars ($200,000) not as a penalty but in recognition of the
substantial time and efforts expended, expenses incurred and other opportunities
foregone by the Buyer in connection with this Agreement.
<PAGE>
8. Miscellaneous.
(a) Survival. None of the representations, warranties, and
covenants of the Parties (other than the provisions in ss.2 above concerning
payment of the Merger Consideration and the provisions in ss.5(h) above
concerning insurance and indemnification) will survive the Effective Time.
(b) Press Releases and Public Announcements. No Party shall issue
any press release or make any public announcement relating to the subject matter
of this Agreement without the prior written approval of the other Parties;
provided, however, that any Party may make any public disclosure it believes in
good faith is required by applicable law or any listing or trading agreement
concerning its publicly-traded securities (in which case the disclosing Party
will use its best efforts to advise the other Party prior to making the
disclosure).
(c) No Third-Party Beneficiaries. This Agreement shall not confer
any rights or remedies upon any Person other than the Parties and their
respective successors and permitted assigns; provided, however, that (i) the
provisions in ss.2 above concerning payment of the Merger Consideration are
intended for the benefit of the Target Stockholders and (ii) the provisions in
ss.5(h) above concerning insurance and indemnification are intended for the
benefit of the individuals specified therein and their respective legal
representatives.
(d) Entire Agreement. This Agreement (including the Disclosure
Schedule and the other documents referred to herein) and the Confidentiality
Agreement constitute the entire agreement among the Parties and supersedes any
prior understandings, agreements, or representations by or among the Parties,
written or oral, to the extent they related in any way to the subject matter
hereof or thereof.
(e) Succession and Assignment. This Agreement shall be binding
upon and inure to the benefit of the Parties named herein and their respective
successors and permitted assigns. No Party may assign either this Agreement or
any of its rights, interests, or obligations hereunder without the prior written
approval of the other Parties.
(f) Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original but all of which
together will constitute one and the same instrument.
(g) Headings. The section headings contained in this Agreement are
inserted for convenience only and shall not affect in any way the meaning or
interpretation of this Agreement.
(h) Notices. All notices, requests, demands, claims, and other
communications hereunder will be in writing. Any notice, request, demand, claim,
or other communication hereunder shall be deemed duly given if (and then two
business days after) it is sent by registered or certified mail, return receipt
requested, postage prepaid, and addressed to the intended recipient as set forth
below:
<PAGE>
If to the Target:
V Band Corporation
3 Westchester Plaza
Elmsford, New York 10523
Attention: Thomas Hughes, President
Phone: (914) 347-7118
Fax: (914) 347-7524
Copy to:
Buchanan Ingersoll P.C.
Eleven Penn Center 14th Center
1835 Market Street
Philadelphia, Pennsylvania 19103-2895
Attention: Brian North
Phone: (215) 665-3828
Fax: (215) 665-8760
If to the Buyer:
IPC Information Systems, Inc.
88 Pine Street
Wall Street Plaza
New York, New York 10005
Attention: Daniel Utevsky
Phone: (212) 858-7908
Fax: (212) 509-7959
Copy to:
Thacher Proffitt & Wood
Two World Trade Center
New York, New York 10048
Attention: Thomas N. Talley
Phone: (212) 912-7645
Fax: (212) 432-7152
<PAGE>
If to Merger Sub:
IPC Merger Sub, Inc.
c/o IPC Information System, Inc.
88 Pine Street
Wall Street Plaza
New York, New York 10005
Attention: Daniel Utevsky
Phone: (212) 858-7908
Fax: (212) 509-7959
Copy to:
Thacher Proffitt & Wood
Two World Trade Center
New York, New York 10048
Attention: Thomas N. Talley
Phone: (212) 912-7645
Fax: (212) 432-7152
Any Party may send any notice, request, demand, claim, or other communication
hereunder to the intended recipient at the address set forth above using any
other means (including personal delivery, expedited courier, messenger service,
telecopy, telex, ordinary mail, or electronic mail), but no such notice,
request, demand, claim, or other communication shall be deemed to have been duly
given unless and until it actually is received by the intended recipient. Any
Party may change the address to which notices, requests, demands, claims, and
other communications hereunder are to be delivered by giving the other Parties
notice in the manner herein set forth.
(i) Governing Law. This Agreement shall be governed by and construed in
accordance with the domestic laws of the State of New York without giving effect
to any choice or conflict of law provision or rule (whether of the State of New
York or any other jurisdiction) that would cause the application of the laws of
any jurisdiction other than the State of New York.
(j) Jurisdiction; Service of Process. Any action or proceeding seeking
to enforce any provision of, or based upon any right arising out of, this
Agreement may be brought against any of the Parties in the courts of the State
of New York, County of New York, or, if it has or can acquire jurisdiction, in
the United States District Court for the Southern District of New York, and each
of the Parties consents to the jurisdiction of such courts (and of the
appropriate appellate courts) in any such action or proceeding and waives any
objection to venue laid therein. Process in any action or proceeding referred to
in the preceding sentence may be served on any Party anywhere in the world.
(k) Amendments and Waivers. The Parties may mutually amend any
provision of this Agreement at any time prior to the Effective Time with the
prior authorization of their respective boards of directors; provided, however,
that any amendment effected subsequent to stockholder approval will be subject
to the restrictions contained in the New York Business
<PAGE>
Corporation Law. No amendment of any provision of this Agreement shall be valid
unless the same shall be in writing and signed by all of the Parties. No waiver
by any Party of any default, misrepresentation, or breach of warranty or
covenant hereunder, whether intentional or not, shall be deemed to extend to any
prior or subsequent default, misrepresentation, or breach of warranty or
covenant hereunder or affect in any way any rights arising by virtue of any
prior or subsequent such occurrence.
(l) Severability. Any term or provision of this Agreement that is
invalid or unenforceable in any situation in any jurisdiction shall not affect
the validity or enforceability of the remaining terms and provisions hereof or
the validity or enforceability of the offending term or provision in any other
situation or in any other jurisdiction.
(m) Expenses. Each of the Parties will bear its own costs and
expenses (including legal fees and expenses) incurred in connection with this
Agreement and the transactions contemplated hereby. Target and its Subsidiaries
shall not incur expenses to Third Parties in connection with this Agreement and
the Merger in excess of two hundred thousand dollars ($200,000) in the
aggregate.
(n) Construction. The Parties have participated jointly in the
negotiation and drafting of this Agreement. In the event an ambiguity or
question of intent or interpretation arises, this Agreement shall be construed
as if drafted jointly by the Parties and no presumption or burden of proof shall
arise favoring or disfavoring any Party by virtue of the authorship of any of
the provisions of this Agreement. Any reference to any federal, state, local, or
foreign statute or law shall be deemed also to refer to all rules and
regulations promulgated thereunder, unless the context otherwise requires. The
word "including" shall mean including without limitation.
(o) Incorporation of Exhibits and Schedules. The Exhibits and
Schedules identified in this Agreement are incorporated herein by reference and
made a part hereof.
<PAGE>
IN WITNESS WHEREOF, the Parties hereto have executed this Agreement as
of the date first above written.
IPC INFORMATION SYSTEMS, INC.
By:
-----------------------------------
Name:
Title:
V
BAND CORPORATION
By:
-----------------------------------
Name:
Title:
IPC MERGER SUB, INC.
By:
-----------------------------------
Name:
Title:
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