SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported): February 2, 1994
3COM CORPORATION
(Exact name of registrant as specified in its charter)
California 0-12867 94-2605794
(State or other jurisdiction of (Commission File Number) (I.R.S. Employer)
incorporation or organization) Identification No.)
5400 Bayfront Plaza 95052
Santa Clara, California
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (408) 764-5000
Item 2. Acquisition or Disposition of Assets
(a) On February 2, 1994, pursuant to an Agreement and Plan of
Reorganization dated January 18, 1994 (the "Agreement") among 3Com
Corporation (the "Company"), 3Sub Acquisition Corporation, a California
corporation and wholly-owned subsidiary of the Company ("3Sub"), and
Centrum Communications, Inc., a California corporation ("Centrum"),
3Sub was merged with and into Centrum, which became a wholly-owned
subsidiary of the Company. The negotiated value for all shares of
Centrum stock outstanding was approximately $30,200,000. Such amount
will be paid using funds from the Company's working capital. In
addition, the Company assumed all outstanding options to acquire
Centrum stock, which will be exercisable after the merger for shares
of Company Common Stock. The holders of capital stock of Centrum
received cash at the rate of approximately $1.567 per share. Such cash
amount will be payable in two (2) installments, (i) 19/36ths will be
payable at or as promptly after February 2, 1994 as is practicable,
and (ii) 17/36ths shall be paid six months thereafter.
Prior to this transaction, no material relationship existed
between the Company and Centrum or any of its affiliates, any director
or officer of the Company, or any associate of any such director or officer.
Centrum is engaged in the business of developing, manufacturing,
marketing and servicing computer software. 3Com intends to continue
such business.
Item 7. Financial Statements, Pro Forma Financial Information and Exhibits.
(a) The audited financial statements of Centrum for the years
ended September 30, 1993 and September 30, 1992 are
attached hereto as Exhibit 7.1.
(b) It is currently impracticable to provide any pro forma
financial information that may be required pursuant to
Article 11 of Regulation S-X. The Company intends to
file all required pro forma financial information on or
before March 30, 1994.
(c) The following exhibits are attached hereto and filed herewith:
7.2* Agreement and Plan of Reorganization dated
January 18, 1994.
7.3* Indemnity and Escrow Agreement dated February 2, 1994.
* Confidential treatment has been requested as to a
portion of these Exhibits.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act
of 1934, the registrant has duly caused this report to be
signed on its behalf by the undersigned hereunto duly authorized.
3COM CORPORATION
February 11, 1994 By: /S/Christopher B. Paisley
Christopher B. Paisley,
Chief Financial Officer
INDEX TO EXHIBITS
7.1 Financial Statements of Centrum for the years
ended September 30, 1993 and September 30, 1992
7.2* Agreement and Plan of Reorganization dated
January 18, 1994
7.3* Indemnity and Escrow Agreement dated February 2,
1994
* Confidential treatment has been requested as
to a portion of these Exhibits.
CENTRUM COMMUNICATIONS, INC.
(A Wholly Owned Subsidiary of Centrum Technology Corporation)
Financial Statements
September 30, 1993 and 1992
(With Independent Auditors' Report Thereon)
Independent Auditors' Report
The Board of Directors
Centrum Communications, Inc.:
We have audited the accompanying balance sheets of Centrum
Communications, Inc. (a wholly owned subsidiary of Centrum Technology
Corporation) as of September 30, 1993 and 1992, and the related
statements of operations, shareholder's equity (deficit), and cash
flows for the years then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of Centrum
Communications, Inc. (a wholly owned subsidiary of Centrum Technology
Corporation) as of September 30, 1993 and 1992, and the results of its
operations and its cash flows for the years then ended in conformity
with generally accepted accounting principles.
/s/ KPMG Peat Marwick
December 17, 1993, except as to Note 7(b), which is as of December 30,
1993
CENTRUM COMMUNICATIONS, INC.
(A Wholly Owned Subsidiary of Centrum Technology Corporation)
Balance Sheets
September 30, 1993 and 1992
Assets 1993 1992
Current assets:
Cash and cash equivalents $140,400 $700,800
Accounts receivable, less allowance for
doubtful accounts and returns of $8,500
in 1993 284,700 2,300
Inventories (Note 2) 476,600 27,100
Prepaid expenses and other assets 38,700 65,200
Total current assets 940,400 795,400
Property and equipment, net (Note 3) 288,600 87,400
Other assets 27,900 -
$1,256,900 $ 882,800
Liabilities and Shareholder's Equity
(Deficit)
Current liabilities:
Accounts payable 381,500 28,900
Accrued expenses 461,200 126,200
Intercompany payable (Notes 2 and 7) 894,400 28,400
Notes payable (Notes 5 and 7) 875,000 -
Deferred revenue 118,000 -
Total current liabilities 2,730,100 183,500
Shareholder's equity (deficit) (Note 7):
Common stock; 1,000,000 shares
authorized; 420,000 and 360,000
shares issued and outstanding as of
September 30, 1993 and 1992,
respectively 2,100,000 1,800,000
Accumulated deficit (3,573,200) (1,100,700)
Total shareholder's equity
(deficit) (1,473,200) 699,300
Commitments (Note 6)
$1,256,900 $ 882,800
See accompanying notes to financial statements.
CENTRUM COMMUNICATIONS, INC.
(A Wholly Owned Subsidiary of Centrum Technology Corporation)
Statements of Operations
Years ended September 30, 1993 and 1992
1993 1992
Sales $1,313,200 $ 2,300
Cost of goods sold 687,800 1,100
625,400 1,200
Operating expenses:
Research and development 870,400 567,300
Sales and marketing 1,643,400 257,500
General and administrative 573,200 194,000
Loss from operations 2,461,600 1,017,600
Interest expense (income), net 10,100 (7,600)
Loss before income taxes 2,471,700 1,010,000
Income tax expense (Note 4) 800 1,600
Net loss $2,472,500 $1,011,600
See accompanying notes to financial statements.
CENTRUM COMMUNICATIONS, INC.
(A Wholly Owned Subsidiary of Centrum Technology Corporation)
Statements of Shareholder's Equity (Deficit)
Years ended September 30, 1993 and 1992
Total
shareholder's
Common Stock Accumulated equity
Shares Amount deficit (deficit)
Balances, September 30,
1991 60,000 $ 300,000 $ (89,100) $ 210,900
Sale of common stock
at $5 per share 300,000 1,500,000 - 1,500,000
Net loss - - (1,011,600) (1,011,600)
Balances, September 30,
1992 360,000 1,800,000 (1,100,700) 699,300
Sale of common stock at
$5 per share 60,000 300,000 - 300,000
Net loss - - (2,472,500) (2,472,500)
Balances, September 30,
1993 $420,000 $2,100,000 $(3,573,200) $(1,473,200)
See accompanying notes to financial statements.
CENTRUM COMMUNICATIONS, INC.
(A Wholly Owned Subsidiary of Centrum Technology Corporation)
Statements of Cash Flows
Years ended September 30, 1993 and 1992
1993 1992
Cash flows from operating activities:
Net loss $(2,472,500) $(1,011,600)
Adjustments to reconcile net loss to
net cash used in operating activities:
Depreciation and amortization 79,400 21,300
Changes in items affecting operations:
Accounts receivable (282,400) (2,300)
Inventories (449,500) (27,100)
Prepaid expenses and other assets (1,400) (57,800)
Accounts payable and accrued
liabilities 687,600 133,000
Intercompany payable 866,000 -
Deferred revenue 118,000 -
Net cash used in operating activities (1,454,800) (944,500)
Cash flows from investing activities:
Purchases of equipment (280,600) (81,500)
Cash flows from financing activities:
Proceeds from issuance of common stock 300,000 1,500,000
Proceeds from short-term loan 875,000 -
Net cash provided by financing
activities 1,175,000 1,500,000
Net (decrease) increase in cash and
cash equivalents (560,400) 474,000
Cash and cash equivalents at beginning
of year 700,800 226,800
Cash and cash equivalents at end of year $ 140,400 $ 700,800
See accompanying notes to financial statements.
CENTRUM COMMUNICATIONS, INC.
(A Wholly Owned Subsidiary of Centrum Technology Corporation)
Notes to Financial Statements
September 30, 1993 and 1992
(1) Description of Business and Summary of Significant Accounting
Policies
(a) The Company
Centrum Communications, Inc. (the Company) was incorporated
in California in July 1991 to engage in the development,
manufacturing, and marketing of remote access products and
technology. The Company is a wholly owned subsidiary of
Centrum Technology Corporation (CTC), a company incorporated
in the Republic of China.
(b) Basis of Presentation
As of September 30, 1992, the Company was a development
stage company and, accordingly, directed its efforts and
resources towards product and market planning, and research
and development activities. As such, the accompanying
statement of operations for the year ended September 30,
1992, should not be regarded as typical for normal years of
operation. The Company commenced manufacturing and shipping
product in September 1992 and, consequently, is no longer
considered a development stage company as of September 30,
1993. The Company continues to expend significant resources
on product research and development.
(c) Cash and Cash Equivalents
Cash and cash equivalents consist of cash on deposit with
banks and certificates of deposit with maturities of three
months or less.
(d) Inventories
Inventories are stated at the lower of cost (first-in, first-
out method) or market and consist primarily of finished
goods.
(e) Property and Equipment
Equipment is stated at cost. Depreciation is calculated on
the straight-line method over the estimated useful lives of
the respective assets, ranging from three to five years.
Purchased software is amortized on a straight-line basis
over the estimated useful life of three years.
CENTRUM COMMUNICATIONS, INC.
(A Wholly Owned Subsidiary of Centrum Technology Corporation)
Notes to Financial Statements
September 30, 1993 and 1992
(f) Income Taxes
The Company elected to adopt Statement of Financial
Accounting Standards (SFAS) No. 109, Accounting for Income
Taxes. SFAS No. 109 requires an asset and liability
approach for financial reporting of income taxes. Under the
asset and liability method, deferred income taxes are
recognized for the tax consequences of "temporary
difference" by applying enacted statutory tax rates
applicable to future years to differences between the
financial statement carrying amounts and the tax bases of
existing assets and liabilities.
(g) Revenue Recognition
Revenue is recognized upon product shipment to customers
with an appropriate allowance for any anticipated returns.
(h) Development Costs
Development costs incurred in the research and development
of new software products and enhancements to existing
software products are expensed as incurred until
technological feasibility has been established. Through
September 30, 1993, the Company's software development has
been essentially completed concurrently with the
establishment of technological feasibility, and accordingly,
no costs have been capitalized to date.
(i) Reclassifications
Certain amounts in the accompanying 1992 financial
statements have been reclassified to conform with the 1993
financial statement presentation.
(2) Related Parties
The Company purchases all inventory from the parent company, CTC.
As of September 30, 1993 and 1992, the intercompany payable to
CTC for inventory purchases was $894,400 and $28,400,
respectively.
CENTRUM COMMUNICATIONS, INC.
(A Wholly Owned Subsidiary of Centrum Technology Corporation)
Notes to Financial Statements
September 30, 1993 and 1992
(3) Property and Equipment
A summary of property and equipment follows:
1993 1992
Equipment $301,300 $62,000
Purchased software 89,300 48,000
390,600 110,000
Less accumulated depreciation
and amortization 102,000 22,600
$288,600 $87,400
(4) Income Taxes
Income tax expense consists of the minimum California franchise
tax for the years ended September 30, 1993 and 1992.
For federal income tax purposes, the Company has net operating
loss carryforwards of approximately $2,900,000, which expire in
the tax years 2006 through 2008. For California income tax
purposes, the Company has net operating loss carryforwards of
approximately $1,400,000. The difference between the net
operating loss carryforward for federal income tax purposes and
for California income tax purposes results primarily from a 50%
limitation on the California loss carryforwards.
As of September 30, 1993, the Company has federal and state gross
deferred tax assets of approximately $1,000,000 and $300,000,
respectively, which were fully offset by a valuation allowance of
$1,300,000.
The Company's ability to utilize the net operating loss
carryforwards and research credit carryforwards may be subject to
certain limitations upon a change in ownership of the Company as
defined in Internal Revenue Code Section 382.
CENTRUM COMMUNICATIONS, INC.
(A Wholly Owned Subsidiary of Centrum Technology Corporation)
Notes to Financial Statements
September 30, 1993 and 1992
(5) Notes Payable
Notes payable as of September 30, 1993, consist of the following:
Notes payable, due December 31, 1993,
plus interest at 7% $725,000
Notes payable, due December 31, 1993,
plus interest at 3.87% 150,000
$875,000
Substantially all assets of the Company are pledged as collateral
for the above notes payable.
The outstanding balances are convertible at the option of the
Company into shares of Series B preferred stock when the Company
obtains additional financing of Series B preferred stock of not
less than $2,000,000. In connection with the issuance of the
notes payable, the Company agreed to issue 263,888 warrants to
purchase shares of Series B preferred stock. The warrant
exercise price and the notes payable conversion price shall be
equal to the price per share of Series B preferred stock issued
in any additional financing (see Note 7).
(6) Leases
The Company leases its facility under a noncancelable operating
lease expiring January 1998. In addition, the Company leases
certain machinery and equipment under operating leases. Future
minimum lease payments under such lease agreements are as
follows:
Year ending
September 30, Amount
1994 $ 221,200
1995 274,300
1996 283,600
1997 297,600
Thereafter 99,200
Total future minimum lease
payments $1,175,900
Facility rent expense was approximately $200,000 and $39,000 for
the years ended September 30, 1993 and 1992, respectively.
CENTRUM COMMUNICATIONS, INC.
(A Wholly Owned Subsidiary of Centrum Technology Corporation)
Notes to Financial Statements
September 30, 1993 and 1992
(7) Subsequent Events
(a) In October 1993, the Company issued $510,000 in notes
payable to the holders of existing notes payable.
In October 1993, the Company issued 4,690,000 shares of
Series A preferred stock in exchange for 419,999 shares of
common stock held by CTC, and 1,790,000 shares of Series A
preferred stock in exchange for $894,400 in intercompany
payable to CTC.
In October 1993, the Company issued 9,472,224 shares of
Series B preferred stock in exchange for $5,115,000 in cash.
In connection with this financing, the Company also issued
2,564,815 shares of Series B preferred stock in exchange for
$1,385,000 in notes payable and issued 263,888 warrants to
purchase Series B preferred stock at $.54 per share to some
of the same parties.
The rights, preferences, and privileges of the preferred
shareholders are as follows:
o Series A and B preferred shareholders are entitled to
receive noncumulative dividends, if and when declared
by the Board of Directors, at the rate of 8% of the
original issue price per annum on each outstanding
share
o Preferred stock votes equally with shares of common
stock on an "as converted" basis.
o Preferred shares have a liquidation preference equal to
their respective original purchase price plus any
declared and unpaid dividends.
o As long as 500,000 shares of Series A or B preferred
stock are outstanding, a majority of the Series A and B
shares voting as a single class is required for certain
actions of the Company.
o Preferred shares are convertible to common stock, at
the option of the holders. Preferred shareholders are
protected by certain antidilutive provisions.
Preferred shares automatically convert to common stock
upon an initial public offering of at least
$10,000,000.
CENTRUM COMMUNICATIONS, INC.
(A Wholly Owned Subsidiary of Centrum Technology Corporation)
Notes to Financial Statements
September 30, 1993 and 1992
No dividends have been declared or paid.
In October 1993, the Company adopted a Stock Option Plan
which authorized the granting of incentive stock and non-
qualified stock options to employees, directors and
consultants of the Company. The total number of shares
that may be granted pursuant to this plan is 6,480,000
shares of common stock. Incentive stock options may be
granted with exercise prices at no less than the fair
market value, and non-qualified stock options may be
granted at no less than 85% of the fair market value on
the grant date, as determined by the Board of Directors.
Incentive options generally vest over a 4-year period and
expire 10 years from the date of grant. The Company has
granted 3,640,250 options to employees.
(b) In December 1993, the Company issued 300,000 shares of
Series A preferred stock in exchange for the termination of
a joint technology agreement with a company that is also a
shareholder of CTC.
AGREEMENT AND PLAN OF REORGANIZATION
** Confidential treatment has been requested for those
portions marked with asterisks. The confidential
portions have been filed separately with the Securities
and Exchange Commission.
TABLE OF CONTENTS
Page
1. Definitions . . . . . . . . . . . . . . . . . . . . . . 1
2. Plan Of Reorganization. . . . . . . . . . . . . . . . . 2
2.1 The Merger . . . . . . . . . . . . . . . . . . . . 2
2.2 The Closing. . . . . . . . . . . . . . . . . . . . 4
2.3 Effective Date . . . . . . . . . . . . . . . . . . 4
3. Representations and Warranties of Centrum . . . . . . . 4
3.1 Organization . . . . . . . . . . . . . . . . . . . 4
3.2 Capitalization . . . . . . . . . . . . . . . . . . 4
3.3 Authority Relative to this Agreement . . . . . . . 5
3.4 Financial Statements . . . . . . . . . . . . . . . 6
3.5 Tax Matters. . . . . . . . . . . . . . . . . . . . 6
3.6 Absence of Certain Changes or Events . . . . . . . 7
3.7 Title and Related Matters. . . . . . . . . . . . . 8
3.8 Proprietary Rights . . . . . . . . . . . . . . . . 9
3.9 Employee Benefit Plans . . . . . . . . . . . . . . 11
3.10 Bank Accounts. . . . . . . . . . . . . . . . . . . 11
3.11 Contracts. . . . . . . . . . . . . . . . . . . . . 11
3.12 Orders, Commitments and Returns. . . . . . . . . . 13
3.13 Compliance With Law. . . . . . . . . . . . . . . . 13
3.14 Labor Difficulties . . . . . . . . . . . . . . . . 14
3.15 Trade Regulation . . . . . . . . . . . . . . . . . 14
3.16 Insider Transactions . . . . . . . . . . . . . . . 15
3.17 Employees, Independent Contractors and
Consultants. . . . . . . . . . . . . . . . . . . . 15
3.18 Insurance. . . . . . . . . . . . . . . . . . . . . 15
3.19 Litigation . . . . . . . . . . . . . . . . . . . . 15
3.20 Governmental Authorizations and Regulations. . . . 15
3.21 Corporate Minutes, Etc . . . . . . . . . . . . . . 16
3.22 Section 341(f)(2). . . . . . . . . . . . . . . . . 16
3.23 Subsidiaries . . . . . . . . . . . . . . . . . . . 16
3.24 Compliance with Environmental Requirements . . . . 16
3.25 Corporate Documents. . . . . . . . . . . . . . . . 16
3.26 No Brokers . . . . . . . . . . . . . . . . . . . . 17
3.27 Disclosure . . . . . . . . . . . . . . . . . . . . 17
3.28 Centrum Options. . . . . . . . . . . . . . . . . . 17
3.29 Certain Contracts. . . . . . . . . . . . . . . . . 17
4. Representations and Warranties of 3Com and Sub. . . . . 18
4.1 Organization and Good Standing . . . . . . . . . . 18
4.2 Power, Authorization and Validity. . . . . . . . . 18
4.3 Capitalization . . . . . . . . . . . . . . . . . . 19
4.4 No Violation of Existing Agreements. . . . . . . . 19
4.5 Litigation . . . . . . . . . . . . . . . . . . . . 19
4.6 No Brokers . . . . . . . . . . . . . . . . . . . . 20
4.7 Disclosure . . . . . . . . . . . . . . . . . . . . 20
4.8 Compliance With Other Instruments and Laws.. . . . 20
4.9 SEC Documents. . . . . . . . . . . . . . . . . . . 20
4.10 No Material Adverse Change.. . . . . . . . . . . . 21
5. Preclosing Covenants of Centrum . . . . . . . . . . . . 21
5.1 Advice of Changes. . . . . . . . . . . . . . . . . 21
5.2 Conduct of Business. . . . . . . . . . . . . . . . 21
5.3 Access to Information. . . . . . . . . . . . . . . 22
5.4 Regulatory Approvals . . . . . . . . . . . . . . . 22
5.5 Satisfaction of Conditions Precedent . . . . . . . 23
5.6 Shareholder Vote . . . . . . . . . . . . . . . . . 23
5.7 Exclusivity. . . . . . . . . . . . . . . . . . . . 23
6. Preclosing Covenants of 3Com and Sub. . . . . . . . . . 23
6.1 Advice of Changes. . . . . . . . . . . . . . . . . 23
6.2 Regulatory Approvals . . . . . . . . . . . . . . . 23
6.3 Access to Information. . . . . . . . . . . . . . . 23
6.4 Satisfaction of Conditions Precedent.. . . . . . . 24
7. Post-Closing Covenants of 3Com. . . . . . . . . . . . . 24
7.1 Dividends, Etc.. . . . . . . . . . . . . . . . . . 24
7.2 Limitations on Liens.. . . . . . . . . . . . . . . 24
8. Mutual Covenants. . . . . . . . . . . . . . . . . . . . 25
8.1 Confidentiality. . . . . . . . . . . . . . . . . . 25
8.2 Further Assurances . . . . . . . . . . . . . . . . 25
8.3 Escrow; Escrow Agreement.. . . . . . . . . . . . . 25
9. The Closing . . . . . . . . . . . . . . . . . . . . . . 26
9.1 Merger . . . . . . . . . . . . . . . . . . . . . . 26
9.2 Additional Documents . . . . . . . . . . . . . . . 26
10. Conditions to Centrum's Obligations . . . . . . . . . . 26
10.1 Accuracy of Representations and Warranties . . . . 26
10.2 No Litigation. . . . . . . . . . . . . . . . . . . 27
10.3 Authorizations . . . . . . . . . . . . . . . . . . 27
10.4 Opinion of 3Com's Counsel. . . . . . . . . . . . . 27
10.5 Government Consents. . . . . . . . . . . . . . . . 27
10.6 Date of Closing. . . . . . . . . . . . . . . . . . 27
10.7 Federal and State Securities Laws. . . . . . . . . 27
10.8 Covenants. . . . . . . . . . . . . . . . . . . . . 27
10.9 No Adverse Development.. . . . . . . . . . . . . . 27
10.10 Required Consents. . . . . . . . . . . . . . 28
10.11 Shareholder Approval.. . . . . . . . . . . . 28
10.12 Warrants.. . . . . . . . . . . . . . . . . . 28
11. Conditions to 3Com's and Sub's Obligations. . . . . . . 28
11.1 Accuracy of Representations and Warranties . . . . 28
11.2 Covenants. . . . . . . . . . . . . . . . . . . . . 28
11.3 No Litigation. . . . . . . . . . . . . . . . . . . 28
11.4 Authorizations . . . . . . . . . . . . . . . . . . 28
11.5 Required Centrum Consents. . . . . . . . . . . . . 29
11.6 Clarification of Chipcom Contract. . . . . . . . . 29
11.7 Audited Financial Statements . . . . . . . . . . . 29
11.8 No Adverse Development . . . . . . . . . . . . . . 29
11.9 Required Consents. . . . . . . . . . . . . . . . . 29
11.10 Opinion of Centrum's Counsel . . . . . . . . 29
11.11 Opinion regarding Fairness . . . . . . . . . 29
11.12 Employment with 3Com . . . . . . . . . . . . 30
11.13 Government Consents. . . . . . . . . . . . . 30
11.14 Date of Closing. . . . . . . . . . . . . . . 30
11.15 Absence of Specific Changes. . . . . . . . . 30
11.16 Transfer of Technology . . . . . . . . . . . 30
11.17 Warrants.. . . . . . . . . . . . . . . . . . 30
12. Termination of Agreement. . . . . . . . . . . . . . . . 30
12.1 Prior to Closing . . . . . . . . . . . . . . . . . 30
12.2 At the Closing . . . . . . . . . . . . . . . . . . 30
12.3 No Liability . . . . . . . . . . . . . . . . . . . 31
12.4 Effect of Termination. . . . . . . . . . . . . . . 31
13. Survival of Representations, Warranties and
Covenants . . . . . . . . . . . . . . . . . . . . . . . 31
14. Miscellaneous . . . . . . . . . . . . . . . . . . . . . 31
14.1 Governing Laws . . . . . . . . . . . . . . . . . . 31
14.2 Binding upon Successors and Assigns. . . . . . . . 31
14.3 Severability . . . . . . . . . . . . . . . . . . . 31
14.4 Entire Agreement . . . . . . . . . . . . . . . . . 32
14.5 Counterparts . . . . . . . . . . . . . . . . . . . 32
14.6 Expenses . . . . . . . . . . . . . . . . . . . . . 32
14.7 Other Remedies . . . . . . . . . . . . . . . . . . 32
14.8 Amendment and Waivers. . . . . . . . . . . . . . . 32
14.9 Survival of Agreements . . . . . . . . . . . . . . 33
14.10 No Waiver. . . . . . . . . . . . . . . . . . 33
14.11 Attorneys' Fees. . . . . . . . . . . . . . . 33
14.12 Notices. . . . . . . . . . . . . . . . . . . 33
14.13 Construction of Agreement. . . . . . . . . . 34
14.14 No Joint Venture . . . . . . . . . . . . . . 34
14.15 Further Assurances . . . . . . . . . . . . . 34
14.16 Absence of Third Party Beneficiary
Rights . . . . . . . . . . . . . . . . . . . . . . 34
AGREEMENT AND PLAN OF REORGANIZATION
This AGREEMENT AND PLAN OF REORGANIZATION is entered into
this 18th day of January 1994, by and among 3Com Corporation, a
California corporation, ("3Com"), 3Sub Acquisition Corporation
("Sub"), a California corporation, and Centrum Communications,
Inc., a California corporation ("Centrum").
R E C I T A L
The parties intend that, subject to the terms and conditions
hereinafter set forth, Sub be merged into and with Centrum, with
Centrum the surviving corporation, pursuant to an Agreement of
Merger substantially in the form attached hereto as Exhibit "A"
(the "Agreement of Merger") and the applicable provisions of the
laws of the State of California. Upon the Merger, the holders of
the capital stock of Centrum shall receive cash and the holders
of options to acquire Centrum stock shall receive options to
purchase 3Com Common Stock in the manner and on the basis
determined herein, all as provided in the Agreement of Merger.
A G R E E M E N T
NOW, THEREFORE, in reliance on the foregoing recitals and in
and for the consideration and mutual covenants set forth herein,
the parties agree as follows:
1. Definitions. The following terms when used herein
shall have the meanings set forth below.
1.1 "Merger" shall mean the merger of Sub with and
into Centrum, on the terms and conditions described herein.
1.2 "Options" shall mean the options to acquire
Centrum Common Stock.
1.3 "Centrum Common Stock" shall having the meaning
provided in Section 3.1.
1.4 "Preferred Stock" shall having the meaning
provided in Section 3.2.
1.5 "Securities" shall mean the Centrum Common Stock,
the Preferred Stock and the Options.
1.6 "Securities Act" shall mean the Securities Act of
1933, as amended.
1.7 "Commission" shall mean the Securities and
Exchange Commission.
1.8 "Centrum Share Price" shall mean the price per
share to be paid by 3Com for each share of Centrum Common Stock
and Centrum Preferred Stock, which shall be equal to Thirty-Six
Million Dollars ($36,000,000) divided by the total number of
shares of Centrum Common Stock outstanding or issuable at any
time pursuant to the Securities or pursuant to any other contract
or commitment to issue securities.
1.9 "Code" shall mean the Internal Revenue Code of
1986, as amended.
1.10 "Transaction Documents" shall mean all documents
or agreements required to be delivered by any party hereunder
including the Agreement of Merger.
1.11 "Centrum Products" shall have the meaning set
forth in Section 3.8(b).
1.12 "Affiliate" shall have the meaning set forth in
the rules and regulations promulgated by the Commission pursuant
to the Securities Act.
1.13 "Exchange Act" shall mean the Securities Exchange
Act of 1934, as amended, or any similar federal statute and the
rules and regulations thereunder, all as the same shall be in
effect at the time.
1.14 "Effective Time" shall have the meaning set forth
in Section 2.3.
1.15 "Proprietary Rights" shall have the meaning set
forth in Section 3.8(a).
1.16 "3Com Closing Price" shall mean the average of the
closing sales prices of 3Com Common Stock as reported by the
National Market System of the National Association of Securities
Dealers Automated Quotation System for the ten (10) trading days
preceding (but not including) the Closing Date.
2. Plan Of Reorganization.
2.1 The Merger.
(a) Subject to the terms and conditions of this
Agreement and the Agreement of Merger, Sub shall be merged with
and into Centrum in a statutory merger pursuant to the Agreement
of Merger and in accordance with applicable provisions of
California law so that:
(i) Each share of common stock of Sub
outstanding immediately prior to the Merger shall continue to be
issued and shall be converted into one share of Centrum Common
Stock outstanding after the Merger; and
(ii) Each share of Centrum Common Stock and
of Preferred Stock issued and outstanding at the Effective Time,
other than the shares held by holders who perfect their
dissenter's rights under California law with respect thereto
("Dissenters' Shares"), shall, by virtue of the Merger, and
without further action on the part of any holder thereof, be
canceled and converted into the right to receive cash in an
amount equal to the Centrum Share Price. Such cash amount shall
be payable in two installments, (i) the first payable at or as
promptly after the Closing as is practicable and in an amount
equal to 19/36 of the Centrum Share Price, and (ii) the second
payable on the date six months after the Closing and in an amount
equal to 17/36 of the Centrum Share Price. The aggregate cash
payment to be made to the holders of Centrum Common Stock and
Preferred Stock as described above in clause (i) is referred to
herein as the "First Payment," and the aggregate cash payment to
be made to the holders of Centrum Common Stock and Preferred
Stock as described above in clause (ii) is referred to herein as
the "Second Payment."
(iii) Each Option outstanding at the
Effective Time shall, by virtue of the Merger and without further
action on the part of any option holder, be assumed by 3Com at
the Effective Time. The Options assumed by 3Com will continue to
be on the terms and conditions set forth in the respective option
agreements, except that: (i) the Option shall be exercisable for
a number of shares of 3Com Common Stock equal to the number of
shares of Centrum Common Stock subject to such Option immediately
prior to the Effective Time multiplied by a fraction, the
numerator of which is the Centrum Share Price and the denominator
of which is the 3Com Closing Price (with the resulting number of
shares of 3Com Common Stock rounded down to the nearest whole
number), (iii) the per share exercise price shall be an amount
equal to the aggregate exercise price of the Option prior to the
Merger divided by the number of shares of 3Com Common Stock
subject to such Option rounded up to the nearest whole cent, and
(iv) continuous employment with Centrum, whether occurring before
or after the Effective Time, shall be credited to an optionee for
purposes of determining the number of shares subject to exercise,
vesting or repurchase after the Effective Time. It is the
intention of the parties that the assumption of Options shall
meet the requirements of Section 424(a) of the Code and that
therefore the Options assumed by 3Com qualify following the
Effective Time as incentive stock options as defined in
Section 422 of the Code ("incentive stock options") to the extent
the Options qualified as incentive stock options prior to the
Effective Time. After the Effective Time, 3Com shall issue to
each holder of an outstanding Option a document evidencing the
foregoing assumption by 3Com. Such option assumption agreements
will provide a mechanism for withholding or placing into escrow
[** ] of the shares of 3Com Common Stock issuable
under such options, or the proceeds thereof, as provided in
Section 8.3. No fractional shares of 3Com Common Stock shall be
issued in connection with options. All fractional shares which
would otherwise be issuable shall be rounded down to the next
full share.
(b) At the closing of the Merger, 3Com will
deduct from the First Payment to the former holders of Centrum
stock (the "Centrum Shareholders"), on a pro rata basis, a total
of [** ] of the First Payment, and, as provided in
the Escrow Agreement, will deduct from the Second Payment to the
Centrum Shareholders, on a pro-rata basis, up to a total of [**
] of the Second Payment, and will deliver such
amounts to the escrow agent as provided under the Escrow
Agreement as described in Section 8.3. The amount so delivered
to the escrow agent is referred to herein as the "Escrow Amount,"
which will be paid to the parties as provided in the Escrow
Agreement to be executed pursuant to Section 8.3.
2.2 The Closing. Subject to termination of this
Agreement as provided in Section 12 below, the closing of the
transactions contemplated by this Agreement (the "Closing") shall
take place at the offices of Gray Cary Ware & Freidenrich, 400
Hamilton Avenue, Palo Alto, California at 10 a.m. on January 28,
1994, or such other place, time and date as 3Com and Centrum may
mutually select (the "Closing Date").
2.3 Effective Date. Simultaneously with the Closing,
the Agreement of Merger shall be filed in the office of the
Secretary of State of the State of California. The Merger shall
become effective immediately upon the filing of the Agreement of
Merger (the "Effective Time").
3. Representations and Warranties of Centrum. Except as
otherwise set forth in the "Centrum Disclosure Schedule" attached
hereto as Exhibit "B" ("Centrum Disclosure Schedule"), Centrum
represents and warrants to 3Com as set forth below. No fact or
circumstance disclosed to 3Com shall constitute an exception to
these representations and warranties unless such fact or
circumstance is set forth in the Centrum Disclosure Schedule
attached hereto or such supplements thereto as may mutually be
agreed upon in writing by Centrum and 3Com. Whenever the term
"enforceable in accordance with its terms" or like expression is
used, it is understood that excepted therefrom are any
limitations on enforceability under applicable bankruptcy,
insolvency, reorganization, moratorium or other laws of general
application affecting the enforcement of creditor's rights.
3.1 Organization. Centrum is a corporation duly
organized, validly existing and in good standing under the laws
of the State of California and has corporate power and authority
to carry on its business as it is now being conducted. Centrum
is duly qualified or licensed to do business and in good standing
in each jurisdiction in which the nature of its business or
properties makes such qualification or licensing necessary except
to the extent that any failure to qualify or obtain licenses
would not in the aggregate have a material adverse effect on the
operations, assets or financial condition of Centrum. The
Centrum Disclosure Schedule contains a true and complete listing
of the locations of all sales offices, manufacturing facilities,
and any other offices or facilities of Centrum and a true and
complete list of all states in which Centrum maintains any
employees. The Centrum Disclosure Schedule contains a true and
complete list of all states in which Centrum is duly qualified to
transact business as a foreign corporation. True and complete
copies of Centrum's Articles of Incorporation and By-laws, as in
effect on the date hereof and as to be in effect as of the
Closing have been provided to 3Com or its representatives.
3.2 Capitalization. The authorized capital stock of
Centrum consists of (i) 30,000,000 shares of Common Stock
("Centrum Common Stock") and (ii) 19,350,000 shares of Preferred
Stock, 7,000,000 of which are designated Series A Preferred Stock
("Series A Preferred") and 12,350,000 of which are designated
Series B Preferred Stock ("Series B Preferred") (collectively,
the Series A and Series B Preferred Stock are referred to as the
"Preferred Stock"). Of such shares, one share of Centrum Common
Stock, 6,780,000 shares of Series A Preferred, and 12,037,039
shares of Series B Preferred are issued and outstanding and held
of record by Centrum's respective stockholders as set forth and
identified in the stockholder lists provided to 3Com or its
representatives. In addition, warrants to acquire 263,888 shares
of Series B Preferred are issued and outstanding. All of the
outstanding Securities have been duly authorized and are validly
issued, fully paid and nonassessable. All outstanding Securities
were issued in compliance with applicable securities laws.
As of the date hereof, 6,480,000 shares of Centrum Common
Stock are available or reserved for issuance under the Centrum
1993 Stock Option Plan, of which 3,693,750 are reserved to
satisfy commitments made by the Centrum to its employees.
Except as set forth above, and as otherwise set forth in the
Centrum Disclosure Schedule, Centrum does not have any other
shares of its capital stock issued or outstanding and does not
have any other outstanding subscriptions, options, warrants,
rights or other agreements or commitments obligating Centrum to
issue shares of its capital stock or other securities.
3.3 Authority Relative to this Agreement. Centrum has
the corporate power to enter into this Agreement and the other
Transaction Documents to which it is a party and to carry out its
obligations hereunder and thereunder. The execution and delivery
of this Agreement and the Transaction Documents and the
consummation of the transactions contemplated hereby and thereby
have been duly authorized by its Board of Directors and no other
corporate proceedings on the part of Centrum are necessary to
authorize this Agreement, the other Transaction Documents and the
transactions contemplated herein and therein other than the
consent of the holders of outstanding shares of Centrum. Centrum
is not subject to or obligated under any charter, bylaw or
contract provision or any license, franchise or permit, or
subject to any order or decree, which would be breached or
violated by or in conflict with its executing and carrying out
this Agreement and the transactions contemplated hereunder and
under the Transaction Documents. Except as contemplated by this
Agreement, no consent of any person who is a party to a contract
which is material to Centrum's business, nor consent of any
governmental authority, is required to be obtained on the part of
Centrum to permit the transactions contemplated herein and
continue the business activities of Centrum as previously
conducted by Centrum without material adverse change. This
Agreement and the other agreements, forms of which are attached
hereto as Exhibits, when executed by Centrum shall be the valid
and binding obligations of Centrum enforceable against Centrum in
accordance with their terms.
3.4 Financial Statements.
(a) Centrum has delivered to 3Com copies of
Centrum's unaudited balance sheet as of September 30, 1993 and
unaudited balance sheet as of December 30, 1993 (the latter
referred to herein as the "Centrum Balance Sheet") and statements
of income, stockholders' equity and changes in financial position
for the periods then ended.
(b) All financial statements delivered pursuant
to Section 3.4(a) (collectively, the "Centrum Financial
Statements") present fairly the financial position of Centrum as
of their historical dates. The Centrum Financial Statements have
been prepared in accordance with generally accepted accounting
principles applied on a basis consistent with prior periods
except with respect to the unaudited financial statements for the
absence of footnotes and normal year-end adjustments, none of
which would be material. Except as to the extent reflected or
reserved against in such balance sheets (including the notes
thereto), Centrum did not have, as of the dates of such balance
sheets, any liabilities or obligations (absolute or contingent)
of a nature required or customarily reflected in a balance sheet
(or the notes thereto) prepared in accordance with generally
accepted accounting principles. The reserves, if any, reflected
on the Centrum Balance Sheet are adequate in light of the
contingencies with respect to which they are made. The
statements of income, stockholder's equity and changes in
financial position present fairly the results of operations,
equity transactions and changes in financial position of Centrum
for the periods indicated.
(c) Centrum has no debt, liability, or obligation
of any nature, whether accrued, absolute, contingent, or
otherwise, and whether due or to become due, that is not
reflected or reserved against in the Centrum Financial
Statements, except for those (i) that may have been incurred
after the date of the Centrum Balance Sheet or (ii) that are not
required by generally accepted accounting principles to be
included in a balance sheet or the notes thereto, except that
Centrum has not established any reserves with respect to the
costs and fees associated with this Agreement and the
transactions contemplated hereby. All material debts,
liabilities, and obligations incurred after the date of the
Centrum Financial Statements were incurred in the ordinary course
of business, and are usual and normal in amount both individually
and in the aggregate and none of which are material.
3.5 Tax Matters.
(a) Centrum has fully and timely, properly and
accurately filed all tax returns and reports required to be filed
by it prior to the date of this Agreement, including all federal,
foreign, state and local tax returns for all years and periods
(and portions thereof) for which any such returns and reports
were due prior to the date of this Agreement. All such returns
and reports were prepared in the manner required by applicable
law. All income, sales, use, occupation, property or other taxes
or assessments due from Centrum prior to the date of this
Agreement have been paid other than taxes for which adequate
reserves have been established on the Centrum Financial
Statements. To Centrum's knowledge, there are no pending
assessments, asserted deficiencies or claims for additional taxes
that have not been paid. The reserves for taxes, if any,
reflected on the Centrum Balance Sheet are adequate for any
unpaid taxes for periods through the date of this Agreement and
there are no tax liens on any property or assets of Centrum other
than liens for taxes not yet due and payable. There have been no
examinations of any tax returns or reports by any applicable
governmental agency. To Centrum's knowledge, no state of facts
exists or has existed which would constitute grounds for the
assessment of any penalty or of any further tax liability beyond
that shown on the respective tax reports or returns for any tax
period ending on or prior to the date of this Agreement. There
are no outstanding agreements or waivers extending the statutory
period of limitation applicable to any federal income tax return
or report for any period.
(b) All taxes which Centrum has been required to
collect or withhold have been duly withheld or collected and, to
the extent required prior to the date of this Agreement, have
been paid to the proper taxing authority.
(c) Centrum is not a party to any tax-sharing
agreement or similar arrangement with any other party.
(d) At no time has Centrum been included in the
federal consolidated income tax return of any affiliated group of
corporations.
(e) No payment which Centrum is obliged to pay to
any director, officer, employee or independent contractor
pursuant to the terms of an employment agreement, severance
agreement or otherwise will constitute an excess parachute
payment as defined in Section 280G of the Code.
(f) Centrum will not be required to include any
material adjustment in taxable income for any tax period (or
portion thereof) ending after the Closing Date pursuant to
Section 481(c) of the Code or any provision of the tax laws of
any jurisdiction requiring tax adjustments as a result of a
change in method of accounting implemented by Centrum prior to
the Closing Date for any tax period (or portion thereof) ending
on or before the Closing Date or pursuant to the provisions of
any agreement entered into by Centrum prior to the Closing Date
with any taxing authority with regard to the tax liability of
Centrum for any tax period (or portion thereof) ending on or
before the Closing Date.
(g) Except as may disclosed in connection with
Section 3.5(c) and except as required by this Agreement, Centrum
is not currently under any contractual obligation to pay any tax
obligations of any other person.
3.6 Absence of Certain Changes or Events. Since the
date of the Centrum Balance Sheet, Centrum has not (a) suffered
any material adverse change in its financial condition or in the
operations of its business; (b) suffered any damage, destruction
or loss, whether covered by insurance or not, materially and
adversely affecting its properties or businesses; (c) granted any
increase in the compensation payable or to become payable by
Centrum to its officers or employees, except those occurring in
the ordinary course of business; (d) declared, set aside or paid
any dividend or made any other distribution on or in respect of
the shares of the capital stock of Centrum or declared any direct
or indirect redemption, retirement, purchase or other acquisition
by Centrum of such shares; (e) issued any shares of capital stock
of Centrum or any warrants, rights, options or entered into any
commitment relating to the shares of Centrum except for the
issuance of Centrum Shares pursuant to the exercise of
outstanding Options or Securities described in Section 3.2;
(f) made any material change in the accounting methods or
practices it follows, whether for general financial or tax
purposes, or any change in depreciation or amortization policies
or rates adopted therein; (g) sold, leased, abandoned or
otherwise disposed of any real property or any machinery,
equipment or other operating property other than in the ordinary
course of business (h) sold, assigned, transferred, licensed or
otherwise disposed of any patent, trademark, trade name, brand
name, copyright (or pending application for any patent, trademark
or copyright) invention, process, know-how, formula or trade
secret or interest thereunder or other intangible asset except in
the ordinary course of its business; (i) suffered any labor
dispute; (j) engaged in any activity or entered into any material
commitment or transaction (including without limitation any
borrowing or capital expenditure) other than in the ordinary
course of business; (k) incurred any liabilities except in the
ordinary course of business and consistent with past practice
which would be required to be disclosed in financial statements
prepared in accordance with generally accepted accounting
principles; (l) permitted or allowed any of its property or
assets to be subjected to any mortgage, deed of trust, pledge,
lien, security interest or other encumbrance of any kind, except
those permitted under Section 3.7 (Title and Related Matters)
hereof, other than any purchase money security interests incurred
in the ordinary course of business; (m) made any capital
expenditure or commitment for additions to property, plant or
equipment except in the ordinary course of business; (n) paid,
loaned or advanced any amount to, or sold, transferred or leased
any properties or assets to, or entered into any agreement or
arrangement with any of its Affiliates, officers, directors or
stockholder or any Affiliate or associate of any of the
foregoing; (o) made any amendment to or terminated any agreement
which, if not so amended or terminated, would be required to be
disclosed on the Centrum Disclosure Schedule; or (p) agreed to
take any action described in this Section 3.6 (Absence of Certain
Changes or Events) or outside of its ordinary course of business
or which would constitute a breach of any of the representations
contained in this Agreement.
3.7 Title and Related Matters. Centrum has good and
marketable title to all the properties, interests in properties
and assets, real and personal, reflected in the Centrum Balance
Sheet or acquired after the date of the Centrum Balance Sheet
(except properties, interests in properties and assets sold or
otherwise disposed of since the date of the Centrum Balance Sheet
in the ordinary course of business), free and clear of all
mortgages, liens, pledges, charges or encumbrances of any kind or
character, except the lien of current taxes not yet due and
payable and except for liens which in the aggregate do not secure
more than Fifteen Thousand Dollars ($15,000) in liabilities. The
equipment of Centrum necessary to the operation of its business
is in good operating condition and repair, except for ordinary
wear and tear and defects. All real or personal property leases
to which Centrum is a party are valid, binding, enforceable and
effective in accordance with their respective terms. There is
not under any of such leases any existing material default or
event of default or event which, with notice or lapse of time or
both, would constitute a material default. The Centrum
Disclosure Schedule contains a description of all real and
personal property leased or owned by Centrum, describing its
interest in said property and with respect to real property a
description of each parcel and a summary description of the
buildings, structures and improvements thereon. True and correct
copies of Centrum's leases have been provided to 3Com or its
representatives.
3.8 Proprietary Rights.
(a) Centrum owns all right, title and interest in
and to, or has licenses to, all patents, copyrights, technology,
software, software tools, know-how, processes, trade secrets,
trademarks, service marks, trade names and other proprietary
rights used in or necessary for the conduct of Centrum's business
as conducted to the date hereof or contemplated, including,
without limitation, the technology and all proprietary rights
developed or discovered in connection with or contained in the
Centrum Products, free and clear of all liens, claims and
encumbrances (including without limitation distribution rights)
(all of which are referred to as "Proprietary Rights"). The
foregoing representation as it relates to Third Party Technology
(as hereinafter defined) is limited to Centrum's interest
pursuant to the Third Party Licenses (as hereinafter defined),
all of which are valid and enforceable and in full force and
effect and which grant Centrum such right to Third Party
Technology as are employed in or necessary to the business of
Centrum as conducted or proposed to be conducted. The Centrum
Disclosure Schedule contains an accurate and complete description
of (i) all patents, trademarks (with separate listings of
registered and unregistered trademarks), trade names, and
registered copyrights in or related to the Centrum Products, all
applications and registration statements therefor, and a list of
all licenses and other agreements relating thereto, and (ii) a
list of all licenses and other agreements with third parties (the
"Third Party Licenses") relating to any software, technology,
know-how, or processes that Centrum is licensed or otherwise
authorized by such third parties to use, market, distribute or
incorporate into products distributed by Centrum (such software,
technology, know-how and processes are collectively referred to
as the "Third Party Technology"). All of Centrum's trademark or
trade name registrations related to the Centrum Products and all
of Centrum's copyrights in any of the Centrum Products are valid
and in full force and effect; and consummation of the
transactions contemplated hereby will not alter or impair any
such rights. No claims have been asserted against Centrum (and
Centrum is not aware of any claims which are likely to be
asserted against Centrum or which have been asserted against
others) by any person challenging Centrum's use or distribution
of any patents, trademarks, trade names, copyrights, trade
secrets, software, technology, know-how or processes utilized by
Centrum (including, without limitation, the Third Party
Technology) or challenging or questioning the validity or
effectiveness of any license or agreement relating thereto
(including, without limitation, the Third Party Licenses). To
Centrum's knowledge, there is no valid basis for any claim of the
type specified in the immediately preceding sentence which could
in any material way relate to or interfere with the continued
enhancement and exploitation by Centrum of any of the Centrum
Products. To Centrum's knowledge, none of the Centrum Products
nor the use of any patents, trademarks, trade names, copyrights,
software, technology, know-how or processes by Centrum in its
current business infringes on the rights of, constitutes
misappropriation of, or in any way involves unfair competition
with respect to, any proprietary information or intangible
property right of any third person or entity, including without
limitation any patent, trade secret, copyright, trademark or
trade name.
(b) Centrum has not granted any third party any
right to manufacture, reproduce, distribute, market or exploit
any of the Centrum Products or any adaptations, translations, or
derivative works based on the Centrum Products or any portion
thereof. Except with respect to the rights of third parties to
the Third Party Technology, no third party has any right to
manufacture, reproduce, distribute, market or exploit any works
or materials of which any of the Centrum Products are a
"derivative work" as that term is defined in the United States
Copyright Act, Title 17, U.S.C. Section 101.
(c) All designs, drawings, specifications, source
code, object code, documentation, flow charts and diagrams
incorporating, embodying or reflecting any of the Centrum
Products at any stage of their development (the "Centrum
Components") were written, developed and created solely and
exclusively by employees of Centrum without the assistance of any
third party or entity or were created by third parties who
assigned ownership of their rights to Centrum in valid and
enforceable consultant confidentiality and invention assignment
agreements. Centrum has at all times used commercially
reasonable efforts to treat the Centrum Products and Centrum
Components as containing trade secrets and has not disclosed or
otherwise dealt with such items in such a manner as to cause the
loss of such trade secrets by release into the public domain.
(d) To Centrum's knowledge, no employee of
Centrum is in violation of any term of any employment contract,
patent disclosure agreement or any other contract or agreement
relating to the relationship of any such employee with Centrum
or, to the best of Centrum's knowledge, any other party because
of the nature of the business conducted by Centrum or proposed to
be conducted by Centrum.
(e) Each person presently or previously employed
by Centrum (including independent contractors, if any) with
access to confidential information has executed a confidentiality
and non-disclosure agreement pursuant to the form of agreement
previously provided to 3Com or its representatives. Such
confidentiality and non-disclosure agreements constitute valid
and binding obligations of Centrum and such person, enforceable
in accordance with their respective terms. To the best of
Centrum's knowledge, neither the execution or delivery of such
agreements, nor the carrying on of Centrum's business as
employees by such persons, nor the conduct of Centrum's business
as currently anticipated, will conflict with or result in a
breach of the terms, conditions or provisions of or constitute a
default under any contract, covenant or instrument under which
any of such persons is obligated.
(f) No product liability or warranty claims which
individually or in the aggregate could exceed $15,000 have been
communicated to or threatened against Centrum nor, to the best of
Centrum's knowledge, is there any specific situation, set of
facts or occurrence that provides a basis for such claim. The
Centrum Disclosure Schedule sets forth all software bugs or other
product defects known to Centrum in the Centrum Products.
3.9 Employee Benefit Plans. There is no unfunded
prior service cost with respect to any bonus, deferred
compensation, pension, profit-sharing, retirement, stock
purchase, stock option, or other employee benefit or fringe
benefit plans, whether formal or informal, maintained by Centrum.
To Centrum's knowledge, each bonus, deferred compensation,
pension, profit-sharing, retirement, stock purchase, stock
option, and other employee benefit or fringe benefit plans,
whether formal or informal, maintained by Centrum conforms to all
applicable requirements of the Employee Retirement Income
Security Act of 1974. The Centrum Disclosure Schedule lists and
describes all profit-sharing, bonus, incentive, deferred
compensation, vacation, severance pay retirement, stock option,
group insurance or other plans (whether written or not) providing
employee benefits.
3.10 Bank Accounts. The Centrum Disclosure Schedule
sets forth the names and locations of all banks, trusts,
companies, savings and loan associations, and other financial
institutions at which Centrum maintains accounts of any nature
and the names of all persons authorized to draw thereon or make
withdrawals therefrom.
3.11 Contracts.
(a) Except as set forth in the Centrum Disclosure
Schedule, Centrum has no agreements, contracts or commitments
that provide for the sale, licensing or distribution by Centrum
of any of its products, technology, know-how, trademarks or trade
names except in the ordinary course of its business. True and
correct copies of each document or instrument described in the
Centrum Disclosure Schedule pursuant to this Subsection 3.11(a)
have been made available to 3Com or its representatives.
(b) Except as listed in the Centrum Disclosure
Schedule, Centrum has no agreements, contracts or commitments
that call for fixed and/or contingent payments or expenditures by
or to Centrum of more than Twenty-Five Thousand Dollars
($25,000). True and correct copies of each document or
instrument set forth in the Centrum Disclosure Schedule pursuant
to this Section 3.11(b) have been made available to 3Com or its
representatives.
(c) Without limiting the provisions of
Section 3.8 (Proprietary Rights) and except for any agreements
with 3Com, Centrum has not granted to any third party (including,
without limitation, OEMs and site license customers) any rights
to reproduce or manufacture any of the Centrum Products, nor has
Centrum granted to any third party any exclusive rights of any
kind with respect to any of the Centrum Products, including,
without limitation, territorial exclusivity or exclusivity with
respect to particular versions, implementations or translations
of any of the Centrum Products, nor has Centrum granted any third
party any right to market any of the Centrum Products under any
"private label" arrangements pursuant to which Centrum is not
identified as the source of such goods. True and correct copies
of each document or instrument listed on the Centrum Exception
Schedule pursuant to this Section 3.11(c) have been made
available to 3Com or its representatives.
(d) There is no outstanding sales contract,
commitment or proposal (including, without limitation, porting
and development projects) of Centrum that is currently expected
to result in any loss (before allocation of overhead and
administrative costs) upon completion or performance thereof.
(e) Centrum has no outstanding agreements,
contracts or commitments with officers, employees, agents,
consultants, advisors, salesmen, sales representatives,
distributors or dealers that are not cancelable by it on notice
of not longer than thirty (30) days and without liability,
penalty or premium.
(f) Centrum has no employment, independent
contractor or similar agreement, contract or commitment that is
not terminable on no more than thirty (30) days' notice without
penalty or liability of any type, including without limitation
severance or termination pay.
(g) Centrum has no currently effective collective
bargaining or union agreements, contracts or commitments.
(h) Centrum is not restricted by agreement from
carrying on its business anywhere in the world.
(i) Centrum is under no liability or obligation,
and no such outstanding claim has been made, with respect to the
return of inventory or merchandise in the possession of
wholesalers, distributors, retailers, or other customers, except
such liabilities, obligations and claims as, in the aggregate, do
not exceed Fifteen Thousand Dollars ($15,000).
(j) Centrum has not guaranteed any obligations of
other persons or made any agreements to acquire or guarantee any
obligations of other persons.
(k) Centrum has no outstanding loan or advance to
any person; nor is it party to any line of credit, standby
financing, revolving credit or other similar financing
arrangement of any sort which would permit the borrowing by
Centrum of any sum not reflected in the financial statements
delivered pursuant to Section 3.4 (Financial Statements).
(l) All material contracts, agreements and
instruments to which Centrum is a party are valid, binding, in
full force and effect, and enforceable by Centrum in accordance
with their respective terms. No such material contract,
agreement or instrument contains any material liquidated-damages,
penalty or similar provision. To Centrum's knowledge, no party
to any such material contract, agreement or instrument intends to
cancel, withdraw, modify or amend such contract, agreement or
arrangement.
(m) The Centrum Disclosure Schedule lists all
material agreements pursuant to which Centrum has agreed to
manufacture for or supply to any third party any Centrum Products
or components thereto. True and correct copies of each document
or instrument listed on the Centrum Disclosure Schedule pursuant
to this Section 3.11(m) have been provided to 3Com or its
representatives. The Centrum Disclosure Schedule also lists each
vendor that manufactures for or supplies to Centrum any material
product or component.
(n) Centrum is not in default under or in breach
or violation of, nor, to Centrum's knowledge, is there any valid
basis for any claim of default by Centrum under, or breach or
violation by Centrum of, any contract, commitment or restriction
to which Centrum is a party or to which it or any of its
properties is bound, where such defaults, breaches, or violations
would, in the aggregate, have a material adverse effect on the
operations, assets, financial condition or prospects of Centrum.
To the best of Centrum's knowledge, no other party is in default
under or in breach or violation of, nor is there any valid basis
for any claim of default by any other party under or any breach
or violation by any other party of, any material contract,
commitment, or restriction to which Centrum is bound or by which
any of its properties is bound, where such defaults, breaches, or
violations would, in the aggregate, have a material adverse
effect on the operations, assets, financial condition or
prospects of Centrum.
3.12 Orders, Commitments and Returns. All accepted and
unfilled orders entered into by Centrum for the sale, license, or
lease or other disposition by Centrum of its products, and all
agreements, contracts, or commitments for the purchase of
supplies, were made in the ordinary course of business. To
Centrum's knowledge, no outstanding purchase or outstanding lease
commitment of Centrum is in excess of the normal, ordinary and
usual requirements of its business or was made at any price (on
both a per unit and aggregate basis) materially in excess of the
current market price at the time made, or contains terms and
conditions materially more onerous to Centrum than those usual
and customary in the industry.
3.13 Compliance With Law. Centrum is in compliance
with all applicable laws and regulations, except to the extent
that noncompliance would not have a material adverse effect on
Centrum's business, financial condition or results of operations.
Neither Centrum nor, to Centrum's knowledge, any of its employees
has directly or indirectly paid or delivered any fee, commission
or other sum of money or item of property, however characterized,
to any finder, agent, government official or other party in the
United States or any other country, that was or is in violation
of any federal, state, or local statute or law or of any statute
or law of any other country having jurisdiction, except to the
extent that such violation would not have a material adverse
effect on Centrum's business, financial condition or results of
operations. Centrum has not participated directly or indirectly
in any boycotts or other similar practices affecting any of its
customers. Centrum has complied at all times with any and all
applicable federal, state and foreign laws, rules, regulations,
proclamations and orders relating to the importation or
exportation of its products, except to the extent that
noncompliance would not have a material adverse effect on
Centrum's business, financial condition or results of operations.
3.14 Labor Difficulties.
(a) Centrum is not engaged in any unfair labor
practice and is not in material violation of any applicable laws
respecting employment and employment practices, terms and
conditions of employment, and wages and hours.
(b) There is no unfair labor practice complaint
against Centrum actually pending or threatened before the
National Labor Relations Board.
(c) There is no strike, labor dispute, slowdown,
or stoppage actually pending or threatened against Centrum.
(d) No union representation question exists
respecting the employees of Centrum and, to Centrum's knowledge,
no union organizing activities are taking place.
(e) No grievance that might have a material
adverse effect on Centrum or the conduct of its business, nor any
arbitration proceeding arising out of or under any collective
bargaining agreement is pending and no claims therefor exist.
(f) No collective bargaining agreement that is
binding on Centrum restricts it from relocating or closing any of
its operations.
(g) Centrum has not experienced any material work
stoppage or other material labor difficulty.
3.15 Trade Regulation. Centrum has not, since
October 31, 1993, terminated its relationship with or refused to
ship Centrum Products to any dealer, distributor, OEM, third
party marketing entity or customer which had theretofore paid or
been obligated to pay Centrum in excess of Fifteen Thousand
Dollars ($15,000) over any consecutive twelve (12) month period.
All of the prices charged by Centrum in connection with the
marketing or sale of any products or services have been in
compliance with all applicable laws and regulations. No claims
have been communicated or threatened against Centrum with respect
to wrongful termination of any dealer, distributor or any other
marketing entity, discriminatory pricing, price fixing, unfair
competition, false advertising, or any other violation of any
laws or regulations relating to anti-competitive practices or
unfair trade practices of any kind, and, to Centrum's knowledge,
no specific situation, set of facts, or occurrence provides any
basis for any such claim.
3.16 Insider Transactions. To Centrum's knowledge, no
Affiliate of Centrum has any interest in (i) any material
equipment or other property, real or personal, tangible or
intangible, including, without limitation, any item of
intellectual property, used in connection with or pertaining to
the business of Centrum, or (ii) any creditor, supplier,
customer, manufacturer, agent, representative, or distributor of
products of Centrum; provided, however, that no such Affiliate or
other person shall be deemed to have such an interest solely by
virtue of (a) the ownership of less than 1% of the outstanding
stock or debt securities of any publicly-held company, the stock
or debt securities of which are traded on a recognized stock
exchange or quoted on the National Association of Securities
Dealers Automated Quotation System or (b) interests of Affiliates
engaged in venture capital in their portfolio companies.
3.17 Employees, Independent Contractors and
Consultants. The Centrum Disclosure Schedule lists and describes
all currently effective consulting, independent contractor and/or
employment agreements and other material agreements concluded
with individual employees, independent contractors or consultants
to which Centrum is a party. True and correct copies of all such
written agreements have been provided to 3Com or its
representatives. All salaries and wages paid by Centrum are in
compliance with applicable federal, state and local laws. Also
shown on the Centrum Disclosure Schedule are the names of all
persons whose annual rate of compensation, including bonuses and
other payments of any kind, is in excess of Fifty Thousand
Dollars ($50,000) and the names of all employees with a title of
"Director" of a department or above and the salaries for each
such person. Centrum's aggregate accrued vacation and severance
pay as of December 31, 1993 was approximately Sixty-Two Thousand
Three Hundred Dollars ($62,300).
3.18 Insurance. The Centrum Disclosure Schedule
contains a list of the principal policies of fire, liability and
other forms of insurance held by Centrum. Centrum has not done
anything, either by way of action or inaction, that might
invalidate such policies in whole or in part.
3.19 Litigation. There are no suits, actions or
proceedings pending or, to the best of Centrum's knowledge,
threatened against or affecting Centrum or which questions or
challenges the validity of this Agreement. There is no judgment,
decree, injunction, rule or order of any court, governmental
department, commission, agency, instrumentality or arbitrator
outstanding against Centrum.
3.20 Governmental Authorizations and Regulations. All
licenses, franchises, permits and other governmental
authorizations held by Centrum and material to its business are
valid and sufficient for the business presently carried on by
Centrum. The business of Centrum is not being conducted in
violation of any law, ordinance or regulation of any governmental
entity, except for violations which either singly or in the
aggregate do not and will not have a material adverse effect on
the operations, assets or financial condition of Centrum.
3.21 Corporate Minutes, Etc. The corporate minute
books, stock certificate books, stock registers and other
corporate records of Centrum are complete and accurate in all
material respects, and the signatures appearing on all documents
contained therein are the true signatures of the persons
purporting to have signed the same. All actions reflected in
such books and records were duly and validly taken in compliance
with the laws of the applicable jurisdiction. True and correct
copies of such records have been made available to 3Com or its
representatives.
3.22 Section 341(f)(2). Centrum has not, with regard
to any property or assets held, acquired or to be acquired by it,
at any time, filed a consent to the application of
Section 341(f)(2) of the Code nor will any such consent be filed
before the Closing.
3.23 Subsidiaries. Centrum has no subsidiaries.
Centrum does not own or control (directly or indirectly) any
capital stock, bonds or other securities of, and does not have
any proprietary interest in, any other corporation, general or
limited partnership, firm, association or business organization,
entity or enterprise, and Centrum does not control (directly or
indirectly) the management or policies of any other corporation,
partnership, firm, association or business organization, entity
or enterprise.
3.24 Compliance with Environmental Requirements.
Centrum has obtained all material permits, licenses and other
authorizations which are required under federal, state and local
laws relating to pollution or protection of the environment,
including laws or provisions relating to emissions, discharges,
releases or threatened releases of pollutants, contaminants, or
hazardous or toxic materials, substances, or wastes into air,
surface water, groundwater, or land, or otherwise relating to the
manufacture, processing, distribution, use, treatment, storage,
disposal, transport, or handling of pollutants, contaminants or
hazardous or toxic materials, substances, or wastes. Except as
set forth in the Centrum Disclosure Schedule, Centrum is in
material compliance with all terms and conditions of the required
permits, licenses and authorizations. Except as set forth in the
Centrum Disclosure Schedule, Centrum is not aware of any
conditions, circumstances, activities, practices, incidents, or
actions against Centrum which may form the basis of any claim,
action, suit, proceeding, hearing, or investigation against
Centrum, based on or related to the manufacture, processing,
distribution, use, treatment, storage, disposal, transport, or
handling, or the emission, discharge, release or threatened
release into the environment, of any pollutant, contaminant, or
hazardous or toxic substance, material or waste.
3.25 Corporate Documents. Centrum has furnished to
3Com for its examination: (i) all material permits, orders, and
consents issued by any regulatory agency with respect to Centrum,
or any securities of Centrum, and all applications for such
permits, orders, and consents; and (ii) the stock transfer books
of Centrum setting forth all transfers of any capital stock.
3.26 No Brokers. Neither Centrum nor to the best of
Centrum's knowledge any Centrum stockholder, is obligated for the
payment of fees or expenses of any broker or finder in connection
with the origin, negotiation or execution of this Agreement or
the Agreement of Merger or in connection with any transaction
contemplated hereby or thereby.
3.27 Disclosure. No statements by Centrum contained in
this Agreement and the Exhibits attached hereto, any other
Transaction Document or any written statement or certificate
furnished or to be furnished pursuant hereto or in connection
with the transactions contemplated hereby and thereby (when read
together) contains any untrue statement of a material fact or
omits to state a material fact necessary in order to make the
statements contained herein or therein not misleading in light of
the circumstances under which they were made.
3.28 Centrum Options.
(a) Attached hereto as Exhibit "C" ("Centrum
Option Holders") is a list, as of the date of this Agreement, of
all holders of outstanding Options or persons to whom commitments
have been made to grant options.
(b) All Options outstanding as of the Effective
Time have been issued in accordance with the terms of the Centrum
1993 Stock Plan and pursuant to the standard forms of option
agreement previously provided to legal counsel for 3Com.
(c) No Option will by its terms require an
adjustment in connection with the Merger.
(d) Neither the transactions contemplated by this
Agreement nor any action taken by Centrum will result in (i) any
acceleration of vesting in favor of any optionee under an Option;
(ii) any additional benefits for any optionee under an Option,
except for the assumption of Options provided for in
Section 2.1(a)(iii); or (iii) the inability of 3Com after the
Effective Time to exercise any right or benefit held by Centrum
prior to the Effective Time with respect to an Option assumed by
3Com, including, without limitation, if applicable, the right to
repurchase an optionee's unvested shares on termination of such
optionee's employment.
3.29 Certain Contracts.
(a) Centrum has performed all obligations
(including but not limited to all development milestones or
deliverables) under the Development Agreement between Centrum and
Chipcom Corporation dated October 28, 1993 (the "Chipcom
Agreement") required to be performed through the Closing Date (or
will have performed such obligations as of the Closing Date), and
Centrum is not aware of any fact or circumstance or inability on
the part of Centrum which could cause Centrum to fail to perform
an obligation under such agreement, other than failures which
individually or in the aggregate would not result in any penalty
or default under or any breach of such agreement.
(b) The Centrum Disclosure Schedule includes a
list of all Centrum products or releases and significant features
which are not Technology Agreement Inventions as defined in the
Termination Agreement dated December 27, 1993 between Accton
Technology Corp., Centrum and certain other parties (the
"Termination Agreement"). The Termination Agreement is, and in
particular but not by way of limitation the provisions thereof
prohibiting transfer of ownership and restricting disclosure of
certain inventions are, enforceable in accordance with the terms
thereof. There is no other agreement, contract or commitment
which modifies, affects or alters the Termination Agreement, and
there is no fact or circumstance which has or could with the
passage of time cause such Agreement or the provisions thereof
referred to in the prior sentence to become unenforceable in
accordance with the terms thereof.
OC Representations and Warranties of 3Com and Sub. Except
as otherwise set forth in the "3Com Disclosure Schedule" attached
hereto as Exhibit "D" ("3Com Disclosure Schedule"), 3Com and Sub
jointly and severally represent and warrant to Centrum as set
forth below. No fact or circumstance disclosed to Centrum shall
constitute an exception to these representations and warranties
unless such fact or circumstance is set forth in the 3Com
Disclosure Schedule attached hereto or such supplements thereto
as may mutually be agreed upon in writing by Centrum and 3Com.
Whenever the term "enforceable in accordance with its terms" or
like expression is used, it is understood that excepted therefrom
are any limitations on enforceability under applicable
bankruptcy, insolvency, reorganization, moratorium or other laws
of general application affecting the enforcement of creditor's
rights.
4.1 Organization and Good Standing. 3Com and Sub are
corporations duly organized, validly existing and in good
standing under the laws of the State of California, and have full
power and authority to carry on their businesses as now
conducted. 3Com and Sub are each qualified as foreign
corporations in any jurisdiction in which a failure to qualify
would have a material adverse effect on the operations or
financial condition of 3Com and/or Sub. Each of 3Com and Sub has
furnished Centrum with copies of its respective Articles of
Incorporation and Bylaws, as amended. Said copies are true,
correct and complete and contain all amendments through the date
of the Closing.
4.2 Power, Authorization and Validity.
(a) 3Com and Sub have the right, power, legal
capacity and authority to enter into and perform their respective
obligations under this Agreement and the other Transaction
Documents to which they are parties.
(b) The execution, delivery and performance of
this Agreement and the Transaction Documents have been, or will
have been prior to the Closing, duly and validly approved and
authorized by the Boards of Directors of 3Com and Sub and the
shareholder of Sub. No authorization or approval, governmental
or otherwise, is necessary in order to enable 3Com and Sub to
enter into and to perform the terms of this Agreement or the
Transaction Documents on their parts to be performed.
(c) This Agreement and any agreements which are
exhibits to this Agreement are the valid and binding obligations
of 3Com and Sub enforceable in accordance with their terms.
(d) Upon delivery in accordance herewith the
Agreement of Merger shall be a binding obligation of 3Com and Sub
enforceable in accordance with its terms.
(e) No consent, approval, order or authorization
of, or registration, declaration or filing with, any governmental
entity is required by or with respect to 3Com or Sub in
connection with the execution and delivery of this Agreement or
the Transaction Documents or the consummation by 3Com and Sub of
the transactions contemplated hereby or thereby, except for the
filing of the Agreement of Merger and officers' certificates with
the California Secretary of State and appropriate documents with
relevant authorities of other states in which 3Com and Sub are
qualified to do business.
4.3 Capitalization. The authorized capital of 3Com
consists of One Hundred Million (100,000,000) shares of Common
Stock, of which 30,968,523 shares were issued and outstanding on
November 30, 1993. The authorized capital of Sub consists of one
thousand shares (1,000) of Common Stock, all of which are issued
and outstanding and are owned of record and beneficially by 3Com.
All the issued and outstanding shares have been duly authorized
and validly issued, are fully paid and non assessable are not
subject to any right or claim of rescission, and have been
offered, issued, sold and delivered by 3Com in compliance with
all applicable federal and state securities laws.
4.4 No Violation of Existing Agreements. Neither the
execution and delivery of this Agreement or the Transaction
Documents nor the consummation of the transactions contemplated
hereby or thereby will conflict with, or result in a material
breach or violation of, any provision of 3Com's Articles of
Incorporation or Sub's Articles of Incorporation, or their
respective Bylaws, as currently in effect, any instrument or
contract to which 3Com or Sub is a party or by which any such
party is bound, or any federal, state or local judgment, writ,
decree, order, statute, rule or regulation applicable to any such
person. Neither the execution and delivery of this Agreement,
nor any Agreement attached hereto as an Exhibit, nor the
consummation of the transactions contemplated hereby or thereby
will have a material adverse effect on the operations, assets,
financial condition or prospects of 3Com.
4.5 Litigation. There is no action, proceeding, claim
or investigation pending or, to the best of 3Com's knowledge,
threatened against 3Com and Sub before any court or
administrative agency which could have a material adverse effect
upon 3Com's performance of its obligations hereunder.
4.6 No Brokers. Neither 3Com nor Sub is obligated for
the payment of fees or expenses of any broker or finder in
connection with the origin, negotiation or execution of this
Agreement or the Agreement of Merger or in connection with any
transaction contemplated hereby or thereby.
4.7 Disclosure. Neither this Agreement, its exhibits
and schedules, nor any of the certificates or documents required
to be delivered to Centrum under this Agreement contains any
untrue statement of a material fact or omits to state any
material fact necessary in order to make the statements contained
herein and therein not misleading in light of the circumstances
under which such statements were made.
4.8 Compliance With Other Instruments and Laws. 3Com
is not in violation of any provisions of its Articles of
Incorporation or Bylaws as currently in effect or in effect at
the Closing, or any federal, state or local judgment, writ,
decree or order applicable to 3Com. 3Com is not in default under
or in breach or violation of, nor, to 3Com's knowledge, is there
any valid basis for any claim of default by 3Com under, or breach
or violation by 3Com of, any contract, commitment or restriction
to which 3Com is a party or to which it or any of its properties
is bound, where such defaults, breaches or violations would, in
the aggregate, have a material adverse effect on the operations,
assets, financial condition or prospects of 3Com. The operations
of 3Com have not violated any federal, state or local laws,
regulations or orders with which failure to comply would have a
material adverse effect on the operations, assets, financial
condition or prospects of 3Com.
4.9 SEC Documents. 3Com has delivered to Centrum
true, accurate and complete copies of 3Com's most recent annual
report to shareholders, proxy statement, report on Form 10-K, and
any report on Form 10-Q or 8-K filed since the most recent 10-K
(collectively, the "SEC Documents"). As of their respective
filing dates, the SEC Documents complied as to form in all
material respects with the applicable requirements of the
Exchange Act and the Securities Act, and taken together, the SEC
Documents contained no untrue statement of a material fact and
did not omit to state a material fact required to be stated
therein or necessary to make the statements made therein, in
light of the circumstances in which they were made, not
misleading except to the extent corrected by a subsequently filed
SEC Document provided to Centrum prior to the execution of this
Agreement. The financial statements of 3Com included in the SEC
Documents (the "3Com Financial Statements") comply as to form in
all material respects with applicable accounting requirements and
with the published rules and regulations of the Securities and
Exchange Commission with respect thereto, have been prepared in
accordance with generally accepted accounting principles
consistently applied, and fairly present the consolidated
financial position of 3Com and its consolidated subsidiaries at
the dates thereof and the consolidated results of their
operations and cash flows for the periods then ended (subject, in
the case of unaudited statements, to normal, recurring audit
adjustments). There has been no change in 3Com's accounting
policies except as described in the notes to the 3Com Financial
Statements.
4.10 No Material Adverse Change. Since November 30,
1993, 3Com has conducted its business in the ordinary course,
with the exception of the acquisition by 3Com of Synernetics,
Inc., and there has not occurred: (i) any material adverse
change in 3Com's business, taken as a whole; (ii) any damage,
destruction or loss, whether covered by insurance or not,
materially and adversely affecting the properties or businesses
of 3Com; or (iii) any sale of a material amount of property of
3Com, except in the ordinary course of business.
5. Preclosing Covenants of Centrum. Centrum covenants and
agrees as provided in Sections 5.1 through 5.7, as follows:
5.1 Advice of Changes. Centrum will promptly advise
3Com in writing (i) of any event occurring subsequent to the date
of this Agreement which would render any representation or
warranty of Centrum contained in this Agreement, if made on or as
of the date of such event or the Closing Date, untrue or
inaccurate in any material respect and (ii) of any material
adverse change in Centrum's business, taken as a whole.
5.2 Conduct of Business. Until the Closing, Centrum
will continue to conduct its business and maintain its business
relationships in the ordinary and usual course and will not,
without the prior written consent of 3Com, which consent will not
be unreasonably withheld:
(a) borrow any money which borrowings exceed in
the aggregate $50,000;
(b) incur any liability other than in the
ordinary and usual course of business or in connection with the
performance or consummation of this Agreement;
(c) encumber or permit to be encumbered any of
its assets except in the ordinary course of its business;
(d) dispose of any of its assets, except
inventory in the regular and ordinary course of business;
(e) enter into any lease or contract for the
purchase or sale of any property, real or personal, except in the
ordinary course of business;
PCD fail to maintain its equipment and other
assets in good working condition and repair according to the
standards it has maintained up to the date of this Agreement,
subject only to ordinary wear and tear;
(g) pay any bonus, increased salary, or special
remuneration to any officer or employee, including any amounts
for accrued but unpaid salary or bonuses (other than amounts not
in excess of normal payments made on a regular basis);
(h) change accounting methods in any material
manner;
(i) declare, set aside or pay any cash or stock
dividend or other distribution in respect of capital, or redeem
or otherwise acquire any of its capital stock;
(j) amend or terminate any material contract,
agreement or license to which it is a party, or enter into any
new such contract, agreement or license, except in the ordinary
course of business;
(k) loan any amount to any person or entity, or
guaranty or act as a surety for any obligation, other than in
connection with employee advances or transactions in the ordinary
course of business;
(l) waive or release any right or claim with a
value in excess of $15,000, except in the ordinary course of
business;
(m) issue or sell any shares of its capital stock
of any class or any other of its securities, or issue or create
any warrants, obligations, subscriptions, options, convertible
securities, or other commitments to issue shares of capital stock
other than upon conversion or exercise of outstanding securities
or as described in Section 3 or on the Centrum Disclosure
Schedule;
RS\ split or combine the outstanding shares of
its capital stock of any class or enter into any recapitalization
affecting the number of outstanding shares of its capital stock
of any class or affecting any other of its securities;
(o) merge, consolidate or reorganize with any
entity;
(p) amend its Articles of Incorporation or
Bylaws; or
(q) agree to do any of the things described in
the preceding clauses of this Section 6.2.
5.3 Access to Information. Until the Closing, Centrum
shall allow 3Com and its agents free access upon reasonable
notice and during normal working hours to its files, books,
records, and offices, including, without limitation, any and all
information relating to taxes, commitments, contracts, leases,
licenses, and personal property and financial condition. Until
the Closing and thereafter, Centrum shall cause its accountants
to cooperate with 3Com and its agents in making available all
working papers pertaining to all financial statements prepared or
audited by such accountants.
5.4 Regulatory Approvals. Prior to the Closing,
Centrum shall execute and file, or join in the execution and
filing, of any application or other document which may be
necessary in order to obtain the authorization, approval or
consent of any governmental body, federal, state or local, which
may be reasonably required, or which 3Com may reasonably request,
in connection with the consummation of the transactions
contemplated by this Agreement. Such persons and entities shall
use their best efforts to obtain all such authorizations,
approvals and consents.
5.5 Satisfaction of Conditions Precedent. Centrum
will use commercially reasonable efforts to satisfy or cause to
be satisfied all the conditions precedent which are set forth in
Section 11, and Centrum will use commercially reasonable best
efforts to cause the transactions contemplated by this Agreement
to be consummated, and, without limiting the generality of the
foregoing, to obtain all consents and authorizations of third
parties and to make all filings with, and give all notices to,
third parties which may be necessary or reasonably required on
its part in order to effect the transactions contemplated hereby.
5.6 Shareholder Vote. Prior to the Closing, whether
by special meeting or written consent of its shareholders,
Centrum will submit this Agreement and related matters to its
shareholders for consideration and approval, and the Board of
Directors of Centrum will recommend such approval to the Centrum
shareholders.
5.7 Exclusivity. Until February 15, 1994, Centrum
agrees that it will not (and that it will use commercially
reasonable efforts to assure that its employees, agents and
affiliates do not on its behalf) discuss or enter any agreement
concerning the sale or acquisition of Centrum, its stock
(including by means of any public offering thereof, but excluding
issuance of stock and options to employees in the ordinary course
of business consistent with past practices) or a substantial part
of its assets with any party other than 3Com, and that any such
discussions presently in progress will be terminated or suspended
during that period.
6. Preclosing Covenants of 3Com and Sub.
6.1 Advice of Changes. 3Com and Sub will promptly
advise Centrum in writing (i) of any event occurring subsequent
to the date of this Agreement which would render any
representation or warranty of 3Com or Sub contained in this
Agreement, if made on or as of the date of such event or the
Closing Date, untrue or inaccurate in any material respect and
(ii) of any material adverse change in 3Com's business, taken as
a whole.
6.2 Regulatory Approvals. Prior to the Closing, 3Com
and Sub shall execute and file, or join in the execution and
filing, of any application or other document which may be
necessary in order to obtain the authorization, approval or
consent of any governmental body, federal, state or local, which
may be reasonably required, or which Centrum may reasonably
request, in connection with the consummation of the transactions
contemplated by this Agreement. Such persons and entities shall
use their best efforts to obtain all such authorizations,
approvals and consents.
6.3 Access to Information. Until the Closing, 3Com
shall allow Centrum and its agents free access to the officers of
3Com upon reasonable notice and during normal working hours and
shall provide all information or copies of all documents
including, without limitation, any and all information relating
to taxes, commitments, contracts, leases, licenses, and personal
property and financial condition, subject to reasonable limits on
access to 3Com's technical and other nonpublic information.
6.4 Satisfaction of Conditions Precedent. 3Com will
use commercially reasonable efforts to satisfy or cause to be
satisfied all the conditions precedent which are set forth in
Section 10, and 3Com will use commercially reasonable efforts to
cause the transactions contemplated by this Agreement to be
consummated, and, without limiting the generality of the
foregoing, to obtain all consents and authorizations of third
parties and to make all filings with, and give all notices to,
third parties which may be necessary or reasonably required on
its part in order to effect the transactions contemplated hereby.
7. Post-Closing Covenants of 3Com. 3Com covenants and
agrees as provided in Sections 7.1 through 7.2, any one or more
of which may be waived by written consent of the Representative
(as defined in the Escrow Agreement), which consent shall not be
unreasonably withheld:
7.1 Dividends, Etc. Until the Second Payment has been
paid in full, 3Com will not declare, set aside or pay any cash or
stock dividend or other distribution to shareholders (other than
dividends and distributions payable only in Common Stock of
3Com), or redeem or otherwise acquire any of its capital stock,
other than repurchases of stock from time to time consistent with
3Com's previously announced stock repurchase program.
7.2 Limitations on Liens. Until the Second Payment
has been paid in full, 3Com will not create or suffer to exist,
or permit any subsidiary to create or suffer to exist, any lien,
security interest or other charge or encumbrance, upon or with
respect to any of its properties, whether now owned or hereafter
acquired, other than
(a) such liens, security interests or other
charges or encumbrances as are in existence on the date of this
Agreement securing indebtedness of not more than $250,000 in the
aggregate;
(b) to secure indebtedness of 3Com for money
borrowed;
(c) liens for taxes, fees, assessments, or other
governmental charges (other than any such lien on inventory or
other current assets) which are not delinquent or which remain
payable without penalty;
(d) carriers', warehousemen's, mechanics',
landlords', materialmen's, repairmen's or other similar liens
(other than any such lien on inventory or other current assets)
arising in the ordinary course of business which are not
delinquent or which remain payable without penalty or which are
being contested in good faith and by appropriate proceedings;
(e) liens (other than any such lien on inventory
or other current assets) on the property of 3Com or any of its
subsidiaries incurred, or pledges or deposits required, in
connection with workmen's compensation, unemployment insurance,
and other special security legislation;
(f) liens (other than any such lien on inventory
or other current assets) on the property of 3Com or any of its
subsidiaries securing (i) the performance of bids, trade
contracts (other than for borrowed money), leases, statutory
obligations; (ii) obligations on surety and appeal bonds; and
(iii) other obligations of a like nature incurred in the ordinary
course of business, provided all such liens in the aggregate have
no reasonable likelihood of causing a material adverse effect
upon the business of 3Com;
(g) easements, rights-of-way, restrictions, and
other similar encumbrances incurred in the ordinary course of
business which, in the aggregate, are not substantial in amount,
and which do not in any case materially detract from the value of
the property subject thereto or materially interfere with the
ordinary conduct of the businesses of 3Com or any of its
subsidiaries; and
(h) purchase money security interests on any
asset acquired or held by 3Com or any of its subsidiaries in the
ordinary course of business, other than inventory or other
current assets, securing only indebtedness incurred or assumed
for the purpose of financing all or any part of the cost of
acquiring such asset; provided that any such lien attaches to
such asset concurrently with or within thirty (30) days after the
acquisition thereof.
8. Mutual Covenants.
8.1 Confidentiality. The parties acknowledge and
agree that provisions of the Confidentiality Agreement dated
December 21, 1993 shall be binding upon the parties hereto. The
terms of that Confidentiality Agreement are incorporated in this
Agreement by this reference.
8.2 Further Assurances. Each party agrees to
cooperate fully with the other parties and to execute such
further instruments, documents and agreements and to give such
further written assurances, as may be reasonably requested by any
other party to better evidence and reflect the transactions
described herein and contemplated hereby and to carry into effect
the intents and purposes of this Agreement.
8.3 Escrow; Escrow Agreement. Subject to the terms of
the Escrow Agreement referenced below, 3Com and Centrum agree
that on the Closing Date and date of the Second Payment, 3Com
shall deposit the Escrow Amount into an escrow account (the
"Escrow Account") maintained by an escrow agent (the "Escrow
Agent") mutually agreeable to Centrum and 3Com. The Escrow Agent
shall be subject to all of the terms of the Escrow Agreement in
the form attached hereto as Exhibit "E" ("Form of Indemnity and
Escrow Agreement"). Notwithstanding anything to the contrary set
forth in this Agreement or in any of the other Transaction
Documents: (a) the Escrow Account shall be the sole and exclusive
source of any claim or remedy by 3Com or Sub arising out of the
breach or alleged breach (other than fraud) by Centrum of any of
the representations, warranties, covenants or agreements in this
Agreement or in any of the other Transaction Documents, (b) no
stockholder, officer, director or employee of Centrum shall have
any other liability for any breach by Centrum of this Agreement
or of any of the other Transaction Documents and (c) no claim may
be made against the Escrow Account for any individual claim if it
is less than [**
] and Centrum and the Centrum shareholders maximum liability
shall not exceed [**
] all as more specifically
provided in the Escrow Agreement. The option assumption
agreements providing for options to acquire 3Com Common Stock
provided for in Section 2.1(a)(iii) shall provide that in the
event a claim is successfully asserted under the Escrow
Agreement, the liability for such claim shall be proportionately
shared by Centrum Shareholders and the Option holders based upon
the proportion of the fully diluted capital stock of Centrum
represented by such person's Centrum Common Stock, Preferred
Stock and Options at the Effective Time, but with the Option
holders' liability for such claim limited to the loss of the
right to exercise a portion of the Option, not to exceed [**
] of the number of shares of 3Com Common Stock
subject to such Option.
9. The Closing.
9.1 Merger. On the date of the Closing, but not prior
to the Closing, the Agreement of Merger shall be filed with the
California Secretary of State and the merger of Sub with and into
Centrum shall be consummated.
9.2 Additional Documents.
(a) At any time and from time to time at or after
the Closing, the parties shall at the request of the other party
execute and deliver or cause to be executed and delivered all
such assignments, consents and other documents and take or cause
to be taken all such other actions as either party may reasonably
deem necessary or desirable, in order to more fully and
effectively carry out the intents and purposes of this Agreement.
(b) Centrum shall execute and deliver to 3Com a
statement meeting the requirements of Treasury Regulation
Section 1.897-2(h)(2) stating that interests in Centrum are not
U.S. real property interests.
10. Conditions to Centrum's Obligations. Centrum's
obligations hereunder are subject to the fulfillment or
satisfaction on and as of the Closing, of each of the following
conditions (any one or more of which may be waived by Centrum,
but only in a writing signed by Centrum):
10.1 Accuracy of Representations and Warranties. The
representations and warranties of 3Com and Sub set forth in
Section 4 shall be true in all material respects on and as of the
Closing with the same force and effect as if they had been made
at the Closing, and Centrum shall receive a certificate to such
effect from the President or a Vice President of 3Com and Sub,
respectively.
10.2 No Litigation. No litigation or proceeding shall
be threatened or pending against 3Com, Sub or Centrum with the
purpose or with the probable effect of enjoining or preventing
the consummation of any of the transactions contemplated by this
Agreement, or which would have a material adverse effect on the
business, liabilities, income, property, operations or prospects
of 3Com subsequent to the Closing, and Centrum shall receive a
certificate to such effect signed by the President or a Vice
President of 3Com and Sub, respectively.
10.3 Authorizations. Centrum shall have received from
3Com and Sub written evidence that the execution, delivery and
performance of 3Com and Sub's obligations under this Agreement
and the Agreement of Merger have been duly and validly approved
and authorized by the Board of Directors of 3Com and Sub,
respectively, and the stockholder of Sub.
10.4 Opinion of 3Com's Counsel. Centrum shall have
received from Gray Cary Ware & Freidenrich, counsel for 3Com, an
opinion satisfactory to such parties in form and substance
substantially as set forth in Exhibit "F" ("Opinion of Counsel to
3Com") hereto.
10.5 Government Consents. There shall have been
obtained at or prior to the date of Closing such permits or
authorizations, and there shall have been taken such other
action, as may be required by any regulatory authority having
jurisdiction over the parties and the subject matter and the
actions herein proposed to be taken.
10.6 Date of Closing. The Closing shall occur on or
before February 8, 1994.
10.7 Federal and State Securities Laws. Centrum and
3Com shall have complied with all applicable federal and state
securities laws.
10.8 Covenants. 3Com shall have performed and complied
with all of its covenants contained in Sections 6 and 8 on or
before the Closing, and Centrum shall receive a certificate to
such effect signed by the President or a Vice President of 3Com.
10.9 No Adverse Development. There shall be no order,
decree or ruling by any court or governmental agency or threat
thereof or any other fact or circumstance, which might prohibit
or render illegal or have a material, adverse effect on the
business, prospects, liabilities, income, property, assets or
operations of 3Com subsequent to the Closing. 3Com shall not
have sustained a loss, whether or not insured, by reason of
physical damage caused by fire, flood or earthquake, accident or
other calamity which materially affects the value of its assets
or its ability to carry on its business as proposed to be
conducted, and which, in the judgment of Centrum, renders it
inadvisable to proceed with the Closing. There shall have been
no other event which, in the judgment of Centrum, has a material
and adverse effect on 3Com's assets, business, liabilities,
income, property, assets, prospects or operations subsequent to
the Closing.
10.10 Required Consents. Centrum shall have
received all written consents, assignments, waivers,
authorizations or other certificates reasonably deemed necessary
by Centrum's legal counsel to provide for the continuation in
full force and effect of any and all material contracts and
leases of Centrum, or 3Com shall have waived any claim for
indemnification for failure to obtain any such consent or
approval.
10.11 Shareholder Approval. This Agreement and the
Agreement of Merger shall have been approved and adopted by the
affirmative vote of the holders of at least a majority of the
outstanding shares of Centrum Common Stock and the holders of at
least a majority of the outstanding shares of Centrum Preferred
Stock, each voting separately as a class.
10.12 Warrants. All outstanding warrants to
purchase shares of stock of Centrum shall be exercised in full or
terminated prior to the Effective Time.
11. Conditions to 3Com's and Sub's Obligations. The
obligations of 3Com and Sub hereunder are subject to the
fulfillment or satisfaction on, and as of the Closing, of each of
the following conditions (any one or more of which may be waived
by 3Com, but only in a writing signed by 3Com):
11.1 Accuracy of Representations and Warranties. The
representations and warranties of Centrum contained in Section 3
shall be true in all material respects on and as of the Closing
with the same force and effect as if they had been made at the
Closing, and 3Com shall receive a certificate from Centrum to
such effect with respect to the representations and warranties of
Centrum executed by the Chairman of the Board or the President of
Centrum.
11.2 Covenants. Centrum shall have performed and
complied with all of its covenants contained in Sections 5 and 8
on or before the Closing, and 3Com shall receive a certificate to
such effect signed by the Chairman of the Board or the President
of Centrum.
11.3 No Litigation. On and as of the Closing, no
litigation or proceeding shall be threatened or pending against
3Com, Sub or Centrum for the purpose or with the probable effect
of enjoining or preventing the consummation of any of the
transactions contemplated by this Agreement, or which would have
a material adverse effect on the business, liabilities, income,
property, operations or prospects of Centrum subsequent to the
Closing, and 3Com shall receive a certificate from Centrum to
such effect signed by Chairman of the Board or the President of
Centrum.
11.4 Authorizations. 3Com shall have received from
Centrum written evidence that (i) the execution, delivery and
performance of this Agreement and the Agreement of Merger have
been duly and validly approved and authorized by its Board of
Directors and by the Centrum Shareholders, and (ii) shareholders
of Centrum holding no more than ten percent (10%) of the
outstanding shares of Centrum Common Stock have, or might be able
to perfect, dissenters' rights in connection with the Merger.
3Com shall have received a certificate from Centrum to such
effect executed by the Chairman of the Board or the President of
Centrum.
11.5 Required Centrum Consents. Centrum shall have
received all written consents, assignments, waivers or
authorizations reasonably deemed necessary by 3Com to provide for
the continuation in full force and effect of any and all material
contracts, licenses and leases of Centrum.
11.6 Clarification of Chipcom Contract. Centrum shall
have obtained confirmation reasonably satisfactory to 3Com to the
effect that the manufacturing license granted to Chipcom
Corporation in the Chipcom Agreement does not take effect until
the occurrence or satisfaction of one of the events set forth in
Section V.C. of the Chipcom Agreement.
11.7 Audited Financial Statements. Centrum shall have
delivered to 3Com audited financial statements of Centrum for the
year ended September 30, 1993, which audited financial statements
shall not differ materially and adversely from the Centrum
Financial Statements as of and for the year ended
September 30, 1993.
11.8 No Adverse Development. There shall be no order,
decree, or ruling by any court or governmental agency or threat
thereof or any other fact or circumstance, which might prohibit
or render illegal or have a material, adverse effect on the
business, prospects, liabilities, income, property, assets or
operations of Centrum subsequent to the Closing. Centrum shall
not have sustained a loss, whether or not insured, by reason of
physical damage caused by fire, flood or earthquake, accident or
other calamity which materially affects the value of its assets
or its ability to carry on its business as proposed to be
conducted, and which, in the judgment of 3Com, renders it
inadvisable to proceed with the Closing. There shall have been
no other event which, in the judgment of 3Com, has a material and
adverse effect on Centrum's assets, business, liabilities,
income, property, assets, prospects or operations subsequent to
the Closing.
11.9 Required Consents. 3Com shall have received all
written consents, assignments, waivers, authorizations or other
certificates reasonably deemed necessary by 3Com's legal counsel
to provide for the continuation in full force and effect of any
and all material contracts and leases of Centrum, except to the
extent that the Centrum Disclosure Schedule indicates that such
items may not be obtained prior to the Closing.
11.10 Opinion of Centrum's Counsel. 3Com shall
have received from Venture Law Group, counsel to Centrum, an
opinion satisfactory to 3Com in form and substance substantially
as set forth in Exhibit "G" ("Opinion of Counsel to Centrum")
hereto.
11.11 Opinion regarding Fairness. 3Com shall have
received from its investment adviser an opinion that the Merger
is fair from a financial perspective.
11.12 Employment with 3Com; Non-compete Agreements.
Vincent Liu, David Helfrich and Ann Zeichner shall have agreed to
become employees of 3Com following the consummation of the
Merger. Mr. Gilbert Hu shall have entered into a non-compete
agreement in the form attached as Exhibit "H-1", with Mr. Hu's
non-compete agreement having a term of four years from the date
of Closing, and Vincent Liu and Ann Zeichner shall have entered
into employment and non-compete agreements in the forms attached
as Exhibits "H-2" and "H-3".
11.13 Government Consents. There shall have been
obtained at or prior to the date of Closing such permits or
authorizations and there shall have been taken such other action,
as may be required by any regulatory authority having
jurisdiction over the parties and the subject matter and the
actions herein proposed to be taken, including compliance with
applicable state and federal securities laws.
11.14 Date of Closing. The Closing shall occur on
or before February 8, 1993.
11.15 Absence of Specific Changes. Since
January 18, 1993, there shall have been no (i) new or
significantly different commitments or contracts made by Centrum
with any OEM or with any significant customer, and (ii) no
changes in the balance sheet of Centrum as of the time of Closing
from the Centrum Balance Sheet, including but not limited to cash
distributions, except for those occurring in the ordinary course
of business and those disclosed on the Centrum Disclosure
Schedule.
11.16 Transfer of Technology. Each key technical
employee and each independent contractor of Centrum shall have
transferred to Centrum any and all right, title or interest such
employee or contractor may have in any Proprietary Rights used
in, relating to or made a part of the Centrum Products, free and
clear of all liens, claims, encumbrances or other obligations,
including any obligation to pay royalties or similar fees with
respect thereto (other than as disclosed on the Centrum
Disclosure Schedule) and shall have executed such additional
documents as may be required, in 3Com's judgment, to effect the
intent of this Section.
11.17 Warrants. All outstanding warrants to
purchase shares of stock of Centrum shall be exercised in full or
terminated prior to the Effective Time.
12. Termination of Agreement.
12.1 Prior to Closing. This Agreement may be
terminated at any time prior to the Closing by the mutual written
consent of each of the parties hereto, or by Centrum or 3Com upon
delivery of notice to the other party if the Merger shall not
have been consummated on or before February 8, 1993 for any
reason other than matters within the direct control of such
party.
12.2 At the Closing. At the Closing, this Agreement
may be terminated and abandoned:
(a) By 3Com if any of the conditions precedent to
3Com or Sub's obligations pursuant to Section 11 shall not have
been fulfilled at and as of the Closing; or
(b) By Centrum if any of the conditions precedent
to Centrum's obligations pursuant to Section 10 above shall not
have been fulfilled at and as of the Closing.
Any termination of this Agreement under this Section 12.2
shall be effective by the delivery of notice of the terminating
party to the other parties hereto.
12.3 No Liability. Any termination of this Agreement
pursuant to this Section 12 shall be without further obligation
or liability upon any party in favor of any other party hereto.
12.4 Effect of Termination. The termination of the
Agreement shall terminate all Sections hereof other than
Section 8.1
13. Survival of Representations, Warranties and Covenants.
The representations and warranties of the parties shall survive
until the date [** ] and shall
terminate thereupon, except to the extent related to any Claim
that has been asserted under the Escrow Agreement.
14. Miscellaneous.
14.1 Governing Laws. It is the intention of the
parties hereto that the internal laws of the State of California
(irrespective of its choice of law principles) shall govern the
validity of this Agreement, the construction of its terms, and
the interpretation and enforcement of the rights and duties of
the parties hereto. The parties hereby agree that any suit to
enforce any provision of this Agreement or arising out of or
based upon this Agreement or the business relationship between
any of the parties hereto shall be brought in the United States
District Court for the Northern District of California or the
Superior or Municipal Court in and for the County of Santa Clara,
California. Each party hereby agrees that such courts shall have
in personam jurisdiction with respect to such party, and such
party hereby submits to the in personam jurisdiction of such
courts.
\P06 Binding upon Successors and Assigns. Subject to,
and unless otherwise provided in, this Agreement, each and all of
the covenants, terms, provisions, and agreements contained herein
shall be binding upon, and inure to the benefit of, the permitted
successors, executors, heirs, representatives, administrators and
assigns of the parties hereto.
14.3 Severability. If any provision of this Agreement,
or the application thereof, shall for any reason and to any
extent be invalid or unenforceable, the remainder of this
Agreement and application of such provision to other persons or
circumstances shall be interpreted so as best to reasonably
effect the intent of the parties hereto. The parties further
agree to replace such void or unenforceable provision of this
Agreement with a valid and enforceable provision which will
achieve, to the extent possible, the economic, business and other
purposes of the void or unenforceable provision.
14.4 Entire Agreement. This Agreement, the exhibits
hereto, the documents referenced herein, and the exhibits
thereto, constitute the entire understanding and agreement of the
parties hereto with respect to the subject matter hereof and
thereof and supersede all prior and contemporaneous agreements or
understandings, inducements or conditions, express or implied,
written or oral, between the parties with respect hereto and
thereto. The express terms hereof control and supersede any
course of performance or usage of the trade inconsistent with any
of the terms hereof.
14.5 Counterparts. This Agreement may be executed in
any number of counterparts, each of which shall be an original as
against any party whose signature appears thereon and all of
which together shall constitute one and the same instrument.
This Agreement shall become binding when one or more counterparts
hereof, individually or taken together, shall bear the signatures
of all of the parties reflected hereon as signatories.
14.6 Expenses. Each party shall pay all of its own
costs and expenses incurred with respect to the negotiation,
execution and delivery of this Agreement and the exhibits hereto;
provided, however, that any accounting, legal or other advisory
fees incurred by Centrum with respect to such matters in excess
of [** ] shall constitute an uncontestable Claim
under the Escrow Agreement without any minimum claim requirement
or threshold.
14.7 Other Remedies. Except as otherwise provided
herein, any and all remedies herein expressly conferred upon a
party shall be deemed cumulative with and not exclusive of any
other remedy conferred hereby or by law on such party, and the
exercise of any one remedy shall not preclude the exercise of any
other.
14.8 Amendment and Waivers. Any term or provision of
this Agreement may be amended, and the observance of any term of
this Agreement may be waived (either generally or in a particular
instance and either retroactively or prospectively) only by a
writing signed by the party to be bound thereby; provided,
however, that no amendment of Section 7 or Section 8.3 may be
effected without the written approval of the Representative (as
defined in the Escrow Agreement), and after approval of this
Agreement has been obtained from the Centrum Shareholders, no
amendment shall be effected which by law requires the further
approval of the Centrum Shareholders without obtaining such
further approval. The waiver by a party of any breach hereof for
default in payment of any amount due hereunder or default in the
performance hereof shall not be deemed to constitute a waiver of
any other default or any succeeding breach or default.
14.9 Survival of Agreements. All covenants,
agreements, representations and warranties made herein shall
survive the execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby
notwithstanding any investigation of the parties hereto, subject
to the limitations provided herein.
14.10 No Waiver. The failure of any party to
enforce any of the provisions hereof shall not be construed to be
a waiver of the right of such party thereafter to enforce such
provisions.
14.11 Attorneys' Fees. Should suit be brought to
enforce or interpret any part of this Agreement, the prevailing
party shall be entitled to recover, as an element of the costs of
suit and not as damages, reasonable attorneys' fees to be fixed
by the court (including without limitation, costs, expenses and
fees on any appeal). The prevailing party shall be the party
entitled to recover its costs of suit, regardless of whether such
suit proceeds to final judgment. A party not entitled to recover
its costs shall not be entitled to recover attorneys' fees. No
sum for attorneys' fees shall be counted in calculating the
amount of a judgment for purposes of determining if a party is
entitled to recover costs or attorneys' fees.
14.12 Notices. Whenever any party hereto desires
or is required to give any notice, demand, or request with
respect to this Agreement, each such communication shall be in
writing and shall be effective only if it is delivered by
personal service or mailed, United States registered or certified
mail, postage prepaid, addressed as follows:
Centrum: 2835 Zanker Road
San Jose, California, 95134
Attention: President
With copy to: Venture Law Group
2700 Sand Hill Road
Menlo Park, CA 94025
Attention: Mark Medearis
3Com: 5400 Bayfront Plaza
Santa Clara, CA 95052-8145
Attention: Mark Michael, General Counsel
with copy to: Gray Cary Ware & Freidenrich
400 Hamilton Avenue
Palo Alto, CA 94301
Attention: J. Howard Clowes
Such communications shall be effective when they are
received by the addressee thereof; but if sent by registered or
certified mail in the manner set forth above, they shall be
effective five (5) days after being deposited in the United
States mail. Any party may change its address for such
communications by giving notice thereof to the other parties in
conformity with this Section.
14.13 Construction of Agreement. This Agreement
has been negotiated by the respective parties hereto and their
attorneys and the language hereof shall not be construed for or
against any party. The titles and headings herein are for
reference purposes only and shall not in any manner limit the
construction of this Agreement, which shall be considered as a
whole.
14.14 No Joint Venture. Nothing contained in this
Agreement shall be deemed or construed as creating a joint
venture or partnership between any of the parties hereto. No
party is by virtue of this Agreement authorized as an agent,
employee or legal representative of any other party. No party
shall have the power to control the activities and operations of
any other and their status is, and at all times, will continue to
be, that of independent contractors with respect to each other.
No party shall have any power or authority to bind or commit any
other. No party shall hold itself out as having any authority or
relationship in contravention of this Section.
14.15 Further Assurances. Each party agrees to
cooperate fully with the other parties and to execute such
further instruments, documents and agreements and to give such
further written assurances, as may be reasonably requested by any
other party to better evidence and reflect the transactions
described herein and contemplated hereby and to carry into effect
the intents and purposes of this Agreement.
14.16 Absence of Third Party Beneficiary Rights.
No provisions of this Agreement are intended, nor shall be
interpreted, to provide or create any third party beneficiary
rights or any other rights of any kind in any client, customer,
affiliate, shareholder, partner of any party hereto or any other
person or entity unless specifically provided otherwise herein,
and, except as so provided, all provisions hereof shall be
personal solely between the parties to this Agreement (except as
to the Centrum Shareholders and holders of Centrum Options with
respect to any material breach by 3Com or Sub of any
representations, warranties or covenants provided in this
Agreement and the Exhibits hereto).
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of January 18, 1994.
3COM CORPORATION
By: Janice M. Roberts
VP Marketing
Printed Name and Title
3SUB ACQUISITION CORPORATION
By: Janice M. Roberts
President
Printed Name and Title
CENTRUM COMMUNICATIONS, INC.
By: Andrew W. Verhalen
Chairman
Printed Name and Title
EXHIBITS
A - Agreement of Merger
B - Centrum Disclosure Schedule
C - Centrum Option Holders
D - 3Com Disclosure Schedule
E - Form of Indemnity and Escrow Agreement
F - Opinion of Counsel to 3Com
G - Opinion of Counsel to Centrum
H-1 - Gilbert Hu Agreement Not to Compete
H-2 - Vincent Liu Employment and Non-competition Agreement
H-3 - Ann Zeichner Employment and Non-competition Agreement
** Confidential treatment has been requested for those
portions marked with asterisks. The confidential
portions have been filed separately with the Securities
and Exchange Commission.
INDEMNITY AND ESCROW AGREEMENT
This Indemnity and Escrow Agreement (the "Agreement") is
entered into as of February , 1994 by and among 3Com
Corporation, a California corporation ("3Com"), Centrum
Communications, Inc., a California corporation ("Centrum"), the
Representative named in Section 2 (Representative) hereof and the
Escrow Agent named herein.
RECITALS
A. 3Com, 3Sub Acquisition Corporation, a California
corporation and a wholly-owned subsidiary of 3Com ("Sub"), and
Centrum have entered into an Agreement and Plan of Reorganization
dated as of January 18, 1994 (the "Plan") pursuant to which Sub
will merge with and into Centrum, with Centrum surviving the
Merger. Capitalized terms used in this Agreement and not
otherwise defined herein will have the meanings given them in the
Plan.
B. The Plan provides for [** ] of the amount
of the First Payment and, if and to the extent any Claims (as
defined below) have been made and remain unresolved at the time
the Second Payment becomes payable, for up to [** ]
of the amount of the Second Payment (together with the amount
withheld from the First Payment, the "Escrow Amount") to be
placed in an escrow account (the "Escrow Account") to secure
certain obligations to 3Com under the Plan on the terms and
conditions set forth herein.
C. The parties hereto desire to establish the terms and
conditions pursuant to which the Escrow Amount will be withheld
by 3Com and subsequently deposited, held in, and disbursed from
the Escrow Account.
NOW, THEREFORE, the parties hereto agree as follows:
1. Indemnification.
1.1 Indemnification by Centrum Securityholders from
Escrow Amount. If the Merger occurs, all the representations,
warranties, covenants and agreements of Centrum in the Plan shall
survive the Effective Time, but Centrum shall have no further
liability with respect thereto, and all such liability will
become the obligation and collective responsibility of the
shareholders of Centrum immediately after the Closing
(collectively "the Centrum Shareholders") and the holders of
Options (collectively, the "Centrum Optionholders"), in
accordance with this Agreement, subject to the limitations set
forth herein. The Centrum Shareholders and the Centrum
Optionholders are collectively referred to herein as the "Centrum
Securityholders." Centrum having originally made such
representations, warranties, covenants and agreements shall in no
way limit the obligations of the Centrum Securityholders pursuant
to this Agreement, which obligations shall remain in full force
and effect, subject to the limitations set forth herein. All the
representations, warranties, covenants and agreements of Centrum
in the Plan shall survive the Effective Time as to the Centrum
Securityholders, subject to the limitations set forth herein.
Pursuant to and subject to the provisions of this Agreement, the
Centrum Securityholders shall indemnify and hold harmless 3Com
and Centrum in respect of any and all claims, losses, damages,
liabilities, demands, assessments, judgments, costs and expenses
(including, without limitation, settlement costs and any legal or
other expenses for investigating, bringing or defending any
actions or threatened actions) (collectively the "Costs")
incurred or suffered by 3Com or Centrum resulting from (i) any
breach of any representation, warranty, covenant, agreement or
obligation made by Centrum in the Plan or in any of the other
Transaction Documents and (ii) any matter set forth on Schedule A
hereto. Nothing in this Agreement or in the Plan shall limit
3Com rights or claims with respect to any Centrum Shareholder
immediately prior to the Effective Time arising out of such
Centrum Shareholder's failure to own all right, title and
interest in and to the shares of Centrum listed of record as
owned by such Centrum Shareholder.
1.2 Payment for Indemnification Claims; Threshold.
The Centrum Securityholders agree to pay 3Com for Costs claimed
by 3Com in the manner and to the extent provided in this
Agreement. The parties agree that the Escrow Amount will be
security for this obligation. Promptly after the receipt by 3Com
of notice or discovery of any claim, damage or legal action or
proceeding giving rise to rights under Section 1.1
(Indemnification by Centrum Securityholders from Escrow Amount),
3Com will give the Representative and the Escrow Agent written
notice of such claim, damage, legal action or proceeding (a
"Claim") in accordance with Section 4 (Notice of Claim) hereof.
3Com shall notify the Representative of the status or progress of
any such Claim.
Notwithstanding anything to the contrary set forth in this
Agreement or in any of the other Transaction Documents, in the
absence of fraud, if the Merger is consummated: (a) the Escrow
Amount shall be the sole and exclusive remedy and source of
compensation to 3Com for any Costs incurred by 3Com or Sub
arising out of the breach or alleged breach by Centrum of any of
its representations, warranties, covenants or agreements in the
Plan or in any of the other Transaction Documents and for any
matter set forth on Schedule A, and (b) except as specifically
provided in the following paragraph or in Schedule A, Centrum and
the Centrum Securityholders shall be liable only as to any
individual claim if it involves [**
] provided that,
once such [** ] then 3Com will be entitled to make
Claim for indemnification of all such Costs [**
]
1.3 Allocation of Costs between Shareholders and
Optionholders. With respect to any Costs for which 3Com may be
entitled to indemnification under this Agreement, 3Com will be
entitled to be paid in cash out of the Escrow Amount that
percentage of such Costs equal to the percentage of all fully
diluted Common Stock equivalents of Centrum (assuming conversion
of all outstanding Preferred Stock and exercise of all
outstanding Options whether vested or not) represented by the
outstanding Centrum Common Stock and Preferred Stock immediately
prior to the Closing. All such fully diluted Common Stock
equivalents are referred to herein as the "Centrum Shares." All
such fully diluted Common Stock equivalents are referred to
herein as the "Centrum Shares." The remainder of such Costs will
be subject to indemnification by means of corresponding
provisions in the assumption agreements pursuant to which 3Com
assumes the Options, with the Optionholders' indemnification for
such Costs effected through the loss of the right to exercise a
portion of their Options, not to exceed [** ] of the
number of shares of 3Com Common Stock subject to such options
immediately after the Closing, in the absence of fraud.
1.4 Limitation on Liability. In the absence of fraud,
if the Merger is consummated, the maximum liability of Centrum
and the Centrum Shareholders for any matter set forth in this
Agreement shall not exceed [**
] Payments for Costs shall be deducted from the
Escrow Amount payable to each Centrum Shareholder in proportion
to the ratio of the number of shares of Centrum Common Stock and
Preferred Stock held by such Centrum Shareholder over the total
number of outstanding shares of Centrum Common Stock and
Preferred Stock immediately prior to the Effective Time, and
shall be deducted from shares of 3Com Common Stock issuable upon
exercise of Options held by each Centrum Optionholder in
proportion to the number of shares of Centrum Common Stock
issuable upon exercise of Options held by such Centrum
Optionholder over the total number of shares of Centrum Common
Stock issuable upon exercise of all Options immediately prior to
the Effective Time.
2. Representative.
2.1 Appointment; Acceptance. Andrew W. Verhalen and
his successors are hereby irrevocably constituted and appointed
as attorney-in-fact and agent for each of the Centrum
Securityholders, to act as herein provided, in his/her/its name,
place and stead in connection with the transactions contemplated
by this Agreement (the "Representative"), and such appointment is
coupled with an interest. By executing and delivering this
Agreement under the heading "Representative," Andrew W. Verhalen
and his successors hereby accepts his appointment and
authorization to act as the Representative as attorney-in-fact
and agent on behalf of the Centrum Securityholders in accordance
with the terms of this Agreement and agrees to perform his
obligations hereunder, and otherwise comply with this Section 2
(Representative).
2.2 Authority.
(a) The Centrum Securityholders shall be bound by
all notices received and agreements and determinations made by
and documents executed and delivered by the Representative
pursuant to this Agreement.
(b) The Representative is authorized to take any
and all actions and the make any decisions required or permitted
to be taken by him under this Agreement, including, without
limitation, the exercise of the power to (i) authorize
disposition by or delivery to 3Com of the Escrow Amount and the
loss of rights to exercise Options, or any portion thereof, in
satisfaction of Claims, (ii) agree to, negotiate, enter into
settlements and compromises of, and demand arbitration and comply
with orders of courts and awards of arbitrators with respect to
such Claims, (iii) resolve any Claims, (iv) give instructions to
3Com and the Escrow Agent, (v) agree to extend the term of this
Agreement and the duration of Escrow Account, and (vi) take all
actions necessary in the judgment of the Representative for the
accomplishment of the foregoing and all of the other terms,
conditions and limitations of this Agreement or the Plan.
Accordingly, the Representative has unlimited authority and power
to act on behalf of Centrum and each Centrum Securityholder with
respect to this Agreement or the Plan and the disposition,
settlement or other handling of all Claims, rights or obligations
arising under this Agreement or the Plan. The Centrum
Securityholders will be bound by all actions taken by the
Representative in connection with this Agreement or the Plan and
3Com shall be entitled to rely on any action or decision of the
Representative.
(c) The Representative is authorized and directed
to receive payments, if any, made to the Representative for the
account of the Centrum Shareholders under this Agreement, to
invest such funds pending their disbursement in such manner as
the Representative in his sole discretion deems appropriate; and
to disburse pro rata any payments due the Centrum Shareholders
under this Agreement in accordance with their interest, after
(i) payment of any attorneys' and accountants' and other fees and
expenses incurred on behalf of the Centrum Securityholders in
connection with the consummation of the transactions contemplated
by this Agreement and (ii) withholding such amounts to pay costs
and expenses relating to potential disputes arising with respect
to indemnification or other obligations of the Centrum
Securityholders under this Agreement.
2.3 Actions. The Representative is authorized to act
on behalf of each of the Centrum Securityholders, notwithstanding
any dispute or disagreement among the Centrum Securityholders,
and 3Com and the Escrow Agent and any other person or entity
shall be entitled to rely on any and all actions taken by the
Representative under this Agreement without any liability to, or
obligation to inquire of, any of the Centrum Securityholders.
All notices, counternotices or other instruments or designations
delivered by the Representative shall not be effective unless,
but shall be effective if, signed by the Representative, and if
not, such document shall have no force and effect whatsoever
hereunder and 3Com and any other person or entity may proceed
without regard to any such document. 3Com, the Escrow Agent and
any other person or entity are hereby expressly authorized to
rely on the genuineness of the signature of the Representative,
and upon receipt of any writing which reasonably appears to have
been signed by the Representative, 3Com, the Escrow Agent and any
other person or entity may act upon the same without any further
duty of inquiry as to the genuineness of the writing.
2.4 Effectiveness. The authorizations of the
Representative shall be irrevocable and effective until his
rights and obligations under this Agreement terminate by virtue
of the termination of any and all of the obligations of the
Centrum Shareholders, Centrum and 3Com under this Agreement.
2.5 Liability of Representative. In performing his
functions hereunder and under the Plan, the Representative will
not be liable in any manner whatsoever to the Centrum
Securityholders.
2.6 Successors. At any time during the term of this
Agreement, the Centrum Securityholders who together held a
majority of the Centrum Shares immediately prior to the closing
of the Merger can appoint a new Representative by written consent
by sending notice and a copy of the written consent appointing
such new Representative, duly signed by sufficient Centrum
Securityholders, to 3Com and the Escrow Agent. Such appointment
will be effective upon the later of the date indicated in the
consent or the date such consent is received by 3Com and the
Escrow Agent. If Andrew W. Verhalen ceases to function in his
capacity as Representative for any reason whatsoever, and if for
any reason no successor has been appointed pursuant to the
foregoing within thirty (30) days, then 3Com shall have the right
to petition a court of competent jurisdiction for appointment of
a successor.
2.7 Survival of Authorizations. The authorizations
and agreements in this Section 3 (Deposit of Escrow Amount;
Release from Escrow) shall remain in force and not be affected if
any Centrum Securityholder becomes mentally or physically
disabled or incompetent, and the Representative is hereby
authorized to make such recordings and filings hereof as 3Com or
the Representative may deem appropriate, and no filing of
accounts or inventories or posting of a surety bond shall be
required.
3. Deposit of Escrow Amount; Release from Escrow.
3.1 Delivery of Escrow Amount. Immediately after the
Effective Time, [** ] of the amount of the First
Payment will be delivered by 3Com to the Escrow Agent by check
made payable to the Escrow Account. If any Claims have been made
and remain unresolved at the time the Second Payment becomes
payable, that portion of [** ] of the amount of the
Second Payment necessary to ensure that the Escrow Agent holds a
portion of the Escrow Amount sufficient to cover such Claims in
accordance with Section 5.2 (Contested Claims) below will be
delivered by 3Com to the Escrow Agent by check made payable to
the Escrow Account. The Escrow Account (or portion thereof) will
be held by The First National Bank of Boston (the "Escrow
Agent"), as collateral for the obligations of Centrum and the
Centrum Shareholders under this Agreement, until 3Com is required
to release such amount pursuant to the terms of this Agreement.
The Escrow Agent agrees to accept delivery of the Escrow Amount
(or portion thereof) and to hold such amount in escrow subject to
the terms and conditions of this Agreement.
3.2 Release of Escrow Account and Distribution to the
Centrum Shareholders. The Escrow Amount (or portion thereof)
will be held by the Escrow Agent until the later of [**
] or (b) such time as all Claims for which 3Com
has provided notice to the Representative and Escrow Agent within
such six-month period are resloved. Within 5 business days
thereafter, the Escrow Agent will deliver to each Centrum
Shareholder the amount to be released on such date as identified
by 3Com and the Representative to the Escrow Agent in writing,
together with interest accrued on such released amount. 3Com and
the Representative undertake to deliver a notice to the Escrow
Agent identifying the Escrow Amount (or portion thereof) to be
released within such five-day period. The released amount shall
be released to the respective Centrum Shareholders in proportion
to their respective interests.
3.3 Extension of Escrow Term. Notwithstanding any
other provision in this Agreement to the contrary, and whether or
not any Notice of Claim has been delivered by 3Com, this
Agreement and the duration of the Escrow Account can be extended
on one or more occasions by mutual agreement of 3Com and the
Representative in any manner they deem appropriate to provide
adequate time to cost effectively deal with Claims or
circumstances that create the potential for Claims.
3.4 Investment of Escrow Account. The Escrow Agent
shall invest the Escrow Account as directed in writing by the
Representative (or by 3Com if the Representative does not so
direct) in any of the following:
(a) obligations issued or guaranteed by The
United States of America or any agency or instrumentality
thereof;
(b) certificates of deposit or interest bearing
accounts with national banks or corporations endowed with trust
powers having capital and surplus in excess of $500,000,000;
(c) commercial paper that at the time of
investment is rated A-1 by Standard & Poor's Corporation or
Prime-1 by Moody's Investors Service, Inc.;
(d) repurchase agreements with any bank or
corporation described in clause (ii) fully secured by obligations
described in clause (i); or
(e) the 1784 Institutional U.S. Treasury Money
Market Fund.
3.5 Interest. Accrued interest on the balance of the
escrow amount due the Centrum Shareholders at the expiration of
the escrow period shall be paid to the Centrum Shareholders.
Accrued interest on any amounts delivered to 3Com out of the
Escrow Account in satisfaction of Claims by 3Com shall be paid to
3Com at the time such amount is delivered to 3Com. The parties
hereto and the Centrum Shareholders agree to provide the Escrow
Agent with certified taxpayer identification numbers prior to the
release of any funds from the Escrow Account.
3.6 No Encumbrance. No interest in the Escrow Amount
or any beneficial interest therein may be pledged, sold, assigned
or transferred, including by operation of law, by any Centrum
Shareholder or be taken or reached by any legal or equitable
process in satisfaction of any debt or other liability of a
Centrum Shareholder, prior to the delivery to such Centrum
Shareholder of the released amount by the Escrow Agent.
4. Notice of Claim.
4.1 Each notice of a Claim by 3Com (the "Notice of
Claim") shall be in writing to the Representative and the Escrow
Agent and shall contain the following information to the extent
it is reasonably available to 3Com:
(a) 3Com's good faith estimate of the reasonably
foreseeable maximum amount of the alleged Costs; and
(b) A brief description in reasonable detail of
the facts, circumstances or events giving rise to the alleged
Costs based on 3Com's good faith belief thereof.
4.2 3Com shall provide written notice of any third
party claim which could result in a Notice of Claim promptly
after 3Com becomes aware of such third party claim. 3Com agrees
not to settle such claims without the prior written consent of
Representative, which shall not be unreasonably withheld.
4.3 The Escrow Agent will not release any of the
Escrow Amount held in the Escrow Account to 3Com pursuant to a
Notice of Claim until such Notice of Claim has been resolved in
accordance with Section 5 (Resolution of Notice of Claim) below.
4.4 In the event 3Com receives a claim from a third
party for damages caused by one or more breaches of the
representations and warranties set forth in the Plan, 3Com shall
promptly send a Notice of Claim in accordance with this Section 4
(Notice of Claim) and shall keep the Representative and Escrow
Agent informed of the status of such claim.
5. Resolution of Notice of Claim. Any Notice of Claim
received by Representative and the Escrow Agent pursuant to
Section 4 (Notice of Claim) above will be resolved as follows:
5.1 Uncontested Claims. In the event that the
Representative does not contest a Notice of Claim by delivering a
notice to that effect in writing to the Escrow Agent and 3Com
within 30 calendar days after such Notice of Claim is deemed
delivered pursuant to Section 7 (Notices) below, the Escrow Agent
will immediately deliver to 3Com an amount equal to the amount
specified in the Notice of Claim and notify the Representative of
such transfer.
5.2 Contested Claims. In the event that the
Representative gives written notice contesting all or a portion
of a Notice of Claim to 3Com and the Escrow Agent (a "Contested
Claim") within the 30-day period provided above, the matter will
be settled by binding arbitration in accordance with this
Section 5.2 (Contested Claims). Any portion of the Notice of
Claim which is not contested shall be resolved as set forth above
in Section 5.1 (Uncontested Claims). The final decision of the
arbitrator shall be furnished to the Escrow Agent, the
Representative, and 3Com in writing and will constitute a
conclusive determination of the issue in question, binding upon
Centrum Securityholders, the Representative and 3Com and shall
not be contested by any of them. After notice that the Notice of
Claim is contested by the Representative, the Escrow Agent will
continue to hold in the Escrow Account a portion of the Escrow
Amount sufficient to cover that portion of such Claim for which
the Centrum Shareholders are responsible under Section 1.3
(Allocation of Costs between Shareholders and Options holders)
above until (i) execution of a settlement agreement by 3Com and
the Representative setting forth a resolution of the Notice of
Claim, or (ii) receipt of a copy of the final award of the
arbitrator.
(a) Arbitration. Any Contested Claim shall be
settled by arbitration in Santa Clara, California and, except as
herein specifically stated, in accordance with the commercial
arbitration rules of the American Arbitration Association ("AAA
Rules") then in effect. However, in all events, these
arbitration provisions shall govern over any conflicting rules
which may now or hereafter be contained in the AAA Rules. Any
judgment upon the award rendered by the arbitrator may be entered
in any court having jurisdiction over the subject matter thereof.
The arbitrator shall have the authority to grant any equitable
and legal remedies that would be available in any judicial
proceeding instituted to resolve a Contested Claim.
(b) Compensation of Arbitrator. Any such
arbitration shall be conducted before a single arbitrator who
shall be compensated for his or her services at a rate to be
determined by the parties or by the American Arbitration
Association, but based upon reasonable hourly or daily consulting
rates for the arbitrator in the event the parties are not able to
agree upon his or her rate of compensation.
(c) Selection of Arbitrator. The AAA Rules for
the selection of the arbitrator shall be followed.
(d) Payment of Costs. 3Com and Centrum
Shareholders as a group shall each advance fifty percent (50%) of
the initial compensation to be paid to the arbitrator in any such
arbitration and fifty percent (50%) of the costs of transcripts
and other normal and regular expenses of the arbitration
proceedings; provided, however, that the arbitrator shall have
the discretion to grant to the prevailing party in any
arbitration an award of attorneys' fees and costs, and all costs
of arbitration.
(e) Discovery. The parties shall be entitled to
conduct discovery proceedings in accordance with the provisions
of the Federal Rules of Civil Procedure, subject to any
limitation imposed by the arbitrator.
(f) Burden of Proof. For any claim submitted to
arbitration, the burden of proof shall be as it would be if the
claim were litigated in a judicial proceeding.
(g) Judgment. Upon the conclusion of any
arbitration proceedings hereunder, the arbitrator shall render
findings of fact and conclusions of law and a written opinion
setting forth the basis and reasons for any decision reached by
him or her and shall deliver such documents to each party to the
Agreement along with a signed copy of the award.
(h) Terms of Arbitration. The arbitrator chosen
in accordance with these provisions shall not have the power to
alter, amend or otherwise affect the terms of these arbitration
provisions or the provisions of this Agreement or the Plan.
(i) Exclusive Remedy. Except as specifically
provided in this Agreement or the Plan, arbitration shall be the
sole and exclusive remedy of the parties for any Contested Claim
arising out of such Agreement or Plan.
5.3 No Exhaustion of Remedies. The parties
acknowledge that no other action need be taken by 3Com before
proceeding directly in accordance with the provisions of this
Agreement. 3Com need not exhaust any other remedies that may be
available to it but may proceed directly in accordance with the
provisions of this Agreement. 3Com may institute Claims against
the Escrow Amount and in satisfaction thereof may recover the
Escrow Amount, in accordance with the terms of this Agreement,
without making any other Claims directly against the Centrum
Shareholders and without rescinding or attempting to rescind the
transactions consummated pursuant to the Plan. The assertion of
any single Claim for payment hereunder will not bar 3Com from
asserting other claims hereunder.
6. Limitation of Escrow Agent's Liability.
6.1 The Escrow Agent will incur no liability with
respect to any action taken or suffered by it in reliance upon
any notice, direction, instruction, consent, statement or other
document believed by it to be genuine and duly authorized, nor
for any other action or inaction, except its own willful
misconduct or negligence. The Escrow Agent will not be
responsible for the validity or sufficiency of this Agreement or
any agreement amendatory or supplemental hereto. In all
questions arising under the Agreement, the Escrow Agent may rely
on the advice or opinion of counsel, and for anything done,
omitted or suffered in good faith by the Escrow Agent based on
such advice or opinion, the Escrow Agent will not be liable to
anyone. The Escrow Agent will not be required to take any action
hereunder involving any expense unless the payment of such
expense is made or provided for in a manner satisfactory to it.
6.2 In the event conflicting demands are made or
notices are served upon the Escrow Agent with respect to the
Escrow Account, the Escrow Agent will have the absolute right, at
the Escrow Agent's election, to do either or both of the
following: resign so a successor can be appointed pursuant to
Section 10 (Successor Escrow Agreement) or file a suit in
interpleader and obtain an order from a court of competent
jurisdiction requiring the parties to interplead and litigate in
such court their several claims and rights among themselves. In
the event such interpleader suit is brought, the Escrow Agent
will thereby be fully released and discharged from all further
obligations imposed upon it under this Agreement, and 3Com will
pay the Escrow Agent (subject to reimbursement from the Centrum
Shareholders pursuant to Section 9 (Expenses) hereof) all costs,
expenses and reasonable attorneys' fees expended or incurred by
the Escrow Agent pursuant to the exercise of Escrow Agent's
rights under this Section 6 (Limitation of Escrow Agent's
Liability) (such costs, fees and expenses shall be treated as
extraordinary fees and expenses for the purposes of Section 9
(Expenses) hereof).
6.3 In consideration of its acceptance of the
appointment as Escrow Agent, the other parties hereto, jointly
and severally, agree to indemnify and hold the Escrow Agent
harmless as to any liability incurred by it to any person, firm
or corporation by reason of its having accepted the same or in
carrying out any of the terms hereof, and to reimburse the Escrow
Agent for all its costs and expenses, including, but not limited
to, reasonable counsel fees and expenses, incurred by reason of
any matter as to which an indemnity is paid; provided, however,
that no indemnity need be paid in the case of the Escrow Agent's
negligence or willful misconduct.
7. Notices. Any notice provided for or permitted under
this Agreement will be treated as having been given when
(a) delivered personally, (b) sent by confirmed telex or
telecopy, (c) sent by commercial overnight courier with written
verification of receipt, or (d) mailed postage prepaid by
certified or registered mail, return receipt requested, to the
party to be notified, at the address set forth below, or at such
other place of which the other party has been notified in
accordance with the provisions of Section 14.12 of the Plan.
Centrum: Centrum Communications, Inc.
2835 Zanker Road
San Jose, CA 95134
Tel: 408-894-1800
Fax: 408-
Attention: Mr. Vincent Liu
With copy to: VENTURE LAW GROUP
2800 Sand Hill Road
Menlo Park, CA 94025
Tel: 415-854-4488
Fax: 415-854-1121
Attention: Mark A. Medearis
3Com: 3Com Corporation
5400 Bayfront Plaza
Santa Clara, CA 95052
Attention: General Counsel
With copy to: Gray Cary Ware & Freidenrich
400 Hamilton Avenue
Palo Alto, CA 94301
Attention: J. Howard Clowes
Escrow Agent: The First National Bank of Boston
150 Royall Street, Mail Stop 45-02-15
Canton, MA 02021
Attention: Tracy Martin
Representative: Mr. Andrew W. Verhalen
Matrix Partners
2500 Sand Hill Road, Suite 113
Menlo Park, CA 94025
Such notice will be treated as having been received upon actual
receipt by all necessary parties.
8. General.
8.1 Governing Law, Assigns. This Agreement will be
governed by and construed in accordance with the internal laws of
the State of California without regard to conflict-of-law
principles and will be binding upon, and inure to the benefit of,
the parties hereto and their respective successors and assigns.
8.2 Counterparts. This Agreement may be executed in
two or more counterparts, each of which will be deemed an
original, but all of which together will constitute one and the
same instrument.
8.3 Entire Agreement. Except as set forth in the Plan
and the Agreement of Merger between 3Com and Centrum, this
Agreement constitutes the entire understanding and agreement of
the parties with respect to the subject matter of this Agreement
and supersedes all prior agreements or understandings, written or
oral, between the parties with respect to the subject matter
hereof.
8.4 Waivers. The observance of any term of this
Agreement may be waived (either generally or in a particular
instance and either retroactively or prospectively) only by a
writing signed by the party to be bound thereby. The waiver by a
party of any breach hereof for default in payment of any amount
due hereunder or default in the performance hereof shall not be
deemed to constitute a waiver of any other default or any
succeeding breach or default.
9. Expenses.
9.1 Escrow Agent and Arbitrator. All fees and
expenses of the Escrow Agent incurred in the ordinary course of
performing its responsibilities hereunder will be paid by 3Com
upon receipt of a written invoice by Escrow Agent. Any
extraordinary fees and expenses, including without limitation any
fees or expenses incurred by the Escrow Agent in connection with
a dispute over the distribution of the Escrow Amount or the
validity of a Notice of Claim, will be paid fifty percent (50%)
by 3Com and fifty percent (50%) by Centrum. Centrum' liability
for the fees and expenses of the Escrow Agent or of the
arbitrator appointed under Section 5.2 (Contested Claims) may be
paid by 3Com and recovered as a Claim hereunder out of the Escrow
Amount. If 3Com has paid the Centrum Shareholders' portion of
such fees and expenses as permitted hereunder, then the Escrow
Agent will, upon demand by 3Com, deliver to 3Com a portion of the
Escrow Amount equal to such portion of fees and expenses.
9.2 Representative. The Representative shall not be
entitled to receive any compensation from 3Com or the Centrum
Shareholders in connection with this Agreement. Any fees and
expenses incurred by the Representative in connection with
actions taken pursuant to the terms of this Agreement shall be
paid by 3Com and recovered as a Claim hereunder out of the Escrow
Account.
10. Successor Escrow Agent. In the event the Escrow Agent
becomes unavailable or unwilling to continue in its capacity
herewith, the Escrow Agent may resign and be discharged from its
duties or obligations hereunder by giving resignation to the
parties to this Agreement, specifying not less than sixty (60)
days' prior written notice of such a date when such resignation
will take effect. 3Com shall designate a successor Escrow Agent
prior to the expiration of such 60-day period by giving written
notice to the Escrow Agent and the Representative. 3Com may
appoint a successor Escrow Agent without the consent of the
Centrum Shareholders or the Representative so long as such
successor is a bank with assets of at least $50 million, and may
appoint any other successor Escrow Agent with the consent of the
Representative, which will not be unreasonably withheld. The
Escrow Agent will promptly deliver the portion of the Escrow
Amount remaining in the Escrow Account at such time to such
designated successor.
11. Limitation of Responsibility; Notices. The Escrow
Agent's duties are limited to those set forth in this Agreement
and the Escrow Agent may rely upon the written notices delivered
to the Escrow Agent hereunder.
12. Amendment. This Agreement may be amended with the
written consent of 3Com, the Escrow Agent and the Representative,
provided that if the Escrow Agent does not agree to an amendment
agreed upon by 3Com and the Representative, 3Com shall appoint a
successor Escrow Agent in accordance with Section 10 (Successor
Escrow Agent) above.
13. Miscellaneous. Escrow Agent may execute any of its
powers or responsibilities hereunder and exercise any rights
hereunder either directly or by or through its agents or
attorneys. Nothing in this Escrow Agreement shall be deemed to
impose upon Escrow Agent any duty to qualify to do business or
act as fiduciary or otherwise in any jurisdiction other than The
Commonwealth of Massachusetts.
IN WITNESS WHEREOF, the parties have duly executed this
Agreement as of the day and year first above written and shall be
effective as to all the Centrum Securityholders when executed by
3Com, the Escrow Agent, the Representative and approved by the
Centrum Securityholders holding a majority of the Centrum Shares
outstanding immediately prior to the closing of the Merger.
3COM CORPORATION REPRESENTATIVE:
By: Mark Michael Andrew W. Verhalen
Title: VP, General Counsel & Secretary
CENTRUM COMMUNICATIONS, INC.
By: Andrew W. Verhalen
Title: Chairman
ESCROW AGENT:
THE FIRST NATIONAL BANK OF BOSTON
By: Eric Donaghey
Title: Account Manager
SCHEDULE A
TO INDEMNITY AND ESCROW AGREEMENT
Matters subject to special indemnification:
A. One-half of all Costs, as qualified below, of 3Com or
Centrum due to claims by or disputes with the following
international distributors (the "Distributors") of Centrum:
a. Sumitronics, Inc. and Sumisho Electronics Co., LTD,
arising out of that certain Centrum Communications,
Inc. International Distributor Agreement dated
August 11, 1993, as amended;
b. DynaLab INC. arising out of that certain Centrum
Communications, Inc. Distribution Agreement dated
March 1, 1993, as amended;
c. Netcom Ltd. arising out of that certain Centrum
Communications, Inc. International Distributor
Agreement dated September 1, 1993, as amended.
in light of the following circumstances and mutual
understandings:
1. Notwithstanding the terms of the existing contracts
with the Distributors, 3Com will commence distribution of Centrum
products through normal 3Com international distribution channels,
including those in effect in the territories allocated by Centrum
to the Distributors.
2. 3Com will promptly offer each Distributor the
opportunity, and will use commercially reasonable efforts to
obtain the Distributor's agreement, to terminate its respective
distribution agreement with Centrum and in place thereof to enter
into a new international distribution agreement on 3Com standard
terms appointing the Distributor as a nonexclusive distributor of
the same Centrum products in the same territory now subject to
the distribution agreement with Centrum (but not additional 3Com
products) for a one year term. In the case of
Sumitronics/Sumisho, the appropriate territory is understood to
be Japan; in the case of DynaLab, the appropriate territory is
understood to be Taiwan, Hong Kong, Korea and Mainland China.
3. 3Com will cause the individual employee performance
plan for Ann Zeichner (assuming she agrees to remain an employee
of Centrum or 3Com following the Merger) to include a milestone
relating to the successful transitioning of the Distributors to
nonexclusive, one year status consistent with this Schedule, will
tie a reasonable amount of her incentive compensation package to
such milestone, and will empower her to take an active role in
bringing about a cost-effective transition. The individual
performance plan contemplated by this paragraph is to be
specified within forty days after the Effective Date.
4. 3Com will keep the Representative informed of the
status of discussions with each Distributor, and will not enter
into any settlement with a Distributor or agree to make any
payment that would be subject to indemnification under the
Indemnity and Escrow Agreement without the prior written consent
of the Representative, which consent will not be unreasonably
withheld.
5. 3Com will not be entitled to make any Claim for 3Com's
internal costs incurred in managing the relationship with or
negotiating the transition of the Distributors as contemplated by
this Schedule, nor for any legal or other fees and expenses
incurred in the course of negotiating and documenting a
transition to nonexclusive, one year distributor contracts, but
will be entitled to make a Claim for any payments to a
Distributor or other out-of-pocket costs beyond the foregoing,
and for any Costs (including any legal or other fees) with
respect to any Distributor after such time as the Distributor
makes a written claim for damages or commences a formal dispute.
B. All Costs of 3Com or Centrum due to claims by Ming-Chih
Hsieh with respect to ownership or rights in intellectual
property relating to work product provided by him to Centrum for
which written assignment from him was not obtained at the time of
the Closing.
C. Any Costs subject to indemnification under this Schedule A
shall not be subject to the minimum amounts and threshold set
forth in Section 1.2 (Payment for Indemnification Claims;
Threshold) of the Escrow Agreement.
